Td 8018-td 8146

Section 60500
T.D. 8018
TITLE 26-INTERNAL
REVENUE.-CHAPTER 1,
SUBCHAPTER A, PART 1-INCOME
TAX; TAXABLE YEARS BEGINNING
AFTER DECEMBER 31, 1953; PART
602-0MB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Information Returns with respect to
Energy Grants and Financing
AGENCY: Internal Revenue Service,
Treasury.

ACTION ; Final regulations .
SUMMARY: This document contains
final regulations relating to information
returns with respect to energy grants
and financing . Changes to the applicable tax law were made by section
203(b) of the Crude Oil Windfall Profit
Tax Act of 1980 [Pub . L. 96-223,
1980-3 C.B. l, 31). The final regulations provide rules to be followed by
persons who administer a Federal,
State, or local program a principal pur. pose of which is to provide subsidized
energy financing (as defined in section
23(c)(IO)) or grants for projects designed to conserve or produce energy.
DATES: These final regulations are effective for financing and grants made
after December 31, 1983 .
FOR FURTHER INFORMATION
CONTACT: Beverly A. Baughman of
the Legislation and Regulations Division, Office of the Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue, N .W ., Washington, D .C .
20224
(Attention:
CC :LR :T)
(202-566-3297).
BACKGROUND

This document contains amendments
to the Income Tax Regulations (26
CFR Part I). They are necessary to implement section 203(b) of the Crude Oil
Windfall Profit Tax Act of 1980 which
added section 6050D , relating to information returns with respect to energy
grants and financing, to the Internal
Revenue Code of 1954.
These regulations are issued under
the authority contained in Code sections 6050D and 7805 (94 Stat. 259, 26
U.S.C . 6050D; 6A Stat. 91, 26 U.S .C.
7805) .
On August 2, 1984, the Federal Register published proposed regulations (49

FR 30971) [LR-23-84, 1984-2 C.B.
899] to add a new § l.6050D- I to the
Income Tax Regulations (26 CFR Part
I). One oral comment was received.
There were no requests for a public
hearing . After con side ration of this
comment regarding the proposed
amendments, the proposed amendments
are adopted as revised by this Treasury
decision.
Final § I . 6050D- I provides rules
relating to the information that is required to be furnished on Form 6497
(the information return relating to subsidized energy financing and nontaxable grants for projects designed to
conserve or produce energy) and Form
I 099-G (the information return relating
to taxable grants). Because of the comment received , the final regulations
provide that information is required
only with regard to a taxpayer receiving
subsidized financing or a grant with respect to section 38 property (as defined
in section 48 and the regulations thereunder) or a dwelling unit which is located in the United States. Forms 6497
and 1099-G are required to be filed
with the Internal Revenue Service Center designated in the form's instructions
by the last day of February following
the calendar year for which the return
(reporting payments made during such
calendar year) is required.
The final regulations require that returns be filed for each calendar year beginning after December 31, 1983 .
Forms 6497 and 1099 have been available for filing for prior years. (See Announcement 83-1, 1983-2 I.R .B. 29.)
Although these final regulations do not
so require , in cases where payers and
administrators have adequate records
for 1981, 1982, or 1983, the Service
requests that they file the appropriate
forms for those years.
EXECUTIVE ORDER 12291;
REGULATORY FLEXIBILITY
ACT; AND PAPERWORK
REDUCTION ACT
The Commissioner of Internal Revenue has determined that this final rule
is not a major rule as defined in Executive Order 12291 and that a Regulatory
Impact Analysis is therefore not required. Furthermore, pursuant ot 5
U .S .C. 605(b) the Secretary of the
Treasury has certified that this rule will
not have a significant economic impact

on a substantial number of small entities. A Regulatory Flexibility Analysis
is therefore not required under the Regulatory Flexibility Act (5 U.S.C .
605(b)). The reporting requirements
added by this document have been submitted to the Office of Management
and Budget in accordance with the
Paperwork Reduction Act of 1980.
These requirements have b ee n approved by 0MB under control number
1545-0232 .
DRAFTING INFORMATION

The principal author of these regulations is Beverly A. Baughman of the
Legislation and Regulations Division of
the Office of Chief Counsel, Internal
Revenue Service. However, personnel
from other offices of the Internal Revenue Service and Treasury Department
participated in developing the regulations , both on matters of substance and
style.
*

*

*

*

*

Adoption of amendments to the
regulations.
Accordingly, 26 CFR Parts I and
602 are amended as follows :
Paragraph 1. A new § l.6050D- I is
added immediately after § 1.60508-1 to
read as follows:
§ l .6050D-l Information

returns
relating to energy grants and
financing.

(a) Requirement of reporting. Every
person who administers a Federal,
State, or local program a principal purpose of which is to provide subsidized
energy financing (as defined in section
23(c)(l)(C) and the regulations thereunder) or grants for projects designed to
conserve or produce energy shall make
an information return for each calendar
year beginning December 31, 1983 .
That return shall be made on Form
6497 or, in the case of taxable grants,
on Form I 099-G . (The latter form is
prescribed pursuant to section 65041 as
well as section 6050D.) The return
shall include the following information:
(I) The name , address, and taxpayer
identification number of each taxpayer
receiving financing or a grant made under such program during the calendar
year with respect to either section 38
property (as defined in section 48 and
the regulations thereunder) or a dwell-

1985-1 C.B.

347

Section 60500
ing unit which is located in the United
States;
(2) The aggregate amount of financing and grants received by the taxpayer
under the program during the calendar
year;
(3) In the case of returns for financing or nontaxable grants, the name of
the program under which the financing
or grants are made; and
(4) Any other information that is required by the form.
For purposes of this section, the term
"person" means the officer or employee
having control of the program, or the
person appropriately designated for
purposes of section 6050D and this
section.
(b) Time and place for filing. Returns required to be made under this
section shall be filed with the Internal
Revenue Service Center designated in
the instructions for Form 6497 or
I099-G by the last day of the first February following the calendar year for
whch the return (reporting payments
made during such calendar year) is
required.
Par. 2. Paragraph (c) of §602.10 I is
amended by inserting in the appropriate
place in the table
"§ l.6050D-l(a) ....... 1545-0232".
This treasury decision is issued under
the authority contained in sections
6050D and 7805 of the Internal Revenue Code of 1954 (94 Stat. 259, 26
U.S.C . 6050D; 68A Stat. 917 , 26
U.S.C. 7805).
ROSCOE L. EGGER, JR .,
Commissioner of
Internal Revenue.
Approved March 4, 1985.
A. P EARLMAN,
Assistant Secretary
of the Treasury .

R ONALD

(Fi led by the Office of the Federal Register on
March 28, 1985 , 8:45 a.m., and published in
the issue of the Federal Register for March 29,
1985, 50 F.R. 12531)

Section 6050E.-State and Local
Income Tax Refunds
26 CFR 5f.6050E- l : Reporting of State and local
income tax refunds.
Printing of substitutes for Forms 1096, 1098 ,
1099 , 5498, W-2G, and W-3G. See Rev . Proc.
85-25, page 558.

348

1985-1 C.B.

Section 6050H.-Returns Relating To Attention : CC:LR:T , 202-566-3238
Mortgage Interest Received In Trade Or (not a toll-free call).
Business From Individuals
Printing of substitutes for Forms 1096, 1098,
1099, 5498, W-2G, and W-3G. See Rev . Proc.
85-25, page 558.

Section 60501.-Returns Relating to
Cash Received in Trade or Business
26 CFR 1.6050/(T): Returns relating to cash in
excess of $ 10 ,000 received in a trade or
business.

T.O. 8025
TITLE 26-INTERNAL REVENUE.CHAPTER I, SUBCHAPTER A, PART
!-INCOME TAX; TAXABLE YEARS
BEGINNING AFTER DECEMBER 31,
1953; PART 602-0MB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT

Returns relating to cash in excess of
$10,000 received in a trade or
business
AGENCY: Internal Revenue Service ,
Treasury.
ACTION: Temporary regulations.
SUMMARY : This document contains
temporary regulations relating to the requirement of reporting cash in excess
of $10,000 received in a trade or business. Changes to the applicable law
were made by the Tax Reform Act of
1984 [Pub. L.98-369, 1984-3 C.B.
(Vol. I) I]. The regulations affect any
person who , in the course of a trade or
business in which such person is engaged, receives cash in excess of
$10,000 in I transaction (or 2 or more
related transactions). The regulations
provide these persons with the guidance
necessary to comply with the law. In
addition, the text of the temporary regulations set forth in this document
serves as the text of the proposed
rulemaking in the Proposed Rules section of thi s issue of the FEDERAL
REGISTER .
DATES: The regulations are effective
with respect to cash payments received
after December 31, 1984.
FOR FURTHER INFORMATION
CONTACT: Bru ce H . Juri st of the
Legislation and Regulations Division,
Office of Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue , N.W., Washington, D.C. 202~4,

SUPPLEMENTARY INFORMATION:
BACKGROUND
This document contains temporary
regulations relating to the reporting of
cash in excess of $10,000 received in a
trade or business under section 60501
of the Internal Revenue Code of 1954,
as added by section 146 of the Tax Reform Act of 1984 (98 Stat. 685). The
regulations provide that any person engaged in a trade or business who receives, in the course of that trade or
business, cash in excess of $10,000 in
I transaction (or 2 or more related
transactions) must file an information
return with respect to that transaction.
The regulations also provide that a person who makes an information return
must furnish a statement to each person
identified on the return . The temporary
regulations will remain in effect until
superseded by final regulations on this
subject. The regulations are issued under the authority of sections 60501 and
7805 of the Internal Revenue Code of
1954 (98 Stat. 685, 26 U.S.C. 60501;
68A Stat. 917, 26 U.S.C. 7805) .
EXPLANATION OF PROVISIONS
Section 60501 provides that an information return must be made by any
person engaged in a trade or business
who receives, in the course of that
trade or business , cash in excess of
$10,000 in I transaction (or 2 or more
related transactions) . The return must
be filed with the Service by the 15th
day following the date of receipt of the
reportable cash payment. Any person
required to make an information return
under section 60501 must also furnish a
statement to any person identified on
the return showing the aggregate
amount of reportable cash received
from that person. The statement must
be furnished on or before January 31 of
the year following the calendar year in
which the cash is received.
Section 60501(c)(I )(A) provides that
the reporting requirements of section
60501 will not apply to cash received in
a transaction reported under Title 31 of
the United States Code if the Secretary
determines that reporting under section
60501 would duplicate the reporting to
the Treasury under Title 31. On February 6, 1985 , final regulations effective

child's tax under section 1(i), as a
result of an adjustment to the taxable
income of the child's parents or
another child's net unearned income,
results in additional tax being imposed by section l(i) on the child, is
the child subject to interest and penalties on such additional tax?
A-19. Any additional tax resulting
from an adjustment to the taxable
income of the child's parents or the
net unearned income of another child
shall be treated as an underpayment
of tax and interest shall be imposed
on such underpayment as provided in
section 6601. However, the child
shall not be liable for any penalties
on the underpayment resulting from
additional tax being imposed under
section 1(i) due to such an adjustment.
Example (6) . D and M are the parents of C,
a child under the age of 14. D and M file a
joint return for 1988 and report taxable income of $69,900. C has unearned income of
$3,000 and no itemized deductions for 1988. C
properly reports a total tax liability of $635
for 1988. This amount is the sum of the
allocable parental tax of $560 on C's net
unearned income of $2,000 (the excess of
$3,000 over the sum of $500 standard deduction and the first $500 of taxable unearned
income) plus $75 (the tax imposed on C's first
$500 of taxable unearned income). See A-3 .
One year later, D and M's 1988 tax return is
adjusted on audit by adding an additional
$1,000 of taxable income. No adjustment is
made to the amount reported as C's net
unearned income for 1988. However, the adjustment to D and M's taxable income causes
C's tax liability under section l(i) for 1988 to
be increased by $50 as a result of the phaseout of the 15 percent rate bracket. See A-20.
In addition to this further tax liability, C will
be liable for interest on the $50. However, C
will not have to pay any penalty on the
delinquent amount.

Miscellaneous rules.
Q-20. Does the phase-out of the
parent's 15 percent rate bracket and
personal exemptions under section
l(g), if applicable, have any effect on
the calculation of the allocable parental tax imposed on a child's net
unearned income under section l(i)?
A-20. Yes. Any phase-out of the
parent's 15 percent rate bracket or
personal exemptions under section
l(g) is given full effect in determining
the tax that would be imposed on the
sum of the parent's taxable income
and the total net unearned income of
all children of the parent. Thus, any
additional tax on a child's net unearned income resulting from the
phase-out of the 15 percent rate

Section 23
child so that the child can properly
file his or her return.

bracket and the personal exemptions
is reflected in the tax liability of the
child.
Lawrence B. Gibbs,
Q-21. For purposes of calculating
Commissioner of
a parent's tax liability or the alInternal Revenue.
locable parental tax imposed on a
child, are other phase-outs, limita- Approved August 25, 1987 .
tions, or floors on deductions or
0. Donaldson Chapoton,
credits, such as the phase-out of the
Acting Assistant
$25,000 passive loss allowance for
Secretary of the
rental real estate activities under secTreasury.
tion 469(i)(3) or the 2 percent of AGI
floor on miscellaneous itemized de- (Filed by the Office of the Federal Register on
September 3, 1987 at 8:45 a.m ., and pubductions under section 67, affected
lished in the issue of the Federal Register on
by the addition of a child's net
September 4, 1987, 52 F.R. 33577)
unearned income to the parent's taxable income?
Part IV.-Credits Against Tax
A-21. No. A child's net unearned Subpart A.-Nonrefundable Personal Credits
income is not taken into account in
computing any deduction or credit Section 23.-Residential Energy
for purposes of determining the par- Credit
ent's tax liability or the childs al- 26 CFR 1.23-1: Residential energy credit.
locable parental tax. Thus, for example, although the amounts allowable T.D. 8146
to the parent as a charitable contribution deduction, medical expense TITLE 26-INTERNAL REVENUE.deduction, section 212 deduction, or CHAPTER 1, SUBCHAPTER Aa miscellaneous itemized deduction PART 1.-INCOME TAX; TAXABLE
are affected by the amount of the YEARS BEGINNING AFTER
parent's adjusted gross income, the DECEMBER 31, 1953.-PART
amount of these deductions that is 601.-STATEMENT OF
allowed does not change as a result PROCEDURAL RULES
of the application of section 1(i) Residential Energy Credit
because the amount of the parent's
adjusted gross income does not in- AGENCY: Internal Revenue Service,
clude the child's net unearned in- Treasury.
come. Similarly, the amount of itemized deductions that is allowed to a ACTION: Final regulations.
child does not change as a result of
section 1(i) because section 1(i) only SUMMARY: This document contains
affects the amount of tax liability final regulations under section 23
and not the child's adjusted gross (formerly section 44C) of the Internal
Revenue Code relating to the residen- ·
income.
tial energy credit. ·Changes to the
Q-22. If a child is unable to ob- applicable tax law were made by
tain information concerning the tax sections 20l(a), 202, and 203 of the
return of the child's parents directly Crude Oil Windfall Profit Tax Act
from such parents, how may the of 1980 [Pub.L. 96-223, 1980-3 C.B.
child obtain information from the l, 28]. These regulations provide the
parent's tax return which is necessary public with the guidance needed to
to determine the child's tax liability comply with the law. The document
under section 1(i)?
also amends final regulations under
A-22. Under
section
6IO(e)(l) section 60500, relating to informa(A)(iv), a return of a parent shall, tion returns with respect to energy
upon written request, be open to grants and financing, because the
inspection or disclosure to a child of residential energy credit has expired.
that individual (or the child's legal
representative) to the extent necessary DATES:
to comply with section l(i). Thus, a
EFFECTIVE DATES
child may request the Internal ReveThe redesignations, revisions and
nue Service to disclose sufficient tax
information about the parent to the amendments are effective for taxable

1987-2 C.B.

7

Section 23
years beginning after December 31, 1983, except as follows:
Effective Dates

For expenditures made after April 19,
1977
For expenditures made after April 19,
1977, in taxable years beginning before
January l, 1980
For expenditures made after April 19,
1977, in taxable years beginning before
January 1, 1984
For expenditures made after December
31, 1979

For expenditures made in taxable years
beginning after December 31, 1979
For financing or grants made in taxable years beginning after December
31, 1980
For taxable years beginning after December 31, 1980

For financing and grants with respect
to energy conservation expenditures
and renewable energy source expenditures made after December 31, 1985
The residential energy credit does not
apply to expenditures made after December 31, 1985. However, any unused credit may be carried forward
to taxable years beginning before
January 1, 1988.
SUPPLEMENTARY
INFORMATION:
BACKGROUND

On October 31, 1985, the FEDERAL REGISTER published proposed regulations (50 FR 45423)
[LR-73-80, 1985-2 C.B. 763) to the
Income Tax Regulations (26 CFR
Part 1) under section 23 (formerly
section 44C) of the Internal Revenue
Code of 1954. The amendments were
proposed to conform the regulations
to sections 201(a), 202, and 203 of
the Crude Oil Windfall Profit Tax
Act of 1980 (Pub.L. 96-223, 94 Stat.
256, 258) and section 471 of the Tax
Reform Act of 1984 (Pub.L. 98-369,
98 Stat. 825) [1984-3 C.B. (Vol.1)1).

8

1987-2 C.B.

Addition of the first sentence in new paragraph (d)(3)(i) of §1.44C-1.
Addition of a new paragraph (d)(3)(ii) to §1.44C-1.
Revision of the second sentence in paragraph (d)(2)(i) of § 1.44C-1.
Revision within example (2) in paragraph (h)(4) of §1.44C-3.
Amendments to redesignated paragraph (d)(4)(ii) of §1.44C-1.
Addition of a new sentence at the beginning of the flush material in
paragraph (b)(2) of §1.44C-2.
Amendment to paragraph (d)(4)(iv) of §1.44C-2.
Amendment to the flush material in paragraph (e)(l)(iii) of §1.44C-2.
Amendment to the first sentence of paragraph (e)(2) of §1.44C-2.
Revisions in paragraph (f)(l) of § 1.44C-2.
Revisions and addition within paragraph (f)(4) of §1.44C-2.
Amendments to paragraphs (g) and (h) of §1.44C-2.
Revisions of the heading and text of paragraph U)(l) of §1.44C-3 .
Revision of paragraph (c) of § 1.44C-1.
Addition of a new paragraph (i) to § 1.44C-2.
Revision of paragraph (c) of §1.44C-3.
Redesignation of and within paragraph (d)(3) of § 1.44C-1.
Addition of the second and third sentences in new paragraph (d)(3)(i) of
§1.44C-1.
Amendment to the first sentence of paragraph (e) of §1.44C-l, concerning
the reference to paragraph (d)(3).
Amendments to §1.6050D-1.

A public hearing was held on February 14, 1986. After consideration of
all comments regarding the proposed
amendments, those amendments are
adopted as revised by this Treasury
decision.
In addition, on March 29, 1985,
the FEDERAL REGISTER published
final regulations (50 FR 12531) [T.D.
8018, 1985-1 C.B., 347) to the Income Tax Regulations (26 CFR Part
1) under section 6050D. These regulations are amended because the residential energy credit has expired. It
does not apply to expenditures made
after December 31, 1985.
SUMMARY OR COMMENTS
IN GENERAL
Under section 23 a credit against
Federal income tax is allowed for
"qualified energy conservation expenditures" and "qualified renewable
energy source expenditures."
Section 1.23-1 (c) of the final regulations reflects the statutory increase

of the credit for renewable energy
source expenditures to 40 percent of
up to $10,000 of expenditures, for a
maximum credit of $4,000. Section
1.23-l(d)(3) provides that expenditures financed with subsidized energy
financing or Federal, state or local
nontaxable grants are not taken into
account in computing the credit except to reduce the maximum amount
of allowable expenditures.
Section 1.23-2(b) expands the definition of the term "renewable energy
source expenditures.'' Certain expenditures for an onsite well drilled
for any geothermal deposit are
treated as renewable energy source
expenditures, but only if the taxpayer
has not elected under section 263(c)
to deduct any portion of such expenditures.
Section l .23-2(f) expands the definition of the term "solar energy
property" (a category of "renewable
energy source property") to include
systems that use solar energy to pro-

Section 23

duce electricity. In addition, certain
solar roof panels, although structural
components of the buildings in which
they are installed, are treated as
renewable energy source property.
SUBSIDIZED ENERGY
FINANCING

Section 1.23-2(i)(l) of the final
regulations defines subsidized energy
financing. The definition clarifies
that financing is subsidized if the
interest rate or other terms of the
financing provided to the taxpayer in
connection with a government energy
program or used to raise funds for
the program are more favorable than
the terms generally available commercially. In addition, financing is subsidized if the principal obligation of
the financing provided to the taxpayer is reduced by funds provided
under the program.
In example (5) of § 1.23-2(i)(2), a
taxpayer borrows $3,000 from a bank
in order to purchase a solar water
heating system. The bank uses $500
of the funds it receives under a
Federal program, a principal purpose
of which is to provide subsidized
financing for projects designed to
conserve or produce energy, to reduce the principal obligation of the
loan to the taxpayer to $2,500. The
amount of subsidized energy financing is $3,000.
Many commentators objected to
defining subsidized energy financing
to include more than the amount of
the actual subsidy received from a
government program (i.e., more than
the $500 referred to in example (5) of
§ l .23-2(i)(2)). Another commentator
objected to defining the term to
include more than the amount of
expenditures taken into account for
purposes of determining the amount
of financial assistance disbursed under a government energy program. In
addition, some commentators criticized the retroactive application of
the definition.
The final regulations retain the
definition of subsidized energy financing included in the proposed
regulations because that definition
and its effect are supported by Code
section 23(c)(lO)(C), which was added
to the Code by section 203(a) of the
Windfall Profit Tax Act of 1980
("Act"), and the language contained
in the Conference Report explaining
the section (H.R. Rep. No. 96-817,

96th Cong., 2d. Sess. 121 (1980)
[1980-3 C.B., 245]). Section
23(c)(lO)(C) defines subsidized energy
financing as "financing provided under a Federal, State, or local program a principal purpose of which is
to provide subsidized financing for
projects designed to conserve or produce energy" (emphasis added) .
Thus, the definition refers to financing provided under a government
program, not just the cost to a
government of its subsidy with respect to the financing . In addition,
the Conference Report states on page
121 [1980-3 C.B., 281] that "the
purchaser of the eligible equipment
must choose between the tax credit,
on the one hand, and subsidized
energy loans and nontaxable grants,
on the other hand***. [T]he portion
of the expenditures which is provided
by subsidized energy financing
[$3,000 in example (5)] is not to be
eligible for a tax credit."
The effective date of the definition
of subsidized energy financing contained in the final regulations is for
financing made in taxable years beginning after December 31, 1980.
This is the effective date provided by
section 203(c) of the Act.
In defining subsidized energy financing section 1.23-2(i)(l) provides
that the source from which the funds
for a government energy program are
derived is not a factor to be taken
into account in determining whether
the financing is subsidized . The definition of subsidized energy financing
only requires that subsidized funds be
made available under Federal, State
and local programs. It does not distinguish among revenue sources financing such programs. Thus, below
market loans provided through Federal, State or local government energy programs that are funded with
amounts received from oil overcharge
funds are subsidized energy financing
as illustrated by example (2) in
§1.23-2(i)(2). Several commentators
suggested excluding such loans from
the definition of subsidized energy
financing. The final regulations do
not adopt this suggestion because the
purpose of adding section 23(c)(l0)
to the Code, as stated on page 121 of
the Conference Report, was to prevent a taxpayer from taking both a
tax credit with respect to expenditures made for eligible equipment
and using subsidized energy loans

under a Federal, State or local program to purchase such equipment. If
a taxpayer is allowed a tax credit
with respect to expenditures paid for
with subsidized financing obtained
through a government program the
funds for which are derived from
certain sources and not allowed a tax
credit where the funds are derived
from other sources, the purpose of
section 23(c)(l0) is thwarted.
NON-TAXABLE GRANTS

Section 1.23-1 (i)(2) of the final
regulations states that subsidized energy financing does not include
grants, whether or not includible in
gross income under section 61. One
commentator thought that grants
should be included within the definition of subsidized energy financing
because grants provide taxpayers with
a double benefit in the same manner
as subsidized loans.
Section 23(c)(IO)(C) defines subsidized energy financing as financing
provided under a Federal, State or
local program. The Conference Report under the Act, at page 121,
states that "[g]rants which are taxable are not taken into account under
these rules [relating to subsidized
energy financing] because their taxation serves as a partial offset". However, with respect to non-taxable
grants, section 23(c)(lO)(B)(ii) provides that the dollar limits provided
for in section 23(b )(1) and (2) with
respect to energy conservation property or renewable energy source property, respectively, are reduced by the
amount of any grants not included in
the taxpayer's gross income. Thus,
while non-taxable grants do not constitute subsidized energy financing
they nevertheless are taken into account for purposes of reducing qualified expenditures. See §1.23-l(d)(3)(i)
of the final regulations.
PERFORMANCE AND QUALITY
STANDARDS
The proposed regulations contained
performance and quality standards
for energy-conserving components
and solar energy property. Several
commentators stated that some of the
standards for solar energy property
were unnecessary because they duplicate existing industry standards. In
addition, the energy conservation
property credit expired on December

1987-2 C.B.

9

Section 23

31, 1985. Because those proposed
standards would have applied only
after their publication in the final
regulations, they would serve no useful purpose. Accordingly, the proposed energy conservation property
and the solar property standards are
deleted from the final regulations.
REGULATORY FLEXIBILITY
ACT; EXECUTIVE ORDER 12291;
AND PAPERWORK REDUCTION
ACT OF 1980

The Commissioner of Internal Revenue has determined that this final
rule is not a major rule as defined in
Executive Order 12291 and that a
Regulatory Impact Analysis is therefore not required.
Although a notice of proposed
rulemaking soliciting public; comment
was issued, the Internal Revenue Service concluded when the notice was
issued that the regulations are interpretative and that the notice and
public procedure requirements of 5
U.S.C. 553 do not apply. Accordingly, the final regulations do not
constitute regulations subject to the
Regulatory Flexibility Act (5 U .S.C.
chapter 6). The reporting requirements added by this document have
been submitted to the Office of Management and Budget (0MB) in
accordance with the requirements of
the Paperwork Reduction Act of
1980. The reporting requirements
have been approved by 0MB (control
number 1545-0232).

Proposed amendments to the
regulations
Accordingly, 26 CFR Parts 1, 601
and 602 are amended as follows:
Paragraph 1. The authority for
Part 1 is amended by adding the
following citation:
Authority: 26 U.S.C. 7805. ***
Sections 1.23-1-1.23-6 also issued
under 26 U.S.C. 23.
Par. 2. §1.44C-1 is redesignated as
§1.23-1 and is amended as follows:
1. Paragraph (a) is amendeda. By removing from the first sentence "Section 44C" and adding in
its place the words "Section 23 or
former section 44C",
b. By removing from the third
sentence "§l.44C-3" and adding in
its place "§1.23-3", and
c. By removing from the seventh
sentence "§l.44C-3(h)" and adding
in its place "§ l.23-3(h)".

10

1987-2 C.B.

2. Paragraph (b) is amended by
removing from the last sentence
"§ l.44C-2(a)" and adding in its
place "§ l.23-2(a)".
3. Paragraph (c) is revised to read
as set forth below.
4. Paragraph (d) is amendeda. By removing from the first sentence of paragraph (d)(2)(i)
"§ 1.44C-3(h)" and adding in its
place "§ 1.23-3(h)",
b. By revising the second sentence
of paragraph (d)(2)(i) to read as set
forth below,
c. By removing from the last sentence of paragraph (d)(2)(ii) "§ 1.44C3(h)'' and adding in its place
"§ 1.23(h)",
d. By redesignating paragraph
(d)(3)(i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), (ix), and (x) as paragraph
(d)(4)(ii)(A), (B), (C), (D), (E), (F),
(G), (H), (I), and (J), respectively,

and by inserting a new paragraph
(d)(3) after paragraph (d)(2) to read
as set forth below,
e. By inserting a new paragraph
(d)(4)(i) after new paragraph (d)(3) to
read as set forth below,
f. By removing from the heading
of redesignated paragraph (d)(4)(ii)
the words "Tax Liability Limitation." and adding in their place "For

taxable years beginning before January I, 1984.", and
g. In redisignated paragraph
(d)(4)(ii) introductory text, by removing the first word, "The", and adding in its place the words "For
taxable years beginning before January 1, 1984, the".
5. Paragraph (e) is amendeda. By removing from the heading
the word "Carryover" and adding in
its place the word "Carryforward",
b. By removing from the first sentence "section 44C(b)(5)" and adding
in its place "section 23(b)(5) (or
former section 44C(b)(5))",
c. By removing from the first sentence "paragraph (d)(3)", and adding
in its place "paragraph (d)(4)", and
d. By removing the words "carryover" and "carried over" wherever
they appear and adding in their place
the words "carryforward" and "carried forward", respectively.
§ 1.23-1 Residential energy credit.

ber 31, 1979, the qualified renewable
energy source expenditures are 40
percent of the renewable energy
source expenditures made by the taxpayer during the taxable year (and
before January 1, 1986) with respect
to the dwelling unit that do not
exceed $10,000. In the case of taxable years beginning before January
1, 1980, the qualified renewable energy source expenditures are the renewable energy source expenditures
made by the taxpayer with respect to
the dwelling unit during the taxable
year, but not in excess of(1) 30 percent of the expenditures
up to $2,000, plus
(2) 20 percent of the expenditures
over $2,000, but not more than
$10,000.
See § 1.23-2(b) for the definition of
renewable energy source expenditures.
(d) Limitation. •••
(2) Prior expenditures taken into

account-*(i) In general. ••• In the
case of expenditures made during
taxable years beginning before J anuary 1, 1980, the reduction of the
maximum amount under paragraph
(c) must first be made with respect to
the first $2,000 of expenditures (to
which a 30 percent rate applies) and
then with respect to the next $8,000
of expenditures (to which a 20 percent rate applies). •••

•

•

•

•

•

(3) Effects of grants and subsi-

dized energy financing-(i) In general. Qualified expenditures financed

with Federal, State, or local grants
shall be taken into account for purposes of computing the residential
energy credit only if the amount of
such grants is taxable as gross income to the taxpayer under section
61 (relating to the definition of gross
income) and the regulations thereunder. In the case of taxable years
beginning after December 31, 1980,
qualified expenditures made from
subsidized energy financing (as defined in § l .23-2(i)) shall not be taken
into account (except as provided in
the following sentence) for purposes
of computing the residential energy
credit. In addition, the taxpayer must
reduce the maximum amount of allowable expenditures (reduced as pro• •
vided in paragraph (d)(2) of this
(c) Qualified renewable energy section) with respect to the dwelling
source expenditures. In the case of unit in computing qualified energy
taxable years beginning after Decem- conservation expenditures (under

•

•

•

Section 23
paragraph (b) of this section) or
qualified renewable energy source expenditures (under paragraph (c) of
this section), whichever is appropriate, by an amount equal to the sum
of(A) The amount of expenditures
from subsidized energy financing (as
defined in §1.23-2(i)) that were made
by the taxpayer during the taxable
year or any prior taxable year beginning after December 31, 1980, with
respect to the same dwelling unit,
and
(B) The amount of any funds received by the taxpayer during the
taxable year or any prior taxable year
beginning after December 31, 1980,
as a Federal, State, or local government grant made in taxable years
beginning after December 31, 1980,
that were used to make qualified
expenditures with respect to the same
dwelling unit and that were not included in the gross income of the
taxpayer.
(ii) Example. The provisions of
this paragraph (d)(3) may be illustrated by the following example:
Example. A had in 1979 made a renewable
energy source expenditure of $2,000 in connec-

tion with A's residence for which he took the
then allowed credit of $600. In 1981 A made
additional renewable energy source expenditures of $9,000 with respect to which he
received a loan of $5,000 from the Federal
Solar-Energy and Energy Conservation Ba;nk.
Assume that the loan is subsidized energy
financing. A computes the credit as follows:
The initial maximum allowable dollar limit is
$10,000 which is reduced by the sum of the
prior year expenditures of $2,000 and the
subsidized energy financing loan of $5,000
leaving a dollar limit of $3,000 ($10,000($2,000 + 5,000)). The $5,000 portion of the
$9,000 funded by the subsidized energy financing loan is not allowed as a renewable energy
source expenditure. The remaining expenditures in 1981 are $4,000 ($9,000-$5,000).
However, this amount exceeds the allowed
maximum dollar limit of $3,000. Therefore,
A's creditable expenses for 1981 are only
$3,000 on which the credit is $1,200 (40
percent of $3,000).

(4) Tax liability limitation-(i) For
taxable years beginning after December 31, 1983. For taxable years beginning after December 31, 1983, the
credit allowed by this section shall
not exceed the amount of tax imposed by chapter 1 of the Internal
Revenue Code of 1954 for the taxable year, reduced by the sum of
credits allowable under(A) Section 21 (relating to expenses
for household and dependent care

services necessary for gainful employment),
(B) Section 22 (relating to credit
for the elderly and the permanently
and totally disabled), and
(C) Section 24 (relating to contributions to candidates for public office).
See section 26(b) and (c) for certain
taxes that are not treated as imposed
by chapter 1.
*

*

*

*

*

Par. 3. Section 1.44C-2 is
redesignated as § 1.23-2 and is
amended as follows:
1. In the introductory text, the
language "section 44C" is removed
and the language "section 23 or
former secton 44C" is added in its
place.
2. Paragraph (a) thereof is
amendeda. By removing from the last sentence of paragraph (a)( 1 )(i)
"§1.44C-3(e)" and adding in its
place "§ l.23-3(e)", and
b. By removing from the second
sentence of paragraph (a)(l )(iii)
"§1.44C-3(f)" and adding in its
place "§ l.23-3(f)".
3. Paragraph (b) is amended~
a. By removing from the last sentence of paragraph (b)(l)
"§ l.44C-3(e)" and adding in its
palce "§ l.23-3(e)", and
b. By adding a new sentence as
flush material immediately before the
flush material that follows paragraph
(b )(2), to read as set forth below.
4. Paragraph (c)(4) is amended by
removing from the first sentence
"§l.44C-4" and adding in its place
"§1.23-4".
5. Paragraph (d) is amendeda. By removing from paragraph
(d)(3) "§ l.44C-4" and adding in its
place "§ 1.23-4",
b. By removing from the first sentence of paragraph (d)(4)(iv) the
word "include" and adding in its
place the word "mean", and
c. By removing from the last sentence of paragraph (d)(4)(viii)
"§l.44C-6" and adding in its place
"§1.23-6".
6. Paragraph (e) is amendeda. By removing from paragraph
(e)(l)(iii) "§ l.44C-4" and adding in
its place "§ 1.23-4",
b. By removing the first sentence
from the flush material immediately
following paragraph (e)(l)(iii) and
adding in its place a new sentence to

read as set forth below.
c. By removing "§ l.44C-3(l)"
from the last sentence in the flush
material following paragraph
(e)(l)(iii) and adding in its place
"§ 1.23-3(1)",
d. By adding in paragraph (e)(2)
the words "or (in the case of expenditures made after December 31,
1979) electricity" immediately following the words "or providing hot
water" in the first sentence, and
e. By removing from the last sentence of paragraph (e)(2) "§ l.44C-6"
and adding in its place "§1.23-6".
7. Paragraph (f) is amendeda. By revising the first and third
sentences of paragraph (f)(l) to read
as set forth below,
b. By revising the third sentence of
paragraph (f)(4) and adding two new
sentences immediately after that sentence, to read as set forth below.
8. Paragraph (g) is amended by
removing from the beginning of the
first sentence the word "includes"
and adding in its place the word
"means".
9. Paragraph (h) is amended by
removing from the first sentence the
word "includes" and adding in its
place the word "means" and by
adding a new sentence immediately
after the first sentence to read as set
forth below.
10. A new paragraph (i) is added
immediately after paragraph (h) to
read as set forth below.
§1.23-2 Definitions.
*

*

*

*

*

(b) Renewable

energy source
expenditures.*** Additionally, the
term "renewable energy source expenditures" includes expenditures
made after December 31, 1979, and
before January 1, 1986, for an onsite
well drilled for any geothermal deposit (as defined in paragraph (h)),
or for labor costs properly allocable
to onsite preparation, assembly, or
original installation of such well, but
only if the requirements of paragraph
(b)(l) and (2) of this section are met
and the taxpayer has not elected
under section 263(c) to deduct any
portion of such expenditures or allocable labor costs.***
*
*
*
*
*
(e) Renewable energy source property-(1) In general.***
(iii)***

1987-2 C.B.

11

Section 23

Renewable energy source property
does not include heating or cooling
systems, nor systems to provide hot
water or electricity, which serve to
supplement renewable energy source
equipment in heating, cooling, or
providing hot water or electricity to a
dwelling unit, and which employ a
form of energy (such as oil or gas)
other than solar, wind, or geothermal
energy (or other forms of renewable
energy provided in paragraph (e)(2)
of this section).***
(f) Solar energy property-(l) In
general. The term "solar energy
property" means equipment and materials of a solar energy system as
defined in this paragraph (and parts
solely related to the functioning of
such equipment) which, when installed in connection with a dwelling,
transmits or uses solar energy to heat
or cool the dwelling or to provide
hot water or (in the case of expenditures made after December 31, 1979)
electricity for use within the dwelling.
***Property which uses, as an energy
source, fuel or energy which is indirectly derived from sunlight (solar
radiation), such as fossil fuel or
wood or heat in underground water,
is not considered solar energy
property.***
*
*
*
*
*
(4) Components with dual
functions. ***For example, roof
ponds that form part of a roof
(including additional structural components to support the roof), windows (including clerestories and skylights) and greenhouses do not
qualify as solar energy property.
However, with respect to expenditures made after December 31, 1979,
a solar collector panel installed as a
roof or portion thereof (including
additional structural components to
support the roof attributable to the
collector) does not fail to qualify as
solar energy property solely because
it constitutes a structural component
of the dwelling on which it is installed. For this purpose, the term
"solar collector panel" does not mclude a skylight or other type of
window.***
*
*
*
*
*
(h) Geothermal
energy property. ***With respect to expenditures
made after December 31, 1979, the
term "geothermal energy property"
also means equipment (and parts
solely related to the functioning of

12

1987-2 C.B.

such equipment) necessary to transmit or use energy from a geothermal
deposit to produce electricity for use
within the dwelling.***
(i) Subsidized energy financing(l) In general. The term "subsidized
energy financing" means financing
(e.g., a loan) made directly or indirectly (such as in association with, or
through the facilities of, a bank or
other lender) during a taxable year
beginning after December 31, 1980,
under a Federal, State, or local program, a principal purpose of which is
to provide subsidized financing for
projects designed to conserve or produce energy. For purposes of this
paragraph (i), financing is made
when funds that constitute subsidized
energy financing are disbursed. Subsidized energy financing includes financing under a Federal, State, or
local program having two or more
principal purposes (provided that at
least one of the principal purposes is
to provide subsidized financing for
projects designed to conserve or produce energy), but only to the extent
that the financing(i) Is to be used for energy production or conservation purposes, or
(ii) Is provided out of funds designated specifically for energy production or conservation. Loan proceeds
meet the use test of paragraph
(i)(l)(i) of this section only to the
extent that the loan application, the
loan instrument, or any other loanrelated documents indicate that the
funds are intended for such use.
However, loan proceeds designated
for the purchase either of property
that contains "insulation" or any
"other energy-conserving component" or of "renewable energy
source property" as defined in paragraphs (c), (d), and (e), respectively,
of this section meet the test of
paragraph (i)(l)(i) of this section.
Financing is subsidized if the interest
rate or other terms of the financing
(including any special tax treatment)
provided to the taxpayer in connection with the program or used to
raise funds for the program are more
favorable than the terms generally
available commercially. In addition,
financing is subsidized if the principal obligation of the financing provided to the taxpayer is reduced by
funds provided under the program.
The source from which the funds for
the program are derived is not a

factor to be taken into account in
determining whether the financing is
subsidized. If a public utility disburses funds for the financing of
energy conservation or renewable energy source property under a program that obtains the funds through
sales to the utility's ratepayers, the
program is not considered to be a
Federal, State or local program even
though the utility is a governmental
agency, and, thus, the funds are not
subsidized energy financing. Subsidized energy financing does not include a grant includible in gross
income under section 61, nontaxable
grants, a credit against State or local
taxes made directly to the taxpayer
claiming the credit provided for in
section 23, or a loan guarantee made
directly to the taxpayer claiming the
credit provided for in section 23.
(2) Examples. The provisions of
this paragraph (i) may be illustrated
by the following examples:
Example (1) . State A has a farm and home
loan program . The program is used to provide
low interest mortgage loans . In 1984 State A's
legislature enacted statutory amendments to its
farm and home loan program in an effort to
encourage energy-conservation-type measures.
Low interest loans for such improvements were
made available to qualified purchasers and
owners under the farm and home loan program. The energy conservation measures subsidized by the program include energy conserving components and renewable energy source
devices. State A's tax exempt bonds are the
source of funds for loans under the program.
Although the 1984 legislation authorizing loans
for energy conserving components and renewable energy source improvements did not diminish the original purpose of the farm and
home loan program, the 1984 legislation added
another principal purpose to the program.
Therefore, State A's program which has two
principal purposes, one of which is the conservation or production of energy, is considered
as providing subsidized energy financing for
purposes of section 23(c)(IO) of the Code, to
the extent that financing is provided by State
A out of funds designated specifically for
energy production or conservation. State A's
program will also be considered as providing
subsidized energy financing to the extent that
the loan proceeds are to be used for energy
production or conservation purposes. Loan
proceeds meet the use test of the preceding
sentence only to the extent that the loan
application, the loan instruments, or any other
loan-related documents indicate that the funds
are intended for such use.
Example (2) . The United States Department
of Energy disburses funds to State B that the
Department received from settlements from
alleged petroleum pricing and allocation violations. State B establishes a program under
which B will use the funds to make loans at
below market interest rates directly to qualified
applicants for the purchase of renewable energy source property. B's loans are subsidized
energy financing.

Section 23
Example (3). State C establishes a program

f

~

l

l

e

r

l

e

f
i

e

e
s
s

0

e

d

t-

i-

e

e

,.
,d
d
I.

0

d

,r
0

e
1r

·s
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g

n
:r

Is
lt

e
n
l-

!r

It

d
l-

d

under which C will make loans at below
market interest rates directly to qualified applicants for the purchase of renewable energy
source property. The program is funded with
money that State C was able to borrow after it
obtained a loan guarantee from a Federal
agency . C's loans provided under the program
are subsidized energy financing.
Example (4) . Company D is an electric
utility that is a federal agency. D purchases its
electricity from another federal agency, transmits the electricity over its own distribution
system, and sells the electricity to numerous
local public utilities that in turn sell the
electricity to their customers. D wishes to start
a program under which D will make loans at
below market interest rates directly to customers of the local utilities for the purchase of
renewable energy source property from D. The
local public utility will act as the collection
agent for repayment of the loans. The loans
will be repayable over a period of time not in
excess of 15 years. Under law, D must cover
its full costs through its own revenues derived
from the sale of power and other services.
While D may borrow for sale of bonds to the
United States Treasury, D must borrow at
rates comparable to the rates prevailing in the
market for similar bonds. Thus, the subsidized
loans made under D's program will be financed by the profits from the sale of electricity to consumers and not by the federal
government. D's program, which is substantially the same as that carried out by private
(investor-owned) utilities, is not considered to
be a Federal, State or local governmental
program. Therefore, D's loans are not subsidized energy financing.
Example (5). The Solar Energy and Energy
Conservation Bank (Bank) disburses funds to
State E. E disburses a portion of the funds to
Financial Institution F. Both the Bank and
State E make these disbursements under a
program the principal purpose of which is to
provide subsidized financing for projects designed to conserve or produce energy. F uses
the funds to reduce a portion of the principal
obligation on loans it issues to finance energy
conservation or solar energy expenditures . Taxpayer G borrows $3,000 from F in order to
purchase a solar water heating system. F uses
$500 of the funds it received from the Bank to
reduce the principal obligation of the loan to
G to $2,500. The amount of subsidized energy
financing to G is $3,000.
Example (6). State H allows a tax credit to
Financial Institution J under a program the
principal purpose of which is to provide loans
at below market interest rates directly to
qualified applicants for the purchase of renewable energy source property. J receives a credit
each year in the amount of the excess of the
interest that would have been paid at private
market rates over the actual interest paid on
such loans. The State H tax credit arrangement is an interest subsidy. Thus, any lowinterest loans made pursuant to this credit
arrangements are subsidized energy financing.

Par. 4. Section 1.44C-3 is redesignated as § 1.23-3 and is amended as
follows:
1. Paragraph (a)(l) is amended by
removing from the first sentence
"section 44C" and adding in its

place "section 23 or former section paragraph (i) of §1.23-2.
44C".
*
*
*
*
*
2. Paragraph (b) is amended by
(h) Joint occupancy.***
removing "section 44C" in the first
(4) ***
and second sentences and adding in
Example (2). In 1978, spouses C and D
place thereof ''section 23 or former make $10,000 of renewable energy source
section 44C''.
expenditures with respect to their principal
3. The heading and text of para- residence, half of which is paid by each
graph (c) are revised to read as set spouse.•••
*
*
*
forth below.
*
*
4. Paragraph (d) is amended by
G) Joint ownership of energy conremoving '' § l. 44C-2(a)'', servation property or renewable en"§1.44C-2(b)", "§l.44C-l(b)", and ergy source property-(!) In general.
"§1.44C-l(c)" and adding in their Energy conservation property and replaces "§ 1.23-2(a)", "§ 1.23-2(b)", newable energy source property in"§1.23-l(b)" and "§1.23-l(c)", re- clude property which is jointly owned
spectively.
by the taxpayer and another person
5. Paragraph (e) is amended by (or persons) and installed in connecremoving from the first sentence tion with two or more dwelling units.
"section 44C" and adding in its For example, the fact that a windplace "section 23 or former section mill, solar collector, or geothermal
44C".
well and distribution system is owned
6. Paragraph (h) is amendedby two or more individuals does not
a. By removing from the first sen- preclude its qualification as renewtence of paragraph (h)(l)(i) and (ii) able energy source property. The
"section 44C" and adding in place amount of the credit allowable under
thereof "section 23 or former section section 23 shall be computed sepa44C",
rately with respect to the amount of
b. By removing from paragraph the expenditures made by each indi(h)(2) "section 44C" and adding in vidual, subject to the limitations of
its place "section 23 or former sec- $2,000 imposed by section 23(b)(l)
tion 44C'',
and $10,000 imposed by section
c. By removing from paragraph
23(b)(2), per dwelling unit of jointly
(h)(2) "§ 1.44C- l" and adding in its
owned
property. For example, in
place "§ 1.23-1 ",
1982,
A,
B, and C purchased as joint
d. By removing from the second
owners
renewable energy source
sentence of paragraph (h)(3) "section
property
that serviced two houses.
44C" and adding in its place "secof
the
houses is jointly owned
One
tion 23 or former section 44C",
e. By revising the first sentence of and occupied by A and B and the
example (2) in paragraph (h)(4) to other is owned and occupied by C
alone. The renewable energy source
read as set forth below.
property cost $30,000 of which A
7. Paragraph U) is amendeda. By revising the heading and text paid $9,000, B paid $6,000, and C
of paragraph U)(l) to read as set paid $15,000. A and B must share
forth below, and
the $4,000 credit (40% of $10,000
b. By removing from the last sen- maximum) with respect to the expentence of the example in paragraph ditures for the jointly owned house.
(j)(2) "§1.44C-l(d)(l)" and Therefore, A is allowed a $2,400
"§1.44C-l(d)(2)" and adding in their credit ($
$9,000
)
4 000 x
places "§1.23-l(d)(l)" and
'
$9,000 + $6,000
"§1.23-l(d)(2)", respectively.
and B is allowed a $1,600 credit
8. Paragraph (k) introductory text
($ 4 OOO X
$6,000
)
is amended by removing "section
'
$9,000 + $6,000 with re44C" and adding in its place "sec- spect to the expenditures attributable
tion 23 or former section 44C".
to the jointly owned house. C is
§ 1.23-3 Special rules.
entitled to a credit of $4,000 with
*
*
*
*
respect to the expenditures attribut*
(c) Cross reference. For rules relat- able to the other house.
*
ing to expenditures financed with
*
*
*
*
Par. 5. Section 1.44C-4 is
Federal, State, or local government
grants or subsidized financing see redesignated § 1.23-4.
paragraph (d)(3) of §1.23-1 and
Par. 6. Section 1.44C-5 is

1987-2 C.B.

13

Section 23
redesignated as § 1.23-5 and is 23 or former section 44C (relating to
residential energy credit), basis shall
amended as follows:
be adjusted as provided in paragraph
l. Paragraph (a) is amendeda. By removing from paragraph (k) of §1.23-3.
(a)(l) "§l.44C-2(c)(l)" and adding
Par. 9. Section l. 6050D- l is
in its place "§l.23-2(c)(l)",
amended as follows:
b. By removing from paragraph
1. Paragraph (a) introductory text
(a)(2) "section 44C(c)(4)" and adding is amended by adding a new sentence
in its place "section 23(c)(4) or immediately following the first senformer section 44C(c)(4)",
tence to read as set forth below.
c. By removing from paragraph
2. Paragraph (a)(l) is amended by
(a)(2) "§1.44C-2(D)(4)" and adding removing the words "(as defined in
in its place "§1.23-2(d)(4)",
section 48 and the regulations thered. By removing from paragraph under) or a dwelling unit which" and
(a)(3) "§ 1.44C-2(f)", "l.44C-2(g)" adding in their place the words "or,
and "§ l.44C-2(h)" and adding in in the case of financing or a grant
their places "§l.23-2(f)",
for energy conservation expenditures
"§ l.23-2(g)", and "§ l.23-2(h)", re- or renewable energy source expendispectively,
tures made by the taxpayer before
e. By removing from paragraph January 1, 1986, a dwelling unit
(a)(4) "§l.44C-2" and adding in its that".
place "§ 1.23-2", and
§ 1. 6050D- l Information returns ref. By removing from paragraph lating to energy grants and financing .
(a)(5) "§ l.44C-2" and adding in its
(a) Requirement of reporting.***
place "§ 1.23-2".
.
However, the preceding sentence shall
2. Paragraph (b)(l) is amended by not apply if none of the financing
removing from the first sentence the and grants provided under such prowords '' Assistant Com.missioner gram during the calendar year relate
(Technical), T:C:E, 1111 Constitution either to expenditures described in
A venue, N. W., ' ' and adding in their section 23(c)(l) or (2), relating to the
place the words '' Associate Chief residential energy credit, made by a
Counsel (Technical), CC:C :E, 1111
taxpayer before January 1, 1986,
Constitution Avenue, N. W.,'' .
with respect to a dwelling unit or to
. 3. Paragraph (c) is amendedsection 38 property (as defined in
a. By removing from the third section 48 and the regulations
sentence "§1.44C-2" and adding in thereunder).***
its place "§ 1.23-2", and
*
*
*
*
b. By removing from the last sen*
tence "§ l.44C-4" anct adding in its
place "§ 1.23-4".
STATEMENT OF PROCEDURAL
Par. 7. Section l.44C-6 is
RULES
redesignated as § 1.23-6 and is
(26 CFR Part 601)
amended as follows:
Par. 10. The authority citation for
1. Paragraph (a)(l) is amended by
removing from the first sentence Part 601 continues to read as fol"§1.44C-2" and adding in its place lows:
Authority: 26 U.S.C. 7805.
"§ 1.23-2".
Par. 11. Paragraph (c) of §601.601
2. Paragraph (e) is amendedis
amended by revising the last sena. By removing from the first sentence "§ l.44C- l" and adding in its tence to read as follows:
§601.601 Rules and regulations.
place "§ 1.23-1", and
b. By removing from the third
*
*
*
*
*
sentence "§1.44C-4" and adding in
(c) Petition to change rules.***
its place "§ 1.23-4". · ·
Par. 8. Paragraph (t) of §1.1016-5 However, in the case of petitions to
amend the regulations pursuant to
is revised to read as follows:
§1.1016-5 Miscellaneous adjustments subsection (c)(4)(A)(viii) or (5)(A)(i)
of section 23 or former section 44C,
to basis.
follow the procedure outlined in
*
*
*
*
*
paragraph (a) of §1.23-6.
(t) Section 23 credit. In the case of
property with respect to which a
*
*
*
*
*
credit has been allowed under section
14

1987 -2 C.B.

0MB CONTROL
NUMBERS UNDER THE
PAPERWORK
REDUCTION ACT
(26 CFR Part 602)
Par. 10. The authority for Part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 11. Paragraph (c) of §602.101
is amended by inserting in the appropriate place in the table
"§ l.6050D-l. .. 1545-0232" .
Lawrence B. Gibbs,

Commissioner of
Internal Revenue.
Approved May 15, 1987.

J. Roger Mantz,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
July 15, 1987, at 8:45 a.m., and published
in the issue of the Federal Register for July
16, 1987, 52 F .R. 26667)

Subpart C.-Refundable Credits

Section 32.-Earned Income
26 CFR 1.32-IT: Temporary regulations; questions and answers concerning the employer's
notification requirements.

T.D. 8142
TITLE 26.-INTERNAL REVENUE
CHAPTER 1.-SUBCHAPTER A,
PART !-INCOME TAX; TAXABLE
YEARS BEGINNING AFTER
DECEMBER 31, 1953

Notice to Employees of Earned
Income Credit
AGENCY: Internal Revenue Service,
Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations relating to the
procedures necessary to implement
the statutory requirement that employers notify certain employees
whose wages are not subject to income tax withholding that they may
be eligible for the refundable earned
income credit. These temporary regulations provide guidance to the employers that are required to comply
with those notification procedures.
The text of the temporary regulations
set forth in this document also serves
as the text of the proposed regula-