IRB 2009-44 (Rev. November 2, 2009) · November 2, 2009 HIGHLIGHTS OF THIS ISSUE ... 2053(d) and 2058. Notice 2009–84, page 592. This notice provides a limited administrative exception

Bulletin No. 2009-44November 2, 2009

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

INCOME TAX

Rev. Rul. 2009–35, page 568.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for November 2009.

Notice 2009–83, page 588.Credit for carbon dioxide sequestration under section45Q. This notice sets forth interim guidance, pending the is-suance of regulations, relating to the credit for carbon diox-ide sequestration under section 45Q of the Code. Specifically,the notice provides guidance on determining eligibility for thecredit and the amount of the credit, as well as rules regardingadequate security measures for secure geological storage ofcarbon dioxide. The notice also sets forth a separate reportingrequirement.

EXEMPT ORGANIZATIONS

Announcement 2009–78, page 594.The IRS has revoked its determination that Concerned Resi-dents of Southeast, Inc., of Brewster, NY, qualifies as an or-ganization described in sections 501(c)(3) and 170(c)(2) of theCode.

ESTATE TAX

T.D. 9468, page 570.Final regulations under section 2053 of the Code relate to theamount deductible from a decedent’s gross estate for claimsagainst the estate. In addition, the regulations update the pro-visions relating to the deduction for certain state death taxesto reflect the statutory amendments made in 2001 to sections2053(d) and 2058.

Notice 2009–84, page 592.This notice provides a limited administrative exception to theability of the Service to examine a Form 706, United StatesEstate (and Generation-Skipping Transfer) Tax Return, in con-nection with certain Code section 2053 protective claims forrefund filed within the time prescribed in section 6511(a).

GIFT TAX

T.D. 9460, page 584.Final regulations under section 7477 of the Code provide guid-ance for determining whether a donor may petition the TaxCourt for a declaratory judgment with respect to the value of ataxable gift, where the gift does not generate any current gifttax liability.

(Continued on the next page)

Finding Lists begin on page ii.

ADMINISTRATIVE

T.D. 9460, page 584.Final regulations under section 7477 of the Code provide guid-ance for determining whether a donor may petition the TaxCourt for a declaratory judgment with respect to the value of ataxable gift, where the gift does not generate any current gifttax liability.

Notice 2009–84, page 592.This notice provides a limited administrative exception to theability of the Service to examine a Form 706, United StatesEstate (and Generation-Skipping Transfer) Tax Return, in con-nection with certain Code section 2053 protective claims forrefund filed within the time prescribed in section 6511(a).

November 2, 2009 2009–44 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applying

the tax law with integrity and fairness to all.

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

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

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

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

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

The Bulletin is divided into four parts as follows:

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

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

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

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

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

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

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

2009–44 I.R.B. November 2, 2009

November 2, 2009 2009–44 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof November 2009. See Rev. Rul. 2009-35, page568.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of November 2009. SeeRev. Rul. 2009-35, page 568.

Section 382.—Limitationon Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of November 2009. See Rev.Rul. 2009-35, page 568.

Section 412.—MinimumFunding Standards


Section 467.—CertainPayments for the Use ofProperty or Services


Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month

of November 2009. See Rev. Rul. 2009-35, page568.

Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 807.—Rules forCertain Reserves


Section 846.—DiscountedUnpaid Losses Defined


Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for November 2009.

Rev. Rul. 2009–35

This revenue ruling provides variousprescribed rates for federal income taxpurposes for November 2009 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described insection 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(1) for buildings placed inservice during the current month. How-ever, under section 42(b)(2), the applicablepercentage for non-federally subsidizednew buildings placed in service after July30, 2008, and before December 31, 2013,shall not be less than 9%. Finally, Table5 contains the federal rate for determiningthe present value of an annuity, an interestfor life or for a term of years, or a remain-der or a reversionary interest for purposesof section 7520.

2009–44 I.R.B. 568 November 2, 2009

REV. RUL. 2009–35 TABLE 1

Applicable Federal Rates (AFR) for November 2009

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR .71% .71% .71% .71%110% AFR .78% .78% .78% .78%120% AFR .85% .85% .85% .85%130% AFR .92% .92% .92% .92%

Mid-term

AFR 2.59% 2.57% 2.56% 2.56%110% AFR 2.85% 2.83% 2.82% 2.81%120% AFR 3.10% 3.08% 3.07% 3.06%130% AFR 3.37% 3.34% 3.33% 3.32%150% AFR 3.90% 3.86% 3.84% 3.83%175% AFR 4.55% 4.50% 4.47% 4.46%

Long-term

AFR 4.01% 3.97% 3.95% 3.94%110% AFR 4.42% 4.37% 4.35% 4.33%120% AFR 4.82% 4.76% 4.73% 4.71%130% AFR 5.23% 5.16% 5.13% 5.11%


Adjusted AFR for November 2009

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

.80% .80% .80% .80%

Mid-term adjusted AFR 1.89% 1.88% 1.88% 1.87%

Long-term adjustedAFR

3.92% 3.88% 3.86% 3.85%


Rates Under Section 382 for November 2009

Adjusted federal long-term rate for the current month 3.92%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.33%


Appropriate Percentages Under Section 42(b)(1) for November 2009

Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July30, 2008, and before December 31, 2013, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit 7.76%

Appropriate percentage for the 30% present value low-income housing credit 3.33%

November 2, 2009 569 2009–44 I.R.B.


Rate Under Section 7520 for November 2009

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 3.2%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations


Section 2053.—Expenses,Indebtedness, and Taxes

26 CFR 20.2053–1: Deductions for expenses, indebt-edness, and taxes; in general.

This notice provides a limited administrative ex-ception to the ability of the Internal Revenue Serviceto examine a Form 706 (United States Estate (andGeneration-Skipping Transfer) Tax Return) in con-nection with certain protective claims for refund thatare based on a deduction under section 2053 of theInternal Revenue Code and are filed within the timeprescribed in section 6511(a) of the Code. See Notice2009-84, page 592.

T.D. 9468

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 20

Guidance Under Section 2053Regarding Post-Death Events

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations relating to the amountdeductible from a decedent’s gross estatefor claims against the estate under sec-tion 2053(a)(3) of the Internal RevenueCode (Code). In addition, the regulationsupdate the provisions relating to the de-duction for certain state death taxes to

reflect the statutory amendments made in2001 to sections 2053(d) and 2058. Theregulations primarily will affect estates ofdecedents against which there are claimsoutstanding at the time of the decedent’sdeath.

DATES: Effective Date: The regulationsare effective on October 20, 2009.

Applicability Dates: For datesof applicability, see §§20.2051–1(c),20.2053–1(f), 20.2053–3(e), 20.2053–4(f), 20.2053–6(h), 20.2053–9(f), and20.2053–10(e).

FOR FURTHER INFORMATIONCONTACT: Karlene M. Lesho, (202)622–3090 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 2001 of the Code imposes atax on the transfer of the taxable estate,determined as provided in section 2051,of every decedent, citizen, or resident ofthe United States. Section 2031(a) gen-erally provides that the value of the dece-dent’s gross estate shall include the valueat the time of decedent’s death of all prop-erty, real or personal, tangible or intangi-ble, wherever situated. Section 2051 pro-vides that the value of the taxable estateis determined by deducting from the valueof the gross estate the deductions providedfor in sections 2051 through 2058. Pur-suant to section 2053(a), “the value of thetaxable estate shall be determined by de-ducting from the value of the gross estatesuch amounts: (1) for funeral expenses,(2) for administration expenses, (3) forclaims against the estate, and (4) for un-paid mortgages on, or any indebtedness inrespect of, property where the value of thedecedent’s interest therein, undiminishedby such mortgage or indebtedness, is in-cluded in the value of the gross estate, asare allowable by the laws of the jurisdic-tion, whether within or without the UnitedStates, under which the estate is being ad-ministered.”

The amount an estate may deductfor claims against the estate has beena highly litigious issue. See the Back-ground in the notice of proposed rule-making published in the Federal Registeron April 23, 2007 (REG–143316–03,2007–1 C.B. 1292 [72 FR 20080]). Unlikesection 2031, section 2053(a) does notcontain a specific directive to value adeductible claim at its value at the timeof the decedent’s death. Section 2053specifically contemplates expenses suchas funeral and administration expenses,which are only determinable after thedecedent’s death.

The lack of consistency in the case lawhas resulted in different estate tax treat-ment of estates that are similarly situated,depending only upon the jurisdiction inwhich the executor resides. The Trea-sury Department and the IRS believe thatsimilarly-situated estates should be treatedconsistently by having section 2053(a)(3)construed and applied in the same way inall jurisdictions.

Accordingly, in an effort to further thegoal of effective and fair administration ofthe tax laws, the Treasury Department andthe IRS published proposed regulations inthe Federal Register on April 23, 2007.In formulating the proposed rule, the Trea-sury Department and the IRS carefullyconsidered: the statutory framework andlegislative history of section 2053 and itspredecessors; the existing regulatory pro-visions under section 2053, particularlythose that are generally applicable to allamounts deductible under section 2053;the numerous judicial decisions involvingan issue under section 2053(a)(3) and theanalysis and conclusion in each; and, thepractical consequences of various possiblealternatives for determining the amountdeductible under section 2053(a)(3).

The proposed regulations proposedamendments to the regulations under sec-tion 2053 to clarify that events occurringafter a decedent’s death are to be con-sidered when determining the amountdeductible under all provisions of section2053 and that deductions under section

2009–44 I.R.B. 570 November 2, 2009

2053 generally are limited to amountsactually paid by the estate in satisfac-tion of deductible expenses and claims.The proposed regulations also proposedamendments to address more specificallyissues involving final court decisions, set-tlements, protective claims, reimbursedamounts, claims that are potential, un-matured, or contested, claims involvingmultiple defendants, claims by a familymember or beneficiary of a decedent’sestate, unenforceable claims, recurringpayments, and the changes made to sec-tion 2053(d) in 2001.

Written comments were received on theproposed regulations and a public hearingwas held on August 6, 2007. After care-ful consideration of the written and oralcomments, the proposed regulations areadopted as revised by this Treasury deci-sion. In addition, the Treasury Departmentand the IRS plan to issue additional guid-ance, including additional proposed regu-lations, in order to respond to certain com-ments and emerging issues that the Trea-sury Department and the IRS believe meritfurther consideration, as indicated in theSummary.

The comments and revisions to the pro-posed regulations are discussed in this pre-amble.

Summary of Comments andExplanation of Revisions

1. Comments Relating to Prop. Reg.§20.2051–1

One commentator suggested that thesentence relating to the computation ofthe taxable estate of a decedent who wasnot a citizen or resident of the UnitedStates should continue to reference theregulations under section 2106, and notthe regulations under section 2051. Thefinal regulations restore the reference tothe regulations under section 2106.

2. Comments Relating to the Standard forDeductibility Set Forth in the ProposedRegulation

The proposed regulations generallyprovide that only claims actually paid bythe estate may be deducted under sec-tion 2053(a)(3). Many commentatorsdisagreed with this approach and sug-gested that claims against a decedent’sestate be valued on the basis of what was

reasonably known on the date of the dece-dent’s death. These commentators citedthe line of cases following the decision inIthaca Trust v. Commissioner, 279 U.S.151 (1929), to support the same valuationrule for both claims against the estate andclaims for inclusion purposes under sec-tion 2031. Commentators were concernedthat the approach of the proposed regula-tions could lengthen the process of estateadministration (on account of the antici-pated increase in the need for protectiveclaims), cause tax motivations to factorinto litigation strategy, and produce liquid-ity shortfalls in estates with both claimsby and claims against a decedent. Thedivergence of court opinions on this issueis evidence that the proper way to deductclaims against an estate is a very difficultissue. After giving serious considerationto the comments submitted on this issue,the Treasury Department and the IRS con-tinue to believe that a deduction for claimsunder section 2053(a)(3) only for amountsactually paid by the estate most closelyaligns with the legislative intent behindsection 2053 and its predecessors and bestfurthers the goal of effective and fair ad-ministration of the tax laws. Accordingly,the final regulations generally maintainthe approach of the proposed regulations.

Notwithstanding the adherence to thegeneral approach of the proposed regula-tions, however, the Treasury Departmentand the IRS acknowledge that, as waspointed out in many of the comments,there are practical difficulties associatedwith each of the alternatives, includingthe approach taken in the proposed reg-ulations. In order to make the practicalapplication of the approach more adminis-trable, the final regulations include severalexceptions to the approach of the pro-posed regulations. The final regulationsinclude an exception for claims againstthe estate with respect to which there is anasset or claim includible in the gross estatethat is substantially related to the claimagainst the estate. See paragraph 10 ofthis “Summary of Comments and Expla-nation of Revisions” and §20.2053–4(b).The final regulations also include an ex-ception for claims against the estate that,collectively, do not exceed $500,000 (notincluding those deductible as ascertain-able amounts). See paragraph 5 of this“Summary of Comments and Explana-tion of Revisions” and §20.2053–4(c).

Although both exceptions provide an op-portunity to claim a deduction at the timeof filing the United States Estate (andGeneration-Skipping Transfer) Tax Return(Form 706), in each case, the amount ofthe deduction is subject to adjustment toreflect post-death events, consistent withthe general approach of the regulations.

3. Comments Relating to the Effectof a Court Decree in Prop. Reg.§20.2053–1(b)(2)

The proposed regulations changed thelanguage regarding a court decree from“the court passes upon the facts uponwhich deductibility depends” to “the courtreviewed the facts relating to the expen-ditures.” A commentator suggested thatsuch a change in language may give theunintended impression that this consti-tutes a substantive change. Thus, thesefinal regulations remove the language ofthe proposed regulations and reinstate theoriginal language.

A commentator also requestedthat an example be added to clarifythat the last sentence of Prop. Reg.§20.2053–1(b)(2)(i) would apply to ju-risdictions in which a court approves theadministration of an estate without specif-ically approving expenses and claims,absent a challenge from an interestedparty. The final regulations include suchan example.

Some commentators recommended theremoval of the requirement that a settle-ment be within the range of reasonableoutcomes under applicable state law inorder for a settlement amount to be de-ductible because the requirement placesthe Commissioner or a court in the posi-tion of having to evaluate the legal meritsof a claim adjudicated in another courtproceeding. The commentators also main-tained that the requirement is superfluousin light of the existing requirements thatthe settlement resolve a bona fide issuein an active and genuine contest and thatadverse parties negotiate at arm’s length.The final regulations eliminate the sep-arate requirement that the settlement bewithin the range of reasonable outcomesunder applicable state law.

Some commentators claimed that therules relating to settlements did not recog-nize that, in some instances, the cost of de-fending a claim and the delay associated

November 2, 2009 571 2009–44 I.R.B.

with litigating the claim will factor into thedecision to settle a claim. The final regu-lations clarify that a deduction will not bedenied for a settlement amount otherwisedeductible under section 2053 if an estatecan establish that the cost of defending theclaim or contesting the expense, the delayassociated with litigating such claim or ex-pense, or another significant factor will im-pose a higher burden on the estate relativeto the amount paid to settle the claim or thecontested expense.

4. Comments Relating to the Rulefor Estimated Amounts in Prop. Reg.§20.2053–1(b)(4)

The rule provided in Prop. Reg.§20.2053–1(b)(4) involving esti-mated amounts is now provided in§20.2053–1(d)(4) of these final regu-lations and the paragraph heading ischanged from “[e]stimated amounts” to“[e]xception for certain ascertainableamounts.” The final regulations use a con-sistent description of the rule containedin §20.2053–1(d)(4) where applicable inthe remainder of the regulation. No sub-stantive change is intended; rather, themodified paragraph heading in the finalregulations is intended to describe the sub-stance of the rule more accurately.

A commentator noted that use ofthe language “will be paid” in Prop.Reg. §20.2053–1(b)(4) may be incon-sistent with the language in Prop. Reg.§20.2053–3(b)(1) (“may reasonably beexpected to be paid”) and in Prop. Reg.§20.2053–4(b)(7)(i) (claims cannot be es-timated if there is “reasonable likelihoodthat full satisfaction of the liability will notbe made”). The commentator suggestedmodification of the language in Prop.Reg. §20.2053–1(b)(4) to incorporatethe reasonableness standard found in theother sections and requested conformingchanges throughout the regulation for con-sistency purposes. The final regulationsdo not add a reasonableness componentto the standard for meeting the “will bepaid” requirement, although the final reg-ulations clarify that a deduction is allowedunder the rule for deducting certain as-certainable amounts to the extent that theCommissioner is reasonably satisfied thatthe amount to be paid is ascertainablewith reasonable certainty and will be paid.The final regulations use consistent lan-

guage where applicable in describing thestandard for meeting the “will be paid” re-quirement in each reference to the rule fordeducting certain ascertainable amounts.

In addition, some commentators re-quested clarification on whether therule previously provided in Prop. Reg.§20.2053–1(b)(4) applies not onlyto claims but to administration ex-penses as well. The final regulationsmake the requested clarification and§20.2053–1(d)(4) provides that the rule fordeducting certain ascertainable amountsapplies to both a claim and an expense.

A commentator suggested that thestatement in Prop. Reg. §20.2053–1(b)(4)prohibiting a deduction for “a vague oruncertain estimate” be omitted becauseit puts forth a subjective standard opento a wide range of interpretations. TheTreasury Department and the IRS believethat the rule previously provided in Prop.Reg. §20.2053–1(b)(4), now providedin §20.2053–1(d)(4) of these final regu-lations, sets forth clear requirements fordetermining the amount allowable as a de-duction under section 2053. Because thestatement in Prop. Reg. §20.2053–1(b)(4)merely clarifies this rule, the statement hasbeen retained in the final regulations.

A commentator suggested that the lan-guage in Prop. Reg. §20.2053–1(b)(4),indicating that a deduction in advance ofpayment will be disallowed if the pay-ment is thereafter waived or otherwise leftunpaid, negates the purpose of allowinga deduction for an estimated amount andshould be deleted. However, the Trea-sury Department and the IRS believe thatthere is an important difference. Therule for deducting certain ascertainableamounts previously provided in Prop.Reg. §20.2053–1(b)(4), and now pro-vided in §20.2053–1(d)(4) of these finalregulations, provides an estate with theopportunity to claim a deduction at thetime of filing Form 706, even though theamount ultimately allowable as a deduc-tion under this rule will take into accountevents occurring after the date of a dece-dent’s death. The ability to deduct anascertainable amount does not change thegeneral rule that the amount of the deduc-tion is to reflect post-death events.

Some commentators questionedwhether the proposed regulations imposea duty on the executor to report amountsthat were claimed as deductions on the

estate tax return, but were subsequentlynot paid or not paid in full, and whethersuch a duty could be enforced after theperiod of limitations on assessment hasexpired. The Treasury Department and theIRS did not intend for the proposed regu-lations to impose a duty on the executorthat could be enforced after the expirationof the period of limitations on assessment.As a result, the final regulations eliminatethis provision. The final regulations alsoinclude a provision clarifying the periodduring which post-death events will beconsidered.

5. Comments Relating to ProtectiveClaims

A commentator expressed concern thatthe protective claim procedures in theproposed regulations would result in in-creased administrative costs and a delayin the administration of the estate becausefiling a protective claim effectively wouldkeep the period of limitations open tothe extent of the amount of the claim forrefund. The Treasury Department andthe IRS believe that protective claims forrefund are an appropriate and necessarycomponent of these regulations, as theyprovide a mechanism to ensure that thedeductibility rule provided for in theseregulations is implemented in a fair andequitable manner. Nevertheless, the Trea-sury Department and the IRS acknowledgethat the commentator’s concern is valid.In an effort to make the regulation moreadministrable for both taxpayers and theCommissioner, the final regulations in§20.2053–4(c) include an exception forclaims against the estate that do not ex-ceed, in the aggregate, $500,000. Becausethe purpose of this provision is to providecertain relief from the need to file a pro-tective claim, a claim is not eligible forthis provision unless the entire amount ofthe claim may be covered within this cap.This rule allows an estate a deduction onForm 706 for claims against the estate.However, consistent with the general ap-proach of the final regulations, the amountof the deduction is subject to adjustmentto reflect post-death events. To addressthe commentator’s concern regarding theeffect of a protective claim for refundon the applicable period of limitations,the Treasury Department and the IRS areissuing, concurrent with this regulation,

2009–44 I.R.B. 572 November 2, 2009

a notice announcing the IRS’s decisionto limit the review of a return, in certaincircumstances, when a timely-filed claimfor refund of estate taxes that is based on adeduction under section 2053 ripens afterthe expiration of the limitations period onassessment.

Some commentators requested moredetailed guidance on the proceduresfor filing a protective claim for refund.In response to this comment, the finalregulations include a provision under§20.2053–1(d)(5) to explain the protectiveclaim for refund process. The TreasuryDepartment and the IRS also intend toprovide, by publication in the InternalRevenue Bulletin, further procedural guid-ance on protective claims for refund dueto section 2053 claims or expenses. Inaddition, a commentator suggested thatForm 706 be revised to incorporate a pro-tective claim for refund so that a separateform need not be filed. The TreasuryDepartment and the IRS believe this sug-gestion will make the final regulationsmore administrable and are contemplatingamending Form 706 to implement thissuggestion.

Another commentator suggested thatthe IRS be lenient in granting extensionsof time to pay the estate tax under sec-tion 6161 when an estate is confronting aliquidity issue arising from the inabilityto deduct a claim that is the subject of aprotective claim for refund. Although inmany cases the illiquidity resulting froma not-yet-deductible claim may be rea-sonable cause for granting an extensionof time to pay the estate tax for purposesof section 6161, the Treasury Departmentand the IRS believe that any regulatoryprovision implementing this suggestionwould be outside the scope of this regula-tion.

6. Comments Relating to the Effect on theMarital and Charitable Deductions

Some commentators requested clarifi-cation of the impact of the approach takenin the proposed regulations on the mar-ital and charitable deductions in estateswhere a claim or expense is payable inwhole or in part from a bequest that qual-ifies for the marital or charitable deduc-tion. Commentators requested that the fi-nal regulations include a rule confirmingthat, if a claim or expense is the subject

of a protective claim for refund under sec-tion 2053 and is payable out of a fundthat meets the requirements for a chari-table or marital deduction under section2055 or 2056, respectively, the charita-ble or marital deduction will not be re-duced by the amount of the claim or ex-pense until the amount is actually paid. Inthe interest of enhancing the administrabil-ity of these regulations, such a rule is in-cluded in §20.2053–1(d)(5)(ii). The Trea-sury Department and the IRS view this ruleas similar to the rules in the regulationsunder sections 2055 and 2056 that pro-vide, respectively, for the reduction of thevalue of the charitable or marital share bythe amount of estate transmission expensespaid from the charitable or marital share.For purposes of the estate tax charitablededuction under section 2055, a claim orexpense that is the subject of a protectiveclaim for refund under section 2053 willnot render the charitable deduction, to theextent of the amount of that claim or ex-pense, contingent and thus nondeductibleunder section 2055.

7. Comments Relating to Reimbursements,Prop. Reg. §20.2053–1(b)(3)

The proposed regulations provide that adeduction is not allowed to the extent thatthe expense or claim is or could be com-pensated for by insurance or is or couldbe otherwise reimbursed. A commenta-tor recommended that the final regulationsexplain the method by which an execu-tor may establish that there is no availablereimbursement either from another partyor insurance. In response to this com-ment, the final regulations provide that anexecutor may certify on Form 706 thatno reimbursement is available for a claimor expense if the executor neither knowsnor reasonably should have known of theavailability of any such reimbursement.

Additionally, some commentators rec-ommended that the final regulations reflectthe possibility that the cost of obtaining thereimbursement might outweigh the benefitof reimbursement. In response, the finalregulations provide that an executor neednot reduce the amount of a claim or ex-pense deductible under section 2053 by theamount of a potential reimbursement if theexecutor provides a reasonable explana-tion on Form 706 for his or her reasonabledetermination that the burden of necessary

collection efforts would outweigh the an-ticipated benefits from those efforts.

8. Comments Relating to Deduction forExpenses of Administering Estate underProp. Reg. §20.2053–3

A commentator recommended remov-ing from Prop. Reg. §20.2053–3(b) and(c) any language restating the general re-quirements for deductibility set forth inProp. Reg. §20.2053–1 and the generalrules regarding protective claims. Thecommentator suggested that duplicatingthe language in Prop. Reg. §20.2053–3(b)and (c) was unnecessary and perhaps con-fusing. In response, the final regulationsremove the language that merely restatesthe general rules set forth in Prop. Reg.§20.2053–1.

Some commentators recommendedomitting the sentence in Prop. Reg.§20.2053–3(d)(3) that prohibits a deduc-tion for expenses incurred merely for thepurpose of unreasonably extending thetime for payment, or incurred other thanin good faith. The commentators statedthat a situation where litigation has beenintentionally prolonged other than in goodfaith is rare and unlikely to occur. Fur-thermore, the commentators expressedconcern that the rule may subject theestate’s legal strategy to IRS inquiry. Fi-nally, the commentators maintained thatit would be extremely difficult to provethat litigation expenses have not been in-curred to unreasonably extend the timefor payment or other than in good faith.The Treasury Department and the IRS findthese comments persuasive and addition-ally believe that including this sentencein the final regulations is not necessarybecause expenses incurred merely for thepurpose of unreasonably extending thetime for payment or other than in goodfaith will not be considered actually andnecessarily incurred in the administrationof the decedent’s estate and, therefore, arenot deductible for that reason.

9. Comments Relating to Claims Againstthe Estate, Prop. Reg. §20.2053–4(a)

The proposed regulations provide thatdeductible claims against a decedent’s es-tate are limited to legitimate and bona fideclaims. A commentator stated that theterms “legitimate” and “bona fide” in Prop.

November 2, 2009 573 2009–44 I.R.B.

Reg. §20.2053–4(a)(1) are redundant. Thefinal regulations remove the term “legiti-mate” and provide that deductible claimsagainst a decedent’s estate are limited tobona fide claims.

A commentator requested clarificationthat the Commissioner shall be boundin the same manner as the estate to con-sider events occurring after the date of adecedent’s death when determining theamount deductible by the decedent’s es-tate. The Treasury Department and theIRS believe that the rule of Prop. Reg.§20.2053–4(a)(2) sets forth a general prin-ciple that governs the determination of theamount deductible against a decedent’sestate, and that therefore is binding onboth estates and the Commissioner. Ac-cordingly, no change is believed to benecessary.

10. Comments Relating to Claims andCounterclaims

Some commentators, citing fairnessand liquidity concerns, suggested allowinga deduction for a claim against the estateon the initial filing of Form 706 if thevalue of the gross estate includes a claim inthe same or a substantially-related matteror includes an asset integrally related orsubject to the claim against the estate. TheTreasury Department and the IRS find thissuggestion persuasive when a decedent’ssubstantially-related claim against a thirdparty or a decedent’s integrally-relatedasset constitutes a significant percentageof the gross estate. The final regulationsunder §20.2053–4(b) provide that thecurrent value of a claim against the es-tate with respect to which there is one ormore substantially-related claims or inte-grally-related assets that are included in adecedent’s gross estate may be deductedon Form 706, provided that the relatedclaim or asset of the estate constitutes atleast 10 percent of the decedent’s grossestate, the value of each such claim againstthe estate is determined from a “qualifiedappraisal” performed by a “qualified ap-praiser” (within the meaning of section170 of the Code and the correspondingregulations), and the value of each suchclaim against the estate is subject to ad-justment to reflect post-death events. Thedeductible amount of each such claim islimited to the value of the related asset orclaim included in the gross estate. The

amount of the claim against the estate inexcess of this limitation may be the subjectof a protective claim for refund.

11. Comments Relating to Prop.Reg. §20.2053–4(b)(4), Claims byFamily Members, Related Entities, orBeneficiaries

The proposed regulations include a re-buttable presumption that claims by a fam-ily member of the decedent, a related en-tity, or a beneficiary of the decedent’s es-tate or a revocable trust are not legitimateand bona fide. Many commentators re-quested that the rebuttable presumption beremoved from the regulation. A com-mentator suggested that the presumptionbe replaced by a provision requiring closescrutiny of claims by family members, re-lated entities, or beneficiaries. Althoughsuch claims are in fact closely scrutinizedduring the examination of a return, theTreasury Department and the IRS believethat a regulatory provision prescribing thelevel of scrutiny to be given a particularitem is not appropriate for this regulation.

Other commentators stated that the pre-sumption is inconsistent with the burdenof proof provision of section 7491 andthat such a presumption should apply onlywhen the facts indicate possible collusion.After careful consideration, the TreasuryDepartment and the IRS have concludedthat the rebuttable presumption in the pro-posed regulations does not conflict withsection 7491.

Some commentators maintained thatthe presumption is unfair and unwarrantedbecause the proposed regulations and theburden of proof provisions adequately de-ter the manipulation of claims by familymembers, related entities or beneficiaries.The Treasury Department and the IRScarefully considered these comments and,in response to the enumerated concernswith the creation of a rebuttable presump-tion, have removed the presumption fromthe final regulations. Instead, the finalregulations continue to include the gener-ally applicable requirement that any claimor expense deductible under section 2053must be bona fide in nature, but also in-clude a paragraph that (as suggested by acommentator) provides a nonexclusive listof factors indicative of the bona fide natureof a claim or expense involving a family

member, related entity, or beneficiary ofthe estate of a decedent.

12. Comments Relating to Payments inProp. Reg. §20.2053–4(b)(5)

A commentator suggested removing therule in Prop. Reg. §20.2053–4(b)(5) pro-viding that claims that are unenforceableprior to or at the decedent’s death are notdeductible even if paid. The Treasury De-partment and the IRS believe that this ruleis mandated by the statutory requirementthat only amounts allowable by the lawsof the jurisdiction under which the estate isbeing administered may be deducted fromthe value of the gross estate. Therefore,this suggestion has not been adopted.

13. Comments Relating to RecurringPayments in Prop. Reg. §20.2053–4(b)(7)

The proposed regulations provide thatcertain recurring, noncontingent obli-gations may be deducted as estimatedamounts. Some commentators suggestedthat not allowing an estate to deduct thevalue of a contingent obligation is inef-ficient and inequitable because it forcesthe estate to remain open unless the es-tate purchases a commercial annuity. TheTreasury Department and the IRS ac-knowledge that a contingent obligationmay extend the period of estate admin-istration unless the estate purchases acommercial annuity to satisfy the obli-gation or makes distributions that areencumbered by the contingent obligation.However, the Treasury Department andthe IRS believe that allowing a deductionfor a noncontingent recurring paymentas an ascertainable amount (deductibleunder §20.2053–1(d)(4) of the final reg-ulations), but not allowing a deductionfor a contingent recurring payment un-til paid is a necessary component of therules of deductibility provided for in theseregulations. Nevertheless, the TreasuryDepartment and the IRS believe that thepurchase of a commercial annuity (with acost determined by the market and basedon the particular contingency) to fund acontingent obligation should be deemedto be substantially equivalent to a reason-ably ascertainable (and thus deductible)noncontingent obligation for purposes ofsection 2053 and these regulations.

Some commentators requested clarifi-cation on whether death or remarriage is

2009–44 I.R.B. 574 November 2, 2009

considered a contingency with respect todecedent’s obligation to make a recurringpayment. The final regulations clarifythat, for purposes of section 2053, anobligation subject to death or remarriageis treated as a noncontingent obligationunder §20.2053–4(d)(6)(i).

Some commentators suggested that thedisparate treatment afforded noncontin-gent obligations (deduction for presentvalue of obligations) versus contingentobligations (dollar-for-dollar deductionas paid) is inequitable and produces aninconsistent result without meaningful jus-tification. These commentators requestedthat the final regulations allow an estateto choose between deducting the presentvalue of a noncontingent recurring pay-ment on the estate tax return, or insteaddeducting the amounts paid in the samemanner as provided for a contingent obli-gation (after filing an appropriate protec-tive claim for refund). The Treasury De-partment and the IRS find the argumentsagainst the disparate treatment of noncon-tingent and contingent obligations to bepersuasive. The final regulations eliminatethe disparate treatment by removing thepresent value limitation applicable only tononcontingent recurring payments. TheTreasury Department and the IRS believethat the issue of the appropriate use ofpresent value in determining the amountof the deduction allowable under section2053 merits further consideration. Thefinal regulations reserve §20.2053–1(d)(6)to provide future guidance on this issue.

A commentator requested clarifica-tion on whether the rule in Prop. Reg.§20.2053–4(b)(7) will or will not apply tomortgages and other indebtedness under anote. The final regulations clarify that therules applicable to recurring payments donot apply to payments made in connectionwith a mortgage or other indebtednessdescribed in §20.2053–7.

Finally, a commentator requested fur-ther guidance on the commercial annuityprovision; specifically, whether the execu-tor must transfer ownership of the pur-chased annuity to the creditor or to a thirdparty who will use the annuity to makepayments to the creditor, or whether grant-ing the creditor a security interest in the an-nuity is sufficient in order for the amountpaid for the annuity to be deductible un-der section 2053. For income tax purposes,

the transfer of the annuity is likely to causeimmediate gain recognition of the entireamount to the transferee unless the annu-ity meets several specific requirements. Inlight of the purpose and intent of these reg-ulations, the Treasury Department and theIRS believe that the purchase of a commer-cial annuity, and the nonrefundable andgenerally significant costs involved in thatpurchase, should be sufficient to permit adeduction of the cost of the annuity for pur-poses of section 2053. For these reasons,the final regulations clarify that the estatemay be permitted to own the annuity.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It has also been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) doesnot apply to these regulations, and becausethese regulations do not impose a collec-tion of information on small entities, theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) does not apply. Therefore, a Regu-latory Flexibility Analysis is not required.Pursuant to section 7805(f) of the Code,this regulation has been submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Drafting Information

The principal author of these regula-tions is Karlene M. Lesho, Office of theAssociate Chief Counsel (Passthroughsand Special Industries). Other personnelfrom the IRS and the Treasury Departmentparticipated in their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 20 isamended as follows:

PART 20—ESTATE TAX; ESTATESOF DECEDENTS DYING AFTERAUGUST 16, 1954

Paragraph 1. The authority citation forpart 20 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *Par. 2. Section 20.2051–1 is revised to

read as follows:

§20.2051–1 Definition of taxable estate.

(a) General rule. The taxable estate ofa decedent who was a citizen or resident(see §20.0–1(b)(1)) of the United Statesat death is determined by subtracting thetotal amount of the deductions authorizedby sections 2053 through 2058 from thetotal amount which must be included in thegross estate under sections 2031 through2044. These deductions are in general asfollows—

(1) Funeral and administration ex-penses and claims against the estate(including certain taxes and charitablepledges) (section 2053).

(2) Losses from casualty or theft dur-ing the administration of the estate (section2054).

(3) Charitable transfers (section 2055).(4) The marital deduction (section

2056).(5) Qualified domestic trusts (section

2056A).(6) Family-owned business interests

(section 2057) to the extent applicable toestates of decedents.

(7) State death taxes (section 2058) tothe extent applicable to estates of dece-dents.

(b) Special rules. See section 2106 andthe corresponding regulations for specialrules regarding the computation of the tax-able estate of a decedent who was not a cit-izen or resident of the United States. Seealso §1.642(g)–1 of this chapter concern-ing the disallowance for income tax pur-poses of certain deductions allowed for es-tate tax purposes.

(c) Effective/applicability date. Thissection applies to the estates of decedentsdying on or after October 20, 2009.

Par. 3. Section 20.2053–1 is amendedby:

1. Revising paragraphs (a), (b)(2),(b)(3), and adding paragraph (b)(4).

2. Redesignating paragraph (d) as para-graph (e).

3. Adding paragraphs (d) and (f).The revisions and additions read as fol-

lows:

November 2, 2009 575 2009–44 I.R.B.

§20.2053–1 Deductions for expenses,indebtedness, and taxes; in general.

(a) General rule. In determining thetaxable estate of a decedent who was acitizen or resident of the United Statesat death, there are allowed as deductionsunder section 2053(a) and (b) amountsfalling within the following two categories(subject to the limitations contained inthis section and in §§20.2053–2 through20.2053–10)—

* * * * *(b) * * *(2) Bona fide requirement—(i) In gen-

eral. Amounts allowed as deductions un-der section 2053(a) and (b) must be ex-penses and claims that are bona fide in na-ture. No deduction is permissible to theextent it is founded on a transfer that isessentially donative in character (a merecloak for a gift or bequest) except to the ex-tent the deduction is for a claim that wouldbe allowable as a deduction under section2055 as a charitable bequest.

(ii) Claims and expenses involving fam-ily members. Factors indicative (but notnecessarily determinative) of the bona fidenature of a claim or expense involving afamily member of a decedent, a related en-tity, or a beneficiary of a decedent’s estateor revocable trust, in relevant instances,may include, but are not limited to, the fol-lowing—

(A) The transaction underlying theclaim or expense occurs in the ordinarycourse of business, is negotiated at arm’slength, and is free from donative intent.

(B) The nature of the claim or expenseis not related to an expectation or claim ofinheritance.

(C) The claim or expense originatespursuant to an agreement between thedecedent and the family member, relatedentity, or beneficiary, and the agreementis substantiated with contemporaneousevidence.

(D) Performance by the claimant is pur-suant to the terms of an agreement betweenthe decedent and the family member, re-lated entity, or beneficiary and the perfor-mance and the agreement can be substan-tiated.

(E) All amounts paid in satisfaction orsettlement of a claim or expense are re-ported by each party for Federal incomeand employment tax purposes, to the ex-tent appropriate, in a manner that is consis-

tent with the reported nature of the claim orexpense.

(iii) Definitions. The following defini-tions apply for purposes of this paragraph(b)(2):

(A) Family members include the spouseof the decedent; the grandparents, par-ents, siblings, and lineal descendants ofthe decedent or of the decedent’s spouse;and the spouse and lineal descendants ofany such grandparent, parent, and sibling.Family members include adopted individ-uals.

(B) A related entity is an entity in whichthe decedent, either directly or indirectly,had a beneficial ownership interest at thetime of the decedent’s death or at any timeduring the three-year period ending on thedecedent’s date of death. Such an en-tity, however, shall not include a publicly-traded entity nor shall it include a closely-held entity in which the combined ben-eficial interest, either direct or indirect,of the decedent and the decedent’s familymembers, collectively, is less than 30 per-cent of the beneficial ownership interests(whether voting or non-voting and whetheran interest in stock, capital and/or profits),as determined at the time a claim describedin this section is being asserted. Notwith-standing the foregoing, an entity in whichthe decedent, directly or indirectly, had anymanaging interest (for example, as a gen-eral partner of a partnership or as a manag-ing member of a limited liability company)at the time of the decedent’s death shall beconsidered a related entity.

(C) Beneficiaries of a decedent’s estateinclude beneficiaries of a trust of the dece-dent.

(3) Court decrees and settlements—(i)Court decree. If a court of competentjurisdiction over the administration of anestate reviews and approves expendituresfor funeral expenses, administration ex-penses, claims against the estate, or unpaidmortgages (referred to in this section as a“claim or expense”), a final judicial deci-sion in that matter may be relied upon toestablish the amount of a claim or expensethat is otherwise deductible under section2053 and these regulations provided thatthe court actually passes upon the facts onwhich deductibility depends. If the courtdoes not pass upon those facts, its decreemay not be relied upon to establish theamount of the claim or expense that is oth-erwise deductible under section 2053. It

must appear that the court actually passedupon the merits of the claim. This will bepresumed in all cases of an active and gen-uine contest. If the result reached appearsto be unreasonable, this is some evidencethat there was not such a contest, but itmay be rebutted by proof to the contrary.Any amount meeting the requirements ofthis paragraph (b)(3)(i) is deductible to theextent it actually has been paid or will bepaid, subject to any applicable limitationsin this section.

(ii) Claims and expenses where courtapproval not required under local law. Adeduction for the amount of a claim or ex-pense that is otherwise deductible undersection 2053 and these regulations will notbe denied under section 2053 solely be-cause a local court decree has not beenentered with respect to such amount, pro-vided that no court decree is required underapplicable law to determine the amount orallowability of the claim or expense.

(iii) Consent decree. A local court de-cree rendered by consent may be reliedon to establish the amount of a claim orexpense that is otherwise deductible un-der section 2053 and these regulations pro-vided that the consent resolves a bona fideissue in a genuine contest. Consent givenby all parties having interests adverse tothat of the claimant will be presumed to re-solve a bona fide issue in a genuine contest.Any amount meeting the requirements ofthis paragraph (b)(3)(iii) is deductible tothe extent it actually has been paid or willbe paid, subject to any applicable limita-tions in this section.

(iv) Settlements. A settlement may berelied on to establish the amount of a claimor expense (whether contingent or non-contingent) that is otherwise deductibleunder section 2053 and these regulations,provided that the settlement resolves abona fide issue in a genuine contest and isthe product of arm’s-length negotiationsby parties having adverse interests with re-spect to the claim or expense. A deductionwill not be denied for a settlement amountpaid by an estate if the estate can establishthat the cost of defending or contesting theclaim or expense, or the delay associatedwith litigating the claim or expense, wouldimpose a higher burden on the estate thanthe payment of the amount paid to settlethe claim or expense. Nevertheless, no de-duction will be allowed for amounts paidin settlement of an unenforceable claim.

2009–44 I.R.B. 576 November 2, 2009

For this purpose, to the extent a claim ex-ceeds an applicable limit under local law,the claim is deemed to be unenforceable.However, as long as the enforceabilityof the claim is at issue in a bona fidedispute, the claim will not be deemed tobe unenforceable for this purpose. Anyamount meeting the requirements of thisparagraph (b)(3)(iv) is deductible to theextent it actually has been paid or will bepaid, subject to any applicable limitationsin this section.

(v) Additional rules. Notwithstand-ing paragraph (b)(3)(i) through (iv) ofthis section, additional rules may applyto the deductibility of certain claims andexpenses. See §20.2053–2 for additionalrules regarding the deductibility of funeralexpenses. See §20.2053–3 for additionalrules regarding the deductibility of ad-ministration expenses. See §20.2053–4for additional rules regarding the de-ductibility of claims against the estate. See§20.2053–7 for additional rules regardingthe deductibility of unpaid mortgages.

(4) Examples. Unless otherwise pro-vided, assume that the amount of any claimor expense is paid out of property sub-ject to claims and is paid within the timeprescribed for filing the United States Es-tate (and Generation-Skipping Transfer)Tax Return, Form 706. The followingexamples illustrate the application of thisparagraph (b):

Example 1. Consent decree at variance with thelaw of the State. Decedent’s (D’s) estate is probatedin State. D’s probate estate is valued at $100x. Statelaw provides that the executor’s commission shall notexceed 3 percent of the probate estate. A consent de-cree is entered allowing the executor’s commissionin the amount of $5x. The estate pays the executor’scommission in the amount of $5x. For purposes ofsection 2053, the executor may deduct only $3x ofthe $5x expense paid for the executor’s commissionbecause the amount approved by the consent decreein excess of $3x is in excess of the applicable limitfor executor’s commissions under local law. There-fore, for purposes of section 2053, the consent decreemay not be relied upon to establish the amount of theexpense for the executor’s commission.

Example 2. Decedent’s (D’s) estate is probatedin State. State law grants authority to an executor toadminister an estate without court approval, so longas notice of and a right to object to a proposed ac-tion is provided to interested persons. The executorof D’s estate (E) proposes to sell property of the es-tate in order to pay the debts of D. E gives requisitenotice to all interested parties and no interested per-son objects. E sells the real estate and pays a real es-tate commission of $20x to a professional real estateagent. The amount of the real estate commission paiddoes not exceed the applicable limit under State law.

Provided that the sale of the property was necessaryto pay D’s debts, expenses of administration, or taxes,to preserve the estate, or to effect distribution, the ex-ecutor may deduct the $20x expense for the real estatecommission under section 2053 even though no courtdecree was entered approving the expense.

Example 3. Claim by family member. For a pe-riod of three years prior to D’s death, D’s niece (N)provides accounting and bookkeeping services on D’sbehalf. N is a CPA and provides similar accountingand bookkeeping services to unrelated clients. At theend of each month, N presents an itemized bill to Dfor services rendered. The fees charged by N conformto the prevailing market rate for the services renderedand are comparable to the fees N charges other clientsfor similar services. The amount due is timely paideach month by D and is properly reported for Federalincome and employment tax purposes by N. In thesix months prior to D’s death, D’s poor health pre-vents D from making payments to N for the amountdue. After D’s death, N asserts a claim against the es-tate for $25x, an amount representing the amount duefor the six-month period prior to D’s death. D’s es-tate pays $25x to N in satisfaction of the claim beforethe return is timely filed and N properly reports the$25x received by E for income tax purposes. Barringany other relevant facts or circumstances, E may relyon the following factors to establish that the claim isbona fide: (1) N’s claim for services rendered arosein the ordinary course of business, as N is a CPAperforming similar services for other clients; (2) thefees charged were deemed to be negotiated at arm’slength, as the fees were consistent with the fees Ncharged for similar services to unrelated clients; (3)the billing records and the records of D’s timely pay-ments to N constitute contemporaneous evidence ofan agreement between D and N for N’s bookkeep-ing services; and (4) the amount of the payments toN is properly reported by N for Federal income andemployment tax purposes. E may deduct the amountpaid to N in satisfaction of the claim.

* * * * *(d) Amount deductible—(1) General

rule. To take into account properly eventsoccurring after the date of a decedent’sdeath in determining the amount de-ductible under section 2053 and theseregulations, the deduction for any claimor expense described in paragraph (a) ofthis section is limited to the total amountactually paid in settlement or satisfactionof that item (subject to any applicablelimitations in this section). However, seeparagraph (d)(4) of this section for therules for deducting certain ascertainableamounts; see §20.2053–4(b) and (c) forthe rules regarding the deductibility ofcertain claims against the estate; and see§20.2053–7 for the rules regarding the de-ductibility of unpaid mortgages and otherindebtedness.

(2) Application of post-death events. Indetermining whether and to what extent adeduction under section 2053 is allowable,

events occurring after the date of a dece-dent’s death will be taken into considera-tion—

(i) Until the expiration of the applicableperiod of limitations on assessment pre-scribed in section 6501 (including with-out limitation at all times during which therunning of the period of limitations is sus-pended); and

(ii) During subsequent periods, in deter-mining the amount (if any) of an overpay-ment of estate tax due in connection with aclaim for refund filed within the time pre-scribed in section 6511(a).

(3) Reimbursements. A deduction isnot allowed to the extent that a claim orexpense described in paragraph (a) of thissection is or could be compensated forby insurance or otherwise could be reim-bursed. If the executor is able to establishthat only a partial reimbursement couldbe collected, then only that portion of thepotential reimbursement that reasonablycould have been expected to be collectedwill reduce the estate’s deductible portionof the total claim or expense. An execu-tor may certify that the executor neitherknows nor reasonably should have knownof any available reimbursement for a claimor expense described in section 2053(a)or (b) on the estate’s United States Estate(and Generation-Skipping Transfer) TaxReturn (Form 706), in accordance withthe instructions for that form. A potentialreimbursement will not reduce the de-ductible amount of a claim or expense tothe extent that the executor, on Form 706and in accordance with the instructions forthat form, provides a reasonable explana-tion for his or her reasonable determinationthat the burden of necessary collection ef-forts in pursuit of a right of reimbursementwould outweigh the anticipated benefitfrom those efforts. Nevertheless, even if areasonable explanation is provided, subse-quent events (including without limitationan actual reimbursement) occurring withinthe period described in §20.2053–1(d)(2)will be considered in determining theamount (if any) of a reduction under thisparagraph (d)(3) in the deductible amountof a claim or expense.

(4) Exception for certain ascertainableamounts—(i) General rule. A deductionwill be allowed for a claim or expense thatsatisfies all applicable requirements eventhough it is not yet paid, provided that theamount to be paid is ascertainable with rea-

November 2, 2009 577 2009–44 I.R.B.

sonable certainty and will be paid. For ex-ample, executors’ commissions and attor-neys’ fees that are not yet paid, and thatmeet the requirements for deductibility un-der §20.2053–3(b) and (c), respectively,are deemed to be ascertainable with rea-sonable certainty and may be deducted ifsuch expenses will be paid. However, nodeduction may be taken upon the basis ofa vague or uncertain estimate. To the ex-tent a claim or expense is contested or con-tingent, such a claim or expense cannot beascertained with reasonable certainty.

(ii) Effect of post-death events. A de-duction under this paragraph (d)(4) will beallowed to the extent the Commissioner isreasonably satisfied that the amount to bepaid is ascertainable with reasonable cer-tainty and will be paid. In making thisdetermination, the Commissioner will takeinto account events occurring after the dateof a decedent’s death. To the extent theamount for which a deduction was claimeddoes not satisfy the requirements of thisparagraph (d)(4), and is not otherwise de-ductible, the deduction will be disallowedby the Commissioner. If a deduction isclaimed on Form 706 for an amount thatis not yet paid and the deduction is disal-lowed in whole or in part (or if no deduc-tion is claimed on Form 706), then if theclaim or expense subsequently satisfies therequirements of this paragraph (d)(4) or ispaid, relief may be sought by filing a claimfor refund. To preserve the estate’s right toclaim a refund for amounts becoming de-ductible after the expiration of the periodof limitation for the filing of a claim for re-fund, a protective claim for refund may befiled in accordance with paragraph (d)(5)of this section.

(5) Protective claim for refund—(i) Ingeneral. A protective claim for refund un-der this section may be filed at any timebefore the expiration of the period of lim-itation prescribed in section 6511(a) forthe filing of a claim for refund to pre-serve the estate’s right to claim a refund byreason of claims or expenses that are notpaid or do not otherwise meet the require-ments of deductibility under section 2053and these regulations until after the expira-tion of the period of limitation for filing aclaim for refund. Such a protective claimshall be made in accordance with guidancethat may be provided from time to time bypublication in the Internal Revenue Bul-

letin (see §601.601(d)(2)(ii)(b)). Althoughthe protective claim need not state a par-ticular dollar amount or demand an im-mediate refund, a protective claim mustidentify each outstanding claim or expensethat would have been deductible under sec-tion 2053(a) or (b) if such item alreadyhad been paid and must describe the rea-sons and contingencies delaying the ac-tual payment of the claim or expense. Ac-tion on protective claims will proceed af-ter the executor has notified the Commis-sioner within a reasonable period that thecontingency has been resolved and that theamount deductible under §20.2053–1 hasbeen established.

(ii) Effect on marital and charitable de-duction. To the extent that a protectiveclaim for refund is filed with respect toa claim or expense that would have beendeductible under section 2053(a) or (b) ifsuch item already had been paid and thatis payable out of a share that meets the re-quirements for a charitable deduction un-der section 2055 or a marital deduction un-der section 2056 or section 2056A, or froma combination thereof, neither the chari-table deduction nor the marital deductionshall be reduced by the amount of suchclaim or expense until the amount is ac-tually paid or meets the requirements ofparagraph (d)(4) of this section for deduct-ing certain ascertainable amounts or the re-quirements of §20.2053–4(b) or (c) for de-ducting certain claims against the estate.

(6) [Reserved].(7) Examples. Assume that the amounts

described in section 2053(a) are payableout of property subject to claims and areallowable by the law of the jurisdictiongoverning the administration of the es-tate, whether the applicable jurisdictionis within or outside of the United States.Assume that the claims against the estateare not deductible under §20.2053–4(b) or(c). Also assume, unless otherwise pro-vided, that none of the limitations on theamount of the deduction described in thissection apply to the deduction claimed un-der section 2053. The following examplesillustrate the application of this paragraph(d):

Example 1. Amount of expense ascertainable.Decedent’s (D’s) estate was probated in State. Statelaw provides that the personal representative shall re-ceive compensation equal to 2.5 percent of the valueof the probate estate. The executor (E) may claima deduction for estimated fees equal to 2.5 percentof D’s probate estate on the Form 706 filed for D’s

estate under the rule for deducting certain ascertain-able amounts set forth in paragraph (d)(4) of this sec-tion, provided that the estimated amount will be paid.However, the Commissioner will disallow the deduc-tion upon examination of the estate’s Form 706 tothe extent that the amount for which a deduction wasclaimed no longer satisfies the requirements of para-graph (d)(4) of this section. If this occurs, E may filea protective claim for refund in accordance with para-graph (d)(5) of this section in order to preserve the es-tate’s right to claim a refund for the amount of the feethat is subsequently paid or that subsequently meetsthe requirements of paragraph (d)(4) of this sectionfor deducting certain ascertainable amounts.

Example 2. Amount of claim not ascertainable.Prior to death, Decedent (D) is sued by Claimant (C)for $100x in a tort proceeding and responds assert-ing affirmative defenses available to D under appli-cable local law. C and D are unrelated. D subse-quently dies and D’s Form 706 is due before a finaljudgment is entered in the case. The executor of D’sestate (E) may not claim a deduction with respect toC’s claim on D’s Form 706 under the special rule con-tained in paragraph (d)(4) of this section because thedeductible amount cannot be ascertained with reason-able certainty. However, E may file a timely protec-tive claim for refund in accordance with paragraph(d)(5) of this section in order to preserve the estate’sright to subsequently claim a refund at the time a fi-nal judgment is entered in the case and the claim iseither paid or meets the requirements of paragraph(d)(4) of this section for deducting certain ascertain-able amounts.

Example 3. Amount of claim payable out of prop-erty qualifying for marital deduction. The facts arethe same as in Example 2 except that the applicablecredit amount, under section 2010, against the estatetax was fully consumed by D’s lifetime gifts, D is sur-vived by Spouse (S), and D’s estate passes entirelyto S in a bequest that qualifies for the marital deduc-tion under section 2056. Even though any amountD’s estate ultimately pays with respect to C’s claimwill be paid from the assets qualifying for the maritaldeduction, in filing Form 706, E need not reduce theamount of the marital deduction claimed on D’s Form706. Instead, pursuant to the protective claim for re-fund filed by E, the marital deduction will be reducedby the claim once a final judgment is entered in thecase. At that time, a deduction will be allowed for theamount that is either paid or meets the requirementsof paragraph (d)(4) of this section for deducting cer-tain ascertainable amounts.

* * * * *(f) Effective/applicability date. This

section applies to the estates of decedentsdying on or after October 20, 2009.


1. Revising paragraph (b)(1) and thesecond sentence of paragraph (b)(2).

2. Revising paragraph (c)(1) and thesecond sentence of paragraph (c)(2).

3. Revising the second sentence ofparagraph (d)(1) and the first sentence ofparagraph (d)(2).

4. Adding paragraphs (d)(3) and (e).

2009–44 I.R.B. 578 November 2, 2009

The revisions and additions read as fol-lows:

§20.2053–3 Deductions for expenses ofadministering estate.

* * * * *(b) Executor’s commissions—(1) Ex-

ecutors’ commissions are deductible to theextent permitted by §20.2053–1 and thissection, but no deduction may be taken ifno commissions are to be paid. In addition,the amount of the commissions claimed asa deduction must be in accordance with theusually accepted standards and practice ofallowing such an amount in estates of sim-ilar size and character in the jurisdictionin which the estate is being administered,or any deviation from the usually acceptedstandards or range of amounts (permissibleunder applicable local law) must be jus-tified to the satisfaction of the Commis-sioner.

(2) * * * If, however, the terms of thewill set forth the compensation payable tothe executor for services to be renderedin the administration of the estate, a de-duction may be taken to the extent thatthe amount so fixed does not exceed thecompensation allowable by the local lawor practice and to the extent permitted by§20.2053–1.

* * * * *(c) Attorney’s fees—(1) Attorney’s fees

are deductible to the extent permitted by§20.2053–1 and this section. Further, theamount of the fees claimed as a deductionmay not exceed a reasonable remunerationfor the services rendered, taking into ac-count the size and character of the estate,the law and practice in the jurisdiction inwhich the estate is being administered, andthe skill and expertise of the attorneys.

(2) * * * A deduction for reasonable at-torney’s fees actually incurred in contest-ing an asserted deficiency or in prosecut-ing a claim for refund will be allowed tothe extent permitted by §20.2053–1 eventhough the deduction, as such, was notclaimed on the estate tax return or in theclaim for refund. * * *

* * * * *(d) * * *(1) * * * Expenses necessarily incurred

in preserving and distributing the estate,including the cost of storing or maintain-ing property of the estate if it is impossi-

ble to effect immediate distribution to thebeneficiaries, are deductible to the extentpermitted by §20.2053–1. * * *

(2) Expenses for selling property of theestate are deductible to the extent permit-ted by §20.2053–1 if the sale is necessaryin order to pay the decedent’s debts, ex-penses of administration, or taxes, to pre-serve the estate, or to effect distribution.* * *

(3) Expenses incurred in defending theestate against claims described in section2053(a)(3) are deductible to the extent per-mitted by §20.2053–1 if the expenses areincurred incident to the assertion of de-fenses to the claim available under the ap-plicable law, even if the estate ultimatelydoes not prevail. For purposes of thisparagraph (d)(3), “expenses incurred in de-fending the estate against claims” includecosts relating to the arbitration and medi-ation of contested issues, costs associatedwith defending the estate against claims(whether or not enforceable), and costs as-sociated with reaching a negotiated settle-ment of the issues.

(e) Effective/applicability date. Thissection applies to the estates of decedentsdying on or after October 20, 2009.

Par. 5. Section 20.2053–4 is revised toread as follows:

§20.2053–4 Deduction for claims againstthe estate.

(a) In general—(1) General rule. Forpurposes of this section, liabilities im-posed by law or arising out of contracts ortorts are deductible if they meet the appli-cable requirements set forth in §20.2053–1and this section. To be deductible, a claimagainst a decedent’s estate must representa personal obligation of the decedent ex-isting at the time of the decedent’s death.Except as otherwise provided in para-graphs (b) and (c) of this section and tothe extent permitted by §20.2053–1, theamounts that may be deducted as claimsagainst a decedent’s estate are limited tothe amounts of bona fide claims that areenforceable against the decedent’s estate(and are not unenforceable when paid) andclaims that—

(i) Are actually paid by the estate insatisfaction of the claim; or

(ii) Meet the requirements of§20.2053–1(d)(4) for deducting certainascertainable amounts.

(2) Effect of post-death events. Eventsoccurring after the date of a decedent’sdeath shall be considered in determiningwhether and to what extent a deductionis allowable under section 2053. See§20.2053–1(d)(2).

(b) Exception for claims and coun-terclaims in related matter—(1) Generalrule. If a decedent’s gross estate includesone or more claims or causes of actionand there are one or more claims againstthe decedent’s estate in the same or a sub-stantially-related matter, or, if a decedent’sgross estate includes a particular asset andthere are one or more claims against thedecedent’s estate integrally related to thatparticular asset, the executor may deducton the estate’s United States Estate (andGeneration-Skipping Transfer) Tax Return(Form 706) the current value of the claimor claims against the estate, even thoughpayment has not been made, providedthat—

(i) Each such claim against the estateotherwise satisfies the applicable require-ments set forth in §20.2053–1;

(ii) Each such claim against the estaterepresents a personal obligation of thedecedent existing at the time of the dece-dent’s death;

(iii) Each such claim is enforceableagainst the decedent’s estate (and is notunenforceable when paid);

(iv) The value of each such claimagainst the estate is determined froma “qualified appraisal” performed by a“qualified appraiser” within the meaningof section 170 of the Internal RevenueCode and the corresponding regulations;

(v) The value of each such claim againstthe estate is subject to adjustment for post-death events; and

(vi) The aggregate value of the relatedclaims or assets included in the decedent’sgross estate exceeds 10 percent of thedecedent’s gross estate.

(2) Limitation on deduction. The de-duction under this paragraph (b) is limitedto the value of the related claims or par-ticular assets included in decedent’s grossestate.

(3) Effect of post-death events. If,under this paragraph (b), a deduction isclaimed on Form 706 for a claim againstthe estate and, during the period de-scribed in §20.2053–1(d)(2), the claimis paid or meets the requirements of§20.2053–1(d)(4) for deducting certain

November 2, 2009 579 2009–44 I.R.B.

ascertainable amounts, the claimed de-duction is subject to adjustment to reflect,and may not exceed, the amount paid onthe claim or the amount meeting the re-quirements of §20.2053–1(d)(4). If, underthis paragraph (b), a deduction is claimedon Form 706 for a claim against the es-tate and, during the period described in§20.2053–1(d)(2), the claim remains un-paid (and does not meet the requirementsof §20.2053–1(d)(4) for deducting certainascertainable amounts), the claimed de-duction is subject to adjustment to reflect,and may not exceed, the current valuationof the claim. A valuation of the claim willbe considered current if it reflects eventsoccurring after the decedent’s death. Withregard to any amount in excess of theamount deductible under this paragraph(b), an estate may preserve the estate’sright to claim a refund for claims thatare paid or that meet the requirements of§20.2053–(1)(d)(4) after the expiration ofthe period of limitation for filing a claimfor refund by filing a protective claimfor refund in accordance with the rules in§20.2053–1(d)(5).

(c) Exception for claims totaling notmore than $500,000—(1) General rule.An executor may deduct on Form 706 thecurrent value of one or more claims againstthe estate even though payment has notbeen made on the claim or claims to theextent that—

(i) Each such claim against the es-tate otherwise satisfies the applicablerequirements for deductibility set forth in§20.2053–1;

(ii) Each such claim against the estaterepresents a personal obligation of thedecedent existing at the time of the dece-dent’s death;

(iii) Each such claim is enforceableagainst the decedent’s estate (and is notunenforceable when paid);

(iv) The value of each such claimagainst the estate is determined froma “qualified appraisal” performed by a“qualified appraiser” within the meaningof section 170 of the Internal RevenueCode and the corresponding regulations;

(v) The total amount deducted by theestate under this paragraph (c) does notexceed $500,000;

(vi) The full value of each claim, ratherthan just a portion of that amount, mustbe deductible under this paragraph (c) and,for this purpose, the full value of each

such claim is deemed to be the unpaidamount of that claim that is not deductibleafter the application of §§20.2053–1 and20.2053–4(b); and

(vii) The value of each claim deductedunder this paragraph (c) is subject to ad-justment for post-death events.

(2) Effect of post-death events. If, underthis paragraph (c), a deduction is claimedfor a claim against the estate and, duringthe period described in §20.2053–1(d)(2),the claim is paid or meets the requirementsof §20.2053–1(d)(4) for deducting certainascertainable amounts, the amount of theallowable deduction for that claim is sub-ject to adjustment to reflect, and may notexceed, the amount paid on the claim orthe amount meeting the requirements of§20.2053–1(d)(4). If, under this paragraph(c), a deduction is claimed for a claimagainst the estate and, during the perioddescribed in §20.2053–1(d)(2), the claimremains unpaid (and does not meet therequirements of §20.2053–1(d)(4) for de-ducting certain ascertainable amounts), theamount of the allowable deduction for thatclaim is subject to adjustment to reflect,and may not exceed, the current value ofthe claim. The value of the claim willbe considered current if it reflects eventsoccurring after the decedent’s death. Toclaim a deduction for amounts in excessof the amount deductible under this para-graph (c), the estate may preserve the es-tate’s right to claim a refund for claims thatare not paid or that do not meet the require-ments of §20.2053–1(d)(4) until after theexpiration of the period of limitation forthe filing of a claim for refund by filing aprotective claim for refund in accordancewith the rules in §20.2053–1(d)(5).

(3) Examples. The following examplesillustrate the application of this paragraph(c). Assume that the value of each claimis determined from a “qualified appraisal”performed by a “qualified appraiser” andreflects events occurring after the death ofthe decedent (D). Also assume that eachclaim represents a personal obligationof D that existed at D’s death, that eachclaim is enforceable against the decedent’sestate (and is not unenforceable whenpaid), and that each claim otherwise satis-fies the requirements for deductibility of§20.2053–1.

Example 1. There are three claims against theestate of the decedent (D) that are not paid and arenot deductible under §20.2053–1(d)(4) or paragraph

(b) of this section: $25,000 of Claimant A, $35,000of Claimant B, and $1,000,000 of Claimant C. Theexecutor of D’s estate (E) may not claim a deductionunder this paragraph with respect to any portion of theclaim of Claimant C because the value of that claimexceeds $500,000. E may claim a deduction underthis paragraph for the total amount of the claims filedby Claimant A and Claimant B ($60,000) because theaggregate value of the full amount of those claimsdoes not exceed $500,000.

Example 2. There are three claims against theestate of the decedent (D) that are not paid and arenot deductible under §20.2053–1(d)(4) or paragraph(b) of this section; specifically, a separate $200,000claim of each of three claimants, A, B and C. Theexecutor of D’s estate (E) may claim a deduction un-der this paragraph for any two of these three claimsbecause the aggregate value of the full amount ofany two of the claims does not exceed $500,000. Emay not deduct any part of the value of the remain-ing claim under this paragraph because the aggregatevalue of the full amount of all three claims would ex-ceed $500,000.

Example 3. As a result of an automobile acci-dent involving the decedent (D) and A, D’s grossestate includes a claim against A that is valued at$750,000. In the same matter, A files a counterclaimagainst D’s estate that is valued at $1,000,000. A’sclaim against D’s estate is not paid and is not de-ductible under §20.2053–1(d)(4). All other section2053 claims and expenses of D’s estate have beenpaid and are deductible. The executor of D’s estate(E) deducts $750,000 of A’s claim against the estateunder §20.2053–4(b). E may claim a deduction un-der this paragraph (c) for the total value of A’s claimnot deducted under §20.2053–4(b), or $250,000. If,instead, the value of A’s claim against D’s estate is$1,500,000, so that the amount not deductible un-der §20.2053–4(b) exceeds $500,000, no deductionis available under this paragraph (c).

(d) Special rules—(1) Potential and un-matured claims. Except as provided in§20.2053–1(d)(4) and in paragraphs (b)and (c) of this section, no estate tax de-duction may be taken for a claim againstthe decedent’s estate while it remains a po-tential or unmatured claim. Claims thatlater mature may be deducted (to the ex-tent permitted by §20.2053–1) in connec-tion with a timely claim for refund. To pre-serve the estate’s right to claim a refund forclaims that mature and become deductibleafter the expiration of the period of limi-tation for filing a claim for refund, a pro-tective claim for refund may be filed inaccordance with §20.2053–1(d)(5). See§20.2053–1(b)(3) for rules relating to thetreatment of court decrees and settlements.

(2) Contested claims. Except as pro-vided in paragraphs (b) and (c) of this sec-tion, no estate tax deduction may be takenfor a claim against the decedent’s estateto the extent the estate is contesting thedecedent’s liability. Contested claims that

2009–44 I.R.B. 580 November 2, 2009

later mature may be deducted (to the ex-tent permitted by §20.2053–1) in connec-tion with a claim for refund filed within thetime prescribed in section 6511(a). To pre-serve the estate’s right to claim a refund forclaims that mature and become deductibleafter the expiration of the period of limi-tation for the filing a claim for refund, aprotective claim for refund may be filedin accordance with §20.2053–1(d)(5). See§20.2053–1(b)(3) for rules relating to thetreatment of court decrees and settlements.

(3) Claims against multiple parties. Ifthe decedent or the decedent’s estate isone of two or more parties against whomthe claim is being asserted, the estate maydeduct only the portion of the total claimdue from and paid by the estate, reducedby the total of any reimbursement receivedfrom another party, insurance, or other-wise. The estate’s deductible portion alsowill be reduced by the contribution orother amount the estate could have col-lected from another party or an insurer butwhich the estate declines or fails to attemptto collect. See further §20.2053–1(d)(3).

(4) Unenforceable claims. Claims thatare unenforceable prior to or at the dece-dent’s death are not deductible, even if theyare actually paid. Claims that become un-enforceable during the administration ofthe estate are not deductible to the ex-tent that they are paid (or will be paid)after they become unenforceable. How-ever, see §20.2053–1(b)(3)(iv) regarding aclaim whose enforceability is at issue.

(5) Claims founded upon a promise.Except with regard to pledges or sub-scriptions (see §20.2053–5), section2053(c)(1)(A) provides that the deductionfor a claim founded upon a promise oragreement is limited to the extent that thepromise or agreement was bona fide andin exchange for adequate and full consid-eration in money or money’s worth; thatis, the promise or agreement must havebeen bargained for at arm’s length and theprice must have been an adequate and fullequivalent reducible to a money value.

(6) Recurring payments—(i) Non-contingent obligations. If a decedent isobligated to make recurring payments onan enforceable and certain claim that sat-isfies the requirements for deductibilityunder this section and the payments arenot subject to a contingency, the amountof the claim will be deemed ascertainablewith reasonable certainty for purposes of

the rule for deducting certain ascertainableamounts set forth in §20.2053–1(d)(4). Ifthe recurring payments will be paid, a de-duction will be allowed under the rule fordeducting certain ascertainable amountsset forth in §20.2053–1(d)(4) (subject toany applicable limitations in §20.2053–1).Recurring payments for purposes of thissection exclude those payments made inconnection with a mortgage or indebt-edness described in and governed by§20.2053–7. If a decedent’s obligation tomake a recurring payment is contingenton the death or remarriage of the claimantand otherwise satisfies the requirementsof this paragraph (d)(6)(i), the amount ofthe claim (measured according to actu-arial principles, using factors set forth inthe transfer tax regulations or otherwiseprovided by the IRS) will be deemed as-certainable with reasonable certainty forpurposes of the rule for deducting cer-tain ascertainable amounts set forth in§20.2053–1(d)(4).

(ii) Contingent obligations. If a dece-dent has a recurring obligation to payan enforceable and certain claim but thedecedent’s obligation is subject to a con-tingency or is not otherwise describedin paragraph (d)(6)(i) of this section, theamount of the claim is not ascertainablewith reasonable certainty for purposes ofthe rule for deducting certain ascertainableamounts set forth in §20.2053–1(d)(4).Accordingly, the amount deductible islimited to amounts actually paid by theestate in satisfaction of the claim in accor-dance with §20.2053–1(d)(1) (subject toany applicable limitations in §20.2053–1).

(iii) Purchase of commercial annuityto satisfy recurring obligation to pay.If a decedent has a recurring obligation(whether or not contingent) to pay an en-forceable and certain claim and the estatepurchases a commercial annuity from anunrelated dealer in commercial annuitiesin an arm’s-length transaction to satisfythe obligation, the amount deductible bythe estate (subject to any applicable limi-tations in §20.2053–1) is the sum of—

(A) The amount paid for the commer-cial annuity, to the extent that the amountpaid is not refunded, or expected to be re-funded, to the estate;

(B) Any amount actually paid to theclaimant by the estate prior to the purchaseof the commercial annuity; and

(C) Any amount actually paid to theclaimant by the estate in excess of the an-nuity amount as is necessary to satisfy therecurring obligation.

(7) Examples. The following examplesillustrate the application of paragraph (d)of this section. Except as is otherwise pro-vided in the examples, assume—

(i) A claim satisfies the applicable re-quirements set forth in §20.2053–1 andparagraph (a) of this section, is payablefrom property subject to claims, andthe amount of the claim is not subjectto any other applicable limitations in§20.2053–1;

(ii) A claim is not deductible underparagraphs (b) or (c) of this section as anexception to the general rule contained inparagraph (a) of this section; and

(iii) The claimant (C) is not a familymember, related entity or beneficiary ofthe estate of decedent (D) and is not theexecutor (E).

Example 1. Contested claim, single defendant,no decision. D is sued by C for $100x in a tort pro-ceeding and responds asserting affirmative defensesavailable to D under applicable local law. D diesand E is substituted as defendant in the suit. D’sForm 706 is due before a judgment is reached inthe case. D’s gross estate exceeds $100x. E maynot take a deduction on Form 706 for the claimagainst the estate. However, E may claim a deduc-tion under §20.2053–3(c) or §20.2053–3(d)(3) forexpenses incurred in defending the estate against theclaim if the expenses have been paid in accordancewith §20.2053–1(d)(1) or if the expenses meet therequirements of §20.2053–1(d)(4) for deducting cer-tain ascertainable amounts. E may file a protectiveclaim for refund before the expiration of the periodof limitation prescribed in section 6511(a) in orderto preserve the estate’s right to claim a refund, if theamount of the claim will not be paid or cannot be as-certained with reasonable certainty by the expirationof this limitation period. If payment is subsequentlymade pursuant to a court decision or a settlement,the payment, as well as expenses incurred incidentto the claim and not previously deducted, may bededucted and relief may be sought in connection witha timely-filed claim for refund.

Example 2. Contested claim, single defendant, fi-nal court decree and payment. The facts are the sameas in Example 1 except that, before the Form 706 istimely filed, the court enters a decision in favor ofC, no timely appeal is filed, and payment is made. Emay claim a deduction on Form 706 for the amountpaid in satisfaction of the claim against the estate pur-suant to the final decision of the local court, includ-ing any interest accrued prior to D’s death. In addi-tion, E may claim a deduction under §20.2053–3(c) or§20.2053–3(d)(3) for expenses incurred in defendingthe estate against the claim and in processing paymentof the claim if the expenses have been paid in accor-dance with §20.2053–1(d)(1) or if the expenses meetthe requirements of §20.2053–1(d)(4) for deductingcertain ascertainable amounts.

November 2, 2009 581 2009–44 I.R.B.

Example 3. Contested claim, single defendant,settlement and payment. The facts are the same asin Example 1 except that a settlement is reached be-tween E and C for $80x and payment is made be-fore Form 706 is timely filed. E may claim a deduc-tion on Form 706 for the amount paid to C ($80x)in satisfaction of the claim against the estate. In addi-tion, E may claim a deduction under §20.2053–3(c) or§20.2053–3(d)(3) for expenses incurred in defendingthe estate, reaching a settlement, and processing pay-ment of the claim if the expenses have been paid inaccordance with §20.2053–1(d)(1) or if the expensesmeet the requirements of §20.2053–1(d)(4) for de-ducting certain ascertainable amounts.

Example 4. Contested claim, multiple defendants.The facts are the same as in Example 1 except thatthe suit filed by C lists D and an unrelated third-party(K) as defendants. If the claim against the estate isnot resolved prior to the time the Form 706 is filed, Emay not take a deduction for the claim on Form 706.If payment is subsequently made of D’s share of theclaim pursuant to a court decision holding D liable for40 percent of the amount due and K liable for 60 per-cent of the amount due, then E may claim a deductionfor the amount paid in satisfaction of the claim againstthe estate representing D’s share of the liability as as-signed by the court decree ($40x), plus any interest onthat share accrued prior to D’s death. If the court deci-sion finds D and K jointly and severally liable for theentire $100x and D’s estate pays the entire $100x butcould have reasonably collected $50x from K in reim-bursement, E may claim a deduction of $50x togetherwith the interest on $50x accrued prior to D’s death.In both instances, E also may claim a deduction under§20.2053–3(c) or §20.2053–3(d)(3) for expenses in-curred and not previously deducted in defending theestate against the claim and processing payment ofthe amount due from D if the expenses have beenpaid in accordance with §20.2053–1(d)(1) or if theexpenses meet the requirements of §20.2053–1(d)(4)for deducting certain ascertainable amounts.

Example 5. Contested claim, multiple defendants,settlement and payment. The facts are the same asin Example 1 except that the suit filed by C lists Dand an unrelated third-party (K) as defendants. D’sestate settles with C for $10x and payment is madebefore Form 706 is timely filed. E may take a de-duction on Form 706 for the amount paid to C ($10x)in satisfaction of the claim against the estate. In addi-tion, E may claim a deduction under §20.2053–3(c) or§20.2053–3(d)(3) for expenses incurred in defendingthe estate, reaching a settlement, and processing pay-ment of the claim if the expenses have been paid inaccordance with §20.2053–1(d)(1) or if the expensesmeet the requirements of §20.2053–1(d)(4) for de-ducting certain ascertainable amounts.

Example 6. Mixed claims. During life, D con-tracts with C to perform specific work on D’s homefor $75x. Under the contract, additional work mustbe approved in advance by D. C performs additionalwork and sues D for $100x for work completed in-cluding the $75x agreed to in the contract. D dies andD’s Form 706 is due before a judgment is reached inthe case. E accepts liability of $75x but contests li-ability of $25x. E may take a deduction of $75x onForm 706 if the amount has been paid or meets the re-quirements of §20.2053–1(d)(4) for deducting certainascertainable amounts. In addition, E may claim adeduction under §20.2053–3(c) or §20.2053–3(d)(3)

for expenses incurred in defending the estate againstthe claim if the expenses have been paid or if theexpenses meet the requirements of §20.2053–1(d)(4)for deducting certain ascertainable amounts. E mayfile a protective claim for refund before the expira-tion of the period of limitation prescribed in section6511(a) in order to preserve the estate’s right to claima refund for any amount in excess of $75x that issubsequently paid to resolve the claim against theestate. To the extent that any unpaid expenses in-curred in defending the estate against the claim arenot deducted as an ascertainable amount pursuant to§20.2053–1(d)(4), they may be included in the pro-tective claim for refund.

Example 7. Claim having issue of enforceabil-ity. D is sued by C for $100x in a tort proceedingin which there is an issue as to whether the claimis barred by the applicable period of limitations.After D’s death but prior to the decision of thecourt, a settlement meeting the requirements of§20.2053–1(b)(3)(iv) is reached between E and Cin the amount of $50x. E pays C this amount be-fore the Form 706 is timely filed. E may take adeduction on Form 706 for the amount paid to C($50x) in satisfaction of the claim. If, subsequentto E’s payment to C, facts develop to indicate thatthe claim was, in fact, unenforceable, the deductionwill not be denied provided the enforceability of theclaim was at issue in a bona dispute at the time ofthe payment. See §20.2053–1(b)(3)(iv). A deduc-tion may be available under §20.2053–3(d)(3) forexpenses incurred in defending the estate, reachinga settlement, and processing payment of the claimif the expenses have been paid in accordance with§20.2053–1(d)(1) or if the expenses meet the require-ments of §20.2053–1(d)(4) for deducting certainascertainable amounts.

Example 8. Noncontingent and recurring obliga-tion to pay, binding on estate. D’s property settlementagreement incident to D’s divorce, signed three yearsprior to D’s death, obligates D or D’s estate to pay toS, D’s former spouse, $20x per year until S’s death orremarriage. Prior to D’s death, D made payments inaccordance with the agreement and, after D’s death,E continues to make the payments in accordancewith the agreement. D’s obligation to pay S underthe property settlement agreement is deemed to be aclaim against the estate that is ascertainable with rea-sonable certainty for purposes of §20.2053–1(d)(4).To the extent the obligation to make the recurringpayment is a claim that will be paid, E may deduct theamount of the claim (measured according to actuarialprinciples, using factors set forth in the transfer taxregulations or otherwise provided by the IRS) underthe rule for deducting certain ascertainable amountsset forth in §20.2053–1(d)(4).

Example 9. Recurring obligation to pay, estatepurchases a commercial annuity in satisfaction. D’ssettlement agreement with T, the claimant in a suitagainst D, signed three years prior to D’s death, ob-ligates D or D’s estate to pay to T $20x per year for10 years, provided that T does not reveal the detailsof the claim or of the settlement during that period.D dies in Year 1. In Year 2, D’s estate purchases acommercial annuity from an unrelated issuer of com-mercial annuities, XYZ, to fund the obligation to T.E may deduct the entire amount paid to XYZ to ob-tain the annuity, even though the obligation to T wascontingent.

(e) Interest on claim—(1) Subject toany applicable limitations in §20.2053–1,the interest on a deductible claim is it-self deductible as a claim under section2053 to the extent of the amount of inter-est accrued at the decedent’s death (evenif the executor elects the alternate valua-tion method under section 2032), but onlyto the extent of the amount of interest ac-tually paid or meeting the requirements of§20.2053–1(d)(4) for deducting certain as-certainable amounts.

(2) Post-death accrued interest may bedeductible in appropriate circumstanceseither as an estate tax administration ex-pense under section 2053 or as an incometax deduction.

(f) Effective/applicability date. Thissection applies to the estates of decedentsdying on or after October 20, 2009.


1. Redesignating paragraphs (a) and (b)as (a)(1) and (a)(2).

2. Redesignating the introductory textas paragraph (a).

3. Revising newly redesignated para-graph (a).

4. Adding a new paragraph (b).The revision and addition read as fol-

lows:

§20.2035–5 Deductions for charitable,etc., pledges or subscriptions.

(a) A pledge or a subscription, evi-denced by a promissory note or otherwise,even though enforceable against the estate,is deductible (subject to any applicablelimitations in §20.2053–1) only to the ex-tent that—

* * * * *(b) Effective/applicability date. This



1. Revising paragraphs (a) and (c).2. Adding paragraphs (g) and (h).The revisions and additions read as fol-

lows:

§20.2053–6 Deduction for taxes.

(a) In general—(1) Taxes are de-ductible in computing a decedent’s grossestate—

2009–44 I.R.B. 582 November 2, 2009

(i) Only as claims against the estate (ex-cept to the extent that excise taxes may beallowable as administration expenses);

(ii) Only to the extent not disallowed bysection 2053(c)(1)(B) and this section; and

(iii) Subject to any applicable limita-tions in §20.2053–1.

(2) See §§20.2053–9 and 20.2053–10with respect to the deduction allowed forcertain state and foreign death taxes.

* * * * *(c) Death taxes—(1) For the estates of

decedents dying on or before December31, 2004, no estate, succession, legacy orinheritance tax payable by reason of thedecedent’s death is deductible, except asprovided in §§20.2053–9 and 20.2053–10with respect to certain state and foreigndeath taxes on transfers for charitable,etc., uses. However, see sections 2011 and2014 and the corresponding regulationswith respect to credits for death taxes.

(2) For the estates of decedents dyingafter December 31, 2004, see section 2058to determine the deductibility of statedeath taxes.

* * * * *(g) Post-death adjustments of de-

ductible tax liability. Post-death adjust-ments increasing a tax liability accruedprior to the decedent’s death, includingincreases of taxes deducted under thissection, will increase the amount of the de-duction available under section 2053(a)(3)for that tax liability. Similarly, any refundsubsequently determined to be due to andreceived by the estate or its successor ininterest with respect to taxes deductedby the estate under this section reducethe amount of the deduction taken forthat tax liability under section 2053(a)(3).Expenses associated with defending theestate against the increase in tax liabil-ity or with obtaining the refund may bedeductible under §20.2053–3(d)(3). Aprotective claim for refund of estate taxesmay be filed before the expiration of theperiod of limitation for filing a claim forrefund in order to preserve the estate’sright to claim a refund if the amount of adeductible tax liability may be affected bysuch an adjustment or refund. The appli-cation of this section may be illustrated bythe following examples:

Example 1. Increase in tax due. After the dece-dent’s death, the Internal Revenue Service examinesthe gift tax return filed by the decedent in the year

before the decedent’s death and asserts a deficiencyof $100x. The estate pays attorney’s fees of $30xin a non-frivolous defense against the increased defi-ciency. The final determination of the deficiency, inthe amount of $90x, is paid by the estate prior to theexpiration of the limitation period for filing a claimfor refund. The estate may deduct $90x under sec-tion 2053(a)(3) and $30x under §20.2053–3(c)(2) or(d)(3) in connection with a timely claim for refund.

Example 2. Refund of taxes paid. Decedent’s es-tate timely files D’s individual income tax return forthe year in which the decedent died. The estate timelypays the entire amount of the tax due, $50x, as shownon that return. The entire $50x was attributable toincome received prior to the decedent’s death. Dece-dent’s estate subsequently discovers an error on theincome tax return and timely files a claim for refundof income tax. Decedent’s estate receives a refundof $10x. The estate is allowed a deduction of only$40x under section 2053(a)(3) for the income tax li-ability accrued prior to the decedent’s death. If D’sestate had claimed a deduction of $50x on D’s UnitedStates Estate (and Generation-Skipping Transfer) TaxReturn (Form 706), the deduction claimed under sec-tion 2053(a)(3) will be allowed only to the extent of$40x upon examination by the Commissioner.

(h) Effective/applicability date. Thissection applies to the estates of decedentsdying on or after October 20, 2009.


1. Adding a sentence at the end of para-graph (a).

2. Revising the first and last sentencesof paragraph (c).

3. Adding paragraph (f).The revisions and addition read as fol-

lows:

§20.2053–9 Deduction for certain Statedeath taxes.

(a) * * * However, see section 2058 todetermine the deductibility of state deathtaxes by estates to which section 2058 isapplicable.

* * * * *(c) * * * The election to take a deduc-

tion for a state death tax imposed upon atransfer for charitable, etc., uses shall beexercised by the executor by the filing of awritten notification to that effect with theCommissioner. * * * The election may berevoked by the executor by the filing of awritten notification to that effect with theCommissioner at any time before the expi-ration of such period.

* * * * *(f) Effective/applicability date—(1)

The last sentence of paragraph (a) of thissection applies to the estates of decedents

dying on or after October 20, 2009, towhich section 2058 is applicable.

(2) The other provisions of this sectionapply to the estates of decedents dying onor after October 20, 2009, to which section2058 is not applicable.

Par. 9. Section 20.2053–10 is amendedby removing the language “district direc-tor” and adding the language “Commis-sioner” in its place in paragraph (c) and byadding a new paragraph (e) to read as fol-lows:

§20.2053–10 Deduction for certainforeign death taxes.

* * * * *(e) Effective/applicability date. This


Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

Approved October 14, 2009.

Michael F. Mundaca,Acting Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on October 16,2009, 11:15 a.m., and published in the issue of the FederalRegister for October 20, 2009, F.R. 53652)

Section 6402.—Authority toMake Credits or Refunds26 CFR 301.6402–1: Authority to make credits orrefunds.


Section 6501.—Limitationson Assessment andCollection26 CFR 301.6501(a)–1: Period of limitations uponassessment and collection.

This notice provides a limited administrative ex-ception to the ability of the Internal Revenue Serviceto examine a Form 706 (United States Estate (and

November 2, 2009 583 2009–44 I.R.B.

Generation-Skipping Transfer) Tax Return) in con-nection with certain protective claims for refund thatare based on a deduction under section 2053 of theInternal Revenue Code and are filed within the timeprescribed in section 6511(a) of the Code. See Notice2009-84, page 592.

Section 6511.—Limitationson Credit or Refund26 CFR 301.6511(a)–1: Period of limitation on filingclaim.


Section 6514.—Creditsor Refunds after Periodof Limitation26 CFR 301.6514(a)–1: Credits or refunds after pe-riod of limitation.


Section 7477.—DeclaratoryJudgments Relating toValue of Certain Gifts26 CFR 301.7477–1: Declaratory judgments relatingto the value of certain gifts for gift tax purposes.

T.D. 9460

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 301

Declaratory Judgments — GiftTax Determinations

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations under section 7477 of theInternal Revenue Code (Code) regardingpetitions filed with the United States TaxCourt for declaratory judgments with re-spect to the valuation of gifts. Changesto the applicable law were made by sec-tion 506(c)(1) of the Taxpayer Relief Actof 1997. These final regulations primarilyaffect individuals who are donors of gifts.The final regulations provide rules for de-termining whether a donor may petitionthe Tax Court for a determination regard-ing the value of a gift, including guidanceregarding the definition of “exhaustion ofadministrative remedies.”

DATES: Effective date: These regulationsare effective September 9, 2009.

Applicability date: For the date of ap-plicability, see §301.7477–1(f).

FOR FURTHER INFORMATIONCONTACT: Juli Ro Kim orGeorge Masnik (202) 622–3090 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 7477, enacted in conjunctionwith other provisions as part of the Tax-payer Relief Act of 1997 (TRA) (PublicLaw 105–34, 111 Stat. 855), provides adeclaratory judgment procedure pursuantto which taxpayers may contest in theUnited States Tax Court an IRS determina-tion regarding the value of a gift. Prior lawdid not provide a judicial remedy in situa-tions where the proposed IRS adjustmentwould not result in a gift tax deficiencyor a tax overpayment. The new procedureapplies, for example, where an increase ingift tax determined under section 2502 isoffset by the taxpayer’s applicable creditamount under section 2505(a), so that noadditional tax is assessed as a result of avaluation increase. Because there is no taxdeficiency, in the absence of section 7477,the taxpayer would be unable to challengethe IRS determination, even though, uponthe expiration of the statute of limitations,that determination would become bindingfor purposes of calculating the cumulativegift tax on all future gifts of that taxpayer,as well as the taxpayer’s estate tax liabil-ity. See H. R. CONF. REP. NO. 105–220,at 407–408 (1997).

On June 9, 2008, proposed regulationsunder section 7477 were published inthe Federal Register (REG–143716–04,2008–1 C.B. 1170 [73 FR 32503]). TheIRS received no written or oral commentsresponding to the notice of proposed rule-making. No public hearing was requestedor held.

The final regulations include a fewclarifications. In particular, under sec-tion 7477, in order to be eligible for thedeclaratory judgment procedure, the TaxCourt must determine that the donor ex-hausted all administrative remedies. Ingeneral, the proposed regulations providethat the IRS will consider a donor to haveexhausted all administrative remedies ifan Appeals conference is requested timelyand the donor (or an authorized represen-tative) “participates fully” in the Appealsprocess. The final regulations contain aseparate subsection specifying that fullparticipation requires timely submissionof requested information and disclosureof all relevant information regarding thecontroversy. In addition, a provision hasbeen added specifying that, if Appealsdoes not grant the donor’s request for aconference, the donor will be treated ashaving exhausted all administrative reme-dies if, after filing a Tax Court petition fora declaratory judgment, the donor (or au-thorized representative) participates fullyin the Appeals office consideration whenoffered by the IRS while the case is indocketed status.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been deter-mined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to these regulations and,because these regulations do not imposeon small entities a collection of informa-tion requirement, the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) does not apply.Pursuant to section 7805(f) of the Code,the notice of proposed rulemaking preced-ing this regulation was submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

2009–44 I.R.B. 584 November 2, 2009

Drafting Information

The principal authors of these fi-nal regulations are George Masnik andJuli Ro Kim, Office of the AssociateChief Counsel (Passthroughs and SpecialIndustries), IRS. Other personnel fromthe IRS and the Treasury Departmentparticipated in their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 301 isamended as follows:

PART 301—PROCEDURE ANDADMINISTRATION

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

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.7477–1 is revised

to read as follows:

§301.7477–1 Declaratory judgmentsrelating to the value of certain gifts forgift tax purposes.

(a) In general. If the adjustment(s)proposed by the Internal Revenue Service(IRS) will not result in any deficiency in orrefund of the donor’s gift tax liability forthe calendar year, and if the requirementscontained in paragraph (d) of this sectionare satisfied, then the declaratory judgmentprocedure under section 7477 is availableto the donor for determining the amount ofone or more of the donor’s gifts during thatcalendar year for Federal gift tax purposes.

(b) Declaratory judgment proce-dure—(1) In general. If a donor does notresolve a dispute with the IRS concerningthe value of a transfer for gift tax purposesat the Examination level, the donor will besent a notice of preliminary determinationof value (Letter 950-G or such other docu-ment as may be utilized by the IRS for thispurpose from time to time, but referred toin this section as Letter 950-G), invitingthe donor to file a formal protest and torequest consideration by the appropriateIRS Appeals office. See §§601.105 and601.106 of this chapter. Subsequently, thedonor will be sent a notice of determina-tion of value (Letter 3569, or such other

document as may be utilized from time totime by the IRS for this purpose in caseswhere no deficiency or refund would re-sult, but referred to in this section as Letter3569) if—

(i) The donor requests Appeals consid-eration in writing within 30 calendar daysafter the mailing date of the Letter 950-G,or by such later date as determined pur-suant to IRS procedures, and the matter isnot resolved by Appeals;

(ii) The donor does not request Appealsconsideration within the time provided inparagraph (b)(1)(i) of this section; or

(iii) The IRS does not issue a Letter950-G in circumstances described in para-graph (d)(4)(iv) of this section.

(2) Notice of determination of value.The Letter 3569 will notify the donor ofthe adjustment(s) proposed by the IRS, andwill advise the donor that the donor maycontest the determination made by the IRSby filing a petition with the Tax Court be-fore the 91st day after the date on which theLetter 3569 was mailed to the donor by theIRS.

(3) Tax Court petition. If the donordoes not file a timely petition with the TaxCourt, the IRS determination as set forthin the Letter 3569 will be considered thefinal determination of value, as defined insections 2504(c) and 2001(f). If the donorfiles a timely petition with the Tax Court,the Tax Court will determine whether thedonor has exhausted available administra-tive remedies. Under section 7477, the TaxCourt is not authorized to issue a declara-tory judgment unless the Tax Court findsthat the donor has exhausted all adminis-trative remedies within the IRS. See para-graph (d)(4) of this section regarding theexhaustion of administrative remedies.

(c) Adjustments subject to declara-tory judgment procedure. The declaratoryjudgment procedures set forth in this sec-tion apply to adjustments involving allissues relating to the transfer, includingwithout limitation valuation issues andlegal issues involving the interpretationand application of the gift tax law.

(d) Requirements for declaratory judg-ment procedure—(1) In general. Thedeclaratory judgment procedure providedin this section is available to a donor withrespect to a transfer only if all the require-ments of paragraphs (d)(2) through (5) ofthis section with regard to that transfer aresatisfied.

(2) Reporting. The transfer is shownor disclosed on the return of tax imposedby chapter 12 for the calendar year dur-ing which the transfer was made or ona statement attached to such return. Forpurposes of this paragraph (d)(2), theterm return of tax imposed by chapter 12means the last gift tax return (Form 709,“United States Gift (and Generation-Skip-ping Transfer) Tax Return” or such otherform as may be utilized for this purposefrom time to time by the IRS) for the cal-endar year filed on or before the due dateof the return, including extensions grantedif any, or, if a timely return is not filed,the first gift tax return for that calendaryear filed after the due date. For purposesof satisfying this requirement, the trans-fer need not be reported in a manner thatconstitutes adequate disclosure within themeaning of §301.6501(c)–1(e) or (f) (andthus for which, under §§20.2001–1(b) and25.2504–2(b) of this chapter, the periodduring which the IRS may adjust the valueof the gift will not expire). The issuanceof a Letter 3569 with regard to a transferdisclosed on a return does not constitute adetermination by the IRS that the transferwas adequately disclosed, or otherwisecause the period of limitations on assess-ment to commence to run with respect tothat transfer. In addition, in the case of atransfer that is shown on the return, theIRS may in its discretion defer until a latertime making a determination with regardto such transfer. If the IRS exercises itsdiscretion to defer such determination inthat case, the transfer will not be addressedin the Letter 3569 (if any) sent to the donorcurrently, and the donor is not yet eligiblefor a declaratory judgment with regard tothat transfer under section 7477.

(3) IRS determination and actual con-troversy. The IRS makes a determina-tion regarding the gift tax treatment of thetransfer that results in an actual contro-versy. The IRS makes a determinationthat results in an actual controversy withrespect to a transfer by mailing a Letter3569 to the donor, thereby notifying thedonor of the adjustment(s) proposed by theIRS with regard to that transfer and of thedonor’s rights under section 7477.

(4) Exhaustion of administrative reme-dies—(i) In general. The Tax Court deter-mines whether the donor has exhausted alladministrative remedies available withinthe IRS for resolving the controversy.

November 2, 2009 585 2009–44 I.R.B.

(ii) Appeals office consideration. Forpurposes of this section, the IRS willconsider a donor to have exhausted alladministrative remedies if, prior to filinga petition in Tax Court (except as pro-vided in paragraphs (d)(4)(iii) and (iv)of this section), the donor, or a qualifiedrepresentative of the donor described in§601.502 of this chapter, timely requestsconsideration by Appeals and participatesfully (within the meaning of paragraph(d)(4)(vi) of this section) in the Appealsconsideration process. A timely requestfor consideration by Appeals is a writtenrequest from the donor for Appeals con-sideration made within 30 days after themailing date of the Letter 950-G, or bysuch later date for responding to the Letter950-G as is agreed to between the donorand the IRS.

(iii) Request for Appeals office consid-eration not granted. If the donor, or aqualified representative of the donor de-scribed in §601.502 of this chapter, timelyrequests consideration by Appeals andAppeals does not grant that request, theIRS nevertheless will consider the donorto have exhausted all administrative reme-dies within the IRS for purposes of section7477 upon the issuance of the Letter 3569,provided that the donor, or a qualifiedrepresentative of the donor described in§601.502 of this chapter, after the filingof a petition in Tax Court for a declara-tory judgment pursuant to section 7477,participates fully (within the meaning ofparagraph (d)(4)(vi) of this section) in theAppeals office consideration if offeredby the IRS while the case is in docketedstatus.

(iv) No Letter 950-G issued. If the IRSdoes not issue a Letter 950-G to the donorprior to the issuance of Letter 3569, theIRS nevertheless will consider the donorto have exhausted all administrative reme-dies within the IRS for purposes of section7477 upon the issuance of the Letter 3569,provided that—

(A) The IRS decision not to issue theLetter 950-G was not due to actions or in-actions of the donor (such as a failure tosupply requested information or a currentmailing address to the Area Director hav-ing jurisdiction over the tax matter); and

(B) The donor, or a qualified represen-tative of the donor described in §601.502of this chapter, after the filing of a petitionin Tax Court for a declaratory judgment

pursuant to section 7477, participatesfully (within the meaning of paragraph(d)(4)(vi) of this section) in the Appealsoffice consideration if offered by the IRSwhile the case is in docketed status.

(v) Failure to agree to extension of timefor assessment. For purposes of section7477, the donor’s refusal to agree to anextension of the time under section 6501within which gift tax with respect to thetransfer at issue (if any) may be assessedwill not be considered by the IRS to con-stitute a failure by the donor to exhaustall administrative remedies available to thedonor within the IRS.

(vi) Participation in Appeals consider-ation process. For purposes of this sec-tion, the donor or a qualified representa-tive of the donor described in §601.502 ofthis chapter participates fully in the Ap-peals consideration process if the donor orthe qualified representative timely submitsall information related to the transfer thatis requested by the IRS in connection withthe Appeals consideration and discloses tothe Appeals office all relevant informa-tion regarding the controversy to the ex-tent such information and its relevance isknown or should be known by the donoror the qualified representative during thetime the issue is under consideration byAppeals.

(5) Timely petition in Tax Court. Thedonor files a pleading with the Tax Courtrequesting a declaratory judgment undersection 7477. This pleading must be filedwith the Tax Court before the 91st day afterthe date of mailing of the Letter 3569 bythe IRS to the donor. The pleading mustbe in the form of a petition subject to TaxCourt Rule 211(d).

(e) Examples. The following examplesillustrate the provisions of this section, andassume that in each case the Tax Courtpetition is filed on or after September 9,2009.

These examples, however, do not ad-dress any other situations that might af-fect the Tax Court’s jurisdiction overthe proceeding:Example 1. Exhaustion of administrative reme-

dies. The donor (D) timely files a Form 709, “UnitedStates Gift (and Generation-Skipping Transfer) TaxReturn,” on which D reports D’s completed gift ofclosely held stock. After conducting an examination,the IRS concludes that the value of the stock on thedate of the gift is greater than the value reported on thereturn. Because the amount of D’s available applica-ble credit amount under section 2505 is sufficient to

cover any resulting tax liability, no gift tax deficiencywill result from the adjustment. D is unable to resolvethe matter with the IRS examiner. The IRS sends aLetter 950-G to D informing D of the proposed ad-justment. D, within 30 calendar days after the mail-ing date of the letter, submits a written request for Ap-peals consideration. During the Appeals process, Dprovides to the Appeals office all additional informa-tion (if any) requested by Appeals relevant to the de-termination of the value of the stock in a timely fash-ion. The Appeals office and D are unable to reach anagreement regarding the value of the stock as of thedate of the gift. The Appeals office sends D a noticeof determination of value (Letter 3569). For purposesof section 7477, the IRS will consider D to have ex-hausted all available administrative remedies withinthe IRS, and thus will not contest the allegation in D’spetition that D has exhausted all such administrativeremedies.

Example 2. Exhaustion of administrative reme-dies. Assume the same facts as in Example 1, exceptthat D does not timely request consideration by Ap-peals after receiving the Letter 950-G. A Letter 3569is mailed to D more than 30 days after the mailingof the Letter 950-G and prior to the expiration of theperiod of limitations for assessment of gift tax. Dtimely files a petition in Tax Court pursuant to sec-tion 7477. After the case is docketed, D requests Ap-peals consideration. In this situation, because D didnot respond timely to the Letter 950-G with a writtenrequest for Appeals consideration, the IRS will notconsider D to have exhausted all administrative reme-dies available within the IRS for purposes of section7477 prior to filing the petition in Tax Court, and thusmay contest any allegation in D’s petition that D hasexhausted all such administrative remedies.

Example 3. Exhaustion of administrative reme-dies. D timely files a Form 709 on which D reportsD’s completed gifts of interests in a family limitedpartnership. After conducting an examination, theIRS proposes to adjust the value of the gifts as re-ported on the return. No gift tax deficiency will resultfrom the adjustments, however, because D has a suf-ficient amount of available applicable credit amountunder section 2505. D declines to consent to extendthe time for the assessment of gift tax with respectto the gifts at issue. Because of the pending expira-tion of the period of limitation on assessment withinwhich a gift tax, if any, could be assessed, the IRS de-termines that there is not adequate time for Appealsconsideration. Accordingly, the IRS mails to D a Let-ter 3569, even though a Letter 950-G had not firstbeen issued to D. D timely files a petition in Tax Courtpursuant to section 7477. After the case is docketedin Tax Court, D is offered the opportunity for Ap-peals to consider any dispute regarding the determi-nation and participates fully in the Appeals consider-ation process. However, the Appeals office and D areunable to resolve the issue. The IRS will consider Dto have exhausted all administrative remedies avail-able within the IRS, and thus will not assert that Dhas not exhausted all such administrative remedies.

Example 4. Legal issue. D transfers nonvestedstock options to a trust for the benefit of D’s child.D timely files a Form 709 reporting the transfer asa completed gift for Federal gift tax purposes andcomplies with the adequate disclosure requirementsfor purposes of triggering the commencement ofthe applicable statute of limitations. Pursuant to

2009–44 I.R.B. 586 November 2, 2009

§301.6501(c)–1(f)(5), adequate disclosure of a trans-fer that is reported as a completed gift on the Form709 will commence the running of the period oflimitations for assessment of gift tax on D, even if thetransfer is ultimately determined to be an incompletegift for purposes of §25.2511–2 of this chapter. Afterconducting an examination, the IRS concurs with thereported valuation of the stock options, but concludesthat the reported transfer is not a completed gift forFederal gift tax purposes. D is unable to resolve thematter with the IRS examiner. The IRS sends a Letter950-G to D, who timely mails a written request forAppeals consideration. Assuming that the IRS mailsto D a Letter 3569 with regard to this transfer, andthat D complies with the administrative proceduresset forth in this section, including the exhaustion ofall administrative remedies available within the IRS,then D may file a petition for declaratory judgmentwith the Tax Court pursuant to section 7477.

Example 5. Transfers in controversy. On April16, 2007, D timely files a Form 709 on which D re-ports gifts made in 2006 of fractional interests in cer-tain real property and of interests in a family limitedpartnership (FLP). However, although the gifts aredisclosed on the return, the return does not containinformation sufficient to constitute adequate disclo-sure under §301.6501(c)–1(e) or (f) for purposes ofthe application of the statute of limitations on assess-ment of gift tax with respect to the reported gifts. TheIRS conducts an examination and concludes that thevalue of both the interests in the real property and theFLP interests on the date(s) of the transfers are greaterthan the values reported on the return. No gift tax de-ficiency will result from the adjustments because Dhas a sufficient amount of remaining applicable creditamount under section 2505. However, D does notagree with the adjustments. The IRS sends a Letter950-G to D informing D of the proposed adjustmentsin the value of the reported gifts. D, within 30 calen-

dar days after the mailing date of the letter, submitsa written request for Appeals consideration. The Ap-peals office and D are unable to reach an agreementregarding the value of any of the gifts. In the exerciseof its discretion, the IRS decides to resolve currentlyonly the value of the real property interests, and todefer the resolution of the value of the FLP interests.On May 28, 2009, the Appeals office sends D a Letter3569 addressing only the value of the gifts of inter-ests in the real property. Because none of the gifts re-ported on the return filed on April 16, 2007, were ad-equately disclosed for purposes of §301.6501(c)–1(e)or (f), the period of limitations during which the IRSmay adjust the value of those gifts has not begun torun. Accordingly, the Letter 3569 is timely mailed.If D timely files a petition in Tax Court pursuant tosection 7477 with regard to the value of the inter-ests in the real property, then, assuming the other re-quirements of section 7477 are satisfied with regardto those interests, the Tax Court’s declaratory judg-ment, once it becomes final, will determine the valueof the gifts of the interests in the real property. Be-cause the IRS has not yet put the gift tax value of theinterests in the FLP into controversy, the procedureunder section 7477 is not yet available with regard tothose gifts.

(f) Effective/applicability date. Thissection applies to civil proceedings de-scribed in section 7477 filed in the UnitedStates Tax Court on or after September 9,2009.

Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

Approved August 26, 2009.

Michael Mundaca,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on September8, 2009, 8:45 a.m., and published in the issue of the FederalRegister for September 9, 2009, F.R. 46347)

Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


November 2, 2009 587 2009–44 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousCredit for Carbon DioxideSequestration Under Section45Q

Notice 2009–83

SECTION 1. PURPOSE

This notice sets forth interim guidance,pending the issuance of regulations, relat-ing to the credit for carbon dioxide (CO2)sequestration under section 45Q of theInternal Revenue Code. Specifically, thisnotice provides guidance on determiningeligibility for the credit and the amountof the credit, as well as rules regardingadequate security measures for secure ge-ological storage of CO2. This notice alsosets forth a separate reporting requirement.The Internal Revenue Service (Service)and Treasury Department (Treasury) ex-pect that the regulations will incorporatethe rules set forth in this notice.

SECTION 2. BACKGROUND

.01 Section 45Q was enacted by § 115of the Energy Improvement and ExtensionAct of 2008, Pub. L. No. 110–343, 122Stat. 3829 (October 3, 2008), as amendedby § 1131 of the American Recovery andReinvestment Tax Act of 2009, DivisionB of Pub. L. 111–5, 123 Stat 115 (Feb.17, 2009). Section 45Q(a) provides that acredit for CO2 sequestration (§ 45Q credit)is generally available to a taxpayer thatcaptures qualified CO2 at a qualified facil-ity and disposes of the CO2 in secure ge-ological storage within the United States,effective for CO2 captured after October 3,2008. As originally enacted, § 45Q(a)(1)provides for a credit of $20 per metric tonof qualified CO2 that is captured and dis-posed of in secure geological storage, and§ 45Q(a)(2) provides for a credit of $10 permetric ton of qualified CO2 that is capturedand used as a tertiary injectant in a quali-fied enhanced oil or natural gas recoveryproject (EOR project). Section 45Q(a),as amended, provides additional require-ments effective after February 17, 2009,that, for purposes of the $20 per metricton credit under § 45Q(a)(1), the qualifiedCO2 must not be used as a tertiary injec-tant; and, for purposes of the $10 per met-

ric ton credit under § 45Q(a)(2), the qual-ified CO2 used as a tertiary injectant mustbe disposed of in secure geological stor-age.

.02 Section 45Q(d)(2) as amended pro-vides that the Secretary of Treasury or hisor her delegate (the Secretary), in consulta-tion with the Administrator of the Environ-mental Protection Agency (EPA), the Sec-retary of Energy (DOE), and the Secretaryof the Interior (DOI), shall establish reg-ulations for determining adequate securitymeasures for the geological storage of CO2such that the CO2 does not escape into theatmosphere.

.03 Section 45Q(d)(5) provides that the§ 45Q credit is attributable to the personthat captures and physically or contractu-ally ensures the disposal of or the use as atertiary injectant of the qualified CO2, ex-cept to the extent provided in regulationsprescribed by the Secretary.

.04 Section 45Q(d)(6) provides for a re-capture of the benefit of any credit allow-able under § 45Q(a) with respect to anyqualified CO2 that ceases to be captured,disposed of, or used as a tertiary injectantin a manner consistent with the require-ments of § 45Q.

.05 Section 45Q(d)(7) provides that, fortaxable years beginning in a calendar yearafter 2009, the dollar amount contained in§ 45Q(a) will be substituted for an amountequal to the product of such dollar amountmultiplied by the inflation adjustment fac-tor for such calendar year determined un-der § 43(b)(3)(B), determined by substitut-ing “2008” for “1990.”

.06 Section 45Q(e) as amended pro-vides that the § 45Q credit will apply withrespect to qualified CO2 before the endof the calendar year in which the Secre-tary, in consultation with EPA, certifiesthat 75,000,000 metric tons of qualifiedCO2 have been taken into account in ac-cordance with § 45Q(a).

SECTION 3. TERMS ANDDEFINITIONS

.01 Terms. For purposes of this notice,(a) The terms disposal, storage, and se-

questration are used interchangeably,(b) The term credit refers to a tax credit

and shall not be interpreted or construed as

a CO2 allowance, permit, or any other CO2emissions property right, and

(c) The term leakage refers to CO2 thatceases to be sequestered via escape or re-lease from the subsurface to the atmos-phere or ocean.

.02 Industrial Facility.(a) Industrial facility refers to a facil-

ity that produces a CO2 stream from afuel combustion source, a manufacturingprocess, or a fugitive CO2 emission sourcethat, absent capture and disposal, wouldotherwise be released into the atmosphereas industrial emission of greenhouse gas.

(b) An industrial facility does not in-clude a facility that produces CO2 fromCO2 production wells at natural CO2-bear-ing formations.

.03 Qualified Carbon Dioxide. Quali-fied carbon dioxide means CO2 that is:

(a) Captured from an industrial sourcethat would otherwise be released intothe atmosphere as industrial emission ofgreenhouse gas (GHG),

(b) Measured at the source of capture,and

(c) Verified at the point of disposal orinjection.

Qualified CO2 includes the initial de-posit of captured CO2 used as a tertiaryinjectant but does not include CO2 that isre-captured, recycled, or otherwise re-in-jected as part of the enhanced oil and nat-ural gas recovery process.

.04 Qualified Enhanced Oil or Nat-ural Gas Recovery Project. Qualifiedenhanced oil or natural gas recoveryproject has the same meaning given theterm “qualified enhanced oil recoveryproject” under § 43(c)(2) by substituting“crude oil or natural gas” for “crude oil”in § 43(c)(2)(A)(i).

.05 Qualified Facility. Qualified fa-cility means an industrial facility that isowned by the taxpayer where carbon cap-ture equipment is placed in service andwhere at least 500,000 metric tons of qual-ified CO2 is captured during the taxableyear.

SECTION 4. APPLICATION OFSECTION 45Q CREDIT

.01 In General. Taxpayers who capturequalified CO2 from a qualified facility in

2009–44 I.R.B. 588 November 2, 2009

a taxable year beginning after October 3,2008, and meet all of the other require-ments of § 45Q are eligible to claim thecredit.

.02 Section 45Q Credit Amount. (a) Theamount of the § 45Q credit is equal to thesum of:

(i) $20 per metric ton of qualified CO2if the qualified CO2 is not used as a tertiaryinjectant in an EOR project; and

(ii) $10 per metric ton of qualified CO2if the qualified CO2 is used as a tertiaryinjectant in an EOR project.

Pursuant to § 45Q(d)(5), a taxpayer thatcaptures and physically or contractuallyensures the disposal of or the use as a ter-tiary injectant of qualified CO2 is eligibleto claim the § 45Q credit.

(b) Inflation Adjustment. The § 45Qcredit amount will be adjusted for inflationfor any taxable year beginning in a calen-dar year after 2009. The Service will an-nounce in later guidance the applicable in-flation adjustment for the amount of § 45Qcredit for a given taxable year.

.03 Carbon Dioxide Measured byWeight. (a) In order to claim a § 45Qcredit, the amount of CO2 must be mea-sured at the source of capture and verifiedeither at the point of disposal in secure ge-ological storage or at the point of injectionas a tertiary injectant in an EOR project.The amount of qualified CO2 for purposesof the § 45Q credit is presumed to be thelesser of the amount measured at captureand the amount verified at disposal or in-jection, unless the taxpayer can establishto the satisfaction of the Secretary that thegreater amount is the correct amount.

(b) For the purpose of calculating the§ 45Q credit, a metric ton of CO2 includesonly the contained weight of the CO2. Theweight of any other substances, such aswater or impurities, is not included in thecalculation. For example, if a metric tonof a substance that is bought and sold as“CO2” is 95 percent pure CO2 by weight,for purposes of the § 45Q credit, 1.0526tons (equivalent to 1 divided by 0.95) ofthe 95 percent pure substance is consideredto be one metric ton of CO2.

.04 Captured and Disposed of or Usedwithin the United States. Section 45Qcredit applies only to qualified CO2 that iscaptured and disposed of or used as a ter-tiary injectant within the United States (asdefined in § 638(1)) or a possession of theUnited States (as defined in § 638(2)).

.05 Taxpayers Eligible to Claim the§ 45Q Credit. (a) To be eligible to claimthe § 45Q credit, a person must (i) own anindustrial facility at which carbon captureequipment is placed in service, (ii) capturenot less than 500,000 metric tons of qual-ified CO2 during the taxable year at suchindustrial facility, and (iii) physically orcontractually ensure that the qualified CO2is securely stored in a geologic formation,including where such CO2 is captured andtransported for use in an EOR project. Inthe case of qualified CO2 that is used asa tertiary injectant in an EOR project, re-quirement (iii) above applies only to CO2captured after February 17, 2009.

Each industrial facility for which the§ 45Q credit is claimed must be equippedwith carbon capture equipment and mustcapture not less than 500,000 metric tonsof qualified CO2 during the taxable year.Additionally, a person that buys the cap-tured CO2 at the point of transit or dis-posal but does not own the industrial fa-cility at which the CO2 is captured doesnot meet the qualified facility requirementof § 45Q(c) and is therefore ineligible toclaim the § 45Q credit.

(b) Example. (i) X, a calendar year tax-payer, owns a manufacturing facility in theUnited States and releases CO2 into theatmosphere as a by-product of the facil-ity’s operations. On November 1, 2009,X leases carbon capture equipment andplaces it in service at the manufacturing fa-cility. On February 1, 2010, Y, an oil com-pany, enters into a contract with X to pur-chase the CO2 for use as a tertiary injectantin an EOR project. Pursuant to the terms ofthe contract, X captures the CO2 and de-livers it to Y at the manufacturing facil-ity. Y transports the CO2 in a pipeline toY’s oil fields located in the United States.Pursuant to its contract with X, Y usesthe CO2 as a tertiary injectant in an EORproject and thereafter disposes of the CO2in secure geological storage in the UnitedStates in 2010 and later years. During thetaxable year beginning on January 1, 2010,700,000 metric tons of CO2 is captured atX’s facility and injected as a tertiary injec-tant under the terms of the agreement. Xmeasures the amount of CO2 at the sourceof capture and Y verifies the amount ofCO2 at the point of injection during taxableyear 2010.

(ii) CO2 captured from X’s facility isqualified CO2 under § 45Q(b) because

the CO2 was captured from an industrialsource from which it would otherwisehave been released into the atmosphereand is measured at the source of captureand verified at the point of injection in theUnited States. The CO2 was captured ata qualified facility within the meaning ofsection 3.05 of this notice because it is anindustrial facility, within the meaning ofsection 3.02 of this notice, that is ownedby X, at which carbon capture equipmentis placed in service, and the facility cap-tures not less than 500,000 metric tons ofCO2 during the taxable year. Therefore,X is eligible to claim the § 45Q creditin 2010 for the qualified CO2 capturedand used as a tertiary injectant in an EORproject in 2010. The amount of qualifiedCO2 for purposes of the § 45Q credit ispresumed to be the lesser of the amountmeasured at capture and the amount ver-ified at injection, unless X can establishto the satisfaction of the Secretary that thegreater amount is the correct amount.

.06 Allocation of § 45Q Credit AmongQualified Facility Owners. Eligibilityfor the § 45Q credit is based on the totalamount of CO2 captured and disposed ofin secure geological storage during a tax-able year subject to the following:

(a) If the qualified facility is owned by apartnership that has not made a valid elec-tion under § 761(a), the partnership willbe considered the taxpayer for purposesof this notice. In such cases, the § 45Qcredit must be allocated in accordance with§ 1.704–1(b)(4)(ii).

(b) If the qualified facility is owned by apartnership that has made a valid § 761(a)election, then each partner in the partner-ship will be considered the taxpayer forpurposes of this notice. In such case, thetaxpayer may claim the § 45Q credit inaccordance with its portion of the totalamount of qualified CO2 that is commen-surate with its undivided ownership of thequalified facility.

.07 Applicability of Credit for Projectsunder §§ 48A and 48B of the Code. Qual-ified CO2 for purposes of the § 45Q creditdoes not include CO2 that is captured andsequestered in a project to the extent re-quired under an agreement executed withthe Service under the qualifying advancedcoal project program of § 48A or thequalifying gasification project program of§ 48B.

November 2, 2009 589 2009–44 I.R.B.

.08 Credit Recapture. Taxpayers mustphysically or contractually ensure that allqualified CO2 disposed of in secure geo-logical storage remains stored and is notreleased into the atmosphere. Taxpayersmust recapture the benefit of any creditallowable under § 45Q(a) with respect toany qualified CO2 that ceases to be cap-tured, disposed of, or used as a tertiary in-jectant in a manner consistent with the re-quirements of § 45Q. Procedures regarding§ 45Q credit recapture will be provided infuture guidance.

.09 Credit Termination. Pursuant to§ 45Q(e), at such time as the Service cer-tifies, in consultation with the EPA, that75,000,000 metric tons of qualified CO2have been taken into account for purposesof § 45Q credit, the Service will publiclyannounce that the § 45Q credit will ceaseto be available for the calendar year fol-lowing such announcement.

SECTION 5. SECURE GEOLOGICALSTORAGE

.01 In General. In order to qualifyfor the § 45Q credit, a taxpayer must ei-ther physically or contractually dispose ofcaptured CO2 in secure geological storageusing adequate security measures as pro-vided by the Secretary in regulations. Theterm “secure geological storage” includesstorage at deep saline formations, oil andgas reservoirs, and unminable coal seamsunder such conditions as the Secretary maydetermine under regulations. There are notyet regulations setting forth the require-ments for secure geological storage. Thissection of the notice provides interim pro-cedures for a taxpayer to determine ade-quate security measures for the secure ge-ological storage of CO2 until such reg-ulations are promulgated. In the eventthat a taxpayer disposes of the qualifiedCO2 contractually, the taxpayer must en-sure that the contracting party complieswith the requirements of this section of thenotice at all times, and the taxpayer mustbe able to provide documentation of suchcompliance as required under section 7 ofthis notice. In order to demonstrate se-cure geological storage for purposes of the§ 45Q credit, a taxpayer must meet the re-quirements of section 5.02 of this notice.

.02 Requirements of Secure GeologicalStorage.

(a) Measurement of CO2 at the Sourceof Capture: Final Mandatory GHG Re-porting Rule. On September 22, 2009,EPA issued the Final Mandatory GHG Re-porting Rule (Reporting Rule) (to be cod-ified at 40 C.F.R pt. 98), to require re-porting of greenhouse gas emissions fromall sectors of the economy. The Report-ing Rule applies to fossil fuel suppliersand industrial gas suppliers, including CO2suppliers, as well as to direct greenhousegas emitters. The Reporting Rule doesnot require control of greenhouse gases:rather, it requires only that certain sourcesmonitor and report emissions. A taxpayerclaiming the § 45Q credit must use themethodology, inputs, and equations in theReporting Rule (or any successor rule) tocalculate the amount of CO2 measured atthe source of capture. The amount re-ported under the Reporting Rule (or anysuccessor rule) must be consistent with theamount of qualified CO2 taken into ac-count for purposes of the § 45Q credit.

(b) Sequestration Site Rules.(i) IPCC Guidelines. In order for geo-

logical storage to be considered adequatelysecure for purposes of the § 45Q creditsuch that the injected CO2 does not es-cape into the atmosphere, a taxpayer mustconduct at the frequency appropriate forthe site conditions, except as otherwiseprovided under paragraph (c), the follow-ing procedures outlined in the 2006 In-tergovernmental Panel on Climate ChangeGuidelines for National Greenhouse GasInventories (IPCC Guidelines):

(A) Conduct a site characterization byevaluating the geology of the storage siteand surrounding strata and identifying thelocal and regional hydrogeology and leak-age pathways such as deep wells, faults,and fractures.

(B) Conduct an assessment of the risksof CO2 leakage, or escape of CO2 fromthe subsurface to the atmosphere, by eval-uating the potential for leakage through acombination of site characterization andrealistic models that predict movement ofCO2 over time and locations where emis-sions might occur. A range of modelingtools is available, including reservoir sim-ulators that are widely used in the oil andgas industry and have proved effective inpredicting movement of gases and liquids,including CO2, through geological forma-tions. Reservoir simulation can be usedto predict the likely location, timing, and

flux of emissions. Additional numericalmodeling techniques may need to be usedto analyze aspects of the geology, such asmulti-phase reaction transport models andgeomechanical models.

(C) Monitor potential leakage path-ways, measure leakage at those pathwaysas necessary, monitor the current and fu-ture behavior of the CO2 and of the storagesystem, and use the results of the monitor-ing plan to validate and/or update modelsas appropriate. Monitoring should be con-ducted according to a suitable plan. Thisshould take into account the expectationsfrom the modeling on where leakage mightoccur, as well as measurements made overthe entire zone in which CO2 is likely tobe present.

(ii) UIC Program: Proposed Rules forGeologic Storage. The Underground In-jection Control (UIC) program was estab-lished under the authority of Part C of theSafe Drinking Water Act (42 U.S.C. 300het seq.) (SDWA), which regulates under-ground injection wells. The SDWA is de-signed to protect the quality of drinkingwater sources in the United States. TheSDWA gives the EPA authority to issueregulations for state programs that con-tain “minimum requirements for effectiveprograms to prevent underground injectionwhich endangers drinking water sources.”Under the UIC program, the EPA promul-gated a series of regulations (40 C.F.R.parts 144 through 148) to employ a multi-ple barrier approach that includes require-ments for the proper geologic siting, con-struction, operation, testing, and closureof injection wells to ensure that injectedfluids remain isolated from undergroundsources of drinking water (USDWs) andthe environment.

On July 25, 2008, the EPA proposedrules relating to federal requirements un-der the UIC Program for CO2 Geologic Se-questration Wells (73 Fed. Register No.144, 40 C.F.R. parts 144–146). The EPAproposes to create a new category of in-jection well (Class VI) under its existingUIC Program with new federal require-ments to permit the injection of CO2 for thepurpose of geologic sequestration (i.e., thelong-term containment of a gaseous, liq-uid, or supercritical CO2 stream in subsur-face geologic formations). The EPA pro-poses to tailor existing UIC program com-ponents to create standards appropriate forinjecting large amounts of CO2 into a va-

2009–44 I.R.B. 590 November 2, 2009

riety of geologic formations to ensure thatUSDWs are not endangered.

The proposed UIC program rules havenot been finalized as of the date of this no-tice. Once the UIC program rules are fi-nalized, any taxpayer claiming the § 45Qcredit who is covered by the new programrules must follow the modeling, monitor-ing, well construction, and other require-ments of the relevant permit as requiredunder the rules. The requirements in thefinal UIC program rules (or any successorrules) will apply in lieu of the requirementsof the IPCC Guidelines under paragraph(i). However, any taxpayer that is not cov-ered by the final UIC program rules mustcontinue to follow the procedures outlinedin the IPCC Guidelines pursuant to para-graph (i).

(iii) Proposed Geologic SequestrationRules. Subpart PP of the Final MandatoryGHG Reporting Rule announces EPA’splans to propose new rules to requirereporting of the amount of CO2 that isgeologically sequestered. EPA will seekcomments on monitoring, reporting, andverification methodologies that can beused to determine the amount of CO2 emit-ted and geologically sequestered at activeEOR facilities and geologic sequestrationsites where CO2 is injected (for long-termstorage) into saline aquifers, oil and gasreservoirs, or other geologic formations.When the proposed geologic sequestra-tion rules are finalized, such rules (or anysuccessor rules) will apply in addition tothe final UIC program rules (to the extentapplicable), and the requirements of theIPCC Guidelines under paragraph (i) willno longer apply.

(c) Compliance with Additional Reg-ulatory Requirements. EPA may imposeadditional or different requirements forsecure geological storage, including addi-tional methodology, inputs, and equationsto calculate the amount of CO2 measuredand verified at the source of injectionand/or the amount of CO2 emitted fromsecure geological storage. Furthermore,various aspects of geologic sequestration,including well construction, operation,well plugging, and post-injection siteclosure may be subject to other existingor future requirements from governmentbodies, including EPA’s regional or stateUIC programs. Any taxpayer claiming the§ 45Q credit must follow such additionalrequirements together with the Reporting

Rule and the IPCC Guidelines (or, in lieuof the IPCC guidelines, the UIC programrule as applicable and the geologic se-questration rule, once they are finalized)in order to demonstrate secure geologicalstorage for purposes of the § 45Q credit.

SECTION 6. REPORTINGREQUIREMENTS

.01 Annual Reports. A taxpayer that hasclaimed the § 45Q credit on a tax returnmust submit an annual report to the Servicecontaining the following information:

(a) The name, address, and taxpayeridentification number of the reporting tax-payer, and all parties with which the tax-payer contractually ensures the secure ge-ological storage of the CO2;

(b) The name and location of the qual-ified facilities at which the CO2 was cap-tured;

(c) The amounts (in metric tons) ofqualified CO2 for the taxable year that hasbeen taken into account for purposes ofclaiming the § 45Q credit;

(d) Any changes in the information in-cluded in prior annual reports submittedunder section 6.01 of this notice, includ-ing adjustments to the amount (in metrictons) of qualified CO2 taken into accountfor purposes of the § 45Q credit in priortaxable years; and

(e) A declaration, applicable to the re-port and any accompanying documents,signed by a person currently authorized tobind the taxpayer in these matters, in thefollowing form:

“Under penalties of perjury, I declarethat I have examined this report, includ-ing accompanying documents, and to thebest of my knowledge and belief, the factspresented in support of this report are true,correct, and complete.”

.02 Time for Filing Reports. The annualreport described in section 6.01 of this no-tice must be filed with the Service at thefollowing address not later than the lastday of the second calendar month follow-ing the month during which the tax returnon which the § 45Q credit is claimed wasdue (including extensions):

Internal Revenue ServiceAttn: CC:PSI:6, Room 5116P.O. Box 14095Benjamin Franklin StationWashington, D.C. 20044

SECTION 7. RECORDKEEPINGREQUIREMENT

.01 In General. A taxpayer is notrequired to attach documentation to thereturn on which the credit is claimed.However, § 6001 of the Code providesthat every person liable for any tax im-posed by the Code, or for the collectionthereof, must keep such records, rendersuch statements, make such returns, andcomply with such rules and regulationsas the Secretary may from time to timeprescribe. See Treas. Reg. § 1.6001–1(e).

.02 Information Must Be Available forInspection. The taxpayer must retain inits records documentation establishingthat the taxpayer qualifies for the § 45Qcredit. The taxpayer must, upon request,make such documentation available forinspection by the Service regardless ofwhether the taxpayer physically or con-tractually ensures injection or disposal insecure geological storage. Such necessarydocumentation includes, but is not limitedto, the following:

(a) Methodology, inputs, and equationsused to measure the amount of CO2 at thesource of capture and verify the amount atthe point of disposal or injection. Quali-fied CO2 for purposes of the § 45Q creditdoes not include the amount of CO2 recy-cled or re-injected as part of EOR opera-tions.

(b) Evidence of disposal of capturedCO2 in secure geological storage, as spec-ified in section 5 of this notice. As futureFederal and state regulations are promul-gated, such evidence may also include anycertificates issued or determinations madeby a Federal or state government that thegeological storage meets the necessary re-quirements to ensure secure storage.

(c) Methodology, inputs, and equationsused to calculate the amount of CO2 emit-ted from secure geological storage.

(d) All contracts entered into by the tax-payer and any contracting party that en-sures the use of the CO2 as a tertiary in-jectant or the disposal of the CO2 in securegeological storage.

SECTION 8. PAPERWORKREDUCTION ACT

The collection of information containedin this notice has been reviewed and ap-proved by the Office of Management and

November 2, 2009 591 2009–44 I.R.B.

Budget in accordance with the PaperworkReduction Act (44 U.S.C. § 3507) undercontrol number 1545–2153.

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

The collection of information is in sec-tion 6 of this notice. This information is re-quired to allow the Secretary to determinewhen 75,000,000 metric tons of qualifiedCO2 have been taken into account for pur-poses of the § 45Q credit. The § 45Q creditwill cease to be available after the end ofthe calendar year in which the Secretary,in consultation with the EPA, certifies that75,000,000 metric tons of qualified CO2have been taken into account. This collec-tion of information is required to obtain abenefit. The likely respondents are busi-nesses or other for-profit institutions.

The estimated total annual reportingburden is 180 hours.

The estimated annual burden per re-spondent varies from 2 to 10 hours, de-pending on individual circumstances, withan estimated average of 6 hours. The esti-mated number of respondents is 30.

The estimated annual frequency of re-sponses is annually.

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

SECTION 9. DRAFTINGINFORMATION

The principal author of this notice isJennifer C. Bernardini of the Office ofAssociate Chief Counsel (Passthroughs& Special Industries). For further in-formation regarding this notice, contactJennifer C. Bernardini at (202) 622–3110(not a toll-free call).

Limited Reexamination ofEstate Tax Return Applicableto Certain Section 2053Claims for Refund

Notice 2009–84

PURPOSE

This notice provides a limited admin-istrative exception to the ability of theInternal Revenue Service (Service) to ex-amine a Form 706 (United States Estate(and Generation-Skipping Transfer) TaxReturn) in connection with certain protec-tive claims for refund filed within the timeprescribed in section 6511(a) of the Inter-nal Revenue Code (Code). Specifically, inprocessing a timely-filed protective claimfor refund of tax based on a deductionunder section 2053 of the Code, if theclaim for refund ripens and becomes readyfor consideration after the expiration ofthe period of limitations on assessmentprescribed in section 6501, the Servicewill limit its review of the Form 706 to theevidence relating to the deduction undersection 2053 that was the subject of theprotective claim.

BACKGROUND

Concurrently with the issuance of thisnotice, the Treasury Department and theService are issuing final regulations undersection 2053 of the Code (T.D. 9468) toprovide guidance in determining the de-ductible amount of a claim against a dece-dent’s estate under section 2053. Sec-tion 20.2053–1(d)(1) of the final regula-tions provides the general rule that a de-duction for any claim or expense describedin section 2053 and the final regulationsis limited, with several exceptions, to theamount actually paid in settlement or sat-isfaction of the claim or expense.

Under the final regulations, if a claim orexpense that would have been deductibleunder section 2053 had it already been paidis not fully deductible within the periodof limitation prescribed in section 6511(a),the estate may file a protective claim for re-fund to preserve the estate’s right to claima refund of tax attributable to the deductionof such claim or expense in the event thatit becomes deductible in whole or in partafter the expiration of the period of limi-tation prescribed in section 6511(a). Sec-

tion 20.2053–1(d)(5). A protective claimfor refund may be filed at any time beforethe expiration of the period of limitationprescribed in section 6511(a) for the filingof a claim for credit or refund. See section6514. Once the claim or expense has beenpaid or otherwise has become deductibleunder section 2053, the executor may no-tify the Service that the decedent’s estate isready to pursue the claim for refund.

In considering a claim for refund, theService must determine if there is an over-payment of tax for purposes of section6402. An overpayment exists to the ex-tent the amount of tax paid exceeds the cor-rect tax liability. To determine the correcttax liability, the Service has the authorityto examine each item on the return regard-less of whether the period of limitationson assessment has expired. See Lewis v.Reynolds, 284 U.S. 281, 283 (1932). Evenif the Service is barred from assessing anyadditional amount of tax by reason of theexpiration of the period of limitations onassessment under section 6501, the Ser-vice may reject the claim for refund to theextent the Service determines there is nooverpayment of tax.

DISCUSSION

Commentators responding to theproposed regulations (published in theFederal Register on April 23, 2007(REG–143316–03, 2007–1 C.B. 1292 [72FR 20080])) expressed concerns that theprotective claim procedures effectivelywould keep the period of limitations on as-sessment open to the extent of the amountof the claim for refund and, therefore,would impede the goal of achieving final-ity in the administration of a decedent’sestate. In cases in which the Service ac-cepts the Form 706 as filed or in whichany disputes between the estate and theService are resolved without a judicial de-termination, the executor generally relieson the estate tax closing letter (Letter 627)that is issued by the Service to advise theestate that the Form 706 has been accepted,either as filed or after an adjustment towhich the estate has agreed. Practitionersare concerned that, if an estate must filea protective claim for refund in order toclaim a deduction for a claim or expenseunder section 2053 of the Code, executorswill be unable to rely on the estate taxclosing letter because the Service has the

2009–44 I.R.B. 592 November 2, 2009

ability to examine the entire Form 706when a timely-filed claim for refund isready for consideration by the Service.

The final regulations under section2053, issued concurrently with this notice,provide several exceptions to the generalrule that a deduction for a claim or expenseis limited to the amount paid in settlementor satisfaction of that claim or expense. Asa result of these exceptions, the TreasuryDepartment and the Service anticipate thatthe number of protective refund claimsfiled to preserve a deduction under section2053 will be significantly smaller thanwas anticipated by commentators to theproposed regulations. The Treasury De-partment and the Service, nevertheless,acknowledge the value in achieving final-ity in the administration of estates and inmaking the regulations under section 2053more administrable.

Accordingly, if the period of limitationson assessment has expired and the Serviceis notified that a timely-filed protectiveclaim for refund of tax based on a deduc-tion under section 2053 has ripened and isready for consideration, the Service gener-ally will refrain from exercising its author-ity to examine each item on the Form 706to determine if there is an overpayment of

tax for purposes of section 6402. Instead,when such a timely-filed claim for refundripens after the expiration of the period oflimitations on assessment, the Service willlimit its examination of the Form 706 tothe evidence relating to the deduction un-der section 2053 that was the subject of theprotective claim.

To the extent that the Service deter-mines the deduction under section 2053 isallowable, the Service will recompute theestate tax liability of the estate (and themarital and charitable deductions, and allother amounts determined as part of thatprocess) by allowing that deduction.

SCOPE

The Service’s decision to limit its ex-amination of the Form 706 to the evidencerelating to the deduction under section2053 of the Code applies only to estatesin which a timely protective refund claimwas filed to preserve an estate’s ability toclaim a deduction under section 2053 fora claim or expense that subsequently ispaid or otherwise meets the requirementsfor deductibility under the final regula-tions. This administrative exception doesnot apply, however, when the Service is

considering a protective claim for refundbased on a deduction under section 2053and, in the same estate, is considering aclaim for refund not based on a protectiveclaim regarding a deduction under section2053. In addition, the Service’s decisionto limit its examination of the Form 706applies only if the protective claim forrefund ripens after the expiration of theperiod of limitations on assessment anddoes not apply if there is evidence of fraud,malfeasance, collusion, concealment, ormisrepresentation of a material fact.

EFFECTIVE DATE

This notice is applicable with respect toprotective claims for refund filed on behalfof estates of decedents dying on or afterOctober 20, 2009.

DRAFTING INFORMATION

The principal author of this notice isKarlene Lesho of the Office of AssociateChief Counsel (Passthroughs and SpecialIndustries). For further information re-garding this notice, contact Karlene Leshoat (202) 622–3090 (not a toll-free call).

November 2, 2009 593 2009–44 I.R.B.

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

Announcement 2009–78

The Internal Revenue Service has re-voked its determination that the organi-zations listed below qualify as organiza-

tions described in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986 effective January 1, 2006.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is notprecluded from disallowing a deductionfor any contributions made after an or-ganization ceases to qualify under section

170(c)(2) if the organization has not timelyfiled a suit for declaratory judgment undersection 7428 and if the contributor (1) hadknowledge of the revocation of the rulingor determination letter, (2) was aware thatsuch revocation was imminent, or (3) wasin part responsible for or was aware of theactivities or omissions of the organizationthat brought about this revocation.

Concerned Residents of Southeast, Inc.Brewster, NY

2009–44 I.R.B. 594 November 2, 2009

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

November 2, 2009 i 2009–44 I.R.B.

Numerical Finding List1

Bulletins 2009–27 through 2009–44

Announcements:

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

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

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

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

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

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

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

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

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

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

2009-66, 2009-37 I.R.B. 364

2009-67, 2009-38 I.R.B. 388

2009-68, 2009-38 I.R.B. 388

2009-69, 2009-40 I.R.B. 475

2009-70, 2009-41 I.R.B. 499

2009-71, 2009-40 I.R.B. 475

2009-72, 2009-41 I.R.B. 500

2009-73, 2009-41 I.R.B. 500

2009-74, 2009-42 I.R.B. 537

2009-75, 2009-42 I.R.B. 537

2009-77, 2009-43 I.R.B. 567

2009-78, 2009-44 I.R.B. 594

Notices:

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

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

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

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

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

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

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

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

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

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

2009-65, 2009-39 I.R.B. 413

2009-66, 2009-39 I.R.B. 418

2009-67, 2009-39 I.R.B. 420

2009-68, 2009-39 I.R.B. 423

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

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

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

2009-72, 2009-37 I.R.B. 325

2009-73, 2009-38 I.R.B. 369

2009-74, 2009-38 I.R.B. 370

2009-75, 2009-39 I.R.B. 436

2009-76, 2009-43 I.R.B. 554

2009-77, 2009-40 I.R.B. 449

2009-78, 2009-40 I.R.B. 452

2009-79, 2009-40 I.R.B. 454

2009-81, 2009-40 I.R.B. 455

2009-82, 2009-41 I.R.B. 491

Notices— Continued:

2009-83, 2009-44 I.R.B. 588

2009-84, 2009-44 I.R.B. 592

Proposed Regulations:

REG-140492-02, 2009-43 I.R.B. 559

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

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

REG-127270-06, 2009-42 I.R.B. 534

REG-136563-07, 2009-41 I.R.B. 497

REG-108045-08, 2009-43 I.R.B. 557

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

REG-116614-08, 2009-42 I.R.B. 536

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

REG-139068-08, 2009-43 I.R.B. 558

Revenue Procedures:

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

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

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

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

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

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

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

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

2009-38, 2009-37 I.R.B. 362

2009-39, 2009-38 I.R.B. 371

2009-40, 2009-39 I.R.B. 438

2009-41, 2009-39 I.R.B. 439

2009-42, 2009-40 I.R.B. 459

2009-43, 2009-40 I.R.B. 460

2009-44, 2009-40 I.R.B. 462

2009-45, 2009-40 I.R.B. 471

2009-46, 2009-42 I.R.B. 507

2009-47, 2009-42 I.R.B. 524

Revenue Rulings:

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

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

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

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

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

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

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

2009-25, 2009-38 I.R.B. 365

2009-26, 2009-38 I.R.B. 366

2009-27, 2009-39 I.R.B. 404

2009-28, 2009-39 I.R.B. 391

2009-29, 2009-37 I.R.B. 322

2009-30, 2009-39 I.R.B. 391

2009-31, 2009-39 I.R.B. 395

2009-32, 2009-39 I.R.B. 399

2009-33, 2009-40 I.R.B. 447

2009-34, 2009-42 I.R.B. 502

2009-35, 2009-44 I.R.B. 568

Treasury Decisions:

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

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

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

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

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

9457, 2009-41 I.R.B. 482

9458, 2009-43 I.R.B. 547

9459, 2009-41 I.R.B. 480

9460, 2009-44 I.R.B. 584

9461, 2009-41 I.R.B. 488

9462, 2009-42 I.R.B. 504

9463, 2009-40 I.R.B. 442

9465, 2009-43 I.R.B. 542

9466, 2009-43 I.R.B. 551

9468, 2009-44 I.R.B. 570

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

2009–44 I.R.B. ii November 2, 2009

Finding List of Current Actions onPreviously Published Items1

Bulletins 2009–27 through 2009–44

Announcements:

2006-93

Superseded by

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

Notices:

2002-3

Modified and superseded by

Notice 2009-68, 2009-39 I.R.B. 423

2004-67

Supplemented and superseded by

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

2006-70

Obsoleted by

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

2006-109

Superseded in part by

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

2007-7

Modified by

Notice 2009-82, 2009-41 I.R.B. 491

2008-30

Amplified and clarified by

Notice 2009-75, 2009-39 I.R.B. 436

2008-43

Obsoleted by

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

2009-28

Clarified by

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

2009-31

Amplified by

Rev. Proc. 2009-43, 2009-40 I.R.B. 460

2009-42

Amplified by

Rev. Proc. 2009-43, 2009-40 I.R.B. 460

Revenue Procedures:

97-27

Clarified and modified by

Rev. Proc. 2009-39, 2009-38 I.R.B. 371

97-49

Modified and superseded by

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

2002-44

Superseded by

Rev. Proc. 2009-44, 2009-40 I.R.B. 462

Revenue Procedures— Continued:

2002-59

Superseded by

Rev. Proc. 2009-41, 2009-39 I.R.B. 439

2005-63

Modified by

Rev. Proc. 2009-39, 2009-38 I.R.B. 371

2007-44

Modified by

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

2007-65

Modified by

Ann. 2009-69, 2009-40 I.R.B. 475

2008-34

Superseded by

Rev. Proc. 2009-46, 2009-42 I.R.B. 507

2008-38

Superseded by

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

2008-44

Superseded by

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

2008-52

Amplified, clarified, and modified by

Rev. Proc. 2009-39, 2009-38 I.R.B. 371

2008-59

Superseded by

Rev. Proc. 2009-47, 2009-42 I.R.B. 524

2008-65

Modified by

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

2009-16

Modified by

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

2009-39

Modified by

Ann. 2009-67, 2009-38 I.R.B. 388

Revenue Rulings:

74-346

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

75-190

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

75-398

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

75-526

Superseded by

Rev. Rul. 2009-34, 2009-42 I.R.B. 502

Revenue Rulings— Continued:

2009-22

Corrected by

Ann. 2009-74, 2009-42 I.R.B. 537

2009-29

Corrected by

Ann. 2009-74, 2009-42 I.R.B. 537

Treasury Decisions:

9456

Corrected by

Ann. 2009-73, 2009-41 I.R.B. 500

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

November 2, 2009 iii 2009–44 I.R.B.

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

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-tendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weeklyBulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNETYou may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Businesses. Under Businesses Topics, select

More Topics. Then select Internal Revenue Bulletins.

INTERNAL REVENUE BULLETINS ON CD-ROMInternal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be

purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two tosix weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THE INTERNALREVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, wewould be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.

Internal Revenue ServiceWashington, DC 20224Official BusinessPenalty for Private Use, $300