INCOME TAX Notice 2017–04, page 541. · PDF fileThe IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and

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

REG–112800–16, page 569.Nuclear Decommissioning Funds. The proposed regulationsprovide rules under section 468A concerning deductions foramounts contributed to a qualified nuclear decommissioningreserve fund and the use of the amounts in those funds todecommission nuclear plants. The proposed regulations revisecertain provisions to (1) address issues that have arisen asmore nuclear plants have begun the decommissioning pro-cess, and (2) clarify provisions in the current regulations re-garding self-dealing and the definition of substantial completionof decommissioning.

Notice 2017–02, page 539.This notice updates the appendix to Notice 2013–1, which liststhe Indian tribes who have settled tribal trust cases against theUnited States. Notice 2012–60 originally was published in IRB2012–41 (October 9, 2012). Notice 2012–60 was super-ceded by Notice 2013–1 IRB 2013–3, and the appendix toNotice 2013–1 was superceded by Notice 2013–16 (IRB2013–14), then Notice 2013–36, then Notice 2013–55, thenNotice 2014–22, Notice 2014–38, then Notice 2014–61,and then Notice 2015–20, and then Notice 2016–41, andthen Notice 2016–65. However, we noticed a typo in Notice2016–65 after it was published. The correct spelling of Tribe81 is �Southern Ute Indian Tribe.� Notice 2017–02 simplycorrects the spelling. This notice would supersede Notice2016–65.

Rev. Rul. 2017–03, page 522.The proposed revenue ruling updates, for certain insurancecontracts issued in 2016 and 2017, the prevailing state as-sumed interest rates that life insurance companies need inorder to compute their life insurance reserves for federal taxpurposes.

Notice 2017–04, page 541.Beginning of Construction for Sections 45 and 48. Notice2017–04 updates and clarifies the guidance provided in priorIRS notices regarding the beginning of construction for sec-tions 45 and 48. Specifically, the notice provides clarificationregarding the extension and modification of the Continuity SafeHarbor, the prohibition against combining methods by which tosatisfy the beginning of construction requirement, and thecosts that may be included in the Five Percent Safe Harbor forretrofitted renewable energy facilities.

Notice 2017–10, page 544.The notice alerts participants and material advisors involved incertain syndicated conservation easement transactions thatthey are tax avoidance transactions and are listed transac-tions.

T.D. 9806, page 524.The final regulations provide guidance on determining owner-ship of a passive foreign investment company (PFIC) and oncertain annual reporting requirements for shareholders ofPFICs to file Form 8621, “Information Return by a Shareholderof a Passive Foreign Investment Company or Qualified ElectingFund.” In addition, the final regulations provide guidance on anexception to the requirement for certain shareholders of for-eign corporations to file Form 5471, “Information Return ofU.S. Persons with Respect to Certain Foreign Corporations.”The regulations finalize proposed regulations and withdrawtemporary regulations published on December 31, 2013. Thefinal regulations affect United States persons that own inter-ests in PFICs, and certain United States shareholders of foreigncorporations.

(Continued on the next page)

Finding Lists begin on page ii.

Bulletin No. 2017–4January 23, 2017

EMPLOYEE PLANS

REG–112324–15, page 547.This document contains proposed regulations prescribing mor-tality tables to be used by most defined benefit pension plans.The tables specify the probability of survival year-by-year for anindividual based on age, gender, and other factors. This infor-mation is used (together with other actuarial assumptions) tocalculate the present value of a stream of expected futurebenefit payments for purposes of determining the minimumfunding requirements for the plan. These mortality tables arealso relevant to determining the minimum required amount of alump-sum distribution from such a plan. In addition, this docu-ment contains proposed regulations to update the require-ments that a plan sponsor must meet in order to obtain IRSapproval to use mortality tables specific to the plan for mini-mum funding purposes (instead of the generally applicablemortality tables). These regulations affect participants in, ben-eficiaries of, employers maintaining, and administrators of cer-tain retirement plans.

EXEMPT ORGANIZATIONS


ADMINISTRATIVE

Notice 2017–09, page 542.Section 202 of the Protecting Americans from Tax Hikes Act of2015 (P.L. 114–113) amended sections 6721 and 6722 toprovide that an error on an information return or payee state-ment does not need to be corrected to avoid a penalty if theerror relates to an incorrect dollar amount and differs from thecorrect amount by no more than $100 ($25 with respect to anamount of tax withheld). This safe harbor does not apply to apayee statement if a payee makes an election that the safeharbor not apply “at such time and in such manner as theSecretary may prescribe.” This notice provides the require-ments for making this election and seeks comment on thematters discussed in the notice.


The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-force the 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.

It is the policy of the Service to publish in the Bulletin allsubstantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of internalmanagement are not published; however, statements of inter-nal practices and procedures that affect the rights and dutiesof taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulings totaxpayers or technical advice to Service field offices, identify-ing details and information of a confidential nature are deletedto prevent unwarranted invasions of privacy and to comply withstatutory requirements.

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 cautioned

against 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, TaxConventions and Other Related Items, and Subpart B, Legisla-tion and Related Committee Reports.

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

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

The last Bulletin for each month includes a cumulative index forthe 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.

January 23, 2017 Bulletin No. 2017–4

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986Section 807.—Rules forCertain Reserves

Rev. Rul. 2017–03

For purposes of § 807(d)(4) of theInternal Revenue Code, for taxableyears beginning after December 31,2015, this ruling supplements the sched-ules of prevailing state assumed interestrates set forth in Rev. Rul. 92–19,1992–1 C.B. 227. This information is tobe used by insurance companies in com-puting their reserves for (1) life insur-ance and supplementary total and per-manent disability benefits, (2) individualannuities and pure endowments, and (3)group annuities and pure endowments.As § 807(d)(2)(B) requires that the in-terest rate used to compute these re-serves be the greater of (1) the applica-ble federal interest rate, or (2) theprevailing state assumed interest rate,the table of applicable federal interest

rates in Rev. Rul. 92–19 is also supple-mented.

Following are supplements to sched-ules A, B, C, and D to Part III of Rev. Rul.92–19, providing prevailing state assumedinterest rates for insurance products withdifferent features issued in 2016 and 2017,and a supplement to the table in Part IV ofRev. Rul. 92–19, providing the applicablefederal interest rates under § 807(d) for2016 and 2017. This ruling does not sup-plement Parts I and II of Rev. Rul. 92–19.

This is the twenty-fifth supplement tothe interest rates provided in Rev. Rul.92–19. Earlier supplements were pub-lished in Rev. Rul. 93–58, 1993–2 C.B.241 (interest rates for insurance productsissued in 1992 and 1993); Rev. Rul. 94–11, 1994–1 C.B. 196 (1993 and 1994);Rev. Rul. 95–4, 1995–1 C.B. 141 (1994and 1995); Rev. Rul. 96–2, 1996–1 C.B.141 (1995 and 1996); Rev. Rul. 97–2,1997–1 C.B. 134 (1996 and 1997); Rev.Rul. 98–2, 1998–1 C.B. 259 (1997 and1998); Rev. Rul. 99–10, 1999–1 C.B. 671

(1998 and 1999); Rev. Rul. 2000–17,2000–1 C.B. 842 (1999 and 2000); Rev.Rul. 2001–11, 2001–1 C.B. 780 (2000 and2001); Rev. Rul. 2002–12, 2002–1 C.B.624 (2001 and 2002); Rev. Rul. 2003–24,2003–1 C.B. 557 (2002 and 2003); Rev.Rul. 2004–14, 2004–1 C.B. 511 (2003and 2004); Rev. Rul. 2005–29, 2005–1C.B. 1080 (2004 and 2005); Rev. Rul.2006–25, 2006–1 C.B. 882 (2005 and2006); Rev. Rul. 2007–10, 2007–1 C.B.660 (2006 and 2007); Rev. Rul. 2008–19,2008–1 C.B. 669 (2007 and 2008); Rev.Rul. 2009–3, 2009–5 I.R.B. 382 (2008and 2009); Rev. Rul. 2010–7, 2010–8I.R.B. 417 (2009 and 2010); Rev. Rul.2011–23, 2011–43 I.R.B. 585 (2010 and2011); Rev. Rul. 2012–6, 2012–6 I.R.B.349 (2011 and 2012); Rev. Rul. 2013–4,2013–9 I.R.B. 520 (2012 and 2013); Rev.Rul. 2014–4, 2014–5 I.R.B. 449 (2013and 2014); Rev. Rul. 2015–2, 2015–3I.R.B. 321 (2014 and 2015); and Rev. Rul.2016–02, 2016–4 I.R.B. 284 (2015 and2016).

Part III. Prevailing State Assumed Interest Rates — Products Issued in Years After 1982.*Schedule A

STATUTORY VALUATION INTEREST RATES BASED ON THE 1980 AMENDMENTS TO THE NAIC STANDARDVALUATION LAW

A. Life insurance valuation:Guarantee Duration (years) Calendar Year of Issue 2017

10 or fewer 3.75**

More than 10 but not more than 20 3.75**

More than 20 3.50**

Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody’s Composite Yieldon Seasoned Corporate Bonds.

*The terms used in the schedules in this ruling and in Part III of Rev. Rul. 92–19 are those used in the StandardValuation Law; the terms are defined in Rev. Rul. 92–19.**As these rates exceed the applicable federal interest rate for 2017 of 1.46 percent, the valuation interest rate tobe used for this product under § 807 is the applicable rate specified in this table.

Part III, Schedule BSTATUTORY VALUATION INTEREST RATES BASED ON THE 1980 AMENDMENTS TO THE NAIC STANDARD

VALUATION LAWB. Single premium immediate annuities and annuity benefits involving life contingencies arising from other annuities withcash settlement options and from guaranteed interest contracts with cash settlement options:

Calendar Year of Issue Valuation Interest Rate

2016 4.00*Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody’s Composite Yield on SeasonedCorporate Bonds.

*As this prevailing state assumed interest rate exceeds the applicable federal interest rate for 2016 of 1.56 percent, thevaluation interest rate of 4.00 percent is to be used for this product under § 807.


Part III, Schedule C24 – 2016STATUTORY VALUATION INTEREST RATES BASED ON NAIC STANDARD VALUATION LAW FOR 2016 CALENDAR

YEAR BUSINESS GOVERNED BY THE 1980 AMENDMENTSC. Valuation interest rates for other annuities and guaranteed interest contracts that are valued on an issue year basis:

CashSettlementOptions?

FutureInterest

Guarantee? Guarantee Duration (years) Valuation Interest Rate For Plan Type

A B C

Yes Yes 5 or fewer 4.00* 3.75* 3.75*

More than 5, but not more than 10 4.00* 3.75* 3.75*


More than 20 3.75* 3.50* 3.50*

Yes No 5 or fewer 4.25* 4.00* 3.75*



More than 20 3.75* 3.50* 3.50*

No Yes or No 5 or fewer 4.00*

More than 5, but not more than 10 4.00* NOT APPLICABLE

More than 10, but not more than 20 4.00*

More than 20 3.75*

Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody’s Composite Yield on SeasonedCorporate Bonds.

*As these rates exceed the applicable federal interest rate for 2016 of 1.56 percent, the valuation interest rate to be usedfor this product under § 807 is the applicable rate specified in the above table.

Part III, Schedule D24 — 2016STATUTORY VALUATION INTEREST RATES BASED ON NAIC STANDARD VALUATION LAW FOR 2016 CALENDAR

YEAR BUSINESS GOVERNED BY THE 1980 AMENDMENTSD. Valuation interest rates for other annuities and guaranteed interest contracts that are contracts with cash settlement op-tions and that are valued on a change in fund basis:

CashSettlementOptions?

FutureInterest

Guarantee? Guarantee Duration (years) Valuation Interest Rate For Plan TypeA B C

Yes Yes 5 or fewer 4.25* 4.25* 3.75*



More than 20 3.75* 3.75* 3.50*

Yes No 5 or fewer 4.50* 4.25* 3.75*



More than 20 4.00* 4.00* 3.75*

Source: Rates calculated from the monthly averages, ending June 30, 2016, of Moody’s Composite Yield on SeasonedCorporate Bonds.

*As these rates exceed the applicable federal interest rate for 2016 of 1.56 percent, the valuation interest rate to be usedfor this product under § 807 is the applicable rate specified in the above table.

Bulletin No. 2017–4 January 23, 2017523

Part IV. Applicable Federal Interest Rates.TABLE OF APPLICABLE FEDERAL INTEREST RATES FOR PURPOSES OF § 807

Year Interest Rate

2016 1.56

2017 1.46

Sources: Rev. Rul. 2004–106, 2004–2 C.B. 893, for the 2005 rate; Rev. Rul. 2005–77, 2005–2 C.B. 1071, for the 2006rate; Rev. Rul. 2006–61, 2006–2 C.B 1028 for the 2007 rate; Rev. Rul. 2007–70, 2007–2 C.B. 1158 for the 2008 rate;Rev. Rul. 2008–53, 2008–2 C.B. 1231 for the 2009 rate; Rev. Rul. 2009–38, 2009–49 I.R.B. 736, for the 2010 rate; Rev.Rul. 2010–29, 2010–50 I.R.B. 818 for the 2011 rate; Rev. Rul. 2011–31, 2011–49 I.R.B. 829 for the 2012 rate; Rev. Rul.2012–31, 2012–49 I.R.B. 636 for the 2013 rate; Rev. Rul. 2013–26, 2013–50 I.R.B. 628 for the 2014 rate; Rev. Rul.2014–31, 2014–50 I.R.B. 935 for the 2015 rate; Rev. Rul. 2015–25, 2015–49 I.R.B. 695 for the 2016 rate; and Rev. Rul.2016–27, 2016–49 I.R.B. 781 for the 2017 rate.

EFFECT ON OTHER REVENUERULINGS

Rev. Rul. 92–19 is supplemented bythe addition to Part III of that ruling ofprevailing state assumed interest rates un-der § 807 for certain insurance productsissued in 2016 and 2017 and is furthersupplemented by an addition to the tablein Part IV of Rev. Rul. 92–19 listing ap-plicable federal interest rates. Parts I andII of Rev. Rul. 92–19 are not affected bythis ruling.

DRAFTING INFORMATION

The principal author of this revenueruling is Sharon Y. Horn of the Office ofAssociate Chief Counsel (Financial Insti-tutions and Products). For further infor-mation regarding this revenue ruling con-tact Ms. Horn at (202) 317-6995 (not atoll-free number).

T.D. 9806

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Definitions and ReportingRequirements forShareholders of PassiveForeign InvestmentCompanies

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations and removalof temporary regulations.

SUMMARY: This document contains fi-nal regulations that provide guidance ondetermining ownership of a passive for-eign investment company (PFIC) and oncertain annual reporting requirementsfor shareholders of PFICs to file Form8621, “Information Return by a Share-holder of a Passive Foreign InvestmentCompany or Qualified Electing Fund.”In addition, the final regulations provideguidance on an exception to the require-ment for certain shareholders of foreigncorporations to file Form 5471, “Infor-mation Return of U.S. Persons with Re-spect to Certain Foreign Corporations.”The regulations finalize proposed regu-lations and withdraw temporary regula-tions published on December 31, 2013.The final regulations affect UnitedStates persons that own interests inPFICs, and certain United States share-holders of foreign corporations.

DATES: Effective Date: These regula-tions are effective on December 28, 2016.

Applicability Dates: For dates of appli-cability, see §§ 1.1291–1(j)(3), 1.1291–9(k)(3), 1.1298–1(h), 1.6038–2(m), and1.6046–1(l)(3).

FOR FURTHER INFORMATION CON-TACT: Jeffery G. Mitchell at (202) 317-6934 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On December 31, 2013, the TreasuryDepartment and the IRS published final

and temporary regulations (2013 tempo-rary regulations) under sections 1291,1298, 6038, and 6046 (T.D. 9650) in theFederal Register (78 FR 79602, as cor-rected at 79 FR 26836). On the same date,the Treasury Department and the IRS pub-lished a notice of proposed rulemaking(REG–140974–11) in the Federal Regis-ter (78 FR 79650, as corrected at 79 FR27230) cross-referencing the 2013 tempo-rary regulations (2013 proposed regula-tions). No public hearing was requested orheld. Written comments were received,and are available at www.regulations.govor upon request.

On April 28, 2014, the Treasury De-partment and the IRS issued Notice2014 –28 (2014 –18 I.R.B. 990), whichannounced that the regulations undersection 1291 would provide that aUnited States person that owns stock ofa PFIC through a tax-exempt organiza-tion or account is not treated as a share-holder of the PFIC with respect to thestock. In addition, on September 29,2014, the Treasury Department and theIRS issued Notice 2014 –51 (2014 – 40I.R.B. 594), which announced that theregulations under section 1298 wouldprovide guidance concerning UnitedStates persons that own stock in a PFICthat is marked to market under a provi-sion of chapter 1 of the Code other thansection 1296.

This Treasury decision adopts the 2013proposed regulations with the changes de-scribed below as final regulations, includ-ing implementing the rules described inNotice 2014–28 and Notice 2014–51, andremoves the corresponding 2013 tempo-rary regulations.


Summary of Comments andExplanation of Revisions

The final regulations retain the basicapproach and structure of the 2013 tem-porary regulations, with certain revisions.This Summary of Comments and Expla-nation of Revisions section discussesthose revisions as well as comments re-ceived in response to the solicitation ofcomments in the notice of proposed rule-making accompanying the 2013 tempo-rary regulations. Several comments werereceived that did not pertain to the rules inthe 2013 temporary regulations. Thesecomments are beyond the scope of thisrulemaking and are not addressed in thispreamble. The Treasury Department andthe IRS will consider these comments inconnection with any future guidance proj-ects addressing the issues discussed in thecomments.

A. Definition of Shareholder andIndirect Shareholder in § 1.1291–1(b)(7)and (8)

1. Revision to definition of shareholderannounced in Notice 2014–28

As described in Notice 2014–28, theapplication of the PFIC rules to a UnitedStates person treated as owning stock of aPFIC through a tax-exempt organizationor account described in § 1.1298–1(c)(1)would be inconsistent with the tax policiesunderlying the PFIC rules and the treat-ment of tax-exempt organizations and ac-counts. For example, applying the PFICrules to a United States person that ownsstock of a PFIC through an individualretirement account (IRA) described insection 408(a) would be inconsistent withthe principle of deferred taxation providedby IRAs. Notice 2014–28 provides thatthe regulations incorporating the guidancedescribed in the notice will be effectivefor taxable years of United States personsthat own stock of a PFIC through a tax-exempt organization or account ending onor after December 31, 2013.

The final regulations modify the defi-nition of shareholder in § 1.1291–1 asannounced in Notice 2014–28. Undernew § 1.1291–1(e)(2), a United Statesperson is not treated as a shareholder of aPFIC to the extent the person owns PFIC

stock through a tax-exempt organizationor account described in § 1.1298–1(c)(1).

2. Indirect shareholder as a result ofattribution through a domesticcorporation

a. 1992 Proposed Regulations

On April 1, 1992 (57 FR 11024) theTreasury Department and the IRS issuedproposed regulations (1992 proposed reg-ulations) that, among other things, in-cluded rules for determining when aUnited States person is treated as indi-rectly owning stock of a PFIC. Consistentwith section 1298(a)(2)(A), § 1.1291–1(b)(8)(ii)(A) of the 1992 proposed regu-lations provided that a United States per-son who directly or indirectly owns 50percent or more in value of the stock of aforeign corporation that is not a PFIC isconsidered to own a proportionate amount(by value) of any stock (including PFICstock) owned directly or indirectly by theforeign corporation. Thus, for example, ifa United States person owned 100 percentof the shares of FC, a foreign corporationthat is not a PFIC but that owns 50 sharesof a PFIC, the United States person wouldbe treated as indirectly owning the 50PFIC shares under § 1.1291–1(b)(8)(ii)(A) of the 1992 proposed regulations.

By contrast, section 1298(a)(1)(B) pro-vides that PFIC stock owned by a domes-tic corporation (which generally would betreated as a PFIC shareholder itself) is notattributed to any other person, except tothe extent provided in regulations. Pursu-ant to this grant of regulatory authority,§ 1.1291–1(b)(8)(ii)(C) of the 1992 pro-posed regulations provided that, if stockof a section 1291 fund was not treated asowned indirectly by a United States per-son under the other attribution rules pro-vided in the proposed regulations, butwould be treated as owned by a UnitedStates person if the ownership rule of§ 1.1291–1(b)(8)(ii)(A) of the 1992 pro-posed regulations applied to domestic cor-porations (in addition to foreign corpora-tions), then the stock of the section 1291fund would be considered as owned bysuch United States person.

Both § 1.1291–1(b)(8)(ii)(A) and (C)of the 1992 proposed regulations werewithdrawn and reissued under the 2013

temporary regulations as § 1.1291–1T(b)(8)(ii)(A) and (C), respectively.b. Intended Scope of § 1.1291–1T(b)(8)(ii)(C)

The purpose of § 1.1291–1(b)(8)(ii)(C)of the 1992 proposed regulations and§ 1.1291–1T(b)(8)(ii)(C), as explained inthe preamble to the 1992 proposed regu-lations, was to attribute stock through adomestic C corporation in certain circum-stances if, absent such attribution, thestock of a PFIC would not be treated asowned by any United States person. Inparticular, because § 1.1291–1T(b)(8)(ii)(A) provides that a United States per-son who directly or indirectly owns 50percent or more in value of the stock of aforeign corporation that is not a PFIC isconsidered to own a proportionate amount(by value) of any stock owned directlyor indirectly by the foreign corporation,without § 1.1291–1T(b)(8)(ii)(C), aUnited States person could interpose adomestic C corporation into an ownershipstructure to avoid shareholder status withrespect to stock of a PFIC that the UnitedStates person indirectly owned throughone or more foreign corporations thatwere not PFICs. In other words, § 1.1291–1T(b)(8)(ii)(C) provides guidance as towhen a United States person is treated asindirectly owning stock of a foreign cor-poration through a domestic corporationfor purposes of § 1.1291–1T(b)(8)(ii)(A).

For example, assume that A, a UnitedStates person, owns 49 percent of thestock of FC1, a foreign corporation that isnot a PFIC, and separately all the stock ofDC, a domestic corporation that is not anS corporation. DC, in turn, owns the re-maining 51 percent of the stock of FC1,and FC1 owns 100 shares of stock in aPFIC (which is not a controlled foreigncorporation within the meaning of section957(a)). DC is an indirect shareholderwith respect to 51 percent of the PFICstock held by FC1 under § 1.1291–1T(b)(8)(ii)(A). Absent the application of§ 1.1291–1T(b)(8)(ii)(C), because A di-rectly or indirectly owns less than 50 per-cent of the value of the stock of FC1 andthus § 1.1291–1T(b)(8)(ii)(A) does notapply, A would not be treated as an indi-rect shareholder with respect to any of thePFIC stock directly owned by FC1 when,from an economic perspective, A indi-rectly owns all the PFIC stock held by


FC1. Therefore, without a rule treating Aas owning DC’s stock in FC1, the remain-ing 49 percent of the PFIC stock held byFC1 would not be treated as owned by anyUnited States person.

On the other hand, the literal languageof § 1.1291–1T(b)(8)(ii)(C) could havebeen interpreted to create overlappingownership by two or more United Statespersons in the same stock of a section1291 fund. Thus, in the foregoing exam-ple, A may have been considered as own-ing 100 percent of the stock of FC1, andtherefore as indirectly owning all 100shares of the PFIC stock held by FC1,even though 51 of those shares are con-sidered indirectly owned by DC, a UnitedStates person. This outcome is inconsis-tent with the intended purpose of the ruleto attribute stock through a domestic Ccorporation in certain circumstances if,absent such attribution, the stock of aPFIC would not be treated as owned byany United States person.

c. Revisions to 2013 TemporaryRegulations

To address this concern, the finalregulations include a non-duplicationrule. Specifically, the final regulationsprovide under § 1.1291–1(b)(8)(ii)(C)(1)that, solely for purposes of determiningwhether a person owns 50 percent or morein value of the stock of a foreign corpo-ration that is not a PFIC under § 1.1291–1(b)(8)(ii)(A), a person who directly orindirectly owns 50 percent or more invalue of the stock of a domestic corpora-tion is considered to own a proportionateamount (by value) of any stock owneddirectly or indirectly by the domestic cor-poration. However, the non-duplicationrule in § 1.1291–1(b)(8)(ii)(C)(2) statesthat a United States person will not betreated, as a result of applying § 1.1291–1(b)(8)(ii)(C)(1), as owning (other thanfor purposes of determining whether aperson satisfies the ownership threshold of§ 1.1291–1(b)(8)(ii)(A)) stock of a PFICthat is directly owned or consideredowned indirectly under § 1.1291–1(b)(8)by another United States person (deter-mined without regard to § 1.1291–1(b)(8)(ii)(C)(1)).

Applying the non-duplication rule tothe example above, to the extent that the

51 shares of PFIC stock are indirectlyowned by DC (a United States person)under § 1.1291–1(b)(8)(ii)(A), thoseshares are not also treated as indirectlyowned by A (other than for purposes ofdetermining whether A satisfies the own-ership threshold of § 1.1291–1(b)(8)(ii)(A)). Only the remaining 49 shares ofPFIC stock are considered to be indirectlyowned by A.

d. Additional Revisions to 2013Temporary Regulations

Lastly, the final regulations make twoadditional clarifications with respect tothis rule. First, the final regulations clar-ify, under § 1.1291–1(b)(8)(ii)(C)(3), thatthe ownership rule of § 1.1291–1(b)(8)(ii)(C)(1) does not apply to stockowned directly or indirectly by an S cor-poration; rather, the indirect ownershiprule under § 1.1291–1(b)(8)(iii)(B) ap-plies in those instances. Second, the finalregulations clarify that the attribution rulein § 1.1291–1(b)(8)(ii)(C) applies to allPFICs and not only section 1291 funds, inorder to ensure that United States personswho are treated as indirect shareholders ofPFICs are permitted to make qualifiedelecting fund elections under section1295.

B. Exceptions to Section 1298(f)Reporting

A number of comments requested thatthe final regulations expand the excep-tions to section 1298(f) reporting providedin the 2013 temporary regulations or addnew exceptions.

1. Exception for PFIC stock that ismarked to market under a non-section1296 MTM provision announced inNotice 2014–51

Two comments requested an exceptionto section 1298(f) reporting for PFICstock that is marked to market under aprovision of chapter 1 of the Code otherthan section 1296 (a non-section 1296MTM provision), such as section 475(f).In response to these comments, the Trea-sury Department and the IRS issued No-tice 2014–51, which announced that theregulations under section 1298 would beamended to provide that United States

persons that own stock in a PFIC that ismarked to market under a non-section1296 MTM regime generally are not sub-ject to section 1298(f) reporting. In addi-tion, the notice states that the regulationswould provide that a shareholder’s PFICstock that is marked to market under anon-section 1296 MTM provision is nottaken into account in determining whetherthe shareholder qualifies for the excep-tions from reporting set forth in § 1.1298–1T(c)(2)(i)(A)(1) or (c)(2)(iii), which gen-erally exempt certain shareholders fromcertain section 1298(f) reporting require-ments when their aggregate PFIC hold-ings do not exceed $25,000 (or, $50,000in the case of a shareholder that files ajoint return). Notice 2014–51 states thatthe regulations that incorporate the guid-ance described in the notice would beeffective for taxable years of shareholdersending on or after December 31, 2013.

The final regulations, in accordancewith Notice 2014–51, add § 1.1298–1(c)(3), which provides that United Statespersons that own PFIC stock that ismarked to market under a non-section1296 MTM provision are not subject tosection 1298(f) reporting unless they aresubject to section 1291 under the coordi-nation rule in § 1.1291–1(c)(4)(ii). Gener-ally, under § 1.1291–1(c)(4)(ii), when aUnited States person’s PFIC stock ismarked to market under a non-section1296 MTM provision in a taxable yearafter the year in which the United Statesperson acquired the stock, the UnitedStates person is subject to section 1291 forthe first taxable year in which the UnitedStates person marks to market the PFICstock. Thus, the United States person issubject to section 1291 with respect to anyunrealized gain in the stock as of the lastday of the first taxable year in which thestock is marked to market, as if the persondisposed of the stock on that day. See§ 1.1291–1(c)(4)(ii) and § 1.1296–1(i)(2)and (3).

Also consistent with Notice 2014–51,the final regulations add § 1.1298–1(c)(2)(ii)(C), pursuant to which a UnitedStates person’s PFIC stock that is marked tomarket under a non-section 1296 MTM pro-vision is not taken into account in determin-ing whether the person qualifies for theexceptions from section 1298(f) reportingset forth in § 1.1298–1(c)(2)(i)(A)(1) or


(c)(2)(iii), provided that the rules of§ 1.1296–1(i)(2) and (3) do not apply withrespect to the PFIC stock pursuant to§ 1.1291–1(c)(4)(ii) for the taxable year.See Section B.7 of this preamble for a de-scription of these exceptions.

2. Exception for certain domesticpartnerships

A comment requested that the finalregulations add a new exception from thesection 1298(f) filing requirements for do-mestic partnerships in which all of thepartners are tax-exempt organizations (orother partnerships, all of the partners ofwhich are tax-exempt organizations) thatare not subject to the PFIC rules withrespect to a PFIC held by the partnershipbecause any income derived with respectto the PFIC would not be taxable to thetax-exempt partners under subchapter F ofSubtitle A of the Code. The commentpointed out that a tax-exempt organizationis subject to section 1298(f) reporting withrespect to PFIC stock under § 1.1298–1(c)(1) only if the income derived by theorganization with respect to the PFICstock would be taxable to the organizationunder subchapter F of Subtitle A of theCode. However, under the 2013 tempo-rary regulations, a domestic partnership(such as a domestic partnership that ex-clusively pools the funds of tax-exemptorganizations to invest in PFICs) is re-quired to file a Form 8621 with respect toPFIC stock even when none of its partnersare subject to the PFIC rules with respectto the PFIC stock.

Requiring reporting under section1298(f) by a domestic partnership whennone of its direct and indirect owners aresubject to the PFIC rules may result inundue compliance costs and burdens. Ac-cordingly, consistent with the exception in§ 1.1298–1(c)(1), the final regulationsadopt and expand upon this comment andprovide a final rule in § 1.1298–1(c)(6)that exempts a domestic partnership fromsection 1298(f) reporting with respect toan interest in a PFIC for a taxable yearwhen none of its direct or indirect partnersare required to file Form 8621 (or succes-sor form) with respect to the PFIC interestunder section 1298(f) and these regula-tions because the partners are not subjectto the PFIC rules.

Thus, for example, if all the partners ofa domestic partnership are tax-exempt or-ganizations exempt from PFIC taxationunder § 1.1291–1(e) with respect to PFICstock held by the partnership, and accord-ingly are exempt from reporting pursuantto § 1.1298–1(c)(1), the partnership, inturn, is exempt from filing Form 8621under section 1298(f) with respect to thePFIC stock held by the partnership. Like-wise, if all the partners of a domesticpartnership are foreign corporations thatare not considered to be shareholders un-der § 1.1291–1(b)(7) of PFIC stock heldby the partnership, and no United Statesperson is an indirect shareholder of thePFIC stock under § 1.1291–1(b)(8), thepartnership, in turn, is exempt from filingForm 8621 under section 1298(f) with re-spect to the PFIC stock held by the part-nership.

In contrast, a domestic partnership isnot exempt from filing Form 8621 under§ 1.1298–1(c)(6) with respect to stock itholds in a section 1291 fund when someor all of its partners are exempt from filingForm 8621 with respect to that stock butotherwise would be subject to tax on dis-tributions on, or dispositions of, thatstock. PFIC information reporting by thedomestic partnership in these circum-stances is appropriate because it furthersPFIC tax compliance and enforcement.

3. Exception for PFIC stock heldthrough certain foreign pension fundsthat are covered by a U.S. income taxtreaty

In general, § 1.1298–1T(b)(3)(ii) ex-empts a United States person from section1298(f) reporting with respect to PFICstock that is owned by the United Statesperson through a foreign trust that is aforeign pension fund operated principallyto provide pension or retirement benefits,when, pursuant to the provisions of a U.S.income tax treaty, the income earned bythe pension fund may be taxed as theincome of the United States person onlywhen, and to the extent, the income is paidto, or for the benefit of, the United Statesperson.

As a threshold matter, this rule appliesonly when the United States person ownsthe PFIC through a foreign pension fundthat is treated as a foreign trust under

section 7701(a)(31)(B). However, the ap-plicable provisions of U.S. income taxtreaties apply generally to foreign pensionfunds, regardless of whether the foreignpension fund is treated as a trust for U.S.income tax purposes.

The Treasury Department and the IRShave concluded that the treaty-based ex-ception in § 1.1298–1T(b)(3)(ii) shouldbe expanded to apply to PFICs held byUnited States persons through all applica-ble foreign pension funds (or equivalents,such as exempt pension trusts or pensionschemes referred to in certain U.S. incometax treaties), regardless of their entity clas-sification for U.S. income tax purposes.Accordingly, the final regulations revisethe treaty-based exception for PFIC stockheld by a United States person throughcertain foreign pension funds under§ 1.1298–1T(b)(3)(ii) to eliminate the re-quirement that the foreign pension fund betreated as a foreign trust under section7701(a)(31)(B). The final rule, which isrenumbered § 1.1298–1(c)(4), clarifiesthat a foreign pension fund (or equivalent)covered by this exception may be any typeof arrangement, including but not limitedto one of the arrangements listed in§ 1.1298–1(c)(4). The final rule also ap-plies in the case of an income tax treatythat provides the relevant benefit by elec-tion (or other procedure), such as underparagraph 7 of Article 18 of the U.S.-Canada income tax treaty, to the extentthat the election is in effect (or other pro-cedure properly satisfied).

4. Exception for dual resident taxpayers

A comment requested that an excep-tion from the section 1298(f) filing re-quirements be added for dual resident tax-payers who are treated as residents ofanother country (treaty country) pursuantto an income tax treaty between theUnited States and the treaty country. Ingeneral, a “dual resident taxpayer” is anindividual who is considered a resident ofthe United States under the Code, and isalso considered a resident of a treatycountry under the treaty country’s internallaws. § 301.7701(b)–7(a)(1). Certain U.S.income tax treaties contain provisions thatresolve the conflicting claims of residenceby both countries (tie-breaker rules), pur-suant to which dual resident taxpayers are


treated as residents of only one countryfor purposes of income taxation. A dualresident taxpayer may claim the benefit oftreatment as a resident of a treaty countryfor U.S. income tax purposes under a tie-breaker rule of an applicable treaty provi-sion by timely filing Form 8833, “Treaty-Based Return Position Disclosure UnderSection 6114 or 7701(b),” with an appro-priate income tax return, such as Form1040NR, “U.S. Nonresident Alien IncomeTax Return.” § 301.7701(b)–7(b) and (c).A dual resident taxpayer who properlyclaims this benefit is taxed as a nonresi-dent alien (as defined in section 7701(b)(1)(B)) for U.S. income tax purposes.

Nonresident aliens are not subject totax under the PFIC provisions (sections1291 through 1298) because the PFICrules apply only to “United States per-sons,” and nonresident aliens are notUnited States persons within the meaningof section 7701(a)(30). However, dualresident taxpayers treated as residents of atreaty country for U.S. income tax pur-poses generally are treated as UnitedStates residents under the Code for pur-poses other than the computation of theirincome tax liability. § 301.7701(b)–7(a)(3). Accordingly, dual resident tax-payers who are treated as residents of atreaty country under a tie-breaker rule andwho own PFICs are subject to the section1298(f) reporting rules set forth in the2013 temporary regulations even thoughthey are not subject to tax under the PFICprovisions.

The requirement to file Form 8621 un-der section 1298(f) increases taxpayerawareness of, and compliance with, thePFIC rules. However, because dual resi-dent taxpayers treated as nonresidentaliens for purposes of computing theirU.S. tax liability are not subject to taxunder the PFIC rules, section 1298(f) re-porting by these dual resident taxpayers isnot essential to the enforcement of thePFIC provisions. Thus, the Treasury De-partment and the IRS have determinedthat it is appropriate to provide an excep-tion from the section 1298(f) reportingrules for dual resident taxpayers who aretreated as residents of a treaty country,and, accordingly, not subject to tax underthe PFIC provisions.

Accordingly, the final regulations add§ 1.1298–1(c)(5), which sets forth an ex-

ception from section 1298(f) reporting fora dual resident taxpayer for a taxable year,or the portion of a taxable year, duringwhich the dual resident taxpayer deter-mines any U.S. income tax liability as anonresident alien under § 301.7701(b)–7,and complies with the filing requirementsof § 301.7701(b)–7(b) and (c) and, if ap-plicable, § 1.6012–1(b)(2)(ii)(b) (applica-ble when the dual resident taxpayer istreated as a resident of the treaty countryon the last day of the taxable year), or§ 1.6012–1(b)(2)(ii)(a) (applicable whenthe dual resident taxpayer is treated as aresident of the United States on the lastday of the taxable year). This new section1298(f) reporting exception is consistentwith § 1.6038D–2(e), which generally ex-empts a dual resident taxpayer who istaxed as a nonresident alien from section6038D reporting for a taxable year, or theportion of a taxable year, during which thetaxpayer is treated as a nonresident alienand properly files Form 8833.

5. Exception for certain PFIC stock heldfor a period of 30 days or less

Under the 2013 temporary regulations,a shareholder who owns stock in a section1291 fund for only a short period of timeduring a year, and does not recognize anexcess distribution (or gain treated as anexcess distribution) with respect to thesection 1291 fund during the year maystill have a filing obligation under section1298(f). Assume, for example, that duringa shareholder’s taxable year, its section1291 fund (upper-tier PFIC) acquires allof the stock of another section 1291 fund(lower-tier PFIC), which is liquidated intothe upper-tier PFIC a few days after it isacquired. The lower-tier PFIC does notmake any distributions to the upper-tierPFIC before the liquidation, and theupper-tier PFIC does not recognize anygain upon the liquidation of the lower-tierPFIC. On the last day of its taxable year,the shareholder owns PFIC stock with avalue of more than $25,000, and thus theexception in § 1.1298–1T(c)(2) is not ap-plicable. (See Section B.7 of this pream-ble for an explanation of the reportingexception in § 1.1298–1T(c)(2).) Accord-ingly, under the 2013 temporary regula-tions, the shareholder is required to reportits ownership in the lower-tier PFIC, even

though it only owned the PFIC for a fewdays during the year and did not recognizeany income with respect to the PFIC.

The Treasury Department and the IRShave concluded that compliance with, andenforcement of, the PFIC regime wouldnot be adversely impacted by allowing areporting exception for transitory owner-ship of section 1291 funds when there isno taxation under section 1291 with re-spect to the short period of ownership.Thus, the final regulations provide an ex-ception for section 1298(f) reporting forcertain shareholders with respect to PFICsthat were owned for a short period of timeduring which no PFIC taxation was im-posed on the shareholders. Specifically,under § 1.1298–1(c)(7), a shareholder isnot required to file a Form 8621 undersection 1298(f) with respect to stock of asection 1291 fund that it acquired eitherduring its taxable year or the immediatelypreceding year, when the shareholder (i)does not own any stock of the section1291 fund for more than 30 days duringthe period beginning 29 days before thefirst day of the shareholder’s taxable yearand ending 29 days after the close of theshareholder’s taxable year and (ii) did notreceive an excess distribution (includinggain treated as an excess distribution) withrespect to the section 1291 fund.

6. Exception for certain bona fide residentsof U.S. territories

A bona fide resident (within the mean-ing of section 937(a)) of a possession ofthe United States (U.S. territories)(namely, American Samoa, Guam, theNorthern Mariana Islands, Puerto Rico,and the United States Virgin Islands) mayinclude an individual who is also a UnitedStates person, and thus the bona fide res-ident may be a shareholder of a PFIC.

Under the 2013 temporary regulations,the general section 1298(f) reporting re-quirements in § 1.1298–1T(b)(1) applyregardless of whether a shareholder is re-quired to file a U.S. income tax return. Asa result, under the 2013 temporary regu-lations, bona fide residents of U.S. terri-tories who were shareholders of PFICswere subject to the section 1298(f) filingrequirements set forth in the 2013 tempo-rary regulations even when they were notrequired to file a U.S. income tax return.


As described in greater detail in this Sec-tion B.6, the final regulations change thisresult for bona fide residents of Guam, theNorthern Mariana Islands, and the UnitedStates Virgin Islands and, as provided in§ 1.1298–1(h)(1), the final regulations ap-ply to taxable years ending on or after theissuance of the 2013 temporary regulations.

Three of the five U.S. territories(Guam, the Northern Mariana Islands, andthe United States Virgin Islands) have amirror code system of taxation, whichmeans that their income tax laws gener-ally are identical to the Code (except forthe substitution of the name of the rele-vant territory for the term “United States,”where appropriate). Bona fide residents ofU.S. territories that are mirror code juris-dictions have no income tax obligation (orrelated filing obligation) with the UnitedStates provided, generally, that they prop-erly report income and fully pay their in-come tax liability to the tax administrationof their respective U.S. territory. See sec-tions 932 and 935. Thus, for example, abona fide resident of Guam who is ashareholder of a PFIC would generally nothave a U.S. income tax obligation even ina year when the shareholder is treated asreceiving an excess distribution (or recog-nizing gain treated as an excess distribu-tion) with respect to the PFIC.

Bona fide residents of non-mirror codejurisdictions (American Samoa and PuertoRico) generally exclude territory-sourceincome from U.S. federal gross incomeunder sections 931 and 933, respectively.(American Samoa currently is the onlyterritory to which section 931 applies be-cause it is the only territory that has en-tered into an implementing agreement un-der sections 1271(b) and 1277(b) of theTax Reform Act of 1986.) However, un-like mirror code jurisdictions, these bonafide residents generally are subject to U.S.income taxation, and have a related in-come tax return filing requirement withthe United States, to the extent they havenon-territory-source income or incomefrom amounts paid for services performedas an employee of the United States or anyagency thereof. See sections 931(a) and(d) and 933. Further, under the 1992 pro-posed regulations, certain excess distribu-tions (or gains treated as excess distribu-tions) from a PFIC would be exempt fromtaxation with respect to a shareholder who

is a bona fide resident of Puerto Rico if theamounts distributed were derived fromsources in Puerto Rico. Section 1.1291–1(f) of the 1992 proposed regulations. Ac-cordingly, for example, if a bona fide res-ident of Puerto Rico is a shareholder of aPFIC and is treated as receiving an ex-cess distribution (or recognizing gaintreated as an excess distribution) withrespect to the PFIC that is from sourcesoutside of Puerto Rico, such shareholderwould be subject to U.S. income taxunder the PFIC provisions with respectto such amounts.

The Treasury Department and the IRShave concluded that relieving section1298(f) reporting for PFIC stock held byan individual who is a bona fide residentof a U.S. territory that is a mirror codejurisdiction who is not required to file aU.S. income tax return for one or moretaxable years would not adversely impacttax enforcement efforts related to PFICs.This is because such individuals are notsubject to U.S. income tax in such years,given that they have properly reported in-come and fully paid their income tax lia-bility to the tax administration of theirrespective U.S. territory, and it is unlikelysuch individuals will ever be subject to taxunder the PFIC provisions in the yearsthey receive excess distributions (or rec-ognize gain treated as excess distribu-tions). As a result, these final regulationsadd § 1.1298–1(c)(8) to provide an excep-tion from reporting under section 1298(f)for a taxable year in which the individualis a bona fide resident of Guam, the North-ern Mariana Islands, or the United StatesVirgin Islands and is not required to file aU.S. income tax return.

However, no exception from reportingis provided with respect to bona fide res-idents of Puerto Rico and American Sa-moa. Bona fide residents of Puerto Ricoand American Samoa who are not re-quired to file U.S. income tax returns in agiven year may still be subject to taxunder the PFIC provisions if they areshareholders of a PFIC and receive ex-cess distributions (or recognize gaintreated as excess distributions) in a lateryear. Thus, PFIC information reportingby these individuals can reasonably beexpected to further PFIC tax complianceand enforcement.

7. $25,000 and $5,000 exceptions

Under § 1.1298–1T(c)(2)(i), a share-holder generally is not required to fileForm 8621 with respect to a section 1291fund when the shareholder is not treatedas receiving an excess distribution (or rec-ognizing gain treated as an excess distri-bution) with respect to the section 1291fund stock, and, as of the last day of theshareholder’s taxable year, either thevalue of all PFIC stock considered ownedby the shareholder is $25,000 (or $50,000for shareholders that file a joint return) orless, or, if the stock of the section 1291fund is owned indirectly, the value of theindirectly owned stock is $5,000 or less.Stock in a PFIC that is indirectly ownedthrough another PFIC or United Statesperson that is a shareholder of the PFIC isnot taken into account in determining ifthe $25,000 (or $50,000 for joint returns)threshold is met. § 1.1298–1T(c)(2)(ii).

A comment generally requested thatthe reporting exception thresholds in§ 1.1298–1T(c)(2)(i) be increased forU.S. individuals living abroad. The appar-ent concern underlying the comment is thecommenter’s view that such persons oftenare not aware of the PFIC provisions. TheTreasury Department and the IRS havedetermined that adopting an exception tothe reporting requirements on this basiswould adversely affect compliance with,and enforcement of, the PFIC provisions,because such individuals remain subjectto tax under section 1291 regardless of thevalue of their PFIC stock, and a benefit ofrequiring reporting with respect to a sec-tion 1291 fund in a year in which a share-holder is not subject to tax under section1291 is to enhance the shareholder’sawareness of the PFIC requirements withrespect to the section 1291 fund. TheTreasury Department and the IRS pro-posed the dollar amounts for the reportingexception thresholds in the 2013 tempo-rary regulations in order to balance ad-ministrative burdens with compliance andenforcement concerns. No commentswere submitted that recommended a spe-cific higher dollar amount or that provideda basis, consistent with the purposes of thePFIC provisions, for increasing the mon-etary thresholds. Accordingly, the finalregulations do not increase the monetarythresholds for these exceptions.


A separate comment requested that thereporting exceptions under § 1.1298–1T(c)(2) be expanded to apply when aUnited States person recognizes an excessdistribution under section 1291 in a tax-able year with respect to one or morePFICs, to the extent the PFICs are indi-rectly held through domestic pass-throughentities and the total excess distributionincome from the PFICs in the taxable yearis less than $1,000, indexed for inflation.The comment explained that many UnitedStates persons hold indirect interests insection 1291 funds, particularly throughpartnerships, that generate only smallamounts of excess distribution income,and exempting reporting for these PFICshareholders would simplify PFIC report-ing compliance. However, the section1291 rules apply when a PFIC shareholderreceives (or is treated as receiving) anexcess distribution, regardless of the dol-lar amount of the excess distribution. Af-ter consideration of this comment, theTreasury Department and the IRS con-cluded that the request should not be ad-opted because of the potential for such areporting exception to reduce compliancewith the substantive section 1291 rules.

C. Manner of Filing Form 8621

1. Filing Form 8621 when a shareholderis not otherwise obligated to file a return

Section 1.1298–1T(d) generally pro-vides that a United States person required tofile Form 8621 under section 1298(f) withrespect to a PFIC for a taxable year mustattach the form to the person’s U.S. incometax return (or information return, if applica-ble) for the relevant taxable year. The in-structions for Form 8621 further providethat a United States person who is requiredto file Form 8621 for a taxable year in whichthe person does not file an income tax return(or other return) must send the Form 8621 tothe IRS at a mailing addressed designated inthe instructions.

These final regulations clarify how aUnited States person files a Form 8621 (orsuccessor form) when the United Statesperson is not otherwise required to file aU.S. income tax return (or informationreturn, if applicable). Section 1.1298–1(d)of the final regulations states that a UnitedStates person that is not otherwise re-

quired to file a U.S. income tax returnmust file the Form 8621 (or successorform) in accordance with the instructionsfor the form.

2. Protective filing procedure for Form8621

A comment requested that the finalregulations allow a “protective” Form8621 to be filed under section 1298(f)with respect to a foreign corporation whena shareholder is unsure of its PFIC statusdue to factors beyond the control of theshareholder that prevent access to thebooks and records of the corporation nec-essary to make a PFIC determination. Thepurpose of the protective filing is to deferany potential section 1298(f) filing re-quirements so that the assessment periodfor the shareholder’s entire return undersection 6501(c)(8) would not be sus-pended if the foreign corporation is sub-sequently determined to have been a PFICin the year to which the protective filingrelates. The comment proposed that if theforeign corporation subsequently is deter-mined to be a PFIC for a taxable year forwhich the protective filing was made, theshareholder would be subject to PFIC tax-ation in that year, and thus would be re-quired to file Form 8621 for that year.

The failure to file Form 8621 to prop-erly report PFIC information under sec-tion 1298(f) for a taxable year suspendsthe period of limitation on assessment un-der section 6501(c)(8)(A) with respect toany tax return, event, or period to whichthe information relates until three yearsafter the information is reported. How-ever, if the failure to file the information isdue to reasonable cause and not willfulneglect, the period of limitation on assess-ment under section 6501(c)(8)(B) is sus-pended only with respect to items relatedto such failure. The Treasury Departmentand the IRS have concluded that the rea-sonable cause exception under section6501(c)(8)(B) provides appropriate relieffor a failure to file Form 8621. When ataxpayer can establish reasonable causefor a failure to file Form 8621, the assess-ment period is suspended only with re-spect to items related to the PFIC thatwere required to be reported on the Form8621. Thus, the recommendation to add a

protective filing rule to the final regula-tions is not adopted.

3. Consolidated filings for Forms 8621

Two comments requested that the finalregulations allow a United States personto file a consolidated Form 8621 thatwould include all of the person’s PFICsand relevant information on a supportingschedule attached to the Form 8621. Oneof the comments explained that foreigninvestment partnerships commonly holdmultiple PFIC investments, and, in suchcases, a United States person who is apartner in the foreign partnership is re-quired to file multiple Forms 8621 to re-port each underlying PFIC. This commentfurther noted that at least two commonlyused commercial tax return preparationproducts, as of 2012, did not allow forelectronic filing of a Form 1040 contain-ing more than five Forms 8621, which iscontrary to the IRS’s goal of increasinge-filings of tax returns.

The Treasury Department and the IRShave concluded that the expendituresneeded to redesign and reprogram theIRS’s processing system to gather, com-pile, and cross-reference information froma consolidated Form 8621 outweigh themarginal administrative burden for UnitedStates persons to file a separate Form8621 with respect to each of their PFICs.Accordingly, the final regulations do notadopt the comment to permit consolidatedfilings.

D. Form 5471 Filing Obligations

The final regulations adopt the 2013temporary regulations with respect tothe removal of the requirement under sec-tions 6038 and 6046 that certain UnitedStates persons file a statement in circum-stances where the United States personqualifies for the constructive ownershipexception, with certain clarifying changesto the language of the regulations.

Effect on Other Documents

Notice 2014–28, 2014–18 I.R.B. 990,is obsolete as of December 28, 2016.

Notice 2014–51, 2014–40 I.R.B. 594,is obsolete as of December 28, 2016.


Special Analyses

Certain IRS regulations, includingthese, are exempt from the requirementsof Executive Order 12866, as supple-mented and reaffirmed by Executive Or-der 13563. Therefore, a regulatory as-sessment is not required. Pursuant tosection 7805(f) of the Code, the noticeof proposed rulemaking preceding theseregulations was submitted to the ChiefCounsel for Advocacy of the SmallBusiness Administration for commenton its impact on small businesses.

It is hereby certified that the collec-tion of information in these regulationswill not have a significant economic im-pact on a substantial number of smallentities within the meaning of section601(6) of the Regulatory Flexibility Act(5 U.S.C. chapter 6). This certification isbased on the fact that most small entitiesdo not own an interest in a PFIC. More-over, those small entities that are share-holders of a PFIC generally either makea qualified electing fund election undersection 1295 or make a mark to marketelection under section 1296 and weretherefore required to file Form 8621with respect to the PFIC stock under therules that preceded the 2013 temporaryregulations. Thus, there is a limitedclass of small entities that are PFICshareholders that were required to fileForms 8621 under the 2013 temporaryregulations and that were not required todo so prior to the issuance of thoseregulations. The final regulations, ascompared to the 2013 temporary regu-lations, provide additional exceptionsthat exempt certain PFIC shareholders,some of which could include certainsmall entities, from filing Form 8621.Accordingly, the collection of informa-tion required by these final regulationsdoes not affect a substantial number ofsmall entities.

Further, the collection of informationrequired under these final regulationswill not have a significant economic im-pact on a substantial number of smallentities because neither the time nor thecosts necessary for shareholders to com-ply with the collection of informationrequirements is significant. Therefore, aRegulatory Flexibility Analysis under

the Regulatory Flexibility Act is not re-quired.

Drafting Information

The principal author of these regula-tions is Stephen M. Peng of the Office ofAssociate Chief Counsel (International).However, other personnel from the Trea-sury Department and the IRS participatedin their development.* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries for§§ 1.1291–1, 1.1291–9, and 1.1298–1,§ 1.1298–1, and § 1.6046–1 in numericalorder and revising the entry for § 1.6038–2to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Sections 1.1291–1, 1.1291–9, and

1.1298–1 also issued under 26 U.S.C.1298(a) and (g).

* * * * *Section 1.1298–1 also issued under 26

U.S.C. 1298(f).* * * * *Section 1.6038–2 also issued under 26

U.S.C. 6038(d).* * * * *Section 1.6046–1 also issued 26

U.S.C. 6046(b).* * * * *Par. 2. Section 1.1291–0 is amended

by:1. Revising the heading and entries for

§ 1.1291–1.2. Revising the entry for § 1.1291–

9(k).The revisions read as follows:

§ 1.1291–0 Treatment of shareholdersof certain passive foreign investmentcompanies; table of contents.

* * * * *

§ 1.1291–1 Taxation of U.S. personsthat are shareholders of section 1291funds.

(a) through (b)(2)(i) [Reserved](ii) Pedigreed QEF.(b)(2)(iii) and (iv) [Reserved](v) Section 1291 fund.(3) through (6) [Reserved](7) Shareholder.(8) Indirect shareholder.(i) In general.(ii) Ownership through a corporation.(A) Ownership through a non-PFIC

foreign corporation.(B) Ownership through a PFIC.(C) Ownership through a domestic cor-

poration.(iii) Ownership through pass-through

entities.(A) Partnerships.(B) S Corporations.(C) Estates and nongrantor trusts.(D) Grantor trusts.(iv) Examples.(c) Coordination with other PFIC rules.(1) and (2) [Reserved](3) Coordination with section 1296:

distributions and dispositions.(4) Coordination with mark to market

rules under chapter 1 of the InternalRevenue Code other than section 1296.

(i) In general.(ii) Coordination rule.(d) [Reserved].(e) Exempt organization as share-

holder.(1) In general.(2) Ownership through certain tax-

exempt organizations and accounts.(f) through (i) [Reserved](j) Applicability dates.

§ 1.1291–9 Deemed dividend election.

* * * * *(k) Effective/applicability dates.* * * * *

§ 1.1291–0T [Removed]

Par. 3. Section 1.1291–0T is removed.Par. 4. Section 1.1291–1 is amended

by:1. Revising the section heading.2. Adding paragraphs (b)(2)(ii) and (v),

(b)(7), and (b)(8).


3. Revising paragraphs (e)(2) and (j).The revisions and additions read as fol-

lows:

§ 1.1291–1 Taxation of U.S. personsthat are shareholders of section 1291funds.

* * * * *(b) * * *(2) * * *(ii) Pedigreed QEF. A PFIC is a ped-

igreed QEF with respect to a shareholderif the PFIC has been a QEF with respect tothe shareholder for all taxable years dur-ing which the corporation was a PFIC thatare included wholly or partly in the share-holder’s holding period of the PFIC stock.

* * * * *(v) Section 1291 fund. A PFIC is a

section 1291 fund with respect to a share-holder unless the PFIC is a pedigreed QEFwith respect to the shareholder or a sec-tion 1296 election is in effect with respectto the shareholder.

* * * * *(7) Shareholder. A shareholder is a

United States person that directly ownsstock of a PFIC (a direct shareholder), orthat is an indirect shareholder (as definedin section 1298(a) and paragraph (b)(8) ofthis section), except as provided in para-graph (e) of this section. For purposes ofsections 1291 and 1298, a domestic part-nership or S corporation (as defined insection 1361(a)(1)) is not treated as ashareholder of a PFIC except for pur-poses of any information reporting re-quirements, including the requirementto file an annual report under section1298(f). In addition, to the extent that aperson is treated under sections 671through 678 as the owner of a portion ofa domestic trust, the trust is not treatedas a shareholder of a PFIC with respectto PFIC stock held by that portion ofthe trust, except for purposes of theinformation reporting requirements of§ 1.1298 –1(b)(3)(i) (imposing an infor-mation reporting requirement on domes-tic liquidating trusts and fixed invest-ment trusts).

(8) Indirect shareholder—(i) In gen-eral. An indirect shareholder of a PFIC isa United States person that indirectlyowns stock of a PFIC. A person indirectlyowns stock when it is treated as owning

stock of a corporation owned by anotherperson, including another United Statesperson, under this paragraph (b)(8). In ap-plying this paragraph (b)(8), the determi-nation of a person’s indirect ownership ismade on the basis of all the facts andcircumstances in each case; the substancerather than the form of ownership is con-trolling, taking into account the purposesof sections 1291 through 1298.

(ii) Ownership through a corpora-tion—(A) Ownership through a non-PFIC foreign corporation. A person thatdirectly or indirectly owns 50 percent ormore in value of the stock of a foreigncorporation that is not a PFIC is consid-ered to own a proportionate amount (byvalue) of any stock owned directly or in-directly by the foreign corporation.

(B) Ownership through a PFIC. A per-son that directly or indirectly owns stockof a PFIC is considered to own a propor-tionate amount (by value) of any stockowned directly or indirectly by thePFIC. Section 1297(d) does not apply indetermining whether a corporation is aPFIC for purposes of this paragraph(b)(8)(ii)(B).

(C) Ownership through a domesticcorporation—(1) In general. Solely forpurposes of determining whether a personsatisfies the ownership threshold de-scribed in paragraph (b)(8)(ii)(A) of thissection, a person that directly or indirectlyowns 50 percent or more in value of thestock of a domestic corporation is consid-ered to own a proportionate amount (byvalue) of any stock owned directly or in-directly by the domestic corporation.

(2) Non-duplication. Paragraph (b)(8)(ii)(C)(1) of this section does not applyto treat a United States person as owning(other than for purposes of applying theownership threshold in paragraph (b)(8)(ii)(A) of this section) stock of a PFICthat is directly owned or consideredowned indirectly within the meaning ofthis paragraph (b)(8) by another UnitedStates person (determined without re-gard to paragraph (b)(8)(ii)(C)(1)). SeeExample 1 of paragraph (b)(8)(iv) ofthis section.

(3) S corporations. The 50 percent lim-itation in paragraph (b)(8)(ii)(C)(1) of thissection does not apply with respect tostock owned directly or indirectly by an Scorporation. See paragraph (b)(8)(iii)(B)

of this section for rules regarding stockowned directly or indirectly by an S cor-poration.

(iii) Ownership through pass-throughentities—(A) Partnerships. If a foreign ordomestic partnership directly or indirectlyowns stock, the partners of the partnershipare considered to own such stock propor-tionately in accordance with their owner-ship interests in the partnership.

(B) S Corporations. If an S corporationdirectly or indirectly owns stock, each Scorporation shareholder is considered toown such stock proportionately in accor-dance with the shareholder’s ownershipinterest in the S corporation.

(C) Estates and nongrantor trusts. If aforeign or domestic estate or nongrantortrust (other than an employees’ trust de-scribed in section 401(a) that is exemptfrom tax under section 501(a)) directly orindirectly owns stock, each beneficiary ofthe estate or trust is considered to own aproportionate amount of such stock. Forpurposes of this paragraph (b)(8)(iii)(C), anongrantor trust is any trust or portion ofa trust that is not treated as owned by oneor more persons under sections 671through 679.

(D) Grantor trusts. If a foreign or do-mestic trust directly or indirectly ownsstock, a person that is treated under sec-tions 671 through 679 as the owner of anyportion of the trust that holds an interest inthe stock is considered to own the interestin the stock held by that portion of thetrust.

(iv) Examples. The rules of this para-graph (b)(8) are illustrated by the follow-ing examples:

Example 1. A is a United States personwho owns 49 percent of the stock of FC1,a foreign corporation that is not a PFIC,and separately all the stock of DC, a do-mestic corporation that is not an S corpo-ration. DC, in turn, owns the remaining 51percent of the stock of FC1, and FC1owns 100 shares of stock in a PFIC that isnot a controlled foreign corporation(CFC) within the meaning of section957(a). DC is an indirect shareholder withrespect to 51 percent of the PFIC stockheld by FC1 under paragraph (b)(8)(ii)(A)of this section. In determining whether Aowns 50 percent or more of the value ofFC1 for purposes of applying paragraph(b)(8)(ii)(A) of this section, A is consid-


ered under paragraph (b)(8)(ii)(C)(1) ofthis section as indirectly owning all thestock of FC1 that DC directly owns. How-ever, because 51 shares of the PFIC stockheld by FC1 are indirectly owned by DCunder paragraph (b)(8)(ii)(A) of this sec-tion, pursuant to the limitation imposed byparagraph (b)(8)(ii)(C)(2) of this section,only the remaining 49 shares of the PFICstock are considered as indirectly ownedby A under paragraph (b)(8) of this sec-tion.* * * * *

(e) * * *(2) Ownership through certain tax-

exempt organizations and accounts. Tothe extent a United States person ownsstock of a PFIC through an organizationor account described in § 1.1298–1(c)(1),that person is not treated as a shareholderwith respect to the PFIC stock.* * * * *

(j) Applicability dates. (1) Paragraphs(c)(3) and (4) of this section apply fortaxable years beginning on or after May 3,2004.

(2) Paragraph (e)(1) of this section isapplicable on and after April 1, 1992.

(3) Paragraphs (b)(2)(ii), (b)(2)(v),(b)(7), (b)(8), and (e)(2) of this sectionapply to taxable years of shareholdersending on or after December 31, 2013.

§ 1.1291–1T [Removed]

Par. 5. Section 1.1291–1T is removed.Par. 6. Section 1.1291–9 is amended by

revising paragraphs (j)(3) and (k)(3) toread as follows:

§ 1.1291–9 Deemed dividend election.

* * * * *(j) * * *(3) A shareholder is a United States

person that is a shareholder as defined in§ 1.1291–1(b)(7) or an indirect share-holder as defined in § 1.1291–1(b)(8), ex-cept as provided in § 1.1291–1(e).

(k) * * *(3) Paragraph (j)(3) of this section ap-

plies to taxable years of shareholders end-ing on or after December 31, 2013.

§ 1.1291–9T [Removed]

Par. 7. Section 1.1291–9T is removed.

Par. 8. Section 1.1298–0 is amendedby:

1. Revising the section heading andintroductory text.

2. Adding a heading and entries for§ 1.1298–1.

The revisions and additions read as fol-lows:

§ 1.1298–0 Passive foreign investmentcompany – table of contents.

This section contains a listing of theparagraph headings for §§ 1.1298–1 and1.1298–3.

§ 1.1298–1 Section 1298(f) annualreporting requirements for United Statespersons that are shareholders of apassive foreign investment company.

(a) Overview.(b) Requirement to file.(1) General rule.(2) Additional requirement to file for

certain indirect shareholders.(i) General rule.(ii) Exception to indirect shareholder

reporting for certain QEF inclusions andMTM inclusions.

(3) Special rules for estates and trusts.(i) Domestic liquidating trusts and

fixed investment trusts.(ii) Beneficiaries of foreign estates and

trusts.(c) Exceptions.(1) Exception if shareholder is a tax-

exempt entity.(2) Exception if aggregate value of

shareholder’s PFIC stock is $25,000 orless, or value of shareholder’s indirectPFIC stock is $5,000 or less.

(i) General rule.(ii) Determination of the $25,000

threshold in the case of indirect owner-ship.

(iii) Application of the $25,000 excep-tion to shareholders who file a joint return.

(iv) Reliance on periodic account state-ments.

(3) Exception for PFIC stock markedto market under a provision other thansection 1296.

(4) Exception for PFIC stock heldthrough certain foreign pension funds.

(5) Exception for certain shareholderswho are dual resident taxpayers.

(i) General rule.

(ii) Dual resident taxpayer filing asnonresident alien at end of taxable year.

(iii) Dual resident taxpayer filing asresident alien at end of taxable year.

(6) Exception for certain domesticpartnerships.

(7) Exception for certain short-termownership of PFIC stock.

(8) Exception for certain bona fide res-idents of U.S. territories.

(9) Exception for taxable years endingbefore December 31, 2013.

(d) Time and manner for filing.(e) Separate annual report for each

PFIC.(1) General rule.(2) Special rule for shareholders who

file a joint return.(f) Coordination rule.(g) Examples.(h) Applicability date.* * * * *

§ 1.1298–0T [Removed]

Par. 9. Section 1.1298–0T is removed.Par. 10. Section 1.1298–1 is added to

read as follows:§ 1.1298–1 Section 1298(f) annual re-porting requirements for United Statespersons that are shareholders of a passiveforeign investment company.

(a) Overview. This section providesrules regarding the reporting requirementsunder section 1298(f) applicable to aUnited States person that is a shareholder(as defined in § 1.1291–1(b)(7)) of apassive foreign investment company(PFIC). Paragraph (b) of this sectionprovides the section 1298(f) annual re-porting requirements generally applica-ble to United States persons. Paragraph(c) of this section sets forth exceptionsto reporting for certain shareholders.Paragraph (d) of this section providesrules regarding the time and manner offiling the annual report. Paragraph (e) ofthis section sets forth the requirement tofile a separate annual report with respectto each PFIC. Paragraph (f) of this sec-tion coordinates the requirement to filean annual report under section 1298(f)with the requirement to file an annualreport under other provisions of the In-ternal Revenue Code (Code). Paragraph(g) of this section sets forth examplesillustrating the application of this sec-


tion. Paragraph (h) of this section pro-vides effective/applicability dates.

(b) Requirement to file—(1) Generalrule. Except as otherwise provided in thissection, a United States person that is ashareholder of a PFIC must complete andfile Form 8621, “Information Return by aShareholder of a Passive Foreign Invest-ment Company or Qualified ElectingFund” (or successor form), under section1298(f) and these regulations for the PFICif, during the shareholder’s taxable year,

the shareholder—(i) Directly owns stock of the PFIC;(ii) Is an indirect shareholder under

§ 1.1291–1(b)(8) that holds any interest inthe PFIC through one or more entities,each of which is foreign; or

(iii) Is an indirect shareholder under§ 1.1291–1(b)(8)(iii)(D) that is treated un-der sections 671 through 678 as the ownerof any portion of a trust described in sec-tion 7701(a)(30)(E) that owns, directly orindirectly through one or more entities,each of which is foreign, any interest inthe PFIC.

(2) Additional requirement to file forcertain indirect shareholders—(i) Gen-eral rule. Except as otherwise provided inthis section, an indirect shareholder thatowns an interest in a PFIC through one ormore United States persons also must fileForm 8621 (or successor form) with re-spect to the PFIC under section 1298(f)and these regulations if, during the indi-rect shareholder’s taxable year, the indi-rect shareholder is—

(A) Treated as receiving an excess dis-tribution (within the meaning of section1291(b)) with respect to the PFIC;

(B) Treated as recognizing gain that istreated as an excess distribution (undersection 1291(a)(2)) as a result of a dispo-sition of the PFIC;

(C) Required to include an amount inincome under section 1293(a) with respectto the PFIC (QEF inclusion);

(D) Required to include or deduct anamount under section 1296(a) with re-spect to the PFIC (MTM inclusion); or

(E) Required to report the status of asection 1294 election with respect to thePFIC (see § 1.1294–1T(h)).

(ii) Exception to indirect shareholderreporting for certain QEF inclusions andMTM inclusions. Except as otherwise pro-vided in this paragraph (b)(2)(ii), the filing

requirements under paragraph (b) of thissection do not apply with respect to aninterest in a PFIC owned by an indirectshareholder described in paragraph (b)(2)(i)(C) or (D) of this section if anothershareholder through which the indirectshareholder owns such interest in thePFIC timely files Form 8621 (or successorform) with respect to the PFIC under para-graph (b)(1) or (2) of this section. How-ever, the exception in this paragraph(b)(2)(ii) does not apply with respect to aPFIC owned by an indirect shareholderdescribed in paragraph (b)(2)(i)(C) of thissection that owns the PFIC through a do-mestic partnership or S corporation if thedomestic partnership or S corporationdoes not make a qualified electing fundelection with respect to the PFIC (see§ 1.1293–1(c)(2)(ii), addressing QEFstock transferred to a pass through entitythat does not make a section 1295 elec-tion).

(3) Special rules for estates andtrusts—(i) Domestic liquidating trustsand fixed investment trusts. A UnitedStates person that is treated under sections671 through 678 as the owner of anyportion of a trust described in section7701(a)(30)(E) that owns, directly or in-directly, any interest in a PFIC is notrequired under section 1298(f) and theseregulations to file Form 8621 (or succes-sor form) with respect to the PFIC if thetrust is either a domestic liquidating trustunder § 301.7701–4(d) of this chaptercreated pursuant to a court order issued ina bankruptcy under Chapter 7 (11 U.S.C.701 et seq.) of the Bankruptcy Code or aconfirmed plan under Chapter 11 (11U.S.C. 1101 et seq.) of the BankruptcyCode, or a widely held fixed investmenttrust under § 1.671–5. Such a trust itself istreated as a shareholder for purposes ofsection 1298(f) and these regulations, andthus, except as otherwise provided in thissection, the trust is required under section1298(f) and these regulations to file Form8621 (or successor form) with respect tothe PFIC as provided in paragraphs (b)(1)and (2) of this section.

(ii) Beneficiaries of foreign estates andtrusts. A United States person that is con-sidered to own an interest in a PFIC be-cause it is a beneficiary of an estate de-scribed in section 7701(a)(31)(A) or atrust described in section 7701(a)(31)(B)

that owns, directly or indirectly, stock of aPFIC, and that has not made an electionunder section 1295 or 1296 with respect tothe PFIC, is not required under section1298(f) and these regulations to file Form8621 (or successor form) with respect tothe stock of the PFIC that it is consideredto own through the estate or trust if, dur-ing the beneficiary’s taxable year, the ben-eficiary is not treated as receiving an ex-cess distribution (within the meaning ofsection 1291(b)) or as recognizing gainthat is treated as an excess distribution(under section 1291(a)(2)) with respect tothe stock.

(c) Exceptions—(1) Exception if share-holder is a tax-exempt entity. A share-holder that is an organization exempt un-der section 501(a) to the extent that it isdescribed in section 501(c), 501(d), or401(a), a state college or university de-scribed in section 511(a)(2)(B), a plan de-scribed in section 403(b) or 457(b), anindividual retirement plan or annuity asdefined in section 7701(a)(37), or a qual-ified tuition program described in section529, a qualified ABLE program describedin 529A, or a Coverdell education savingsaccount described in section 530 is notrequired under section 1298(f) and theseregulations to file Form 8621 (or succes-sor form) with respect to a PFIC unlessthe income derived with respect to thePFIC stock would be taxable to the orga-nization under subchapter F of Subtitle Aof the Code.

(2) Exception if aggregate value ofshareholder’s PFIC stock is $25,000 orless, or value of shareholder’s indirectPFIC stock is $5,000 or less—(i) Generalrule. A shareholder is not required undersection 1298(f) and these regulations tofile Form 8621 (or successor form) withrespect to a section 1291 fund (as definedin § 1.1291–1(b)(2)(v)) for a sharehold-er’s taxable year if—

(A) On the last day of the shareholder’staxable year:

(1) The value of all PFIC stockowned directly or indirectly under sec-tion 1298(a) and § 1.1291–1(b)(8) bythe shareholder is $25,000 or less; or

(2) The section 1291 fund stock is in-directly owned by the shareholder undersection 1298(a)(2)(B) and § 1.1291–1(b)(8)(ii)(B), and the value of the section


1291 fund stock indirectly owned by theshareholder is $5,000 or less;

(B) The shareholder is not treated asreceiving an excess distribution (withinthe meaning of section 1291(b)) with re-spect to the section 1291 fund during thetaxable year or as recognizing gain treatedas an excess distribution under section1291(a)(2) as the result of a disposition ofthe section 1291 fund during the taxableyear; and

(C) An election under section 1295 hasnot been made to treat the section 1291fund as a qualified electing fund with re-spect to the shareholder.

(ii) Determination of the $25,000threshold in the case of indirect owner-ship. For purposes of determining thevalue of stock held by a shareholder forpurposes of paragraph (c)(2)(i)(A)(1) ofthis section, the shareholder must take intoaccount the value of all PFIC stock owneddirectly or indirectly under section1298(a) and § 1.1291–1(b)(8), except forPFIC stock that is—

(A) Owned through another UnitedStates person that itself is a shareholder ofthe PFIC (including a domestic partner-ship or S corporation treated as a share-holder of a PFIC for purposes of informa-tion reporting requirements applicable to ashareholder);

(B) Owned through a PFIC under sec-tion 1298(a)(2)(B) and § 1.1291–1(b)(8)(ii)(B); or

(C) Marked to market for the share-holder’s taxable year under any provisionof chapter 1 of the Internal Revenue Codeother than section 1296, provided the rulesof § 1.1296–1(i)(2) and (3) do not applyto the shareholder with respect to thePFIC stock pursuant to § 1.1291–1(c)(4)(ii) for the shareholder’s taxableyear.

(iii) Application of the $25,000 excep-tion to shareholders who file a jointreturn. In the case of a joint return,the exception described in paragraph(c)(2)(i)(A)(1) of this section shall applyif the value of all PFIC stock owned di-rectly or indirectly (as determined undersection 1298(a), § 1.1291–1(b)(8), andparagraph (c)(2)(ii) of this section) byboth spouses is $50,000 or less, and all ofthe other applicable requirements of para-graph (c)(2) of this section are met.

(iv) Reliance on periodic accountstatements. A shareholder may rely uponperiodic account statements provided atleast annually to determine the value of aPFIC unless the shareholder has actualknowledge or reason to know based onreadily accessible information that thestatements do not reflect a reasonable es-timate of the PFIC’s value.

(3) Exception for PFIC stock markedto market under a provision other thansection 1296. A shareholder is not re-quired under section 1298(f) and theseregulations to file Form 8621 (or succes-sor form) with respect to a PFIC for anytaxable year in which the PFIC is markedto market under any provision of chapter 1of the Internal Revenue Code other thansection 1296, provided the rules of§ 1.1296–1(i)(2) and (3) do not apply tothe shareholder with respect to the PFICpursuant to § 1.1291–1(c)(4)(ii) for thetaxable year.

(4) Exception for PFIC stock heldthrough certain foreign pension funds. Ashareholder who is a member or benefi-ciary of, or participant in, a plan, trust,scheme, or other arrangement that istreated as a foreign pension fund (orequivalent) under an income tax treaty towhich the United States is a party and thatowns, directly or indirectly, an interest ina PFIC is not required under section1298(f) and these regulations to file Form8621 (or successor form) with respect tothe PFIC interest if, pursuant to the appli-cable income tax treaty, the incomeearned by the foreign pension fund maybe taxed as the income of the shareholderonly when and to the extent the income ispaid to, or for the benefit of, the share-holder.

(5) Exception for certain shareholderswho are dual resident taxpayers—(i)General rule. Subject to the provisions ofparagraphs (c)(5)(ii) and (iii) of this sec-tion, a shareholder is not required undersection 1298(f) and these regulations tofile Form 8621 (or successor form) withrespect to a PFIC for a taxable year, or theportion of a taxable year, in which theshareholder is a dual resident taxpayer(within the meaning of § 301.7701(b)–7(a)(1) of this chapter) who is treated as anonresident alien of the United States forpurposes of computing his or her United

States income tax liability pursuant to§ 301.7701(b)–7 of this chapter.

(ii) Dual resident taxpayer filing as anonresident alien at end of taxable year. Ifa shareholder to whom this paragraph(c)(5) applies computes his or her U.S.income tax liability as a nonresident alienon the last day of the taxable year andcomplies with the filing requirements of§ 301.7701(b)–7(b) and (c) of this chapterand, in particular, such individual timelyfiles with the Internal Revenue ServiceForm 1040NR, “U.S. Nonresident AlienIncome Tax Return,” or Form 1040NR–EZ, “U.S. Income Tax Return for CertainNonresident Aliens With No Depen-dents,” as applicable, and attaches theretoa properly completed Form 8833, “Treaty-Based Return Position Disclosure UnderSection 6114 or 7701(b),” and the sched-ule required by § 1.6012–1(b)(2)(ii)(b) (ifapplicable), such shareholder will not berequired under section 1298(f) and theseregulations to file Form 8621 (or succes-sor form) with respect to the taxable year,or the portion of the taxable year, coveredby Form 1040NR (or Form 1040NR–EZ).

(iii) Dual resident taxpayer filing asresident alien at end of taxable year. If ashareholder to whom this paragraph (c)(5)applies computes his or her U.S. incometax liability as a resident alien on the lastday of the taxable year and complies withthe filing requirements of § 1.6012–1(b)(2)(ii)(a) and, in particular such share-holder timely files with the Internal Rev-enue Service Form 1040, “U.S. IndividualIncome Tax Return,” or Form 1040EZ,“Income Tax Return for Single and JointFilers With No Dependents,” as applica-ble, and attaches a properly completedForm 8833 to the schedule required by§ 1.6012–1(b)(2)(ii)(a), such shareholderwill not be required under section 1298(f)and these regulations to file Form 8621 (orsuccessor form) with respect to the por-tion of the taxable year reflected on theschedule to such Form 1040 or Form1040EZ required by § 1.6012–1(b)(2)(ii)(a).

(6) Exception for certain domesticpartnerships. A shareholder that is a do-mestic partnership is not required undersection 1298(f) and these regulations tofile Form 8621 (or successor form) withrespect to a PFIC directly or indirectlyheld by the domestic partnership for a


taxable year if each person that directly orindirectly owns an interest in the domesticpartnership for its taxable year in which orwith which the taxable year of the part-nership ends is either—

(i) Not a shareholder of the PFIC asdefined by § 1.1291–1(b)(7);

(ii) A tax-exempt entity or account notrequired to file Form 8621 with respect tothe stock of the PFIC under paragraph(c)(1) of this section;

(iii) A dual resident taxpayer not re-quired to file Form 8621 with respect tothe stock of the PFIC under paragraph(c)(5) of this section; or

(iv) A domestic partnership not re-quired to file Form 8621 with respect tothe stock of the PFIC under this paragraph(c)(6).

(7) Exception for certain short-termownership of PFIC stock. A shareholder isnot required under section 1298(f) andthese regulations to file Form 8621 (orsuccessor form) with respect to a section1291 fund (as defined in § 1.1291–1(b)(2)(v)) for a taxable year when theshareholder—

(i) Acquires the section 1291 fund inthe taxable year or the immediately pre-ceding taxable year;

(ii) Is a shareholder of the section 1291fund for a total of 30 days or less duringthe period beginning 29 days before thefirst day of the shareholder’s taxable yearand ending 29 days after the close of theshareholder’s taxable year; and

(iii) Is not treated as receiving an ex-cess distribution (within the meaning ofsection 1291(b)) with respect to the sec-tion 1291 fund, including any gain recog-nized that is treated as an excess distribu-tion under section 1291(a)(2) as a result ofthe disposition of the section 1291 fund.

(8) Exception for certain bona fide res-idents of certain U.S. territories. A share-holder is not required under section1298(f) and these regulations to file Form8621 (or successor form) with respect to aPFIC for a taxable year when the share-holder—

(i) Is a bona fide resident (as defined bysection 937(a)) of Guam, the NorthernMariana Islands, or the United States Vir-gin Islands; and

(ii) Is not required to file an income taxreturn with the Internal Revenue Servicewith respect to such taxable year.

(9) Exception for taxable years endingbefore December 31, 2013. A UnitedStates person is not required under section1298(f) and these regulations to file anannual report with respect to a PFIC for ataxable year of the United States personending before December 31, 2013.

(d) Time and manner for filing. AUnited States person required under sec-tion 1298(f) and these regulations to fileForm 8621 (or successor form) with re-spect to a PFIC must attach the form toits Federal income tax return (or infor-mation return, if applicable) for the tax-able year to which the filing obligationrelates on or before the due date (includ-ing extensions) for the filing of the re-turn, or must separately file the form inaccordance with the instructions for theform when the United States person isnot required to file a Federal income taxreturn (or information return, if applica-ble) for the taxable year. In the case ofany failure to report information that isrequired to be reported pursuant to sec-tion 1298(f) and these regulations, thetime for assessment of tax will be ex-tended pursuant to section 6501(c)(8).

(e) Separate annual report for eachPFIC—(1) General rule. If a UnitedStates person is required under section1298(f) and these regulations to file Form8621 (or successor form) with respect tomore than one PFIC, the United Statesperson must file a separate Form 8621 (orsuccessor form) for each PFIC.

(2) Special rule for shareholders whofile a joint return. United States personsthat file a joint return may file a singleForm 8621 (or successor form) with re-spect to a PFIC in which they jointly orindividually own an interest.

(f) Coordination rule. A United Statesperson that is a shareholder of a PFICmay file a single Form 8621 (or succes-sor form) with respect to the PFIC thatcontains all of the information requiredto be reported pursuant to section1298(f) and these regulations and anyother information reporting require-ments or election rules under other pro-visions of the Code.

(g) Examples. The following examplesillustrate the rules of this section:

Example 1. General requirement to file. (i)Facts. In 2013, J, a United States citizen, directlyowns an interest in Partnership X, a domesticpartnership, which, in turn, owns an interest in A

Corp, which is a PFIC. In addition, J directly ownsan interest in Partnership Y, a foreign partnership,which, in turn, owns an interest in A Corp. NeitherJ nor Partnership X has made a qualified electingfund election under section 1295 or a mark tomarket election under section 1296 with respect toA Corp. As of the last day of 2013, the value ofPartnership X’s interest in A Corp is $200,000,and the value of J’s proportionate share of Part-nership Y’s interest in A Corp is $100,000. During2013, J is not treated as receiving an excess dis-tribution or recognizing gain treated as an excessdistribution with respect to A Corp. Partnership Xtimely files a Form 8621 under section 1298(f) andparagraph (b)(1) of this section with respect to ACorp for 2013.

(ii) Results. J is the first United States person inthe chain of ownership with respect to J’s interest inA Corp held through Partnership Y. Under paragraph(b)(1) of this section, J must file a Form 8621 undersection 1298(f) with respect to J’s interest in A Corpheld through Partnership Y because J is an indirectshareholder of A Corp under § 1.1291–1(b)(8) thatholds PFIC stock through a foreign entity (Partner-ship Y), and there are no other United States personsin the chain of ownership. The fact that PartnershipX filed a Form 8621 with respect to A Corp does notrelieve J of the obligation under paragraph (b)(1) ofthis section to file a Form 8621 with respect to J’sinterest in A Corp held through Partnership Y. J hasno filing obligation under section 1298(f) and para-graph (b)(2) of this section with respect to J’s pro-portionate share of Partnership X’s interest in ACorp.

Example 2. Application of the $25,000 exception.(i) Facts. In 2013, J, a United States citizen, directlyowns stock of A Corp, B Corp, and C Corp, all ofwhich were PFICs during 2013. As of the last day of2013, the value of J’s interests was $5,000 in ACorp, $10,000 in B Corp, and $4,000 in C Corp. Jtimely filed an election under section 1295 to treat ACorp as a qualified electing fund for the first year inwhich A Corp qualified as a PFIC, and a mark-to-market election under section 1296 with respect tothe stock of B Corp. J did not make a qualifiedelecting fund election under section 1295 or a markto market election under section 1296 with respect toC Corp. J did not receive an excess distribution orrecognize gain treated as an excess distribution inrespect of C Corp during 2013.

(ii) Results. Under paragraph (b)(1) of this sec-tion, J must file separate Forms 8621 with respect toA Corp and B Corp for 2013. However, J is notrequired to file a Form 8621 with respect to C Corpbecause J owns, in the aggregate, PFIC stock with avalue of less than $25,000 on the last day of J’staxable year, C Corp is not subject to a qualifiedelecting fund election or mark to market electionwith respect to J, and J did not receive an excessdistribution in respect of C Corp or recognize gaintreated as an excess distribution in respect of C Corpduring 2013. Therefore, J qualifies for the $25,000exception in paragraph (c)(2) of this section withrespect to C Corp.

Example 3. Application of the $25,000 excep-tion to indirect shareholder. (i) Facts. E, a UnitedStates citizen, directly owns an interest in Partner-ship X, a domestic partnership. Partnership X, in


turn, directly owns an interest in A Corp and BCorp, both of which are PFICs. Partnership Xtimely filed an election under section 1295 to treatB Corp as a qualified electing fund for the firstyear in which B Corp qualified as a PFIC. Inaddition, E directly owns an interest in C Corp,which is a PFIC. C Corp, in turn, owns an interestin D Corp, which is a PFIC. E has not made aqualified electing fund election under section 1295or a mark to market election under section 1296with respect to A Corp, C Corp, or D Corp. As ofthe last day of 2013, the value of Partnership X’sinterest in A Corp is $30,000, the value of Part-nership X’s interest in B Corp is $30,000, thevalue of E’s indirect interest in A Corp is $10,000,the value of E’s indirect interest in B Corp is$10,000, the value of E’s interest in C Corp is$20,000, and the value of C Corp’s interest in DCorp is $10,000. During 2013, E did not receivean excess distribution, or recognize gain treated asan excess distribution, with respect to A Corp, CCorp, or D Corp. Partnership X timely files Forms8621 under section 1298(f) and paragraph (b)(1)of this section with respect to A Corp and B Corpfor 2013.

(ii) Results. Under paragraph (b) of this section,E does not have to file a Form 8621 under section1298(f) and these regulations with respect to ACorp because E is not the United States personthat is at the lowest tier in the chain of ownershipwith respect to A Corp and E did not receive anexcess distribution or recognize gain treated as anexcess distribution with respect to A Corp. Fur-thermore, under paragraph (b)(2)(ii) of this sec-tion, E does not have to file a Form 8621 undersection 1298(f) and these regulations with respectto B Corp because Partnership X timely filed aForm 8621 with respect to B Corp. In addition,under paragraph (c)(2)(ii)(A) of this section, Edoes not take into account the value of A Corp andB Corp, which E owns through Partnership X, indetermining whether E qualifies for the $25,000exception. Further, under paragraph (c)(2)(ii)(B)of this section, E does not take into account thevalue of D Corp in determining whether E quali-fies for the $25,000 exception. Therefore, eventhough E is the United States person that is at thelowest tier in the chain of ownership withrespect to C Corp and D Corp, E does not have tofile a Form 8621 with respect to C Corp or DCorp because E qualifies for the $25,000 excep-tion set forth in paragraph (c)(2)(i)(A)(1) of thissection.

Example 4. Indirect shareholder’s requirementto file. (i) Facts. The facts are the same as in Exam-ple 3 of this paragraph (g), except that the value ofE’s interest in C Corp is $30,000 and the value of E’sproportionate share of C Corp’s interest in D Corp is$3,000.

(ii) Results. The results are the same as in Ex-ample 3 of this paragraph (g) with respect to Ehaving no requirement to file a Form 8621 undersection 1298(f) and these regulations with respect toA Corp and B Corp. However, under the facts in thisExample 4, E does not qualify for the $25,000 ex-ception under paragraph (c)(2)(i)(A)(1) of this sec-tion with respect to C Corp because the value of E’sinterest in C Corp is $30,000. Accordingly, E must

file a Form 8621 under section 1298(f) and theseregulations with respect to C Corp. However, E doesqualify for the $5,000 exception under paragraph(c)(2)(i)(A)(2) of this section with respect to D Corp,and thus does not have to file a Form 8621 withrespect to D Corp.

Example 5. Application of the domestic part-nership exception. (i) Facts. Tax Exempt Entity Aand Tax Exempt Entity B are both organizationsexempt under section 501(a) because they are de-scribed in section 501(c). Tax Exempt Entity Aand Tax Exempt Entity B own all the interests inPartnership X, a domestic partnership, which, inturn, owns, an interest in Partnership Y, also adomestic partnership. The remaining interests inPartnership Y are owned by F Corp, a foreigncorporation owned solely by individuals that arenot residents or citizens of the United States. Part-nership Y owns an interest in A Corp, which is aPFIC. Any income derived with respect to A Corpwould not be taxable to Tax Exempt Entity A orTax Exempt Entity B under subchapter F of Sub-title A of the Code. Tax Exempt Entity A, TaxExempt Entity B, Partnership X, and PartnershipY all are calendar year taxpayers.

(ii) Results. Under paragraph (c)(1) of this sec-tion, Tax Exempt Entity A and Tax Exempt EntityB do not have to file Form 8621 under section1298(f) and these regulations with respect to ACorp because neither entity would be subject totax under subchapter F of Subtitle A of the Codewith respect to income derived from A Corp. Inaddition, under paragraph (c)(6) of this section,neither Partnership X nor Partnership Y is re-quired to file Form 8621 under section 1298(f) andthese regulations with respect to A Corp becauseall of the direct and indirect interests in Partner-ship X and Partnership Y are owned by personsdescribed in paragraph (c)(1) of this section orpersons that are not a shareholder of A Corp asdefined by § 1.1291–1(b)(7).

(h) Applicability dates. (1) Except asprovided in paragraph (h)(2) of this sec-tion, this section applies to taxable yearsof shareholders ending on or after Decem-ber 31, 2013.

(2) Paragraph (c)(9) of this section ap-plies to taxable years of shareholders end-ing before December 31, 2013.

§ 1.1298–1T [Removed]

Par. 11. Section 1.1298–1T is re-moved.

Par. 12. Section 1.6038–2 is amendedby revising paragraphs (j)(3) and (m) toread as follows:

§ 1.6038–2 Information returns re-quired of United States persons with re-spect to annual accounting periods of cer-tain foreign corporations beginning afterDecember 31, 1962.* * * * *

(j) * * *

(3) Statement required. Any UnitedStates person required to furnish infor-mation under this section with his returnwho does not do so by reason of theprovisions of paragraph (j)(1) of thissection shall file a statement with hisincome tax return indicating that suchrequirement has been (or will be) satis-fied and identifying the return withwhich the information was or will befiled and the place of filing.* * * * *

(m) Applicability dates. Except as oth-erwise provided, this section applies withrespect to information for annual account-ing periods beginning on or after June 21,2006. Paragraphs (k)(1) and (5) Examples3 and 4 of this section apply June 21,2006. Paragraph (d) of this section appliesto taxable years ending after April 9,2008. Paragraph (j)(3) of this section ap-plies to returns filed on or after December31, 2013.

§ 1.6038–2T [Removed]


Par. 14. Section 1.6046–1 is amendedby revising paragraph (e)(5) and addingparagraph (l)(3) to read as follows:

§ 1.6046–1 Returns as to organiza-tions or reorganizations of foreign corpo-rations and as to acquisitions of theirstock.* * * * *

(e) * * *(5) Persons excepted from furnishing

items of information. Any person requiredto furnish any item of information underparagraph (b) or (c) of this section withrespect to a foreign corporation may, ifsuch item of information is furnished byanother person having an equal orgreater stock interest (measured in termsof either the total combined votingpower of all classes of stock of the for-eign corporation entitled to vote or thetotal value of the stock of the foreigncorporation) in such foreign corpora-tion, satisfy such requirement by filing astatement with his return on Form 5471indicating that such requirement hasbeen satisfied and identifying the returnin which such item of information wasincluded. This paragraph (e)(5) does notapply to persons excepted from filing a


return by reason of the provisions ofparagraph (e)(4) of this section.* * * * *

(l) * * *(3) Paragraph (e)(5) of this section ap-

plies to returns filed on or after December31, 2013. See paragraph (e)(5) of§ 1.6046–1, as contained in 26 CFR part 1revised as of April 1, 2012, for returnsfiled before December 31, 2013.

§ 1.6046–1T [Removed]


John Dalrymple,Deputy Commissioner for Services and

Enforcement.

Approved: December 13, 2016.

Mark D. Mazur,Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on December 27,2016, 8:45 a.m., and published in the issue of the FederalRegister for December 28, 2016, 81 F.R. 95459)


Part III. Administrative, Procedural, and MiscellaneousPer Capita Payments fromProceeds of Settlements ofIndian Tribal Trust Cases

Notice 2017–02

BACKGROUND

Notice 2013–1, 2013–3 IRB 281, pro-vides guidance on the federal tax treat-ment of per capita payments that mem-bers of Indian tribes receive fromproceeds of certain settlements of tribal

trust cases between the United Statesand those Indian tribes. Additionaltribes have settled tribal trust casesagainst the United States since publica-tion of Notice 2013–1. This notice pro-vides an updated Appendix that reflectsthe additional settlement agreements.

EFFECT ON OTHER DOCUMENTS

Notice 2013–1 Appendix is modifiedand superseded.

FURTHER INFORMATION

For further information regarding thisnotice, please contact Jon Damm at phonenumber (202) 317-8493 (not a toll-freenumber).

Appendix

Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases1. Assiniboine and Sioux Tribes of the Fort Peck Reservation2. Bad River Band of Lake Superior Chippewa Indians3. Blackfeet Tribe of the Blackfeet Indian Reservation4. Bois Forte Band of Chippewa5. Cachil Dehe Band of Wintun Indians of the Colusa Rancheria6. Chippewa Cree Tribe of the Rocky Boy’s Reservation7. Coeur d’Alene Tribe8. Confederated Salish and Kootenai Tribes9. Confederated Tribes of Siletz Indians

10. Confederated Tribes of the Colville Reservation11. Confederated Tribes of the Goshute Reservation12. Crow Creek Sioux Tribe13. Eastern Shawnee Tribe of Oklahoma14. Hualapai Indian Tribe15. Iowa Tribe of Kansas and Nebraska16. Kaibab Band of Paiute Indians of Arizona17. Kickapoo Tribe of Kansas18. Lac Courte Oreilles Band of Lake Superior Chippewa Indians19. Lac du Flambeau Band of Lake Superior Chippewa Indians20. Leech Lake Band of Ojibwe21. Lower Brule Sioux Tribe22. Makah Indian Tribe of the Makah Reservation23. Mescalero Apache Tribe24. Minnesota Chippewa Tribe25. Nez Perce Tribe26. Nooksack Indian Tribe27. Northern Cheyenne Tribe of Indians28. Omaha Tribe of Nebraska29. Passamaquoddy Tribe of Maine30. Pawnee Nation31. Prairie Band of Potawatomi Nation32. Pueblo of Zia33. Quechan Tribe of the Fort Yuma Reservation34. Red Cliff Band of Lake Superior Chippewa Indians35. Rincon Luiseño Band of Indians36. Rosebud Sioux Tribe37. Round Valley Indian Tribes38. Salt River Pima-Maricopa Indian Community39. Santee Sioux Tribe of Nebraska40. Sault Ste. Marie Tribe41. Shoshone-Bannock Tribes of the Fort Hall Reservation42. Soboba Band of Luiseno Indians


43. Spirit Lake Dakotah Nation44. Spokane Tribe of Indians45. Standing Rock Sioux Tribe46. Stillaguamish Tribe of Indians47. Summit Lake Paiute Tribe48. Swinomish Indian Tribal Community49. Te-Moak Tribe of Western Shoshone Indians50. Tohono O’odham Nation51. Tulalip Tribes52. Tule River Indian Tribe53. Ute Indian Tribe of the Uintah and Ouray Reservation54. Ute Mountain Ute Tribe55. Winnebago Tribe of Nebraska56. Qawalangin Tribe of Unalaska57. Tlingit & Haida Tribes of Alaska58. Northwestern Band of Shoshone Indians59. Hoopa Valley Tribe60. Ak-Chin Indian Community61. Oglala Sioux Tribe62. Yoruk Tribe63. Cheyenne River Sioux Tribe64. Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony65. Seminole Nation of Oklahoma66. Otoe-Missouria Tribe of Oklahoma67. Samish Indian Nation68. Tonkawa Tribe of Indians of Oklahoma69. Yakama Nation70. Miami Tribe of Oklahoma71. Shoshone Indian Tribe and the Northern Arapahoe Indian Tribe of the Wind River Reservation72. Pueblo of Laguna73. Navajo Nation74. Caddo Nation of Oklahoma75. Gros Ventre and Assiniboine Tribes of the Fort Belknap Indian Reservation76. Chickasaw Nation77. Choctaw Nation78. Klamath Tribe79. Skokomish Indian Tribe80. Quinault Indian Nation81. Southern Ute Indian Tribe82. Confederated Tribes of the Umatilla Indian Reservation83. White Earth Nation84. Kickapoo Tribe of Oklahoma85. Sisseton Wahpeton Oyate of the Lake Traverse Reservation86. Grand Traverse Band of Ottawa and Chippewa Indians87. Muscogee (Creek) Nation of Oklahoma88. Gila River Indian Community89. Aleut Community of St. Paul Island90. San Carlos Apache Tribe91. Comanche Nation92. Colorado River Indian Tribes93. Jicarilla Apache Nation94. Pueblo of Acoma95. Penobscot Indian Nation96. Seminole Tribe of Florida


Beginning of Constructionfor Sections 45 and 48

Notice 2017–04

SECTION 1. PURPOSE

Section 38 of the Internal Revenue Code(the Code) allows certain business creditsagainst the tax imposed by Chapter 1 of theCode. Among the credits allowed by § 38 isthe credit for renewable electricity produc-tion described in § 45(a). To qualify for therenewable electricity production tax credit,electricity must, among other things, be pro-duced by the taxpayer at a qualified facilityas defined in § 45(d). If the taxpayer makesan election under § 48(a)(5), the taxpayermay instead claim the investment tax creditwith respect to the facility.

On December 18, 2015, the ProtectingAmerican from Tax Hikes Act of 2015,Pub. L. No. 114–113, Div. Q, 129 Stat.2242 (the PATH Act), enacted amend-ments to the production tax credit under§ 45 (PTC) and the investment tax creditunder § 48 (ITC) for certain renewableenergy facilities. The PATH Act extendedthe PTC for two years with respect tocertain facilities the construction of whichbegins before January 1, 2017, and furtherextended the PTC for wind facilities theconstruction of which begins before Jan-uary 1, 2020. The PATH Act also modi-fied the PTC for wind facilities by provid-ing that the credit will phase out over thenext four years. Under § 45(b)(5) as mod-ified by the PATH Act, wind facilities theconstruction of which begins before Jan-uary 1, 2017 are eligible to receive 100percent of the PTC; wind facilities theconstruction of which begins after De-cember 31, 2016 and before January 1,2018 are eligible to receive 80 percent ofthe PTC; wind facilities the constructionof which begins after December 31, 2017and before January 1, 2019 are eligible toreceive 60 percent of the PTC; and windfacilities the construction of which beginsafter December 31, 2018 and before Jan-uary 1, 2020 are eligible to receive 40percent of the PTC. In addition, the PATHAct extended the election to claim the ITCin lieu of the PTC with respect to certainrenewable energy facilities if constructionof such facility begins before January 1,

2017 (or January 1, 2020 in the case ofwind facilities).

Similarly, the PATH Act also extendedand modified the ITC for solar energy facil-ities the construction of which begins beforeJanuary 1, 2022. The Treasury Departmentand the Internal Revenue Service (Service)anticipate issuing separate guidance ad-dressing the extension and modification ofthe ITC for solar energy facilities.

This notice updates and clarifies theguidance provided in Notice 2013–29,2013–1 C.B. 1085; Notice 2013–60,2013–2 C.B. 431; Notice 2014–46, 2014–2C.B. 520; Notice 2015–25, 2015–13 I.R.B.814; and Notice 2016–31, 2016–23 I.R.B.1025 (collectively “the prior IRS notices”).The Service will not issue private letter rul-ings to taxpayers regarding the applicationof this notice, the prior IRS notices, or thebeginning of construction requirement un-der §§ 45(d) and 48(a)(5).

SECTION 2. BACKGROUND

On June 6, 2016, the Treasury Depart-ment and the Service published Notice2016–31 to extend and modify the Con-tinuity Safe Harbor, as defined in section3.02 of Notice 2013–60, and to provideadditional guidance regarding the begin-ning of construction requirement. Notice2016–31 also clarifies the application ofthe Five Percent Safe Harbor, as definedin section 5 of Notice 2013–29, to retro-fitted renewable energy facilities.

After the publication of Notice 2016–31, the Treasury Department and the Ser-vice received requests for further clarifi-cation regarding the extension andmodification of the Continuity Safe Har-bor, the prohibition against combiningmethods by which to satisfy the beginningof construction requirement, and the coststhat may be included in the Five PercentSafe Harbor for retrofitted renewable en-ergy facilities. This notice modifies andclarifies Notice 2016–31. Except as oth-erwise specified in this notice, the guid-ance provided in the prior IRS noticescontinues to apply.

SECTION 3. EXTENSION ANDMODIFICATION OF THECONTINUITY SAFE HARBOR

Section 3.02 of Notice 2013–60 pro-vides a Continuity Safe Harbor that allows

a facility to be deemed to satisfy the Con-tinuous Construction Test, as defined insection 4.06 of Notice 2013–29 (for pur-poses of satisfying the Physical Work Testprovided in section 4 of Notice 2013–29),or the Continuous Efforts Test, as definedin section 5.02 of Notice 2013–29 (forpurposes of satisfying the Five PercentSafe Harbor), based on the date on whicha facility is placed in service. If a facilitydoes not satisfy the Continuity Safe Har-bor, whether the facility satisfies the Con-tinuous Construction or Continuous Ef-forts Tests is determined by the relevantfacts and circumstances.

Section 3 of Notice 2016–31 modifiesand extends the Continuity Safe Harborby providing that if a taxpayer places afacility in service by the later of (1) acalendar year that is no more than fourcalendar years after the calendar year dur-ing which construction of the facility be-gan or (2) December 31, 2016, the facilitywill be considered to satisfy the Continu-ity Safe Harbor.

This notice modifies the ContinuitySafe Harbor provided in section 3 of No-tice 2016–31 by providing that if a tax-payer places a facility in service by thelater of (1) a calendar year that is no morethan four calendar years after the calendaryear during which construction of the fa-cility began or (2) December 31, 2018, thefacility will be considered to satisfy theContinuity Safe Harbor. For example, ifconstruction begins on a facility on Janu-ary 15, 2013, and the facility is placed inservice by December 31, 2018, the facilitywill be considered to satisfy the Continu-ity Safe Harbor. Alternatively, if construc-tion begins on a facility on January 15,2016, and the facility is placed in serviceby December 31, 2020, the facility will beconsidered to satisfy the Continuity SafeHarbor.

SECTION 4. PROHIBITIONAGAINST COMBINING METHODSBY WHICH TO SATISFY THEBEGINNING OF CONSTRUCTIONREQUIREMENT

Section 4.01 of Notice 2016–31 pro-vides that a taxpayer may not rely uponthe Physical Work Test and the Five Per-cent Safe Harbor in alternating calendaryears to satisfy the beginning of construc-tion requirement or the Continuity Re-


quirement. For example, if a taxpayer per-forms physical work of a significantnature on a facility in 2015, and then paysor incurs five percent or more of the totalcost of the facility in 2016, the ContinuitySafe Harbor will be applied beginning in2015, not in 2016.

This notice modifies section 4.01 ofNotice 2016–31 by providing that thisrule applies to facilities the constructionof which begins after June 6, 2016 (thedate on which Notice 2016–31 was pub-lished in I.R.B. 2016–23).

SECTION 5. COSTS INCLUDED INTHE APPLICATION OF FIVEPERCENT SAFE HARBOR TORETROFITTED FACILITIES

Section 6.01 of Notice 2016–31 pro-vides that a facility may qualify as origi-nally placed in service even though it con-tains some used property, provided thefair market value of the used property isnot more than 20 percent of the facility’stotal value (the cost of the new propertyplus the value of the used property) (the80/20 Rule).

Section 6.02 of Notice 2016–31 pro-vides that to satisfy the beginning of con-struction requirement for §§ 45 and 48,the Five Percent Safe Harbor is appliedonly with respect to the cost of new prop-erty used to retrofit an existing facility.Therefore, only expenditures paid or in-curred that relate to new constructionshould be taken into account for purposesof the Five Percent Safe Harbor.

Section 5.01(1) of Notice 2013–29 pro-vides that for purposes of the Five PercentSafe Harbor, all costs properly included inthe depreciable basis of the facility aretaken into account to determine whetherthe Safe Harbor has been met. The totalcost of the facility does not include thecost of land or any property not integral tothe facility, as described in section 4.05(1)of Notice 2013–29.

This notice clarifies that for purposesof the 80/20 rule, the cost of new propertyincludes all costs properly included in thedepreciable basis of the new property.

SECTION 6. EFFECT ON OTHERDOCUMENTS

Notice 2013–29, Notice 2013–60, No-tice 2014–46, Notice 2015–25, and No-

tice 2016–31 are clarified and modified.The guidance provided in this notice isapplicable to any project for which a tax-payer claims the PTC or the ITC under§§ 45 or 48, as modified by ATRA, that isplaced in service after January 2, 2013.

SECTION 7. DRAFTINGINFORMATION

The principal author of this notice isJennifer C. Bernardini of the Office ofAssociate Chief Counsel (Passthroughs &Special Industries). For further informa-tion regarding this notice contact Ms. Ber-nardini on (202) 317-6853 (not a toll-freenumber).

De Minimis Error SafeHarbor to the I.R.C.§§ 6721 and 6722Penalties

Notice 2017–09

SECTION 1. PURPOSE

This notice provides guidance to im-plement changes made by the ProtectingAmericans from Tax Hikes Act of 2015(P.L. 114–113) (PATH Act) regarding thede minimis error safe harbor from infor-mation reporting penalties under sections6721 and 6722 of the Internal RevenueCode (Code) and the payee election tohave the safe harbor not apply. These pro-visions are effective for information re-turns required to be filed and payee state-ments required to be furnished afterDecember 31, 2016. The notice also an-nounces that the Treasury Department andthe IRS intend to issue regulations undersections 6721 and 6722 with respect to thede minimis error safe harbor and thepayee election to have the safe harbor notapply. To the extent the regulations incor-porate the rules contained in this notice,the regulations will be effective for re-turns required to be filed, and payee state-ments required to be furnished, after De-cember 31, 2016.


Section 202 of the PATH Act amendedsections 6721 and 6722 of the Code toestablish a safe harbor from penalties for

failure to file correct information returnsand failure to furnish correct payee state-ments for certain de minimis errors. Thepenalties apply when a person is requiredto file an information return, or furnish apayee statement, but the person fails to doso on or before the prescribed date, fails toinclude all of the information required tobe shown, or includes incorrect informa-tion. Under the safe harbor, an error on aninformation return or payee statement isnot required to be corrected, and no pen-alty is imposed, if the error relates to anincorrect dollar amount and the error dif-fers from the correct amount by no morethan $100 ($25 in the case of an error withrespect to an amount of tax withheld).

Section 6722(c)(3)(B) provides that thesafe harbor does not apply to any payeestatement if the payee makes an electionthat the safe harbor not apply at such timeand in such manner as the Secretary mayprescribe. Section 6721(c)(3)(B) providesthat the safe harbor does not apply withrespect to any incorrect dollar amount tothe extent that such an error on an infor-mation return relates to an amount withrespect to which an election is made undersection 6722(c)(3)(B). Accordingly, if anelection is in effect, a payor may be sub-ject to penalties for an incorrect dollaramount appearing on an information re-turn or payee statement even if the incor-rect amount is a de minimis error.

Sections 6721(c)(3)(C) and 6722(c)(3)(C) provide that the Secretary may is-sue regulations to prevent the abuse of thesafe harbor, including regulations provid-ing that the safe harbor shall not apply tothe extent necessary to prevent suchabuse.

The amendments by Section 202 of thePATH Act to sections 6721 and 6722 areeffective for returns required to be filed,and payee statements required to be fur-nished, after December 31, 2016. Section6724(d) of the Code lists the informationreturns and payee statements subject tosection 6721 and 6722 penalties.

This notice provides requirements forthe election under section 6722(c)(3)(B),including the time and manner for makingthe election. This notice clarifies that thede minimis error safe harbor does not ap-ply in the case of an intentional error or ifa payor fails to file an information returnor furnish a payee statement. This notice


requires payors to retain certain records.Finally, this notice solicits comments re-garding the rules contained in this noticeand regarding any potential abuse of thede minimis error safe harbor.

SECTION 3. ELECTION TO HAVETHE SAFE HARBOR NOT APPLY

.01 In general. Pursuant to sections6721(c)(3)(B) and 6722(c)(3)(B), a payeemay make an election that the de minimiserror safe harbor not apply so that penal-ties are applicable to a payor who fails tocorrect an error on an information returnor payee statement, even if the error is deminimis under sections 6721(c)(3)(A) and6722(c)(3)(A). If a payee has made theelection under section 6722(c)(3)(B), andthe payor both furnishes a corrected payeestatement to the payee and files a cor-rected information return with the IRSwithin 30 days of the date of the election,the error will be treated as due to reason-able cause and not willful neglect, and thesection 6721 and 6722 penalties will notapply to the error. Where specific rulesprovide for additional time in which tofurnish a corrected payee statement andfile a corrected information return, the 30-day rule does not apply and the specificrules will apply. See e.g., § 31.6051–1(c)–(d) and § 31.6051–2(b).

A payor may prescribe any reasonablemanner for making the election, includingin writing, on-line (electronic), or by tele-phone, provided that the payor furnishesthe payee written notification of the rea-sonable manner before the date the payeemakes the election. If the payor providesan on-line (electronic) option to make theelection, this must not be the exclusivemanner to make the election. If a payorhas prescribed a reasonable manner formaking the election, the payee must ad-here to that prescribed manner to make avalid election. If the payor has not pre-scribed a manner to make the election, apayee may make the election under sec-tion 6722(c)(3)(B) in writing to the pay-or’s address appearing on a payee state-ment furnished by the payor to the payeeor as directed by the payor after makingan appropriate inquiry.

The payor may not impose any prereq-uisite, condition, or time limitation on thepayee’s ability to request a correctedpayee statement, other than prescribing a

reasonable manner for making the elec-tion as described above.

This notice does not prohibit a payorfrom filing corrected information returnsand furnishing corrected payee statementsif the payee does not make an election.

The IRS encourages employers to cor-rect any errors on Form W–2 (Wage andTax Statement) and Form W–2c (Cor-rected Wage and Tax Statement). The IRSand Social Security Administration (SSA)have long maintained the Combined An-nual Wage Reporting (CAWR) programto ensure that employees receive propercredit for their earnings and ensure thatemployers have paid and reported theproper amount of taxes. CAWR is a doc-ument matching program that comparesthe Federal income tax withheld, Medi-care wages, social security wages, andsocial security tips reported to the IRS onthe employment tax returns (e.g., Form941 (Employer’s QUARTERLY FederalTax Return) and Schedule H (HouseholdEmployment Taxes)) against the amountsreported to SSA via Forms W–3 (Trans-mittal of Wage and Tax Statements) andthe processed totals of the Forms W–2.Employers can help resolve discrepanciesbetween employment tax returns andamounts reported to SSA by filing cor-rected information returns and furnishingcorrected payee statements wheneverForms W–2 and W–2c include incorrectinformation, even if the error is de mini-mis under sections 6721(c)(3)(A) and6722(c)(3)(A). Corrections help preventmismatches and aid the IRS and SSA inthe efficient administration of the tax lawsand benefits programs.

.02 Time for making the election andduration. A payee may make an electionwith respect to payee statements requiredto be furnished in the calendar year inwhich the payee makes the election (forexample, a payee making an election onJune 15, 2017, may make an election withrespect to payee statements required to befurnished in calendar year 2017), or, al-ternatively, with respect to payee state-ments required to be furnished in thecalendar year of the election and suc-ceeding calendar years. The payee’selection under section 6722(c)(3)(B) ap-plies to related information returns un-der section 6721(c)(3)(B).

A payee may revoke an election at anytime subsequent to making the election byproviding the payor with written notifica-tion of revocation. Such revocation ap-plies to all information returns of the typeset forth in the revocation required to befiled and payee statements required to befurnished on or after the date the payorreceives the revocation until the payeemakes a new election.

Nothing in this notice prevents a payeefrom requesting that the payor file a cor-rected information return or furnish a cor-rected payee statement required to be filedor furnished in a calendar year precedingthe calendar year in which the payeemakes the election.

.03 Information required to be in-cluded in the election. When making theelection, the payee must: (1) clearly statethat the payee is making the election; (2)provide the payee’s name, address, andtaxpayer identification number (TIN) (asdefined in section 7701(a)(41) of theCode) to the payor; (3) identify the type ofpayee statement(s) and account num-ber(s), if applicable, to which the electionapplies (e.g., Form 1099–DIV (Dividendsand Distributions)) if the payee wants theelection to apply only to specific state-ments; and (4) if the payee wants theelection to apply only to the year forwhich the payee makes the election, statethat the election applies only to payeestatements required to be furnished in thatcalendar year. If the payee does not iden-tify (i) the type of payee statement andaccount number or (ii) the calendar year towhich the election relates, the payor musttreat the election as applying to all typesof payee statements the payor is requiredto furnish to the payee and as applying topayee statements required to be furnishedin the calendar year in which the payeemakes the election and in any succeedingcalendar years.

.04 Safe harbor only applies to inad-vertent errors and not to failure to file orfurnish. The de minimis error safe harborapplies only to inadvertent errors on afiled information return or furnishedpayee statement. A payor that intention-ally misreports a dollar amount on an in-formation return or payee statement,whether or not the amount otherwise qual-ifies as de minimis, falls under the inten-tional disregard provisions of sections


6721(e) and 6722(e), and, therefore, thede minimis error safe harbor does not ap-ply. A pattern of non-compliance may in-dicate intentional disregard for purposesof the penalties.

Also, the de minimis error safe harbordoes not apply to a failure to file or furnishan information return or payee statement,even if the payee statement or informationreturn would report dollar amounts of$100 or less (or $25 or less with respect toany amount of tax withheld). Section6721(c)(3) applies only to information re-turns that have been filed, and section6722(c)(3) applies only to payee state-ments that have been furnished.

.05 Recordkeeping. Payors must retainrecords of any election, or revocation ofan election, for as long as that informationmay be relevant to the administration ofany internal revenue law.

SECTION 4. REGULATIONS TOIMPLEMENT THE DE MINIMISERROR SAFE HARBOR

The Treasury Department and the IRSintend to issue regulations to implementthe de minimis error safe harbor and thepayee election to have the safe harbor notapply. These regulations are expected toincorporate the rules contained in this no-tice, and to the extent that they do, theregulations will be effective for informa-tion returns required to be filed, and payeestatements required to be furnished, afterDecember 31, 2016. The regulations arealso expected to include a requirement forpayors to notify payees regarding the deminimis error safe harbor and the electionfor the safe harbor not to apply. The reg-ulations may also provide that, to preventabuse of the de minimis error safe harbor,the safe harbor does not apply to certaininformation returns and payee statements.

SECTION 5. EFFECTIVE DATE

This notice applies with respect to in-formation returns required to be filed, andpayee statements required to be furnished,after December 31, 2016.

SECTION 6. PAPERWORKREDUCTION ACT

The collection of information con-tained in this notice has been reviewedand approved by the Office of Manage-

ment and Budget in accordance with thePaperwork Reduction Act (44 U.S.C.3507(c)) under control number 1545–2270.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less the collection of information displaysa valid OMB control number.

The collection of information in thisnotice is in section 3. This information isrequired to facilitate the making of elec-tions by payees under section 6722(c)(3)(B), to allow payees to revoke the elec-tions, and to provide records to facilitateproof of compliance with information re-porting requirements. This informationwill be used by payors to determinewhether they are required to furnish cor-rected payee statements to payees and filecorrected information returns with the IRSto avoid application of penalties undersections 6721 and 6722. This informationwill also be used by the IRS to determinewhether payors are subject to penaltiesunder sections 6721 and 6722. The collec-tion of information is both voluntary toobtain a benefit and mandatory. The likelyrespondents are individuals, state or localgovernments, farms, business or other for-profit institutions, nonprofit institutions,and small businesses or organizations.

The estimated total annual reportingburden is 760,569 hours.

The estimated annual burden per re-spondent is approximately 0.09 hours.The estimated number of respondents is8,307,625.

The estimated annual frequency of re-sponses is 8,984,600.

Books or records relating to a collec-tion of information must be retained aslong as their contents may become rele-vant to the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. § 6103.

SECTION 7. REQUEST FORCOMMENTS

Comments are requested regarding therules contained in this notice. Commentsare also requested regarding potentialabuses of the de minimis error safe harborand any information returns or payeestatements that should be excepted fromthe de minimis error safe harbor provi-

sions in sections 6721(c)(3)(C) and6722(c)(3)(C).

Any person or persons wishing to sub-mit comments in response to this noticeshould submit such comments by April24, 2017. Comments should be submittedto: Internal Revenue Service, CC:PA:LP-D:PR (Notice 2017–09), Room 5205,P.O. Box 7604, Ben Franklin Station,Washington, DC 20224. Alternatively,comments may be hand-delivered Mon-day through Friday between the hours of8:00 a.m. to 4:00 p.m. to: CC:PA:LPD:PR(Notice 2017–09), Courier’s Desk, Inter-nal Revenue Service, 1111 ConstitutionAvenue, N.W., Washington, DC. Com-ments may also be submitted electroni-cally via the following e-mail address:[email protected] include Notice 2017–09 in the sub-ject line of any electronic submissions.Comments will be available for publicinspection and copying.

SECTION 8. DRAFTINGINFORMATION

The principal author of this notice isMark A. Bond of the Office of the Asso-ciate Chief Counsel (Procedure and Ad-ministration). For further information re-garding this notice contact Mr. Bond on(202) 317-6844 (not a toll-free number).

Listing Notice—SyndicatedConservation EasementTransactions

Notice 2017–10

The Department of the Treasury (Trea-sury Department) and the Internal Reve-nue Service (IRS) are aware that somepromoters are syndicating conservationeasement transactions that purport to giveinvestors the opportunity to obtain chari-table contribution deductions in amountsthat significantly exceed the amount in-vested. This notice alerts taxpayers andtheir representatives that the transactiondescribed in section 2 of this notice is atax avoidance transaction and identifiesthis transaction, and substantially similartransactions, as listed transactions for pur-poses of § 1.6011–4(b)(2) of the IncomeTax Regulations (Regulations) and


§§ 6111 and 6112 of the Internal RevenueCode (Code). This notice also alerts per-sons involved with these transactions thatcertain responsibilities may arise fromtheir involvement.


Section 170(f)(3)(B)(iii) of the Codeallows a deduction for a qualified conser-vation contribution. A qualified conserva-tion contribution is a contribution of aqualified real property interest to a qual-ified organization exclusively for con-servation purposes. Section 170(h)(1)through (5); § 1.170A–14. A qualifiedreal property interest includes a restric-tion, granted in perpetuity, on the usethat may be made of real property. Sec-tion 170(h)(2)(C). For purposes of thisnotice, a qualified real property interestis referred to as a conservation ease-ment.

The Treasury Department and the IRShave become aware that some promotersare syndicating conservation easementtransactions that purport to give investorsthe opportunity to claim charitable contri-bution deductions in amounts that signif-icantly exceed the amount invested. Insuch a syndicated conservation easementtransaction, a promoter offers prospectiveinvestors in a partnership or other pass-through entity (“pass-through entity”) thepossibility of a charitable contribution de-duction for donation of a conservationeasement.

The promoters (i) identify a pass-through entity that owns real property, or(ii) form a pass-through entity to acquirereal property. Additional tiers of pass-through entities may be formed. The pro-moters then syndicate ownership interestsin the pass-through entity that owns thereal property, or in one or more of the tiersof pass-through entities, using promo-tional materials suggesting to prospectiveinvestors that an investor may be entitledto a share of a charitable contribution de-duction that equals or exceeds an amountthat is two and one-half times the amountof the investor’s investment. The promot-ers obtain an appraisal that purports to bea qualified appraisal as defined in§ 170(f)(11)(E)(i) but that greatly inflatesthe value of the conservation easementbased on unreasonable conclusions aboutthe development potential of the real

property. After an investor invests in thepass-through entity, either directly orthrough one or more tiers of pass-throughentities, the pass-through entity donates aconservation easement encumbering theproperty to a tax-exempt entity. Investorswho held their direct or indirect interestsin the pass-through entity for one year orless may rely on the pass-through entity’sholding period in the underlying realproperty to treat the donated conservationeasement as long-term capital gain prop-erty under § 170(e)(1). The promoter re-ceives a fee or other consideration withrespect to the promotion, which may be inthe form of an interest in the pass-throughentity. The IRS intends to challenge thepurported tax benefits from this transac-tion based on the overvaluation of theconservation easement. The IRS may alsochallenge the purported tax benefits fromthis transaction based on the partnershipanti-abuse rule, economic substance, orother rules or doctrines.

SECTION 2. FACTS

A transaction described in this sectionis a listed transaction. An investor re-ceives promotional materials that offerprospective investors in a pass-throughentity the possibility of a charitable con-tribution deduction that equals or exceedsan amount that is two and one-half timesthe amount of the investor’s investment.The promotional materials may be oral orwritten. For purposes of this notice, pro-motional materials include, but are notlimited to, documents described in§ 301.6112–1(b)(3)(iii)(B) of the Regula-tions. The investor purchases an interest,directly or indirectly (through one or moretiers of pass-through entities), in the pass-through entity that holds real property.The pass-through entity that holds the realproperty contributes a conservation ease-ment encumbering the property to a tax-exempt entity and allocates, directly orthrough one or more tiers of pass-throughentities, a charitable contribution deduc-tion to the investor. Following that contri-bution, the investor reports on his or herfederal income tax return a charitable con-tribution deduction with respect to theconservation easement.

SECTION 3. LISTEDTRANSACTIONS

Transactions entered into on or afterJanuary 1, 2010, that are the same as, orsubstantially similar to, the transaction de-scribed in section 2 of this notice areidentified as “listed transactions” for pur-poses of § 1.6011–4(b)(2) and §§ 6111and 6112 effective December 23, 2016.Persons entering into these transactions onor after January 1, 2010, must disclose thetransactions as described in § 1.6011–4for each taxable year in which the tax-payer participated in the transactions, pro-vided that the period of limitations forassessment of tax has not ended on orbefore December 23, 2016. Material ad-visors, including appraisers, who make atax statement on or after January 1,2010, with respect to transactions en-tered into on or after January 1, 2010,have disclosure and list maintenance ob-ligations under §§ 6111 and 6112. See§§ 301.6111–3, 301.6112–1.

For rules regarding the time for pro-viding disclosure of a transaction de-scribed in this notice, see §§ 1.6011–4(e) and 301.6111–3(e). However, if,under § 1.6011– 4(e)(1), a taxpayer isrequired to file a disclosure statementwith respect to a transaction describedin this notice after December 23, 2016,and prior to May 1, 2017, that disclosurestatement will be considered to betimely filed if the taxpayer alternativelyfiles the disclosure with the Office ofTax Shelter Analysis by May 1 (becauseApril 30 is a Sunday). In addition, forpurposes of disclosure of transactionsdescribed in this notice, the 90-day pe-riod provided in § 1.6011– 4(e)(2)(i) isextended to 180 days. Further, if under§ 301.6111–3(e), a material advisor isrequired to file a disclosure statementwith respect to the listed transaction de-scribed in this notice by January 31,2017, that disclosure statement will beconsidered to be timely filed if the tax-payer files the disclosure with the Officeof Tax Shelter Analysis by May 1, 2017(because April 30 is a Sunday).

Independent of their classification aslisted transactions, transactions that arethe same as, or substantially similar to, thesyndicated conservation easement trans-action described in section 2 may already


be subject to the requirements of §§ 6011,6111, 6112, or the regulations thereunder.The transaction described in section 2 isidentified as a listed transaction regardlessof whether the transaction has the charac-teristics described in section 1 of thisnotice.

Whether a taxpayer has participated inthe listed transaction described in section2 of this notice will be determined under§ 1.6011–4(c)(3)(i)(A). Participants in-clude, but are not limited to, investors, thepass-through entity (any tier, if multipletiers are involved in the transaction), orany other person whose tax return reflectstax consequences or a tax strategy de-scribed in section 2.

For purposes of this notice, a doneedescribed in § 170(c) shall not be treatedas a party to the transaction under § 4965or a participant under § 1.6011–4.

Participants required to disclose thesetransactions under § 1.6011–4 who fail to

do so will be subject to penalties under§ 6707A. Participants required to disclosethese transactions under § 1.6011–4 whofail to do so may also be subject to anextended period of limitations under§ 6501(c)(10). Material advisors requiredto disclose these transactions under§ 6111 who fail to do so may be subject tothe penalty under § 6707. Material advi-sors required to maintain lists of investorsunder § 6112 who fail to do so (or whofail to provide such lists when requestedby the IRS) may be subject to the penaltyunder § 6708(a). In addition, the IRS mayimpose other penalties on persons in-volved in these transactions or substan-tially similar transactions, including theaccuracy-related penalty under § 6662 or§ 6662A, the § 6694 penalty for under-statements of a taxpayer’s liability by atax return preparer, and the § 6695A pen-alty for certain valuation misstatementsattributable to incorrect appraisals.

The Treasury Department and the IRSrecognize that some taxpayers may havefiled tax returns taking the position thatthey were entitled to the purported taxbenefits of the type of transaction de-scribed in this notice. These taxpayersshould take appropriate corrective actionand ensure that their transactions are dis-closed properly.

DRAFTING INFORMATION

The principal authors of this notice areAngella L. Warren and Maxine M. Woo-Garcia of the Office of Associate ChiefCounsel (Income Tax & Accounting). Forfurther information regarding this noticecontact Ms. Warren at (202) 317-7003(not a toll-free number) or Ms. Woo-Garcia at (202) 317-7011 (not a toll-freenumber).


Part IV. Items of General InterestREG–112324–15

Mortality Tables forDetermining Present ValueUnder Defined BenefitPension Plans


ACTION: Notice of proposed rulemakingand notice of public hearing.

SUMMARY: This document containsproposed regulations prescribing mortal-ity tables to be used by most defined ben-efit pension plans. The tables specify theprobability of survival year-by-year for anindividual based on age, gender, and otherfactors. This information is used (togetherwith other actuarial assumptions) to cal-culate the present value of a stream ofexpected future benefit payments for pur-poses of determining the minimum fund-ing requirements for the plan. Thesemortality tables are also relevant to deter-mining the minimum required amount of alump-sum distribution from such a plan.In addition, this document contains pro-posed regulations to update the require-ments that a plan sponsor must meet inorder to obtain IRS approval to use mor-tality tables specific to the plan for mini-mum funding purposes (instead of thegenerally applicable mortality tables).These regulations affect participants in,beneficiaries of, employers maintaining,and administrators of certain retirementplans.

DATES: Comments and outlines of topicsto be discussed at the public hearingscheduled for April 13, 2017 must be re-ceived by March 29, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–112324–15), room5203, Internal Revenue Service, PO Box

7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may behand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–112324 –15),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC 20224, or sent elec-tronically, via the Federal eRulemakingPortal at www.regulations.gov (IRSREG–112324 –15). The public hearingwill be held in the IRS Auditorium, In-ternal Revenue Building, 1111 Consti-tution Avenue, NW, Washington, DC20224.

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations,Thomas Morgan at (202) 317-6700; con-cerning the construction of the base mor-tality tables and the static mortality tablesfor 2018, Michael Spaid at (206) 946-3480; concerning submission of com-ments, the hearing, and/or to be placed onthe building access list to attend the hear-ing, Regina Johnson at (202) 317-6901(not toll-free numbers).


Background

A. Generally applicable mortalitytables

Section 412 of the Internal RevenueCode (Code) prescribes minimum fundingrequirements for defined benefit pensionplans. Section 430, which was added tothe Code by the Pension Protection Act of1996, Public Law No. 109–280 (120 Stat.780 (2006)), specifies the minimum fund-ing requirements that apply generally todefined benefit plans that are not multiem-ployer plans.1 Section 430(a) defines theminimum required contribution by refer-ence to the plan’s funding target for theplan year. Under section 430(d)(1), aplan’s funding target for a plan year gen-

erally is the present value of all benefitsaccrued or earned under the plan as of thefirst day of that plan year.

Section 430(h)(3) contains rules re-garding the mortality tables to be usedunder section 430. Under section 430(h)(3)(A), except as provided in section430(h)(3)(C) or (D), the Secretary is toprescribe by regulation mortality tables tobe used in determining any present valueor making any computation under section430. Those mortality tables are to bebased on the actual mortality experienceof pension plan participants and projectedtrends in that experience. In prescribingthose mortality tables, the Secretary is re-quired to take into account results ofavailable independent studies of mortalityof individuals covered by pension plans.2

Under section 430(h)(3)(B), the Secretaryis required to revise any mortality table ineffect under section 430(h)(3)(A) at leastevery 10 years to reflect actual mortalityexperience of pension plan participantsand projected trends in that experience.

Section 430(h)(3)(D) provides for theuse of separate mortality tables with re-spect to certain individuals who are enti-tled to benefits on account of disability.These separate mortality tables are per-mitted to be used with respect to disabledindividuals in lieu of the generally appli-cable mortality tables provided pursuantto section 430(h)(3)(A) or the substitutemortality tables under section 430(h)(3)(C). The Secretary is to establish separatetables for individuals with disabilities oc-curring in plan years beginning beforeJanuary 1, 1995, and in later plan years,with the mortality tables for individualswith disabilities occurring in those laterplan years applying only to individualswho are disabled within the meaning ofTitle II of the Social Security Act.

Section 417(e)(3) generally providesthat the present value of certain benefitsunder a qualified pension plan (includingsingle-sum distributions) must not be less

1Section 302 of the Employee Retirement Income Security Act of 1974, Public Law No. 93–406, as amended (ERISA) sets forth funding rules that are parallel to those in section 412 ofthe Code, and section 303 of ERISA sets forth additional funding rules for defined benefit plans (other than multiemployer plans) that are parallel to those in section 430 of the Code. Undersection 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713) and section 302 of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressedin these proposed regulations for purposes of ERISA, as well as the Code. Thus, these proposed Treasury regulations issued under section 430 of the Code apply as well for purposes ofsection 303 of ERISA.

2The standards prescribed for developing these mortality tables are the same as the standards that are prescribed for developing mortality tables for multiemployer plans under section431(c)(6)(D)(iv)(II) (which are used determine current liability in order to determine the minimum full funding limitation under section 431(c)(6)(B)). These standards also apply for purposesof determining current liability in order to determine the minimum full funding limitation under section 433(c)(2)(C) for a CSEC plan (as defined in section 414(y)).


than the present value of the accrued ben-efit using applicable interest rates and theapplicable mortality table. Section 417(e)(3)(B) defines the term “applicable mor-tality table” as the mortality table speci-fied for the plan year for minimum fund-ing purposes under section 430(h)(3)(A)(without regard to the rules for substitutemortality tables under section 430(h)(3)(C) or mortality tables for disabled indi-viduals under section 430(h)(3)(D)), mod-ified as appropriate by the Secretary. Themodifications made by the Secretary tothe section 430(h)(3)(A) mortality table todetermine the section 417(e)(3)(B) appli-cable mortality table are not addressed inthese proposed regulations. Revenue Rul-ing 2007–67, 2007–2 CB 1047, describesthe modifications that are currently ap-plied to determine the section 417(e)(3)(B) applicable mortality table.

Final regulations under section 430(h)(3) were published in the Federal Regis-ter on July 31, 2008 in TD 9419, 73 FR44632. The final regulations issued in2008 include rules regarding generally ap-plicable mortality tables, which are setforth in § 1.430(h)(3)–1 (the 2008 generalmortality table regulations). The final reg-ulations issued in 2008 also include rulesregarding substitute mortality tables,which are set forth in § 1.430(h)(3)–2 (the2008 substitute mortality table regula-tions).

The 2008 general mortality table regu-lations prescribe a base mortality tableand a set of mortality improvement rates,which may be reflected through the use ofeither generational mortality tables orstatic mortality tables. Generational mor-tality tables are a series of mortality ta-bles, one for each year of birth, each ofwhich fully reflects projected trends inmortality rates. The static mortality tables(which are updated annually) use a singlemortality table for all years of birth toapproximate the present value that wouldbe determined using the generational mo-rality tables. Section 1.430(h)(3)–1 in-cludes static mortality tables for valuationdates occurring in 2008 and provides thatstatic mortality tables for valuation datesoccurring in later years are to be publishedin the Internal Revenue Bulletin.

The mortality tables included in§ 1.430(h)(3)–1 are based on the mortalitytables included in the RP–2000 Mortality

Tables Report (referred to in this pream-ble as the RP–2000 mortality tables) re-leased by the Society of Actuaries in July2000 (updated in May 2001) and a set ofmortality improvement projection factors(the Scale AA Projection Factors) thatwas also included in the RP–2000 Mortal-ity Tables Report.

Section 1.431(c)(6)–1 provides that thesame mortality assumptions that apply forpurposes of section 430(h)(3)(A) and§ 1.430(h)(3)–1(a)(2) are used to deter-mine a multiemployer plan’s current lia-bility for purposes of applying the full-funding rules of section 431(c)(6). For thispurpose, a multiemployer plan is permit-ted to apply either the annually-adjustedstatic mortality tables or the generationalmortality tables.

Static mortality tables for valuationdates occurring during 2009–2013 werepublished in Notice 2008–85, 2008–42IRB 905. Updated static mortality tablesfor valuation dates occurring during 2014and 2015 were published in Notice 2013–49, 2013–32 IRB 127. Updated staticmortality tables for valuation dates occur-ring in 2016 were published in Notice2015–53, 2015–33 IRB 190. Updatedstatic mortality tables for valuation datesoccurring in 2017 were published in No-tice 2016–50, 2016–38 IRB 371.

Notice 2013–49 requested commentson whether it continues to be necessary toprovide multiple alternative versions ofthe mortality tables in order to accommo-date limitations in some actuarial soft-ware. Notice 2013–49 also requestedcomments on whether a separate disabilitymortality table is still warranted with re-spect to participants who became disabledbefore 1995. Finally, Notice 2013–49noted that the Treasury Department (Trea-sury) and the IRS were aware that theSociety of Actuaries was conducting amortality study of pension plan partici-pants and specifically requested com-ments on whether other studies of actualmortality experience of pension plan par-ticipants and projected trends of that ex-perience are available that should be con-sidered for use in developing mortalitytables for future use under section430(h)(3).

In October 2014, the Retirement PlansExperience Committee (RPEC) of the So-ciety of Actuaries issued a new mortality

study of participants in private pensionplans, referred to as the RP–2014 Mortal-ity Tables Report (which sets forth mor-tality tables that are referred to as theRP–2014 mortality tables). The RP–2014Mortality Tables Report, as revised No-vember 2014, is available at www.soa.org/Research/Experience-Study/pension/research-2014-rp.aspx. At the same time,RPEC issued a companion study of mor-tality improvement, referred to as theMortality Improvement Scale MP–2014Report (which sets forth mortality im-provement rates that are referred to asScale MP–2014 Rates). As described inthe Mortality Improvement Scale MP–2014 Report, (available at www.soa.org/Research/Experience-Study/pension/research-2014-mp.aspx), the Scale MP–2014 rates were based on mortality im-provement experience for the general pop-ulation through 2009.

In October 2015, RPEC released anupdate to the Scale MP–2014 Rates. Theupdated rates, referred to as Scale MP–2015 Rates, were released as part of theMortality Improvement Scale MP–2015Report (which is available at https://www.soa.org/Research/Experience-Study/Pension/research-2015-mp.aspx).The Scale MP–2015 Rates were createdusing historical data for mortality im-provement for the general populationthrough 2011, and the same model andparameters that were used to produceScale MP–2014 Rates. In conjunctionwith the release of the updated rates,RPEC indicated the intent to reflect thelatest data available by providing futureannual updates to the model as soon aspracticable following the public release ofupdated data upon which the model isconstructed.

In October 2016, RPEC released afurther update to the Scale MP–2014Rates, which are referred to as the ScaleMP–2016 Rates. The Scale MP–2016Rates take into account data for mortal-ity improvement for the general popula-tion for years 2012 and 2013, along withan estimate of mortality rates for 2014.As described in the Mortality Improve-ment Scale MP–2016 Report (whichis available at www.soa.org/Research/Experience-Study/Pension/research-2016-mp.aspx), in developing the Scale MP–2016rates, RPEC changed some of the parame-


ters from those that were used in developingthe Scale MP–2014 Rates.

B. Plan-specific substitute mortalitytables

Section 430(h)(3)(C) prescribes rulesfor a plan sponsor’s use of substitute mor-tality tables reflecting the specific mortal-ity experience of a plan’s population in-stead of using the generally applicablemortality tables. Under section 430(h)(3)(C), the plan sponsor may request the Sec-retary’s approval to use plan-specific sub-stitute mortality tables that meet require-ments specified in the statute. If approved,these substitute mortality tables are usedto determine present values and makecomputations under section 430 duringthe period of consecutive plan years (notto exceed 10) specified in the request. Inorder for a plan sponsor to use a substitutemortality table for a plan, the statute re-quires that: (1) the plan has a sufficientnumber of plan participants and has beenmaintained for a sufficient period of timein order to have credible mortality infor-mation necessary to create a substitutemortality table; and (2) the tables reflectthe actual mortality experience of theplan’s participants and projected trends ingeneral mortality experience of partici-pants in pension plans. Except as providedby the Secretary, a plan sponsor must notuse substitute mortality tables for any planunless substitute mortality tables are es-tablished and used for each plan main-tained by the plan sponsor and its con-trolled group.

Regulations issued in 2008 set forthrules regarding the use of substitute mor-tality tables. Under § 1.430(h)(3)–2(b), inorder to use substitute mortality tableswith respect to a plan, a plan sponsor mustsubmit a written request to the Commis-sioner that demonstrates that thosesubstitute mortality tables comply withapplicable requirements. A request to usesubstitute mortality tables must specifythe first plan year, and the term of years(not more than 10), for which the tablesare requested to be used. In general, sub-stitute mortality tables may not be usedfor a plan year unless the plan sponsor

submits the request at least 7 months priorto the first day of the first plan year forwhich the substitute mortality tables are toapply.

The Commissioner has a 180-day pe-riod to review a request for the use ofsubstitute mortality tables. If the Commis-sioner does not issue a denial within this180-day period, the request is deemed tohave been approved unless the Commis-sioner and the plan sponsor have agreed toextend that period. The Commissionermay request additional information withrespect to a submission. Failure to providethat information on a timely basis isgrounds for denial of the plan sponsor’srequest. In addition, the Commissionerwill deny a request if the request fails tomeet the requirements to use substitutemortality tables or if the Commissionerdetermines that a substitute mortality tabledoes not sufficiently reflect the mortalityexperience of the applicable plan popula-tion.

Under § 1.430(h)(3)–2(c)(1)(i), substi-tute mortality tables must reflect the actualmortality experience of the pension planfor which the tables are to be used. Sep-arate mortality tables must be establishedfor each gender under the plan, and asubstitute mortality table may be estab-lished for a gender only if the plan hascredible mortality experience with respectto that gender. If the mortality experiencefor one gender is credible but the mortal-ity experience for the other gender is notcredible, the substitute mortality tables areused for the gender that has credible mor-tality experience, and the mortality tablesunder § 1.430(h)(3)–1 are used for thegender that does not have credible mortal-ity experience.

Section 1.430(h)(3)–2(c)(1)(ii) pro-vides that, for purposes of determiningwhether substitute mortality tables may beused, there is credible mortality experi-ence for a gender within a plan if and onlyif, over the period covered by the experi-ence study, there are at least 1,000deaths within that gender.3 Pursuant to§ 1.430(h)(3)–2(c)(2)(ii), the minimumlength of the experience study period is 2years and the maximum length of the ex-

perience study period is 5 years (and canbe lengthened in published guidance).Furthermore, under that provision, the lastday of the final year reflected in the expe-rience data must be less than three yearsbefore the first day of the first plan yearfor which the substitute mortality tablesare to apply.

Under § 1.430(h)(3)–2(c)(2), develop-ment of a substitute mortality table underthe regulations requires creation of a basetable and identification of a base year,which are then used to determine a sub-stitute mortality table. The base table mustbe developed from a study of the mortalityexperience of the plan using amounts-weighted data.

Under § 1.430(h)(3)–2(c)(3), a plan’ssubstitute mortality tables must be gener-ational mortality tables. Substitute mortal-ity tables are determined using the basemortality tables developed from the expe-rience study and the Scale AA ProjectionFactors, which are also used for the gen-erally applicable mortality tables.

Under § 1.430(h)(3)–2(c)(4), separatesubstitute mortality tables are permitted(but not required) to be established forseparate populations within a gender, suchas annuitants and nonannuitants or hourlyand salaried individuals. Under that pro-vision, separate substitute mortality tablesgenerally are permitted to be used for aseparate population within a gender undera plan only if all individuals of that genderin the plan are divided into separate pop-ulations, each separate population hascredible mortality experience (determinedin the same manner as determiningwhether a gender has credible mortalityexperience), and the separate substitutemortality table for each separate popula-tion is developed using mortality experi-ence data for that population.

Section 1.430(h)(3)–2(d)(3) prescribesrules for aggregating plans for purposes ofusing substitute mortality tables. Under§ 1.430(h)(3)–2(d)(3), in order to use a setof substitute mortality tables for two ormore plans, the rules set forth in the reg-ulations must be applied by treating thoseplans as a single plan. In such a case, thesubstitute mortality tables must be used

3The 1,000-death threshold for credible mortality experience under the regulations was intended to provide a high degree of confidence that the plan’s past mortality experience will bepredictive of its future mortality, and is consistent with relevant actuarial literature (see, for example, Thomas N. Herzog, Introduction to Credibility Theory (1999); Stuart A. Klugman, et.al., Loss Models: From Data to Decisions (2004)).


for all such plans and must be based ondata collected with respect to all suchplans.

Section 1.430(h)(3)–2(d)(4) providesfor the early termination of the use ofsubstitute mortality tables in certain spec-ified circumstances, including pursuant toa replacement of the mortality tables spec-ified in § 1.430(h)(3)–1. The early termi-nation pursuant to such a replacementmust be effective as of a date specified inguidance published in the Internal Reve-nue Bulletin.

Rev. Proc. 2008–62, 2008–2 CB 935,sets forth the procedure by which a plansponsor of a defined benefit plan may re-quest and obtain approval for the use ofplan-specific substitute mortality tables inaccordance with section 430(h)(3)(C).The revenue procedure specifies the infor-mation that must be provided in order torequest the use of substitute mortality ta-bles and specifies two alternative accept-able methods of construction for base sub-stitute mortality tables. Under section 11of Rev. Proc. 2008–62, a base table for apopulation can be created from the unad-justed base table for the populationthrough the application of a graduationmethod generally used by the actuarialprofession in the United States (for exam-ple, the Whittaker-Henderson Type Bgraduation method or the Karup-Kinggraduation method). Section 12 of Rev.Proc. 2008–62 provides for an alternativemethod of constructing a base tablethrough the application of a fixed percent-age to the mortality rates of a standardmortality table, projected to the base year.This alternative method can be used onlyif the IRS determines that the resultingbase table sufficiently reflects the mortal-ity experience of the applicable plan pop-ulation. In general, the standard mortalitytable that is used under this alternativemethod is a projection of the base mortal-ity table that applies for the populationunder § 1.430(h)(3)–1; however, the IRSwill consider requests for the approval ofbase tables constructed through the appli-cation of a fixed percentage to the mortal-

ity rates of other published generally ac-cepted mortality tables.

Section 503 of the Bipartisan BudgetAct of 2015, Public Law No. 114–74, 129Stat. 584, which was enacted November 2,2015, provides for changes to the rules onthe use of substitute mortality tables. Un-der that section, the determination ofwhether a plan has credible informationthat can be used to develop a substitutemortality table must be made in accor-dance with established actuarial credibil-ity theory, which (1) is materially differ-ent from the rules for using substitutemortality tables (including Revenue Pro-cedure 2007–37)4 that are in effect onNovember 2, 2015; and (2) permits theuse of mortality tables that reflect adjust-ments to the generally applicable mortal-ity tables, if those adjustments are basedon the actual experience of the pensionplan maintained by the plan sponsor. Thisprovision applies to plan years beginningafter December 31, 2015.

Explanation of Provisions

These proposed regulations set forththe methodology Treasury and the IRSwould use to update the generally appli-cable mortality tables that are used to de-termine present value or make any com-putation under section 430. Pursuant tosection 417(e)(3)(B), a modified versionof these updated tables would be used forpurposes of determining the amount of asingle-sum distribution (or another accel-erated form of distribution).5 This meth-odology for developing updated tablesunder section 430(h)(3)(A) is being pro-posed pursuant to the requirement undersection 430(h)(3)(B) to revise the mortal-ity tables used under section 430 to reflectthe actual mortality experience of pensionplan participants and projected trends inthat experience. As under the 2008 gen-eral mortality table regulations, the meth-odology involves the separate determina-tion of base tables and the projection ofmortality improvement.

These proposed regulations also setforth rules for the use of substitute mor-tality tables. The rules on substitute mor-tality tables are being proposed pursuantto section 503 of the Bipartisan BudgetAct of 2015, which requires that the de-termination of whether the plan has cred-ible information be made in accordancewith established actuarial credibility the-ory. Pursuant to that requirement, Trea-sury and the IRS undertook a review ofactuarial literature regarding credibilitytheory and consulted with experts on thattopic from the Society of Actuaries. Basedon that review and analysis, the proposedregulations set forth a method for devel-oping substitute mortality tables that ismaterially different from the method thatis required under the 2008 substitute mor-tality table regulations and the associatedrevenue procedure.

The method for developing substitutemortality tables that is set forth in theproposed regulations is simpler than themethod that applies under the 2008 sub-stitute mortality table regulations, and alsoaccommodates the use of substitute mor-tality tables by plans with smaller popu-lations that have partially credible mortal-ity experience. Comments are requestedregarding additional simplifications thatmight be appropriate for use in developingsubstitute mortality tables.

I. Generally Applicable MortalityTables

A. Base mortality tables

The base mortality tables proposed foruse under section 430(h)(3)(A) are de-rived from the tables contained in the RP–2014 Mortality Tables Report. In responseto Notice 2013–49, commentators gener-ally recommended that the RP–2014 mor-tality tables form the basis for the mortal-ity tables used under section 430.6 Afterreviewing the RP–2014 mortality tables,the accompanying report published by theSociety of Actuaries, and related publiccomments, Treasury and the IRS have de-

4Rev. Proc. 2007–37, 2007–1 CB 1433, was not in effect on November 2, 2015. It was issued in 2007 in conjunction with proposed regulations regarding substitute mortality tables(REG–143601–06, 72 FR 29456), and was replaced by Rev. Proc. 2008–62 when those regulations were finalized in 2008.

5After these regulations are finalized, the section 417(e)(3)(B) applicable mortality table will be specified in guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)(b)of this chapter.

6These proposed regulations also apply the new generally applicable mortality tables under section 430 for purposes of determining the current liability of a multiemployer plan pursuantto section 431(c)(6)(D)(iv)(II) or a CSEC plan pursuant to section 433(h)(3).


termined that the experience study used todevelop the RP–2014 mortality tables isthe best available study of the actual mor-tality experience of pension plan partici-pants (other than disabled individuals).Accordingly, the RP–2014 mortality ta-bles are the foundation for the base mor-tality tables used to project the mortalityof pension plan participants under theseproposed regulations.7

Like the mortality tables provided inthe 2008 general mortality table regula-tions, the mortality tables set forth in theseproposed regulations are gender-distinctbecause of significant differences betweenexpected male mortality and expected fe-male mortality. In addition, as under the2008 general mortality table regulations,these proposed regulations set forth sepa-rate mortality rates for annuitants andnonannuitants. This distinction has beenmade because these two groups have sig-nificantly different mortality experience.See chapter 3 of the RP–2000 MortalityTables Report, available at www.soa.org/research/experience-study/pension/research-rp-2000-mortality-tables.aspx.

Under these proposed regulations, theannuitant mortality tables are applied todetermine the present value of benefits foran annuitant. For a nonannuitant, the non-annuitant mortality tables are applied forthe periods before the participant is pro-jected to commence receiving benefits,and the annuitant mortality tables are usedfor later periods. With respect to a bene-ficiary of a participant, the annuitant mor-tality table applies for the period begin-ning with each assumed commencementof benefits for the participant. If the par-ticipant has died (or to the extent the par-ticipant is assumed to die before com-mencing benefits), the annuitant mortalitytable applies with respect to the benefi-ciary for the period beginning with eachassumed commencement of benefits forthe beneficiary.

The proposed regulations set forth basetables that are to be used to developthe mortality tables for future years. Thesebase tables have a base year of 2006 (thecentral year of the experience study used

to develop the mortality tables in the RP–2014 Mortality Tables Report). Thesebase tables generally have the same ratesas the RP–2014 mortality tables after fac-toring out the mortality improvementsfrom 2007 to 2014 (calculated using theScale MP–2014 Rates). However, thesebase tables also include nonannuitant ratesfor ages below age 18 and above age 80and annuitant rates for ages below age 50.This generally is the same approach thatwas used to develop the base tables in-cluded in the 2008 general mortality tableregulations.

The nonannuitant rates for ages aboveage 80 were developed by (1) using theannuitant rates from the base tables forages 90 and older and (2) interpolatingbetween the rates for age 80 and age 90 inorder to produce a smooth transition be-tween the age 80 rates from the nonannui-tant tables to the age 90 rates from theannuitant tables. The interpolation usesincreasing fractions with a denominator of55 to allocate the total difference betweenthe rates at ages 80 and 90 over those 10years. Thus, the rate at age 81 is set equalto the rate at age 80 plus 1/55 of the totaldifference, the age 82 rate is equal to therate at age 81 plus 2/55 of the total differ-ence (so that the age 82 rate is equal to therate at age 80 plus 3/55 of the total differ-ence), and so on for other ages.

A similar approach was used to de-velop annuitant rates for ages below age50. The annuitant rates for ages under age50 were determined by (1) using the non-annuitant rates from the base tables forages 18 to 40, and (2) interpolating be-tween the rates for age 40 and age 50,using the same methodology described inthe prior paragraph. This method producesa smooth transition between the age 40rates from the nonannuitant table and theage 50 rates from the annuitant table. Forages below age 18, both the annuitant andnonannuitant rates incorporate the juve-nile rates from the RP–2014 Mortality Ta-bles Report, after factoring out the mor-tality improvements from 2007 to 2014(calculated using the Scale MP–2014Rates).

B. Reflection of mortality improvement

The proposed regulations provide thatexpected trends in mortality experiencemust be taken into account through theuse of either generational or annually up-dated static mortality tables. In accor-dance with section 430(h)(3)(B), the pro-posed regulations update the mortalityimprovement rates from the Scale AAProjection Factors that were set forth un-der the 2008 general mortality table reg-ulations.

In order to select up-to-date mortalityimprovement rates, Treasury and the IRSreviewed the Mortality ImprovementScale MP–2014 Report, related publiccomments, the data sources cited in thosecomments, the Mortality ImprovementScale MP–2015 Report, the Mortality Im-provement Scale MP–2016 Report, andother published data sources.8 Pursuant tothis review, Treasury and the IRS deter-mined that the procedures that RPEC usedto develop the Scale MP–2016 Ratesgenerate the most appropriate currentlyavailable mortality improvement rates.Accordingly, the proposed regulationsprovide that, for valuation dates in 2018,the mortality tables for use under section430(h)(3)(A) must reflect the mortalityimprovement rates contained in the Mor-tality Improvement Scale MP–2016 Re-port.

The Scale MP–2016 Rates are struc-tured as two-dimensional tables that con-tain mortality improvement rates that varyaccording to both age and calendar year(so that the mortality improvement ratefor someone who is age 72 in 2020 isdifferent than the mortality improvementrate for someone who is age 72 in 2030).RPEC provided for two-dimensional ta-bles of mortality improvement rates inorder to reflect differences in mortalityimprovement at different ages as well asmortality improvement trends that varyfor different age cohorts. The proposedregulations include numerical examplesillustrating how to apply these two-dimensional mortality improvement rates.

7Mortality tables that may be used as an alternative to the tables provided in these regulations with respect to certain disabled individuals are provided in Rev. Rul. 96–7, 1996–1 CB 59.

8See the August 2013 Literature Review and Assessment of Mortality Improvement Rates in the U.S. Population: Past Experience and Future Long-Term Trends, available atwww.soa.org/Files/Research/Exp-Study/research-2013-lit-review.pdf; and the 2015 Technical Panel on Assumptions and Methods Report to the Social Security Advisory Board, availableat www.ssab.gov/Details-Page/ArticleID/656/2015-Technical-Panel-on-Assumptions-and-Methods-A-Report-to-the-Board-September-2015.


As under the current regulations, theproposed regulations take into account thelimitations of some current actuarial soft-ware that is not designed to use genera-tional mortality tables. Accordingly, theproposed regulations continue to permitthe use of static mortality tables. Thesestatic tables consist of a single table foreach gender, updated annually, that ap-proximates the effect of projected mortal-ity improvement under the generationalmortality tables. The static mortality ta-bles that would be used for 2018 are in-cluded in these proposed regulations. Forlater years, updated static mortality tableswill be set forth in guidance publishedin the Internal Revenue Bulletin. See§ 601.601(d)(2)(ii)(b) of this chapter.

The static mortality tables that wouldbe permitted to be used under the pro-posed regulations are constructed from thebase tables that are used for purposes ofthe generational mortality tables. For eachcalendar year, the static mortality tablesare based on a projection of mortality im-provement applied to the mortality rates inthe base tables for the period beginningwith 2006 and ending with the year of thetable, with a further projection from thatyear for a specified projection period. Therates in the static mortality tables are notthe expected mortality rates for the currentplan year, nor are they the mortality ratesunder the generational mortality tablesthat would apply for any current age. In-stead, the projection period has been se-lected so that the use of the static mortal-ity tables to calculate present valuesproduces approximately the same resultsas would be calculated using the genera-tional tables. Based on modeling of annu-ity values at different ages, Treasury andthe IRS have selected a projection periodof 8 years for males and 9 years for fe-males, with a further adjustment based onage. For ages below 80, the projectionperiod is increased by 1 year for each yearbelow 80. For ages above 80, the projec-tion period is reduced (but not below zero)by 1/3 year for each year above 80.

These proposed regulations provide anoption for smaller plans (plans for whichthe total number of active and inactiveparticipants and beneficiaries of deceasedparticipants is not more than 500 on thevaluation date for the plan year) to usegender distinct blended static tables for all

participants and beneficiaries—in lieu ofthe separate static tables for annuitantsand nonannuitants—in order to simplifythe actuarial valuation for these plans.These blended tables are constructed fromthe separate nonannuitant and annuitantstatic mortality tables using the same non-annuitant and annuitant weighting factorsas in the 2008 general mortality table reg-ulations.

Treasury and the IRS understand thatRPEC expects to issue updated mortalityimprovement rates that reflect new datafor mortality improvement trends for thegeneral population on an annual basis.Treasury and the IRS expect to take thoseupdates into account in determining themortality rates to be used under section430(h)(3) for valuation dates in years after2018. Those rates will be specified inguidance to be published in the InternalRevenue Bulletin. See § 601.601(d)(2)(ii)(b) of this chapter.

II. Plan-specific substitute mortalitytables

A. Overview

These proposed regulations contain acomprehensive set of rules regardingplan-specific substitute mortality tables.The proposed regulations contain many ofthe rules regarding substitute mortality ta-bles from the 2008 substitute mortalitytable regulations. However, after analyz-ing the actuarial literature regarding cred-ibility theory, Treasury and the IRS pro-pose to make a number of changes to theregulations relating to the development ofsubstitute mortality tables. Specifically,the proposed regulations would require asubstitute mortality table to be constructedby multiplying the mortality rates from aprojected version of the generally applica-ble base mortality table by a mortalityratio (that is, a ratio of the actual deathsfor the plan population to expected deathsdetermined using the standard mortalitytables for that population).

Use of mortality ratios (rather than pro-viding for the graduation of raw mortalityrates as under the 2008 substitute mortal-ity table regulations) should make it easierfor plan sponsors to develop the substitutetables, because it would eliminate theneed to apply a graduation technique. It

would also make it easier for the IRS toreview applications to use substitute mor-tality tables. This simplification is partic-ularly important in light of the other majorchange made in the proposed regulations,which would permit the use of substitutemortality tables for a plan that has onlypartially credible mortality information.Treasury and the IRS expect significantlymore plan sponsors to request the use ofsubstitute mortality tables after thischange becomes effective.

B. Development of substitute mortalitytables for plans with full credibility

The substitute mortality table for apopulation with full credibility would bedetermined by applying projected mortal-ity improvement to a base substitute mor-tality table which is developed using anexperience study of the population. Theproposed regulations would use the samerequirements for an experience study asunder the 2008 substitute mortality tableregulations. Specifically, the experiencestudy would have to cover a period of atleast 2 years (and no more than 5 years)that ends less than 3 years before the firstday of the first plan year for which thesubstitute mortality tables are to apply. Asunder the 2008 substitute mortality tableregulations, the calendar year that con-tains the day before the midpoint of theexperience study is the base year for thebase substitute mortality table. In addi-tion, the proposed regulations include therule in the 2008 substitute mortality tableregulations that requires an additionaldemonstration that the experience studyresults are predictive of future mortalityfor a plan population if the number ofindividuals in that population has changedby more than 20 percent compared to theaverage number of individuals in thatpopulation during the experience studyperiod.

The base substitute mortality table isdetermined by multiplying the mortalityrates from the standard mortality table(that is, the generally applicable base mor-tality table projected with mortality im-provement to the base year for the basesubstitute mortality table) by the plan’smortality ratio. For this purpose, the mor-tality improvement rates that apply for thecalendar year during which the plan spon-


sor submits the request to use substitutemortality tables are used to project thegenerally applicable base mortality tableto the base year for the base substitutemortality table.9 The mortality ratio is de-termined as a fraction, the numerator ofwhich is the number of actual deaths dur-ing the experience study period (with eachdeath weighted by the amount of benefit)and the denominator of which is the num-ber of expected deaths during that period(determined using the standard mortalitytable) weighted by the amount of the ben-efit. For this purpose, the amount of ben-efit is the accrued benefit (substituting thecurrent periodic payment in the case ofindividuals in pay status). Consistent withsection 503 of the Bipartisan BudgetAct of 2015 (and unlike § 1.430(h)(3)–2(c)(2)(ii)(D) of the 2008 substitute mor-tality table regulations, which providesthat the Commissioner may permit the useof other recognized mortality tables toconstruct the base substitute mortality ta-ble), these proposed regulations providethat the standard mortality table that mustbe used for this purpose is the generallyapplicable base mortality table projectedwith mortality improvement to the baseyear for the base substitute mortality table.

C. Standards for full credibility

The proposed regulations revise thestandard for full credibility of a popula-tion under the 2008 substitute mortalitytable regulations (which is 1,000 actualdeaths for the relevant population duringthe experience study period). This is be-cause, under established actuarial credibil-ity theory, that threshold (which is arounding down of the 1,082 actual deathsthat would be needed for a 90% confi-dence level that the measured rate iswithin 5% of the underlying rate of mor-tality) should apply to the credibility for asingle rate of mortality and not an entiremortality table.10 Moreover, the 1,000death threshold did not take into accountthe well-established actuarial principle

that mortality experience within a popula-tion will vary predictably based on theamount of the annuity (or life insurance,as applicable). The base tables for thegenerally applicable mortality tables wereconstructed on an amounts-weighted basis(under which the individuals with higherbenefit amounts have a greater weight inthe computation of the mortality rate for aparticular age); accordingly, substitutemortality tables should be constructed us-ing the same principle.

The variability of benefit amounts fordifferent individuals in different popula-tions within a plan means that a single1,000 actual-death standard that would ap-ply to all populations is not appropriate.Instead, established actuarial credibilitytheory would require a plan-specific cal-culation of the full-credibility standardthat takes into account the dispersion ofbenefits within the plan.

Under the proposed regulations, thenumber of deaths that are needed for thepopulation within a plan to have fullycredible mortality information is deter-mined as the product of 1,082 and thebenefit dispersion factor for the popula-tion.11 The benefit dispersion factor for apopulation is equal to the number of ex-pected deaths for the population duringthe experience study period, times the sumof the mortality-weighted square of thebenefits, divided by the square of themortality-weighted benefits.12

D. Partial Credibility

The proposed regulations permit sub-stitute mortality tables to be used for aplan that does not have sufficient deaths tohave fully credible mortality information.In accordance with established actuarialcredibility theory, such a plan would use aweighted average of the standard mortal-ity table (projected with mortality im-provement to the base year of the basesubstitute mortality table) and the mortal-ity table that would be developed for theplan if it were to have fully credible mor-

tality information. The weight for themortality table that would apply if theplan were to have fully credible mortalityinformation is the square-root of a frac-tion, the numerator of which is the actualnumber of deaths for the populationwithin the experience study period and thedenominator of which is the number ofdeaths needed for the plan to have fullycredible mortality information.

In order to avoid the need to create asubstitute mortality table for a plan with arelatively small population, the proposedregulations provide that a population doesnot have credible mortality information ifthe actual number of deaths for that pop-ulation during the experience study periodis less than 100. For this purpose, thelength of the experience study period mustbe the same length as the longest experi-ence study period for any plan in the con-trolled group.

Treasury and the IRS chose the thresh-old of 100 deaths as a result of balancingthe burdens of developing substitute mor-tality tables and the benefit of the use ofthose tables, in light of the requirementunder section 430(h)(3)(C)(iv) that substi-tute mortality tables be used for all planswithin a controlled group (and the excep-tion to this requirement for plans that lackfully or partially credible mortality infor-mation). Comments are requested regard-ing whether this is the appropriate thresh-old or whether a different number ofdeaths should be used for this purpose.

E. Mortality Improvement Rates

As required under the 2008 substitutemortality table regulations, the proposedregulations provide that substitute mortal-ity tables must be generational mortalitytables. These proposed regulations requirethat the mortality improvement rates thatare used for the generally applicable mor-tality tables also be applied beginningwith the base year of the base substitutemortality tables.

9If the plan sponsor submits such a request during 2017, then the cumulative mortality improvement factors are determined using the Scale MP–2016 Rates.

10Note, however, the use of a graduation technique set forth in Rev. Proc. 2008–62 enables a plan to have credible mortality experience in order to establish a substitute mortality tableeven though there are fewer than 1000 deaths at each age.

11This is based on the assumption that the distribution of releases from liability due to deaths follows a compound Poisson model. See www.actuaries.ca/members/publications/2002/202037e.pdf.

12See Gavin Benjamin, Selecting Mortality Tables: A Credibility Approach, available at www.soa.org/Files/Research/Projects/research-2008-benjamin.pdf.


F. Other rules relating to the use ofsubstitute mortality tables

1. Use of separate subpopulationswithin a gender under plan

The proposed regulations continue toapply the rules under the 2008 substitutemortality table regulations regarding theapplicability of substitute mortality tablesfor separate populations within a plan.Specifically, separate substitute mortalitytables must be developed for each genderunder the plan. In addition, the regulationspermit separate substitute mortality tablesto be developed for separate subpopula-tions (such as hourly and salaried partici-pants) within a gender under the plan incertain circumstances.

As under the 2008 substitute mortalitytable regulations, permission to separate agender into separate subpopulations isgenerally limited to situations in whicheach of the subpopulations have fullycredible mortality information. However,that requirement does not apply if the sep-arate subpopulations are annuitants andnon-annuitants. Comments are requestedon whether there should be other excep-tions to this rule. For example:

• Should the regulations allow sepa-rate sub-populations to be used ifone subpopulation has full credibil-ity while the other one has onlypartial credibility?

• Should the regulations provide for theuse of separate sub-populations basedon age, even if those groups have onlypartial credibility?

• Should there be a rule to “normalize”the mortality tables for separate sub-populations (so that the total numberof expected deaths for the separatesubpopulations is the same as the totalnumber of expected deaths for the en-tire population without regard to theseparation)?

2. Requirement to use substitutemortality tables for all plans withcredible mortality information

As under the 2008 substitute mortalitytable regulations, the proposed regulationsprovide that substitute mortality tables arepermitted to be used for a plan for a planyear only if, for that plan year, substitute

mortality tables are also approved andused for each other pension plan subject tothe requirements of section 430 that ismaintained by the plan sponsor or by amember of the sponsor’s controlled group.However, this rule does not prohibit theuse of substitute mortality tables for oneplan if the only other plan or plans main-tained by the plan sponsor (or by a mem-ber of the plan sponsor’s controlledgroup) for which substitute mortality ta-bles are not used are too small to havefully or partially credible mortality infor-mation for the plan year. Thus, if a spon-sor’s controlled group contains two pen-sion plans that are subject to section 430,each of which has fully or partially cred-ible mortality information for at least onegender, either the plan sponsors of bothplans must obtain approval from the Com-missioner to use substitute mortality ta-bles or substitute mortality tables may notbe used for either plan. In contrast, if forone of those plans neither males nor fe-males have fully or partially credible mor-tality information, then the plan withoutcredible mortality information will notprevent the use of substitute mortality ta-bles for the plan with credible mortalityinformation.

As under the 2008 substitute mortalitytable regulations, the proposed regulationsprovide that the requirement that the plansponsor demonstrate the lack of crediblemortality information for both the maleand female populations in other plansmaintained by the plan sponsor (and bymembers of the plan sponsor’s controlledgroup) for which substitute mortality ta-bles are not used must be satisfied for eachplan year for which substitute mortalitytables are used. This demonstration ismade for a plan population by showingthat the population has not experienced atleast 100 deaths over a time period thatsatisfies the requirements set forth in theregulations. In general, for each plan yearin which substitute mortality tables areused for a plan, in order to demonstratethat a gender within a plan does not havecredible mortality information for a planyear, the demonstration that the genderwithin the plan has fewer than 100 deathsmust be made by analyzing the actualnumber of deaths over a period that is thesame length as the period for the experi-ence study on which the substitute mor-

tality tables are based and that ends lessthan three years before the first day of theplan year.

3. Permitted aggregation of plans

The proposed regulations retain therules contained in the 2008 substitutemortality table regulations regarding ag-gregation of plans for purposes of usingsubstitute mortality tables. Under theserules, in order for a plan sponsor to use thesame substitute mortality tables for two ormore plans, the rules set forth in the reg-ulations are applied by treating thoseplans as a single plan. In such a case, thesubstitute mortality tables must be usedfor all such plans and must be based ondata collected with respect to all suchplans. Although plans generally are notrequired to be aggregated for purposes ofsubstitute mortality tables, the regulationsrequire a plan to be aggregated with anyplan that was previously spun off fromthat plan if the Commissioner determinesthat one purpose of the spinoff was toavoid the use of substitute mortality tablesfor any of the plans involved in the spi-noff.

4. Special rules for newly-acquiredplans

If substitute mortality tables are usedfor at least one plan within a controlledgroup, in order for the plan sponsor tocontinue to use substitute mortality tablesfor that plan after a plan joins the con-trolled group, substitute mortality tablesmust be used for the newly affiliated planunless the newly affiliated plan demon-strates that it lacks credible mortality in-formation. However, the proposed regula-tions provide for a transition period duringwhich the standard mortality table is per-mitted to be used for a newly affiliatedplan (without affecting the use of substi-tute mortality tables for other plans withinthe controlled group) even if the newlyaffiliated plan fails to demonstrate a lackof credible mortality information. Simi-larly, the use of substitute mortality tablesfor a newly affiliated plan is not affectedduring the transition period merely be-cause the standard mortality tables areused for another plan within the controlledgroup despite the failure of that other plan


to demonstrate a lack of credible mortalityinformation. Notably, these rules do notchange the requirement that the continueduse of substitute mortality tables for anyplan within the controlled group is permit-ted only if the other pre-affiliation planswithin the controlled group for which sub-stitute mortality tables are not used dem-onstrate a lack of credible mortality infor-mation.

Like the 2008 substitute mortality tableregulations, the proposed regulations donot require the use of pre-affiliation expe-rience in order to establish whether anewly-affiliated plan has credible mortal-ity information. If the pre-affiliation datais excluded and substitute mortality tableswill be used for the plan, then the experi-ence study period may be as short as oneyear (instead of two years). If the pre-affiliation data is excluded and substitutemortality tables will not be used for theplan, then the experience study periodused to demonstrate that the plan does nothave credible mortality information mayalso be shortened, provided that the periodends not more than one year and one daybefore the first day of the plan year.

5. Treatment of mortality experiencewith respect to disabled individuals

As under the 2008 substitute mortalitytable regulations, if separate mortality ta-bles under section 430(h)(3)(D) are usedfor certain disabled individuals under aplan, then those individuals are disre-garded for all purposes with respect tosubstitute mortality tables under section430(h)(3)(C). Thus, if the mortality tablesunder section 430(h)(3)(D) are used forcertain disabled individuals under a plan,mortality experience with respect to thoseindividuals must be excluded in determin-ing mortality rates for substitute mortalitytables with respect to a plan.

6. Early termination of use ofsubstitute mortality tables

The proposed regulations retain therules from the 2008 substitute mortalitytable regulations regarding the early ter-mination of use of substitute mortality ta-bles. Under those rules, a plan’s substitutemortality tables may not be used begin-ning with the earliest of: (1) for a plan for

which substitute mortality tables are usedfor only one gender because of a lack ofcredible mortality information with re-spect to the other gender, the first planyear for which there is credible mortalityinformation with respect to the gender thathad lacked credible mortality information(unless the plan receives approval to use asubstitute mortality table for that othergender); (2) the first plan year for whichthe requirements regarding use of substi-tute mortality tables by controlled groupmembers are not satisfied; (3) the secondplan year following the plan year forwhich there is a significant change in in-dividuals covered by the plan (unless theplan’s actuary certifies in writing to thesatisfaction of the Commissioner thatthe substitute mortality tables used for theplan population continue to be accuratelypredictive of future mortality of that pop-ulation (taking into account the effect ofthe change in the population)); (4) the firstplan year following the plan year forwhich a substitute mortality table used fora plan population is no longer accuratelypredictive of future mortality of that pop-ulation, as determined by the Commis-sioner or as certified by the plan’s actuaryto the satisfaction of the Commissioner; or(5) the date specified in guidance pub-lished in the Internal Revenue Bulletin inconjunction with a replacement of gener-ally applicable mortality tables (other thanannual updates to the static mortality ta-bles or changes to the mortality improve-ment rates).

G. Procedures for requesting approvalof substitute mortality tables

As under the 2008 substitute mortalitytable regulations, the proposed regulationsprovide that a plan sponsor that wishes touse substitute mortality tables for a planmust submit a request to the IRS for ap-proval to use the proposed tables. In gen-eral, the request must be submitted at least7 months before the first day of the planyear for which the proposed substitute ta-bles would be used. If the IRS does notdeny the request within 180 days (whichmay be extended as agreed to by the IRSand the plan sponsor), the request isdeemed to have been approved.

The IRS intends to issue an updatedversion of Rev. Proc. 2008–62 after final

regulations regarding substitute mortalitytables are issued. If the timing of the re-lease of those final regulations and theassociated revenue procedure does notleave adequate time to submit an applica-tion to use substitute mortality tables forthe plan year beginning in 2018, Treasuryand the IRS expect that they would pro-vide a transition rule that would permitextra time to submit such an application

Before final regulations adopting theprovisions set forth in these proposed reg-ulations are issued, plan sponsors request-ing the use of substitute mortality tablesshould continue to use the procedures setforth in Rev. Proc. 2008–62. During thatperiod, the IRS will not evaluate whethera substitute mortality table for a popula-tion with only partially credible mortalityinformation is appropriate.

Applicability Date

These regulations are proposed to ap-ply to plan years beginning on or afterJanuary 1, 2018. Under the proposed reg-ulations, a plan sponsor may use a substi-tute mortality table for a plan year begin-ning on or after January 1, 2018 only ifthat substitute mortality table is approvedas provided in these proposed regulations.

Statement of Availability of IRSDocuments

IRS Revenue Rulings, Revenue Proce-dures, and Notices cited in this documentare published in the Internal Revenue Bul-letin (or Cumulative Bulletin) and areavailable from the Superintendent of Doc-uments, U.S. Government Printing Office,Washington, DC 20402, or by visiting theIRS website at www.irs.gov.

Special Analyses

Certain IRS regulations, including thisone, are exempt from the requirements ofExecutive Order 12866, as supplementedand reaffirmed by Executive Order 13563.Therefore, a regulatory assessment is notrequired. The regulations do not impose acollection of information on small entities,therefore the Regulatory Flexibility Act (5U.S.C. chapter 6) does not apply. Pursuantto section 7805(f) of the Internal RevenueCode, this notice of proposed rulemakingwill be submitted to the Chief Counsel forAdvocacy of the Small Business Admin-


istration for comment on their impact onsmall business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any comments that aresubmitted timely to Treasury and the IRSas prescribed in this preamble in the “AD-DRESSES” section. Treasury and the IRSrequest comments on all aspects of theseproposed regulations. All comments willbe available for public inspection andcopying at www.regulations.gov or uponrequest.

A public hearing on these proposedregulations has been scheduled for April13, 2017 beginning at 10 a.m. in the Au-ditorium, Internal Revenue Service, 1111Constitution Avenue, NW, Washington,DC 20224. Due to building security pro-cedures, visitors must enter at the Consti-tution Avenue entrance. In addition, allvisitors must present photo identificationto enter the building. Because of accessrestrictions, visitors will not be admittedbeyond the immediate entrance area morethan 30 minutes before the hearing starts.For information about having your nameplaced on the building access list to attendthe hearing, see the “FOR FURTHERINFORMATION CONTACT” sectionof this preamble.

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons who wish topresent oral comments at the hearing mustsubmit written or electronic comments byMarch 29, 2017, and an outline of topicsto be discussed and the amount of time tobe devoted to each topic by March 29,2017. A period of 10 minutes will beallotted to each person for making com-ments. An agenda showing the schedulingof the speakers will be prepared after thedeadline for receiving outlines has passed.Copies of the agenda will be available freeof charge at the hearing.


The principal authors of these regula-tions are Thomas Morgan and Linda S. F.Marshall of Office of Associate ChiefCounsel (Tax Exempt and GovernmentEntities). However, other personnel fromTreasury and the IRS participated in thedevelopment of these regulations.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR part 1 is pro-posed to be amended as follows:


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

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.430(h)(3)–1 is revised

to read as follows:

§ 1.430(h)(3)–1 Mortality tables used todetermine present value

(a) Basis for mortality tables—(1) Ingeneral. This section sets forth rules forthe mortality tables to be used in deter-mining present value or making any com-putation under section 430. Generally ap-plicable mortality tables for participantsand beneficiaries are set forth in this sec-tion pursuant to section 430(h)(3)(A). Ingeneral, either the generational mortalitytables set forth in paragraph (a)(2) of thissection or the static mortality tables setforth in paragraph (a)(3) of this sectionmust be used for a plan. In lieu of usingthe mortality tables provided under thissection with respect to participants andbeneficiaries, plan-specific substitute mor-tality tables are permitted to be used forthis purpose pursuant to section 430(h)(3)(C), provided that the requirements of§ 1.430(h)(3)–2 are satisfied. Mortality ta-bles that may be used with respect todisabled individuals are to be provided inguidance published in the Internal Reve-nue Bulletin. See § 601.601(d)(2)(ii)(b) ofthis chapter.

(2) Generational mortality tables—(i)In general—(A) Use of generational mor-tality tables. The generational mortalitytables that are permitted to be used undersection 430(h)(3)(A) and paragraph (a)(1)of this section are determined using thebase mortality tables described in para-graph (a)(2)(i)(B) of this section and themortality improvement rates described inparagraph (a)(2)(i)(C) of this section.

(B) Base mortality tables. The basemortality tables are set forth in paragraph(d) of this section. The base year for thosetables is 2006.

(C) Mortality improvement rates. Themortality improvement rates for valuationdates occurring during 2018 are the mor-tality improvement rates contained in theMortality Improvement Scale MP–2016Report (issued by the Retirement PlansExperience Committee (RPEC) of the So-ciety of Actuaries and available atwww.soa.org/Research/Experience-Study/Pension/research-2016-mp.aspx). Forlater years, updated mortality improve-ment rates that take into account newdata for mortality improvement trendsof the general population are to beprovided in guidance published inthe Internal Revenue Bulletin. See§ 601.601(d)(2)(ii)(b) of this chapter.

(D) Application of mortality improve-ment rates. Under the generational mor-tality tables described in this paragraph(a)(2), the probability of an individual’sdeath at a particular age in the future isdetermined as the individual’s base mor-tality rate that applies at that age (that is,the applicable mortality rate from the ta-ble set forth in paragraph (d) of this sec-tion for that age, gender, and status as anannuitant or a nonannuitant) multiplied bythe cumulative mortality improvementfactor for the individual’s gender and forthat age for the period from 2006 throughthe calendar year in which the individualis projected to reach the particular age.Paragraph (a)(2)(ii) of this section showshow the base mortality tables in paragraph(d) of this section and the mortality im-provement rates for valuation dates occur-ring during 2018 are combined to deter-mine projected mortality rates.

(E) Cumulative mortality improvementfactor. The cumulative mortality improve-ment factor for an age and gender for aperiod is the product of the annual mor-tality improvement factors for that ageand gender for each year within that pe-riod.

(F) Annual mortality improvement fac-tor. The annual mortality improvementfactor for an age and gender for a year is1 minus the mortality improvement ratethat applies for that age and gender forthat year.

(ii) Example of calculation—(A) Cal-culation of mortality rate. The mortalityrate for 2018 that is applied to male an-nuitants who are age 66 in 2018 is equal tothe product of the mortality rate for 2006


that applied to male annuitants who wereage 66 in 2006 (0.013855) and the cumu-lative mortality improvement factor forage 66 males from 2006 to 2018. The

cumulative mortality improvement factorfor age 66 males for the period from 2006to 2018 is 0.8929, and the mortality ratefor 2018 for male annuitants who are age

66 in that year would be 0.012371, asshown in the following table.

Calendar Year

Scale MP–2016Mortality

ImprovementRate

Annual Mortalityimprovement factor

(1- Scale MP–2016 Rate)Cumulative MortalityImprovement Factor Mortality Rate

2006 n/a n/a n/a 0.013855

2007 0.0237 0.9763 0.9763

2008 0.0211 0.9789 0.9557

2009 0.0180 0.9820 0.9385

2010 0.0142 0.9858 0.9252

2011 0.0099 0.9901 0.9160

2012 0.0053 0.9947 0.9112

2013 0.0043 0.9957 0.9072

2014 0.0035 0.9965 0.9041

2015 0.0030 0.9970 0.9014

2016 0.0028 0.9972 0.8988

2017 0.0030 0.9970 0.8961

2018 0.0036 0.9964 0.8929 0.012371

(B) Probability of survival for an indi-vidual. After the projected mortality ratesare derived for each age for each year, therates are used to calculate the presentvalue of a benefit stream that depends onthe probability of survival year-by-year.For example, for purposes of calculatingthe present value (for a 2018 valuationdate) of future payments in a benefitstream payable for a male annuitant whois age 66 in 2018, the probability of sur-vival for the annuitant is based on themortality rate for a male annuitant who isage 66 in 2018 (0.012371), and the pro-jected mortality rate for a male annuitantwho will be age 67 in 2019 (0.013302),age 68 in 2020 (0.014321), and so on.

(3) Static mortality tables. The staticmortality tables that are permitted to beused under section 430(h)(3)(A) and para-graph (a)(1) of this section are updatedannually by the IRS according to themethodology described in paragraph (c)(2) of this section. Paragraph (e) of thissection sets forth static tables that are per-mitted to be used for valuation dates in2018. For valuation dates in later years,static mortality tables are to be providedin guidance published in the Internal Rev-

enue Bulletin. See § 601.601(d)(2)(ii)(b)of this chapter.

(b) Use of the tables—(1) Separatetables for annuitants and nonannui-tants—(i) In general. Separate tables areprovided for use for annuitants and non-annuitants. The nonannuitant mortalitytable is applied to determine the proba-bility of survival for a nonannuitant forthe period before the nonannuitant isprojected to commence receiving bene-fits. The annuitant mortality table is ap-plied to determine the present value ofbenefits for each annuitant. In addition,the annuitant mortality table is appliedfor each nonannuitant with respect toeach assumed commencement of bene-fits for the period beginning with thatassumed commencement. For purposesof this section, an annuitant means aplan participant who has commenced re-ceiving benefits and a nonannuitantmeans a plan participant who has not yetcommenced receiving benefits (for ex-ample, an active employee or a termi-nated vested participant). A participantwhose benefit has partially commencedis treated as an annuitant with respect tothe portion of the benefit that has com-menced and treated as a nonannuitant

with respect to the balance of the bene-fit. In addition, with respect to a bene-ficiary of a participant, the annuitantmortality table applies for the periodbeginning with each assumed com-mencement of benefits for the partici-pant. If the participant has died (or tothe extent the participant is assumed todie before commencing benefits), theannuitant mortality table applies withrespect to the beneficiary for the periodbeginning with each assumed com-mencement of benefits for the benefi-ciary.

(ii) Examples of calculation using sep-arate annuitant and nonannuitant tables.With respect to a 45-year-old active par-ticipant who is projected to commencereceiving an annuity at age 55, the fundingtarget is determined using the nonannui-tant mortality table for the period beforethe participant attains age 55 (so that,if the static mortality tables are used pur-suant to paragraph (a)(3) of this section,the probability of an active male partici-pant living from age 45 to age 55 usingthe table that applies for a valuation datein 2018 is 0.988857) and using the annu-itant mortality table for the period ages 55and above. Similarly, for a 45-year-old


terminated vested participant who is pro-jected to commence an annuity at age 65,the funding target is determined using thenonannuitant mortality table for the periodbefore the participant attains age 65 andusing the annuitant mortality table forages 65 and above.

(2) Small plan tables. If static mortalitytables are used pursuant to paragraph(a)(3) of this section, as an alternative tothe separate static tables specified for an-nuitants and nonannuitants pursuant toparagraph (b)(1) of this section, combinedstatic tables that apply the same mortalityrates to both annuitants and nonannuitantsare permitted to be used for a small plan.For this purpose, a small plan is defined asa plan with 500 or fewer total participants(including both active and inactive partic-ipants and beneficiaries of deceased par-ticipants) on the valuation date. The com-bined static tables that are permitted to beused for small plans pursuant to this para-graph (b)(2) are constructed from the sep-arate nonannuitant and annuitant staticmortality tables using the weighting fac-tors for small plans that are set forth inparagraph (d) of this section. The weight-ing factors are applied to develop thesecombined static tables using the followingequation: Combined mortality rate �[nonannuitant rate * (1- weighting factor)]� [annuitant rate * weighting factor].

(c) Static tables—(1) Source of rates.The static mortality tables that are usedpursuant to paragraph (a)(3) of this sec-tion are determined using the base mortal-ity tables described in paragraph (a)(2)(i)(B) of this section taking into accountthe mortality improvement rates describedin paragraph (a)(2)(i)(C) of this section, in

accordance with the rules set forth in para-graph (c)(3) of this section.

(2) Selection of static tables. The staticmortality tables that are used for a valua-tion date are the static mortality tables forthe calendar year that contains the valua-tion date.

(3) Projection of mortality improve-ments—(i) General rule. Except as pro-vided in paragraph (c)(3)(iii) of this sec-tion, the static mortality tables for acalendar year are determined by multiply-ing the applicable mortality rate for eachage from the base mortality tables byboth—

(A) The cumulative mortality improve-ment factor (determined under the rules ofparagraph (a)(2) of this section) for theperiod from 2006 through that calendaryear; and

(B) The cumulative mortality improve-ment factor (determined under the rules ofparagraph (a)(2) of this section) for theperiod beginning in that calendar year andcontinuing beyond that calendar year forthe number of years in the projection pe-riod described in paragraph (c)(3)(ii) ofthis section.

(ii) Projection period for static mortal-ity tables—(A) In general. The projectionperiod is 8 years for males and 9 years forfemales, as adjusted based on age as pro-vided in paragraph (c)(3)(ii)(B) of thissection.

(B) Age adjustment. For ages below80, the projection period is increased by 1year for each year below age 80. For agesabove 80, the projection period is reduced(but not below zero) by 1⁄3 year for eachyear above 80.

(iii) Fractional projection periods. Iffor an age the number of years in the

projection period determined under thisparagraph (c)(3) is not a whole number,then the mortality rate for that age is de-termined by using linear interpolation be-tween—

(A) The mortality rate for that age thatwould be determined under paragraph(c)(3)(i) of this section if the number ofyears in the projection period were thenext lower whole number; and

(B) The mortality rate for that age thatwould be determined under paragraph(c)(3)(i) of this section if the number ofyears in the projection period were thenext higher whole number.

(iv) Example. For example, at age 85the projection period for a male is 61⁄3years (8 years minus 1⁄3 year for each ofthe 5 years above age 80). For a valuationdate in 2018, the mortality rate in thestatic mortality table for an 85-year-oldmale is based on a projection of mortalityimprovement for 61⁄3 years beyond 2018.Under paragraph (c)(3)(iii) of this section,the mortality rate for an 85-year-old maleannuitant in the static mortality table for2018 is 2⁄3 times the projected mortalityrate for a male annuitant that age in 2024plus 1⁄3 times the projected mortality ratefor a male annuitant that age in 2025.Accordingly, the mortality rate for an 85-year-old male annuitant in the static mor-tality table for 2018 is 0.075196 (2⁄3 timesthe projected mortality rate for an 85-yearold male annuitant in 2024 (0.075447)plus 1⁄3 times the projected mortality ratefor an 85-year old male annuitant in 2025(0.074693)).

(d) Base mortality tables. The follow-ing are the base mortality tables. The baseyear for these tables is 2006.

Males Females

Age Non-Annuitant AnnuitantWeighting FactorFor Small Plans Non-Annuitant Annuitant

Weighting FactorFor Small Plans

0 0.008878 0.008878 0 0.007278 0.007278 0

1 0.000515 0.000515 0 0.000451 0.000451 0

2 0.000348 0.000348 0 0.000295 0.000295 0

3 0.000289 0.000289 0 0.000220 0.000220 0

4 0.000225 0.000225 0 0.000165 0.000165 0

5 0.000197 0.000197 0 0.000149 0.000149 0

6 0.000177 0.000177 0 0.000137 0.000137 0

7 0.000156 0.000156 0 0.000127 0.000127 0

8 0.000132 0.000132 0 0.000117 0.000117 0


Males Females



9 0.000107 0.000107 0 0.000109 0.000109 0

10 0.000090 0.000090 0 0.000102 0.000102 0

11 0.000095 0.000095 0 0.000105 0.000105 0

12 0.000142 0.000142 0 0.000121 0.000121 0

13 0.000187 0.000187 0 0.000137 0.000137 0

14 0.000230 0.000230 0 0.000151 0.000151 0

15 0.000274 0.000274 0 0.000165 0.000165 0

16 0.000318 0.000318 0 0.000177 0.000177 0

17 0.000364 0.000364 0 0.000187 0.000187 0

18 0.000412 0.000412 0 0.000196 0.000196 0

19 0.000463 0.000463 0 0.000202 0.000202 0

20 0.000510 0.000510 0 0.000202 0.000202 0

21 0.000552 0.000552 0 0.000197 0.000197 0

22 0.000587 0.000587 0 0.000191 0.000191 0

23 0.000599 0.000599 0 0.000190 0.000190 0

24 0.000594 0.000594 0 0.000188 0.000188 0

25 0.000545 0.000545 0 0.000186 0.000186 0

26 0.000510 0.000510 0 0.000186 0.000186 0

27 0.000486 0.000486 0 0.000188 0.000188 0

28 0.000472 0.000472 0 0.000192 0.000192 0

29 0.000468 0.000468 0 0.000198 0.000198 0

30 0.000470 0.000470 0 0.000209 0.000209 0

31 0.000480 0.000480 0 0.000222 0.000222 0

32 0.000495 0.000495 0 0.000238 0.000238 0

33 0.000514 0.000514 0 0.000257 0.000257 0

34 0.000534 0.000534 0 0.000278 0.000278 0

35 0.000557 0.000557 0 0.000301 0.000301 0

36 0.000581 0.000581 0 0.000325 0.000325 0

37 0.000611 0.000611 0 0.000355 0.000355 0

38 0.000648 0.000648 0 0.000389 0.000389 0

39 0.000694 0.000694 0 0.000428 0.000428 0

40 0.000750 0.000750 0 0.000471 0.000471 0

41 0.000814 0.000823 .0045 0.000518 0.000515 0

42 0.000890 0.000969 .0091 0.000570 0.000603 0

43 0.000982 0.001188 .0136 0.000628 0.000735 0

44 0.001088 0.001480 .0181 0.000691 0.000911 0

45 0.001207 0.001846 .0226 0.000758 0.001131 .0084

46 0.001342 0.002285 .0272 0.000831 0.001395 .0167

47 0.001487 0.002797 .0317 0.000908 0.001703 .0251

48 0.001643 0.003382 .0362 0.000986 0.002055 .0335

49 0.001807 0.004040 .0407 0.001065 0.002451 .0419

50 0.001979 0.004771 .0453 0.001151 0.002891 .0502

51 0.002159 0.005059 .0498 0.001242 0.002993 .0586

52 0.002351 0.005343 .0686 0.001344 0.003124 .0744

53 0.002539 0.005592 .0953 0.001458 0.003291 .0947


Males Females



54 0.002741 0.005839 .1288 0.001588 0.003499 .1189

55 0.002967 0.006102 .2066 0.001735 0.003755 .1897

56 0.003231 0.006399 .3173 0.001902 0.004065 .2857

57 0.003548 0.006746 .3780 0.002091 0.004435 .3403

58 0.003932 0.007155 .4401 0.002302 0.004869 .3878

59 0.004396 0.007639 .4986 0.002537 0.005373 .4360

60 0.004954 0.008211 .5633 0.002795 0.005942 .4954

61 0.005616 0.008878 .6338 0.003080 0.006581 .5805

62 0.006392 0.009646 .7103 0.003388 0.007283 .6598

63 0.007291 0.010523 .7902 0.003724 0.008043 .7520

64 0.008320 0.011514 .8355 0.004089 0.008870 .8043

65 0.009486 0.012621 .8832 0.004482 0.009760 .8552

66 0.010668 0.013855 .9321 0.005004 0.010731 .9118

67 0.011973 0.015221 .9510 0.005575 0.011790 .9367

68 0.013414 0.016736 .9639 0.006205 0.012952 .9523

69 0.015006 0.018421 .9714 0.006898 0.014226 .9627

70 0.016761 0.020288 .9740 0.007662 0.015628 .9661

71 0.018690 0.022348 .9766 0.008507 0.017170 .9695

72 0.020824 0.024638 .9792 0.009438 0.018861 .9729

73 0.023176 0.027176 .9818 0.010470 0.020723 .9763

74 0.025770 0.029992 .9844 0.011615 0.022780 .9797

75 0.028623 0.033113 .9870 0.012887 0.025057 .9830

76 0.031761 0.036585 .9896 0.014301 0.027590 .9864

77 0.035214 0.040457 .9922 0.015885 0.030438 .9898

78 0.039007 0.044778 .9948 0.017656 0.033653 .9932

79 0.043169 0.049605 .9974 0.019639 0.037296 .9966

80 0.047750 0.055022 1.0 0.021859 0.041440 1.0

81 0.049804 0.061087 1.0 0.023791 0.046181 1.0

82 0.053911 0.067902 1.0 0.027655 0.051564 1.0

83 0.060072 0.075550 1.0 0.033451 0.057714 1.0

84 0.068286 0.084162 1.0 0.041179 0.064709 1.0

85 0.078554 0.093775 1.0 0.050838 0.072601 1.0

86 0.090876 0.104507 1.0 0.062429 0.081490 1.0

87 0.105251 0.116487 1.0 0.075952 0.091444 1.0

88 0.121680 0.129770 1.0 0.091407 0.102470 1.0

89 0.140162 0.144470 1.0 0.108794 0.114635 1.0

90 0.160698 0.160698 1.0 0.128113 0.128113 1.0

91 0.177741 0.177741 1.0 0.142619 0.142619 1.0

92 0.195154 0.195154 1.0 0.157939 0.157939 1.0

93 0.212642 0.212642 1.0 0.173886 0.173886 1.0

94 0.230055 0.230055 1.0 0.190319 0.190319 1.0

95 0.247257 0.247257 1.0 0.207191 0.207191 1.0

96 0.265940 0.265940 1.0 0.225057 0.225057 1.0

97 0.284940 0.284940 1.0 0.243507 0.243507 1.0

98 0.304432 0.304432 1.0 0.262587 0.262587 1.0


Males Females



99 0.324272 0.324272 1.0 0.282171 0.282171 1.0

100 0.344364 0.344364 1.0 0.302162 0.302162 1.0

101 0.364420 0.364420 1.0 0.322282 0.322282 1.0

102 0.384058 0.384058 1.0 0.342371 0.342371 1.0

103 0.403188 0.403188 1.0 0.362210 0.362210 1.0

104 0.421533 0.421533 1.0 0.381534 0.381534 1.0

105 0.438903 0.438903 1.0 0.400321 0.400321 1.0

106 0.455492 0.455492 1.0 0.418418 0.418418 1.0

107 0.470810 0.470810 1.0 0.435390 0.435390 1.0

108 0.484965 0.484965 1.0 0.451459 0.451459 1.0

109 0.498023 0.498023 1.0 0.466408 0.466408 1.0

110 0.509768 0.509768 1.0 0.480123 0.480123 1.0

111 0.512472 0.512472 1.0 0.492664 0.492664 1.0

112 0.509296 0.509296 1.0 0.503970 0.503970 1.0

113 0.506193 0.506193 1.0 0.507361 0.507361 1.0

114 0.503061 0.503061 1.0 0.503564 0.503564 1.0

115 0.500000 0.500000 1.0 0.500000 0.500000 1.0

116 0.500000 0.500000 1.0 0.500000 0.500000 1.0

117 0.500000 0.500000 1.0 0.500000 0.500000 1.0

118 0.500000 0.500000 1.0 0.500000 0.500000 1.0

119 0.500000 0.500000 1.0 0.500000 0.500000 1.0

120 1.000000 1.000000 1.0 1.000000 1.000000 1.0

(e) Static tables for 2018. The follow-ing static mortality tables are used pursu-ant to paragraph (a)(3) of this section for

determining present value or making anycomputation under section 430 with respectto valuation dates occurring during 2018.

Males Females

Age Non-Annuitant AnnuitantOptional Combined

Table for Small Plans Non-Annuitant AnnuitantOptional Combined

Table for Small Plans

0 0.002420 0.002420 0.002420 0.002234 0.002234 0.002234

1 0.000142 0.000142 0.000142 0.000140 0.000140 0.000140

2 0.000097 0.000097 0.000097 0.000092 0.000092 0.000092

3 0.000081 0.000081 0.000081 0.000070 0.000070 0.000070

4 0.000064 0.000064 0.000064 0.000053 0.000053 0.000053

5 0.000056 0.000056 0.000056 0.000048 0.000048 0.000048

6 0.000051 0.000051 0.000051 0.000045 0.000045 0.000045

7 0.000046 0.000046 0.000046 0.000042 0.000042 0.000042

8 0.000039 0.000039 0.000039 0.000039 0.000039 0.000039

9 0.000032 0.000032 0.000032 0.000037 0.000037 0.000037

10 0.000027 0.000027 0.000027 0.000035 0.000035 0.000035

11 0.000029 0.000029 0.000029 0.000036 0.000036 0.000036

12 0.000044 0.000044 0.000044 0.000042 0.000042 0.000042

13 0.000058 0.000058 0.000058 0.000048 0.000048 0.000048


Males Females




14 0.000072 0.000072 0.000072 0.000053 0.000053 0.000053

15 0.000087 0.000087 0.000087 0.000059 0.000059 0.000059

16 0.000102 0.000102 0.000102 0.000064 0.000064 0.000064

17 0.000118 0.000118 0.000118 0.000068 0.000068 0.000068

18 0.000135 0.000135 0.000135 0.000072 0.000072 0.000072

19 0.000153 0.000153 0.000153 0.000075 0.000075 0.000075

20 0.000170 0.000170 0.000170 0.000076 0.000076 0.000076

21 0.000192 0.000192 0.000192 0.000078 0.000078 0.000078

22 0.000214 0.000214 0.000214 0.000080 0.000080 0.000080

23 0.000229 0.000229 0.000229 0.000084 0.000084 0.000084

24 0.000238 0.000238 0.000238 0.000087 0.000087 0.000087

25 0.000230 0.000230 0.000230 0.000090 0.000090 0.000090

26 0.000226 0.000226 0.000226 0.000094 0.000094 0.000094

27 0.000226 0.000226 0.000226 0.000099 0.000099 0.000099

28 0.000230 0.000230 0.000230 0.000105 0.000105 0.000105

29 0.000238 0.000238 0.000238 0.000111 0.000111 0.000111

30 0.000249 0.000249 0.000249 0.000120 0.000120 0.000120

31 0.000263 0.000263 0.000263 0.000130 0.000130 0.000130

32 0.000278 0.000278 0.000278 0.000142 0.000142 0.000142

33 0.000294 0.000294 0.000294 0.000155 0.000155 0.000155

34 0.000309 0.000309 0.000309 0.000168 0.000168 0.000168

35 0.000323 0.000323 0.000323 0.000182 0.000182 0.000182

36 0.000336 0.000336 0.000336 0.000196 0.000196 0.000196

37 0.000350 0.000350 0.000350 0.000213 0.000213 0.000213

38 0.000366 0.000366 0.000366 0.000231 0.000231 0.000231

39 0.000385 0.000385 0.000385 0.000251 0.000251 0.000251

40 0.000410 0.000410 0.000410 0.000273 0.000273 0.000273

41 0.000438 0.000443 0.000438 0.000298 0.000296 0.000298

42 0.000474 0.000516 0.000474 0.000326 0.000344 0.000326

43 0.000518 0.000627 0.000519 0.000358 0.000419 0.000358

44 0.000573 0.000779 0.000577 0.000395 0.000520 0.000395

45 0.000636 0.000973 0.000644 0.000436 0.000651 0.000438

46 0.000712 0.001213 0.000726 0.000484 0.000813 0.000489

47 0.000798 0.001502 0.000820 0.000538 0.001010 0.000550

48 0.000896 0.001844 0.000930 0.000597 0.001245 0.000619

49 0.001005 0.002248 0.001056 0.000661 0.001522 0.000697

50 0.001128 0.002719 0.001200 0.000734 0.001844 0.000790

51 0.001265 0.002963 0.001350 0.000814 0.001961 0.000881

52 0.001418 0.003224 0.001542 0.000903 0.002099 0.000992

53 0.001580 0.003481 0.001761 0.001003 0.002263 0.001122

54 0.001761 0.003751 0.002017 0.001114 0.002454 0.001273

55 0.001964 0.004040 0.002393 0.001235 0.002673 0.001508

56 0.002200 0.004357 0.002884 0.001367 0.002921 0.001811

57 0.002474 0.004704 0.003317 0.001509 0.003200 0.002084

58 0.002796 0.005088 0.003805 0.001661 0.003512 0.002379


Males Females




59 0.003174 0.005515 0.004341 0.001823 0.003860 0.002711

60 0.003613 0.005989 0.004951 0.001994 0.004238 0.003106

61 0.004122 0.006516 0.005639 0.002181 0.004659 0.003619

62 0.004705 0.007100 0.006406 0.002381 0.005119 0.004188

63 0.005364 0.007742 0.007243 0.002600 0.005616 0.004868

64 0.006111 0.008457 0.008071 0.002842 0.006165 0.005515

65 0.006940 0.009234 0.008966 0.003107 0.006766 0.006236

66 0.007779 0.010103 0.009945 0.003465 0.007430 0.007080

67 0.008697 0.011056 0.010940 0.003863 0.008170 0.007897

68 0.009709 0.012114 0.012027 0.004308 0.008993 0.008770

69 0.010836 0.013302 0.013231 0.004806 0.009912 0.009722

70 0.012093 0.014637 0.014571 0.005366 0.010945 0.010756

71 0.013486 0.016126 0.016064 0.006001 0.012111 0.011925

72 0.015044 0.017799 0.017742 0.006711 0.013412 0.013230

73 0.016794 0.019693 0.019640 0.007521 0.014886 0.014711

74 0.018751 0.021823 0.021775 0.008439 0.016552 0.016387

75 0.020950 0.024237 0.024194 0.009485 0.018443 0.018291

76 0.023428 0.026986 0.026949 0.010678 0.020600 0.020465

77 0.026183 0.030081 0.030051 0.012035 0.023061 0.022949

78 0.029308 0.033645 0.033622 0.013582 0.025888 0.025804

79 0.032774 0.037661 0.037648 0.015347 0.029144 0.029097

80 0.036705 0.042295 0.042295 0.017347 0.032886 0.032886

81 0.038556 0.047291 0.047291 0.019058 0.036992 0.036992

82 0.042087 0.053009 0.053009 0.022345 0.041662 0.041662

83 0.047283 0.059466 0.059466 0.027251 0.047017 0.047017

84 0.054248 0.066860 0.066860 0.033811 0.053130 0.053130

85 0.062990 0.075196 0.075196 0.042053 0.060056 0.060056

86 0.073605 0.084646 0.084646 0.052009 0.067888 0.067888

87 0.086115 0.095308 0.095308 0.063725 0.076724 0.076724

88 0.100513 0.107196 0.107196 0.077205 0.086549 0.086549

89 0.116840 0.120431 0.120431 0.092462 0.097426 0.097426

90 0.135087 0.135087 0.135087 0.109484 0.109484 0.109484

91 0.150610 0.150610 0.150610 0.122541 0.122541 0.122541

92 0.166534 0.166534 0.166534 0.136397 0.136397 0.136397

93 0.182546 0.182546 0.182546 0.150811 0.150811 0.150811

94 0.198598 0.198598 0.198598 0.165818 0.165818 0.165818

95 0.214442 0.214442 0.214442 0.181360 0.181360 0.181360

96 0.232944 0.232944 0.232944 0.198746 0.198746 0.198746

97 0.251903 0.251903 0.251903 0.216930 0.216930 0.216930

98 0.271612 0.271612 0.271612 0.235921 0.235921 0.235921

99 0.291889 0.291889 0.291889 0.255617 0.255617 0.255617

100 0.312680 0.312680 0.312680 0.275938 0.275938 0.275938

101 0.333720 0.333720 0.333720 0.296628 0.296628 0.296628

102 0.354570 0.354570 0.354570 0.317471 0.317471 0.317471

103 0.375136 0.375136 0.375136 0.338385 0.338385 0.338385


Males Females




104 0.395172 0.395172 0.395172 0.358868 0.358868 0.358868

105 0.413945 0.413945 0.413945 0.379183 0.379183 0.379183

106 0.432145 0.432145 0.432145 0.398878 0.398878 0.398878

107 0.449197 0.449197 0.449197 0.417703 0.417703 0.417703

108 0.465497 0.465497 0.465497 0.435384 0.435384 0.435384

109 0.480869 0.480869 0.480869 0.452108 0.452108 0.452108

110 0.495080 0.495080 0.495080 0.467928 0.467928 0.467928

111 0.500557 0.500557 0.500557 0.482562 0.482562 0.482562

112 0.500454 0.500454 0.500454 0.496164 0.496164 0.496164

113 0.500352 0.500352 0.500352 0.502110 0.502110 0.502110

114 0.500201 0.500201 0.500201 0.500952 0.500952 0.500952

115 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000

116 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000

117 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000

118 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000

119 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000

120 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000

Par. 3. Section 1.430(h)(3)–2 is revisedto read as follows:

§ 1.430(h)(3)–2 Plan-specific substitutemortality tables used to determinepresent value.

(a) In general. This section sets forthrules for the use of substitute mortalitytables under section 430(h)(3)(C) in deter-mining any present value or making anycomputation under section 430 in accor-dance with § 1.430(h)(3)–1(a)(1). In orderto use substitute mortality tables, a plansponsor must obtain approval to use sub-stitute mortality tables for the plan in ac-cordance with the procedures set forth inparagraph (b) of this section. Paragraph(c) of this section sets forth rules for thedevelopment of substitute mortality ta-bles, including guidelines providing that aplan must have either full or partial cred-ibility in order to have sufficient crediblemortality information to use substitutemortality tables. Paragraph (d) of this sec-tion describes the requirements for fullcredibility. Paragraph (e) of this sectiondescribes the requirements for partialcredibility. Paragraph (f) of this sectionprovides special rules for newly affiliatedplans not using substitute mortality tables.

Paragraph (g) of this section specifies theeffective date and applicability date of thissection. The Commissioner may, in reve-nue rulings and procedures, notices orother guidance published in the InternalRevenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter), provide addi-tional guidance regarding approval anduse of substitute mortality tables undersection 430(h)(3)(C) and related matters.

(b) Procedures for obtaining approvalto use substitute mortality tables—(1)Written request to use substitute mortalitytables—(i) General requirements. In or-der to use substitute mortality tables, aplan sponsor must submit a written re-quest to the Commissioner that demon-strates that those substitute mortality ta-bles meet the requirements of section430(h)(3)(C) and this section. This requestmust specify the first plan year and theterm of years (not more than 10) for whichthe tables are to apply.

(ii) Time for written request. Substitutemortality tables may not be used for a planyear unless the plan sponsor submits thewritten request described in paragraph(b)(1)(i) of this section at least 7 monthsprior to the first day of the first plan yearfor which the substitute mortality tablesare to apply.

(2) Commissioner’s review of re-quest—(i) In general. During the 180-dayperiod that begins on the date the plansponsor submits a request to use substitutemortality tables for a plan pursuant to thissection, the Commissioner will determinewhether the request to use substitute mor-tality tables satisfies the requirements ofthis section (including any publishedguidance issued pursuant to paragraph (a)of this section), and will either approve ordeny the request. The Commissioner willdeny a request if the request fails to meetthe requirements of this section or if theCommissioner determines that a substitutemortality table does not sufficiently reflectthe mortality experience of the applicableplan population.

(ii) Request for additional information.The Commissioner may request additionalinformation with respect to the submis-sion. Failure to provide that informationon a timely basis constitutes grounds fordenial of the request.

(iii) Deemed approval. Except as pro-vided in paragraph (b)(2)(iv) of this sec-tion, if the Commissioner does not issue adenial within the 180-day review period,the request is deemed to have been ap-proved.


(iv) Extension of time permitted. TheCommissioner and a plan sponsor may,before the expiration of the 180-day re-view period, agree in writing to extendthat period, provided that any such agree-ment also specifies any revisions in theplan sponsor’s request, including anychange in the requested term of use of thesubstitute mortality tables.

(c) Development of substitute mortalitytables—(1) Substitute mortality tablesmust be used for all plans in controlledgroup—(i) General rule. Except as other-wise provided in this paragraph (c), sub-stitute mortality tables are permitted to beused for a plan for a plan year only if, forthat plan year (or any portion of that planyear), substitute mortality tables are alsoapproved and used for each other pensionplan subject to the requirements of section430 that is maintained by the plan sponsorand by each member of the plan sponsor’scontrolled group. For purposes of this sec-tion, the term controlled group means anygroup treated as a single employer underparagraph (b), (c), (m), or (o) of section414.

(ii) Treatment of plans without crediblemortality information. The rule of para-graph (c)(1)(i) of this section does notprohibit use of substitute mortality tablesfor one plan for a plan year if the onlyother plan or plans maintained by the plansponsor (or by a member of the plan spon-sor’s controlled group) for which substi-tute mortality tables are not used are toosmall to have fully or partially crediblemortality information for the plan year.For purposes of demonstrating that neithermales nor females under a plan have cred-ible mortality information for a plan year,the length of the experience study periodmust be the same length as the longestexperience study period used for any planwithin the controlled group.

(2) Mortality experience requirements—(i) In general. Substitute mortality tablesmust reflect the actual mortality experienceof the pension plan for which the tables areto be used and that mortality experiencemust be credible mortality information asdescribed in paragraph (c)(2)(ii) of this sec-tion. Separate mortality tables must be es-tablished for each gender under the plan,and a substitute mortality table is permittedto be established for a gender only if theplan has credible mortality information with

respect to that gender. See paragraph (d)(5)of this section for rules permitting the use ofsubstitute mortality tables for populationswithin a gender that have full credibility.

(ii) Credible mortality information—(A) In general. There is credible mortalityinformation for a gender within a plan ifand only if the mortality experience withrespect to that gender satisfies the require-ment for either—

(1) Full credibility (as described inparagraph (d) of this section); or

(2) Partial credibility (as described inparagraph (e) of this section).

(B) Simplified rule. Whether there iscredible mortality information for a gen-der may be determined by only taking intoaccount people who are at least age 50 andless than age 100. If there is credible mor-tality information for a gender when ap-plying this simplified rule, the entire gen-der (not just those who are at least age 50and less than age 100) has credible mor-tality information.

(iii) Gender without credible mortalityinformation—(A) In general. If for a plan,one gender has credible mortality infor-mation but for a plan year the other genderdoes not have credible mortality informa-tion, then the substitute mortality tablesare established for the gender that doeshave credible mortality information andthe mortality tables under § 1.430(h)(3)–1are used for the gender that does not havecredible mortality information.

(B) Demonstration of lack of crediblemortality information for a gender. Ingeneral, in order to demonstrate that agender within a plan does not have cred-ible mortality information for a plan year,the demonstration that the gender withinthe plan has fewer than the minimumnumber of actual deaths to have partialcredibility, as described in paragraph(e)(1) of this section, must be made byanalyzing the actual number of deathsover a period that is the same length as theperiod for the experience study on whichthe substitute mortality tables are basedand that ends less than three years beforethe first day of the plan year.

(3) Determination of substitute mortal-ity tables—(i) Requirement to use gener-ational mortality table. A plan’s substitutemortality tables must be generational mor-tality tables. A plan’s substitute mortalitytables are determined using the plan’s

base substitute mortality tables developedpursuant to paragraph (d) or (e) of thissection and the mortality improvementfactors described in paragraph (c)(3)(ii) ofthis section.

(ii) Determination of mortality im-provement factors. The mortality im-provement factor for an age and a genderis the cumulative mortality improvementfactor determined under § 1.430(h)(3)–1(a)(2)(i)(E) for the applicable period.The applicable period is the period begin-ning with the base year of the base sub-stitute mortality table determined underparagraph (d) or (e) of this section andending in the calendar year in which theindividual attains the age for which theprobability of death is being determined.The base year for the base substitute mor-tality table is the calendar year that con-tains the day before the midpoint of theexperience study period.

(4) Disabled individuals. Under section430(h)(3)(D), separate mortality tables arepermitted to be used for certain disabledindividuals. If such separate mortality ta-bles are used for those disabled individu-als, then those individuals are disregardedfor all purposes under this section. Thus,if the mortality tables under section430(h)(3)(D) are used for disabled indi-viduals under a plan, mortality experiencewith respect to those individuals must beexcluded in developing mortality rates forsubstitute mortality tables under this sec-tion.

(5) Aggregation—(i) Permissive ag-gregation of plans. A plan sponsor mayuse a set of substitute mortality tables fortwo or more its plans provided that therules of this section are applied by treatingthose plans as a single plan. In such acase, the substitute mortality tables mustbe used for the aggregated plans and mustbe based on data collected with respect tothose aggregated plans.

(ii) Required aggregation of plans. Ingeneral, plans are not required to be ag-gregated for purposes of applying therules of this section. However, for pur-poses of this section, a plan is required tobe aggregated with any plan that was pre-viously spun off from that plan if a pur-pose of the spinoff is to avoid the use ofsubstitute mortality tables for any of theplans that were involved in the spinoff.


(6) Duration of use of tables—(i) Gen-eral rule. Except as provided in this para-graph (c)(6), substitute mortality tablesare used for a plan for the term of consec-utive plan years specified in the plan spon-sor’s written request to use such tablesunder paragraph (b)(1) of this section andapproved by the Commissioner, or ashorter period prescribed by the Commis-sioner in the approval to use substitutemortality tables. Following the end of theapproved term of use, or following anyearly termination of use described in thisparagraph (c)(6), the mortality tablesspecified in § 1.430(h)(3)–1 are used forthe plan unless approval under paragraph(b)(1) of this section has been received bythe plan sponsor to use substitute mortal-ity tables for a further term.

(ii) Early termination of use of tables.A plan’s substitute mortality tables mustnot be used beginning with the earliestof—

(A) For a plan using a substitute mor-tality table for only one gender because ofa lack of credible mortality informationwith respect to the other gender, the firstplan year for which there is credible mor-tality information with respect to the gen-der that had lacked credible mortality in-formation (unless an approved substitutemortality table is used for that gender);

(B) The first plan year for which theplan fails to satisfy the requirements ofparagraph (c)(1) of this section (regardinguse of substitute mortality tables by con-trolled group members);

(C) The second plan year following theplan year for which there is a significantchange in individuals covered by the planas described in paragraph (c)(6)(iii) of thissection;

(D) The first plan year following theplan year for which a substitute mortalitytable used for a plan population is nolonger accurately predictive of futuremortality of that population, as deter-mined by the Commissioner or as certifiedby the plan’s actuary to the satisfaction ofthe Commissioner; or

(E) The date specified in guidance pub-lished in the Internal Revenue Bulletin(see § 601.601(d)(2)(ii)(b) of this chapter)in conjunction with a replacement ofmortality tables specified under section430(h)(3)(A) and § 1.430(h)(3)–1 (otherthan annual updates to the static mortality

tables issued pursuant to § 1.430(h)(3)–1(a)(3) or changes to the mortality im-provement rates pursuant to § 1.430(h)(3)–1(a)(2)(i)(C)).

(iii) Significant change in coverage—(A) Change in coverage from time of ex-perience study. For purposes of applyingthe rules of paragraph (c)(6)(ii)(C) of thissection, a significant change in the indi-viduals covered by a substitute mortalitytable occurs if there is an increase or de-crease in the number of individuals of atleast 20 percent compared to the averagenumber of individuals in that populationover the years covered by the experiencestudy on which the substitute mortalitytables are based. However, a change incoverage is not treated as significant if theplan’s actuary certifies in writing to thesatisfaction of the Commissioner thatthe substitute mortality tables used for theplan population continue to be accuratelypredictive of future mortality of that pop-ulation (taking into account the effect ofthe change in the population).

(B) Change in coverage from time ofcertification. For purposes of applying therules of paragraph (c)(6)(ii)(C) of this sec-tion, a significant change in the individu-als covered by a substitute mortality tableoccurs if there is an increase or decreasein the number of individuals covered by asubstitute mortality table of at least 20percent compared to the number of indi-viduals in a plan year for which a certifi-cation described in paragraph (c)(6)(iii)(A) of this section was made on accountof a prior change in coverage. However, achange in coverage is not treated as sig-nificant if the plan’s actuary certifies inwriting to the satisfaction of the Commis-sioner that the substitute mortality tablesused by the plan with respect to the cov-ered population continue to be accuratelypredictive of future mortality of that pop-ulation (taking into account the effect ofthe change in the plan population).

(d) Full credibility—(1) In general.The mortality experience with respect to agender or other population within a planhas full credibility if the actual number ofdeaths for that population during the ex-perience study period described in para-graph (d)(2) of this section is at least thefull credibility threshold described inparagraph (d)(3) of this section. Paragraph(d)(4) of this section provides rules for the

creation of a base substitute mortality ta-ble from the experience study, which ap-ply if the mortality experience for the pop-ulation has full credibility.

(2) Experience study period require-ments. The base substitute mortality tablefor a gender or other population within aplan must be developed from an experi-ence study of the mortality experience ofthat population that is collected over anexperience study period. The length of theexperience study period must be at least 2years and no more than 5 years. The lastday of the final year reflected in the expe-rience data must be less than 3 years be-fore the first day of the first plan year forwhich the substitute mortality tables are toapply. For example, if July 1, 2019, is thefirst day of the first plan year for which thesubstitute mortality tables will be used,then an experience study using calendaryear data must include data collected for aperiod that ends no earlier than December31, 2016.

(3) Full credibility threshold—(i)Threshold number of deaths. The fullcredibility threshold for a gender orother population within a plan is theproduct of 1,082 and the population’sbenefit dispersion factor. In calculatingthe population’s benefit dispersionfactor, for purposes of paragraphs(d)(3)(iii), (iv), and (v) of this section,the population is adjusted, as appropri-ate, for people who leave on account ofreason other than death.

(ii) Population’s benefit dispersion fac-tor. The population’s benefit dispersionfactor is equal to—

(A) The number of expected deaths forthe population during the experiencestudy period (as defined in paragraph(d)(3)(iii) of this section); multiplied by

(B) The mortality-weighted square ofthe benefits (as defined in paragraph(d)(3)(iv) of this section); divided by

(C) The square of the mortality-weighted benefits (as defined in paragraph(d)(3)(v) of this section).

(iii) Number of expected deaths. Thenumber of expected deaths for a popula-tion during the experience study period isequal to the sum, for each year in theexperience study period, of the expectednumber of deaths in the population duringthe year using the mortality rates from the


standard mortality tables set forth in para-graph (d)(4)(iii) of this section.

(iv) Mortality-weighted square of thebenefits. The mortality-weighted square ofthe benefits for a population is the sum,for each year in the experience study pe-riod, for all individuals for each age in thepopulation at the beginning of the year, ofthe product of—

(A) The probability of death of thoseindividuals using the mortality rate forthat age from the standard mortality tableset forth in paragraph (d)(4)(iii) of thissection; and

(B) The sum of the square of the ac-crued benefits (substituting the current pe-riodic payment in the case of individualsin pay status) for those individuals.

(v) Square of the mortality-weightedbenefits. The square of the mortality-weighted benefits is equal to the square ofthe sum, for each year in the experiencestudy period, for all individuals for eachage in the population at the beginning ofthe year, of the product of—

(A) The probability of death of thoseindividuals using the mortality rate forthat age from the standard mortality tableset forth in paragraph (d)(4)(iii) of thissection; and

(B) The sum of the accrued benefits(substituting the current periodic paymentin the case of individuals in pay status) forthose individuals.

(4) Development of mortality rates—(i) In general. The mortality rates derivedfrom the experience study must beamounts-weighted mortality rates that arederived by multiplying the mortality ratefrom the standard mortality table de-scribed in paragraph (d)(4)(iii) of this sec-tion by the mortality ratio determined un-der paragraph (d)(4)(ii) of this section. Ifthe simplified rule of paragraph (c)(2)(ii)(B) of this section is used for the pop-ulation, then the mortality ratio is deter-mined only taking into account peoplewho are at least 50 years old and less than100 years old, but the mortality ratio isapplied to all ages. Because amounts-weighted mortality rates for a plan cannotbe determined without benefit amounts,the mortality experience study used to de-velop a base table must not include peri-ods before the plan was established.

(ii) Mortality ratio. The mortality ratiofor a gender or other population within a

plan is equal to the quotient determined bydividing—

(A) The sum, for each year in the ex-perience study period, of the accrued ben-efits (substituting the current periodic pay-ment in the case of individuals in paystatus) for all individuals in the populationat the beginning of the year who diedduring the year, by

(B) The sum, for each year in the ex-perience study period, for all individualsfor each age in the population at the be-ginning of the year (adjusted, as appropri-ate, for people who leave on account ofreason other than death), of the productof—

(1) The probability of death of thoseindividuals using the mortality rate forthat age from the standard mortality tableset forth in paragraph (d)(4)(iii) of thissection; and

(2) The sum of the accrued benefits(substituting the current periodic paymentin the case of individuals in pay status) forthose individuals.

(iii) Standard mortality table—(A)Projection of base table. The standardmortality table for a year is the mortalitytable determined by applying cumulativemortality improvement factors determinedunder § 1.430(h)(3)–1(a)(2)(i)(E) to thebase mortality table under § 1.430(h)(3)–1(d) for the period beginning with 2006and ending in the base year for the basesubstitute mortality table determined un-der paragraph (d) or (e) of this section. Forpurposes of the previous sentence, the cu-mulative mortality improvement factorsare determined using the mortality im-provement rates described in § 1.430(h)(3)–1(a)(2)(i)(C) that apply for the calen-dar year during which the plan sponsorsubmits the request to use substitute mor-tality tables. If the plan sponsor submitssuch a request during 2017, then the cu-mulative mortality improvement factorsare determined using the mortality im-provement rates contained in the Mortal-ity Improvement Scale MP–2016 Report(issued by the Retirement Plans Experi-ence Committee (RPEC) of the Society ofActuaries and available at www.soa.org/Research/Experience-Study/Pension/research-2016-mp.aspx).

(B) Selection of base table. If the pop-ulation consists solely of annuitants, theannuitant base mortality table under

§ 1.430(h)(3)–1(d) must be used for pur-poses of paragraph (d)(4)(iii)(A) of thissection. If the population consists solelyof nonannuitants, the nonannuitant basemortality table under § 1.430(h)(3)–1(d)must be used for that purpose. If the pop-ulation includes both annuitants and non–annuitants, a combination of the annuitantand nonannuitant base tables under§ 1.430(h)(3)–1(d) must be used for thatpurpose. The combined table is con-structed using the weighting factors forsmall plans that are set forth in§ 1.430(h)(3)–1(d). The weighting factorsare applied to develop the combined tableusing the following equation: Combinedmortality rate � [nonannuitant rate * (1-weighting factor)] � [annuitant rate *weighting factor].

(iv) Change in number of individualscovered by table. Experience data may notbe used to develop a base table if thenumber of individuals in the populationcovered by the table (for example, themale annuitant population) as of the lastday of the plan year before the year therequest to use substitute mortality tables ismade, compared to the average number ofindividuals in that population over theyears covered by the experience study onwhich the substitute mortality tables arebased, reflects a difference of 20 percentor more, unless it is demonstrated to thesatisfaction of the Commissioner that theexperience data is accurately predictive offuture mortality of that plan population(taking into account the effect of thechange in individuals) after appropriateadjustments to the data are made (for ex-ample, excluding data from individualswith respect to a spun-off portion of theplan). For this purpose, a reasonable esti-mate of the number of individuals in thepopulation covered by the table may beused.

(5) Separate tables for specified popu-lations—(i) In general. Except as pro-vided in this paragraph (d)(5), separatesubstitute mortality tables are permitted tobe used for separate populations within agender under a plan only if—

(A) All individuals of that gender in theplan are divided into separate populations;

(B) Each separate population has mor-tality experience that has full credibility asdetermined under the rules of paragraph(d)(5)(iii) of this section; and


(C) The separate base substitute mor-tality table for each separate populationis developed applying the rules of para-graphs (d)(1) through (4) of this sectionusing an experience study that takes intoaccount solely members of that popula-tion.

(ii) Annuitant and nonannuitantseparate populations. Notwithstandingparagraph (d)(5)(i)(B) of this section,substitute mortality tables for separatepopulations of annuitants and nonannui-tants within a gender may be used even ifonly one of those separate populations hascredible mortality information. Similarly, ifseparate populations that satisfy paragraph(d)(5)(i)(B) of this section are established,then any of those populations may be fur-ther subdivided into separate annuitant andnonannuitant subpopulations, provided thatat least one of the two resulting subpopula-tions has credible mortality experience. Thestandard mortality tables under § 1.430(h)(3)–1 are used for a resulting subpopulationthat does not have credible mortality infor-mation. For example, in the case of a planwith mortality experience for both its malehourly and salaried individuals that has fullcredibility, if the male salaried annuitantpopulation has credible mortality informa-tion, substitute mortality tables may be usedfor the plan with respect to that populationeven if the standard mortality tables under§ 1.430(h)(3)–1 are used with respect to themale salaried nonannuitant population (be-cause that nonannuitant population does nothave credible mortality information).

(iii) Credible mortality experience forseparate populations. In determiningwhether the mortality experience for aseparate population within a gender hasfull credibility, the requirements of para-graph (d)(1) of this section must be satis-fied but, in applying that paragraph (d)(1),the separate population should be substi-tuted for the particular gender. In demon-strating that an annuitant or nonannuitantpopulation within a gender or within aseparate population does not have crediblemortality information, the requirements ofparagraph (c)(2)(iii)(B) of this sectionmust be satisfied but, in applying thatparagraph, the annuitant (or nonannuitant)population should be substituted for theparticular gender.

(e) Partial credibility—(1) In general.The mortality experience with respect to a

population has partial credibility if theactual number of deaths for that popula-tion during the experience study perioddescribed in paragraph (d)(2) of this sec-tion is at least equal to the partial credi-bility threshold of 100 and is less than thefull credibility threshold described for thepopulation in paragraph (d)(3) of this sec-tion. If the mortality experience for thepopulation has partial credibility, then inlieu of creating a base substitute mortalitytable as described in paragraph (d) of thissection, the base substitute mortality tableis created as the sum of—

(i) The product of—(A) The partial credibility weighting

factor determined under paragraph (e)(2)of this section; and

(B) The mortality rates that are derivedfrom the experience study determined un-der paragraph (d)(4)(i) of this section, and

(ii) The product of—(A) One minus the partial credibility

weighting factor described in paragraph(e)(2) of this section; and

(B) The mortality rate from the stan-dard mortality tables described in para-graph (d)(4)(iii) of this section.

(2) Partial credibility weighting factor.The partial credibility weighting factor isequal to the square root of the fraction—

(i) The numerator of which is the actualnumber of deaths for the population dur-ing the experience study period, and

(ii) The denominator of which is thefull credibility threshold for the popula-tion described in paragraph (d)(3) of thissection.

(f) Special rules for newly affiliatedplans—(1) In general. This paragraph (f)provides special rules that provide tempo-rary relief from certain rules in this sec-tion in the case of a controlled group thatincludes a newly affiliated plan. Paragraph(f)(2) of this section provides a transitionperiod during which the requirement inparagraph (c)(1) of this section (that is, therequirement that all plans within the con-trolled group that have credible mortalityinformation must use substitute mortalitytables) is not applicable. Paragraph (f)(3)of this section provides special rules thatpermit the use of a shorter experiencestudy period in the case of a newly affil-iated plan that excludes the mortality ex-perience data for the period prior to thedate the plan sponsor becomes maintained

by a member of the new plan sponsor’scontrolled group. Paragraph (f)(4) of thissection defines newly affiliated plan.

(2) Transition period for newly affili-ated plans. The use of substitute mortalitytables for a plan within a controlled groupis not prohibited merely because substi-tute mortality tables are not used duringthe transition period for a newly affiliatedplan that fails to demonstrate a lack ofcredible mortality information during thethat period. Similarly, during the transi-tion period, the use of substitute mortalitytables for a newly affiliated plan is notprohibited merely because substitute mor-tality tables are not used for another planwithin the controlled group that fails todemonstrate a lack of credible mortalityinformation during that period. The tran-sition period runs through the last day of theplan year that contains the last day of theperiod described in section 410(b)(6)(C)(ii)for either of the plans, whichever is later.

(3) Experience study period for newlyaffiliated plan—(i) In general. The mor-tality experience data for a newly affili-ated plan may either include or excludemortality experience data for the periodprior to the date the plan becomes main-tained by a member of the new plan spon-sor’s controlled group. If a plan sponsorexcludes mortality experience data for theperiod prior to the date the plan becomesmaintained within the new plan sponsor’scontrolled group, the exclusion must ap-ply for all populations within the plan.

(ii) Demonstration relating to lack ofcredible mortality experience. If the expe-rience study for a newly affiliated planexcludes mortality experience data for theperiod prior to the date the plan becomesmaintained by a member of the new plansponsor’s controlled group, then the dem-onstration that the plan does not havecredible mortality information for a planyear that begins after the transition periodcan be made using a shorter experiencestudy period than would otherwise be per-mitted under paragraph (c)(2)(iii)(B) ofthis section, provided that the experiencestudy period begins with the date the planbecomes maintained within the sponsor’scontrolled group and ends not more thanone year and one day before the first dayof the plan year.

(iii) Demonstration relating to crediblemortality experience. If the experience


study for a newly affiliated plan excludesmortality experience data for the periodprior to the date the plan becomes main-tained by a member of the new plan spon-sor’s controlled group and the plan fails todemonstrate that it does not have crediblemortality information for the plan yearunder the rules of paragraph (f)(3)(ii) ofthis section, then other plans within thecontrolled group can continue to use sub-stitute mortality tables only if substitutemortality tables are used for the newlyaffiliated plan the plan year. In such acase, the experience study period can be ashorter period than the period in para-graph (d)(2) of this section, provided thatthe period is at least one year.

(4) Definition of newly affiliated plan.For purposes of this paragraph (f), a planis treated as a newly affiliated plan if itbecomes maintained by the plan sponsor(or by a member of the plan sponsor’scontrolled group) in connection with amerger, acquisition, or similar transactiondescribed in § 1.410(b)–2(f). A plan alsois treated as a newly affiliated plan forpurposes of this section if the plan is es-tablished in connection with a transfer ofassets and liabilities from another employ-er’s plan in connection with a merger,acquisition, or similar transaction de-scribed in § 1.410(b)–2(f).

(g) Effective/applicability date. Thissection applies for plan years beginningon or after January 1, 2018, and any sub-stitute mortality table used for a plan forsuch a plan year must comply with therules of this section.

Par. 4. Section 1.431(c)(6)–1 is revisedto read as follows:

§ 1.431(c)(6)–1 Mortality tables used todetermine current liability.

(a) Mortality tables used to determinecurrent liability. The mortality assumptionsthat apply to a defined benefit plan for theplan year pursuant to section 430(h)(3)(A)and § 1.430(h)(3)–1(a) are used to deter-mine a multiemployer plan’s current liabil-ity for purposes of applying the rules ofsection 431(c)(6). Either the generationalmortality tables used pursuant to § 1.430(h)(3)–1(a)(2) or the static mortality tables usedpursuant to § 1.430(h)(3)–1(a)(3) are per-mitted to be used for a multiemployer planfor this purpose. However, for this purpose,

substitute mortality tables under § 1.430(h)(3)–2 are not permitted to be used for amultiemployer plan.

(b) Effective/applicability date. Thissection applies for plan years beginningon or after January 1, 2018. For rules thatapply to plan years beginning before Jan-uary 1, 2018 and on or after January 1,2008, see § 1.431(c)(6)–1 (as contained in26 CFR part 1 revised April 1, 2015).

Par. 5. Section 1.433(h)(3)–1 is addedto read as follows:

§ 1.433(h)(3)–1 Mortality tables used todetermine current liability.

(a) Mortality tables used to determinecurrent liability. In accordance with section433(h)(3)(B), the mortality assumptions thatapply to a defined benefit plan for the planyear pursuant to section 430(h)(3)(A) and§ 1.430(h)(3)–1(a) are used to determine aCSEC plan’s current liability for purposesof applying the rules of section 433(c)(7)(C). Either the static mortality tables usedpursuant to § 1.430(h)(3)–1(a)(3) or gener-ational mortality tables used pursuant to§ 1.430(h)(3)–1(a)(2) are permitted to beused for a CSEC plan for this purpose, butsubstitute mortality tables under

§ 1.430(h)(3)–2 are not permitted to beused for this purpose.

(b) Effective/applicability date. Thissection applies for plan years beginningon or after January 1, 2018.


Enforcement.


Nuclear DecommissioningFunds

REG–112800–16


ACTION: Notice of proposed rulemaking.

SUMMARY: This document provides pro-posed changes to the regulations under sec-tion 468A of the Internal Revenue Code of

1986 (Code) relating to deductions for con-tributions to trusts maintained for decom-missioning nuclear power plants and the useof the amounts in those trusts to decommis-sion nuclear plants. The proposed regula-tions revise certain provisions to: addressissues that have arisen as more nuclearplants have begun the decommissioningprocess; and clarify provisions in the currentregulations regarding self-dealing and thedefinition of substantial completion ofdecommissioning.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by March 29, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–112800–16), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand deliv-ered Monday through Friday between thehours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG–112800–16), Courier’sDesk, Internal Revenue Service, 1111 Con-stitution Avenue N.W., Washington, DC, orsent electronically, via the Federal eRule-making Portal at http://www.regulations.gov/ (IRS REG–112800–16).

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, Jenni-fer C. Bernardini, (202) 317-6853; con-cerning submissions and to request ahearing, Regina Johnson, (202) 317-6901(not toll-free numbers).


Paperwork Reduction Act

There is no new collection of informa-tion contained in this notice of proposedrulemaking. The collection of informationcontained in the regulations under section468A has been reviewed and approved bythe Office of Management and Budget inaccordance with the Paperwork ReductionAct of 1995 (44 U.S.C. 3507(d)) undercontrol number 1545-2091. Responses tothese collections of information are re-quired to obtain a tax benefit.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less it displays a valid control numberassigned by the Office of Managementand Budget.


Books or records relating to a collec-tion of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by section 6103 of the Code.

Background

This proposed rulemaking consists ofseveral amendments to the existing regu-lations under section 468A. Section 468Awas originally enacted by section 91(c)(1)of the Deficit Reduction Act of 1984, Pub-lic Law 98–369, (98 Stat 604) and hasbeen amended, most recently by section1310 of the Energy Policy Act of 2005,Public Law 109–58 (119 Stat 594). Tem-porary regulations (TD 9374) under sec-tion 468A were published in the FederalRegister for December 31, 2007 (72 FR74175). Regulations finalizing and remov-ing the temporary regulations (TD 9512)were published in the Federal Register onDecember 23, 2010 (75 FR 80697).

Explanation of Provisions

1. Definition of Nuclear DecommissioningCosts

A. Inclusion of amounts related to thestorage of spent fuel within definition ofnuclear decommissioning costs

Section 468A is intended to allow tax-payers to currently deduct amounts setaside in a qualified fund (Fund) for thepurpose of decommissioning a nuclearpower plant. The taxpayer must includethe amount of any actual or deemed dis-tribution from the Fund in gross income inthe year of the distribution, as provided in§ 1.468A–2(d)(1). Taxpayers may thenclaim an offsetting deduction for amountsspent on decommissioning costs as deter-mined under section 461(h) and other sec-tions. See § 1.468A–2(e).

Taxpayers that operate nuclear powerplants, whether such plants are currentlyoperating or have ceased operations, mustsafely store spent fuel. Nuclear fuel as-semblies are removed from the reactorand those assemblies are stored in a spentfuel pool for cooling. Subsequently, thespent fuel may be inserted into storagecasks and the casks transferred to an on-site Independent Spent Fuel Storage In-

stallation (ISFSI). An ISFSI consists of aconcrete storage pad on which the storagecasks are placed. Although the NuclearWaste Policy Act of 1982, 42 U.S.C.10101, et seq, requires the Department ofEnergy (DOE) to take and dispose ofspent nuclear fuel in a permanent geologicrepository, no such repository has beenestablished and the government has notyet begun accepting spent fuel. Thus, op-erators of nuclear power plants mustsafely store spent fuel in an on-site ISFSI.

Existing § 1.468A–1(b)(6) defines nu-clear decommissioning costs as including“all otherwise deductible expenses to beincurred in connection with” the disposalof certain nuclear assets. Section 1.468A–1(b)(6) continues that “such term also in-cludes costs incurred in connection withthe construction, operation, and ultimatedecommissioning of a facility used solelyto store, pending acceptance by the gov-ernment for permanent storage or dis-posal, spent nuclear fuel generated by thenuclear power plant or plants located onthe same site as the storage facility.” TheTreasury Department and the IRS havebecome aware that there are questions re-garding whether ISFSI-related costs forthe construction or purchase of assets thatwould not necessarily qualify as “other-wise deductible” expenses under the cur-rent regulation are included as nucleardecommissioning costs. The proposedregulations clarify the definition of nu-clear decommissioning costs to specifi-cally provide for ISFSI-related costs.

B. Inclusion of amounts for purchase orconstruction of a depreciable asset aspart of decommissioning process withindefinition of nuclear decommissioningcosts

Under the existing regulations, ques-tions have arisen as to whether a cost mustbe currently deductible for that amount tobe payable currently from the Fund underthe “otherwise deductible” language of§ 1.468A–1(b)(6). For example, where adepreciable asset is purchased or con-structed as part of the decommissioningprocess (and the asset is not consideredabandoned) questions have arisen regard-ing whether the “otherwise deductible”language is satisfied solely by the fact thatthe property is depreciable or whether the

expense is treated as a deductible decom-missioning expense only to the extent thatdepreciation is currently allowed. Thisraises a timing issue regarding whether afund may pay for the purchase or con-struction of a depreciable asset to be usedin decommissioning that is not consideredabandoned when completed. Under thepresent regulations, because the assetwould be fully depreciable but the cost ofthe asset is not otherwise deductible, afund may only pay for the portion of thedepreciation allowable in the tax year inwhich such property is placed in service.The intent of section 468A is to allowowners of nuclear power plants to putamounts in a Fund on a tax-free basis andthen to use those amounts and the earn-ings on those amounts to pay for decom-missioning. In order to effectuate that in-tent, the proposed regulations broaden thedefinition of nuclear decommissioningcosts to include the total cost of deprecia-ble assets by adding the words “or recov-erable through depreciation” following“otherwise deductible” in § 1.468A–1(b)(6).

2. Clarification of the Applicability ofthe Self-Dealing Rules to TransactionsBetween the Fund and Related Parties

Section 4951 imposes an excise tax onacts of self-dealing between a “disquali-fied person” and a trust described in sec-tion 501(c)(21). Section 468A(e)(5) pro-vides that, under regulations prescribed bythe Secretary, for purposes of section4951, the Fund shall be treated in the samemanner as a trust described in section501(c)(21). Section 1.468A–5(b)(1) statesthat the excise taxes imposed by section4951 apply to each act of self-dealingbetween the Fund and a disqualified per-son. Section 1.468A–5(b)(2) defines “self-dealing,” for purposes of § 1.468A–5(b),as any act described in section 4951(d),but provides for some exclusions, includ-ing a payment by a Fund for the purposeof satisfying, in whole or in part, the lia-bility of the taxpayer who has elected sec-tion 468A and established a Fund (elect-ing taxpayer) for decommissioning costsof the nuclear power plant to which theFund relates. Section 1.468A–5(b)(3), byreference to section 4951(e)(4) and§ 53.4951–1(d), provides that the term


“disqualified person” includes, with re-spect to a trust, a contributor to the trustand a trustee of the trust.

The IRS has issued several private letterrulings holding that a reimbursement to anelecting taxpayer or an unrelated party by aFund of decommissioning costs, such asseverance payments and pre-dismantlementdecommissioning costs, is made for the pur-pose of satisfying the liability of the electingtaxpayer for decommissioning costs of thenuclear power plant to which the Fund re-lates and therefore is not self-dealing. Thus,under these rulings, the reimbursement by aFund of these costs represents a permissibleuse of the Funds. To remove any lingeringuncertainty, as well as to avoid the burdenon taxpayers of filing additional ruling re-quests on these issues, the proposed regula-tions clarify that reimbursements of decom-missioning costs by the Fund to relatedparties (including the electing taxpayer) thatpaid such costs are not an act of self-dealing.However, no amount beyond what is actu-ally paid by the related party, includingamounts such as direct or indirect overheador a reasonable profit element, may be in-cluded in the reimbursement by the Fund.

3. Definition of “SubstantialCompletion” in § 1.468A–5(d)(3)(i)

Existing § 1.468A–5(d)(3)(i) definesthe substantial completion date as “thedate that the maximum acceptable radio-activity levels mandated by the NuclearRegulatory Commission [NRC] with re-spect to a decommissioned nuclear powerplant are satisfied.” However, § 1.468A–5(d)(3)(ii) provides that, if a significantportion of the total estimated decommis-sioning costs are not incurred on or beforethe substantial completion date, the elect-ing taxpayer may request a ruling thatdesignates a date subsequent to the sub-stantial completion date as the terminationdate; such later date may be no later thanthe last day of the third taxable year afterthe taxable year that includes the substan-tial completion date. Under certain stateand local requirements, the plant operatormust return the site of the plant to condi-tions requiring time beyond that needed toreach the maximum radioactivity levelmandated by the NRC. To accommodatethese situations without requiring that thetaxpayer request a ruling, the proposed

regulations amend the definition of “sub-stantial completion” to the date on whichall Federal, state, local, and contractualdecommissioning liabilities are fully sat-isfied.

Proposed Effective/Applicability Date

The rules contained in these regula-tions are proposed to apply to taxableyears ending on or after the date of pub-lication of the Treasury decision adoptingthese rules as final regulations in the Fed-eral Register. Notwithstanding the pro-spective effective date, the IRS will notchallenge return positions consistent withthese proposed regulations for taxableyears ending on or after the date theseproposed regulations are published.

Special Analyses

Certain IRS regulations, includingthese, are exempt from the requirementsof Executive Order 12866, as supple-mented and affirmed by Executive Order13563. Therefore, a regulatory assessmentis not required. It is hereby certified thatthese regulations will not have a signifi-cant economic impact on a substantialnumber of small entities. This certificationis based on (1) the fact that the rules inthese proposed regulations primarily af-fect owners of nuclear power plants whichare not small entities as defined by theRegulatory Flexibility Act (5 U.S.C. 601)and (2) the proposed regulations do notimpose a collection of information onsmall entities. Accordingly, a RegulatoryFlexibility Analysis under the RegulatoryFlexibility Act (5 U.S.C. 601) is not re-quired. We request comment on the accu-racy of this certification. Pursuant to sec-tion 7805(f) of the Code, these regulationshave been submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on their impacton small business.

Comments and Requests for a PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments (asigned original and eight (8) copies) orelectronically generated comments thatare submitted timely to the IRS. The Trea-sury Department and the IRS generally

request comments on the clarity of theproposed rule and how it may be madeeasier to understand. All comments willbe available for public inspection andcopying. A public hearing may be sched-uled if requested in writing by a personwho timely submits comments. If a publichearing is scheduled, notice of the date,time, and place for the hearing will bepublished in the Federal Register.


The principal author of these regula-tions is Jennifer C. Bernardini, Office ofAssociate Chief Counsel (Passthroughsand Special Industries). However, otherpersonnel from the IRS and Treasury De-partment participated in their develop-ment.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is pro-posed to be amended as follows:


Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section § 1.468A–1 is amended

by revising paragraph (b)(6) to read asfollows:

§ 1.468A–1 Nuclear decommissioningcosts; general rules.

* * * * *(b) * * *(6)(i) The term nuclear decommission-

ing costs or decommissioning costs in-cludes all otherwise deductible expensesto be incurred in connection with the en-tombment, decontamination, dismantle-ment, removal and disposal of the struc-tures, systems and components of anuclear power plant, whether that nuclearpower plant will continue to produce elec-tric energy or has permanently ceased toproduce electric energy. Such term in-cludes all otherwise deductible expensesto be incurred in connection with the prep-aration for decommissioning, such as en-gineering and other planning expenses,and all otherwise deductible expenses tobe incurred with respect to the plant after


the actual decommissioning occurs, suchas physical security and radiation moni-toring expenses. An expense is otherwisedeductible for purposes of this paragraph(b)(6) if it would be deductible or recov-erable through depreciation or amortiza-tion under chapter 1 of the Internal Rev-enue Code without regard to section280B.

(ii) The term nuclear decommissioningcosts or decommissioning costs also in-cludes costs incurred in connection withthe construction, operation, and ultimatedecommissioning of a facility used solelyto store, pending delivery to a permanentrepository or disposal, spent nuclear fuelgenerated by the nuclear power plant orplants located on the same site as thestorage facility (for example, an Indepen-dent Spent Fuel Storage Installation).Such term does not include otherwise de-ductible expenses to be incurred in con-nection with the disposal of spent nuclearfuel under the Nuclear Waste Policy Actof 1982 (Public Law 97–425).

* * * * *Par. 3. Paragraph § 1.468A–5 is

amended by revising the heading andparagraphs (b)(2)(i) and (d)(3)(i) to readas follows:

§ 1.468A–5 Nuclear decommissioningfund—miscellaneous provisions.

* * * * *(b) * * *(2) * * *(i) A payment by a nuclear decommis-

sioning fund for the purpose of satisfying,in whole or in part, the liability of theelecting taxpayer for decommissioningcosts of the nuclear power plant to whichthe nuclear decommissioning fund relates,whether such payment is made to an un-related party in satisfaction of the decom-missioning liability or to the plant opera-tor or other otherwise disqualified personas reimbursement solely for actual ex-penses paid by such person in satisfactionof the decommissioning liability;

* * * * *(d) * * *(3) * * *(i) The substantial completion of the

decommissioning of a nuclear power plantoccurs on the date on which all Federal,state, local, and contractual decommis-sioning requirements are fully satisfied(the substantial completion date). Exceptas otherwise provided in paragraph(d)(3)(ii) of this section, the substantialcompletion date is also the terminationdate.* * * * *


Enforcement.



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

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds thatthe same principle also applies to B, theearlier ruling is amplified. (Compare withmodified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling 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 thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the newruling does more than restate the sub-

stance of a prior ruling, a combination ofterms is used. For example, modified andsuperseded 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 isself contained. In this case, the previouslypublished ruling is first modified and then,as modified, 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 namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the 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 ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in currentuse and formerly used will appear in ma-terial published 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.

Bulletin No. 2017–4 January 23, 2017i

Numerical Finding List1

Bulletin 2017–1 through 2017–4

Notices:

2017-1, 2017-2 I.R.B. 3672017-2, 2017-4 I.R.B. 5392017-3, 2017-2 I.R.B. 3682017-4, 2017-4 I.R.B. 5412017-6, 2017-3 I.R.B. 4222017-7, 2017-3 I.R.B. 4232017-8, 2017-3 I.R.B. 4232017-9, 2017-4 I.R.B. 5422017-10, 2017-4 I.R.B. 544

Proposed Regulations:

REG-128276-12, 2017-2 I.R.B. 369REG-112324-15, 2017-4 I.R.B. 547REG-134438-15, 2017-2 I.R.B. 373REG-112800-16, 2017-4 I.R.B. 569REG-133353-16, 2017-2 I.R.B. 372

Revenue Procedures:

2017-1, 2017-1 I.R.B. 12017-2, 2017-1 I.R.B. 1062017-3, 2017-1 I.R.B. 1302017-4, 2017-1 I.R.B. 1462017-5, 2017-1 I.R.B. 2302017-7, 2017-1 I.R.B. 2692017-12, 2017-3 I.R.B. 4242017-14, 2017-3 I.R.B. 4262017-15, 2017-3 I.R.B. 4372017-16, 2017-3 I.R.B. 501

Revenue Rulings:

2017-1, 2017-3 I.R.B. 3772017-2, 2017-2 I.R.B. 3642017-3, 2017-4 I.R.B. 522

Treasury Decisions:

9794, 2017-2 I.R.B. 2739795, 2017-2 I.R.B. 3269796, 2017-3 I.R.B. 3809801, 2017-2 I.R.B. 3559802, 2017-2 I.R.B. 3619803, 2017-3 I.R.B. 3849804, 2017-3 I.R.B. 4069806, 2017-4 I.R.B. 524

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–27 through 2016–52 is in Internal Revenue Bulletin2016–52, dated December 26, 2016.

January 23, 2017 Bulletin No. 2017–4ii

Finding List of Current Actions onPreviously Published Items1

Bulletin 2017–1 through 2017–4

Notices:

2002-1Amplified byNotice 2017-1, 2017-2 I.R.B. 367

2011-86Obsoleted byNotice 2017-1, 2017-2 I.R.B. 367

2016-29Modified byNotice 2017-6, 2017-3 I.R.B. 422

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–27 through 2016–52 is in Internal Revenue Bulletin2016–52, dated December 26, 2016.

Bulletin No. 2017–4 January 23, 2017iii

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

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