Bulletin No. 2009-36September 8, 2009

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. 2009–24, page 306.Section 1256 contracts marked to market. This rulingholds that ICE Futures Canada, Inc., which is a regulated ex-change of Canada, is a qualified board or exchange within themeaning of section 1256(g)(7)(C) of the Code.

Notice 2009–64, page 307.This notice proposes a revenue ruling that would hold that tan-gible assets used in converting corn to fuel grade ethanol areproperly included in asset class 49.5 of Rev. Proc. 87–56 fordepreciation purposes. Comments are requested by Novem-ber 23, 2009.

Rev. Proc. 2009–37, page 309.This procedure provides guidance to taxpayers on electing todefer recognizing cancellation of indebtedness income undersection 108(i) of the Code and section 1231 of the AmericanRecovery and Reinvestment Tax Act of 2009.

EXEMPT ORGANIZATIONS

Announcement 2009–64, page 319.The IRS has revoked its determination that HFZ CharitableSupporting Organization of Santa Barbara, CA; Main HomesCommunity Development Corporation of Columbus, OH; NorthAmerican Housing Foundation of Spokane, WA; and TheValcarce Foundation of Bountiful, UT, qualify as organizationsdescribed in sections 501(c)(3) and 170(c)(2) of the Code.

Announcements of Disbarments and Suspensions begin on page 319.Finding Lists begin on page ii.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand 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 Secre-tary (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.

September 8, 2009 2009–36 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 1256.—Section1256 Contracts Markedto Market(Also: §§ 446, 481, 7805; 1.446–1, 301.7805–1.)

Section 1256 contracts marked tomarket. This ruling holds that ICE Fu-tures Canada, Inc., which is a regulatedexchange of Canada, is a qualified boardor exchange within the meaning of section1256(g)(7)(C) of the Code.

Rev. Rul. 2009–24

ISSUE

Is ICE Futures Canada, Inc., whichis a commodity futures exchange anda self-regulatory organization of Mani-toba, Canada, a qualified board or ex-change within the meaning of section1256(g)(7)(C) of the Internal RevenueCode?

LAW AND ANALYSIS

Section 1256(g)(7) provides that theterm “qualified board or exchange” means:

(A) a national securities exchangewhich is registered with the Securities andExchange Commission,

(B) a domestic board of trade desig-nated as a contract market by the Com-modity Futures Trading Commission, or

(C) any other exchange, board of trade,or other market which the Secretary deter-mines has rules adequate to carry out thepurposes of section 1256.

HOLDING

The Internal Revenue Service deter-mines that ICE Futures Canada, Inc.,which is a regulated exchange of Canada,is a qualified board or exchange within themeaning of section 1256(g)(7)(C).

EFFECTIVE DATE

Under the authority of section7805(b)(8) of the Code, this revenue rul-ing is effective for ICE Futures CanadaContracts (commodity futures contractsand futures contract options) entered intoon or after October 1, 2009.

CHANGE IN METHOD OFACCOUNTING

A change in the treatment of ICE Fu-tures Canada Contracts to comply withthis revenue ruling is a change in methodof accounting within the meaning of sec-

tions 446 and 481 and the regulationsthereunder. The Commissioner grantsconsent to taxpayers to change to thesection 1256 mark to market method forthe first taxable year during which thetaxpayer holds an ICE Futures CanadaContract that was entered into on or afterOctober 1, 2009. Such a taxpayer need notfile a Form 3115, Application for Changein Accounting Method, and ICE FuturesCanada Contracts that were entered intobefore October 1, 2009 will not be cov-ered by the change in method for whichconsent is granted. Because the changeis being made on a “cut-off” basis, thereis no potential omission or duplication ofincome or deductions, and therefore noadjustment under section 481 is required.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Andrea Hoffenson of the Office ofAssociate Chief Counsel (Financial Insti-tutions & Products). For further informa-tion regarding this revenue ruling, contactAndrea Hoffenson at (202) 622–3930 (nota toll-free call).

2009–36 I.R.B. 306 September 8, 2009

Part III. Administrative, Procedural, and MiscellaneousProposed Revenue RulingRegarding Depreciation ofEthanol Plants

Notice 2009–64

This notice provides a proposed rev-enue ruling concerning the depreciation oftangible assets that are used in convertingcorn to fuel grade ethanol.

The proposed revenue ruling concludesthat the appropriate depreciation classifi-cation for these assets is asset class 49.5,Waste Reduction and Resource Recov-ery Plants, of Rev. Proc. 87–56, 1987–2C.B. 674, as clarified and modified byRev. Proc. 88–22, 1988–1 C.B. 785, forpurposes of determining depreciation un-der § 168 of the Internal Revenue Code.This conclusion is based on the asset classdescription, the applicable definition ofbiomass, and the fact that conversion ofbiomass into a liquid fuel is the primarybusiness activity and use of the facility.It is expected that this depreciation clas-sification would apply to assets placed inservice on or after the publication of a finalrevenue ruling. Consequently, the InternalRevenue Service will not require taxpay-ers to adopt this depreciation classificationfor tangible assets used in convertingbiomass to a liquid fuel such as fuel gradeethanol that are placed in service prior tothe publication of a final revenue ruling.

The Service and Treasury Departmentrequest public comments regarding theproposed revenue ruling. A final rev-enue ruling will not be issued until thecomments have been considered. Allcomments will be available for public in-spection and copying.

Comments must be submitted in writ-ing on or before November 23, 2009,and should include a reference to Notice2009–64. Submissions should be sent to:

Internal Revenue ServiceAttn: CC:PA:LPD:PR

(Notice 2009–64), Room 5203P.O. Box 7604Ben Franklin StationWashington, DC 20044

Submissions also may be hand de-livered Monday through Friday be-tween the hours of 8 a.m. and 4 p.m.

to: CC:PA:LPD:PR (Notice 2009–64),Courier’s Desk, Internal Revenue Service,1111 Constitution Avenue, N.W., Wash-ington, DC. Alternatively, comments maybe submitted electronically directly to theService via the following e-mail address:Notice.comments@irscounsel.treas.gov.Please include “Notice 2009–64” in thesubject line of any electronic communica-tion.

PROPOSED REVENUE RULING

Rev. Rul. [XXXX–XX]

ISSUE

What is the proper asset class underRev. Proc. 87–56, 1987–2 C.B. 674,as clarified and modified by Rev. Proc.88–22, 1988–1 C.B. 785, for the deprecia-tion of tangible assets that are used in con-verting corn to fuel grade ethanol?

FACTS

Taxpayer owns a facility operated pri-marily to produce fuel grade ethanol.Ethanol is a colorless, flammable liquidthat is an organic chemical, and a highoctane alternative fuel source. Taxpayerproduces ethanol by fermenting starchfrom corn.

Taxpayer uses a dry milling processto produce fuel grade ethanol. Taxpayergrinds the corn into flour, mixes the re-sulting corn flour with water, increases thetemperature, and adds enzymes to convertthe starch in the solution to simple sugars.Taxpayer feeds the resulting mash (water,sugars and non-convertible solids) intofermentation tanks where yeast is added.Over a period of several days the yeastmetabolizes the sugars into ethanol andcarbon dioxide (CO2). The CO2 producedduring fermentation may be collected,compressed, and sold as a by-product.

Taxpayer then sends the solution to dis-tillation columns to separate the ethanolfrom the solids and water. After distilla-tion, part of the output is further processedby dehydration to increase alcohol contentby using molecular sieves that separatethe remaining water molecules from theethanol. Once the dehydration is complete,the fuel grade ethanol is blended with 2 to

5 percent denaturant (such as natural gaso-line or unleaded gasoline) and sent to stor-age pending sale.

Taxpayer also processes the solids andother liquids derived from the distillationto produce and sell distillers grains, an an-imal feed supplement. More than 50 per-cent of the economic output at Taxpayer’sfacility is from fuel grade ethanol produc-tion.

LAW

Statutory Scheme

Section 167(a) of the Internal RevenueCode provides that there shall be allowedas a depreciation deduction a reasonableallowance for the exhaustion and wear andtear of property used in a trade or businessor held for the production of income.

The depreciation deduction provided by§ 167(a) for tangible property placed inservice after 1986 generally is determinedunder § 168, which prescribes two meth-ods of accounting for determining depre-ciation allowances: (1) the general depre-ciation system in § 168(a); and (2) the al-ternative depreciation system in § 168(g).Under either depreciation system, the de-preciation deduction is computed by usinga prescribed depreciation method, recov-ery period, and convention.

The applicable recovery period for pur-poses of either § 168(a) or § 168(g) is de-termined by reference to class life or bystatute. Section 168(i)(1) provides that theterm “class life” means the class life (ifany) that would apply to any property asof January 1, 1986, under former § 167(m)as if it were in effect and the taxpayer hadmade an election under that section. Priorto its revocation, § 167(m) provided thatif a taxpayer elected the asset depreciationrange system of depreciation, the depreci-ation deduction would be computed basedon the class life prescribed by the Secre-tary that reasonably reflected the antici-pated useful life of that class of propertyto the industry or other group.

Primary Use Test

Section 1.167(a)–11(b)(4)(iii)(b) of theIncome Tax Regulations provides rulesfor classifying property under former§ 167(m) and, under these rules, property

September 8, 2009 307 2009–36 I.R.B.

is included in the asset class for the ac-tivity for which the property is primarilyused (the “primary use” test). Propertyis classified according to its primary useeven though the activity for which theproperty is primarily used is insubstantialin relation to all the activities of the tax-payer.

Recent appellate decisions discuss the“primary use” standard for asset classi-fication under § 1.167(a)–11(b)(4)(iii)(b).See, e.g., Clajon Gas Co, L.P. v. Com-missioner, 354 F.3d 786 (8th Cir. 2004).Courts have concluded that the actual pur-pose and function of an asset determinesits asset class (a use-driven functional stan-dard) rather than the terminology used todescribe an asset by its owners or others.

Asset Classes

Rev. Proc. 87–56 sets forth the classlives of property that are necessary tocompute the depreciation allowance under§ 168. This revenue procedure establishestwo broad categories of depreciable as-sets: (1) asset classes 00.11 through 00.4,which consist of specific assets used inall business activities (asset categories);and (2) asset classes 01.1 through 80.0,which consist of assets used in specificbusiness activities (activity categories).The same item of depreciable propertymay be classified in both an asset categoryand an activity category, in which casethe item is generally classified in the assetcategory. See Norwest Corporation &Subsidiaries v. Commissioner, 111 T.C.105, 162 (1998).

Asset class 49.5 of Rev. Proc. 87–56,Waste Reduction and Resource RecoveryPlants, includes assets used in the con-version of refuse or other solid waste orbiomass to heat or to a solid, liquid, orgaseous fuel. This asset class also includesall process plant equipment and structuresat the site used to (1) receive, handle, col-lect, and process refuse or other solid wasteor biomass to a solid, liquid, or gaseousfuel or (2) handle and burn refuse or othersolid waste or biomass in a waterwall com-bustion system, oil or gas pyrolysis sys-tem, or refuse derived fuel system to createhot water, gas, steam, or electricity. Assetclass 49.5 also includes material recoveryand support assets used in refuse or solidrefuse or solid waste receiving, collecting,handling, sorting, shredding, classifying,

and separation systems. Asset class 49.5does not include any package boilers, orelectric generators and related assets suchas electricity, hot water, steam and man-ufactured gas production plants classifiedin classes 00.4, 49.13, 49.221 and 49.4 ofRev. Proc. 87–56. Asset class 49.5 in-cludes, however, all other utilities such aswater supply and treatment facilities, ashhandling and other related land improve-ments of a waste reduction and resourcerecovery plant. Assets in class 49.5 havea recovery period of 7 years for purposesof § 168(a) and 10 years for purposes of§ 168(g).

Asset class 28.0 of Rev. Proc. 87–56,Manufacture of Chemicals and AlliedProducts, includes assets used to manu-facture basic organic and inorganic chem-icals; chemical products to be used infurther manufacture, such as syntheticfibers and plastics materials; and finishedchemical products. This asset class alsoincludes, among other things, all landimprovements associated with plant siteor production processes, such as effluentponds and canals, provided such land im-provements are depreciable but does notinclude buildings and structural compo-nents as defined in § 1.48–1(e). Assetclass 28.0 does not include assets used inthe manufacture of finished rubber andplastic products or in the production ofnatural gas products, butane, propane,and by-products of natural gas produc-tion plants. Assets in class 28.0 have arecovery period of 5 years for purposesof § 168(a) and 9.5 years for purposes of§ 168(g).

Rev. Rul. 77–63, 1977–1 C.B. 60,addresses the question of whether assetsused to produce alumina are classified inasset class 33.2, Manufacture of PrimaryNonferrous Metals, despite the fact thatproduction used chemical processes. Thechemical processes were part of the tax-payer’s overall process of producing semi-finished and finished aluminum productsfrom bauxite ore that the taxpayer mined.Asset class 33.2 includes assets used in thesmelting, refining, and electrolysis of non-ferrous metals from ore. Rev. Rul. 77–63concludes that the chemical processes usedto produce the alumina were an integralpart of refining of the nonferrous metal andfurther concludes that all of the assets usedin the processing of the bauxite ore intoprimary aluminum (basic metal), includ-

ing those used in the chemical processesto produce alumina, are classified in assetclass 33.2. However, the revenue rulingprovides that assets used to process the alu-mina for use in activities other than thoserequired to produce the basic metal shouldbe classified in other asset classes.

ANALYSIS

Asset class 49.5 specifically applies toassets used in the conversion of biomass toa liquid fuel. For purposes of asset class49.5, the term “biomass” means any or-ganic substance other than oil, natural gas,or coal, or product of oil or natural gas orcoal. This definition of biomass is consis-tent with the definition in the energy creditprovisions that were enacted near the timeasset class 49.5 was first established in1979 by Rev. Proc. 79–26, 1979–1 C.B.566. See § 48(l)(15)(B)(i), (l)(3)(B) as ineffect on the day before the date of enact-ment [11/5/90] of the Revenue Reconcili-ation Act of 1990, Pub. L. 101–508. Thedepreciation and the energy credit provi-sions are both based on cost recovery con-cepts.

The corn used in Taxpayer’s facilityis biomass, that is, an organic substanceother than oil, natural gas, coal, or aproduct thereof. Likewise, the fuel gradeethanol produced from corn (biomass) atTaxpayer’s facility is liquid fuel for pur-poses of asset class 49.5.

Asset class 28.0 of Rev. Proc. 87–56,which includes assets used to manufacturebasic chemicals, is not the appropriate as-set class for Taxpayer’s depreciable tangi-ble assets that are used in converting cornto fuel grade ethanol, even though ethanolis an organic chemical. The individual, in-termediate processes within Taxpayer’s fa-cility, particularly distillation and dehydra-tion, may be similar or identical to the pro-cessing steps that take place in the manu-facture of chemicals. However, the mereuse of a chemical process in the produc-tion of a product does not require an activ-ity to be classified as chemical manufac-turing. In Rev. Rul. 77–63, producingalumina by a chemical reaction as a stepin the nonferrous metal refining processdid not preclude classification in the assetclass that specifically applies to manufac-turing primary nonferrous metals. Simi-larly, converting corn, a biomass, to fuelgrade ethanol, a liquid fuel, by chemical

2009–36 I.R.B. 308 September 8, 2009

processes does not preclude classificationin the asset class that specifically appliesto the conversion of biomass to fuel.

Further, Taxpayer is primarily en-gaged in producing fuel grade ethanol(liquid fuel) from corn (biomass) at thisfacility. Under the “primary use” test of§ 1.167(a)–11(b)(4)(iii)(b), Taxpayer’sactivity is described in asset class 49.5.

HOLDING

The proper asset class under Rev. Proc.87–56 for depreciation of tangible as-sets used in converting corn to fuel gradeethanol is asset class 49.5 (other than§ 1250 property not described in assetclass 49.5 and assets classified in assetclasses 00.11 through 00.4 of Rev. Proc.87–56).

PROSPECTIVE APPLICATION

Pursuant to § 7805(b)(8), the InternalRevenue Service will not apply the hold-ing in this revenue ruling to tangible assetsthat are used in converting biomass to a liq-uid fuel such as fuel grade ethanol that ataxpayer places in service before [INSERTPUBLICATION DATE OF FINAL REV-ENUE RULING].

DRAFTING INFORMATION

The principal author of this notice isRuba Nasrallah of the Office of the As-sociate Chief Counsel (Income Tax & Ac-counting). For further information regard-ing this notice, contact Ms. Nasrallah at(202) 622–4930 (not a toll-free call).

26 CFR 601.105: Examination of returns and claimsfor refund, credit or abatement; determination of cor-rect tax liability.(Also Part I, § 108.)

Rev. Proc. 2009–37

SECTION 1. PURPOSE

.01 This revenue procedure providesthe exclusive procedures for taxpayers tomake an election to defer recognizing dis-charge of indebtedness income (“COD in-come”) under § 108(i) of the Internal Rev-enue Code.

.02 This revenue procedure also re-quires taxpayers making the § 108(i)

election to provide additional informationon returns beginning with the taxable yearfollowing the taxable year for which thetaxpayer makes the election. This revenueprocedure describes the time and mannerof providing this additional information.

.03 The Internal Revenue Service andTreasury Department intend to issue ad-ditional guidance under § 108(i) that mayinclude regulations addressing matters inthis revenue procedure. Taxpayers shouldbe aware that these regulations may beretroactive. See § 7805(b)(2). This rev-enue procedure may be modified to pro-vide procedures consistent with additionalguidance.

SECTION 2. BACKGROUND

.01 Section 108(i), Generally. Sec-tion 108(i) was added to the Code by§ 1231 of the American Recovery andReinvestment Tax Act of 2009, Pub. L.No. 111–5, 123 Stat. 338. In general,§ 108(i) provides that, at the electionof a taxpayer, COD income realized inconnection with a reacquisition afterDecember 31, 2008, and before January1, 2011, of an applicable debt instrumentis includible in gross income ratablyover a 5-taxable-year inclusion period,beginning with the taxpayer’s fourth orfifth taxable year following the taxableyear of the reacquisition. Generally, if ataxpayer makes a § 108(i) election andreacquires (or is treated as reacquiring) theapplicable debt instrument generating theCOD income for a new debt instrumentwith original issue discount (“OID”),then interest deductions for this OID alsoare deferred, as provided in § 108(i)(2).The OID deferral rule, however, doesnot apply if the amount of OID is lessthan a de minimis amount, as determinedunder § 1273(a)(3) and § 1.1273–1(d) ofthe Income Tax Regulations. The OIDdeferral rule in § 108(i)(2) applies at theentity level for a pass-through entity. Forexample, a partnership (and therefore itspartners) may not deduct currently the OIDdescribed in § 108(i)(2)(A)(i). A taxpayermust take into account any item of incomeor deduction deferred under § 108(i),and not previously taken into account,in the taxable year in which certainevents occur (such as the liquidationof the taxpayer and upon other eventsspecified in administrative guidance).

See § 108(i)(5)(D). The rule regardingacceleration of deferred COD income andOID deductions also applies in the caseof certain dispositions by persons holdingownership interests in pass-throughentities. Section 108(i)(5)(D)(ii). Forpurposes of § 108(i), regulated investmentcompanies (as defined in § 851(a)) andreal estate investment trusts (as defined in§ 856(a)) are not pass-through entities.

.02 Applicable Debt Instrument. Sec-tion 108(i)(3)(A) defines the term “appli-cable debt instrument” to mean any debtinstrument issued by a C corporation orby any other person in connection withthe conduct of a trade or business by thatperson. The term “debt instrument” meansany bond, debenture, note, certificate,or any other instrument or contractualarrangement constituting indebtednesswithin the meaning of § 1275(a)(1). Sec-tion 108(i)(3)(B). For purposes of § 108(i),in the case of an intercompany obligation(as defined in § 1.1502–13(g)(2)(ii)), anapplicable debt instrument includes onlyan instrument for which COD income isrealized upon the instrument’s deemedsatisfaction under § 1.1502–13(g)(5).

.03 Reacquisition. Section 108(i)(4)(A)defines the term “reacquisition” to mean,with respect to any applicable debt instru-ment, any acquisition of the debt instru-ment by the debtor that issued (or is oth-erwise the obligor under) the debt instru-ment, or a person related to the debtorunder § 108(e)(4). The term “acquisi-tion” includes an acquisition of the debtinstrument for cash or other property, theexchange of the debt instrument for an-other debt instrument (including an ex-change resulting from a modification ofthe debt instrument), the exchange of thedebt instrument for corporate stock or apartnership interest, the contribution of thedebt instrument to capital, and the com-plete forgiveness of the indebtedness bythe holder of the debt instrument. See§ 108(i)(4)(B). The term “acquisition” alsoincludes an indirect acquisition within themeaning of § 1.108–2(c) if a direct acqui-sition of the debt instrument would qual-ify for an election under § 108(i). For ex-ample, if a corporation acquires debt of apartnership that the partnership issued inconnection with its trade or business, andthe partnership and corporation become re-lated within six months of the corpora-tion’s acquisition of the debt, the indirect

September 8, 2009 309 2009–36 I.R.B.

acquisition is an acquisition for which anelection under § 108(i) may be made.

.04 General Requirements for the Sec-tion 108(i) Election. Section 108(i)(5)(B)provides, in general, that a taxpayer makesthe § 108(i) election by including a state-ment that clearly identifies the applicabledebt instrument with the return of tax im-posed for the taxable year in which thereacquisition of the instrument occurs.(For purposes of this revenue procedure, areturn of tax or income tax return includesan information return, and a taxpayer in-cludes a person that files an informationreturn.) The statement must include theamount of income to which § 108(i)(1)applies and other information the Servicemay prescribe. Once made, a § 108(i) elec-tion is irrevocable and, except as providedin section 7 of this revenue procedure,may not be modified.

.05 Section 108(i) Elections Made byPass-through Entities. In the case of CODincome realized by a pass-through entityfrom the reacquisition of an applicabledebt instrument, the pass-through en-tity makes the § 108(i) election. Section108(i)(5)(B)(iii).

.06 Additional Information on Subse-quent Years’ Returns. Section 108(i)(7)authorizes the Service to issue guidancenecessary or appropriate for applying§ 108(i), including requiring reporting theelection and other information on returnsof tax for subsequent taxable years.

.07 Exclusivity. Section 108(i)(5)(C)provides that if a taxpayer elects to ap-ply § 108(i) to an applicable debt instru-ment, § 108(a)(1)(A), (B), (C), and (D) donot apply to COD income deferred under§ 108(i).

.08 Allocation of Deferred COD In-come on Partnership Indebtedness. Sec-tion 4.04(3) of this revenue proceduredescribes how a partnership may elect un-der § 108(i) to defer a portion of the CODincome realized from the reacquisition ofan applicable debt instrument. If a part-nership elects to defer all or any portion ofCOD income realized from the reacquisi-tion of an applicable debt instrument, all ofthe COD income with respect to that debtinstrument, without regard to § 108(i), isallocated to the partners in the partnershipimmediately before the reacquisition inthe manner in which the income would beincluded in the distributive shares of these

partners under § 704 and the regulationsthereunder, including § 1.704–1(b)(2)(iii).Each partner’s share of this COD income isthe partner’s COD income amount (“CODincome amount”). The partner’s CODincome amount that is deferred under§ 108(i) is the partner’s deferred amount(“deferred amount”). The partner’s CODincome amount that is not deferred andis included in the partner’s distributiveshare of partnership income for the taxableyear of the partnership in which the reac-quisition occurs is the partner’s includedamount (“included amount”).

.09 Partner’s Deferred § 752 Amount.A decrease in a partner’s share of a partner-ship liability resulting from the reacquisi-tion of an applicable debt instrument thatis not treated as a current distribution ofmoney to the partner under § 752 by rea-son of § 108(i)(6) is the partner’s deferred§ 752 amount (“deferred § 752 amount”).A partner’s deferred § 752 amount may notexceed the lesser of (i) the partner’s de-ferred amount or (ii) gain that the partnerwould recognize in the year of reacquisi-tion under § 731 as a result of the reac-quisition absent § 108(i)(6). To determinethe amount of gain the partner would rec-ognize under clause (ii) of the precedingsentence, the amount of any deemed distri-bution of money under § 752(b) resultingfrom the decrease in the partner’s share of areacquired applicable debt instrument thatis treated as an advance or draw of moneyunder § 1.731–1(a)(1)(ii) is determined asif no COD income resulting from the reac-quisition of the applicable debt instrumentis deferred under § 108(i). See Rev. Rul.92–97, 1992–2 C.B. 124, and Rev. Rul.94–4, 1994–1 C.B. 195. A partner’s de-ferred § 752 amount is treated as a distri-bution of money to the partner under § 752at the same time, and to the extent remain-ing in the same amount, as the partner rec-ognizes the COD income deferred under§ 108(i).

.10 Allocation of Deferred COD In-come on S Corporation Indebtedness.For purposes of § 108(i), an S corpo-ration’s COD income deferred under§ 108(i) is shared pro rata only amongthose shareholders that are shareholders ofthe S corporation immediately before thereacquisition transaction.

.11 Deferred COD Income, Earningsand Profits, and Alternative Minimum Tax-able Income.

(1) In general. The Service and Trea-sury Department intend to issue regu-lations regarding the computation of acorporation’s earnings and profits with re-spect to COD income and OID deductionsthat are deferred under § 108(i). Theseregulations generally will provide thatdeferred COD income increases earningsand profits in the taxable year that it isrealized and not in the taxable year oryears that the deferred COD income isincludible in gross income. OID deduc-tions deferred under § 108(i) generallywill decrease earnings and profits in thetaxable year or years in which the de-duction would be allowed without regardto § 108(i). COD income and OID de-ductions that are deferred increase ordecrease adjusted current earnings under§ 56(g)(4) in the taxable year or years thatthe income or deduction is includible ordeductible in determining taxable income.See § 1.56(g)–1(c)(1).

(2) Exceptions for certain special sta-tus corporations. The Service and Trea-sury Department intend to issue regula-tions providing that in the case of regulatedinvestment companies and real estate in-vestment trusts, COD income deferred un-der § 108(i) generally increases earningsand profits in the taxable year or years inwhich the deferred COD income is includi-ble in gross income and not in the year thatthe deferred COD income is realized. OIDdeductions deferred under § 108(i) gener-ally decrease earnings and profits in thetaxable year or years that the deferred OIDdeductions are deductible.

.12 Extension of Time to Make Elec-tion. Under § 301.9100–1 of the Proce-dure and Administration Regulations, theService may grant an extension of time tomake a regulatory election. An electionis a regulatory election if the due date isprescribed by regulation or other publishedguidance of general applicability. Sec-tion 301.9100–2(a) provides an automatic12-month extension from the due date formaking certain regulatory elections.

SECTION 3. SCOPE

This revenue procedure applies to tax-payers that realize COD income from areacquisition after December 31, 2008,and before January 1, 2011, of an ap-plicable debt instrument, as provided in§ 108(i).

2009–36 I.R.B. 310 September 8, 2009

SECTION 4. ELECTIONPROCEDURES

.01 In General.(1) A taxpayer within the scope of this

revenue procedure makes the § 108(i) elec-tion by—

(a) Attaching a statement meeting therequirements of section 4.05 of this rev-enue procedure to the taxpayer’s timelyfiled (including extensions) original fed-eral income tax return for the taxable yearin which the reacquisition of the applicabledebt instrument occurs, and

(b) If applicable, satisfying the addi-tional requirements of section 4.07, 4.08,4.09, or 4.10 of this revenue procedure.

(2) The Service grants an automatic ex-tension of 12 months from the due dateprescribed in section 4.01(1)(a) of this rev-enue procedure for making the § 108(i)election. The rules that apply to an auto-matic extension under § 301.9100–2(a) ap-ply to this automatic extension.

.02 Section 108(i) Elections Madeby Members of Consolidated Groups.The common parent of a consolidatedgroup makes the § 108(i) election on be-half of all members of the group. See§ 1.1502–77(a).

.03 Aggregation Rule. A taxpayerwithin the scope of this revenue proceduremay treat two or more applicable debtinstruments that are part of the same issueand that are reacquired during the sametaxable year as one applicable debt instru-ment for purposes of this revenue proce-dure. A pass-through entity may not treattwo or more applicable debt instrumentsas one applicable debt instrument underthis section 4.03 if the owners and theirownership interests in the pass-throughentity immediately prior to the reacquisi-tion of each applicable debt instrument arenot identical.

.04 Partial Elections.(1) A taxpayer within the scope of this

revenue procedure may make an electionfor any portion of COD income realizedfrom the reacquisition of any applicabledebt instrument. Thus, for example, if ataxpayer realizes $100 of COD incomefrom the reacquisition of an applicabledebt instrument, the taxpayer may electunder § 108(i)(1) to defer only $40 of the$100 of COD income. The taxpayer mayexclude from income the portion of CODincome that the taxpayer does not elect to

defer under § 108(i) ($60 in this example)under § 108(a)(1)(A), (B), (C), or (D), ifapplicable.

(2) A taxpayer is not required to makean election for the same portion of COD in-come arising from each applicable debt in-strument that it reacquires, but may makean election for different portions of CODincome arising from different applicabledebt instruments (whether or not part of thesame issue). Thus, for example, if a tax-payer realizes $100 of COD income fromthe reacquisition of an applicable debt in-strument (Instrument A) and $100 of CODincome from the reacquisition of a differ-ent applicable debt instrument (InstrumentB), the taxpayer may elect to defer all ora portion of the COD income associatedwith Instrument A and none or a differ-ent portion of the COD income associatedwith Instrument B.

(3) A partnership that elects to deferless than all of the COD income realizedfrom the reacquisition of an applicabledebt instrument may determine, in anymanner, the portion, if any, of a partner’sCOD income amount that is the partner’sdeferred amount and the portion, if any,of a partner’s COD income amount that isthe partner’s included amount. Thus, forexample, one partner’s deferred amountmay be zero while another partner’s de-ferred amount may equal that partner’sCOD income amount (or any portionthereof). A partner may exclude from in-come the partner’s included amount under§ 108(a)(1)(A), (B), (C), or (D), if applica-ble. The provisions of this section 4.04(3)apply for purposes of § 108(i) only andare not intended as an interpretation of ora change to existing law under § 704.

.05 Contents of Election Statement. Astatement meets the requirements of thissection 4.05 if the statement—

(1) Label. States “Section 108(i) Elec-tion” across the top.

(2) Required information. Provides, foreach applicable debt instrument the reac-quisition of which generates COD incomethat the taxpayer is electing to defer under§ 108(i)—

(a) The name and taxpayer identifica-tion numbers, if any, of the issuer or issuersof the applicable debt instrument;

(b) A general description of the appli-cable debt instrument (including the issueand maturity dates) and, in the case of anyperson other than a C corporation, a gen-

eral description of the person’s trade orbusiness to which the applicable debt in-strument is connected;

(c) A general description of the reacqui-sition transaction or transactions generat-ing the COD income (including the date(s)of the transaction(s));

(d) The total amount of COD incomefor the applicable debt instrument that re-sults from the reacquisition (in the case ofa partnership, the aggregate of the part-ners’ COD income amounts) and a gen-eral description of the manner in which thisamount is calculated;

(e) The amount of COD income forthe applicable debt instrument that the tax-payer is electing to defer under § 108(i);

(f) In the case of a partnership, a listof partners that have a deferred amount,their identifying information and eachpartner’s deferred amount; and in the caseof an S corporation, a list of shareholderswith COD income deferred under § 108(i),their identifying information and eachshareholder’s share of the S corporation’sdeferred COD income; and

(g) In cases in which a new debt in-strument is issued or deemed issued in ex-change for the applicable debt instrument(including exchanges under § 108(e)(4),§ 108(i)(2)(B), and § 1.1001–3), the is-suer’s name, the issuer’s taxpayer identifi-cation number, if any, a general descriptionof the new debt instrument and whether thenew debt instrument has OID, and if thenew debt instrument has OID, a scheduleof the OID that the issuer expects to accrueeach taxable year on the instrument and theamount of OID that the issuer expects todefer under § 108(i)(2) each taxable year.

.06 Supplemental information. Thestatement described in section 4.05 of thisrevenue procedure may specify for eachapplicable debt instrument an amountgreater than the amount identified in sec-tion 4.05(2)(e) of this revenue procedurethat the taxpayer elects to defer under§ 108(i) in the event the Service sub-sequently concludes that the taxpayerunderstated the amount of COD incomedescribed in section 4.05(2)(d) of this rev-enue procedure. This additional amount ofCOD income the taxpayer elects to defermay be described as the entire additionalCOD income, or as a percentage of anyadditional COD income. If the taxpayer isa partnership, the partnership must specifyeach partner’s share of the partnership’s

September 8, 2009 311 2009–36 I.R.B.

additional COD income that would bedeferred (the partner’s additional deferredamount), which the partnership may de-scribe for each partner as the partner’sentire share of the partnership’s additionalCOD income or as a percentage of thepartner’s share of the partnership’s ad-ditional COD income. If the taxpayeris an S corporation, the S corporationmust specify each shareholder’s shareof the S corporation’s additional CODincome that would be deferred, whichthe S corporation may describe for eachshareholder as the shareholder’s entireshare of the S corporation’s additionalCOD income or as a percentage of theshareholder’s share of the S corporation’sadditional COD income. In the caseof partnerships and S corporations, theadditional COD income and the portionof additional COD income that wouldbe deferred are allocated or determinedas provided in sections 2.08, 2.10 and,if applicable, 4.04(3) of this revenueprocedure, respectively, as if the additionalCOD income was realized.

.07 Additional Requirements for Cer-tain Partnerships Making a § 108(i) Elec-tion. The rules of this section 4.07 applyto partnerships other than partnerships de-scribed in section 4.10 of this revenue pro-cedure.

(1) Information filing on Schedule K–1(Form 1065 and Form 1065–B). For thetaxable year in which the § 108(i) elec-tion is made, the partnership must reporton the Schedule K–1 (Form 1065 or Form1065–B), Partner’s Share of Income, De-ductions, Credits, etc., in the manner spec-ified in the instructions to the forms, foreach partner § 108(i) information on anaggregate basis for all applicable debt in-struments for which a § 108(i) electionis made. Partnerships reporting § 108(i)information on the 2008 Schedule K–1(Form 1065 or Form 1065–B) must reportfor each partner on an aggregate basis forall applicable debt instruments for which a§ 108(i) election is made:

(a) The partner’s deferred amount thatthe partner must include in income in thecurrent taxable year under § 108(i)(1) or§ 108(i)(5)(D)(i) or (ii), in box 11 (“otherincome”) using code F for Schedule K–1(Form 1065) or in box 9 (“other”) usingcode U for Schedule K–1 (Form 1065–B);

(b) The partner’s share of the part-nership’s OID deduction deferred under

§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or(ii), in box 13 (“other deductions”) usingcode W for Schedule K–1 (Form 1065)or in box 9 (“other”) using code U forSchedule K–1 (Form 1065–B);

(c) The partner’s deferred amount thathas not been included in income in thecurrent or prior taxable years, in box 20(“other information”) using code X forSchedule K–1 (Form 1065) or in box 9(“other”) using code U for Schedule K–1(Form 1065–B);

(d) The partner’s share of the part-nership’s OID deduction deferred under§ 108(i)(2)(A)(i) that has not been de-ducted in the current or prior taxable years,in box 20 (“other information”) using codeX for Schedule K–1 (Form 1065) or inbox 9 (“other”) using code U for ScheduleK–1 (Form 1065–B);

(e) The partner’s deferred § 752 amountthat is treated as a distribution of money tothe partner under § 752 in the current tax-able year, in box 20 (“other information”)using code X for Schedule K–1 (Form1065) or in box 9 (“other”) using code Ufor Schedule K–1 (Form 1065–B); and

(f) The partner’s deferred § 752 amountremaining as of the end of the current tax-able year, in box 20 (“other information”)using code X for Schedule K–1 (Form1065) or in box 9 (“other”) using code Ufor Schedule K–1 (Form 1065–B).

(2) Election information statement pro-vided to partners. The partnership mustattach to the Schedule K–1 (Form 1065or Form 1065–B) provided to each partnerfor the taxable year in which the § 108(i)election is made a statement satisfying therequirements of this section 4.07(2). Thepartnership should not attach these state-ments to the Schedules K–1 that are filedwith the Service, but must retain thesestatements, and each partner must retainthat partner’s statement, in their respectivebooks and records. A statement meets therequirements of this section 4.07(2) if thestatement—

(a) Label. States “Section 108(i) Elec-tion Information Statement for Partners”across the top.

(b) Required information. Clearly iden-tifies for each applicable debt instrumentto which an election under § 108(i) ap-plies—

(i) The partner’s COD income amount,the partner’s deferred amount, and thepartner’s included amount;

(ii) The partner’s deferred amountthat the partner must include in in-come in the current taxable year under§ 108(i)(5)(D)(i) or (ii);

(iii) The partner’s share of the part-nership’s OID deduction deferred under§ 108(i)(2)(A)(i) in the current taxableyear;

(iv) The partner’s share of the part-nership’s OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(5)(D)(i) or (ii);

(v) The partner’s share of each liabil-ity of the partnership described in section4.05(2)(g) of this revenue procedure;

(vi) The partner’s share of the decreasein the partnership liability that results fromthe reacquisition of the applicable debt in-strument;

(vii) The partner’s share of the decreasein the partnership liability that results fromthe reacquisition of the applicable debt in-strument that is treated as a distribution ofmoney to the partner under § 752 in thecurrent taxable year;

(viii) The partner’s deferred § 752amount as described in section 2.09 of thisrevenue procedure;

(ix) The partner’s additional deferredamount as described in section 4.06 of thisrevenue procedure; and

(x) The date of the reacquisition trans-action generating the COD income.

(c) If a partner fails to provide the writ-ten statement required by section 4.07(3)of this revenue procedure, the partnershipmust indicate that the amounts describedin section 4.07(2)(b)(vii) and (viii) ofthis revenue procedure cannot be calcu-lated because the partner did not providethe information necessary to report theseamounts.

(3) Partner reporting requirements.The partnership must make reasonableefforts prior to making a § 108(i) elec-tion to secure from each partner with adeferred amount for which it does nothave the information necessary to com-pute the partner’s basis in its partnershipinterest (and its deferred § 752 amount asdescribed in section 2.09 of this revenueprocedure) a written statement signed un-der penalties of perjury that includes thisinformation. Each partner with a deferred

2009–36 I.R.B. 312 September 8, 2009

amount must provide this written state-ment to the partnership within 30 daysof the date of request by the partnership.A partner’s failure to comply with thisreporting requirement does not invalidatethe partnership’s election under § 108(i)for an applicable debt instrument onlyif the partnership makes reasonable ef-forts before making the § 108(i) electionto obtain the written statement from thepartner and otherwise complies with therequirements of section 4 of this revenueprocedure. If a partner provides its writtenstatement under this section 4.07(3) afterthe partnership has provided to the partnerthe Section 108(i) Election InformationStatement for Partners, the partnershipmust provide to the partner a revised Sec-tion 108(i) Election Information Statementfor Partners reporting the information re-quired under section 4.07(2)(b)(vii) and(viii) of this revenue procedure and reportthe partner’s deferred § 752 amount onthe partner’s Schedule K–1 (Form 1065or Form 1065–B) in subsequent taxableyears.

.08 Additional Requirements for anS Corporation Making a § 108(i) Election.

(1) Information filing on Schedule K–1(Form 1120S). For the taxable year inwhich the § 108(i) election is made, theS corporation must report on the ScheduleK–1 (Form 1120S), Shareholder’s Shareof Income, Deductions, Credits, etc., inthe manner specified in the instructions tothe forms, for each shareholder § 108(i)information on an aggregate basis for allapplicable debt instruments for which a§ 108(i) election is made. S corporationsreporting § 108(i) information on the 2008Schedule K–1 (Form 1120S) must reportfor each shareholder, on an aggregatebasis for all applicable debt instrumentsfor which a § 108(i) election is made, theshareholder’s share of the S corporation’s:

(a) COD income deferred under§ 108(i) that the shareholder must includein income in the current taxable year under§ 108(i)(1) or § 108(i)(5)(D)(i) or (ii), inbox 10 (“other income”) using code E;

(b) OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or(ii), in box 12 (“other deductions”) usingcode S;

(c) COD income deferred under§ 108(i) that has not been included in in-

come in the current or prior taxable years,in box 17 (“other information”) using codeT; and

(d) OID deduction deferred under§ 108(i)(2)(A)(i) that has not been de-ducted in the current or prior taxable years,in box 17 (“other information”) using codeT.

(2) Election information statement pro-vided to shareholders. The S corporationmust attach to the Schedule K–1 (Form1120S) provided to each shareholder forthe taxable year in which the § 108(i)election is made, a statement satisfyingthe requirements of this section 4.08(2).The S corporation should not attach thesestatements to the Schedules K–1 that arefiled with the Service, but must retainthese statements, and each shareholdermust retain that shareholder’s statement,in their respective books and records. Astatement meets the requirements of thissection 4.08(2) if the statement—

(a) Label. States “Section 108(i) Elec-tion Information Statement for Sharehold-ers” across the top.

(b) Required information. Clearly iden-tifies for each applicable debt instrumentto which an election under § 108(i) applies,the shareholder’s share of the S corpora-tion’s—

(i) COD income that the S corporationelects to defer under § 108(i);

(ii) COD income deferred under§ 108(i) that the shareholder must includein income in the current taxable year under§ 108(i)(5)(D)(i) or (ii);

(iii) OID deduction deferred under§ 108(i)(2)(A)(i) in the current taxableyear;

(iv) OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(5)(D)(i) or (ii); and

(v) Additional COD income that wouldbe deferred as described in section 4.06 ofthis revenue procedure.

.09 Section 108(i) Elections Made onBehalf of Certain Foreign Corporations.The controlling domestic shareholder(s)(or common parent of the controllingdomestic shareholder(s), if applicable)of a controlled foreign corporation or anoncontrolled § 902 corporation not oth-erwise required to file a return of tax maymake the § 108(i) election on behalf of theforeign corporation by satisfying the re-quirements of § 1.964–1(c)(3). Each con-

trolling domestic shareholder must attacha statement identifying the foreign corpo-ration and satisfying the requirements ofsection 4.05 of this revenue procedure and,if applicable, section 4.06 of this revenueprocedure, to its federal income tax returnfor the taxable year ending within or withthe taxable year of the foreign corporationfor which the § 108(i) election is made.

.10 Section 108(i) Elections Made ByCertain Foreign Partnerships. The rules ofthis section 4.10 apply to a foreign partner-ship making a § 108(i) election that is nototherwise required to file a federal part-nership return (“nonfiling foreign partner-ship”). See § 1.6031(a)–1(b).

(1) A nonfiling foreign partnershipmaking the election must attach a state-ment satisfying the requirements of section4.05 of this revenue procedure and, if ap-plicable, section 4.06 of this revenue pro-cedure, to a partnership return satisfyingthe requirements of § 1.6031(a)–1(b)(5)it files with the Service. In addition, anonfiling foreign partnership must includein the information required in section4.05(2)(d) and (e) of this revenue proce-dure the aggregate amounts for all partnersas well as the aggregate amounts for allU.S. persons (as defined in § 7701(a)(30))and controlled foreign corporation(s) thatare partners with deferred amounts in thenonfiling foreign partnership (“affectedpartners”).

(2) The nonfiling foreign partnershipmust make the election, in accordance with§ 1.6031(a)–1(b)(5), by the date providedin section 4.01(1)(a) of this revenue proce-dure, as if it had a filing obligation for thetaxable year in which the reacquisition ofthe applicable debt instrument occurs.

(3) For each affected partner, the part-nership must file with the Service a Sched-ule K–1 (Form 1065) and report on theSchedule K–1 (Form 1065) for the affectedpartner as provided in section 4.07(1) ofthis revenue procedure. Except for this§ 108(i) information, the partnership neednot complete Part III of the Schedule K–1(Form 1065). The partnership must pro-vide a copy of the respective ScheduleK–1 (Form 1065) to each affected part-ner and must also attach to the Sched-ule K–1 (Form 1065) provided to each af-fected partner a statement satisfying the re-quirements of section 4.07(2) of this rev-enue procedure by the date provided insection 4.01(1)(a) of this revenue proce-

September 8, 2009 313 2009–36 I.R.B.

dure. The partnership should not attachany statement described in section 4.07(2)of this revenue procedure to the Sched-ules K–1 that are filed with the Service.However, the partnership must retain thestatements provided to the affected part-ners, and each affected partner must retainthat partner’s statement, in their respectivebooks and records.

(4) The partnership and each affectedpartner must satisfy the requirements ofsection 4.07(3) of this revenue procedure.

.11 Protective § 108(i) Election.(1) In general. A taxpayer may make

a protective election under § 108(i) foran applicable debt instrument if the tax-payer concludes that a particular transac-tion does not result in the realization ofCOD income, reports the transaction onits federal income tax return in a mannerconsistent with the taxpayer’s conclusion,and would be within the scope of this rev-enue procedure if the taxpayer’s conclu-sion were incorrect. If the Service at anytime determines the taxpayer’s conclusionthat the particular transaction does not re-sult in the realization of COD income is in-correct, the taxpayer’s protective electionis treated as a valid, irrevocable electionunder § 108(i). Thus, if a taxpayer makesa protective election, the Service subse-quently may require the taxpayer to reportCOD income deferred pursuant to the validand irrevocable protective election even ifthe statute of limitations has expired forthe year in which the COD income wasrealized and the protective election wasmade. A taxpayer makes a protective elec-tion by attaching a statement satisfying therequirements of this section 4.11(1) to thetaxpayer’s original federal income tax re-turn within the period described in section4.01(1)(a) of this revenue procedure. Thetaxpayer also must attach the election to itsfederal income tax return in each of the 8or 9 taxable years, as applicable, followingthe taxable year of the election. A state-ment meets the requirements of this sec-tion 4.11(1) if the statement—

(a) States “Section 108(i) ProtectiveElection” across the top;

(b) Provides the information requiredunder section 4.05(2)(a), (b), and (c) of thisrevenue procedure;

(c) Provides that the amounts describedin sections 4.05(2)(d) and (e) of this rev-enue procedure are zero; and

(d) Provides the information describedin section 4.06 of this revenue procedure.

(2) Statements provided to shareholdersand partners.

(a) For each applicable debt instrument,a partnership or S corporation that makesa protective election must attach to theSchedule K–1 (Form 1065, Form 1065–B,or Form 1120S) it provides each of its part-ners or shareholders, as the case may be,for the taxable year in which the protec-tive election is made a statement contain-ing the information described in section4.11(1)(b) of this revenue procedure (anS corporation need not provide its share-holders with the date(s) of the transac-tion(s) that would constitute the reacqui-sition transaction or transactions) and thepartner’s or shareholder’s share of the ad-ditional COD income that would be de-ferred as described in section 4.11(1)(d) ofthis revenue procedure.

(b) The partnership or S corporationshould not attach the statements describedin this section 4.11(2) to the SchedulesK–1 that are filed with the Service but mustretain these statements, and each partnerand shareholder must retain that partner’sor shareholder’s statement, in their respec-tive books and records.

.12 Election-Year Reporting by TieredPass-Through Entities.

(1) A partnership required to file aU.S. partnership return other than under§ 1.6031(a)–1(b)(5), or an S corpora-tion, that receives a Schedule K–1 (Form1065 or Form 1065–B) reflecting its shareof any items listed in section 4.07(1) ofthis revenue procedure, must report onthe Schedules K–1 (Form 1065, Form1065–B, or Form 1120S) to its partnersor shareholders, as the case may be, eachpartner’s or shareholder’s share of thoseitems (an S corporation only reports to itsshareholders the items described in sec-tion 4.07(1)(a) through (d) of this revenueprocedure).

(2) If a partnership described in sec-tion 4.12(1) of this revenue procedure re-ceives a statement described in sections4.07(2) or 4.10(3) of this revenue proce-dure or this section 4.12(2), it must pro-vide each of its partners a statement con-taining the partner’s share of each of theitems listed on each statement received bythe partnership, including the informationdescribed in section 4.07(2)(b)(x) of thisrevenue procedure. If an S corporation

receives a statement described in sections4.07(2) or 4.10(3) of this revenue proce-dure or this section 4.12(2), it must provideeach of its shareholders a statement con-taining the shareholder’s share of each ofthe items listed on each statement receivedby the S corporation that are described insection 4.07(2)(b)(i), (ii), (iii), (iv) and (ix)of this revenue procedure. The partnershipor S corporation must attach this statementor statements to the Schedule K–1 (Form1065, Form 1065–B, or Form 1120S) thatit provides to each of its partners or share-holders, as the case may be, for the tax-able year of the partnership or S corpo-ration. The partnership or S corporationshould not attach these statements to theSchedules K–1 that are filed with the Ser-vice but must retain these statements, andeach partner and shareholder must retainthat partner’s or shareholder’s statement,in their respective books and records.

(3) A partnership that receives a state-ment described in this section 4 identifyingits COD income amount with respect to anapplicable debt instrument must allocateits COD income amount, without regardto § 108(i), to the partners in the partner-ship immediately before the reacquisitiontransaction in the manner in which theincome would be included in the distribu-tive shares of these partners under § 704and the regulations thereunder, including§ 1.704–1(b)(2)(iii). The partnership maydetermine in any manner the portion, ifany, of a partner’s COD income amountthat is the partner’s deferred amount andthe portion, if any, of a partner’s CODincome amount that is the partner’s in-cluded amount. No partner’s deferredamount with respect to an applicable debtinstrument may exceed its COD incomeamount with respect to the applicable debtinstrument, and the aggregate of deferredamounts of its partners with respect to anapplicable debt instrument must equal thepartnership’s deferred amount with respectto the applicable debt instrument. Thepartnership allocates amounts described insection 4.06 of this revenue procedure un-der this section 4.12(3) as if the additionalCOD income was realized.

(4) The deferred § 752 amount for part-ners in a partnership making a § 108(i)election is calculated only for the partner-ship’s direct partners. No further adjust-ment to the deferred § 752 amount is madeto reflect the basis or other attributes of

2009–36 I.R.B. 314 September 8, 2009

partners that are indirect partners in thepartnership.

(5) If an S corporation receives a state-ment described in this section 4 identifyingits COD income amount, deferred amount,included amount or additional COD in-come that would be deferred with respectto an applicable debt instrument, theseamounts are shared pro rata only amongthose shareholders that are shareholders inthe S corporation immediately before thereacquisition transaction.

(6) This paragraph 4.12(6) provides therules for Category 1 and Category 2 fil-ers of Form 8865, Return of U.S. PersonsWith Respect to Certain Foreign Partner-ships, as defined in the instructions forForm 8865, if the foreign partnership, forwhich the Category 1 or Category 2 filerhas a filing requirement, receives a Sched-ule K–1 (Form 1065 or Form 1065–B)reflecting the partnership’s share of anyitems listed in section 4.07(1) of this rev-enue procedure, or a statement describedin sections 4.07(2) or 4.10(3) of this rev-enue procedure (because the foreign part-nership owns an interest directly or indi-rectly in another partnership in which anelection was made under § 108(i) with re-spect to that foreign partnership’s distribu-tive share from the other entity).

(a) For each partner for whom the Cat-egory 1 filer is required to complete aSchedule K–1 (Form 8865) (which in-cludes the Category 1 filer itself), theCategory 1 filer must:

(i) Include the information described insection 4.07(1) of this revenue procedurein the Schedule K–1 (Form 8865) that theCategory 1 filer files with the Service andcompletes for the partner;

(ii) Produce a statement containing thepartner’s share of the items listed on eachstatement received by the partnership; and

(iii) Attach the statement described insection 4.12(6)(a)(ii) of this revenue pro-cedure to each Schedule K–1 (Form 8865)that it is required to provide to a partner ofthe foreign partnership.

(b) A Category 2 filer must include itsshare of the information described in sec-tion 4.07(1) on the Schedule K–1 (Form8865) that it is required to complete. Cat-egory 2 filers also must complete a state-ment containing their share of the itemslisted on each statement received by thepartnership.

(c) The Category 1 and Category 2 filersshould not attach the statements describedin sections 4.12(6)(a)(ii) and 4.12(6)(b) ofthis revenue procedure, respectively, to theSchedules K–1 that are filed with the Ser-vice. However, Category 1 filers must re-tain the statements they complete and eachpartner must retain its own statement, intheir respective books and records.

(7) If as a result of § 108(i)(5)(D)(ii), apartner of a partnership described in sec-tion 4.12(1) of this revenue procedure or ashareholder of an S corporation describedin section 4.12(1) of this revenue proce-dure must recognize items deferred un-der § 108(i), the partnership or S corpora-tion must report these items on the Sched-ule K–1 (Form 1065, Form 1065–B, orForm 1120S) and statements provided tothe partner or shareholder pursuant to sec-tion 4.12(1) and (2) of this revenue proce-dure. Similar rules apply to Category 1 andCategory 2 filers (Form 8865) described insection 4.12(6) of this revenue procedure.

(8) The provisions of section 4.12(2),(3), (5) and (6) of this revenue procedurealso apply to a statement received that isdescribed in section 4.11(2) of this revenueprocedure, except that the information thatmust be provided are those items describedin section 4.11(1)(b) of this revenue proce-dure (an S corporation need not provide itsshareholders with the date(s) of the trans-action(s) that would constitute the reacqui-sition transaction or transactions) and theshare of the partner or shareholder in theamounts described in section 4.11(1)(d) ofthis revenue procedure.

SECTION 5. REQUIREDINFORMATION STATEMENT

.01 Annual Information Statements.Pursuant to § 108(i)(7)(B), a taxpayer thatmakes an election under § 108(i) (exceptfor a protective election under section4.11(1) of this revenue procedure) must at-tach a statement meeting the requirementsof section 5.02 of this revenue procedureto its federal income tax return for eachtaxable year beginning with the taxableyear following the taxable year for whichthe taxpayer makes the election and end-ing with the first taxable year in which allitems deferred under § 108(i) have beenrecognized.

.02 Contents of Statement. A statementmeets the requirements of this section 5.02if the statement—

(1) Label. States “Section 108(i) Infor-mation Statement” across the top;

(2) Required information. Clearly iden-tifies for each applicable debt instrumentto which an election under § 108(i) ap-plies—

(a) COD income deferred under§ 108(i) that is included in income in thecurrent taxable year under § 108(i)(1);

(b) COD income deferred under§ 108(i) that is included in income in thecurrent taxable year under § 108(i)(5)(D),including a description and date ofthe acceleration event described in§ 108(i)(5)(D);

(c) COD income deferred under§ 108(i) that has not been included in in-come in the current or prior taxable years(in the case of a partnership, the aggregateof the partners’ deferred amounts that havenot been included in income in the currentor prior taxable years, and in the case ofan S corporation, the S corporation’s CODincome deferred under § 108(i) that hasnot been included in income in the currentor prior taxable years);

(d) OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(2)(A)(ii);

(e) OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(5)(D); and

(f) OID deduction deferred under§ 108(i)(2)(A)(i) that has not been de-ducted in the current or prior taxable years.

(3) Election attached. Includes a copyof the election statement described in sec-tion 4.05 of this revenue procedure.

.03 Additional Annual Reporting Re-quirements for Certain Partnerships. Therules of this section 5.03 apply to partner-ships other than partnerships described insection 5.05 of this revenue procedure.

(1) In general. A partnership thatmakes an election under § 108(i) (exceptfor a protective election under section4.11(1) of this revenue procedure) mustattach to its federal income tax returns thestatements required under section 5.01 ofthis revenue procedure. In addition, foreach taxable year in which a statement isrequired under section 5.01 of this revenueprocedure, the partnership must report on

September 8, 2009 315 2009–36 I.R.B.

the Schedule K–1 (Form 1065 or Form1065–B) for each partner § 108(i) infor-mation in the manner described in section4.07(1) of this revenue procedure.

(2) Annual information statementsprovided to partners. The partnershipmust attach to the Schedule K–1 (Form1065) provided to each partner for eachtaxable year in which a statement is re-quired under section 5.01 of this revenueprocedure, a statement meeting the re-quirements of this section 5.03(2). Thepartnership should not attach these state-ments to the Schedules K–1 that are filedwith the Service, but must retain thesestatements, and each partner must retainthat partner’s statement, in their respectivebooks and records. A statement meets therequirements of this section 5.03(2) if thestatement—

(a) Label. States “Section 108(i) An-nual Information Statement for Partners”across the top of the statement.

(b) Required information. Clearly iden-tifies for each applicable debt instrumentto which a § 108(i) election applies—

(i) The partner’s deferred amount thathas not been included in income as of theend of the prior taxable year;

(ii) The partner’s deferred amount thatthe partner must include in income in thecurrent taxable year under § 108(i)(1);

(iii) The partner’s deferred amountthat the partner must include in in-come in the current taxable year under§ 108(i)(5)(D)(i) or (ii);

(iv) The partner’s deferred amount thathas not been included in income in the cur-rent or prior taxable years;

(v) The partner’s share of the part-nership’s OID deduction deferred under§ 108(i)(2)(A)(i) in the current taxableyear;

(vi) The partner’s share of the part-nership’s OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(2)(A)(ii);

(vii) The partner’s share of the part-nership’s OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(5)(D)(i) or (ii);

(viii) The partner’s share of the part-nership’s OID deduction deferred under§ 108(i)(2)(A)(i) that has not been de-ducted in the current or prior taxable years;and

(ix) The partner’s deferred § 752amount that is treated as a distributionof money to the partner under § 752 inthe current taxable year and any remain-ing deferred § 752 amount. If a partnerfails to provide the written statement re-quired by section 4.07(3) of this revenueprocedure, the partnership must indicatethat the amounts described in this sec-tion 5.03(2)(b)(ix) cannot be calculatedbecause the partner did not provide theinformation necessary to report theseamounts.

.04 Additional Annual Reporting Re-quirements for an S Corporation.

(1) In general. An S corporation thatmakes an election under § 108(i) (exceptfor a protective election under section4.11(1) of this revenue procedure) mustattach to its federal income tax returns thestatements required under section 5.01 ofthis revenue procedure. In addition, foreach taxable year in which a statement isrequired under section 5.01 of this revenueprocedure, the S corporation must reporton the Schedule K–1 (Form 1120S) foreach shareholder § 108(i) information inthe manner described in section 4.08(1) ofthis revenue procedure.

(2) Annual information statements pro-vided to shareholders. The S corporationmust attach to the Schedule K–1 (Form1120S) provided to each shareholder foreach taxable year in which a statementis required under section 5.01 of thisrevenue procedure a statement meetingthe requirements of this section 5.04(2).The S corporation should not attach thesestatements to the Schedules K–1 that arefiled with the Service, but must retainthese statements, and each shareholdermust retain that shareholder’s statement,in their respective books and records. Astatement meets the requirements of thissection 5.04(2) if the statement—

(a) Label. States “Section 108(i) An-nual Information Statement for Sharehold-ers” across the top;

(b) Required information. Clearly iden-tifies for each applicable debt instrumentto which an election under § 108(i) applies,the shareholder’s share of the S corpora-tion’s—

(i) COD income deferred under § 108(i)that has not been included in income as ofthe end of the prior taxable year;

(ii) COD income deferred under§ 108(i) that the shareholder must include

in income in the current taxable year under§ 108(i)(1);

(iii) COD income deferred under§ 108(i) that the shareholder must includein income in the current taxable year under§ 108(i)(5)(D)(i) or (ii);

(iv) COD income deferred under§ 108(i) that has not been included in in-come in the current or prior taxable years;

(v) OID deduction deferred under§ 108(i)(2)(A)(i) in the current taxableyear;

(vi) OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(2)(A)(ii);

(vii) OID deduction deferred under§ 108(i)(2)(A)(i) that is allowable as a de-duction in the current taxable year under§ 108(i)(5)(D)(i) or (ii); and

(viii) OID deduction deferred under§ 108(i)(2)(A)(i) that has not been de-ducted in the current or prior taxable years.

.05 Additional Annual Reporting Re-quirements for Certain Foreign Partner-ships.

(1) The rules of this section 5.05 applyto nonfiling foreign partnerships.

(2) A nonfiling foreign partnership thatmakes an election under § 108(i) (exceptfor a protective election under section4.11(1) of this revenue procedure) mustfile federal income tax returns with theService containing the information under§ 1.6031(a)–1(b)(5) for each taxable yearin which a statement is required by section5.01 of this revenue procedure.

(3) The nonfiling foreign partnershipmust attach to its federal income tax re-turns the statements required under section5.01 of this revenue procedure, but only forthat portion of the COD income allocatedto affected partners.

(4) For each taxable year in which astatement is required under section 5.01of this revenue procedure, the nonfilingforeign partnership must provide eachaffected partner a Schedule K–1 (Form1065) reporting § 108(i) information inthe manner described in section 4.07(1)of this revenue procedure. Except forthis § 108(i) information, the partnershipneed not complete Part III of the ScheduleK–1 (Form 1065). The partnership mustprovide each affected partner with a copyof the Schedule K–1 (Form 1065) by thedate provided in § 1.6031(b)–1T(b). Thepartnership must attach the Schedules K–1

2009–36 I.R.B. 316 September 8, 2009

(Form 1065) to the federal income taxreturns filed with the Service pursuant tosection 5.05(2) of this revenue procedure.

(5) For each taxable year for which astatement is required under section 5.01of this revenue procedure, the nonfilingforeign partnership must attach to eachaffected partner’s Schedule K–1 (Form1065) a statement meeting the require-ments of section 5.03(2) of this revenueprocedure. The partnership should notattach these statements to the SchedulesK–1 that are filed with the Service, butmust retain the statements, and each part-ner must retain that partner’s statement, intheir respective books and records.

.06 Information Statements Made onBehalf of Certain Foreign Corporations.Each controlling domestic shareholdermust attach a statement identifying theforeign corporation and meeting the re-quirements of section 5.02 of this revenueprocedure to the shareholder’s federal in-come tax return for each taxable year forwhich a statement is required under sec-tion 5.01 of this revenue procedure.

.07 Additional Annual Reporting Re-quirements for Tiered Pass-Through Enti-ties.

(1) A partnership required to file aU.S. partnership return other than under§ 1.6031(a)–1(b)(5), or an S corporation,that receives a Schedule K–1 (Form 1065or Form 1065–B) described in the sec-ond sentence of section 5.03(1) of thisrevenue procedure reflecting its share ofany § 108(i) information must report onthe Schedules K–1 (Form 1065, Form1065–B, or Form 1120S) to its partnersor shareholders, as the case may be, eachpartner’s or shareholder’s share of thoseitems (an S corporation only reports to itsshareholders the items described in sec-tion 4.07(1)(a) through (d) of this revenueprocedure).

(2) If a partnership described in section5.07(1) of this revenue procedure receivesa statement described in sections 5.03(2)or 5.05(5) of this revenue procedure orthis section 5.07(2), it must provide eachof its partners a statement containing thepartner’s share of each of the items listedon each statement received by the part-nership. If an S corporation receives astatement described in sections 5.03(2)or 5.05(5) of this revenue procedure orthis section 5.07(2), it must provide eachof its shareholders a statement contain-

ing the shareholder’s share of each of theitems listed on each statement receivedby the S corporation that are describedin section 5.03(2)(b)(i) through (viii) ofthis revenue procedure. The partnershipor S corporation must attach the statementor statements to the Schedule K–1 (Form1065 or Form 1065–B) or Schedule K–1(Form 1120S) that is provided to each ofits partners or shareholders, as the casemay be, for the taxable year of the part-nership or S corporation. The partnershipor S corporation should not attach thesestatements to the Schedules K–1 that arefiled with the Service, but must retainthese statements, and each partner andshareholder must retain that partner’s orshareholder’s statement, in their respectivebooks and records.

(3) This paragraph 5.07(3) providesthe rules for persons described in section4.12(6) of this revenue procedure if theforeign partnership, for which the Cate-gory 1 or 2 filer has a filing requirement,receives a Schedule K–1 (Form 1065 orForm 1065–B) reflecting the partnership’sshare of any items described in the secondsentence of section 5.03(1) of this revenueprocedure, or a statement described insections 5.03(2) or 5.05(5) of this revenueprocedure (because the foreign partner-ship owns an interest directly or indirectlyin another partnership in which an elec-tion was made under § 108(i) with respectto that foreign partnership’s distributiveshare from the other entity).

(a) For each partner for whom the Cat-egory 1 filer is required to complete aSchedule K–1 (Form 8865) (which in-cludes the Category 1 filer itself), theCategory 1 filer must:

(i) Include the information described insection 4.07(1) of this revenue procedurein the Schedule K–1 (Form 8865) that theCategory 1 filer files with the Service andcompletes for the partner;

(ii) Produce a statement containing thepartner’s share of the items listed on eachstatement received by the partnership; and

(iii) Attach the statement described insection 5.07(3)(a)(ii) of this revenue pro-cedure to each Schedule K–1 (Form 8865)that it is required to provide to a partner ofthe foreign partnership.

(b) A Category 2 filer must include itsshare of the information described in sec-tion 4.07(1) on the Schedule K–1 (Form8865) that it is required to complete. Cat-

egory 2 filers also must complete a state-ment containing their share of the itemslisted on each statement received by thepartnership.

(c) The Category 1 and Category 2 filersshould not attach the statements describedin sections 5.07(3)(a)(ii) and 5.07(3)(b) ofthis revenue procedure, respectively, to theSchedules K–1 that are filed with the Ser-vice. However, Category 1 filers must re-tain the statements they complete and eachpartner must retain its own statement, intheir respective books and records.

(4) If as a result of § 108(i)(5)(D)(ii), apartner of a partnership described in sec-tion 5.07(1) of this revenue procedure or ashareholder of an S corporation describedin section 5.07(1) of this revenue proce-dure must recognize items deferred un-der § 108(i), the partnership or S corpora-tion must report these items on the Sched-ule K–1 (Form 1065, Form 1065–B, orForm 1120S) and statements provided tothe partner or shareholder pursuant to sec-tion 5.07(1) and (2) of this revenue proce-dure. Similar rules apply to Category 1 andCategory 2 filers (Form 8865) described insection 4.12(6) of this revenue procedure.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effectivefor reacquisitions of applicable debt in-struments in taxable years ending afterDecember 31, 2008.

SECTION 7. TRANSITION RULE

.01 Noncomplying Election. Except asotherwise provided in this section 7.01, theService will treat a § 108(i) election as ef-fective if a taxpayer files an election withthe taxpayer’s federal income tax returnfiled on or before September 16, 2009, us-ing any reasonable procedure to make theelection. However, an election that doesnot comply with section 4 of this revenueprocedure will not be effective unless thetaxpayer on or before November 16, 2009,files an amended return for the taxable yearof the election and complies with the re-quirements of section 4 of this revenueprocedure.

.02 Modification of Election. A tax-payer that files a § 108(i) election on orbefore September 16, 2009, may modifythat election by filing an amended returnon or before November 16, 2009 (for ex-

September 8, 2009 317 2009–36 I.R.B.

ample, to modify the amount of COD in-come the taxpayer elects to defer). To beeffective, a modification of an election de-scribed in the preceding sentence must sat-isfy the requirements for an election de-scribed in section 4 of this revenue proce-dure.

.03 Notations. A taxpayer that filesthe amended return on paper must write“Section 108(i) Election” on the top ofthe first page. A taxpayer that files theamended return electronically should indi-cate “Section 108(i) Election” on the re-turn. See Publication 4163, Modernizede-File (MeF) Information for AuthorizedIRS e-file Providers for Business ReturnsTax Year 2008 for more details.

SECTION 8. PAPERWORKREDUCTION ACT

The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Officeof Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under control number1545–2147.

An agency may not conduct or sponsor,and a person is not required to respond

to, a collection of information unless thecollection of information displays a validOMB control number.

The collection of information in thisrevenue procedure is in sections 4, 5 and7. This information is required to deter-mine the amount of income and deduc-tions a taxpayer elects to defer and to trackthose amounts until the taxpayer has re-ported all deferred income and deductionson the taxpayer’s tax return. This infor-mation will be used during examinationto verify that a taxpayer has correctly de-ferred income and deductions. The col-lection of information is required to ob-tain a benefit. The likely respondents areC corporations, shareholders of S corpo-rations, partners of partnerships, and otherindividuals engaged in a trade or business,that reacquire applicable debt instrumentsin 2009 or 2010.

The estimated total annual reportingburden is 300,000 hours. The estimatedannual burden per respondent varies from1 to 8 hours, depending on individual cir-cumstances, with an estimated average of6 hours. The estimated number of respon-dents is 50,000.

Books or records relating to a collectionof information must be retained as long

as their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and return in-formation are confidential, as required by§ 6103.

DRAFTING INFORMATION

The principal authors of this rev-enue procedure are Megan A. Stoner ofthe Office of Associate Chief Counsel(Passthroughs & Special Industries)and Craig Wojay of the Office ofAssociate Chief Counsel (Income Tax& Accounting). For further informationregarding this revenue procedure, contactMegan A. Stoner at (202) 622–3070for questions involving partnerships andS corporations, William E. Blanchard at(202) 622–3950 for questions involvingOID, Ronald M. Gootzeit at (202)622–3860 for questions involving foreignentities, Robert Rhyne at (202) 622–7790for questions involving earnings andprofits and consolidated groups, andCraig Wojay at (202) 622–4920 forquestions on § 108(i) generally (nottoll-free calls).

2009–36 I.R.B. 318 September 8, 2009

Part IV. Items of General InterestDeletions From CumulativeList of OrganizationsContributions to Whichare Deductible Under Section170 of the Code

Announcement 2009–64

The Internal Revenue Service has re-voked its determination that the organi-zations listed below qualify as organiza-tions described in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is not

precluded from disallowing a deductionfor any contributions made after an or-ganization ceases to qualify under section170(c)(2) if the organization has not timelyfiled a suit for declaratory judgment undersection 7428 and if the contributor (1) hadknowledge of the revocation of the rulingor determination letter, (2) was aware thatsuch revocation was imminent, or (3) wasin part responsible for or was aware of theactivities or omissions of the organizationthat brought about this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on September 8, 2009and would end on the date the court firstdetermines that the organization is not de-

scribed in section 170(c)(2) as more partic-ularly set forth in section 7428(c)(1). Forindividual contributors, the maximum de-duction protected is $1,000, with a hus-band and wife treated as one contributor.This benefit is not extended to any indi-vidual, in whole or in part, for the acts oromissions of the organization that were thebasis for revocation.

HFZ Charitable Supporting OrganizationSanta Barbara, CA

Main Homes Community DevelopmentCorporationColumbus, OH

North American Housing FoundationSpokane, WA

The Valcarce FoundationBountiful, UT

Announcement of Disciplinary Sanctions From the Officeof Professional ResponsibilityAnnouncement 2009-65

The Office of Professional Responsi-bility (OPR) announces recent disciplinarysanctions involving attorneys, certifiedpublic accountants, enrolled agents, en-rolled actuaries, enrolled retirement planagents, and appraisers. These individualsare subject to the regulations governingpractice before the Internal Revenue Ser-vice (IRS), which are set out in Title 31,Code of Federal Regulations, Part 10, andwhich are published in pamphlet form asTreasury Department Circular No. 230.The regulations prescribe the duties andrestrictions relating to such practice andprescribe the disciplinary sanctions forviolating the regulations.

The disciplinary sanctions to be im-posed for violation of the regulations are:

Disbarred from practice before theIRS—An individual who is disbarred isnot eligible to represent taxpayers beforethe IRS.

Suspended from practice before theIRS—An individual who is suspended isnot eligible to represent taxpayers beforethe IRS during the term of the suspension.

Censured in practice before theIRS—Censure is a public reprimand. Un-like disbarment or suspension, censuredoes not affect an individual’s eligibilityto represent taxpayers before the IRS, butOPR may subject the individual’s futurerepresentations to conditions designed topromote high standards of conduct.

Monetary penalty—A monetarypenalty may be imposed on an individualwho engages in conduct subject to sanc-tion or on an employer, firm, or entityif the individual was acting on its behalfand if it knew, or reasonably should haveknown, of the individual’s conduct.

Disqualification of appraiser—Anappraiser who is disqualified is barredfrom presenting evidence or testimony inany administrative proceeding before theDepartment of the Treasury or the IRS.

Under the regulations, attorneys, cer-tified public accountants, enrolled agents,enrolled actuaries, and enrolled retirementplan agents may not assist, or accept assis-tance from, individuals who are suspendedor disbarred with respect to matters consti-tuting practice (i.e., representation) before

the IRS, and they may not aid or abet sus-pended or disbarred individuals to practicebefore the IRS.

Disciplinary sanctions are described inthese terms:

Disbarred by decision after hearing,Suspended by decision after hearing,Censured by decision after hearing,Monetary penalty imposed after hear-ing, and Disqualified after hearing—Anadministrative law judge (ALJ) conductedan evidentiary hearing upon OPR’s com-plaint alleging violation of the regulationsand issued a decision imposing one ofthese sanctions. After 30 days from theissuance of the decision, in the absence ofan appeal, the ALJ’s decision became thefinal agency decision.

Disbarred by default decision, Sus-pended by default decision, Censured bydefault decision, Monetary penalty im-posed by default decision, and Disqual-ified by default decision—An ALJ, afterfinding that no answer to OPR’s complainthad been filed, granted OPR’s motion for adefault judgment and issued a decision im-posing one of these sanctions.

September 8, 2009 319 2009–36 I.R.B.

Disbarment by decision on appeal,Suspended by decision on appeal, Cen-sured by decision on appeal, Monetarypenalty imposed by decision on ap-peal, and Disqualified by decision onappeal—The decision of the ALJ wasappealed to the agency appeal authority,acting as the delegate of the Secretaryof the Treasury, and the appeal authorityissued a decision imposing one of thesesanctions.

Disbarred by consent, Suspended byconsent, Censured by consent, Mone-tary penalty imposed by consent, andDisqualified by consent—In lieu of adisciplinary proceeding being institutedor continued, an individual offered a con-sent to one of these sanctions and OPRaccepted the offer. Typically, an offerof consent will provide for: suspensionfor an indefinite term; conditions that theindividual must observe during the sus-pension; and the individual’s opportunity,

after a stated number of months, to filewith OPR a petition for reinstatement af-firming compliance with the terms of theconsent and affirming current eligibilityto practice (i.e., an active professionallicense or active enrollment status). Anenrolled agent or an enrolled retirementplan agent may also offer to resign in orderto avoid a disciplinary proceeding.

Suspended by decision in expeditedproceeding, Suspended by default de-cision in expedited proceeding, Sus-pended by consent in expedited pro-ceeding—OPR instituted an expeditedproceeding for suspension (based on cer-tain limited grounds, including loss of aprofessional license and criminal convic-tions).

OPR has authority to disclose thegrounds for disciplinary sanctions in thesesituations: (1) an ALJ or the Secretary’sdelegate on appeal has issued a decisionon or after September 26, 2007, which was

the effective date of amendments to theregulations that permit making such deci-sions publicly available; (2) the individualhas settled a disciplinary case by signingOPR’s “consent to sanction” form, whichrequires consenting individuals to admit toone or more violations of the regulationsand to consent to the disclosure of the in-dividual’s own return information relatedto the admitted violations (for example,failure to file Federal income tax returns);or (3) OPR has issued a decision in anexpedited proceeding for suspension.

Announcements of disciplinary sanc-tions appear in the Internal Revenue Bul-letin at the earliest practicable date. Thesanctions announced below are alphabet-ized first by the names of states and sec-ond by the last names of individuals. Un-less otherwise indicated, section numbers(e.g., § 10.51) refer to the regulations.

City & State Name Professional Disciplinary Sanction Effective Date(s)Designation

Arizona

Tucson Alavez, Erin M. Attorney Suspended by defaultdecision in expeditedproceeding under § 10.82(attorney disbarment)

Indefinite fromAugust 5, 2009

Florida

Coral Springs Salomon, Scott A. Attorney Suspended by defaultdecision in expeditedproceeding under § 10.82(attorney disbarment)

Indefinite fromAugust 11, 2009

Illinois

Homer Glen Bujan, Jr., Frank M. CPA Disbarred by ALJ defaultdecision for violation of§ 10.51 (willful failure tofile several Federal taxreturns)

Indefinite fromJuly 1, 2009

Missouri

Cassville Divers, Robert D. Enrolled Agent Censured by consent foradmitted violation of§ 10.22 (failed to exercisedue diligence in preparinga client’s Form 1040,individual income taxreturn)

Indefinite fromAugust 3, 2009

2009–36 I.R.B. 320 September 8, 2009

City & State Name Professional Disciplinary Sanction Effective Date(s)Designation

Missouri (Continued)

St. Louis Suits, Jennifer K. Attorney Disbarred by ALJ defaultdecision for violation of§ 10.51 (willful failure tofile several Federal taxreturns)

Indefinite fromJuly 1, 2009

Lake Ozark Sutton, Elbert L. CPA Suspended by ALJ defaultdecision for violation of§ 10.51 (willful failure tofile several Federal taxreturns)

Indefinite fromJune 30, 2009

New Jersey

Fort Dix Pfaff, Robert A. CPA Suspended by decisionin expedited proceedingunder § 10.82 (convictionunder 26 U.S.C. § 7201,tax evasion, and 18 U.S.C.§ 2, tax evasion) in NewYork

Indefinite fromAugust 5, 2009

New York

New York Larson, John M. Attorney Suspended by defaultdecision in expeditedproceeding under § 10.82(conviction under26 U.S.C. § 7201, taxevasion, and 18 U.S.C.§ 2, tax evasion)

Indefinite fromAugust 11, 2009

Pfaff, Robert A.,See New Jersey

Texas

Houston Funderburgh, Lee CPA Suspended by defaultdecision in expeditedproceeding under§ 10.82 (convictionunder 26 U.S.C. § 7206,aiding and assistingin the preparation andpresentation of false taxreturns)

Indefinite fromAugust 7, 2009

Early Thomason, Frank J. CPA Disbarred by ALJ defaultdecision for violation of§ 10.51 (willful failure tofile several Federal taxreturns)

Indefinite fromJune 30, 2009

September 8, 2009 321 2009–36 I.R.B.

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 situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

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.

2009–36 I.R.B. i September 8, 2009

Numerical Finding List1

Bulletins 2009–27 through 2009–36

Announcements:

2009-56, 2009-28 I.R.B. 145

2009-57, 2009-29 I.R.B. 158

2009-58, 2009-29 I.R.B. 158

2009-59, 2009-29 I.R.B. 158

2009-60, 2009-30 I.R.B. 166

2009-61, 2009-33 I.R.B. 246

2009-62, 2009-33 I.R.B. 247

2009-63, 2009-33 I.R.B. 248

2009-64, 2009-36 I.R.B. 319

2009-65, 2009-36 I.R.B. 319

Notices:

2009-51, 2009-28 I.R.B. 128

2009-55, 2009-31 I.R.B. 170

2009-57, 2009-29 I.R.B. 147

2009-58, 2009-30 I.R.B. 163

2009-59, 2009-31 I.R.B. 170

2009-60, 2009-32 I.R.B. 181

2009-61, 2009-32 I.R.B. 181

2009-62, 2009-35 I.R.B. 260

2009-63, 2009-34 I.R.B. 252

2009-64, 2009-36 I.R.B. 307

2009-69, 2009-35 I.R.B. 261

2009-70, 2009-34 I.R.B. 255

2009-71, 2009-35 I.R.B. 262

Proposed Regulations:

REG-152166-05, 2009-32 I.R.B. 183

REG-112994-06, 2009-28 I.R.B. 144

REG-113289-08, 2009-33 I.R.B. 244

REG-130200-08, 2009-31 I.R.B. 174

Revenue Procedures:

2009-30, 2009-27 I.R.B. 27

2009-31, 2009-27 I.R.B. 107

2009-32, 2009-28 I.R.B. 142

2009-33, 2009-29 I.R.B. 150

2009-34, 2009-34 I.R.B. 258

2009-35, 2009-35 I.R.B. 265

2009-36, 2009-35 I.R.B. 304

2009-37, 2009-36 I.R.B. 309

Revenue Rulings:

2009-18, 2009-27 I.R.B. 1

2009-19, 2009-28 I.R.B. 111

2009-20, 2009-28 I.R.B. 112

2009-21, 2009-30 I.R.B. 162

2009-22, 2009-31 I.R.B. 167

2009-23, 2009-32 I.R.B. 177

2009-24, 2009-36 I.R.B. 306

Treasury Decisions:

9452, 2009-27 I.R.B. 1

9453, 2009-28 I.R.B. 114

9454, 2009-32 I.R.B. 178

9455, 2009-33 I.R.B. 239

9456, 2009-33 I.R.B. 188

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin2009–26, dated June 29, 2009.

September 8, 2009 ii 2009–36 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2009–27 through 2009–36

Announcements:

2006-93

Superseded by

Ann. 2009-62, 2009-33 I.R.B. 247

Notices:

2004-67

Supplemented and superseded by

Notice 2009-59, 2009-31 I.R.B. 170

2006-70

Obsoleted by

T.D. 9453, 2009-28 I.R.B. 114

2006-109

Superseded in part by

Rev. Proc. 2009-32, 2009-28 I.R.B. 142

2008-43

Obsoleted by

REG-113289-08, 2009-33 I.R.B. 244

2009-28

Clarified by

Notice 2009-69, 2009-35 I.R.B. 261

Revenue Procedures:

97-49

Modified and superseded by

Rev. Proc. 2009-31, 2009-27 I.R.B. 107

2007-44

Modified by

Rev. Proc. 2009-36, 2009-35 I.R.B. 304

2008-38

Superseded by

Rev. Proc. 2009-30, 2009-27 I.R.B. 27

2008-44

Superseded by

Rev. Proc. 2009-35, 2009-35 I.R.B. 265

2008-65

Modified by

Rev. Proc. 2009-33, 2009-29 I.R.B. 150

2009-16

Modified by

Rev. Proc. 2009-33, 2009-29 I.R.B. 150

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin 2009–26, dated June 29, 2009.

2009–36 I.R.B. iii September 8, 2009

September 8, 2009 2009–36 I.R.B.

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