Bulletin No. 2006-46November 13, 2006

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2006–58, page 876.Charitable remainder trust; real estate investment trust(REIT). This ruling illustrates the application of section 860E ofthe Code where a charitable remainder trust is a shareholderof a real estate investment trust (REIT) or a partner of a part-nership, and the REIT or the partnership has excess inclusionincome.

T.D. 9287, page 896.Final regulations under section 7702 of the Code explain howto determine the attained age of an insured for purposes oftesting whether a contract qualifies as a life insurance contractfor federal income tax purposes.

T.D. 9290, page 879.Final regulations under section 6320 of the Code relate to ataxpayer’s right to a hearing after the filing of a notice of federaltax lien (NFTL). The regulations make certain clarifying changesin the way collection due process hearings are conducted andspecify the period during which a taxpayer may request anequivalent hearing.

T.D. 9291, page 887.Final regulations under section 6330 of the Code relate to ataxpayer’s right to a hearing before or after levy. The regula-tions make certain clarifying changes in the way collection dueprocess hearings are conducted and specify the period duringwhich a taxpayer may request an equivalent hearing.

Notice 2006–96, page 902.This notice provides transitional guidance on the new defini-tions of “qualified appraisal” and “qualified appraiser” in sec-tion 170(f)(11) of the Code for purposes of substantiating de-ductions for charitable contributions of property. The noticealso provides guidance on complying with new section 6695A,regarding penalties for appraisals that result in substantial orgross valuation misstatements under section 6662.

Notice 2006–97, page 904.This notice provides interim guidance (and requests commentsand suggestions for further guidance) under sections 860E(d)and 7701(i)(3) of the Code, relating to the taxation and report-ing of excess inclusion income of pass-through entities, includ-ing real estate investment trusts (REITs) that own taxable mort-gage pools or residual interests in real estate mortgage invest-ment conduits (REMICs).

Notice 2006–99, page 907.This notice provides guidance on withholding and informationreporting on foreign persons and includes guidance on certainbook-entry systems in foreign countries. It also announces thatthe IRS and Treasury intend to issue regulations providing thatregulations section 1.871–14(e), dealing with foreign targetedregistered obligations, will not apply to obligations issued afterDecember 31, 2006, except in limited circumstances. Finally,this notice announces that the IRS and Treasury intend to issueregulations retroactively removing the rule in regulations sec-tion 1.1441–1(b)(7)(iii) that purports to impose interest undersection 6601 when no underlying tax liability has in fact beenimposed.

(Continued on the next page)

Finding Lists begin on page ii.

Announcement 2006–88, page 910.This announcement is a ministerial update to Notice 2006–27,2006–11 I.R.B. 626, and Notice 2006–28, 2006–11 I.R.B.628, and announces that taxpayers may use either RESNETPublication No. 05–001 or RESNET Publication No. 06–001 todetermine whether a dwelling unit qualifies for the new energyefficient home credit. This announcement also provides for de-velopers of software to submit applications to be included on apublic list of software programs that may be used in calculatingenergy consumption for purposes of obtaining a section 45Lcertification by using standards prescribed in either RESNETpublication. This change is effective for new energy efficienthomes acquired after December 31, 2005. Notices 2006–27and 2006–28 modified.

EMPLOYEE PLANS

Notice 2006–98, page 906.2007 cost-of-living adjustments; retirement plans, etc.This notice sets forth certain cost-of-living adjustments effec-tive January 1, 2007, applicable to the dollar limits on benefitsunder qualified defined benefit pension plans and to other provi-sions affecting (1) certain plans of deferred compensation and(2) “control employees.” This notice restates the data in NewsRelease IR–2006–162 issued October 18, 2006.

EXEMPT ORGANIZATIONS

Rev. Rul. 2006–58, page 876.Charitable remainder trust; real estate investment trust(REIT). This ruling illustrates the application of section 860E ofthe Code where a charitable remainder trust is a shareholderof a real estate investment trust (REIT) or a partner of a part-nership, and the REIT or the partnership has excess inclusionincome.

Notice 2006–97, page 904.This notice provides interim guidance (and requests commentsand suggestions for further guidance) under sections 860E(d)and 7701(i)(3) of the Code, relating to the taxation and report-ing of excess inclusion income of pass-through entities, includ-ing real estate investment trusts (REITs) that own taxable mort-gage pools or residual interests in real estate mortgage invest-ment conduits (REMICs).

EMPLOYMENT TAX

Rev. Rul. 2006–56, page 874.Excess per diem allowances. This ruling provides thatwhere an expense allowance arrangement has no mechanismor process to track allowances paid and routinely pays perdiem allowances in excess of the federal per diem rateswithout requiring actual substantiation of all the expenses orrepayment of the excess amount, all payments made under thearrangement will be treated as made under a nonaccountableplan.

Notice 2006–102, page 909.2007 social security contribution and benefit base; do-mestic employee coverage threshold. The Commissionerof the Social Security Administration has announced (1) theOASDI contribution and benefit base for remuneration paid in2007 and self-employment income earned in taxable yearsbeginning in 2007, and (2) the domestic employee coveragethreshold amount for 2007.

ADMINISTRATIVE

T.D. 9290, page 879.Final regulations under section 6320 of the Code relate to ataxpayer’s right to a hearing after the filing of a notice of federaltax lien (NFTL). The regulations make certain clarifying changesin the way collection due process hearings are conducted andspecify the period during which a taxpayer may request anequivalent hearing.

T.D. 9291, page 887.Final regulations under section 6330 of the Code relate to ataxpayer’s right to a hearing before or after levy. The regula-tions make certain clarifying changes in the way collection dueprocess hearings are conducted and specify the period duringwhich a taxpayer may request an equivalent hearing.

November 13, 2006 2006–46 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helpingthem understand and meet their tax responsibilities and by

applying the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Sec-retary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2006–46 I.R.B. November 13, 2006

Place missing child here.

November 13, 2006 2006–46 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 62(c).—CertainArrangements Not Treatedas ReimbursementArrangements26 CFR 1.62–2(k): Reimbursements and otherexpense allowance arrangements: Anti-abuse provi-sion.

Excess per diem allowances. This rul-ing provides that where an expense al-lowance arrangement has no mechanismor process to track allowances paid androutinely pays per diem allowances in ex-cess of the federal per diem rates with-out requiring actual substantiation of allthe expenses or repayment of the excessamount, all payments made under the ar-rangement will be treated as made under anonaccountable plan.

Rev. Rul. 2006–56

ISSUE

Whether, under an expense allowancearrangement which has no mechanism orprocess to determine when an allowanceexceeds the amount that may be deemedsubstantiated and which routinely pays al-lowances in excess of the amount that maybe deemed substantiated without requiringactual substantiation of all expenses or re-payment of the excess amount, the failureto treat the excess allowances as wages foremployment tax purposes causes all pay-ments made under the expense allowancearrangement to be treated as made under anonaccountable plan.

FACTS

Taxpayer is an employer of long-haultruck drivers in the transportation industry.Taxpayer uses a monthly payroll periodand compensates its drivers for their ser-vices on a mileage basis. For 2006, Tax-payer pays its drivers compensation of Xcents-per-mile driven during each month.Taxpayer reports the compensation on thedrivers’ Forms W–2 and treats the com-pensation as wages for Federal InsuranceContributions Act (FICA) tax, FederalUnemployment Tax Act (FUTA) tax, andFederal income tax withholding purposes(collectively, “employment taxes”).

Taxpayer also reimburses its driversfor meal and incidental expenses (M&IE)paid or incurred while traveling away fromhome during the monthly payroll period.Taxpayer reimburses its drivers for theseexpenses through an allowance for eachday the driver is away from home for Tax-payer’s business. For 2006, the allowanceis Y cents-per-mile driven. Taxpayer’s in-dustry commonly used this cents-per-miledriven method before December 12, 1989.

Taxpayer establishes the Y cents-per-mile rate based on its expectation of theamount of daily M&IE that will be paid orincurred, and its expectation of the averagenumber of daily miles driven during thepayroll period. Taxpayer bases its expecta-tions on reliable industry data and on Tax-payer’s own data from recent years. Basedon Taxpayer’s specific methodology anddata, Taxpayer’s projected allowance isreasonably calculated not to exceed thedrivers’ anticipated daily M&IE.

Taxpayer requires its drivers to providelogs to substantiate the time, place, andbusiness purpose of the travel away fromhome for each day (or partial day). Tax-payer does not require its drivers to sub-stantiate the amount of actual M&IE. In-stead, for its drivers’ substantiation of theamount of M&IE paid or incurred by thedrivers, Taxpayer relies on administrativeguidance published annually by the In-ternal Revenue Service under which theamount of ordinary and necessary busi-ness expenses of an employee for M&IEpaid or incurred while traveling away fromhome is deemed substantiated when theemployer provides a per diem allowanceto cover the expenses. The guidance ap-plicable for per diem allowances paid toan employee on or after October 1, 2005,with respect to travel away from home onor after October 1, 2005, is Rev. Proc.2005–67, 2005–2 C.B. 729. For 2006 Tax-payer elects to treat $52 per day as the fed-eral M&IE rate for all localities of travelpursuant to section 4.04 of Rev. Proc.2005–67. Thus, for 2006, $52 or lessper day of M&IE paid or incurred by adriver while traveling away from homemay be deemed substantiated. The al-lowances paid by Taxpayer to many of itsdrivers for M&IE incurred on travel away

from home during the monthly payroll pe-riod routinely exceed $52 per day, evenwhen computed on a monthly basis pur-suant to the periodic rule provided in sec-tion 4.04 of Rev. Proc. 2005–67.

Taxpayer requires its drivers to returnany amounts paid to them for M&IE withrespect to days they were not away fromhome on business travel. Taxpayer doesnot require drivers to return the portionof the allowance paid for days they wereaway from home on business travel thatexceeds the $52 per day that may bedeemed substantiated.

Neither the policies nor actual practicesof Taxpayer’s expense allowance arrange-ment include any process for trackingthe amount of the cents-per-mile M&IEallowance paid to each driver on a perdiem basis, nor is there any mechanism inplace to determine when the allowancesexceed the amount of expenses that maybe deemed substantiated under Rev. Proc.2005–67. Taxpayer does not treat theexcess allowances over $52 per day aswages for withholding or employment taxpurposes and does not report the excessallowances as wages on the drivers’ FormsW–2.

LAW AND ANALYSIS

Section 62(a)(2)(A) of the Internal Rev-enue Code provides that, for purposes ofdetermining adjusted gross income, an em-ployee may deduct certain business ex-penses paid by the employee in connectionwith the performance of services as an em-ployee of the employer under a reimburse-ment or other expense allowance arrange-ment.

Section 62(c) provides that, for pur-poses of § 62(a)(2)(A), an arrangementwill not be treated as a reimbursement orother expense allowance arrangement if(1) the arrangement does not require theemployee to substantiate the expenses cov-ered by the arrangement to the person pro-viding the reimbursement, or (2) the ar-rangement provides the employee the rightto retain any amount in excess of the sub-stantiated expenses covered under the ar-rangement.

2006–46 I.R.B. 874 November 13, 2006

Section 1.62–2(c)(1) of the IncomeTax Regulations provides that a reim-bursement or other expense allowancearrangement satisfies the requirements of§ 62(c) if it meets the requirements ofbusiness connection, substantiation, andreturning amounts in excess of substanti-ated expenses. If an arrangement meetsthese requirements, all amounts paid underthe arrangement are treated as paid underan accountable plan. See § 1.62–2(c)(2).Amounts treated as paid under an ac-countable plan are excluded from theemployee’s gross income, are not reportedas wages or other compensation on the em-ployee’s Form W–2, and are exempt fromthe withholding and payment of employ-ment taxes. See § 1.62–(2)(c)(4). Con-versely, if the arrangement fails any oneof these requirements, amounts paid underthe arrangement are treated as paid undera nonaccountable plan and are includedin the employee’s gross income, must bereported as wages or other compensationon the employee’s Form W–2, and aresubject to withholding and payment ofemployment taxes. See § 1.62–2(c)(3) and(5).

With regard to the business connec-tion requirement, under § 1.62–2(d)(3)(ii)an arrangement providing a per diem al-lowance that is computed on a basis similarto that used in computing the employee’swages or other compensation (such as thenumber of hours worked, miles traveled,or pieces produced) meets the businessconnection requirement only if, on De-cember 12, 1989, the per diem allowancewas identified by the payor either by mak-ing a separate payment or by specificallyidentifying the amount of the per diemallowance, or a per diem allowance com-puted on that basis was commonly usedin the industry in which the employee isemployed.

With regard to the substantiationrequirement, pursuant to Rev. Proc.2005–67, the amount of M&IE that isdeemed substantiated for each calendarday is equal to the lesser of the per diemallowance for that day or the amountcomputed at the federal M&IE rate. Seesection 3.01(3) of Rev. Proc. 2005–67.Under these rules, employees must con-tinue to actually substantiate the elementsof time, place, and business purpose re-lating to the travel expenses. See section7.01 of Rev. Proc. 2005–67. Section 4.04

of Rev. Proc. 2005–67 provides specialrules for the transportation industry underwhich $52 per day may be treated as thefederal M&IE rate and the amount deemedsubstantiated may be computed on a pe-riodic basis (but not less frequently thanmonthly) rather than daily.

For purposes of the return of excessrequirement, § 1.62–2(f)(2) permits theCommissioner to prescribe rules underwhich an arrangement that provides a perdiem allowance is treated as satisfying therequirement of returning amounts in ex-cess of expenses so long as the allowanceis reasonably calculated not to exceed theamount of the employee’s expenses andthe employee is required to return anyportion that relates to days of travel notsubstantiated. However, the portion ofthe allowance that exceeds the amountdeemed substantiated will be treated aspaid under a nonaccountable plan, must bereported as wages or other compensation,and is subject to withholding and paymentof employment taxes. See § 1.62–2(c)(5).

Section 1.62–2(h)(2)(i)(B)(1) pro-vides that if a payor pays a per diemallowance that meets the requirementsof § 1.62–2(c)(1), the portion, if any,of the allowance that relates to days oftravel substantiated in accordance with§ 1.62–2(e) and that exceeds the amountof the employee’s expenses deemed sub-stantiated for the travel pursuant to rulesprescribed under § 274(d) and the rele-vant regulations is treated as paid undera nonaccountable plan. Such amount iswages subject to withholding and paymentof employment taxes. See § 1.62–2(c)(5).See also §§ 31.3121(a)–3(b)(1)(ii),31.3306(b)–2(b)(1)(ii), and 31.3401(a)–4(b)(1)(ii) of the Employment Tax Regu-lations.

Section 1.62–2(k) provides that if apayor’s reimbursement or other expenseallowance arrangement evidences a pat-tern of abuse of the rules of § 62(c) and theregulations thereunder, all payments madeunder the arrangement are treated as madeunder a nonaccountable plan. Thus, thesepayments are included in the employee’sgross income, are reported as wages orother compensation on the employee’sForm W–2, and are subject to withholdingand payment of employment taxes. See§ 1.62–2(c)(5), and (h)(2).

If an arrangement satisfies all threerequirements of an accountable plan, but

an allowance is paid under the arrange-ment that exceeds the amount that maybe deemed substantiated, no actual sub-stantiation is provided for the M&IEcovered by the allowance, and the ex-cess allowance is not returned, the ex-cess allowance is treated as wages. See§ 1.62–2(h)(2)(B)(1). However, if thefacts and circumstances evidence a patternof abuse of the rules of § 62(c) and theregulations thereunder, including the ruleto treat excess allowances as wages, allpayments made under the arrangement aretreated as wages. See § 1.62–2(k).

Under the facts set forth above, thearrangement to reimburse Taxpayer’sdrivers for M&IE paid or incurred whiletraveling away from home meets the busi-ness connection requirement. Taxpayeris permitted to compute a per diem al-lowance based upon the number of milesdriven during the payroll period as thatmethod was commonly used in Taxpayer’sindustry before December 12, 1989.

For purposes of satisfying the substanti-ation requirements of § 1.62–2(e) for 2006,Taxpayer relies on the deemed substantia-tion rules provided in Rev. Proc. 2005–67,including the special rules for the trans-portation industry found in section 4.04 ofRev. Proc. 2005–67.

With respect to the return of excess re-quirement, the regulations and Rev. Proc.2005–67 permit Taxpayer to pay per diemallowances for M&IE paid or incurredwhile traveling away from home that ex-ceed the deemed substantiated amountwithout requiring return of the excess. See§ 1.62–2(f)(2) and section 7.02 of Rev.Proc. 2005–67. Under these rules, how-ever, Taxpayer must take steps to ensurethat the excess allowances are tracked andtreated as wages subject to withholdingand payment of employment taxes andreporting on Forms W–2.

In implementing its expense allowancearrangement for 2006, Taxpayer has notincluded any mechanism or process thattracks allowances and permits it to de-termine when the allowances paid to itsdrivers, computed on a per diem basis, ex-ceed the $52 per day that may be deemedsubstantiated. Taxpayer does not receiveactual substantiation for the M&IE cov-ered by the allowances. Taxpayer nei-ther requires repayment of the excess al-lowances nor treats the excess allowancesas wages for purposes of withholding and

November 13, 2006 875 2006–46 I.R.B.

payment of employment taxes and report-ing on Forms W–2.

As operated in 2006, Taxpayer’s ex-pense allowance arrangement routinelyresults in payment of excess allowancesthat are not repaid or treated as wages.Taxpayer’s failure to track the excessallowances and its routine payment ofexcess allowances that are not repaid ortreated as wages evidence a pattern ofabuse under § 1.62–2(k). Although the ex-cess allowances that have not been repaidor treated as wages may be small in com-parison to the total allowance paid to anindividual driver, to the amount that maybe deemed substantiated for any givenperiod of travel away from home, and tothe aggregate allowances paid to all ofTaxpayer’s drivers, Taxpayer’s arrange-ment is neither structured nor operated tomeet the requirements of the accountableplan regulations for per diem allowancearrangements. As a result, Taxpayer hasmore than a failure to account for a partic-ular driver’s excess allowance or excessallowances paid to drivers for a particularperiod of travel. Taxpayer’s arrangementevidences a pattern of abuse of the ac-countable plan rules.

Accordingly, even if Taxpayer’s ex-pense allowance arrangement otherwisemeets the business connection, substantia-tion, and return of excess requirements ofan accountable plan for the allowancespaid to Taxpayer’s drivers up to theamount that may be deemed substantiated,all payments made under Taxpayer’s ex-pense allowance arrangement are treatedas paid under a nonaccountable plan. Tax-payer must include all amounts paid underthe arrangement to reimburse drivers’M&IE, not just the excess allowances,in the drivers’ wages on Forms W–2 andmust treat all these amounts as wages forthe withholding and payment of employ-ment taxes.

HOLDING

Where an expense allowance arrange-ment has no mechanism or process todetermine when an allowance exceeds theamount that may be deemed substantiatedand the arrangement routinely pays al-lowances in excess of the amount that maybe deemed substantiated without requiringactual substantiation of all the expenses orrepayment of the excess amount, the fail-

ure of the arrangement to treat the excessallowances as wages for employment taxpurposes causes all payments made underthe arrangement to be treated as madeunder a nonaccountable plan.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Ligeia M. Donis of the Office ofAssociate Chief Counsel (Tax Exempt &Government Entities). For further infor-mation regarding this revenue ruling, con-tact Ligeia M. Donis at (202) 622–0047(not a toll-free call).

Section 103.—Interest onState and Local Bonds26 CFR 5f.103–1(c): Registered form.26 CFR 5f.103–1(e): Special rules.

A notice interprets the rules regarding obligationsheld through book-entry systems. See Notice 2006-99, page 907.

Section 163.—Interest26 CFR 1.163–5(c)(2)(i)(D):

A notice interprets the rules regarding certain obli-gations issued before January 1, 2007, in compliancewith TEFRA D. See Notice 2006-99, page 907.

Section 664.—CharitableRemainder Trusts

Excess inclusion income allocated to a charitableremainder trust is not unrelated business taxable in-come to the charitable remainder trust and thus doesnot affect the charitable remainder trust’s exemptionfrom tax under section 664(c) for the taxable year.See Rev. Rul. 2006-58, page 876.

Section 860E.—Treatmentof Income in Excessof Daily Accruals onResidual Interests26 CFR 1.860E–2: Tax on transfers of residual in-terests to certain organizations.(Also §§ 511, 664, 702; 1.664–1, 1.702–1,1.860E–1.)

Charitable remainder trust; real es-tate investment trust (REIT). This rulingillustrates the application of section 860Eof the Code where a charitable remaindertrust is a shareholder of a real estate invest-ment trust (REIT) or a partner of a partner-

ship, and the REIT or the partnership hasexcess inclusion income.

Rev. Rul. 2006–58

ISSUES

If a charitable remainder annuity trustor a charitable remainder unitrust, as de-fined in section 664(d) of the InternalRevenue Code (collectively, charitableremainder trusts), is a partner in a part-nership or a shareholder in a real estateinvestment trust (REIT), and if the part-nership or the REIT has excess inclusionincome from holding a residual interest ina real estate mortgage investment conduit(REMIC)—

(1) Does the charitable remainder trusthave unrelated business taxable income(UBTI) as defined in section 512, causingthe charitable remainder trust to lose itsexemption from tax under section 664(c)for the taxable year?

(2) Is the charitable remainder trust adisqualified organization as defined in sec-tion 860E(e)(5)?

(3) Is the partnership (or REIT) subjectto the pass-thru entity tax under section860E(e)(6)?

FACTS

In the following situations, Trust TR1and Trust TR2 meet all the requirementsfor exemption from tax under section664(c) for the taxable year, except forthe possible treatment of excess inclusionincome as UBTI under section 860E(b).

Situation 1

Trust TR1, a charitable remainder trust,holds a ten percent partnership interestin Partnership PRS. Because PRS holdsa residual interest in a REMIC, section860C(a) requires PRS to take into accountits daily portion of the REMIC’s net in-come or net loss. For 2004, a portion ofthe REMIC net income taken into accountby PRS was an excess inclusion, as de-fined in section 860E(c).

Situation 2

Trust TR2, a charitable remainder trust,holds a ten percent equity interest in Cor-poration R, which has elected, and is qual-ified, to be treated as a REIT under sub-

2006–46 I.R.B. 876 November 13, 2006

chapter M of the Code. Because R holdsa residual interest in a REMIC, section860C(a) requires R to take into accountits daily portion of the REMIC’s net in-come or net loss. For 2004, a portionof the REMIC net income taken into ac-count by R was an excess inclusion, as de-fined in section 860E(c). R’s real estate in-vestment trust taxable income (within themeaning of section 857(b)(2), excludingany net capital gain) was zero.

LAW

In general, section 702 requires eachpartner to take into account separately itsdistributive share of partnership items.Section 702(a)(7) requires a partner totake into account separately its distribu-tive share of a partnership’s “other itemsof income, gain, loss, deduction, or credit,to the extent provided in regulationsprescribed by the Secretary.” Section1.702–1(a)(8)(ii) provides:

Each partner must also take into ac-count separately the partner’s dis-tributive share of any partnership itemwhich, if separately taken into accountby any partner, would result in an in-come tax liability for that partner, orfor any other person, different fromthat which would result if that partnerdid not take the item into account sepa-rately.

Section 702(b) provides:

The character of any item of income,gain, loss, deduction, or credit includedin a partner’s distributive share underparagraphs (1) through (7) of [section702(a)] shall be determined as if suchitem were realized directly from thesource from which realized by the part-nership, or incurred in the same manneras incurred by the partnership.

Section 860E(d) requires REITs, regu-lated investment companies, common trustfunds, and subchapter T cooperatives, toallocate excess inclusion income to theshareholders, participants, and patrons.Section 860E(d) provides:

If a residual interest in a REMIC isheld by a [REIT], under regulations pre-scribed by the Secretary—

(1) any excess of—

(A) the aggregate excess inclu-sions determined with respect tosuch interests, over

(B) the real estate investmenttrust taxable income (within themeaning of section 857(b)(2), ex-cluding any net capital gain),

shall be allocated among the share-holders of such trust in proportionto the dividends received by suchshareholders from such trust, and

(2) any such amount allocated toa shareholder under paragraph (1)shall be treated as an excess inclu-sion with respect to a residual inter-est held by such shareholder.

Rules similar to the rules of the pre-ceding sentence shall apply also in thecase of regulated investment compa-nies, common trust funds, and organi-zations to which part I of subchapter T[(sections 1381–1383)] applies.

Section 664(c) provides that a chari-table remainder trust “shall, for any tax-able year, not be subject to any tax im-posed by [subtitle A], unless such trust, forsuch year, has [UBTI] (within the mean-ing of section 512, determined as if partIII of subchapter F [(unrelated businessincome tax (UBIT) provisions under sec-tions 511–515)] applied to such trust).”

Section 1.664–1(c) provides:

If a charitable remainder trust has any[UBTI] (within the meaning of section512 and the regulations thereunder, de-termined as if part III, subchapter F,chapter 1, subtitle A of the Code ap-plied to such trust) for any taxable year,the trust is subject to all of the taxes im-posed by subtitle A of the Code for suchtaxable year. . . . The taxes imposed bysubtitle A of the Code upon a nonex-empt charitable remainder trust shall becomputed under the rules prescribed bysubparts A and C, part 1, subchapterJ, chapter 1, subtitle A of the Code[(sections 641–646 and 661–664)] fortrusts which may accumulate income orwhich distribute corpus.

Section 860E(b) provides, “If theholder of any residual interest in a REMICis an organization subject to the tax im-posed by section 511, the excess inclusionof such holder for any taxable year shallbe treated as [UBTI] of such holder forpurposes of section 511.”

Section 860E(e)(6)(A) imposes a taxon certain REITs, partnerships and otherpass-thru entities (as defined under section860E(e)(6)(B)). Section 860E(e)(6)(A)provides, “If, at any time during anytaxable year of a pass-thru entity, a dis-qualified organization is the record holderof an interest in such entity, there is herebyimposed on such entity for such taxableyear a tax equal to the product of—(i) theamount of excess inclusions for such tax-able year allocable to the interest held bysuch disqualified organization, multipliedby (ii) the highest rate of tax specified insection 11(b)(1).” For purposes of section860E(e)(6), section 860E(e)(6)(B) definesthe term “pass-thru entity” to includeany REIT and any partnership. Section860E(e)(5)(B) defines the term “disquali-fied organization” to include “any organi-zation (other than a cooperative describedin section 521) which is exempt from taximposed by [chapter 1] unless such organ-ization is subject to the tax imposed bysection 511.”

Section 1.860E–2(b) of the Income TaxRegulations contains rules relating to theapplication of the pass-thru entity tax un-der section 860E(e)(6)(A). Among otherthings, § 1.860E–2(b)(4) provides, “Div-idends paid by a RIC or by a REIT are notpreferential dividends within the meaningof section 562(c) solely because the tax ex-pense incurred by the RIC or REIT un-der section 860E(e)(6) is allocated solelyto the shares held by disqualified organi-zations.”

ANALYSIS

1. Effect of allocation of excess inclusionincome to a charitable remainder trust onits eligibility for exemption from tax undersection 664(c) for the taxable year.

As a partner of PRS, TR1 has a dis-tributive share of the excess inclusion in-come of PRS, as determined under section702(a) and (b). If section 860E(b) char-acterizes the excess inclusion income al-located to TR1 as UBTI, TR1 will lose its

November 13, 2006 877 2006–46 I.R.B.

exemption under section 664(c) for 2004.Section 860E(b) treats excess inclusion in-come as UBTI to the holder of a REMICresidual interest but only if the holder “isan organization subject to the tax imposedby section 511” (that is, subject to theUBIT). In the case of a charitable remain-der trust, section 664(c) employs the defi-nitional rules of section 512 and the otherUBIT provisions to determine whether anyof the trust’s income is UBTI, but it doesnot subject the trust to section 511. (Seethe discussion below under Issue 2.)

Whether section 860E(b) characterizesthe excess inclusion income of charitableremainder trusts as UBTI should be de-termined in light of the intent underly-ing section 860E and other REMIC provi-sions. A number of the REMIC provisionsare comprehensive and complementary bydesign. If a tax-exempt entity holds theREMIC residual interest, the REMIC pro-visions ensure the taxation of excess inclu-sion income in all events, whether or notthe tax-exempt holder of the REMIC resid-ual interest is a disqualified organization.A disqualified organization (as defined insection 860E(e)(5)(B)) is a tax-exempt en-tity that is not subject to UBIT. Thus, a dis-qualified organization cannot be subject toa tax on any excess inclusion income allo-cable to it. But other tax exempt entitiesare generally subject to UBIT and couldbe subject to a tax on excess inclusion in-come, subject to other requirements.

With respect to disqualified organiza-tions, a REMIC is required to have inplace “reasonable arrangements designedto ensure that . . . residual interests in[the REMIC] are not [transferred to] dis-qualified organizations . . . .” Section860D(a)(6). If an entity nonetheless trans-fers a REMIC residual interest to a disqual-ified organization, section 860E(e)(1) im-poses a tax on the transferor. Further, if apass-thru entity has a record equity ownerthat is a disqualified organization, the pass-thru entity must pay a tax on the amountof excess inclusion income that is alloca-ble to the disqualified organization. Sec-tion 860E(e)(6)(A). With respect to othertax-exempt entities (which are not disqual-ified organizations), section 860E(b) gen-erally provides that, if a tax-exempt entitythat is subject to the UBIT holds a REMICresidual interest, the excess inclusion in-come of that holder is UBTI.

Sections 860E(e)(6)(A) and 860E(b)are complementary provisions that shouldbe interpreted consistently. If a pass-thruentity (whose equity owners may be dis-qualified organizations or other tax-ex-empt entities) holds REMIC residualinterests, the two sections ensure that theexcess inclusion income is taxable ei-ther to the pass-thru entity (under section860E(e)(6)(A)) or to its tax-exempt eq-uity owner that is subject to UBIT (undersection 860E(b)). Characterizing as UBTIonly the excess inclusion income that isallocable to tax exempt entities that areactually subject to the UBIT causes thetwo sections to operate consistently.

As discussed below, a charitable re-mainder trust can never be subject to theUBIT. Accordingly, TR1’s distributiveshare of PRS’s excess inclusion income isnot UBTI under section 860E(b).

2. Status of a charitable remainder trustas a disqualified organization.

TR1 and TR2 are charitable remaindertrusts. Under section 664(c), a charitableremainder trust is exempt from tax undersubtitle A of the Code, including chapter1, unless it has UBTI for the taxable year(determined as if UBIT applied to the char-itable remainder trust). But if a charitableremainder trust has UBTI, it loses its sec-tion 664(c) tax exemption for the taxableyear, and the resulting tax liability is deter-mined under the trust tax provisions of theCode. See § 1.664–1(c). Thus, if a char-itable remainder trust has UBTI, that trustbecomes an organization subject to the taximposed by sections 1 and 641 but not tothe UBIT. Because a charitable remaindertrust can never be subject to the UBIT, it isa disqualified organization, as defined insection 860E(e)(5). As charitable remain-der trusts, TR1 and TR2 are disqualified or-ganizations.

3. Application of the pass-thru entity taxunder section 860E(e)(6)(A).

PRS and R are pass-thru entities, asdefined in section 860E(e)(6)(B). Forpurposes of section 860E(e)(6)(A), PRSis treated as having allocated excess in-clusion income to TR1, a disqualifiedorganization, equal to its distributive shareof the excess inclusion income of PRSdetermined under section 702. Because

R’s real estate investment trust income iszero, all of R’s excess inclusion income isallocable to its shareholders. R’s excessinclusion income is allocable to TR2, alsoa disqualified organization, in proportionto the dividends paid to TR2 (determinedwithout regard to any special allocationto TR2 of the expense for the tax undersection 860E(e)(6)). See § 1.860E–2(b)(4)(providing an exception to the preferencedividend rule in section 562(c)).

PRS and R have record equity own-ers that are disqualified organizations, towhich excess inclusion income is alloca-ble. Thus, PRS and R are subject to atax under section 860E(e)(6)(A) on theamount of the excess inclusion income al-locable to TR1 and TR2, respectively, at thehighest rate specified in section 11(b)(1).

HOLDINGS

(1) Excess inclusion income allocatedto a charitable remainder trust is not UBTIto the charitable remainder trust and thusdoes not affect the charitable remaindertrust’s exemption from tax under section664(c) for the taxable year.

(2) A charitable remainder trust is a dis-qualified organization for purposes of sec-tion 860E.

(3) A pass-thru entity that has excessinclusion income allocable to a charitableremainder trust is subject to the pass-thruentity tax under section 860E(e)(6)(A).

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Anna Kim of the Office of the As-sociate Chief Counsel (Financial Institu-tions and Products). For further informa-tion regarding this revenue ruling, contactAnna Kim at 202–622–3735.

Section 871.—Taxon Nonresident AlienIndividuals26 CFR 1.871–14: Rules relating to repeal of tax oninterest of nonresident alien individuals and foreigncorporations received from certain portfolio debt in-struments.

A notice provides that for purposes of determin-ing the application of the portfolio interest excep-tion, the conditions for an obligation to be in regis-tered form are identical to the conditions described in

2006–46 I.R.B. 878 November 13, 2006

Treas. Reg. § 5f.103–1. See Notice 2006-99, page907.

Section 1441.—Withholdingof Tax on Nonresident Aliens

26 CFR 1.1441–1(b)(7)(iii): Liability for interest andpenalties.

A notice provides relief from interest and penaltiesimposed when no underlying tax is imposed. SeeNotice 2006-99, page 907.

Section 6320.—Notice andOpportunity for HearingUpon Filing of Notice of Lien26 CFR 301.6320–1: Notice and opportunity forhearing upon filing of notice of Federal tax lien.

T.D. 9290

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Part 301

Miscellaneous Changesto Collection Due ProcessProcedures Relating to Noticeand Opportunity for HearingUpon Filing of Notice ofFederal Tax Lien

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final Regulations.

SUMMARY: This document contains finalregulations amending the regulations relat-ing to a taxpayer’s right to a hearing undersection 6320 of the Internal Revenue Codeof 1986 after the filing of a notice of Fed-eral tax lien (NFTL). The final regulationsmake certain clarifying changes in the waycollection due process (CDP) hearings areheld and specify the period during which ataxpayer may request an equivalent hear-ing. The final regulations affect taxpayersagainst whose property or rights to prop-erty the Internal Revenue Service (IRS)files a NFTL.

DATES: Effective Date: These regulationsare effective on November 16, 2006.

Applicability Date: These regulationsapply to requests for CDP or equivalenthearings on or after November 16, 2006.

FOR FURTHER INFORMATIONCONTACT: Laurence K. Williams,202–622–3600 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments tothe Regulations on Procedure and Admin-istration (26 CFR part 301) relating to theprovision of notice under section 6320 ofthe Internal Revenue Code to taxpayers ofa right to a CDP hearing (CDP Notice) af-ter the IRS files a NFTL. Final regulations(T.D. 8979, 2002–1 C.B. 466) were pub-lished on January 18, 2002, in the Fed-eral Register (67 FR 2558) (the 2002 fi-nal regulations). The 2002 final regula-tions implemented certain changes madeby section 3401 of the Internal RevenueService Restructuring and Reform Act of1998 (Public Law 105–206, 112 Stat. 685)(RRA 1998), including the addition of sec-tion 6320 to the Internal Revenue Code.

Section 3401 of RRA 1998 also addedsection 6330 to the Internal Revenue Code.That statute provides for notice to taxpay-ers of a right to a hearing before or, inlimited cases, after levy. A number ofthe provisions in section 6330 concerningthe conduct and judicial review of a CDPhearing are incorporated by reference insection 6320. On January 18, 2002, fi-nal regulations (T.D. 8980, 2002–1 C.B.477) under section 6330 were published inthe Federal Register (67 FR 2549) alongwith the 2002 final regulations under sec-tion 6320.

On September 16, 2005, the IRS andthe Treasury Department published in theFederal Register (70 FR 54681) a noticeof proposed rulemaking and notice of pub-lic hearing (REG–150088–02, 2005–43I.R.B. 774). The IRS received one set ofwritten comments responding to the noticeof proposed rulemaking. Because no onerequested to speak at the public hearing,the hearing was cancelled. After consid-ering each of the comments, the proposedregulations are adopted as amended bythis Treasury decision.

On August 17, 2006, the Pension Pro-tection Act of 2006, Public Law 109–280,

120 Stat. 780 (the PPA), was enacted.Section 855 of the PPA amended section6330(d) of the Internal Revenue Codeto withdraw judicial review of CDP no-tices of determination from United Statesdistrict court jurisdiction, leaving reviewsolely in the United States Tax Court. Sec-tion 6330(d) is made applicable to section6320 hearings by section 6320(c). Theamendment to section 6330(d), effectivefor notices of determination issued onor after October 17, 2006, requires theremoval of references to district court re-view in the 2002 final regulations. ThisTreasury decision removes those refer-ences.

The IRS and the Treasury Departmenthave determined that a notice of proposedrulemaking and solicitation of public com-ments are not required to amend the reg-ulations to implement the modification tosection 6330(d). These amendments aremade solely to conform the regulations to astatutory change enacted by Congress. Be-cause the amendments do not involve anyexercise of discretion or interpretation, thenotice and public comment procedures areunnecessary.

The comments and changes to the pro-posed regulations, and the amendments re-quired by the Congressional modificationto section 6330(d), are discussed below.

Summary of Comments andExplanation of Changes

The comments suggested that the IRSbe required to contact taxpayers whotimely file an incomplete request for CDPhearing to give them the opportunity toperfect the request within a reasonabletime period and further recommended thatsuch contact be in writing and identify theinfirmity requiring perfection. The com-ments also recommended that the finalregulations establish a specific time pe-riod during which taxpayers may, by right,amend or perfect their previously-filed yetincomplete CDP hearing request. The re-quest, according to the comments, shouldbe considered timely if it is perfectedwithin the applicable time period.

Currently, the practice of the IRS is tocontact taxpayers whose hearing requestsfail to satisfy the requirements specifiedby the existing regulations and ask thesetaxpayers to perfect their requests within aspecified period of time. The IRS consid-

November 13, 2006 879 2006–46 I.R.B.

ers requests perfected within the time spec-ified to be timely. The intention of the IRSand the Treasury Department is to incor-porate this administrative procedure intothe proposed regulations. The final regu-lations more clearly state that the IRS willmake a reasonable attempt to contact tax-payers to give them a reasonable period oftime to perfect incomplete requests. How-ever, the timeframe in which to respond tothe request, and the method of delivery ofthe request (i.e., orally or in writing) aremore appropriately addressed in the Inter-nal Revenue Manual. The final regulationsmake clear that requests perfected withinthe time period specified by the IRS willbe considered timely.

The final regulations do not adopt thesuggestion to establish a period of timeduring which a taxpayer is allowed to per-fect an incomplete request, without regardto a perfection request from the IRS. TheIRS and Treasury Department believe thatthe procedure incorporated into the finalregulations is sufficient to permit taxpay-ers to ensure their requests are complete.

The comments recommended that theIRS Office of Appeals (Appeals) be giventhe discretion to permit a taxpayer toamend an imperfect hearing request afterthe period for perfecting the request hasexpired, if the taxpayer can demonstratethat such amendment furthers an alter-native to collection. This change to theregulations is unnecessary because Ap-peals is already empowered to exercisethis discretion. Neither the current regula-tions nor the proposed amendments limitsAppeals from exercising this discretion.Accordingly, the final regulations do notadopt this recommendation. Further clari-fication, however, will be provided in theInternal Revenue Manual.

The comments suggested that where ataxpayer fails to perfect a CDP hearing re-quest until after the time period specifiedby the IRS, the perfected request shouldbe automatically treated as a request for anequivalent hearing. Treating untimely per-fected requests as equivalent hearing re-quests may unduly prolong the process incases in which a taxpayer does not wantan equivalent hearing. Accordingly, the fi-nal regulations do not adopt this sugges-tion. The final regulations, however, pro-vide that Appeals will determine the time-liness of CDP hearing requests. The finalregulations also add to the proposed regu-

lations that taxpayers making an untimelyrequest will be provided the opportunity tohave the request for CDP hearing treatedas a request for equivalent hearing, with-out submitting an additional request.

The comments requested that the finalregulations give taxpayers whose hearingrequests might be construed as makinga frivolous argument the right to amendtheir hearing requests to raise relevant,non-frivolous issues. The comments fur-ther recommended that all taxpayers begiven the right to supplement the hearingrequest prior to the conference conductedby Appeals.

These comments indicate concern thattaxpayers may be unable to articulate rea-sons for disagreeing with the collectionaction that are satisfactory to Appeals. Thereasons for disagreeing with the collec-tion action need not be detailed. To assisttaxpayers in articulating reasons, the IRSis revising Form 12153, “Request for aCollection Due Process Hearing,” to addexamples of the most common reasonstaxpayers give for requesting a hearing,including requests for collection alterna-tives. In any event, the informal natureof the CDP hearing permits taxpayers andAppeals to discuss collection alternativesand issues not listed in the hearing requestif such discussion will help resolve thecase. Accordingly, the final regulations donot adopt these recommendations.

The comments urged that the final reg-ulations guarantee a face-to-face confer-ence for each taxpayer who presents a rel-evant, non-frivolous reason for disagree-ment with the collection action. If thisrecommendation is not adopted, the com-ments suggest that the regulations addressand provide examples of when a face-to-face conference will not be granted. Thefinal regulations do not adopt the recom-mendation to guarantee a face-to-face con-ference for each taxpayer raising a rele-vant, non-frivolous issue. The IRS andthe Treasury Department agree with thecomments that a face-to-face conferencecan be a useful forum for resolving a tax-payer’s issues. The final regulations rec-ognize the importance of a face-to-facemeeting by providing that taxpayers willordinarily be offered an opportunity for aface-to-face conference. There will be in-stances, however, when a face-to-face con-ference is not practical. The final regula-tions identify typical situations in which

a face-to-face conference will be neithernecessary nor productive. Except for thesesituations, the IRS and the Treasury De-partment anticipate that Appeals will af-ford a face-to-face meeting to taxpayerswho request one. Nonetheless, unantic-ipated circumstances may arise in whichgranting a face-to-face conference will notbe appropriate. The final regulations giveAppeals the flexibility needed to respondto unanticipated circumstances.

Adoption of the comment requestingguidance on when a face-to-face confer-ence will not be granted is unnecessary.The final regulations retain descriptions ofsituations in which a face-to-face confer-ence will not be granted, as illustrated inthe proposed regulations. Further guid-ance on granting face-to-face conferenceswill be provided in the Internal RevenueManual.

The comments suggested that a tax-payer who appears to be presenting onlyfrivolous reasons be given an opportu-nity to provide relevant, non-frivolousreasons in order to obtain a face-to-faceconference. Adoption of this recommen-dation is unnecessary. Correspondencesent by Appeals to taxpayers who makeonly frivolous arguments invites them tosubmit relevant, non-frivolous reasons.Appeals offers face-to-face conferences totaxpayers who respond by providing suchreasons.

The comments also suggested that theregulations define relevant and frivolous.The IRS and the Treasury Departmentbelieve that any attempt to define theseterms is unnecessary and could result inunderinclusive definitions. For example,the comments suggest that a frivolous is-sue be defined as an issue that is the sameor substantially similar to an issue identi-fied as frivolous by the IRS in publishedguidance. It is not possible to anticipate orkeep pace with the evolution of frivolousarguments through published guidance.Instead, taxpayers are advised to consultthe lists of examples of frivolous argu-ments in IRS Publication 2105, “Why Do IHave to Pay Taxes” and on the IRS websitein a document entitled “The Truth aboutFrivolous Tax Arguments.” The namesand web addresses of these documents,and a toll-free number to order Publication2105, will be added to the instructionsto Form 12153 to help taxpayers avoidmaking these arguments.

2006–46 I.R.B. 880 November 13, 2006

The comments recommended clarifica-tion of the proposed rule that a face-to-faceconference concerning a collection alter-native will not be granted unless the alter-native would be available to other taxpay-ers in similar circumstances. Accordingto the comments, a taxpayer should not bedenied a face-to-face conference becausethe requested collection alternative cannotbe accepted, for example, because it ap-pears from financial information that thetaxpayer can pay the liabilities in full. Thisproposed rule was not intended to denya face-to-face conference because the re-quested collection alternative would not beaccepted. The intention of this rule is topermit the denial of a face-to-face confer-ence to discuss a collection alternative forwhich the taxpayer is not eligible. A lackof eligibility under IRS policy is tied to ataxpayer’s compliance with the Federal taxlaws, not to the taxpayer’s financial cir-cumstances or ability to request the mostappropriate alternative. For example, if thetaxpayer has not filed all required tax re-turns, the taxpayer is not eligible for an of-fer to compromise or an installment agree-ment.

In response to the concerns expressedin the comments, the final regulations am-plify the rule that a face-to-face conferenceto discuss a collection alternative will notbe granted unless other taxpayers would beeligible for the alternative in similar cir-cumstances. The final regulations providein A–D8 that Appeals in its discretion maygrant a face-to-face conference if Appealsdetermines that a face-to-face conferenceis appropriate to explain to the taxpayerthe requirements for becoming eligible fora collection alternative. The final regula-tions also provide that taxpayers will begiven an opportunity to demonstrate theyare eligible for a collection alternative inorder to obtain a face-to-face conference todiscuss the alternative. Taxpayers will alsobe given an opportunity to become eligi-ble for a collection alternative in order toobtain a face-to-face conference. For ex-ample, under the final regulations, if a tax-payer appears to have failed to file all re-quired returns (and thus appears not to beeligible for an offer to compromise or aninstallment agreement), the taxpayer willbe given an opportunity to demonstrate theinapplicability of the filing requirementsor to file delinquent returns, in order toobtain a face-to-face conference. The fi-

nal regulations further provide that a tax-payer’s eligibility for a collection alterna-tive does not include the taxpayer’s abilityto pay the unpaid tax.

The comments expressed concern thatthe amendment providing a face-to-faceconference at an Appeals office other thanan office in which all officers or employ-ees had prior involvement could be con-strued as giving Appeals the discretion todeny a face-to-face conference even if thetaxpayer would have been granted a face-to-face conference at the original location.The relevant sentence in A–D8 in the fi-nal regulations has been rewritten to makeclear that Appeals does not have discretionto deny a face-to-face conference at an al-ternate location if the taxpayer would havebeen granted a face-to-face conference butfor the disqualification of the Appeals em-ployees at the original location.

The comments suggested that the reg-ulations permit face-to-face conferencesto be held not only at the Appeals officeclosest to the taxpayer’s residence or, for abusiness taxpayer, the taxpayer’s principalplace of business, but also at the Appealsoffice closest to the taxpayer’s school orplace of employment, the authorized rep-resentative’s place of business, or someother location convenient to the taxpayeror the taxpayer’s representative. The IRSand Treasury Department believe the rulesfor CDP hearings should be consistentwith the treatment of other proceedingsin Appeals. The long-standing practiceof Appeals in cases not docketed in theTax Court is to grant face-to-face confer-ences in the Appeals office closest to thetaxpayer’s residence or principal place ofbusiness. The practice is retained in thefinal regulations. Appeals will, however,attempt to accommodate reasonable re-quests to hold the face-to-face conferenceat an Appeals office more convenient tothe taxpayer.

The comments expressed concern thatthe definition of prior involvement undersection 6320(b)(3) or 6330(b)(3) in theproposed regulations could be construedtoo narrowly in two ways. First, the def-inition of prior involvement as involve-ment in a prior hearing or proceeding couldbe read to exclude involvement in someinformal settings, e.g., the Appeals offi-cer’s participation in a mediation session.In order to clarify that no such limitationis intended, the final regulations substi-

tute matter for hearing or proceeding inA–D4 of paragraph (d)(2). Second, defin-ing prior involvement to exist when theAppeals officer previously considered thesame tax liability could be construed asexcluding from the definition instances inwhich the Appeals officer previously con-sidered questions bearing only on collec-tion issues. The final regulations adopt thesuggestion in the comments to remove theword liability in A–D4 in order to elimi-nate the potential interpretation that thereis a distinction between liability and col-lection issues in determining prior involve-ment.

The comments also requested that amediation example be added to paragraph(d)(3). The IRS and the Treasury De-partment believe that the change madeto A–D4 adequately clarifies the defini-tion of prior involvement. This exampleand others will be added to the InternalRevenue Manual to ensure the proper ad-ministration of sections 6320(b)(3) and6330(b)(3).

The comments recommended that theregulations address the treatment of exparte communications during CDP hear-ings. The rules applicable to ex partecommunications during CDP hearings andother Appeals proceedings are providedin Rev. Proc. 2000–43, 2000–2 C.B. 404.Therefore, these rules are not duplicatedin the regulations under sections 6320 and6330.

The comments recommended that theregulations be amended to provide thatself-reported tax liabilities may be dis-puted in a CDP hearing. The final regula-tions adopt this recommendation. See alsoMontgomery v. Commissioner, 122 T.C. 1(2004), acq. 2005–51 I.R.B. 1152.

The comments also requested changesin the existing regulations’ interpreta-tion of preclusive events under sec-tion 6330(c)(2)(B). Under section6330(c)(2)(B), during a CDP hearing,a taxpayer may challenge the existence oramount of the underlying tax liability forany tax period if the person did not receiveany statutory notice of deficiency for suchtax liability or did not otherwise have anopportunity to dispute such tax liability.Section 6330(c)(2)(B) is made applica-ble to section 6320 hearings by section6320(c). According to the comments, theonly opportunity to dispute the tax liabilitythat is sufficient to prevent the taxpayer

November 13, 2006 881 2006–46 I.R.B.

from challenging the liability in a CDPhearing is the prior opportunity to disputethe liability in a judicial forum. The IRSand the Treasury Department believe thatthe existing regulations correctly includean opportunity for an Appeals conferenceas a preclusive prior opportunity. The textof section 6330(c)(2)(B) does not con-tain language limiting prior opportunitiesto judicial proceedings. Moreover, it isconsistent for a taxpayer who has had anopportunity to obtain a determination ofliability by Appeals in one administrativehearing to be precluded from obtainingan Appeals determination in a subsequentCDP administrative hearing with respectto the same liability. This interpretation ofsection 6330(c)(2)(B) has been upheld bythe courts. See, e.g., Pelliccio v. UnitedStates, 253 F. Supp. 2d 258, 261–62(D. Conn. 2003). Accordingly, the finalregulations do not adopt this suggestion.

Alternatively, the comments also rec-ommended that the regulations specify thata pre-CDP Appeals conference is not aprior opportunity to dispute liability un-der section 6330(c)(2)(B) if the receipt ofthe conference was conditioned upon thetaxpayer’s agreement to extend the assess-ment statute of limitations with respect tothe liability and the taxpayer declined toextend the statute. The IRS and Trea-sury Department believe this addition isunnecessary. For taxes subject to defi-ciency procedures, the relevant, pre-as-sessment “prior opportunity” is the receiptof the notice of deficiency. The offer ofan Appeals conference prior to receipt ofthe notice of deficiency does not consti-tute an opportunity to dispute liability un-der section 6330(c)(2)(B). This interpre-tation of section 6330(c)(2)(B) has beenadded to paragraph (e)(3) A–E2 to removeany uncertainty about this matter. For li-abilities not subject to deficiency proce-dures, the offer of an Appeals conferenceprior to assessment constitutes an oppor-tunity to dispute the liability under sec-tion 6330(c)(2)(B). Appeals conferencesto consider these types of liabilities arerarely conditioned upon an extension ofthe assessment statute of limitations. TheIRS generally makes conditional offers ofa conference only when a taxpayer makesan untimely request for review of a pro-posed Trust Fund Recovery Penalty pur-suant to a Letter 1153 and less than oneyear remains on the assessment statute of

limitations. In this circumstance, however,the opportunity for an Appeals conferenceoffered in the Letter 1153 constitutes theopportunity to dispute the liability undersection 6330(c)(2)(B). The conditional of-fer made after the expiration of the prioropportunity provided in the Letter 1153 isirrelevant. For these reasons, the final reg-ulations do not adopt this comment.

The comments objected to the additionof a definition of administrative record tothe regulations as an attempt to overrulethe Tax Court’s decision in Robinette v.Commissioner, 123 T.C. 85 (2004), rev’d,439 F.3d 455 (8th Cir. 2006). The assump-tion that Robinette eliminated any role foran administrative record in CDP court pro-ceedings is not supported by the Court’sopinion. While the Tax Court held inRobinette that it was not required to limitits abuse-of-discretion review to the ad-ministrative record, it did not reject theutility of an administrative record. Subse-quent to the submission of the comments,the United States Court of Appeals forthe Eighth Circuit reversed the Tax Courtand held that abuse-of-discretion review inCDP cases is limited to the administrativerecord. Robinette v. Commissioner, 439F.3d 455 (8th Cir. 2006). For these rea-sons, it is important that taxpayers and theIRS have a common understanding of thescope of the administrative record. Thedefinition is retained in the final regula-tions.

The comments suggested that the pro-posed definition of the administrativerecord permits Appeals officers and em-ployees to exclude from the record forjudicial review issues, arguments, and ev-idence presented orally by the taxpayer,and to exclude written communicationsand documents. The administrative recorddefinition is not intended to suggest thatthe reviewing court is not permitted todetermine the contents of the administra-tive record or the record’s adequacy inan individual case. The reviewing courthas the authority to receive evidence con-cerning what happened during the CDPhearing. The definition is provided toestablish for the benefit of the IRS andtaxpayers a baseline description of whateach administrative record should containto ensure a record sufficient for judicialreview. The final regulations have notbeen changed in this regard. The finalregulations, however, adopt the sugges-

tion that the description of the case filein A–D7 and in the definition of admin-istrative record in A–F6 of the proposedregulations (redesignated as A–F4 in thefinal regulations) be made consistent.

The comments recommended that thefinal regulations require each Appeals of-ficer to include in the notice of determi-nation a list of the documents the Appealsofficer believes are included in the admin-istrative record. The justification for thisproposed requirement is that the list wouldassist the taxpayer in deciding whether toseek judicial review. The list of docu-ments, according to the comments, willalso assist the court and taxpayers seek-ing review to more efficiently ascertainwhether there was an abuse of discretion.

The final regulations do not adopt thisrecommendation. Requiring Appeals offi-cers to prepare a list of documents consti-tuting the administrative record in each ofthe thousands of cases handled each yearwould impose a heavy burden on Appealswithout a commensurate benefit to taxpay-ers. The notice of determination issued ineach case describes the facts and reasonssupporting the Appeals officer’s determi-nation and should provide an adequate ba-sis for the taxpayer’s decision whether toseek judicial review.

The IRS and the Treasury Departmentacknowledge that disputes have arisenwith respect to the contents of the ad-ministrative record in CDP cases andthat there are no special rules in place toresolve these disputes. An appropriatesolution could involve the Tax Court’sdevelopment of rules governing the prepa-ration and submission of the administra-tive record for abuse-of-discretion review,particularly now that the recently-enactedPension Protection Act of 2006 requiresall CDP cases to be litigated in the TaxCourt.

The comments suggested removal ofthe limitation in the existing regulationsthat a taxpayer is precluded from obtainingjudicial review of an issue not raised withAppeals during the CDP hearing. As analternative, the comments recommendedthat a taxpayer only be prevented fromraising those issues the taxpayer couldhave, but failed to raise during the CDPhearing. The limitation in the existing reg-ulations implements a basic principle ofadministrative law that those seeking re-view of an issue must first give the agency

2006–46 I.R.B. 882 November 13, 2006

the opportunity to evaluate and respond tothe issue. This limitation has been upheldin the courts. See Robinette v. Com-missioner, 123 T.C. 85, 101–102 (2004),rev’d on other grounds, 439 F.3d 455 (8th

Cir. 2006); Magana v. Commissioner,118 T.C. 488, 493 (2002); Abu-Awad v.United States, 294 F. Supp. 2d 879, 889(S.D. Tex. 2003). Accordingly, the finalregulations do not adopt either of theserecommendations.

The comments recommended that if thelimitation on the taxpayer’s ability to raisenew issues during judicial review is re-tained, then the amendment to A–F5 (re-designated as A–F3 in the final regula-tions) should clarify that a taxpayer neednot provide the evidence specified by Ap-peals with respect to an issue in order topresent “any evidence” necessary to prop-erly raise the issue. The IRS and the Trea-sury Department believe this change is un-necessary. The revision to A–F5 (redes-ignated as A–F3) does not suggest that the“any evidence” needed to avoid preclusionmust be the evidence specified by Appeals.The revised language simply requires thatthe taxpayer submit some evidentiary sup-port. This suggestion is not adopted in thefinal regulations.

The comments also suggested addingthat a taxpayer need not provide any evi-dence to avoid preclusion if the case filealready contains evidence with respect tothat issue. This addition is not necessary.If the case file contains all the informationneeded for a decision on an issue, an Ap-peals officer will not request any additionalevidence and the revised language in A–F5(redesignated as A–F3 in the final regula-tions) will not apply. In the unlikely eventthat an Appeals officer making a determi-nation on an issue requested informationalready in the file, a reviewing court shouldfind the taxpayer’s failure to provide anyevidence does not prevent the issue frombeing raised. The final regulations do notadopt this recommendation.

The comments urged that the regula-tions make clear that the authority of Ap-peals officers to determine the validity,sufficiency and timeliness of a CDP no-tice does not alter or limit the authorityof the reviewing court to make the samedetermination. The IRS and the TreasuryDepartment believe this clarification is un-necessary. It is well-settled that review-ing courts have the authority to determine

the validity, sufficiency and timeliness ofa CDP notice. See, e.g., Kennedy v. Com-missioner, 116 T.C. 255 (2001). This clar-ification is not adopted in the final regula-tions.

The comments recommended that ad-ministrative rules similar to those devel-oped under section 6015 be added to theregulations. The regulations state that aspousal defense raised under section 66 or6015 is governed by section 66 or 6015 andthe regulations and procedures thereun-der. See Treas. Reg. § 301.6320–1(e)(2).To the extent it is determined that furtherguidance is necessary, such guidance willbe in the form of additions to the InternalRevenue Manual. The final regulations donot adopt this recommendation.

The final regulations include amend-ments to the existing regulations to removereferences to judicial review by UnitedStates district courts. The Pension Protec-tion Act of 2006, Public Law 109–280, 120Stat. 780, § 855 amended section 6330(d)to eliminate the jurisdiction of the districtcourts to review notices of determination,leaving the Tax Court with sole jurisdic-tion. Section 6330(d) is made applicable tosection 6320 hearings by section 6320(c).To make clear in the regulations that ju-dicial review is available only in the TaxCourt, Q&A–F3 and Q&A–F4 in the ex-isting regulations are removed by the finalregulations and Q&A–F5 and Q&A–F6 inthe proposed regulations are redesignatedas Q&A–F3 and Q&A–F4 in the final reg-ulations. In addition, only the Tax Courtis now mentioned in A–E11, paragraph(f)(1), A–F1, redesignated Q&A–F3 andQ&A–F4, Example 1 of paragraph (g)(3),Q&A–H2 and redesignated Q–I6.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been deter-mined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to these regulations. Inparticular, the IRS and the Treasury De-partment find for good cause that a no-tice of proposed rulemaking and solicita-tion of public comments are unnecessaryto amend the existing regulations to imple-ment the modification of section 6330(d)

by the Pension Protection Act of 2006,Public Law 109–280, 120 Stat. 780. Theseamendments are made solely to conformthe regulations to the statutory change en-acted by Congress. The amendments donot involve any exercise of discretion orinterpretation by the IRS or Treasury De-partment and the removal of United Statesdistrict court jurisdiction would becomeeffective even if the amendments were notmade. Accordingly, the notice and pub-lic comment procedures do not apply. Be-cause the regulations do not impose a col-lection of information on small entities, theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) does not apply. Pursuant to section7805(f) of the Internal Revenue Code, theproposed regulations were submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Drafting Information

The principal author of these regula-tions is Laurence K. Williams, Office ofAssociate Chief Counsel, Procedure andAdministration (Collection, Bankruptcyand Summonses Division).

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 301 isamended as follows:

PART 301—PROCEDURE ANDADMINISTRATION

Paragraph 1. The authority citation forpart 301 continues to read, in part, as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6320–1 is amended

as follows:1. Paragraph (c)(2) A–C1, Q&A–C6

and A–C7 are revised.2. Paragraph (d)(2) A–D4 and A–D7

are revised.3. Paragraph (d)(2) Q&A–D8 is added.4. Paragraph (d)(3) is added.5. Paragraph (e)(1) is revised.6. Paragraph (e)(3) A–E2, A–E6, A–E7

and A–E11 are revised.7. Paragraph (f)(1) is revised.8. Paragraph (f)(2) A–F1 is revised.9. Paragraph (f)(2) Q&A–F3 is re-

moved.

November 13, 2006 883 2006–46 I.R.B.

10. Paragraph (f)(2) Q&A–F5 is re-vised and redesignated Q&A–F3.

11. Paragraph (f)(2) Q&A–F4 is re-vised.

12. Paragraph (g)(3) Example 1 is re-vised.

13. Paragraph (h)(2) Q&A–H2 is re-vised.

14. Paragraph (i)(2) Q–I5 is revised andredesignated Q–I6.

15. Paragraph (i)(2) A–I5 is redesig-nated A–I6.

16. Paragraph (i)(2) Q&A–I1 throughQ&A–I4 are redesignated Q&A–I2through Q&A–I5.

17. Paragraph (i)(2) Q&A–I1 andQ&A–I7 through Q&A–I11 are added.

18. Paragraph (j) is revised.

§301.6320–1 Notice and opportunity forhearing upon filing of notice of Federaltax lien.

* * * * *(c) * * *(2) * * *A–C1. (i) The taxpayer must make

a request in writing for a CDP hearing.The request for a CDP hearing shall in-clude the information and signature spec-ified in A–C1(ii) of this paragraph (c)(2).See A–D7 and A–D8 of paragraph (d)(2).

(ii) The written request for a CDP hear-ing must be dated and must include the fol-lowing:

(A) The taxpayer’s name, address,daytime telephone number (if any), andtaxpayer identification number (e.g., SSN,ITIN or EIN).

(B) The type of tax involved.(C) The tax period at issue.(D) A statement that the taxpayer re-

quests a hearing with Appeals concerningthe filing of the NFTL.

(E) The reason or reasons why thetaxpayer disagrees with the filing of theNFTL.

(F) The signature of the taxpayer or thetaxpayer’s authorized representative.

(iii) If the IRS receives a timely writtenrequest for CDP hearing that does not sat-isfy the requirements set forth in A–C1(ii)of this paragraph (c)(2), the IRS will makea reasonable attempt to contact the tax-payer and request that the taxpayer com-ply with the unsatisfied requirements. Thetaxpayer must perfect any timely writtenrequest for a CDP hearing that does not sat-

isfy the requirements set forth in A–C1(ii)of this paragraph (c)(2) within a reasonableperiod of time after a request from the IRS.

(iv) Taxpayers are encouraged to useForm 12153, “Request for a CollectionDue Process Hearing,” in requesting aCDP hearing so that the request can bereadily identified and forwarded to Ap-peals. Taxpayers may obtain a copy ofForm 12153 by contacting the IRS officethat issued the CDP Notice, by down-loading a copy from the IRS Internet site,www.irs.gov/pub/irs-pdf/f12153.pdf, or bycalling, toll-free, 1–800–829–3676.

(v) The taxpayer must affirm any timelywritten request for a CDP hearing whichis signed or alleged to have been signedon the taxpayer’s behalf by the taxpayer’sspouse or other unauthorized representa-tive by filing, within a reasonable period oftime after a request from the IRS, a signed,written affirmation that the request wasoriginally submitted on the taxpayer’s be-half. If the affirmation is filed within a rea-sonable period of time after a request, thetimely CDP hearing request will be consid-ered timely with respect to the non-sign-ing taxpayer. If the affirmation is not filedwithin a reasonable period of time after arequest, the CDP hearing request will bedenied with respect to the non-signing tax-payer.

* * * * *Q–C6. Where must the written request

for a CDP hearing be sent?A–C6. The written request for a CDP

hearing must be sent, or hand delivered (ifpermitted), to the IRS office and addressas directed on the CDP Notice. If the ad-dress of that office does not appear on theCDP Notice, the taxpayer should obtainthe address of the office to which the writ-ten request should be sent or hand deliv-ered by calling, toll-free, 1–800–829–1040and providing the taxpayer’s identificationnumber (e.g., SSN, ITIN or EIN).

* * * * *A–C7. If the taxpayer does not request

a CDP hearing in writing within the 30-dayperiod that commences on the day afterthe end of the five-business-day notifica-tion period, the taxpayer foregoes the rightto a CDP hearing under section 6320 withrespect to the unpaid tax and tax periodsshown on the CDP Notice. A written re-quest submitted within the 30-day periodthat does not satisfy the requirements set

forth in A–C1(ii)(A), (B), (C), (D) or (F) ofthis paragraph (c)(2) is considered timelyif the request is perfected within a reason-able period of time pursuant to A–C1(iii)of this paragraph (c)(2). If the request forCDP hearing is untimely, either becausethe request was not submitted within the30-day period or not perfected within thereasonable period provided, the taxpayerwill be notified of the untimeliness of therequest and offered an equivalent hearing.In such cases, the taxpayer may obtain anequivalent hearing without submitting anadditional request. See paragraph (i) ofthis section.

* * * * *(d) * * *(2) * * *A–D4. Prior involvement by an Ap-

peals officer or employee includes partic-ipation or involvement in a matter (otherthan a CDP hearing held under either sec-tion 6320 or section 6330) that the tax-payer may have had with respect to thetax and tax period shown on the CDP No-tice. Prior involvement exists only whenthe taxpayer, the tax and the tax period atissue in the CDP hearing also were at is-sue in the prior non-CDP matter, and theAppeals officer or employee actually par-ticipated in the prior matter.

* * * * *A–D7. Except as provided in A–D8

of this paragraph (d)(2), a taxpayer whopresents in the CDP hearing request rel-evant, non-frivolous reasons for disagree-ment with the NFTL filing will ordinarilybe offered an opportunity for a face-to-faceconference at the Appeals office closest totaxpayer’s residence. A business taxpayerwill ordinarily be offered an opportunityfor a face-to-face conference at the Ap-peals office closest to the taxpayer’s prin-cipal place of business. If that is not satis-factory to the taxpayer, the taxpayer will begiven an opportunity for a hearing by tele-phone or by correspondence. In all cases,the Appeals officer or employee will re-view the case file, as described in A–F4of paragraph (f)(2). If no face-to-face ortelephonic conference is held, or other oralcommunication takes place, review of thedocuments in the case file, as described inA–F4 of paragraph (f)(2), will constitutethe CDP hearing for purposes of section6320(b).

2006–46 I.R.B. 884 November 13, 2006

Q–D8. In what circumstances willa face-to-face CDP conference not begranted?

A–D8. A taxpayer is not entitled toa face-to-face CDP conference at a loca-tion other than as provided in A–D7 of thisparagraph (d)(2) and this A–D8. If all Ap-peals officers or employees at the locationprovided for in A–D7 of this paragraph(d)(2) have had prior involvement with thetaxpayer as provided in A–D4 of this para-graph (d)(2), the taxpayer will not be of-fered a face-to-face conference at that lo-cation, unless the taxpayer elects to waivethe requirement of section 6320(b)(3). Thetaxpayer will be offered a face-to-face con-ference at another Appeals office if Ap-peals would have offered the taxpayer aface-to-face conference at the location pro-vided in A–D7 of this paragraph (d)(2),but for the disqualification of all Appealsofficers or employees at that location. Aface-to-face CDP conference concerning ataxpayer’s underlying liability will not begranted if the request for a hearing or othertaxpayer communication indicates that thetaxpayer wishes only to raise irrelevant orfrivolous issues concerning that liability.A face-to-face CDP conference concern-ing a collection alternative, such as an in-stallment agreement or an offer to compro-mise liability, will not be granted unlessother taxpayers would be eligible for thealternative in similar circumstances. Forexample, because the IRS does not con-sider offers to compromise from taxpay-ers who have not filed required returns orhave not made certain required depositsof tax, as set forth in Form 656, “Offerin Compromise,” no face-to-face confer-ence will be granted to a taxpayer whowishes to make an offer to compromisebut has not fulfilled those obligations. Ap-peals in its discretion, however, may granta face-to-face conference if Appeals deter-mines that a face-to-face conference is ap-propriate to explain to the taxpayer the re-quirements for becoming eligible for a col-lection alternative. In all cases, a taxpayerwill be given an opportunity to demon-strate eligibility for a collection alternativeand to become eligible for a collection al-ternative, in order to obtain a face-to-faceconference. For purposes of determiningwhether a face-to-face conference will begranted, the determination of a taxpayer’seligibility for a collection alternative ismade without regard to the taxpayer’s abil-

ity to pay the unpaid tax. A face-to-faceconference need not be granted if the tax-payer does not provide the required infor-mation set forth in A–C1(ii)(E) of para-graph (c)(2). See also A–C1(iii) of para-graph (c)(2).

(3) Examples. The following examplesillustrate the principles of this paragraph(d):

Example 1. Individual A timely requests a CDPhearing concerning a NFTL filed with respect to the1998 income tax liability assessed against individ-ual A. Appeals employee B previously conducted aCDP hearing regarding a proposed levy for individ-ual A’s 1998 income tax liability. Because employeeB’s only prior involvement with individual A’s 1998income tax liability was in connection with a sec-tion 6330 CDP hearing, employee B may conduct theCDP hearing under section 6320 involving the NFTLfiled for the 1998 income tax liability.

Example 2. Individual C timely requests a CDPhearing concerning a NFTL filed with respect to the1998 income tax liability assessed against individualC. Appeals employee D previously conducted a Col-lection Appeals Program (CAP) hearing regarding aNFTL filed with respect to individual C’s 1998 in-come tax liability. Because employee D’s prior in-volvement with individual C’s 1998 income tax li-ability was in connection with a non-CDP hearing,employee D may not conduct the CDP hearing undersection 6320 unless individual C waives the require-ment that the hearing will be conducted by an Appealsofficer or employee who has had no prior involve-ment with respect to individual C’s 1998 income taxliability.

Example 3. Same facts as in Example 2, exceptthat the prior CAP hearing only involved individualC’s 1997 income tax liability and employment tax lia-bilities for 1998 reported on Form 941, “Employer’sQuarterly Federal Tax Return.” Employee D wouldnot be considered to have prior involvement becausethe prior CAP hearing in which she participated didnot involve individual C’s 1998 income tax liability.

Example 4. Appeals employee F is assigned to aCDP hearing concerning a NFTL filed with respectto a trust fund recovery penalty (TFRP) assessed pur-suant to section 6672 against individual E. Appealsemployee F participated in a prior CAP hearing in-volving individual E’s 1999 income tax liability, andparticipated in a CAP hearing involving the employ-ment taxes of business entity X, which incurred theemployment tax liability to which the TFRP assessedagainst individual E relates. Appeals employee Fwould not be considered to have prior involvementbecause the prior CAP hearings in which he partic-ipated did not directly involve the TFRP assessedagainst individual E.

Example 5. Appeals employee G is assigned to aCDP hearing concerning a NFTL filed with respectto a TFRP assessed pursuant to section 6672 againstindividual H. In preparing for the CDP hearing, Ap-peals employee G reviews the Appeals case file con-cerning the prior CAP hearing involving the TFRPassessed pursuant to section 6672 against individualH. Appeals employee G is not deemed to have par-ticipated in the previous CAP hearing involving theTFRP assessed against individual H by such review.

(e) Matters considered at CDP hear-ing—(1) In general. Appeals will deter-mine the timeliness of any request for aCDP hearing that is made by a taxpayer.Appeals has the authority to determine thevalidity, sufficiency, and timeliness of anyCDP Notice given by the IRS and of anyrequest for a CDP hearing that is made bya taxpayer. Prior to issuance of a determi-nation, Appeals is required to obtain veri-fication from the IRS office collecting thetax that the requirements of any applica-ble law or administrative procedure withrespect to the filing of the NFTL have beenmet. The taxpayer may raise any rele-vant issue relating to the unpaid tax at thehearing, including appropriate spousal de-fenses, challenges to the appropriatenessof the NFTL filing, and offers of collectionalternatives. The taxpayer also may raisechallenges to the existence or amount ofthe underlying liability, including a liabil-ity reported on a self-filed return, for anytax period specified on the CDP Notice ifthe taxpayer did not receive a statutory no-tice of deficiency for that tax liability ordid not otherwise have an opportunity todispute the tax liability. Finally, the tax-payer may not raise an issue that was raisedand considered at a previous CDP hearingunder section 6330 or in any other previ-ous administrative or judicial proceedingif the taxpayer participated meaningfullyin such hearing or proceeding. Taxpayerswill be expected to provide all relevant in-formation requested by Appeals, includingfinancial statements, for its considerationof the facts and issues involved in the hear-ing.

* * * * *(3) * * *A–E2. A taxpayer is entitled to chal-

lenge the existence or amount of the under-lying liability for any tax period specifiedon the CDP Notice if the taxpayer did notreceive a statutory notice of deficiency forsuch liability or did not otherwise have anopportunity to dispute such liability. Re-ceipt of a statutory notice of deficiency forthis purpose means receipt in time to peti-tion the Tax Court for a redetermination ofthe deficiency determined in the notice ofdeficiency. An opportunity to dispute theunderlying liability includes a prior oppor-tunity for a conference with Appeals thatwas offered either before or after the as-sessment of the liability. An opportunity

November 13, 2006 885 2006–46 I.R.B.

for a conference with Appeals prior to theassessment of a tax subject to deficiencyprocedures is not a prior opportunity forthis purpose.

* * * * *A–E6. Collection alternatives include,

for example, a proposal to withdraw theNFTL in circumstances that will facilitatethe collection of the tax liability, subor-dination of the NFTL, discharge of theNFTL from specific property, an install-ment agreement, an offer to compromise,the posting of a bond, or the substitutionof other assets. A collection alternative isnot available unless the alternative wouldbe available to other taxpayers in similarcircumstances. See A–D8 of paragraph(d)(2).

* * * * *A–E7. The taxpayer may raise appro-

priate spousal defenses, challenges to theappropriateness of the NFTL filing, and of-fers of collection alternatives. The exis-tence or amount of the underlying liabilityfor any tax period specified in the CDP No-tice may be challenged only if the taxpayerdid not have a prior opportunity to disputethe tax liability. If the taxpayer previouslyreceived a CDP Notice under section 6330with respect to the same tax and tax periodand did not request a CDP hearing with re-spect to that earlier CDP Notice, the tax-payer had a prior opportunity to dispute theexistence or amount of the underlying taxliability.

* * * * *A–E11. No. An Appeals officer may

consider the existence and amount of theunderlying tax liability as a part of the CDPhearing only if the taxpayer did not receivea statutory notice of deficiency for the taxliability in question or otherwise have aprior opportunity to dispute the tax liabil-ity. Similarly, an Appeals officer may notconsider any other issue if the issue wasraised and considered at a previous hear-ing under section 6330 or in any other pre-vious administrative or judicial proceed-ing in which the person seeking to raisethe issue meaningfully participated. In theAppeals officer’s sole discretion, however,the Appeals officer may consider the exis-tence or amount of the underlying tax lia-bility, or such other precluded issues, at thesame time as the CDP hearing. Any deter-mination, however, made by the Appeals

officer with respect to such a precluded is-sue shall not be treated as part of the Noticeof Determination issued by the Appeals of-ficer and will not be subject to any judi-cial review. Because any decisions madeby the Appeals officer on such precludedissues are not properly a part of the CDPhearing, such decisions are not required toappear in the Notice of Determination is-sued following the hearing. Even if a de-cision concerning such precluded issues isreferred to in the Notice of Determination,it is not reviewable by the Tax Court be-cause the precluded issue is not properlypart of the CDP hearing.

* * * * *(f) Judicial review of Notice of De-

termination—(1) In general. Unless thetaxpayer provides the IRS a written with-drawal of the request that Appeals conducta CDP hearing, Appeals is required to is-sue a Notice of Determination in all caseswhere a taxpayer has timely requested aCDP hearing. The taxpayer may appealsuch determinations made by Appealswithin the 30-day period commencing theday after the date of the Notice of Deter-mination to the Tax Court.

(2) * * *A–F1. Subject to the jurisdictional lim-

itations described in A–F2 of this para-graph (f)(2), the taxpayer must, within the30-day period commencing the day afterthe date of the Notice of Determination,appeal the determination by Appeals to theTax Court.

* * * * *Q–F3. What issue or issues may the

taxpayer raise before the Tax Court if thetaxpayer disagrees with the Notice of De-termination?

A–F3. In seeking Tax Court review of aNotice of Determination, the taxpayer canonly ask the court to consider an issue, in-cluding a challenge to the underlying taxliability, that was properly raised in the tax-payer’s CDP hearing. An issue is not prop-erly raised if the taxpayer fails to requestconsideration of the issue by Appeals, orif consideration is requested but the tax-payer fails to present to Appeals any evi-dence with respect to that issue after beinggiven a reasonable opportunity to presentsuch evidence.

Q–F4. What is the administrativerecord for purposes of Tax Court review?

A–F4. The case file, including thetaxpayer’s request for hearing, any otherwritten communications and informationfrom the taxpayer or the taxpayer’s au-thorized representative submitted in con-nection with the CDP hearing, notes madeby an Appeals officer or employee of anyoral communications with the taxpayer orthe taxpayer’s authorized representative,memoranda created by the Appeals officeror employee in connection with the CDPhearing, and any other documents or ma-terials relied upon by the Appeals officeror employee in making the determinationunder section 6330(c)(3), will constitutethe record in the Tax Court review of theNotice of Determination issued by Ap-peals.

(g) * * *(3) * * *Example 1. The period of limitation under section

6502 with respect to the taxpayer’s tax period listedin the NFTL will expire on August 1, 1999. The IRSsent a CDP Notice to the taxpayer on April 30, 1999.The taxpayer timely requested a CDP hearing. TheIRS received this request on May 15, 1999. Appealssends the taxpayer its determination on June 15, 1999.The taxpayer timely seeks judicial review of that de-termination. The period of limitation under section6502 would be suspended from May 15, 1999, un-til the determination resulting from that hearing be-comes final by expiration of the time for seeking re-view or reconsideration before the Tax Court, plus 90days.

* * * * *(h) * * *(2) * * *Q–H2. Is a decision of Appeals result-

ing from a retained jurisdiction hearing ap-pealable to the Tax Court?

A–H2. No. As discussed in A–H1, ataxpayer is entitled to only one CDP hear-ing under section 6320 with respect to thetax and tax period or periods specified inthe CDP Notice. Only determinations re-sulting from CDP hearings are appealableto the Tax Court.

(i) * * *(2) * * *Q–I1. What must a taxpayer do to ob-

tain an equivalent hearing?A–I1. (i) A request for an equivalent

hearing must be made in writing. A writ-ten request in any form that requests anequivalent hearing will be acceptable if itincludes the information and signature re-quired in A–I1(ii) of this paragraph (i)(2).

(ii) The request must be dated and mustinclude the following:

2006–46 I.R.B. 886 November 13, 2006

(A) The taxpayer’s name, address,daytime telephone number (if any), andtaxpayer identification number (e.g., SSN,ITIN or EIN).

(B) The type of tax involved.(C) The tax period at issue.(D) A statement that the taxpayer is re-

questing an equivalent hearing with Ap-peals concerning the filing of the NFTL.

(E) The reason or reasons why thetaxpayer disagrees with the filing of theNFTL.

(F) The signature of the taxpayer or thetaxpayer’s authorized representative.

(iii) The taxpayer must perfect anytimely written request for an equivalenthearing that does not satisfy the require-ments set forth in A–I1(ii) of this para-graph (i)(2) within a reasonable periodof time after a request from the IRS. Ifthe requirements are not satisfied within areasonable period of time, the taxpayer’sequivalent hearing request will be denied.

(iv) The taxpayer must affirm anytimely written request for an equivalenthearing that is signed or alleged to havebeen signed on the taxpayer’s behalf by thetaxpayer’s spouse or other unauthorizedrepresentative, and that otherwise meetsthe requirements set forth in A–I1(ii) ofthis paragraph (i)(2), by filing, within areasonable period of time after a requestfrom the IRS, a signed written affirmationthat the request was originally submittedon the taxpayer’s behalf. If the affirmationis filed within a reasonable period of timeafter a request, the timely equivalent hear-ing request will be considered timely withrespect to the non-signing taxpayer. If theaffirmation is not filed within a reason-able period of time, the equivalent hearingrequest will be denied with respect to thenon-signing taxpayer.

* * * * *Q–I6. Will a taxpayer be able to obtain

Tax Court review of a decision made byAppeals with respect to an equivalent hear-ing?

* * * * *Q–I7. When must a taxpayer request an

equivalent hearing with respect to a CDPNotice issued under section 6320?

A–I7. A taxpayer must submit a writtenrequest for an equivalent hearing withinthe one-year period commencing the dayafter the end of the five-business-day pe-riod following the filing of the NFTL. This

period is slightly different from the pe-riod for submitting a written request for anequivalent hearing with respect to a CDPNotice issued under section 6330. For aCDP Notice issued under section 6330, ataxpayer must submit a written request foran equivalent hearing within the one-yearperiod commencing the day after the dateof the CDP Notice issued under section6330.

Q–I8. How will the timeliness of a tax-payer’s written request for an equivalenthearing be determined?

A–I8. The rules and regulations undersection 7502 and section 7503 will apply todetermine the timeliness of the taxpayer’srequest for an equivalent hearing, if prop-erly transmitted and addressed as providedin A–I10 of this paragraph (i)(2).

Q–I9. Is the one-year period withinwhich a taxpayer must make a request foran equivalent hearing extended becausethe taxpayer resides outside the UnitedStates?

A–I9. No. All taxpayers who want anequivalent hearing concerning the filing ofthe NFTL must request the hearing withinthe one-year period commencing the dayafter the end of the five-business-day pe-riod following the filing of the NFTL.

Q–I10. Where must the written requestfor an equivalent hearing be sent?

A–I10. The written request for anequivalent hearing must be sent, or handdelivered (if permitted), to the IRS officeand address as directed on the CDP Notice.If the address of the issuing office does notappear on the CDP Notice, the taxpayershould obtain the address of the office towhich the written request should be sentor hand delivered by calling, toll-free,1–800–829–1040 and providing the tax-payer’s identification number (e.g., SSN,ITIN or EIN).

Q–I11. What will happen if the tax-payer does not request an equivalent hear-ing in writing within the one-year periodcommencing the day after the end of thefive-business-day period following the fil-ing of the NFTL?

A–I11. If the taxpayer does not requestan equivalent hearing with Appeals withinthe one-year period commencing the dayafter the end of the five-business-day pe-riod following the filing of the NFTL, thetaxpayer foregoes the right to an equiva-lent hearing with respect to the unpaid tax

and tax periods shown on the CDP No-tice. A written request submitted withinthe one-year period that does not satisfythe requirements set forth in A–I1(ii) ofthis paragraph (i)(2) is considered timelyif the request is perfected within a reason-able period of time pursuant to A–I1(iii)of this paragraph (i)(2). If a request forequivalent hearing is untimely, either be-cause the request was not submitted withinthe one-year period or not perfected withinthe reasonable period provided, the equiv-alent hearing request will be denied. Thetaxpayer, however, may seek reconsidera-tion by the IRS office collecting the tax,assistance from the National Taxpayer Ad-vocate, or an administrative hearing beforeAppeals under its Collection Appeals Pro-gram or any successor program.

(j) Effective date. This section is appli-cable on or after November 16, 2006 withrespect to requests made for CDP hearingsor equivalent hearings on or after Novem-ber 16, 2006.

Mark E. Matthews,Deputy Commissioner forServices and Enforcement.

Approved October 6, 2006.

Eric Solomon,Acting Deputy Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on October 16,2006, 8:45 a.m., and published in the issue of the FederalRegister for October 17, 2006, 71 F.R. 60835)

Section 6330.—Notice andOpportunity for HearingBefore Levy26 CFR 301.6330–1: Notice and opportunity forhearing prior to levy.

T.D. 9291

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Part 301

Miscellaneous Changesto Collection Due ProcessProcedures Relating to Notice

November 13, 2006 887 2006–46 I.R.B.

and Opportunity for HearingPrior to Levy

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final Regulations.

SUMMARY: This document contains finalregulations amending the regulations relat-ing to a taxpayer’s right to a hearing beforeor, in limited cases, after levy under sec-tion 6330 of the Internal Revenue Code of1986. The final regulations make certainclarifying changes in the way collectiondue process (CDP) hearings are held andspecify the period during which a taxpayermay request an equivalent hearing. Thefinal regulations affect taxpayers againstwhose property or rights to property theInternal Revenue Service (IRS) intends tolevy.

DATES: Effective Date: These regulationsare effective on November 16, 2006.

Applicability Date: These regulationsapply to requests for CDP or equivalenthearings on or after November 16, 2006.

FOR FURTHER INFORMATIONCONTACT: Laurence K. Williams,202–622–3600 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments tothe Regulations on Procedure and Admin-istration (26 CFR part 301) relating to theprovision of notice under section 6330 ofthe Internal Revenue Code to taxpayers ofa right to a CDP hearing (CDP Notice) be-fore or, in limited cases, after levy. Finalregulations (T.D. 8980, 2002–1 C.B. 477)were published on January 18, 2002, in theFederal Register (67 FR 2549) (the 2002final regulations). The 2002 final regula-tions implemented certain changes madeby section 3401 of the Internal RevenueService Restructuring and Reform Act of1998 (Public Law 105–206, 112 Stat. 685)(RRA 1998), including the addition of sec-tion 6330 to the Internal Revenue Code.

Section 3401 of RRA 1998 also addedsection 6320 to the Internal Revenue Code.That statute provides for notice to taxpay-ers of a right to a hearing after the filing

of a notice of Federal tax lien (NFTL). Anumber of the provisions in section 6330concerning the conduct and judicial reviewof a CDP hearing are incorporated by refer-ence in section 6320. On January 18, 2002,final regulations (T.D. 8979, 2002–1 C.B.466) under section 6320 were published inthe Federal Register (67 FR 2558) alongwith the 2002 final regulations under sec-tion 6330.

On September 16, 2005, the IRS andthe Treasury Department published in theFederal Register (70 FR 54687) a noticeof proposed rulemaking and notice of pub-lic hearing (REG–150091–02, 2005–43I.R.B. 774). The IRS received one set ofwritten comments responding to the noticeof proposed rulemaking. Because no onerequested to speak at the public hearing,the hearing was cancelled. After consid-ering each of the comments, the proposedregulations are adopted as amended bythis Treasury decision.

On August 17, 2006, the Pension Pro-tection Act of 2006, Public Law 109–280,120 Stat. 780 (the PPA), was enacted.Section 855 of the PPA amended section6330(d) of the Internal Revenue Codeto withdraw judicial review of CDP no-tices of determination from United Statesdistrict court jurisdiction, leaving reviewsolely in the United States Tax Court. Thisamendment to section 6330(d), effectivefor notices of determination issued onor after October 17, 2006, requires theremoval of references to district court re-view in the 2002 final regulations. ThisTreasury decision removes those refer-ences.

The IRS and the Treasury Departmenthave determined that a notice of proposedrulemaking and solicitation of public com-ments are not required to amend the reg-ulations to implement the modification tosection 6330(d). These amendments aremade solely to conform the regulations to astatutory change enacted by Congress. Be-cause the amendments do not involve anyexercise of discretion or interpretation, thenotice and public comment procedures areunnecessary.

The comments and changes to the pro-posed regulations, and the amendments re-quired by the Congressional modificationto section 6330(d), are discussed below.

Summary of Comments andExplanation of Changes

The comments suggested that the IRSbe required to contact taxpayers whotimely file an incomplete request for CDPhearing to give them the opportunity toperfect the request within a reasonabletime period and further recommended thatsuch contact be in writing and identify theinfirmity requiring perfection. The com-ments also recommended that the finalregulations establish a specific time pe-riod during which taxpayers may, by right,amend or perfect their previously-filed yetincomplete CDP hearing request. The re-quest, according to the comments, shouldbe considered timely if it is perfectedwithin the applicable time period.

Currently, the practice of the IRS is tocontact taxpayers whose hearing requestsfail to satisfy the requirements specifiedby the existing regulations and ask thesetaxpayers to perfect their requests within aspecified period of time. The IRS consid-ers requests perfected within the time spec-ified to be timely. The intention of the IRSand the Treasury Department is to incor-porate this administrative procedure intothe proposed regulations. The final regu-lations more clearly state that the IRS willmake a reasonable attempt to contact tax-payers to give them a reasonable period oftime to perfect incomplete requests. How-ever, the timeframe in which to respond tothe request, and the method of delivery ofthe request (i.e., orally or in writing) aremore appropriately addressed in the Inter-nal Revenue Manual. The final regulationsmake clear that requests perfected withinthe time period specified by the IRS willbe considered timely.

The final regulations do not adopt thesuggestion to establish a period of timeduring which a taxpayer is allowed to per-fect an incomplete request, without regardto a perfection request from the IRS. TheIRS and Treasury Department believe thatthe procedure incorporated into the finalregulations is sufficient to permit taxpay-ers to ensure their requests are complete.

The comments recommended that theIRS Office of Appeals (Appeals) be giventhe discretion to permit a taxpayer toamend an imperfect hearing request afterthe period for perfecting the request hasexpired, if the taxpayer can demonstratethat such amendment furthers an alter-

2006–46 I.R.B. 888 November 13, 2006

native to collection. This change to theregulations is unnecessary because Ap-peals is already empowered to exercisethis discretion. Neither the current regula-tions nor the proposed amendments limitsAppeals from exercising this discretion.Accordingly, the final regulations do notadopt this recommendation. Further clari-fication, however, will be provided in theInternal Revenue Manual.

The comments suggested that where ataxpayer fails to perfect a CDP hearing re-quest until after the time period specifiedby the IRS, the perfected request shouldbe automatically treated as a request for anequivalent hearing. Treating untimely per-fected requests as equivalent hearing re-quests may unduly prolong the process incases in which a taxpayer does not wantan equivalent hearing. Accordingly, the fi-nal regulations do not adopt this sugges-tion. The final regulations, however, pro-vide that Appeals will determine the time-liness of CDP hearing requests. The finalregulations also add to the proposed regu-lations that taxpayers making an untimelyrequest will be provided the opportunity tohave the request for CDP hearing treatedas a request for equivalent hearing, with-out submitting an additional request.

The comments requested that the finalregulations give taxpayers whose hearingrequests might be construed as makinga frivolous argument the right to amendtheir hearing requests to raise relevant,non-frivolous issues. The comments fur-ther recommended that all taxpayers begiven the right to supplement the hearingrequest prior to the conference conductedby Appeals.

These comments indicate concern thattaxpayers may be unable to articulate rea-sons for disagreeing with the collectionaction that are satisfactory to Appeals. Thereasons for disagreeing with the collec-tion action need not be detailed. To assisttaxpayers in articulating reasons, the IRSis revising Form 12153, “Request for aCollection Due Process Hearing,” to addexamples of the most common reasonstaxpayers give for requesting a hearing,including requests for collection alterna-tives. In any event, the informal natureof the CDP hearing permits taxpayers andAppeals to discuss collection alternativesand issues not listed in the hearing requestif such discussion will help resolve the

case. Accordingly, the final regulations donot adopt these recommendations.

The comments urged that the final reg-ulations guarantee a face-to-face confer-ence for each taxpayer who presents a rel-evant, non-frivolous reason for disagree-ment with the collection action. If thisrecommendation is not adopted, the com-ments suggest that the regulations addressand provide examples of when a face-to-face conference will not be granted. Thefinal regulations do not adopt the recom-mendation to guarantee a face-to-face con-ference for each taxpayer raising a rele-vant, non-frivolous issue. The IRS andthe Treasury Department agree with thecomments that a face-to-face conferencecan be a useful forum for resolving a tax-payer’s issues. The final regulations rec-ognize the importance of a face-to-facemeeting by providing that taxpayers willordinarily be offered an opportunity for aface-to-face conference. There will be in-stances, however, when a face-to-face con-ference is not practical. The final regula-tions identify typical situations in whicha face-to-face conference will be neithernecessary nor productive. Except for thesesituations, the IRS and the Treasury De-partment anticipate that Appeals will af-ford a face-to-face meeting to taxpayerswho request one. Nonetheless, unantic-ipated circumstances may arise in whichgranting a face-to-face conference will notbe appropriate. The final regulations giveAppeals the flexibility needed to respondto unanticipated circumstances.

Adoption of the comment requestingguidance on when a face-to-face confer-ence will not be granted is unnecessary.The final regulations retain descriptions ofsituations in which a face-to-face confer-ence will not be granted, as illustrated inthe proposed regulations. Further guid-ance on granting face-to-face conferenceswill be provided in the Internal RevenueManual.

The comments suggested that a tax-payer who appears to be presenting onlyfrivolous reasons be given an opportu-nity to provide relevant, non-frivolousreasons in order to obtain a face-to-faceconference. Adoption of this recommen-dation is unnecessary. Correspondencesent by Appeals to taxpayers who makeonly frivolous arguments invites them tosubmit relevant, non-frivolous reasons.Appeals offers face-to-face conferences to

taxpayers who respond by providing suchreasons.

The comments also suggested that theregulations define relevant and frivolous.The IRS and the Treasury Departmentbelieve that any attempt to define theseterms is unnecessary and could result inunderinclusive definitions. For example,the comments suggest that a frivolous is-sue be defined as an issue that is the sameor substantially similar to an issue identi-fied as frivolous by the IRS in publishedguidance. It is not possible to anticipate orkeep pace with the evolution of frivolousarguments through published guidance.Instead, taxpayers are advised to consultthe lists of examples of frivolous argu-ments in IRS Publication 2105, “Why Do IHave to Pay Taxes” and on the IRS websitein a document entitled “The Truth aboutFrivolous Tax Arguments.” The namesand web addresses of these documents,and a toll-free number to order Publication2105, will be added to the instructionsto Form 12153 to help taxpayers avoidmaking these arguments.

The comments recommended clarifica-tion of the proposed rule that a face-to-faceconference concerning a collection alter-native will not be granted unless the alter-native would be available to other taxpay-ers in similar circumstances. Accordingto the comments, a taxpayer should not bedenied a face-to-face conference becausethe requested collection alternative cannotbe accepted, for example, because it ap-pears from financial information that thetaxpayer can pay the liabilities in full. Thisproposed rule was not intended to denya face-to-face conference because the re-quested collection alternative would not beaccepted. The intention of this rule is topermit the denial of a face-to-face confer-ence to discuss a collection alternative forwhich the taxpayer is not eligible. A lackof eligibility under IRS policy is tied to ataxpayer’s compliance with the Federal taxlaws, not to the taxpayer’s financial cir-cumstances or ability to request the mostappropriate alternative. For example, if thetaxpayer has not filed all required tax re-turns, the taxpayer is not eligible for an of-fer to compromise or an installment agree-ment.

In response to the concerns expressedin the comments, the final regulations am-plify the rule that a face-to-face conferenceto discuss a collection alternative will not

November 13, 2006 889 2006–46 I.R.B.

be granted unless other taxpayers would beeligible for the alternative in similar cir-cumstances. The final regulations providein A–D8 that Appeals in its discretion maygrant a face-to-face conference if Appealsdetermines that a face-to-face conferenceis appropriate to explain to the taxpayerthe requirements for becoming eligible fora collection alternative. The final regula-tions also provide that taxpayers will begiven an opportunity to demonstrate theyare eligible for a collection alternative inorder to obtain a face-to-face conference todiscuss the alternative. Taxpayers will alsobe given an opportunity to become eligi-ble for a collection alternative in order toobtain a face-to-face conference. For ex-ample, under the final regulations, if a tax-payer appears to have failed to file all re-quired returns (and thus appears not to beeligible for an offer to compromise or aninstallment agreement), the taxpayer willbe given an opportunity to demonstrate theinapplicability of the filing requirementsor to file delinquent returns, in order toobtain a face-to-face conference. The fi-nal regulations further provide that a tax-payer’s eligibility for a collection alterna-tive does not include the taxpayer’s abilityto pay the unpaid tax.

The comments expressed concern thatthe amendment providing a face-to-faceconference at an Appeals office other thanan office in which all officers or employ-ees had prior involvement could be con-strued as giving Appeals the discretion todeny a face-to-face conference even if thetaxpayer would have been granted a face-to-face conference at the original location.The relevant sentence in A–D8 in the fi-nal regulations has been rewritten to makeclear that Appeals does not have discretionto deny a face-to-face conference at an al-ternate location if the taxpayer would havebeen granted a face-to-face conference butfor the disqualification of the Appeals em-ployees at the original location.

The comments suggested that the reg-ulations permit face-to-face conferencesto be held not only at the Appeals officeclosest to the taxpayer’s residence or, for abusiness taxpayer, the taxpayer’s principalplace of business, but also at the Appealsoffice closest to the taxpayer’s school orplace of employment, the authorized rep-resentative’s place of business, or someother location convenient to the taxpayeror the taxpayer’s representative. The IRS

and Treasury Department believe the rulesfor CDP hearings should be consistentwith the treatment of other proceedingsin Appeals. The long-standing practiceof Appeals in cases not docketed in theTax Court is to grant face-to-face confer-ences in the Appeals office closest to thetaxpayer’s residence or principal place ofbusiness. The practice is retained in thefinal regulations. Appeals will, however,attempt to accommodate reasonable re-quests to hold the face-to-face conferenceat an Appeals office more convenient tothe taxpayer.

The comments expressed concern thatthe definition of prior involvement undersection 6320(b)(3) or 6330(b)(3) in theproposed regulations could be construedtoo narrowly in two ways. First, the def-inition of prior involvement as involve-ment in a prior hearing or proceeding couldbe read to exclude involvement in someinformal settings, e.g., the Appeals offi-cer’s participation in a mediation session.In order to clarify that no such limitationis intended, the final regulations substi-tute matter for hearing or proceeding inA–D4 of paragraph (d)(2). Second, defin-ing prior involvement to exist when theAppeals officer previously considered thesame tax liability could be construed asexcluding from the definition instances inwhich the Appeals officer previously con-sidered questions bearing only on collec-tion issues. The final regulations adopt thesuggestion in the comments to remove theword liability in A–D4 in order to elimi-nate the potential interpretation that thereis a distinction between liability and col-lection issues in determining prior involve-ment.

The comments also requested that amediation example be added to paragraph(d)(3). The IRS and the Treasury De-partment believe that the change madeto A–D4 adequately clarifies the defini-tion of prior involvement. This exampleand others will be added to the InternalRevenue Manual to ensure the proper ad-ministration of sections 6320(b)(3) and6330(b)(3).

The comments recommended that theregulations address the treatment of exparte communications during CDP hear-ings. The rules applicable to ex partecommunications during CDP hearings andother Appeals proceedings are providedin Rev. Proc. 2000–43, 2000–2 C.B. 404.

Therefore, these rules are not duplicatedin the regulations under sections 6320 and6330.

The comments recommended that theregulations be amended to provide thatself-reported tax liabilities may be dis-puted in a CDP hearing. The final regula-tions adopt this recommendation. See alsoMontgomery v. Commissioner, 122 T.C. 1(2004), acq. 2005–51 I.R.B. 1152.

The comments also requested changesin the existing regulations’ interpreta-tion of preclusive events under sec-tion 6330(c)(2)(B). Under section6330(c)(2)(B), during a CDP hearing,a taxpayer may challenge the existenceor amount of the underlying tax liabilityfor any tax period if the person did notreceive any statutory notice of deficiencyfor such tax liability or did not otherwisehave an opportunity to dispute such taxliability. According to the comments, theonly opportunity to dispute the tax liabilitythat is sufficient to prevent the taxpayerfrom challenging the liability in a CDPhearing is the prior opportunity to disputethe liability in a judicial forum. The IRSand the Treasury Department believe thatthe existing regulations correctly includean opportunity for an Appeals conferenceas a preclusive prior opportunity. The textof section 6330(c)(2)(B) does not con-tain language limiting prior opportunitiesto judicial proceedings. Moreover, it isconsistent for a taxpayer who has had anopportunity to obtain a determination ofliability by Appeals in one administrativehearing to be precluded from obtainingan Appeals determination in a subsequentCDP administrative hearing with respectto the same liability. This interpretation ofsection 6330(c)(2)(B) has been upheld bythe courts. See, e.g., Pelliccio v. UnitedStates, 253 F. Supp. 2d 258, 261–62(D. Conn. 2003). Accordingly, the finalregulations do not adopt this suggestion.

Alternatively, the comments recom-mended that the regulations specify thata pre-CDP Appeals conference is not aprior opportunity to dispute liability un-der section 6330(c)(2)(B) if the receiptof the conference was conditioned uponthe taxpayer’s agreement to extend theassessment statute of limitations withrespect to the liability and the taxpayerdeclined to extend the statute. The IRSand Treasury Department believe this ad-dition is unnecessary. For taxes subject

2006–46 I.R.B. 890 November 13, 2006

to deficiency procedures, the relevant,pre-assessment “prior opportunity” is thereceipt of the notice of deficiency. Theoffer of an Appeals conference prior toreceipt of the notice of deficiency does notconstitute an opportunity to dispute theliability under section 6330(c)(2)(B). Thisinterpretation of section 6330(c)(2)(B) hasbeen added to paragraph (e)(3) A–E2 toremove any uncertainty about this matter.For liabilities not subject to deficiencyprocedures, the offer of an Appeals con-ference prior to assessment constitutes anopportunity to dispute the liability undersection 6330(c)(2)(B). Appeals confer-ences to consider these types of liabilitiesare rarely conditioned upon an extensionof the assessment statute of limitations.The IRS generally makes conditional of-fers of a conference only when a taxpayermakes an untimely request for review ofa proposed Trust Fund Recovery Penaltypursuant to a Letter 1153 and less than oneyear remains on the assessment statute oflimitations. In this circumstance, however,the opportunity for an Appeals conferenceoffered in the Letter 1153 constitutes theopportunity to dispute the liability undersection 6330(c)(2)(B). The conditionaloffer made after the expiration of the prioropportunity provided in the Letter 1153is irrelevant. For these reasons, the finalregulations do not adopt this comment.

The comments objected to the additionof a definition of administrative record tothe regulations as an attempt to overrulethe Tax Court’s decision in Robinette v.Commissioner, 123 T.C. 85 (2004), rev’d,439 F.3d 455 (8th Cir. 2006). The assump-tion that Robinette eliminated any role foran administrative record in CDP court pro-ceedings is not supported by the Court’sopinion. While the Tax Court held inRobinette that it was not required to limitits abuse-of-discretion review to the ad-ministrative record, it did not reject theutility of an administrative record. Subse-quent to the submission of the comments,the United States Court of Appeals forthe Eighth Circuit reversed the Tax Courtand held that abuse-of-discretion review inCDP cases is limited to the administrativerecord. Robinette v. Commissioner, 439F.3d 455 (8th Cir. 2006). For these rea-sons, it is important that taxpayers and theIRS have a common understanding of thescope of the administrative record. The

definition is retained in the final regula-tions.

The comments suggested that the pro-posed definition of the administrativerecord permits Appeals officers and em-ployees to exclude from the record forjudicial review issues, arguments, and ev-idence presented orally by the taxpayer,and to exclude written communicationsand documents. The administrative recorddefinition is not intended to suggest thatthe reviewing court is not permitted todetermine the contents of the administra-tive record or the record’s adequacy inan individual case. The reviewing courthas the authority to receive evidence con-cerning what happened during the CDPhearing. The definition is provided toestablish for the benefit of the IRS andtaxpayers a baseline description of whateach administrative record should containto ensure a record sufficient for judicialreview. The final regulations have notbeen changed in this regard. The finalregulations, however, adopt the sugges-tion that the description of the case filein A–D7 and in the definition of admin-istrative record in A–F6 of the proposedregulations (redesignated as A–F4 in thefinal regulations) be made consistent.

The comments recommended that thefinal regulations require each Appeals of-ficer to include in the notice of determi-nation a list of the documents the Appealsofficer believes are included in the admin-istrative record. The justification for thisproposed requirement is that the list wouldassist the taxpayer in deciding whether toseek judicial review. The list of docu-ments, according to the comments, willalso assist the court and taxpayers seek-ing review to more efficiently ascertainwhether there was an abuse of discretion.

The final regulations do not adopt thisrecommendation. Requiring Appeals offi-cers to prepare a list of documents consti-tuting the administrative record in each ofthe thousands of cases handled each yearwould impose a heavy burden on Appealswithout a commensurate benefit to taxpay-ers. The notice of determination issued ineach case describes the facts and reasonssupporting the Appeals officer’s determi-nation and should provide an adequate ba-sis for the taxpayer’s decision whether toseek judicial review.

The IRS and the Treasury Departmentacknowledge that disputes have arisen

with respect to the contents of the ad-ministrative record in CDP cases andthat there are no special rules in place toresolve these disputes. An appropriatesolution could involve the Tax Court’sdevelopment of rules governing the prepa-ration and submission of the administra-tive record for abuse-of-discretion review,particularly now that the recently-enactedPension Protection Act of 2006 requiresall CDP cases to be litigated in the TaxCourt.

The comments suggested removal ofthe limitation in the existing regulationsthat a taxpayer is precluded from obtainingjudicial review of an issue not raised withAppeals during the CDP hearing. As analternative, the comments recommendedthat a taxpayer only be prevented fromraising those issues the taxpayer couldhave, but failed to raise during the CDPhearing. The limitation in the existing reg-ulations implements a basic principle ofadministrative law that those seeking re-view of an issue must first give the agencythe opportunity to evaluate and respond tothe issue. This limitation has been upheldin the courts. See Robinette v. Com-missioner, 123 T.C. 85, 101–102 (2004),rev’d on other grounds, 439 F.3d 455 (8th

Cir. 2006); Magana v. Commissioner,118 T.C. 488, 493 (2002); Abu-Awad v.United States, 294 F. Supp. 2d 879, 889(S.D. Tex. 2003). Accordingly, the finalregulations do not adopt either of theserecommendations.

The comments recommended that if thelimitation on the taxpayer’s ability to raisenew issues during judicial review is re-tained, then the amendment to A–F5 (re-designated as A–F3 in the final regula-tions) should clarify that a taxpayer neednot provide the evidence specified by Ap-peals with respect to an issue in order topresent “any evidence” necessary to prop-erly raise the issue. The IRS and the Trea-sury Department believe this change is un-necessary. The revision to A–F5 (redes-ignated as A–F3) does not suggest that the“any evidence” needed to avoid preclusionmust be the evidence specified by Appeals.The revised language simply requires thatthe taxpayer submit some evidentiary sup-port. This suggestion is not adopted in thefinal regulations.

The comments also suggested addingthat a taxpayer need not provide any evi-dence to avoid preclusion if the case file

November 13, 2006 891 2006–46 I.R.B.

already contains evidence with respect tothat issue. This addition is not necessary.If the case file contains all the informationneeded for a decision on an issue, an Ap-peals officer will not request any additionalevidence and the revised language in A–F5(redesignated as A–F3 in the final regula-tions) will not apply. In the unlikely eventthat an Appeals officer making a determi-nation on an issue requested informationalready in the file, a reviewing court shouldfind the taxpayer’s failure to provide anyevidence does not prevent the issue frombeing raised. The final regulations do notadopt this recommendation.

The comments urged that the regula-tions make clear that the authority of Ap-peals officers to determine the validity,sufficiency and timeliness of a CDP no-tice does not alter or limit the authorityof the reviewing court to make the samedetermination. The IRS and the TreasuryDepartment believe this clarification is un-necessary. It is well-settled that review-ing courts have the authority to determinethe validity, sufficiency and timeliness ofa CDP notice. See, e.g., Kennedy v. Com-missioner, 116 T.C. 255 (2001). This clar-ification is not adopted in the final regula-tions.

The comments recommended that ad-ministrative rules similar to those devel-oped under section 6015 be added to theregulations. The regulations state that aspousal defense raised under section 66 or6015 is governed by section 66 or 6015 andthe regulations and procedures thereun-der. See Treas. Reg. § 301.6330–1(e)(2).To the extent it is determined that furtherguidance is necessary, such guidance willbe in the form of additions to the InternalRevenue Manual. The final regulations donot adopt this recommendation.

The final regulations include amend-ments to the existing regulations to removereferences to judicial review by UnitedStates district courts. The Pension Pro-tection Act of 2006, Public Law 109–280,120 Stat. 780, § 855 amended section6330(d) to eliminate the jurisdiction of thedistrict courts to review notices of deter-mination, leaving the Tax Court with solejurisdiction. For this reason, Q&A–F3and Q&A–F4 in the existing regulationsare removed by the final regulations andQ&A–F5 and Q&A–F6 in the proposedregulations are redesignated as Q&A–F3and Q&A–F4 in the final regulations. In

addition, only the Tax Court is now men-tioned in A–E11, paragraph (f)(1), A–F1,redesignated Q&A–F3 and Q&A–F4, Ex-ample 1 of paragraph (g)(3), Q&A–H2 andredesignated Q–I6.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been deter-mined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to these regulations. Inparticular, the IRS and the Treasury De-partment find for good cause that a no-tice of proposed rulemaking and solicita-tion of public comments are unnecessaryto amend the existing regulations to imple-ment the modification of section 6330(d)by the Pension Protection Act of 2006,Public Law 109–280, 120 Stat. 780. Theseamendments are made solely to conformthe regulations to the statutory change en-acted by Congress. The amendments donot involve any exercise of discretion orinterpretation by the IRS or Treasury De-partment and the removal of United Statesdistrict court jurisdiction would becomeeffective even if the amendments were notmade. Accordingly, the notice and pub-lic comment procedures do not apply. Be-cause the regulations do not impose a col-lection of information on small entities, theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) does not apply. Pursuant to section7805(f) of the Internal Revenue Code, theproposed regulations were submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Drafting Information

The principal author of these regula-tions is Laurence K. Williams, Office ofAssociate Chief Counsel, Procedure andAdministration (Collection, Bankruptcyand Summonses Division).

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 301 isamended as follows:

PART 301—PROCEDURE ANDADMINISTRATION

Paragraph 1. The authority citation forpart 301 continues to read, in part, as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6330–1 is amended

as follows:1. Paragraph (c)(2) A–C1, Q&A–C6

and A–C7 are revised.2. Paragraph (d)(2) A–D4 and A–D7

are revised.3. Paragraph (d)(2) Q&A–D8 is added.4. Paragraph (d)(3) is added.5. Paragraph (e)(1) is revised.6. Paragraph (e)(3) A–E2, A–E6, A–E7

and A–E11 are revised.7. Paragraph (f)(1) is revised.8. Paragraph (f)(2) A–F1 is revised.9. Paragraph (f)(2) Q&A–F3 is re-

moved.10. Paragraph (f)(2) Q&A–F5 is re-

vised and redesignated Q&A–F3.11. Paragraph (f)(2) Q&A–F4 is re-

vised.12. Paragraph (g)(3) Example 1 is re-

vised.13. Paragraph (h)(2) Q&A–H2 is re-

vised.14. Paragraph (i)(2) Q–I5 is revised and

redesignated Q–I6.15. Paragraph (i)(2) A–I5 is redesig-

nated A–I6.16. Paragraph (i)(2) Q&A–I1 through

Q&A–I4 are redesignated Q&A–I2through Q&A–I5

17. Paragraph (i)(2) Q&A–I1 andQ&A–I7 through Q&A–I11 are added.

18. Paragraph (j) is revised.

§301.6330–1 Notice and opportunity forhearing prior to levy.

* * * * *(c) * * *(2) * * *A–C1. (i) The taxpayer must make

a request in writing for a CDP hearing.The request for a CDP hearing shall in-clude the information and signature spec-ified in A–C1(ii) of this paragraph (c)(2).See A–D7 and A–D8 of paragraph (d)(2).

(ii) The written request for a CDP hear-ing must be dated and must include the fol-lowing:

(A) The taxpayer’s name, address,daytime telephone number (if any), and

2006–46 I.R.B. 892 November 13, 2006

taxpayer identification number (e.g., SSN,ITIN or EIN).

(B) The type of tax involved.(C) The tax period at issue.(D) A statement that the taxpayer re-

quests a hearing with Appeals concerningthe proposed levy.

(E) The reason or reasons why the tax-payer disagrees with the proposed levy.

(F) The signature of the taxpayer or thetaxpayer’s authorized representative.

(iii) If the IRS receives a timely writtenrequest for CDP hearing that does not sat-isfy the requirements set forth in A–C1(ii)of this paragraph (c)(2), the IRS will makea reasonable attempt to contact the tax-payer and request that the taxpayer com-ply with the unsatisfied requirements. Thetaxpayer must perfect any timely writtenrequest for a CDP hearing that does not sat-isfy the requirements set forth in A–C1(ii)of this paragraph (c)(2) within a reasonableperiod of time after a request from the IRS.

(iv) Taxpayers are encouraged to useForm 12153, “Request for a CollectionDue Process Hearing,” in requesting aCDP hearing so that the request can bereadily identified and forwarded to Ap-peals. Taxpayers may obtain a copy ofForm 12153 by contacting the IRS officethat issued the CDP Notice, by down-loading a copy from the IRS Internet site,www.irs.gov/pub/irs-pdf/f12153.pdf, or bycalling, toll-free, 1–800–829–3676.

(v) The taxpayer must affirm any timelywritten request for a CDP hearing whichis signed or alleged to have been signedon the taxpayer’s behalf by the taxpayer’sspouse or other unauthorized representa-tive by filing, within a reasonable period oftime after a request from the IRS, a signed,written affirmation that the request wasoriginally submitted on the taxpayer’s be-half. If the affirmation is filed within a rea-sonable period of time after a request, thetimely CDP hearing request will be consid-ered timely with respect to the non-sign-ing taxpayer. If the affirmation is not filedwithin a reasonable period of time after arequest, the CDP hearing request will bedenied with respect to the non-signing tax-payer.

* * * * *Q–C6. Where must the written request

for a CDP hearing be sent?A–C6. The written request for a CDP

hearing must be sent, or hand delivered (if

permitted), to the IRS office and addressas directed on the CDP Notice. If the ad-dress of that office does not appear on theCDP Notice, the taxpayer should obtainthe address of the office to which the writ-ten request should be sent or hand deliv-ered by calling, toll-free, 1–800–829–1040and providing the taxpayer’s identificationnumber (e.g., SSN, ITIN or EIN).

* * * * *A–C7. If the taxpayer does not request

a CDP hearing in writing within the 30-dayperiod that commences on the day after thedate of the CDP Notice, the taxpayer fore-goes the right to a CDP hearing under sec-tion 6330 with respect to the unpaid taxand tax periods shown on the CDP No-tice. A written request submitted withinthe 30-day period that does not satisfy therequirements set forth in A–C1(ii)(A), (B),(C), (D) or (F) of this paragraph (c)(2)is considered timely if the request is per-fected within a reasonable period of timepursuant to A–C1(iii) of this paragraph(c)(2). If the request for CDP hearing isuntimely, either because the request wasnot submitted within the 30-day period ornot perfected within the reasonable periodprovided, the taxpayer will be notified ofthe untimeliness of the request and offeredan equivalent hearing. In such cases, thetaxpayer may obtain an equivalent hearingwithout submitting an additional request.See paragraph (i) of this section.

* * * * *(d) * * *(2) * * *A–D4. Prior involvement by an Ap-

peals officer or employee includes partic-ipation or involvement in a matter (otherthan a CDP hearing held under either sec-tion 6320 or section 6330) that the tax-payer may have had with respect to thetax and tax period shown on the CDP No-tice. Prior involvement exists only whenthe taxpayer, the tax and the tax period atissue in the CDP hearing also were at is-sue in the prior non-CDP matter, and theAppeals officer or employee actually par-ticipated in the prior matter.

* * * * *A–D7. Except as provided in A–D8

of this paragraph (d)(2), a taxpayer whopresents in the CDP hearing request rel-evant, non-frivolous reasons for disagree-ment with the proposed levy will ordinar-ily be offered an opportunity for a face-to-

face conference at the Appeals office clos-est to taxpayer’s residence. A businesstaxpayer will ordinarily be offered an op-portunity for a face-to-face conference atthe Appeals office closest to the taxpayer’sprincipal place of business. If that is notsatisfactory to the taxpayer, the taxpayerwill be given an opportunity for a hearingby telephone or by correspondence. In allcases, the Appeals officer or employee willreview the case file, as described in A–F4of paragraph (f)(2). If no face-to-face ortelephonic conference is held, or other oralcommunication takes place, review of thedocuments in the case file, as described inA–F4 of paragraph (f)(2), will constitutethe CDP hearing for purposes of section6330(b).

Q–D8. In what circumstances willa face-to-face CDP conference not begranted?

A–D8. A taxpayer is not entitled toa face-to-face CDP conference at a loca-tion other than as provided in A–D7 of thisparagraph (d)(2) and this A–D8. If all Ap-peals officers or employees at the locationprovided for in A–D7 of this paragraph(d)(2) have had prior involvement with thetaxpayer as provided in A–D4 of this para-graph (d)(2), the taxpayer will not be of-fered a face-to-face conference at that lo-cation, unless the taxpayer elects to waivethe requirement of section 6330(b)(3). Thetaxpayer will be offered a face-to-face con-ference at another Appeals office if Ap-peals would have offered the taxpayer aface-to-face conference at the location pro-vided in A–D7 of this paragraph (d)(2),but for the disqualification of all Appealsofficers or employees at that location. Aface-to-face CDP conference concerning ataxpayer’s underlying liability will not begranted if the request for a hearing or othertaxpayer communication indicates that thetaxpayer wishes only to raise irrelevant orfrivolous issues concerning that liability.A face-to-face CDP conference concern-ing a collection alternative, such as an in-stallment agreement or an offer to compro-mise liability, will not be granted unlessother taxpayers would be eligible for thealternative in similar circumstances. Forexample, because the IRS does not con-sider offers to compromise from taxpay-ers who have not filed required returns orhave not made certain required depositsof tax, as set forth in Form 656, “Offerin Compromise,” no face-to-face confer-

November 13, 2006 893 2006–46 I.R.B.

ence will be granted to a taxpayer whowishes to make an offer to compromisebut has not fulfilled those obligations. Ap-peals in its discretion, however, may granta face-to-face conference if Appeals deter-mines that a face-to-face conference is ap-propriate to explain to the taxpayer the re-quirements for becoming eligible for a col-lection alternative. In all cases, a taxpayerwill be given an opportunity to demon-strate eligibility for a collection alternativeand to become eligible for a collection al-ternative, in order to obtain a face-to-faceconference. For purposes of determiningwhether a face-to-face conference will begranted, the determination of a taxpayer’seligibility for a collection alternative ismade without regard to the taxpayer’s abil-ity to pay the unpaid tax. A face-to-faceconference need not be granted if the tax-payer does not provide the required infor-mation set forth in A–C1(ii)(E) of para-graph (c)(2). See also A–C1(iii) of para-graph (c)(2).

(3) Examples. The following examplesillustrate the principles of this paragraph(d):

Example 1. Individual A timely requests a CDPhearing concerning a proposed levy for the 1998 in-come tax liability assessed against individual A. Ap-peals employee B previously conducted a CDP hear-ing regarding a NFTL filed with respect to individ-ual A’s 1998 income tax liability. Because employeeB’s only prior involvement with individual A’s 1998income tax liability was in connection with a sec-tion 6320 CDP hearing, employee B may conduct theCDP hearing under section 6330 involving the pro-posed levy for the 1998 income tax liability.

Example 2. Individual C timely requests a CDPhearing concerning a proposed levy for the 1998 in-come tax liability assessed against individual C. Ap-peals employee D previously conducted a CollectionAppeals Program (CAP) hearing regarding a NFTLfiled with respect to individual C’s 1998 income taxliability. Because employee D’s prior involvementwith individual C’s 1998 income tax liability wasin connection with a non-CDP hearing, employee Dmay not conduct the CDP hearing under section 6330unless individual C waives the requirement that thehearing will be conducted by an Appeals officer oremployee who has had no prior involvement with re-spect to individual C’s 1998 income tax liability.

Example 3. Same facts as in Example 2, exceptthat the prior CAP hearing only involved individualC’s 1997 income tax liability and employment tax lia-bilities for 1998 reported on Form 941, “Employer’sQuarterly Federal Tax Return.” Employee D wouldnot be considered to have prior involvement becausethe prior CAP hearing in which she participated didnot involve individual C’s 1998 income tax liability.

Example 4. Appeals employee F is assigned to aCDP hearing concerning a proposed levy for a trustfund recovery penalty (TFRP) assessed pursuant tosection 6672 against individual E. Appeals employee

F participated in a prior CAP hearing involving indi-vidual E’s 1999 income tax liability, and participatedin a CAP hearing involving the employment taxes ofbusiness entity X, which incurred the employment taxliability to which the TFRP assessed against individ-ual E relates. Appeals employee F would not be con-sidered to have prior involvement because the priorCAP hearings in which he participated did not di-rectly involve the TFRP assessed against individualE.

Example 5. Appeals employee G is assigned to aCDP hearing concerning a proposed levy for a TFRPassessed pursuant to section 6672 against individualH. In preparing for the CDP hearing, Appeals em-ployee G reviews the Appeals case file concerning theprior CAP hearing involving the TFRP assessed pur-suant to section 6672 against individual H. Appealsemployee G is not deemed to have participated in theprevious CAP hearing involving the TFRP assessedagainst individual H by such review.

(e) Matters considered at CDP hear-ing—(1) In general. Appeals will deter-mine the timeliness of any request for aCDP hearing that is made by a taxpayer.Appeals has the authority to determine thevalidity, sufficiency, and timeliness of anyCDP Notice given by the IRS and of anyrequest for a CDP hearing that is made bya taxpayer. Prior to issuance of a determi-nation, Appeals is required to obtain veri-fication from the IRS office collecting thetax that the requirements of any applica-ble law or administrative procedure withrespect to the proposed levy have beenmet. The taxpayer may raise any rele-vant issue relating to the unpaid tax at thehearing, including appropriate spousal de-fenses, challenges to the appropriatenessof the proposed levy, and offers of collec-tion alternatives. The taxpayer also mayraise challenges to the existence or amountof the underlying liability, including a li-ability reported on a self-filed return, forany tax period specified on the CDP Noticeif the taxpayer did not receive a statutorynotice of deficiency for that tax liability ordid not otherwise have an opportunity todispute the tax liability. Finally, the tax-payer may not raise an issue that was raisedand considered at a previous CDP hearingunder section 6320 or in any other previ-ous administrative or judicial proceedingif the taxpayer participated meaningfullyin such hearing or proceeding. Taxpayerswill be expected to provide all relevant in-formation requested by Appeals, includingfinancial statements, for its considerationof the facts and issues involved in the hear-ing.

* * * * *(3) * * *

A–E2. A taxpayer is entitled to chal-lenge the existence or amount of the under-lying liability for any tax period specifiedon the CDP Notice if the taxpayer did notreceive a statutory notice of deficiency forsuch liability or did not otherwise have anopportunity to dispute such liability. Re-ceipt of a statutory notice of deficiency forthis purpose means receipt in time to peti-tion the Tax Court for a redetermination ofthe deficiency determined in the notice ofdeficiency. An opportunity to dispute theunderlying liability includes a prior oppor-tunity for a conference with Appeals thatwas offered either before or after the as-sessment of the liability. An opportunityfor a conference with Appeals prior to theassessment of a tax subject to deficiencyprocedures is not a prior opportunity forthis purpose.

* * * * *A–E6. Collection alternatives include,

for example, a proposal to withhold theproposed levy or future collection actionin circumstances that will facilitate the col-lection of the tax liability, an installmentagreement, an offer to compromise, theposting of a bond, or the substitution ofother assets. A collection alternative isnot available unless the alternative wouldbe available to other taxpayers in similarcircumstances. See A–D8 of paragraph(d)(2).

* * * * *A–E7. The taxpayer may raise appro-

priate spousal defenses, challenges to theappropriateness of the proposed collectionaction, and offers of collection alterna-tives. The existence or amount of the un-derlying liability for any tax period speci-fied in the CDP Notice may be challengedonly if the taxpayer did not have a prior op-portunity to dispute the tax liability. If thetaxpayer previously received a CDP No-tice under section 6320 with respect to thesame tax and tax period and did not re-quest a CDP hearing with respect to thatearlier CDP Notice, the taxpayer had aprior opportunity to dispute the existenceor amount of the underlying tax liability.

* * * * *A–E11. No. An Appeals officer may

consider the existence and amount of theunderlying tax liability as a part of the CDPhearing only if the taxpayer did not receivea statutory notice of deficiency for the taxliability in question or otherwise have a

2006–46 I.R.B. 894 November 13, 2006

prior opportunity to dispute the tax liabil-ity. Similarly, an Appeals officer may notconsider any other issue if the issue wasraised and considered at a previous hear-ing under section 6320 or in any other pre-vious administrative or judicial proceed-ing in which the person seeking to raisethe issue meaningfully participated. In theAppeals officer’s sole discretion, however,the Appeals officer may consider the exis-tence or amount of the underlying tax lia-bility, or such other precluded issues, at thesame time as the CDP hearing. Any deter-mination, however, made by the Appealsofficer with respect to such a precluded is-sue shall not be treated as part of the Noticeof Determination issued by the Appeals of-ficer and will not be subject to any judi-cial review. Because any decisions madeby the Appeals officer on such precludedissues are not properly a part of the CDPhearing, such decisions are not required toappear in the Notice of Determination is-sued following the hearing. Even if a de-cision concerning such precluded issues isreferred to in the Notice of Determination,it is not reviewable by the Tax Court be-cause the precluded issue is not properlypart of the CDP hearing.

* * * * *(f) Judicial review of Notice of De-

termination—(1) In general. Unless thetaxpayer provides the IRS a written with-drawal of the request that Appeals conducta CDP hearing, Appeals is required to is-sue a Notice of Determination in all caseswhere a taxpayer has timely requested aCDP hearing. The taxpayer may appealsuch determinations made by Appealswithin the 30-day period commencing theday after the date of the Notice of Deter-mination to the Tax Court.

(2) * * *A–F1. Subject to the jurisdictional lim-

itations described in A–F2 of this para-graph (f)(2), the taxpayer must, within the30-day period commencing the day afterthe date of the Notice of Determination,appeal the determination by Appeals to theTax Court.

* * * * *Q–F3. What issue or issues may the

taxpayer raise before the Tax Court if thetaxpayer disagrees with the Notice of De-termination?

A–F3. In seeking Tax Court review of aNotice of Determination, the taxpayer can

only ask the court to consider an issue, in-cluding a challenge to the underlying taxliability, that was properly raised in the tax-payer’s CDP hearing. An issue is not prop-erly raised if the taxpayer fails to requestconsideration of the issue by Appeals, orif consideration is requested but the tax-payer fails to present to Appeals any evi-dence with respect to that issue after beinggiven a reasonable opportunity to presentsuch evidence.

Q–F4. What is the administrativerecord for purposes of Tax Court review?

A–F4. The case file, including thetaxpayer’s request for hearing, any otherwritten communications and informationfrom the taxpayer or the taxpayer’s au-thorized representative submitted in con-nection with the CDP hearing, notes madeby an Appeals officer or employee of anyoral communications with the taxpayer orthe taxpayer’s authorized representative,memoranda created by the Appeals officeror employee in connection with the CDPhearing, and any other documents or ma-terials relied upon by the Appeals officeror employee in making the determinationunder section 6330(c)(3), will constitutethe record in the Tax Court review of theNotice of Determination issued by Ap-peals.

(g) * * *(3) * * *Example 1. The period of limitation under section

6502 with respect to the taxpayer’s tax period listedin the CDP Notice will expire on August 1, 1999. TheIRS sent a CDP Notice to the taxpayer on April 30,1999. The taxpayer timely requested a CDP hear-ing. The IRS received this request on May 15, 1999.Appeals sends the taxpayer its determination on June15, 1999. The taxpayer timely seeks judicial reviewof that determination. The period of limitation undersection 6502 would be suspended from May 15, 1999,until the determination resulting from that hearing be-comes final by expiration of the time for seeking re-view or reconsideration before the Tax Court, plus 90days.

* * * * *(h) * * *(2) * * *Q–H2. Is a decision of Appeals result-

ing from a retained jurisdiction hearing ap-pealable to the Tax Court?

A–H2. No. As discussed in A–H1, ataxpayer is entitled to only one CDP hear-ing under section 6330 with respect to thetax and tax period or periods specified inthe CDP Notice. Only determinations re-sulting from CDP hearings are appealableto the Tax Court.

(i) * * *(2) * * *Q–I1. What must a taxpayer do to ob-

tain an equivalent hearing?A–I1. (i) A request for an equivalent

hearing must be made in writing. A writ-ten request in any form that requests anequivalent hearing will be acceptable if itincludes the information and signature re-quired in A–I1(ii) of this paragraph (i)(2).

(ii) The request must be dated and mustinclude the following:

(A) The taxpayer’s name, address,daytime telephone number (if any), andtaxpayer identification number (e.g., SSN,ITIN or EIN).

(B) The type of tax involved.(C) The tax period at issue.(D) A statement that the taxpayer is re-

questing an equivalent hearing with Ap-peals concerning the levy.

(E) The reason or reasons why the tax-payer disagrees with the proposed levy.

(F) The signature of the taxpayer or thetaxpayer’s authorized representative.

(iii) The taxpayer must perfect anytimely written request for an equivalenthearing that does not satisfy the require-ments set forth in A–I1(ii) of this para-graph (i)(2) within a reasonable periodof time after a request from the IRS. Ifthe requirements are not satisfied within areasonable period of time, the taxpayer’sequivalent hearing request will be denied.

(iv) The taxpayer must affirm anytimely written request for an equivalenthearing that is signed or alleged to havebeen signed on the taxpayer’s behalf by thetaxpayer’s spouse or other unauthorizedrepresentative, and that otherwise meetsthe requirements set forth in A–I1(ii) ofthis paragraph (i)(2), by filing, within areasonable period of time after a requestfrom the IRS, a signed written affirmationthat the request was originally submittedon the taxpayer’s behalf. If the affirmationis filed within a reasonable period of timeafter a request, the timely equivalent hear-ing request will be considered timely withrespect to the non-signing taxpayer. If theaffirmation is not filed within a reason-able period of time, the equivalent hearingrequest will be denied with respect to thenon-signing taxpayer.

* * * * *Q–I6. Will a taxpayer be able to obtain

Tax Court review of a decision made by

November 13, 2006 895 2006–46 I.R.B.

Appeals with respect to an equivalent hear-ing?

* * * * *Q–I7. When must a taxpayer request an

equivalent hearing with respect to a CDPNotice issued under section 6330?

A–I7. A taxpayer must submit a writtenrequest for an equivalent hearing withinthe one-year period commencing the dayafter the date of the CDP Notice issued un-der section 6330. This period is slightlydifferent from the period for submitting awritten request for an equivalent hearingwith respect to a CDP Notice issued undersection 6320. For a CDP Notice issued un-der section 6320, a taxpayer must submita written request for an equivalent hear-ing within the one-year period commenc-ing the day after the end of the five-busi-ness-day period following the filing of theNFTL.

Q–I8. How will the timeliness of a tax-payer’s written request for an equivalenthearing be determined?

A–I8. The rules and regulations undersection 7502 and section 7503 will apply todetermine the timeliness of the taxpayer’srequest for an equivalent hearing, if prop-erly transmitted and addressed as providedin A–I10 of this paragraph (i)(2).

Q–I9. Is the one-year period withinwhich a taxpayer must make a request foran equivalent hearing extended becausethe taxpayer resides outside the UnitedStates?

A–I9. No. All taxpayers who want anequivalent hearing must request the hear-ing within the one-year period commenc-ing the day after the date of the CDP Noticeissued under section 6330.

Q–I10. Where must the written requestfor an equivalent hearing be sent?

A–I10. The written request for anequivalent hearing must be sent, or handdelivered (if permitted), to the IRS officeand address as directed on the CDP Notice.If the address of the issuing office does notappear on the CDP Notice, the taxpayershould obtain the address of the office towhich the written request should be sentor hand delivered by calling, toll-free,1–800–829–1040 and providing the tax-payer’s identification number (e.g., SSN,ITIN or EIN).

Q–I11. What will happen if the tax-payer does not request an equivalent hear-ing in writing within the one-year period

commencing the day after the date of theCDP Notice issued under section 6330?

A–I11. If the taxpayer does not requestan equivalent hearing with Appeals withinthe one-year period commencing the dayafter the date of the CDP Notice issued un-der section 6330, the taxpayer foregoes theright to an equivalent hearing with respectto the unpaid tax and tax periods shownon the CDP Notice. A written requestsubmitted within the one-year period thatdoes not satisfy the requirements set forthin A–I1(ii) of this paragraph (i)(2) is con-sidered timely if the request is perfectedwithin a reasonable period of time pur-suant to A–I1(iii) of this paragraph (i)(2).If a request for equivalent hearing is un-timely, either because the request was notsubmitted within the one-year period ornot perfected within the reasonable periodprovided, the equivalent hearing requestwill be denied. The taxpayer, however,may seek reconsideration by the IRS of-fice collecting the tax, assistance from theNational Taxpayer Advocate, or an admin-istrative hearing before Appeals under itsCollection Appeals Program or any suc-cessor program.

(j) Effective date. This section is appli-cable on or after November 16, 2006 withrespect to requests made for CDP hearingsor equivalent hearings on or after Novem-ber 16, 2006.

Mark E. Matthews,Deputy Commissioner forServices and Enforcement.

Approved October 6, 2006.

Eric Solomon,Acting Deputy Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on October 16,2006, 8:45 a.m., and published in the issue of the FederalRegister for October 17, 2006, 71 F.R. 60827)

Section 7702.—LifeInsurance Contract Defined26 CFR 1.7702–2: Attained age of the insured undera life insurance contract.

T.D. 9287

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Part 1

Attained Age of the InsuredUnder Section 7702

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulation.

SUMMARY: This document contains finalregulations explaining how to determinethe attained age of an insured for purposesof testing whether a contract qualifies as alife insurance contract for Federal incometax purposes.

DATES: Effective Date: These regulationsare effective September 13, 2006.

Applicability Dates: For dates of appli-cability, see §1.7702–2(f).

FOR FURTHER INFORMATIONCONTACT: Ann H. Logan,202–622–3970 (not a toll-free num-ber).

SUPPLEMENTARY INFORMATION:

Background

Section 7702(a) of the Internal RevenueCode (Code) provides that, for a contractto qualify as a life insurance contract forFederal income tax purposes, the contractmust be a life insurance contract under theapplicable law and must either (1) satisfythe cash value accumulation test of section7702(b), or (2) both meet the guideline pre-mium requirements of section 7702(c) andfall within the cash value corridor of sec-tion 7702(d). To determine whether a con-tract satisfies the cash value accumulationtest, or meets the guideline premium re-quirements and falls within the cash valuecorridor, it is necessary to determine the at-tained age of the insured.

A contract meets the cash value accu-mulation test of section 7702(b) if, by the

2006–46 I.R.B. 896 November 13, 2006

terms of the contract, the cash surrendervalue of the contract may not at any timeexceed the net single premium that wouldhave to be paid at that time to fund futurebenefits under the contract. Under sec-tion 7702(e)(1)(B), the maturity date of thecontract is deemed to be no earlier than theday on which the insured attains age 95,and no later than the day on which the in-sured attains age 100, for purposes of ap-plying the cash value accumulation test.

A contract meets the guideline premiumrequirements of section 7702(c) if the sumof the premiums paid under the contractdoes not at any time exceed the greater ofthe guideline single premium or the sumof the guideline level premiums as of suchtime. The guideline single premium is thepremium that is needed at the time the pol-icy is issued to fund the future benefitsunder the contract based on the follow-

ing three elements enumerated in section7702(c)(3)(B):

(i) Reasonable mortality charges thatmeet the requirements (if any) prescribedin regulations and that (except as providedin regulations) do not exceed the mortal-ity charges specified in the prevailing com-missioners’ standard tables (as defined insection 807(d)(5)) as of the time the con-tract is issued;

(ii) Any reasonable charges (other thanmortality charges) that (on the basis ofthe company’s experience, if any, with re-spect to similar contracts) are reasonablyexpected to be actually paid; and

(iii) Interest at the greater of an annualeffective rate of six percent or the rate orrates guaranteed on issuance of the con-tract.

The guideline level premium is the levelannual amount, payable over a period notending before the insured attains age 95,

computed on the same basis as the guide-line single premium but using a minimuminterest rate of four percent, rather than sixpercent. Like the cash value accumulationtest, the guideline premium requirementsare applied by deeming the maturity dateof the contract to be no earlier than theday on which the insured attains age 95,and no later than the day on which the in-sured attains age 100. The deemed ma-turity date generally is the determinationdate set forth in the contract or the end ofthe mortality table (which, when section7702 was enacted in 1984, was age 100).

A contract falls within the cash valuecorridor if the death benefit of the con-tract at any time is not less than the ap-plicable percentage of the cash surrendervalue. The applicable percentage is deter-mined based on the attained age of the in-sured as of the beginning of the contractyear, as follows:

APPLICABLE PERCENTAGE

In the case of an insured with an attained age as of the beginningof the contract year of:

The applicable percentage shall decrease by a ratable portionfor each full year:

More than: But not more than: From: To:

0 40 250 250

40 45 250 215

45 50 215 185

50 55 185 150

55 60 150 130

60 65 130 120

65 70 120 115

70 75 115 105

75 90 105 105

90 95 105 100

The Code does not define the attainedage of the insured for purposes of apply-ing the cash value corridor, the guidelinepremium limitations, or the computationalrules of section 7702(e). The SenateFinance Committee explanation of theDeficit Reduction Act of 1984, PublicLaw 98–369 (98 Stat. 494), however,states that the attained age of the insuredmeans the insured’s age determined byreference to contract anniversaries (ratherthan the individual’s actual birthdays), solong as the age assumed under the contract

is within 12 months of the actual age. SeeS. Prt. No. 98–169, Vol. 1, at 576 (1984).

Section 7702A defines a modified en-dowment contract (MEC) as a contract thatmeets the requirements of section 7702(that is, a contract that is a life insurancecontract), but that fails to meet the 7-paytest set forth in section 7702A(b). A con-tract fails to meet the 7-pay test if theaccumulated amount paid under the con-tract at any time during the first 7 contractyears exceeds the sum of the net level pre-miums that would have been paid on orbefore that time if the contract provided

for paid-up future benefits after the pay-ment of 7 level annual premiums. Sec-tion 7702A(c)(1)(B) provides that, for pur-poses of this test, the computational rulesof section 7702(e) generally apply, includ-ing the contract’s deemed maturity no ear-lier than the day on which the insured at-tains age 95, and no later than the day onwhich the insured attains age 100.

In sum, the attained age of an insuredunder a contract that is a life insurance con-tract under the applicable law must be de-termined to test whether the contract com-plies with the guideline premium require-

November 13, 2006 897 2006–46 I.R.B.

ments of section 7702(c), the cash valuecorridor of section 7702(d), and (by rea-son of the computational rules of section7702(e)) the cash value accumulation testof section 7702(b) and the 7-pay test ofsection 7702A(b), as applicable.

On May 24, 2005, the IRS and Trea-sury Department published a notice ofproposed rulemaking (REG–168892–03,2005–25 I.R.B. 1293, June 20, 2005)in the Federal Register (70 FR 29671)(the proposed regulations). The proposedregulations provide guidance on how todetermine the attained age of an individ-ual insured under a contract that is a lifeinsurance contract under the applicablelaw, for purposes of testing whether thecontract qualifies as a life insurance con-tract under section 7702 and is a modifiedendowment contract under section 7702A.Under the proposed regulations, the at-tained age of the insured is either (i) theinsured’s age determined by reference tothe individual’s actual birthday as of thedate of determination (actual age) or (ii)the insured’s age determined by referenceto contract anniversary (rather than theindividual’s actual birthday), so long asthe age assumed under the contract (con-tract age) is within 12 months of the actualage. The proposed regulations providethat the attained age of the insured un-der a contract insuring multiple lives ona last-to-die basis is the attained age ofthe youngest insured, and the attained ageof the insured under a contract insuringmultiple lives on a first-to-die basis is theattained age of the oldest insured.

The sole party requesting a public hear-ing timely withdrew its request. One writ-ten comment regarding the notice of pro-posed rulemaking was received.

Explanation of Provisions

After consideration of the written com-ment received, this Treasury decisionadopts the regulations as proposed, withthe modifications noted below.

A. Identity of the Insured Individual

The proposed regulations provide that,in the case of a last-to-die contract, the at-tained age of the insured means the ageof the youngest individual insured underthe contract. The comment letter pointedout that, in the case of such a contract,the death of the youngest insured raises

a question whether the attained age underthe contract should continue to be deter-mined based on the attained age of the de-ceased insured, or should instead be basedon the attained age of the youngest surviv-ing insured. Some last-to-die life insur-ance contracts undergo a change in bothcash value and future mortality charges asa result of the death of an insured. Thesechanges take into account the identity ofthe surviving insured or insureds. Otherlast-to-die life insurance contracts treat thedeath of an insured as a non-event forpurposes of measuring cash value and fu-ture mortality charges under the contract.The comment letter suggested a rule forlast-to-die contracts that would take intoaccount the age of the youngest survivinginsured if the contract undergoes modifica-tions to both the cash value and future mor-tality charges under the contract, so that theattained age assumptions used for Federalincome tax purposes are consistent withthose used under the terms of the contract.The final regulations include such a rule in§1.7702–2(c)(2).

B. Changes in Benefits Between PolicyAnniversaries

The proposed regulations provide thatthe age of an individual insured under alife insurance contract is either (i) the in-sured’s age determined by reference to theindividual’s actual birthday as of the dateof determination (actual age), or (ii) theinsured’s age determined by reference tocontract anniversary (rather than the indi-vidual’s actual birthday), so long as the ageassumed under the contract (contract age)is within 12 months of the actual age. Theproposed regulations do not, however, de-fine the attained age to be used if there is anincrease in death benefits between policyanniversary dates. Specifically, should theattained age as of the beginning of the con-tract year continue to be used at the timeof the benefit increase, even if the date ofchange is closer to the next contract an-niversary? The comment letter requestsflexibility to use the attained age as of ei-ther the previous or subsequent policy an-niversary, or any age between those twoages. The final regulations address this is-sue by clarifying that the attained age ofthe insured under a contract, once deter-mined, changes annually. This rule is setforth in §1.7702–2(b)(2).

C. Use of Derived Ages for Multiple LifeContracts

Under the proposed regulations, the at-tained age of the insured under a contractinsuring multiple lives is either the attainedage of the youngest insured (in the caseof a last-to-die contract) or the attainedage of the oldest insured (in the case of afirst-to-die contract). Some issuers, how-ever, determine mortality charges undersuch contracts using a single, derived agethat does not correspond to the attained ageof any single insured under the contract.In addition, in some cases issuers currentlyaccount for substandard risks by determin-ing mortality charges based on an age thatis older than the actual attained age of theinsured under the contract. The commentletter requested a rule that would permitthe use of the same derived age as the at-tained age of the insured in these circum-stances, to avoid whatever administrativecomplexities could result from the use ofdifferent ages for different purposes in thecourse of testing compliance of the con-tracts with sections 7702 and 7702A.

The final regulations do not make thischange. The manner in which age is usedto determine reasonable mortality chargesunder section 7702(c)(3)(B)(i) is inde-pendent of the age that is treated as theattained age of the insured for purposes ofdetermining the guideline level premiumunder section 7702(c)(4), or applying thecash value corridor of section 7702(d) orthe computational rules of section 7702(e).The final regulations do not, nor arethey intended to, endorse or prohibit anymethodology for determining reasonablemortality charges under section 7702(c).Reasonable mortality charges were thesubject of regulations proposed July 5,1991, (FI–069–89, 1991–2 C.B. 963) inthe Federal Register (56 FR 30718), andalso were addressed in Notice 88–128,1988–2 C.B. 540, and Notice 2004–61,2004–2 C.B. 596. See §601.601(d)(2)(ii).This prior guidance is not modified, clari-fied, or in any other way affected by thesefinal regulations.

D.. Contract Anniversary

The comment letter requested that theregulations include a definition of contractanniversary other than the issue date ofthe contract and subsequent anniversaries

2006–46 I.R.B. 898 November 13, 2006

of that date. The final regulations do notinclude such a definition because the termsissue date and contract year have broadapplication, and it would be inappropriateto address the matter for the first time inthese final regulations.

E. Effective Date

The proposed regulations were pro-posed to apply to contracts issued on orafter the date that is one year after theregulations are published as final regula-tions in the Federal Register. A taxpayerwould be permitted, however, to applythese final regulations retroactively forcontracts issued before that date providedthe taxpayer does not later determine qual-ification of those contracts in a mannerthat is inconsistent with these regulations.

The comment letter requested that thefinal regulations conform more closelyto the adoption dates for the 2001 Com-missioners’ Standard Ordinary mortalityand morbidity tables (2001 CSO tables).These tables are now prevailing withinthe meaning of section 807(d)(5) and havea mandatory effective date of January 1,2009. In some States, insurers have theoption to use either the 1980 CSO tables orthe 2001 CSO tables for contracts issuedbefore January 1, 2009. Either changingfrom the 1980 CSO mortality tables to the2001 CSO tables or adopting changes tothe determination of the insured’s attainedage under this regulation (or both) mayrequire filing new contract forms with therelevant state insurance commissionersand may require changes to existing com-pliance systems. Accordingly, the effec-tive date of this final regulation has beenadjusted to take into account the transitionperiod for adoption of the new mortalitytables. Specifically, the final regulationsapply to life insurance contracts that areeither (1) issued after December 31, 2008,or (2) issued on or after October 1, 2007,and based upon the 2001 CSO tables.This modification will enable issuers tomake any changes required by this finalregulation concurrently with the changesrequired by the adoption of the 2001 CSOmortality tables. In addition, taxpayersmay apply the regulations for contractsissued before October 1, 2007, providedthey do not later determine qualificationof those contracts under section 7702 in amanner inconsistent with the regulations.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been determinedthat section 553(b) and (d) of the Adminis-trative Procedure Act (5 U.S.C. chapter 5)does not apply to these regulations, and be-cause the regulations do not impose a col-lection of information on small entities, theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) does not apply. Pursuant to section7805(f) of the Code, the notice of proposedrulemaking preceding this Treasury deci-sion was submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on its impact onsmall business.

Drafting Information

The principal author of these final regu-lations is Ann H. Logan, Office of the As-sociate Chief Counsel (Financial Institu-tions and Products), Office of Chief Coun-sel, Internal Revenue Service. However,personnel from other offices of the IRSand the Treasury Department participatedin their development.

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries in nu-merical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.7702–2 also issued under 26

U.S.C. 7702(k). * * *Par. 2. Section 1.7702–0 is added to

read as follows:

§1.7702–0 Table of contents.

This section lists the captions thatappear in §§1.7702–1, 1.7702–2, and1.7702–3.

§1.7702–1 Mortality charges.

(a) General rule.(b) Reasonable mortality charges.(1) Actually expected to be imposed.

(2) Limit on charges.(c) Safe harbors.(1) 1980 C.S.O. Basic Mortality Tables.(2) Unisex tables and smoker/non-

smoker tables.(3) Certain contracts based on 1958

C.S.O. table.(d) Definitions.(1) Prevailing commissioners’ standard

tables.(2) Substandard risk.(3) Nonparticipating contract.(4) Charge reduction mechanism.(5) Plan of insurance.(e) Effective date.

§1.7702–2 Attained age of the insuredunder a life insurance contract.

(a) In general.(b) Contract insuring a single life.(c) Contract insuring multiple lives on

a last-to-die basis.(1) In general.(2) Modifications to cash value and fu-

ture mortality charges upon the death of in-sured.

(d) Contract insuring multiple lives ona first-to-die basis.

(e) Examples.(f) Effective dates.(1) In general.(2) Contracts issued before the general

effective date.

§1.7702–3 Definitions.

(a) In general.(b) Cash value.(1) In general.(2) Amounts excluded from cash value.(c) Death benefit.(1) In general.(2) Qualified accelerated death benefit

treated as death benefit.(d) Qualified accelerated death benefit.(1) In general.(2) Determination of present value of

the reduction in death benefit.(3) Examples.(e) Terminally ill defined.(f) Certain other additional benefits.(1) In general.(2) Examples.(g) Adjustments under section

7702(f)(7).(h) Cash surrender value.(1) In general.(2) For purposes of section 7702(f)(7).

November 13, 2006 899 2006–46 I.R.B.

(i) Net surrender value.(j) Effective date and special rules.(1) In general.(2) Provision of certain benefits before

July 1, 1993.(i) Not treated as cash value.(ii) No effect on date of issuance.(iii) Special rule for addition of benefit

or loan provision after December 15, 1992.(3) Addition of qualified accelerated

death benefit.(4) Addition of other additional bene-

fits.Par. 3. Section 1.7702–2 is added to

read as follows:

§1.7702–2 Attained age of the insuredunder a life insurance contract.

(a) In general. This section providesguidance on determining the attained ageof an insured under a contract that is alife insurance contract under the applicablelaw, for purposes of determining the guide-line level premium of the contract undersection 7702(c)(4), applying the cash valuecorridor of section 7702(d) or applying thecomputational rules of section 7702(e), asapplicable.

(b) Contract insuring a single life. (1)If a contract insures the life of a singleindividual, either of the following two agesmay be treated as the attained age of theinsured with respect to that contract—

(i) The insured’s age determined by ref-erence to the individual’s actual birthdayas of the date of determination (actual age);or

(ii) The insured’s age determined byreference to contract anniversary (ratherthan the individual’s actual birthday), solong as the age assumed under the contract(contract age) is within 12 months of theactual age as of that date.

(2) Once determined under paragraph(b)(1) of this section, the attained age withrespect to an individual insured undera contract changes annually. Moreover,the same attained age must be used forpurposes of applying sections 7702(c)(4),7702(d), and 7702(e), as applicable.

(c) Contract insuring multiple lives ona last-to-die basis—(1) In general. Ex-cept as provided in paragraph (c)(2) of thissection, if a contract insures the lives ofmore than one individual on a last-to-diebasis, the attained age of the insured is de-termined by applying paragraph (b) of this

section as if the youngest individual werethe only insured under the contract for pur-poses of sections 7702(c)(4), 7702(d), and7702(e), as applicable.

(2) Modifications to cash value and fu-ture mortality charges upon the death ofinsured. If both the cash value and futuremortality charges under a contract changeby reason of the death of one or more in-sureds to no longer take into account theattained age of the deceased insured orinsureds, the youngest surviving insuredshall thereafter be treated as the only in-sured under the contract.

(d) Contract insuring multiple lives ona first-to-die basis. If a contract insuresthe lives of more than one individual on afirst-to-die basis, the attained age of the in-sured is determined by applying paragraph(b) of this section as if the oldest individ-ual were the only insured under the con-tract for purposes of sections 7702(c)(4),7702(d), and 7702(e), as applicable.

(e) Examples. The following examplesillustrate the determination of the attainedage of the insured for purposes of sections7702(c)(4), 7702(d), and 7702(e), as appli-cable. The examples are as follows:

Example 1. (i) X was born on May 1, 1947. Xbecame 60 years old on May 1, 2007. On January 1,2008, X purchases from IC a contract insuring X’slife. January 1 is the contract anniversary date for allfuture years. IC determines X’s annual premiums onan age-last-birthday basis. Based on the method usedby IC to determine age, X has an attained age of 60for the first contract year, 61 for the second contractyear, and so on.

(ii) Section 1.7702–2(b)(1) permits the determi-nation of attained age under either of two alternativeapproaches. Section 1.7702–2(b)(1)(i) provides that,if a contract insures the life of a single insured indi-vidual, the attained age may be determined by ref-erence to the individual’s actual birthday as of thedate of determination. Under this provision, X hasan attained age of 60 for the first contract year, 61 forthe second contract year, and so on. Alternatively,§1.7702–2(b)(1)(ii) provides that the insured’s agemay be determined by reference to contract anniver-sary (rather than the individual’s actual birthday), solong as the age assumed under the contract is within12 months of the actual age as of that date. If IC deter-mines X’s attained age under §1.7702–2(b)(1)(ii), Xlikewise has an attained age of 60 for the first con-tract year, 61 for the second contract year, and soon. Whichever provision IC uses to determine X’sattained age must be used consistently from year toyear for purposes of sections 7702(c)(4), 7702(d), and7702(e), as applicable.

Example 2. (i) The facts are the same as in Ex-ample 1 except that, under the contract, X’s annualpremiums are determined on an age-nearest-birthdaybasis. X’s nearest birthday to January 1, 2008, is May1, 2008, when X will become 61 years old. Based onthe method used by IC to determine age, X has an at-

tained age of 61 for the first contract year, 62 for thesecond contract year, and so on.

(ii) Section 1.7702–2(b)(1) permits the determi-nation of attained age under either of two alternativeapproaches. Section 1.7702–2(b)(1)(i) provides that,if a contract insures the life of a single insured indi-vidual, the attained age may be determined by ref-erence to the individual’s actual birthday as of thedate of determination. Under this provision, X hasan attained age of 60 for the first contract year, 61 forthe second contract year, and so on. Alternatively,§1.7702–2(b)(1)(ii) provides that the insured’s agemay be determined by reference to contract anniver-sary (rather than the individual’s actual birthday), solong as the age assumed under the contract is within12 months of the actual age as of that date. If IC de-termines X’s attained age under §1.7702–2(b)(1)(ii),X has an attained age of 61 for the first contract year,62 for the second contract year, and so on. Whicheverprovision IC uses to determine X’s attained age mustbe used consistently from year to year for purposesof sections 7702(c)(4), 7702(d), and 7702(e), as ap-plicable.

Example 3. (i) The facts are the same as in Ex-ample 1 except that the face amount of the contractis increased on May 15, 2011. During the contractyear beginning January 1, 2011, the age assumed un-der the contract on an age-last-birthday basis is 63years. However, X has an actual age of 64 as of thedate the face amount of the contract is increased.

(ii) Section 1.7702–2(b)(1)(ii) provides that theinsured’s age may be determined by reference to con-tract anniversary (rather than the individual’s actualbirthday), so long as the age assumed under the con-tract is within 12 months of the actual age. Section1.7702–2(b)(2) provides that, once determined un-der paragraph (b)(1) of this section, the attained agewith respect to an individual insured under a contractchanges annually. Accordingly, X continues to be63 years old throughout the contract year beginningJanuary 1, 2011, for purposes of sections 7702(c)(4),7702(d), and 7702(e), as applicable.

Example 4. (i) The facts are the same as in Ex-ample 1 except that in addition to X (born in 1947),the insurance contract also insures the life of Y, bornon September 1, 1942. The death benefit will be paidwhen the second of the two insureds dies.

(ii) Section 1.7702–2(c)(1) provides that if a lifeinsurance contract insures the lives of more than oneindividual on a last-to-die basis, the attained age ofthe insured is determined by applying §1.7702–2(b)as if the youngest individual were the only insuredunder the contract. Because X is younger than Y, theattained age of X must be used for purposes of sec-tions 7702(c)(4), 7702(d), and 7702(e), as applicable.

Example 5. (i) The facts are the same as Example4 except that X (the younger of the two insureds) diesin 2012. After X’s death, both the cash value andmortality charges of the life insurance contract areadjusted to take into account only the life of Y.

(ii) Section 1.7702–2(c)(1) provides that if a lifeinsurance contract insures the lives of more than oneindividual on a last-to-die basis, the attained age ofthe insured is determined by applying §1.7702–2(b)as if the youngest individual were the only insuredunder the contract. Paragraph (c)(2) of this sectionprovides that if both the cash value and future mor-tality charges under a contract change by reason ofthe death of an insured to no longer take into account

2006–46 I.R.B. 900 November 13, 2006

the attained age of the deceased insured, the youngestsurviving insured is thereafter treated as the only in-sured under the contract. Because both the cash valueand mortality charges are adjusted after X’s death totake into account only the life of Y, only the attainedage of Y is taken into account after X’s death for pur-poses of sections 7702(c)(4), 7702(d), and 7702(e),as applicable.

Example 6. (i) The facts are the same as Exam-ple 1 except that in addition to X (born in 1947), theinsurance contract also insures the life of Z, born onSeptember 1, 1952. The death benefit will be paidwhen the first of the two insureds dies.

(ii) Section 1.7702–2(d) provides that if a life in-surance contract insures the lives of more than oneindividual on a first-to-die basis, the attained age ofthe insured is determined by applying §1.7702–2(b)as if the oldest individual were the only insured un-der the contract. Because X is older than Z, the at-

tained age of X must be used for purposes of sections7702(c)(4), 7702(d), and 7702(e), as applicable.

(f) Effective dates—(1) In general. Ex-cept as provided in paragraph (f)(2) of thissection, these regulations apply to all lifeinsurance contracts that are either—

(i) Issued after December 31, 2008; or(ii) Issued on or after October 1, 2007,

and based upon the 2001 CSO tables.(2) Contracts issued before the gen-

eral effective date. Pursuant to section7805(b)(7), a taxpayer may apply theseregulations retroactively for contracts is-sued before October 1, 2007, provided thatthe taxpayer does not later determine qual-

ification of those contracts in a mannerthat is inconsistent with these regulations.

Deborah M. Nolan,Acting Deputy Commissionerfor Services and Enforcement.

Approved September 6, 2006.

Eric Solomon,Acting Deputy Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on September12, 2006, 8:45 a.m., and published in the issue of the FederalRegister for September 13, 2006, 71 F.R. 53967)

November 13, 2006 901 2006–46 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousGuidance Regarding AppraisalRequirements for NoncashCharitable Contributions

Notice 2006–96

SECTION 1. PURPOSE

This notice provides transitional guid-ance relating to the new definitions of“qualified appraisal” and “qualified ap-praiser” in § 170(f)(11) of the InternalRevenue Code, and new § 6695A of theCode regarding substantial or gross valu-ation misstatements, as added by § 1219of the Pension Protection Act of 2006,Pub. L. No. 109–280, 120 Stat. 780(2006) (the “PPA”).

The Service and the Treasury Depart-ment expect to issue regulations under§ 170(f)(11). Until those regulations areeffective, taxpayers may rely on this noticeto comply with the new provisions addedby § 1219 of the PPA.

SECTION 2. BACKGROUND

A deduction for charitable contribu-tions is generally permitted under § 170(a),subject to certain limitations depending onthe type of taxpayer, the nature of theproperty contributed, and the type ofdonee organization. Section 170(f)(11), asadded by § 883 of the American Jobs Cre-ation Act of 2004, Pub. L. No. 108–357,118 Stat. 1418 (2004), contains reportingand substantiation requirements relating tothe allowance of deductions for noncashcharitable contributions. In particular,under § 170(f)(11)(C), taxpayers are re-quired to obtain a qualified appraisal fordonated property for which a deductionof more than $5,000 is claimed. Under§ 170(f)(11)(D), in certain cases the qual-ified appraisal must be attached to the taxreturn. For appraisals prepared with re-spect to returns filed on or before August17, 2006, existing Treasury Regulationsprovide a definition of the terms “quali-fied appraisal” and “qualified appraiser”for purposes of § 170(f)(11).

Section 1219 of the PPA amends§ 170(f)(11)(E) and provides statutorydefinitions of a qualified appraisal andqualified appraiser for appraisals prepared

with respect to returns filed after August17, 2006.

Section 170(f)(11)(E)(i) provides thatthe term “qualified appraisal” means anappraisal that is (1) treated as a quali-fied appraisal under regulations or otherguidance prescribed by the Secretary, and(2) conducted by a qualified appraiser inaccordance with generally accepted ap-praisal standards and any regulations orother guidance prescribed by the Secre-tary.

Section 170(f)(11)(E)(ii) provides thatthe term “qualified appraiser” means anindividual who (1) has earned an ap-praisal designation from a recognizedprofessional appraiser organization or hasotherwise met minimum education andexperience requirements set forth in reg-ulations prescribed by the Secretary, (2)regularly performs appraisals for whichthe individual receives compensation,and (3) meets such other requirementsas may be prescribed by the Secretary inregulations or other guidance. Section170(f)(11)(E)(iii) further provides that anindividual will not be treated as a qual-ified appraiser unless that individual (1)demonstrates verifiable education and ex-perience in valuing the type of propertysubject to the appraisal, and (2) has notbeen prohibited from practicing before theInternal Revenue Service by the Secretaryunder § 330(c) of Title 31 of the UnitedStates Code at any time during the 3-yearperiod ending on the date of the appraisal.

Section 1219 of the PPA also adds anew penalty provision. If the claimedvalue of property based on an appraisalresults in a substantial or gross valuationmisstatement under § 6662, a penalty isimposed by new § 6695A on any personwho prepared the appraisal and who knew,or reasonably should have known, the ap-praisal would be used in connection witha return or claim for refund.

SECTION 3. TRANSITIONALGUIDANCE

.01 In generalThe Service and the Treasury Depart-

ment expect to issue regulations under§ 170(f)(11), as amended by the PPA. Theterms in section 3 of this notice apply to

contributions of property (other than read-ily valued property within the meaningof § 170(f)(11)(A)(ii)(I)) by individuals,partnerships, or corporations for which adeduction of more than $5,000 is claimedon returns filed after August 17, 2006,and before the effective date of the regu-lations that the Service and the TreasuryDepartment expect to issue. Until regu-lations are effective under § 170(f)(11),as amended by the PPA, an appraisal thatmeets the requirements of this notice shallbe treated as a qualified appraisal for pur-poses of § 170(f)(11). The determinationof whether an appraiser is qualified undersection 3.03 of this notice must be basedon the appraiser’s qualifications as of thedate the appraisal is made.

.02 Transitional terms-qualified ap-praisal

(1) Qualified appraisal. An appraisalwill be treated as a qualified appraisalwithin the meaning of § 170(f)(11)(E)if the appraisal complies with all of therequirements of § 1.170A–13(c) of theexisting regulations (except to the ex-tent the regulations are inconsistent with§ 170(f)(11)), and is conducted by a quali-fied appraiser in accordance with generallyaccepted appraisal standards. See sections3.02(2) and 3.03 of this notice.

(2) Generally accepted appraisalstandards. An appraisal will be treatedas having been conducted in accor-dance with generally accepted ap-praisal standards within the meaning of§ 170(f)(11)(E)(i)(II) if, for example,the appraisal is consistent with the sub-stance and principles of the Uniform Stan-dards of Professional Appraisal Practice(“USPAP”), as developed by the AppraisalStandards Board of the Appraisal Founda-tion. Additional information is availableat http://www.appraisalfoundation.org.

.03 Transitional terms-qualified ap-praiser

(1) Appraisal designation. An ap-praiser will be treated as having earned anappraisal designation from a recognizedprofessional appraiser organization withinthe meaning of § 170(f)(11)(E)(ii)(I) ifthe appraisal designation is awarded onthe basis of demonstrated competency invaluing the type of property for which theappraisal is performed.

2006–46 I.R.B. 902 November 13, 2006

(2) Education and experience in valu-ing the type of property. An appraiserwill be treated as having demonstratedverifiable education and experience invaluing the type of property subjectto the appraisal within the meaning of§ 170(f)(11)(E)(iii)(I) if the appraisermakes a declaration in the appraisal that,because of the appraiser’s background,experience, education, and membershipin professional associations, the appraiseris qualified to make appraisals of thetype of property being valued. See also§ 1.170A–13(c)(5).

(3) Minimum education and experi-ence. An appraiser will be treated ashaving met minimum education and expe-rience requirements within the meaning of§ 170(f)(11)(E)(ii)(I) if —

(a) For real property(i) For returns filed on or before Octo-

ber 19, 2006, the appraiser is qualified asa “qualified appraiser” within the meaningof § 1.170A–13(c)(5) to make appraisals ofthe type of property being valued.

(ii) For returns filed after October 19,2006, the appraiser is licensed or certifiedfor the type of property being appraised inthe state in which the appraised real prop-erty is located.

(b) For property other than real prop-erty —

(i) For returns filed on or before Febru-ary 16, 2007, the appraiser is qualified asa “qualified appraiser” within the meaningof § 1.170A–13(c)(5) to make appraisals ofthe type of property being valued.

(ii) For returns filed after February 16,2007, the appraiser has (A) successfullycompleted college or professional-levelcoursework that is relevant to the propertybeing valued, (B) obtained at least twoyears of experience in the trade or busi-ness of buying, selling, or valuing the typeof property being valued, and (C) fullydescribed in the appraisal the appraiser’seducation and experience that qualify theappraiser to value the type of propertybeing valued.

.04 Applicability of reporting and sub-stantiation regulations

(1) In generalThe requirements of § 1.170A–13(c) of

the existing regulations concerning qual-ified appraisals and qualified appraisers

continue to apply to all taxpayers, includ-ing those to whom the transitional guid-ance in this section may apply, except tothe extent the regulations are inconsistentwith the provisions of § 170(f)(11). In par-ticular, all taxpayers are required to com-ply with §§ 1.170A–13(c)(3), (c)(5), (c)(6)and (c)(7).

(2) Revision to appraiser declarationFor returns filed after February 16,

2007, the declaration required under§ 1.170A–13(c)(5)(i) must include anadditional statement that the appraiserunderstands that a substantial or grossvaluation misstatement resulting from anappraisal of the value of property that theappraiser knows, or reasonably shouldhave known, would be used in connectionwith a return or claim for refund, may sub-ject the appraiser to a civil penalty under§ 6695A. See also § 1.170A–13(c)(3)(iii).

SECTION 4. REQUEST FORCOMMENTS

The Service and the Treasury De-partment invite comments containingsuggestions for future guidance under§ 170(f)(11), including regulations. Inparticular, comments are requested con-cerning the definition of the followingterms: (1) “generally accepted appraisalstandards” in § 170(f)(11)(E)(i)(II); (2)“appraisal designation from a recognizedprofessional appraisal organization” in§ 170(f)(11)(E)(ii)(I); (3) “minimum ed-ucation and experience requirements” in§ 170(f)(11)(E)(ii)(I); and (4) “verifiableeducation and experience in valuing thetype of property subject to the appraisal”in § 170(f)(11)(E)(iii)(I). Comments alsoare requested on the potential impact anyguidance under § 170(f)(11) may have onsmall businesses. Comments should referto Notice 2006–96 and be submitted byJanuary 17, 2007, to:

Internal Revenue ServiceP.O. Box 7604Ben Franklin StationWashington, D.C. 20044Attn: CC:PA:LPD:PRRoom 5203

Alternatively, comments maybe submitted electronically via

e-mail to the following address:Notice.Comments@irscounsel.treas.gov.All comments will be available for publicinspection and copying.

SECTION 5. PAPERWORKREDUCTION ACT

The collections of information in thisnotice have been reviewed and approvedby the Office of Management and Bud-get (OMB) in accordance with the Paper-work Reduction Act (44 U.S.C. 3507) un-der control number 1545–1953.

An agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless thecollection of information displays a validOMB control number.

The collections of information in thisnotice are in section 3 of this notice. Thecollections of information are requiredfrom donors to satisfy the substantiationrequirements of § 170(f)(11). The col-lections of information are required fromdonors to obtain a benefit. The likelyrespondents are individuals, partnerships,and corporations.

The estimated total annual reportingburden is 161,571 hours.

The estimated annual burden per re-spondent varies from 5 minutes to 5 hours,with an estimated average of approxi-mately 3.5 hours. The estimated numberof respondents is 46,285.

The estimated annual frequency of re-sponses (used for reporting requirementsonly) is once per year.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and return in-formation are confidential, as required by§ 6103.

SECTION 6. DRAFTINGINFORMATION

The principal author of this notice isSusan J. Kassell of the Office of Asso-ciate Chief Counsel (Income Tax & Ac-counting). For further information regard-ing this notice, contact Susan J. Kassell at(202) 622–5020 (not a toll-free call).

November 13, 2006 903 2006–46 I.R.B.

Taxation and Reporting ofExcess Inclusion Incomeby REITs, RICs, and OtherPass-Through Entities

Notice 2006–97

SECTION 1. PURPOSE

This notice provides interim guidancerelating to excess inclusion income ofpass-through entities, particularly real es-tate investment trusts (REITs). A growingnumber of REITs are generating excessinclusion income by engaging in mortgagesecuritization transactions that cause theREIT to be a taxable mortgage pool (TMP)or have a qualified REIT subsidiary thatis a TMP. The interim guidance appliesto excess inclusion income both fromREMIC residual interests and from REITTMPs, whether received directly or allo-cated from another pass-through entity.

This notice also requests commentsand suggestions for further guidance, es-pecially guidance regarding the tax andreporting obligations of regulated invest-ment companies (RICs) and other entitiesthat hold stock of REIT TMPs or thatreceive excess inclusion income in otherways.

SECTION 2. BACKGROUND

Enacted by the Tax Reform Act of 1986(the 1986 Act), the real estate mortgageinvestment conduit (REMIC) provisionsof the Internal Revenue Code permit aqualifying entity or arrangement, whichfinances mortgages by issuing multipleclasses of interests, to elect REMIC status.In general, a REMIC is not treated as ataxable entity. Instead, the holders of theresidual interests in a REMIC take intoaccount the REMIC’s net income or netloss.

A REMIC issues regular interests anda single class of residual interests. Reg-ular interests in a REMIC are treated asdebt, and holders of these interests mustinclude interest income from the regularinterests under an accrual method. TheREMIC deducts interest accruals on theregular interests in computing its net in-come or net loss. The holders of the resid-ual interests in a REMIC take into accountthe net income or net loss of the REMIC. Aportion of the net income allocated to the

residual interest holders may be an excessinclusion within the meaning of section860E(c). An excess inclusion may not beoffset by net operating losses, is treated asunrelated business taxable income (UBTI)by certain tax-exempt organizations, and isnot eligible for any reduction in withhold-ing tax (by treaty or otherwise) in the caseof a nonresident.

In addition, the REMIC provisionsseek to ensure that excess inclusion in-come does not escape current taxation.Some of these provisions are designed toprevent certain tax-exempt entities (dis-qualified organizations) from being directholders of a REMIC residual interest.Others impose tax on certain pass-throughentities that have excess inclusion incomeallocable to a record owner that is a dis-qualified organization. For this purpose,pass-through entities (as defined in sec-tion 860E(e)(6)(B)) include REITs, RICs,and nominees; and disqualified organiza-tions (as defined in section 860E(e)(5)(B))include tax exempt entities that are notsubject to unrelated business income taxunder section 511. For example, a REITthat owns REMIC residual interests mustpay any tax imposed by section 860E(e)(6)with respect to excess inclusion incomeallocable to a shareholder that is a disqual-ified organization. Rev. Rul. 2006–58,2006–46 I.R.B. 876 (November 13, 2006),illustrates the application of these provi-sions to a REIT (or a partnership) that hasa charitable remainder trust as a share-holder (or a partner).

Section 860E(d) addresses the tax con-sequences to a REIT’s shareholders whenthe REIT holds a REMIC residual inter-est. The section provides that, if a REITholds one or more REMIC residual in-terests, then, under regulations prescribedby the Secretary, the excess of the aggre-gate excess inclusions determined with re-spect to those interests over the REIT’staxable income shall be allocated amongthe shareholders of the REIT in proportionto the dividends received from the REIT.Any such amounts allocated to a share-holder shall be treated as an excess in-clusion with respect to a residual interestheld by the shareholder. Section 860E(d)further provides that similar rules applyto RICs, common trust funds, and cer-tain cooperative organizations. Regula-tions issued under section 860E reservethe portion of the regulations dealing with

the application of section 860E(d). See§ 1.860E–1(b).

Congress intended the REMIC regimeto be the exclusive vehicle for securitiza-tions issuing multiple-maturity mortgage-backed debt securities. Accordingly, the1986 Act also enacted TMP provisions,which require an entity that issues such se-curities without making the REMIC elec-tion to be taxed as a separate corporation.

Section 7701(i) defines a taxable mort-gage pool as any entity (other than aREMIC) if—

(i) Substantially all of the assets of theentity consist of debt obligations or in-terests in debt obligations, and more than50% of these debt obligations or interestsare real estate mortgages or interests in realestate mortgages;

(ii) The entity is the obligor under debtobligations that have two or more maturi-ties; and

(iii) The required payments on the debtobligations that the entity issued bear a re-lationship to the payments to be receivedby the entity on the debt obligations that itholds as assets.

A portion of an entity may also be aTMP under this definition.

Section 7701(i)(3) provides a specialrule for a REIT that is a TMP. Congressgenerally intended for equity interests inREIT TMPs to be subject to rules similarto those that apply to residual interests inREMICs. Accordingly, section 7701(i)(3)provides that if a REIT, or a qualifiedREIT subsidiary, is a TMP, then, underregulations prescribed by the Secretary,adjustments similar to the adjustmentsprovided in section 860E(d) are to applyto the shareholders of the REIT. Regu-lations under section 7701(i) have beenissued, but these regulations specificallyreserve on the treatment of REIT TMPs.See § 1.7701(i)–4(b).

The Treasury Department and the Ser-vice have been advised that a growingnumber of REITs have recently begunsecuritizing mortgages by issuing debtobligations that cause the REITs to beTMPs. These securitizations may be ef-fected through a qualified REIT subsidiaryor a disregarded entity, such as a securiti-zation trust. In these arrangements, not allof the REIT’s income is attributable to aTMP.

The Treasury Department and the Ser-vice have also been advised that, in the

2006–46 I.R.B. 904 November 13, 2006

absence of regulations or other guid-ance under section 7701(i)(3), taxpayersare uncertain about how to apply sec-tion 7701(i)(3) to REIT TMPs and toshareholders of REIT TMPs. Taxpayersare similarly uncertain about how to ap-ply section 860E(d) to RICs (and otherpass-through entities) that receive excessinclusion income (for example, a RICholding shares of a REIT that is requiredby sections 7701(i)(3) and 860E(d) toallocate excess inclusion income to itsshareholders).

SECTION 3. REQUESTS FORGUIDANCE AND RELIEF

Representatives of REITs and RICshave requested guidance on the tax treat-ment of excess inclusion income of aREIT that either is a TMP or has a quali-fied REIT subsidiary that is a TMP. Someof the questions and issues they haveraised are:

• The proper computation of excess in-clusion income of a REIT (or qualifiedREIT subsidiary) that is a TMP undersection 7701(i)(3);

• The proper method for allocating ex-cess inclusion income among the divi-dends paid by REITs and RICs duringthe taxable year;

• The reporting obligations of REITs,RICs, and their shareholders with re-spect to excess inclusion income;

• If excess inclusion income is allocatedto, or otherwise recognized by, an or-ganization that is subject to tax undersection 511, whether the $1,000 deduc-tion provided by section 512(b)(12) isavailable;

• Whether there is or will be, a de min-imis exception that applies to REITs,RICs, and other pass-through entitiesthat have only small amounts of excessinclusion income.

Taxpayers have requested the Trea-sury Department and the Service to issuean announcement providing that sections860E(d) and 7701(i)(3) do not apply be-fore the issuance of the regulations autho-rized by those sections. Taxpayers havealso requested that any such regulations

apply only to REIT distributions madesome period after the issuance of regula-tions or other guidance.

SECTION 4. REQUEST FORCOMMENTS

The Treasury Department and the Ser-vice are concerned that the purposes of theREMIC excess inclusion provisions maybe avoided through the use of REIT TMPsif the resulting excess inclusion income isnot properly reported to, and accounted forby, direct and indirect shareholders of theREITs that create TMPs. At the same time,the Treasury Department and the Serviceare mindful that many RICs and other in-vestors hold stock in REITs that do not ownREMIC residual interests or create TMPs.

Accordingly, in developing furtherguidance dealing with the excess inclusionincome of pass-through entities (especiallythat of REIT TMPs), it is appropriate toweigh the potential administrative burdenand complexity for all direct and indirectinvestors in these entities. The Trea-sury Department and the Service invitecomments and suggestions on the issuessummarized in Section 3 above and onany other matters that may be relevantin achieving the purposes of the REMICprovisions without imposing undesirableadministrative burdens on investors.

SECTION 5. INTERIM GUIDANCE

The Treasury Department and the Ser-vice have concluded that, although the is-suance of regulations may be appropri-ate to provide detailed guidance on cer-tain issues identified by concerned par-ties, sections 860E(d) and 7701(i)(3) es-tablish basic principles that are applicableeven in the absence of regulations. Pend-ing the issuance of further guidance, in ad-ministering sections 860E(d), 860E(e)(6),and 7701(i), the IRS will apply the fol-lowing principles, which are applicable toall excess inclusion income, whether fromTMPs or from REMIC residual interests:

• A REIT must—

• Determine whether it or its qual-ified REIT subsidiary (or a por-tion of either) is a TMP, and if so,calculate the excess inclusion in-come of the TMP under a reason-able method.

• Allocate its excess inclusion in-come to its shareholders in propor-tion to dividends paid (determinedwithout regard to any special al-location of the expense for anytax paid under section 860E(e)(6))and inform the shareholders thatare not disqualified organizationsof the amount and character of theexcess inclusion income allocatedto them.

• Pay the tax imposed by section860E(e)(6) on the excess inclu-sion income that is allocable to itsshareholders that are disqualifiedorganizations.

• As provided by section860G(b)(2), apply the withholdingtax provisions with respect tothe excess inclusion portion ofdividends paid to foreign personswithout regard to any treaty excep-tion or reduction in tax rate.

• With respect to its excess inclusion in-come, a pass-through entity, other thana REIT, RIC, or nominee, must—

• Allocate its excess inclusion in-come to its partners, participants,beneficiaries, or patrons (collec-tively, “owners”) in accordancewith applicable provisions (section702, section 584, subchapter J, orpart I of subchapter T) and informany owners that are not disquali-fied organizations of the amountand character of the excess inclu-sion income that has been allocatedto them.

• Pay the tax imposed by section860E(e)(6) on excess inclusion in-come that is allocable to disquali-fied organizations.

• As provided by section860G(b)(2), apply the withholdingtax provisions with respect to theexcess inclusion portion of thepayments made to foreign personswithout regard to any treaty excep-tion or reduction in tax rate.

• With respect to excess inclusion in-come, a nominee must—

November 13, 2006 905 2006–46 I.R.B.

• Inform the beneficial owners thatare not disqualified organizationsof the amount and character of theirexcess inclusion income.

• Pay the tax imposed by section860E(e)(6) on the excess inclusionincome of beneficial owners thatare disqualified organizations.

• As provided by section860G(b)(2), apply the withhold-ing tax provisions to the excessinclusion portion of the paymentsmade to foreign persons withoutregard to any treaty exemption orreduction in tax rate.

• With respect to its excess inclusion in-come, a RIC must—

• Allocate its excess inclusion in-come to its shareholders in propor-tion to dividends paid (determinedwithout regard to any special allo-cation of the expense for any taxpaid under section 860E(e)(6)).

• Inform shareholders who are nom-inees of the amount and characterof the excess inclusion income thathas been allocated to them.

• Pay the tax imposed by section860E(e)(6) on excess inclusion in-come that is allocable to recordshareholders that are disqualifiedorganizations.

• As provided by section860G(b)(2), apply the with-holding tax provisions to theexcess inclusion portion of divi-dends paid to foreign shareholderswithout regard to any exemptionor reduction in tax rate.

• Pending the issuance of further guid-ance, except as provided in this para-graph, a RIC is not required to reportthe amount and character of the excessinclusion income allocated to its share-holders who are not nominees. ForRIC taxable years beginning on or af-ter January 1, 2007—

• A RIC must inform all of its share-holders that are not nominees re-

garding the amount and characterof the excess inclusion income al-located to those shareholders if theexcess inclusion income receivedby the RIC from all sources (in-cluding investments in REMICresidual interests) exceeds one per-cent of the gross income of theRIC.

• A RIC that is not subject to thereporting requirement in the pre-ceding bullet must inform all of itsshareholders that are not nomineesregarding the amount and charac-ter of excess inclusion income al-located to those shareholders, tak-ing into account only excess inclu-sion income allocated to the RICfrom REITs described in the fol-lowing sentence. A REIT is de-scribed in this sentence if it re-ported to its shareholders for themost recent REIT taxable year end-ing not later than nine months be-fore the first day of the RIC’s tax-able year that—

1. A portion of the REIT’s divi-dends for the year was excessinclusion income, and

2. This excess inclusion incomeexceeded three percent of theREIT’s total dividends for theyear.

As an example, the reporting obligationdescribed in this bullet applies to a fis-cal year RIC for its taxable year begin-ning February 1, 2007, with respect toexcess inclusion income allocated to theRIC by that REIT for the REIT’s tax-able year ending December 31, 2007,if the REIT had reported for its taxableyear ending December 31, 2005, that itsexcess inclusion income exceeded threepercent of its total dividends for thatyear.

SECTION 6. PAPERWORKREDUCTION ACT

The collection of information containedin this notice has been reviewed and ap-proved by the Office of Management andBudget in accordance with the Paperwork

Reduction Act (44 U.S.C. 3507) undercontrol number 1545–2036.

An agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless thecollection of information displays a validOMB control number.

The collection of information in this no-tice is in sections 860E(d) and 7701(i)(3).This information is required to allow therecipients of the information to properlyreport and pay taxes on excess inclusionincome allocable to them. The collectionof information is mandatory. The likely re-spondents are business or other for-profitinstitutions.

The estimated total annual reportingand/or recordkeeping burden is two hours.The estimated annual burden per respon-dent/recordkeeper varies from one to threehours, depending on individual circum-stances, with an estimated average of twohours. The estimated number of respon-dents and/or recordkeepers is 50.

The estimated annual frequency of re-sponses (used for reporting requirementsonly) is once.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Anna Kim of the Office of the As-sociate Chief Counsel (Financial Institu-tions and Products). For further informa-tion regarding this revenue ruling, contactAnna Kim at (202) 622–3735.

2007 Limitations Adjusted AsProvided in Section 415(d),etc.1

Notice 2006–98

Section 415 of the Internal RevenueCode (the Code) provides for dollar lim-itations on benefits and contributions un-der qualified retirement plans. Section 415also requires that the Commissioner annu-

1 Based on News Release IR–2006–162 dated October 18, 2006.

2006–46 I.R.B. 906 November 13, 2006

ally adjust these limits for cost-of-livingincreases. Other limitations applicable todeferred compensation plans are also af-fected by these adjustments. Many of thelimitations will change for 2007. For mostof the limitations, the increase in the cost-of-living index met the statutory thresh-olds that trigger their adjustment. For ex-ample, the limitation under § 402(g)(1)on the exclusion for elective deferrals de-scribed in § 402(g)(3) is increased from$15,000 to $15,500. This limitation affectselective deferrals to section 401(k) plansand to the Federal Government’s ThriftSavings Plan, among other plans.

Cost-of-Living limits for 2007

Effective January 1, 2007, the limita-tion on the annual benefit under a definedbenefit plan under § 415(b)(1)(A) is in-creased from $175,000 to $180,000. Forparticipants who separated from servicebefore January 1, 2007, the limitation fordefined benefit plans under § 415(b)(1)(B)is computed by multiplying the partic-ipant’s compensation limitation, as ad-justed through 2006, by 1.0334.

The limitation for defined contributionplans under § 415(c)(1)(A) is increasedfrom $44,000 to $45,000.

The Code provides that various otherdollar amounts are to be adjusted at thesame time and in the same manner as thedollar limitation of § 415(b)(1)(A). Thesedollar amounts and the adjusted amountsare as follows:

The limitation under § 402(g)(1) onthe exclusion for elective deferrals de-scribed in § 402(g)(3) is increased from$15,000 to $15,500.

The annual compensation limit under§§ 401(a)(17), 404(l), 408(k)(3)(C),and 408(k)(6)(D)(ii) is increased from$220,000 to $225,000.

The dollar limitation under§ 416(i)(1)(A)(i) concerning thedefinition of key employee in atop-heavy plan is increased from$140,000 to $145,000.

The dollar amount under§ 409(o)(1)(C)(ii) for determiningthe maximum account balance in anemployee stock ownership plan sub-

ject to a 5-year distribution period isincreased from $885,000 to $915,000,while the dollar amount used to de-termine the lengthening of the 5-yeardistribution period is increased from$175,000 to $180,000.

The limitation used in the definitionof highly compensated employee under§ 414(q)(1)(B) remains unchanged at$100,000.

The dollar limitation under§ 414(v)(2)(B)(i) for catch-up con-tributions to an applicable employerplan other than a plan described in§ 401(k)(11) or 408(p) for individualsaged 50 or over remains unchanged at$5,000. The dollar limitation under§ 414(v)(2)(B)(ii) for catch-up contri-butions to an applicable employer plandescribed in § 401(k)(11) or 408(p) forindividuals aged 50 or over remainsunchanged at $2,500.

The annual compensation limitationunder § 401(a)(17) for eligible partic-ipants in certain governmental plansthat, under the plan as in effect on July1, 1993, allowed cost-of-living adjust-ments to the compensation limitationunder the plan under § 401(a)(17) to betaken into account, is increased from$325,000 to $335,000.

The compensation amount under§ 408(k)(2)(C) regarding simplifiedemployee pensions (SEPs) is increasedfrom $450 to $500.

The limitation on deferrals under§ 457(e)(15) concerning deferred com-pensation plans of state and local gov-ernments and tax-exempt organizationsis increased from $15,000 to $15,500.

The compensation amounts under§ 1.61–21(f)(5)(i) of the Income TaxRegulations concerning the definitionof “control employee” for fringe bene-fit valuation purposes is increased from$85,000 to $90,000. The compensationamount under § 1.61–21(f)(5)(iii) isincreased from $175,000 to $180,000.

The limitation under § 408(p)(2)(E) re-garding SIMPLE retirement accounts isincreased from $10,000 to $10,500.

Administrators of defined benefit or de-fined contribution plans that have receivedfavorable determination letters should notrequest new determination letters solelybecause of yearly amendments to adjustmaximum limitations in the plans.

Drafting Information

The principal author of this notice isJohn Heil of the Employee Plans, TaxExempt and Government Entities Divi-sion. For further information regardingthe data in this notice, please contactthe Employee Plans’ taxpayer assistancetelephone service at 1–877–829–5500(a toll-free call) between the hours of8:30 a.m. and 4:30 p.m. Eastern timeMonday through Friday. For informa-tion regarding the methodology used inarriving at the data in this notice, pleasecontact Mr. Heil at 1–202–283–9888 (nota toll-free call).

Guidance on Withholding andInformation Reporting onForeign Persons, IncludingGuidance on CertainBook-Entry Systems

Notice 2006–99

SECTION 1. PURPOSE

This notice provides guidance on with-holding and information reporting on for-eign persons and includes guidance on cer-tain book-entry systems in foreign coun-tries.

This notice provides clarificationon whether bonds held through certainbook-entry systems are treated as in reg-istered or in bearer form under Treas.Reg. §§ 5f.103–1(c) and 1.871–14. Itconcludes that a dematerialized bond thatcan be held and transferred only througha book-entry system is in registered form,when a holder may only obtain a physicalcertificate in bearer form if the clearingorganization that maintains the book-entrysystem goes out of business without a suc-cessor. Notwithstanding the clarificationset forth in this notice, obligations thatare outstanding prior to January 1, 2007,and that were issued in compliance Treas.Reg. § 1.163–5(c)(2)(i)(D) (TEFRA D)

November 13, 2006 907 2006–46 I.R.B.

may continue to be treated as obligationsin bearer form until the obligations mature.

Further, this notice announces that theIRS and Treasury intend to issue regula-tions providing that section 1.871–14(e) ofthe regulations, dealing with foreign tar-geted registered obligations, will not ap-ply to obligations issued after December31, 2006, except in limited circumstances.The regulations will provide that the rulesof section 1.871–14(e) will apply to obli-gations issued after December 31, 2006,and before January 1, 2009, but only ifthose obligations have a stated maturity ofno more than 10 years from the date of is-suance. Obligations issued under the rulesof Treas. Reg. § 1.871–14(e) prior to Jan-uary 1, 2009, will continue to be subject tothose rules until those obligations mature.

Finally, this notice announces that theIRS and Treasury intend to issue regu-lations retroactively removing the rule inTreas. Reg. § 1.1441–1(b)(7)(iii) thatwould impose interest under section 6601when no underlying tax liability has in factbeen imposed. These regulations wouldalso clarify that, like interest, penalties thatare computed based on underpayments oftax will not be imposed when no tax has infact been imposed.

SECTION 2. BACKGROUND

.01 Development of dematerializedbook-entry systems

IRS and Treasury are aware of thedevelopment of dematerialized book-en-try systems for holding and transferringbonds. In such systems, bonds are requiredto be represented only by book entries, andno physical certificates are issued or trans-ferred. Such dematerialized book-entrysystems offer significant efficiencies forsecurities markets, and in order to capturethose efficiencies, markets in certain for-eign countries have adopted such systems.

For example, Foreign Country law re-quires that, beginning on a certain date,bonds issued in that country must be heldthrough the book-entry system operated byForeign Country Clearing Organization.Foreign Country Clearing Organization isan entity which is in the business of hold-ing obligations for member organizationsand transferring obligations among suchmembers by credit or debit to the accountof a member without the necessity of phys-ical delivery of the obligation. Within the

book-entry system, bonds are not repre-sented by any physical certificates, but arerepresented only by book entries. Hold-ers do not have the ability to withdrawbonds from the book-entry system andobtain physical certificates representingthe bonds. Holders may obtain physicalcertificates in bearer form only if For-eign Country Clearing Organization goesout of business without a successor thatwill continue to operate the book-entrysystem. Bonds that were issued beforethe book-entry system became mandatorymust be transferred into the system by aspecified date.

.02 Obligations in registered formSection 5f.103–1(c)(1) provides that

an obligation is in registered form ifthe obligation is registered as to bothprincipal and interest and the obligationmay be transferred only by surrender andre-issuance of the physical certificate orthrough a book-entry system. Section5f.103–1(c)(2) provides that an obliga-tion is considered transferable through abook-entry system if the ownership of aninterest in the obligation is required to bereflected in a book entry that identifiesthe owner of an interest in the obligation.Section 5f.103–1(e) provides that an obli-gation that is not in registered form is con-sidered to be in bearer form. An obligationin registered form that is convertible intobearer form is considered to be in bearerform. Treas. Reg. § 1.871–14(c) providesthat for purposes of determining the appli-cation of the portfolio interest exception,the conditions for an obligation to be inregistered form are identical to the condi-tions described in Treas. Reg. § 5f.103–1.

SECTION 3. TREATMENT OFOBLIGATIONS HELD THROUGH ADEMATERIALIZED BOOK-ENTRYSYSTEM

.01 Obligations subject to a book-entryrequirement described in section 2.01

An obligation subject to a book-entryrequirement described in section 2.01 ofthis notice, and held through the book-en-try system operated by Foreign CountryClearing Organization, is an obligation inregistered form because, within the book-entry system, it may be transferred only bybook entries and the holder of the obliga-tion does not have the ability to withdrawthe obligation from the book-entry system

and obtain a physical certificate in bearerform.

The cessation of operation of the book-entry system would be an extraordinaryevent. Holding through the book-entrysystem is mandatory for obligations in For-eign Country’s market while the book-en-try system is in existence and while For-eign Country’s legal requirements remainin place. The provision for the issuanceof physical certificates in bearer form inthe event that the book entry system goesout of existence is not the equivalent ofa provision conferring on the holder theability to convert an obligation from regis-tered form into bearer form in the ordinarycourse of business.

Notwithstanding that such obligationsare in registered form, section 3.02 of thisnotice, below, provides a transition rule forcertain obligations issued prior to January1, 2007.

.02 Obligations issued before January 1,2007

An obligation in bearer form that wasissued before January 1, 2007, and thatwas issued in compliance with section1.163–5(c)(2)(i)(D) (TEFRA D) may con-tinue to be treated as an obligation inbearer form until its maturity, whetheror not it is held within Foreign Coun-try Clearing Organization’s book-entrysystem described in section 2.01 of thisnotice.

SECTION 4. SUNSET OF FOREIGNTARGETED REGISTERED RULES

The IRS and Treasury intend to issueregulations providing that the rules ofsection 1.871–14(e) of the regulations,dealing with foreign targeted registeredobligations, will not apply to obligationsissued after December 31, 2006, except inthe limited circumstances described in thenext sentence. The regulations will pro-vide that the rules of section 1.871–14(e)will apply to obligations issued after De-cember 31, 2006, and before January 1,2009, but only if those obligations have astated maturity of no more than 10 yearsfrom the date of issuance. Obligationsissued under the rules of Treas. Reg.§ 1.871–14(e) prior to January 1, 2009,will continue to be subject to those rulesuntil those obligations mature.

2006–46 I.R.B. 908 November 13, 2006

SECTION 5. INTEREST IMPOSEDWHEN NO TAX DUE

Treas. Reg. § 1.1441–1(b)(7)(iii) pro-vides that a withholding agent that hasfailed to withhold tax other than based onreliance on the appropriate presumptions isnot relieved from liability for interest un-der section 6601. It further provides thatsuch liability exists even when there is nounderlying tax that is ultimately shown tobe due. That is, the regulation imposesan interest charge under section 6601 on awithholding agent for an amount of tax thathas not in fact been imposed. Treas. Reg.§ 1.1441–1(b)(7)(v) sets forth two exam-ples that illustrate the operation of this rule.

The IRS and Treasury intend to is-sue regulations retroactive to January 1,2001, removing the rule in Treas. Reg.§ 1.1441–1(b)(7)(iii), and the accompany-ing examples illustrating the rule in Treas.Reg. § 1.1441–1(b)(7)(v), that imposesinterest under section 6601 when no un-derlying tax liability is imposed. Further,the IRS and Treasury intend, in the newregulations, to clarify also that, like inter-est, penalties that are computed based onunderpayments of tax will not be imposedwhen no tax has in fact been imposed.Taxpayers may rely on this notice until theregulations removing the rule are final-ized.

SECTION 6. COMMENTS

Comments are requested regarding theregulations to be issued under Section 4 ofthis notice. Specifically, comments are re-quested on the transition period to be pro-vided for such rules.

SECTION 7. CONTACTINFORMATION

The principal author of this notice isKay Holman of the Office of AssociateChief Counsel (International). For further

information regarding this notice, contactKay Holman at (202) 622–3840 (not a toll-free call).

Social Security Contributionand Benefit Base for 2007

Notice 2006–102

Under authority contained in the So-cial Security Act (“the Act”), the Commis-sioner, Social Security Administration, hasdetermined and announced (71 F.R. 62636,dated October 26, 2006) that the contri-bution and benefit base for remunerationpaid in 2007, and self-employment incomeearned in taxable years beginning in 2007is $97,500.

“Old-Law” Contribution and BenefitBase

General

The “old-law” contribution and bene-fit base for 2007 is $72,600. This is thebase that would have been effective underthe Act without the enactment of the 1977amendments.

The “old-law” contribution and benefitbase is used by:

(a) The Railroad Retirement programto determine certain tax liabilities and tierII benefits payable under that program tosupplement the tier I payments which cor-respond to basic Social Security benefits,

(b) the Pension Benefit GuarantyCorporation to determine the maximumamount of pension guaranteed under theEmployee Retirement Income SecurityAct (as stated in section 230(d) of theSocial Security Act),

(c) Social Security to determine a yearof coverage in computing the special min-imum benefit, as described earlier, and

(d) Social Security to determine a yearof coverage (acquired whenever earningsequal or exceed 25 percent of the “old-law” base for this purpose only) in comput-ing benefits for persons who are also eligi-ble to receive pensions based on employ-ment not covered under section 210 of theAct.

Domestic Employee CoverageThreshold

General

The minimum amount a domesticworker must earn so that such earnings arecovered under Social Security or Medicareis the domestic employee coverage thresh-old. For 2007, this threshold is $1,500.Section 3121(x) of the Internal RevenueCode provides the formula for increasingthe threshold.

Computation

Under the formula, the domestic em-ployee coverage threshold amount for2007 shall be equal to the 1995 amountof $1,000 multiplied by the ratio of thenational average wage index for 2005 tothat for 1993. If the resulting amount isnot a multiple of $100, it shall be roundedto the next lower multiple of $100.

Domestic Employee Coverage ThresholdAmount

Multiplying the 1995 domestic em-ployee coverage threshold amount($1,000) by the ratio of the national av-erage wage index for 2005 ($36,952.94)to that for 1993 ($23,132.67) producesthe amount of $1,597.44. We then roundthis amount to $1,500. Accordingly, thedomestic employee coverage thresholdamount is $1,500 for 2007.

(Filed by the Office of the Federal Register on October 25,2006, 8:45 a.m., and published in the issue of the FederalRegister for October 26, 2006, 71 F.R. 62636)

November 13, 2006 909 2006–46 I.R.B.

Part IV. Items of General InterestStandards for CalculatingEnergy Savings for the NewEnergy Efficient Home Credit;Internal Revenue Code 45L

Announcement 2006–88

This announcement informs taxpayersthat either Residential Services Network(RESNET) Publication No. 05–001 orRESNET Publication No. 06–001 may beused in determining whether a dwellingunit qualifies for the New Energy EfficientHome Credit. Thus, a taxpayer may cal-culate heating and cooling energy and costsavings using the procedures contained ineither RESNET publication. Similarly, anapplication to have a software programincluded on the public list of softwareprograms that may be used to calculateenergy consumption may be based ona declaration by the developer that theprogram satisfies the tests required to con-

form to the software accreditation processprescribed in either RESNET publication.This change is effective for new energyefficient homes acquired after December31, 2005.

Notice 2006–27, 2006–11 I.R.B. 626,February 21, 2006, and Notice 2006–28,2006–11 I.R.B. 628, February 21, 2006,provided guidance regarding the calcu-lation of heating and cooling energy andcost savings for purposes of determiningthe eligibility of dwelling units for theNew Energy Efficient Home Credit underInternal Revenue Code § 45L. Those no-tices provided that calculations of heatingand cooling energy and cost savings bedone in accordance with the procedurescontained in RESNET Publication No.05–001. The notices also provided thatsoftware would be included on the publiclist of software programs that may be usedto calculate energy consumption only ifthe software developer certified that the

program satisfied all tests required to con-form to the software accreditation processprescribed in RESNET Publication No.05–001. Shortly after the publication ofthe notices, RESNET updated Publica-tion No. 05–001 by issuing PublicationNo. 06–001. Publication No. 06–001is intended to provide more appropriateregional standards for calculating energyand cost savings. This announcementmodifies the guidance in the previouslyissued notices by permitting taxpayers touse either the prior RESNET standardsin Publication No. 05–001 or the currentRESNET standards in Publication No.06–001.

The principal author of this announce-ment is Jennifer C. Bernardini of the Officeof Associate Chief Counsel (Passthroughs& Special Industries). For further informa-tion regarding this announcement, contactJennifer C. Bernardini at (202) 622–3120(not a toll-free call).

2006–46 I.R.B. 910 November 13, 2006

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situationsto show that the previous published rul-ings will not be applied pending somefuture action such as the issuance of newor amended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

November 13, 2006 i 2006–46 I.R.B.

Numerical Finding List1

Bulletins 2006–27 through 2006–46

Announcements:

2006-42, 2006-27 I.R.B. 48

2006-43, 2006-27 I.R.B. 48

2006-44, 2006-27 I.R.B. 49

2006-45, 2006-31 I.R.B. 121

2006-46, 2006-28 I.R.B. 76

2006-47, 2006-28 I.R.B. 78

2006-48, 2006-31 I.R.B. 135

2006-49, 2006-29 I.R.B. 89

2006-50, 2006-34 I.R.B. 321

2006-51, 2006-32 I.R.B. 222

2006-52, 2006-33 I.R.B. 254

2006-53, 2006-33 I.R.B. 254

2006-54, 2006-33 I.R.B. 254

2006-55, 2006-35 I.R.B. 342

2006-56, 2006-35 I.R.B. 342

2006-57, 2006-35 I.R.B. 343

2006-58, 2006-36 I.R.B. 388

2006-59, 2006-36 I.R.B. 388

2006-60, 2006-36 I.R.B. 389

2006-61, 2006-36 I.R.B. 390

2006-62, 2006-37 I.R.B. 444

2006-63, 2006-37 I.R.B. 445

2006-64, 2006-37 I.R.B. 447

2006-65, 2006-37 I.R.B. 447

2006-66, 2006-37 I.R.B. 448

2006-67, 2006-38 I.R.B. 509

2006-68, 2006-38 I.R.B. 510

2006-69, 2006-37 I.R.B. 449

2006-70, 2006-40 I.R.B. 629

2006-71, 2006-40 I.R.B. 630

2006-72, 2006-40 I.R.B. 630

2006-73, 2006-42 I.R.B. 745

2006-74, 2006-42 I.R.B. 746

2006-75, 2006-42 I.R.B. 746

2006-76, 2006-42 I.R.B. 746

2006-77, 2006-42 I.R.B. 748

2006-78, 2006-42 I.R.B. 748

2006-79, 2006-43 I.R.B. 792

2006-80, 2006-45 I.R.B. 840

2006-81, 2006-44 I.R.B. 821

2006-82, 2006-44 I.R.B. 821

2006-83, 2006-44 I.R.B. 822

2006-84, 2006-45 I.R.B. 873

2006-85, 2006-45 I.R.B. 873

2006-86, 2006-45 I.R.B. 842

2006-87, 2006-44 I.R.B. 822

2006-88, 2006-46 I.R.B. 910

2006-89, 2006-44 I.R.B. 826

Notices:

2006-56, 2006-28 I.R.B. 58

Notices— Continued:

2006-57, 2006-27 I.R.B. 13

2006-58, 2006-28 I.R.B. 59

2006-59, 2006-28 I.R.B. 60

2006-60, 2006-29 I.R.B. 82

2006-61, 2006-29 I.R.B. 85

2006-62, 2006-29 I.R.B. 86

2006-63, 2006-29 I.R.B. 87

2006-64, 2006-29 I.R.B. 88

2006-65, 2006-31 I.R.B. 102

2006-66, 2006-30 I.R.B. 99

2006-67, 2006-33 I.R.B. 248

2006-68, 2006-31 I.R.B. 105

2006-69, 2006-31 I.R.B. 107

2006-70, 2006-33 I.R.B. 252

2006-71, 2006-34 I.R.B. 316

2006-72, 2006-36 I.R.B. 363

2006-73, 2006-35 I.R.B. 339

2006-74, 2006-35 I.R.B. 339

2006-75, 2006-36 I.R.B. 366

2006-76, 2006-38 I.R.B. 459

2006-77, 2006-40 I.R.B. 590

2006-78, 2006-41 I.R.B. 675

2006-79, 2006-43 I.R.B. 763

2006-80, 2006-40 I.R.B. 594

2006-81, 2006-40 I.R.B. 595

2006-82, 2006-39 I.R.B. 529

2006-83, 2006-40 I.R.B. 596

2006-84, 2006-41 I.R.B. 677

2006-85, 2006-41 I.R.B. 677

2006-86, 2006-41 I.R.B. 680

2006-87, 2006-43 I.R.B. 766

2006-88, 2006-42 I.R.B. 686

2006-89, 2006-43 I.R.B. 772

2006-90, 2006-42 I.R.B. 688

2006-91, 2006-42 I.R.B. 688

2006-92, 2006-43 I.R.B. 774

2006-93, 2006-44 I.R.B. 798

2006-94, 2006-43 I.R.B. 777

2006-95, 2006-45 I.R.B. 848

2006-96, 2006-46 I.R.B. 902

2006-97, 2006-46 I.R.B. 904

2006-98, 2006-46 I.R.B. 906

2006-99, 2006-46 I.R.B. 907

2006-102, 2006-46 I.R.B. 909

Proposed Regulations:

REG-208270-86, 2006-42 I.R.B. 698

REG-121509-00, 2006-40 I.R.B. 602

REG-135866-02, 2006-27 I.R.B. 34

REG-140379-02, 2006-44 I.R.B. 808

REG-142599-02, 2006-44 I.R.B. 808

REG-146893-02, 2006-34 I.R.B. 317

REG-159929-02, 2006-35 I.R.B. 341

REG-148864-03, 2006-34 I.R.B. 320

REG-168745-03, 2006-39 I.R.B. 532

Proposed Regulations— Continued:

REG-105248-04, 2006-43 I.R.B. 787

REG-109512-05, 2006-30 I.R.B. 100

REG-142270-05, 2006-43 I.R.B. 791

REG-145154-05, 2006-39 I.R.B. 567

REG-148576-05, 2006-40 I.R.B. 627

REG-109367-06, 2006-41 I.R.B. 683

REG-112994-06, 2006-27 I.R.B. 47

REG-118775-06, 2006-28 I.R.B. 73

REG-118897-06, 2006-31 I.R.B. 120

REG-120509-06, 2006-39 I.R.B. 570

REG-124152-06, 2006-36 I.R.B. 368

REG-125071-06, 2006-36 I.R.B. 375

Revenue Procedures:

2006-29, 2006-27 I.R.B. 13

2006-30, 2006-31 I.R.B. 110

2006-31, 2006-27 I.R.B. 32

2006-32, 2006-28 I.R.B. 61

2006-33, 2006-32 I.R.B. 140

2006-34, 2006-38 I.R.B. 460

2006-35, 2006-37 I.R.B. 434

2006-36, 2006-38 I.R.B. 498

2006-37, 2006-38 I.R.B. 499

2006-38, 2006-39 I.R.B. 530

2006-39, 2006-40 I.R.B. 600

2006-40, 2006-42 I.R.B. 694

2006-41, 2006-43 I.R.B. 777

2006-43, 2006-45 I.R.B. 849

2006-44, 2006-44 I.R.B. 800

2006-45, 2006-45 I.R.B. 851

2006-46, 2006-45 I.R.B. 859

2006-47, 2006-45 I.R.B. 869

Revenue Rulings:

2006-35, 2006-28 I.R.B. 50

2006-36, 2006-36 I.R.B. 353

2006-37, 2006-30 I.R.B. 91

2006-38, 2006-29 I.R.B. 80

2006-39, 2006-32 I.R.B. 137

2006-40, 2006-32 I.R.B. 136

2006-41, 2006-35 I.R.B. 331

2006-42, 2006-35 I.R.B. 337

2006-43, 2006-35 I.R.B. 329

2006-44, 2006-36 I.R.B. 361

2006-45, 2006-37 I.R.B. 423

2006-46, 2006-39 I.R.B. 511

2006-47, 2006-39 I.R.B. 511

2006-48, 2006-39 I.R.B. 516

2006-49, 2006-40 I.R.B. 584

2006-50, 2006-41 I.R.B. 672

2006-51, 2006-41 I.R.B. 632

2006-52, 2006-43 I.R.B. 761

2006-53, 2006-44 I.R.B. 796

2006-54, 2006-45 I.R.B. 834

2006-55, 2006-45 I.R.B. 837

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin2006–26, dated June 26, 2006.

2006–46 I.R.B. ii November 13, 2006

Revenue Rulings— Continued:

2006-56, 2006-46 I.R.B. 874

2006-58, 2006-46 I.R.B. 876

Social Security Contribution and BenefitBase; Domestic Employee CoverageThreshold:

2006-102, 2006-46 I.R.B. 909

Tax Conventions:

2006-80, 2006-45 I.R.B. 840

2006-86, 2006-45 I.R.B. 842

Treasury Decisions:

9265, 2006-27 I.R.B. 1

9266, 2006-28 I.R.B. 52

9267, 2006-34 I.R.B. 313

9268, 2006-30 I.R.B. 94

9269, 2006-30 I.R.B. 92

9270, 2006-33 I.R.B. 237

9271, 2006-33 I.R.B. 224

9272, 2006-35 I.R.B. 332

9273, 2006-37 I.R.B. 394

9274, 2006-33 I.R.B. 244

9275, 2006-35 I.R.B. 327

9276, 2006-37 I.R.B. 424

9277, 2006-33 I.R.B. 226

9278, 2006-34 I.R.B. 256

9279, 2006-36 I.R.B. 355

9280, 2006-38 I.R.B. 450

9281, 2006-39 I.R.B. 517

9282, 2006-39 I.R.B. 512

9283, 2006-41 I.R.B. 633

9284, 2006-40 I.R.B. 582

9285, 2006-41 I.R.B. 656

9286, 2006-43 I.R.B. 750

9287, 2006-46 I.R.B. 896

9288, 2006-44 I.R.B. 794

9289, 2006-45 I.R.B. 827

9290, 2006-46 I.R.B. 879

9291, 2006-46 I.R.B. 887

November 13, 2006 iii 2006–46 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2006–27 through 2006–46

Announcements:

2005-59

Updated and superseded by

Ann. 2006-45, 2006-31 I.R.B. 121

Notices:

88-128

Supplemented by

Notice 2006-95, 2006-45 I.R.B. 848

2002-45

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

2004-61

Modified and superseded by

Notice 2006-95, 2006-45 I.R.B. 848

2006-20

Supplemented and modified by

Notice 2006-56, 2006-28 I.R.B. 58

2006-27

Modified by

Ann. 2006-88, 2006-46 I.R.B. 910

2006-28

Modified by

Ann. 2006-88, 2006-46 I.R.B. 910

2006-53

Modified by

Notice 2006-71, 2006-34 I.R.B. 316

2006-67

Modified and superseded by

Notice 2006-77, 2006-40 I.R.B. 590

Proposed Regulations:

REG-135866-02

Corrected by

Ann. 2006-64, 2006-37 I.R.B. 447Ann. 2006-65, 2006-37 I.R.B. 447

REG-134317-05

Corrected by

Ann. 2006-47, 2006-28 I.R.B. 78

REG-112994-06

Corrected by

Ann. 2006-79, 2006-43 I.R.B. 792

REG-118775-06

Corrected by

Ann. 2006-71, 2006-40 I.R.B. 630

Revenue Procedures:

99-35

Modified and superseded by

Rev. Proc. 2006-40, 2006-42 I.R.B. 694

2002-9

Modified and amplified by

Notice 2006-67, 2006-33 I.R.B. 248Notice 2006-77, 2006-40 I.R.B. 590Rev. Proc. 2006-43, 2006-45 I.R.B. 849

2002-37

Clarified, modified, amplified, and superseded by

Rev. Proc. 2006-45, 2006-45 I.R.B. 851

2002-38

Clarified, modified, amplified, and superseded by

Rev. Proc. 2006-46, 2006-45 I.R.B. 859

2004-63

Superseded by

Rev. Proc. 2006-34, 2006-38 I.R.B. 460

2005-41

Superseded by

Rev. Proc. 2006-29, 2006-27 I.R.B. 13

2005-49

Superseded by

Rev. Proc. 2006-33, 2006-32 I.R.B. 140

2005-67

Superseded by

Rev. Proc. 2006-41, 2006-43 I.R.B. 777

2006-12

Modified by

Rev. Proc. 2006-37, 2006-38 I.R.B. 499

2006-33

Updated and clarified by

Ann. 2006-73, 2006-42 I.R.B. 745

2006-35

Modified by

Notice 2006-90, 2006-42 I.R.B. 688

Revenue Rulings:

72-238

Obsoleted by

REG-109367-06, 2006-41 I.R.B. 683

73-558

Obsoleted by

REG-109367-06, 2006-41 I.R.B. 683

75-296

Distinguished by

Rev. Rul. 2006-52, 2006-43 I.R.B. 761

80-31

Distinguished by

Rev. Rul. 2006-52, 2006-43 I.R.B. 761

Revenue Rulings— Continued:

81-35

Amplified and modified by

Rev. Rul. 2006-43, 2006-35 I.R.B. 329

81-36

Amplified and modified by

Rev. Rul. 2006-43, 2006-35 I.R.B. 329

87-10

Amplified and modified by

Rev. Rul. 2006-43, 2006-35 I.R.B. 329

2002-41

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

2003-43

Amplified by

Notice 2006-69, 2006-31 I.R.B. 107

2005-24

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

Treasury Decisions:

9254

Corrected by

Ann. 2006-44, 2006-27 I.R.B. 49Ann. 2006-66, 2006-37 I.R.B. 448

9258

Corrected by

Ann. 2006-46, 2006-28 I.R.B. 76

9260

Corrected by

Ann. 2006-67, 2006-38 I.R.B. 509

9262

Corrected by

Ann. 2006-56, 2006-35 I.R.B. 342

9264

Corrected by

Ann. 2006-46, 2006-28 I.R.B. 76

9272

Corrected by

Ann. 2006-68, 2006-38 I.R.B. 510

9274

Corrected by

Ann. 2006-89, 2006-44 I.R.B. 826

9276

Corrected by

Ann. 2006-83, 2006-44 I.R.B. 822Ann. 2006-85, 2006-45 I.R.B. 873

9277

Corrected by

Ann. 2006-72, 2006-40 I.R.B. 630

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin 2006–26, dated June 26, 2006.

2006–46 I.R.B. iv November 13, 2006

Treasury Decisions— Continued:

9280

Corrected by

Ann. 2006-78, 2006-42 I.R.B. 748

9281

Corrected by

Ann. 2006-82, 2006-44 I.R.B. 821Ann. 2006-84, 2006-45 I.R.B. 873

November 13, 2006 v 2006–46 I.R.B.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-tendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weeklyBulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

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