Bulletin No. 2012-4January 23, 2012

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

T.D. 9560, page 299.Final regulations under section 45D of the Code relate to howan entity serving certain targeted populations can meet therequirements to be a qualified active low-income communitybusiness for the new markets tax credit.

REG–102988–11, page 326.Proposed regulations under section 6045 of the Code modifyinformation reporting requirements for a broker, transfer re-porting requirements under section 6045A, and issuer state-ment requirements under section 6045B to cover debt instru-ments and options. A public hearing is scheduled for March 16,2012.

Notice 2012–7, page 308.This notice provides for the suspension of certain requirementsunder section 42 of the Code for low-income housing creditprojects in Iowa in order to provide emergency housing reliefneeded as a result of the devastation in Iowa caused by floodingduring the period of May 25, 2011, to August 1, 2011.

Notice 2012–8, page 309.This notice provides a proposed revenue procedure that will up-date Rev. Proc. 2003–61, 2003–2 C.B. 296, which providesguidance regarding equitable relief from joint and several liabil-ity under section 6015(f) of the Code. Rev. Proc. 2003–61superseded.

EMPLOYEE PLANS

Announcement 2012–3, page 335.This announcement extends to April 2, 2012, the deadline tosubmit on-cycle applications for opinion and advisory letters

for pre-approved defined contribution plans for the plans’second six-year remedial amendment cycle. Under Rev.Proc. 2007–44, 2007–2 C.B. 54, and Rev. Proc. 2011–49,2011–44 I.R.B. 608, the submission period for these appli-cations was scheduled to expire on January 31, 2012. Rev.Procs. 2007–44 and 2011–49 modified.

EMPLOYMENT TAX

Notice 2012–9, page 315.This notice restates and amends the interim guidance on in-formational reporting to employees of the cost of their em-ployer-sponsored group health plan coverage initially providedin Notice 2011–28, 2011–16 I.R.B. 656. This informationalreporting is required under section 6051(a)(14) of the Code,enacted as part of the Patient Protection and Affordable CareAct of 2010 (the Affordable Care Act), Public Law, 111–148,to provide useful and comparable consumer information to em-ployees on the cost of their health care coverage. Notice2011–28 superseded.

ADMINISTRATIVE

Notice 2012–8, page 309.This notice provides a proposed revenue procedure that will up-date Rev. Proc. 2003–61, 2003–2 C.B. 296, which providesguidance regarding equitable relief from joint and several liabil-ity under section 6015(f) of the Code. Rev. Proc. 2003–61superseded.

Announcement 2012–4, page 335.This document contains corrections to final regulations(T.D. 9517, 2011–15 I.R.B. 610) relating to the enrollment ofactuaries.

Finding Lists begin on page ii.

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

force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly 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.

January 23, 2012 2012–4 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 45D.—New MarketsTax Credit26 CFR 1.45D–1: New markets tax credit.

T.D. 9560

DEPARTMENT OF TREASURYInternal Revenue Service26 CFR Part 1

Targeted Populations UnderSection 45D(e)(2)

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final Regulations.

SUMMARY: This document contains finalregulations relating to how an entity serv-ing certain targeted populations can meetthe requirements to be a qualified activelow-income community business for thenew markets tax credit. The regulations re-flect changes to the law made by the Amer-ican Jobs Creation Act of 2004. The regu-lations will affect certain taxpayers claim-ing the new markets tax credit.

DATES: Effective Date: These regulationsare effective on December 5, 2011.

Applicability Dates: For dates of appli-cability, see §1.45D–1(h)(3).

FOR FURTHER INFORMATIONCONTACT: Julie Hanlon Bolton, (202)622–3040 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends 26 CFR part 1to provide rules relating to certain targetedpopulations under section 45D(e)(2). OnMay 24, 2005, the Community Develop-ment Financial Institutions Fund publishedan advance notice of proposed rulemak-ing (ANPRM) (70 FR 29658) to seekcomments from the public with respect tohow targeted populations may be treatedas eligible low-income communities un-der section 45D(e)(2). In response to theANPRM, the IRS received various sug-gestions relating to the definition of the

term targeted populations and proposingamendments to the requirements to be aqualified active low-income communitybusiness under §1.45D–1. On June 30,2006, the IRS and Treasury Departmentreleased Notice 2006–60, 2006–2 C.B. 82,which announced that §1.45D–1 wouldbe amended to provide rules relating tohow an entity meets the requirements tobe a qualified active low-income commu-nity business when its activities involvecertain targeted populations under section45D(e)(2). On September 24, 2008, anotice of proposed rulemaking (NPRM)(REG–142339–05, 2008–2 C.B. 1116)was published in the Federal Register(73 FR 54990). Written and electroniccomments responding to the proposedregulations were received and a publichearing was held on January 22, 2009.After consideration of all the comments,the proposed regulations are adopted asamended by this Treasury decision.

General Overview

Section 45D(a)(1) provides a new mar-kets tax credit on certain credit allowancedates described in section 45D(a)(3) withrespect to a qualified equity investment ina qualified community development entity(CDE) described in section 45D(c).

Section 45D(b)(1) provides that an eq-uity investment in a CDE is a qualifiedequity investment if, among other require-ments: (A) the investment is acquired bythe taxpayer at its original issue (directlyor through an underwriter) solely in ex-change for cash; (B) substantially all of thecash is used by the CDE to make qualifiedlow-income community investments; and(C) the investment is designated for pur-poses of section 45D by the CDE.

Under section 45D(b)(2), the maxi-mum amount of equity investments issuedby a CDE that may be designated by theCDE as qualified equity investments shallnot exceed the portion of the new marketstax credit limitation set forth in section45D(f)(1) that is allocated to the CDE bythe Secretary under section 45D(f)(2).

Section 45D(c)(1) provides that an en-tity is a CDE if, among other requirements,

the entity is certified by the Secretary as aCDE.

Section 45D(d)(1) provides that theterm qualified low-income community in-vestment means: (A) any capital or equityinvestment in, or loan to, any qualifiedactive low-income community business(as defined in section 45D(d)(2)); (B)the purchase from another CDE of anyloan made by the entity that is a qualifiedlow-income community investment; (C)financial counseling and other servicesspecified in regulations prescribed by theSecretary to businesses located in, andresidents of, low-income communities;and (D) any equity investment in, or loanto, any CDE.

Under section 45D(d)(2)(A), a quali-fied active low-income community busi-ness is any corporation (including a non-profit corporation) or partnership if forsuch year, among other requirements, (i) atleast 50 percent of the total gross incomeof the entity is derived from the activeconduct of a qualified business within anylow-income community, (ii) a substantialportion of the use of the tangible propertyof the entity (whether owned or leased) iswithin any low-income community, and(iii) a substantial portion of the servicesperformed for the entity by its employeesare performed in any low-income commu-nity.

Under section 45D(d)(3), with certainexceptions, a qualified business is anytrade or business. The rental to othersof real property is a qualified businessonly if, among other requirements, thereal property is located in a low-incomecommunity.

Section 221(a) of the American JobsCreation Act of 2004 (Act) (Public Law108–357, 118 Stat. 1418) amended sec-tion 45D(e)(2) to provide that the Sec-retary shall prescribe regulations underwhich one or more targeted populations(within the meaning of section 103(20)of the Riegle Community Developmentand Regulatory Improvement Act of 1994(12 U.S.C. 4702(20))) may be treated aslow-income communities. The regulationsshall include procedures for determiningwhich entities are qualified active low-in-come community businesses with respect

2012–4 I.R.B. 299 January 23, 2012

to those populations. Section 221(c)(1) ofthe Act provides that the amendment madeby section 221(a) of the Act shall apply todesignations made by the Secretary of theTreasury after October 22, 2004, the dateof enactment of the Act.

The term targeted population, as de-fined in 12 U.S.C. 4702(20) and 12 CFR1805.201, means individuals, or an iden-tifiable group of individuals, including anIndian tribe, who (A) are low-income per-sons; or (B) otherwise lack adequate ac-cess to loans or equity investments. Un-der 12 U.S.C. 4702(17) as interpreted by12 CFR 1805.104, the term low-incomemeans having an income, adjusted for fam-ily size, of not more than (A) for metropoli-tan areas, 80 percent of the area medianfamily income; and (B) for non-metropoli-tan areas, the greater of (i) 80 percent of thearea median family income; or (ii) 80 per-cent of the statewide nonmetropolitan areamedian family income.

Section 101(a) of the Gulf Oppor-tunity Zone Act of 2005 (Public Law109–135, 119 Stat. 2577) added newsections 1400M and 1400N to the Code.Section 1400M(1) provides that the GulfOpportunity Zone (GO Zone) is that por-tion of the Hurricane Katrina disaster areadetermined by the President to warrantindividual or individual and public assis-tance from the Federal Government underthe Robert T. Stafford Disaster Relief andEmergency Assistance Act (the Act) byreason of Hurricane Katrina.

Section 1400M(2) provides that theHurricane Katrina disaster area is an areawith respect to which a major disasterhas been declared by the President beforeSeptember 14, 2005, under section 401 ofthe Act by reason of Hurricane Katrina.After determination by the President that adisaster area warrants assistance pursuantto the Act, the Federal Emergency Man-agement Agency (FEMA) makes damageassessments. The categories for damageassessment in the wake of a hurricane are:flooded area, saturated area, limited dam-age, moderate damage, extensive damage,and catastrophic damage.

Under section 1400N(m)(1), a CDEshall be eligible for an allocation undersection 45D(f)(2) of the increase in thenew markets tax credit limitation de-scribed in section 1400N(m)(2) only ifa significant mission of the CDE is therecovery and redevelopment of the GO

Zone. Section 1400N(m)(2) provides thatthe new markets tax credit limitation oth-erwise determined under section 45D(f)(1)shall be increased by an amount equalto $300,000,000 for 2005 and 2006 and$400,000,000 for 2007, to be allocatedamong CDEs to make qualified low-in-come community investments within theGO Zone.

Under section 45D(b)(1), a qualifiedequity investment does not include any eq-uity investment issued by a CDE more than5 years after the date the entity receivesan allocation under section 45D(f). Undersection 45D(f)(3), if the new markets taxcredit limitation for any calendar year ex-ceeds the aggregate amount allocated un-der section 45D(f)(2) for the year, then thelimitation for the succeeding calendar yearis increased by the amount of the excess.However, no amount may be carried to anycalendar year after 2016.

Summary of Comments andExplanation of Provisions

Ownership Requirement and Non-ProfitBusinesses

Generally, the proposed regulationsprovide that an entity will not be treatedas a qualified active low-income com-munity business for low-income targetedpopulations unless (i) at least 50 percentof the entity’s total gross income for anytaxable year is derived from sales, rentals,services, or other transactions with indi-viduals who are low-income persons forpurposes of section 45D(e)(2) (the 50-per-cent gross-income requirement), (ii) atleast 40 percent of the entity’s employeesare individuals who are low-income per-sons for purposes of section 45D(e)(2),or (iii) at least 50 percent of the entity isowned by individuals who are low-incomepersons for purposes of section 45D(e)(2).

Commentators recommended that theownership requirement for being treatedas a qualified active low-income com-munity business for low-income targetedpopulations under the proposed regu-lations be amended to accommodatenon-profit businesses that are not individ-ually owned. Commentators suggestedthat if a non-profit business can docu-ment that at least 20 percent of its board,with a minimum of two board mem-bers, are low-income persons or represent

low-income targeted populations, then thenon-profit business should be treated assatisfying the ownership requirement.

The final regulations do not adopt thisrecommendation because, if a non-profitbusiness does not derive at least 50 per-cent of its gross income from sales, rentals,services, or other transactions with low-in-come persons, or if at least 40 percent ofthe non-profit business’ employees are notlow-income persons, then the non-profitbusiness is not adequately serving targetedpopulations solely because 20 percent ormore of its board members are low-incomepersons.

Start-up or Expanding Businesses

Commentators requested that, in or-der to accommodate start-up entities, thefinal regulations should provide a ruleallowing an entity to meet the require-ments to be a qualified active low-incomecommunity business for low-income tar-geted populations if the CDE reasonablyexpects that the entity will generate rev-enues within three years after the date theCDE makes the investment in, or loan to,that entity. If an entity serving targetedpopulations chooses to apply the 50-per-cent gross-income requirement rather thanthe employee requirement or the owner-ship requirement, then the commentators’suggestion could potentially allow an en-tity to be a qualified active low-incomecommunity business for three years with-out having to meet any requirement. Asstated in the preamble of the proposedregulations, this result is clearly inappro-priate. Therefore, the final regulationsdo not adopt the commentators’ sugges-tion. In addition, the final regulationsclarify that the three-year active con-duct of a trade or business safe harbor in§1.45D–1(d)(4)(iv)(A) does not apply tothe 50-percent gross-income requirement.

Documenting Low-Income Persons

The IRS and Treasury Departmentspecifically requested comments on whatmeasure of income should be used to deter-mine an individual’s income for purposesof the definition of low-income personsfound in the proposed regulations. Theproposed regulations asked whether themeasure of income should be the same asthe measure of income used by the U.S.Census Bureau, the measure of income on

January 23, 2012 300 2012–4 I.R.B.

the Form 1040, or the measure of incomein 24 CFR Part 5, which is used for cer-tain Department of Housing and UrbanDevelopment (HUD) programs and otherFederal programs.

Two commentators recommended thatthe IRS and Treasury Department acceptas a proxy for income documentation proofof an individual’s participation in otherfederal programs targeted specifically tolow-income individuals and families. Thefinal regulations do not adopt the com-mentators’ recommendation because, asstated in the proposed regulations, theIRS and Treasury Department have notanalyzed other Federal programs to de-termine whether they meet the statutoryrequirements under section 45D(e), andwhether the programs currently meetingthe requirements will continue to do so inthe future.

Another commentator recommendedthat the IRS and Treasury Department al-low an entity to measure income using anyreasonable method including measuresof income by the U.S. Census Bureau,Form 1040, or the HUD rules in 24 CFRPart 5. If one measure must be used,the commentator recommended using theHUD rules because they are consistentwith low-income determinations used forthe Section 8 rental voucher program andthe low-income housing tax credit undersection 42. The final regulations adoptthis commentator’s recommendation thatan entity may use any of the three statedmethods. Specifically, the final regula-tions allow an individual’s family incometo be determined using household incomeas measured by the U.S. Census Bureau orHUD, or using the individual’s total familyincome as reported on Form(s) 1040. Anindividual’s family income includes theincome of any member of the individual’sfamily (as defined in section 267(c)(4))if the family member resides with the in-dividual regardless of whether the familymember files a separate return. Lastly, thefinal regulations incorporate the preamblelanguage in the proposed regulations thatprovides additional detail on what esti-mates may be relied upon in determiningthe applicable income limitation for areamedian family income.

Items Included in Gross Income

A commentator requested that the finalregulations conclude that the term derivedfrom in the proposed regulations includesgross income derived from paymentsmade directly by low-income persons toan entity and amounts and contributions ofproperty or services provided to the entityfor the benefit of low-income persons.Another commentator recommended thatonly operating revenue should be includedfor the purpose of meeting the 50-percentgross-income requirement.

The final regulations adopt the firstcommentator’s recommendation that theterm derived from includes gross incomederived from both payments made directlyby low-income persons to the entity andmoney and the fair market value of con-tributions of property or services providedto the entity primarily for the benefit oflow-income persons. However, personsproviding the money and contributionscannot receive a direct benefit from theentity (notably, a contribution that benefitsthe general public is not a direct bene-fit). Accordingly, an entity’s total grossincome derived from transactions withlow-income persons for purposes of sec-tion 45D(e)(2) can include Federal, state,or local grants, charitable donations, orin-kind contributions, as well as collectedfees, insurance reimbursements, and othersources of income as long as these pay-ments and contributions are provided forthe benefit of low-income persons on anindividual basis or as a class of individu-als. If an entity receiving such paymentscan document that those amounts arelegally required to be paid on behalf ofindividuals that meet the definition oflow-income persons, the amounts maybe treated as derived from transactionswith low-income persons. The secondcommentator’s suggestion to limit a grossincome consideration to operating revenueis too restrictive because any money, prop-erty, or services provided to the entity maybe provided to the entity for the benefit oflow-income persons.

Owners

The proposed regulations provide thatthe determination of whether an owneris a low-income person must be made atthe time the qualified low-income com-

munity investment is made. If an owneris a low-income person at the time thequalified low-income community invest-ment is made, that owner is considered alow-income person for purposes of sec-tion 45D(e)(2) throughout the time theownership interest is held by that owner.A commentator suggested that the rulelocking in an owner’s status as a low-in-come person as of the time of investmentshould be similarly applied to low-incomepersons who acquire an ownership interestafter the time the qualified low-incomecommunity investment is made. The fi-nal regulations adopt this suggestion bylocking in the status of an owner as alow-income person at the time the quali-fied low-income community investment ismade or at the time the ownership interestis acquired by the owner, whichever islater.

Rental to Others of Real Property

Commentators requested clarificationon the 50-percent gross-income require-ment under the proposed regulations foran entity whose sole business is the rentalto others of real property. Because anentity whose sole business is the rental toothers of real property will often not haveemployees, the entity will have to satisfythe 50-percent gross-income requirementor the ownership requirement for low-in-come targeted populations. To satisfythe 50-percent gross-income requirement,the proposed regulations require that theentity must derive gross income solelyfrom low-income individuals. However,in the case of an entity engaged solely inthe rental of property, the entity’s grossincome would only be derived from rents,and in many instances, the tenants are notindividuals as required under the proposedregulations. Thus, commentators recom-mend that the 50-percent gross-incomerequirement be deemed satisfied if at least50 percent of gross rental income is de-rived from tenants that are low-incomeindividuals and entities that are qualifiedactive low-income community businessesfor low-income targeted populations. Thefinal regulations adopt a rule similar to thisrecommendation by providing a specialrule that generally treats an entity whosesole business is the rental to others ofreal property as satisfying the 50-percentgross-income requirement if the entity is

2012–4 I.R.B. 301 January 23, 2012

treated as being located in a low-incomecommunity.

Gross Income — Fair Market Valueof Sales, Rentals, Services, or OtherTransactions

The IRS and Treasury Departmentspecifically requested comments in theproposed regulations on the question ofwhether the 50-percent gross-income re-quirement should be modified to includethe fair market value of goods and ser-vices provided to low-income persons atreduced fees. Commentators respondedby stating that a CDE should have theoption to include the fair market value ofgoods and services provided to low-in-come persons for purposes of the 50-per-cent gross-income requirement. The finalregulations adopt the commentator’s sug-gestion but limit the rule to an entity withgross income that is derived from sales,rentals, services, or other transactionswith both non low-income persons andlow-income persons. The entity may treatthe value of the sales, rentals, services,or other transactions with low-incomepersons at fair market value even if thelow-income persons do not pay fair marketvalue.

Individuals or Groups That OtherwiseLack Adequate Access to Loans or EquityInvestments

Commentators have asked that the IRSand the Treasury Department considerdefining particular individuals or groupsof individuals as lacking adequate accessto loans or equity investments. Althoughthe IRS and the Treasury Departmentcannot include new rules describing addi-tional targeted populations in these finalregulations, taxpayers are hereby invitedto submit comments: (1) identifying indi-viduals or groups that may be consideredto lack adequate access to loans or equityinvestments, (2) describing the reasonssuch individuals or group of individualsqualify as lacking adequate access to loansor equity investments, and (3) suggestingways for additional targeted populationsrules to appropriately limit the definitionof such individuals or group of individualsto ensure that the purposes of the targetedpopulations provision are not abused.Send submissions to:

Submissions to the Service submittedby U.S. mail:

Internal Revenue ServiceAttn: Julie Hanlon BoltonCC:PSI:5, Room 5111P.O. Box 7604Ben Franklin StationWashington, DC 20044

Submissions to the Service submittedby a private delivery service:

Internal Revenue ServiceAttn: Julie Hanlon BoltonCC:PSI:5, Room 51111111 Constitution Ave., N.W.Washington, DC 20224

EFFECT ON OTHER DOCUMENTS

Notice 2006–60, 2006–1 C.B. 82, is ob-solete for taxable years ending on or afterDecember 5, 2011.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It has also been deter-mined that section 553(b) of the Adminis-trative Procedure Act (5 U.S.C. chapter 5)does not apply to these regulations. It ishereby certified that these regulations willnot have a significant economic impact ona substantial number of small entities. Thiscertification is based upon the fact that thefinal regulations provide a benefit to smallentities in low-income communities fromthe proceeds of a tax credit because, con-sistent with legislative intent, the final reg-ulations allow a tax credit to be claimedin situations where it was previously un-available without the Secretary providingfor such situations in final regulations. Ac-cordingly, a Regulatory Flexibility Analy-sis under the provisions of the RegulatoryFlexibility Act (5 U.S.C. chapter 6) is notrequired. Pursuant to section 7805(f) ofthe Code, the notice of proposed rulemak-ing was submitted to the Chief Counsel forAdvocacy of the Small Business Adminis-tration for comment on its impact on smallbusiness.

Drafting Information

The principal author of these regu-lations is Julie Hanlon Bolton with theOffice of the Associate Chief Counsel(Passthroughs and Special Industries),IRS. However, other personnel from theIRS and Treasury Department participatedin their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding an entry innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.45D–1 also issued under

26 U.S.C. 45D(e)(2) and (i);* * *Par. 2. Section 1.45D–0 is added to

read as follows :

§1.45D–0 Table of contents.

This section lists the paragraphs con-tained in §1.45D–1.

(a) Current year credit.(b) Allowance of credit.(1) In general.(2) Credit allowance date.(3) Applicable percentage.(4) Amount paid at original issue.(c) Qualified equity investment.(1) In general.(2) Equity investment.(3) Equity investments made prior to

allocation.(i) In general.(ii) Exceptions.(A) Allocation applications submitted

by August 29, 2002.(B) Other allocation applications.(iii) Failure to receive allocation.(iv) Initial investment date.(4) Limitations.(i) In general.(ii) Allocation limitation.(5) Substantially all.(i) In general.(ii) Direct-tracing calculation.(iii) Safe harbor calculation.(iv) Time limit for making investments.

January 23, 2012 302 2012–4 I.R.B.

(v) Reduced substantially-all percent-age.

(vi) Examples.(6) Aggregation of equity investments.(7) Subsequent purchasers.(d) Qualified low-income community

investments.(1) In general.(i) Investment in a qualified active low-

income community business.(ii) Purchase of certain loans from

CDEs.(A) In general.(B) Certain loans made before CDE cer-

tification.(C) Intermediary CDEs.(D) Examples.(iii) Financial counseling and other ser-

vices.(iv) Investments in other CDEs.(A) In general.(B) Examples.(2) Payments of, or for, capital, equity

or principal.(i) In general.(ii) Subsequent reinvestments.(iii) Special rule for loans.(iv) Example.(3) Special rule for reserves.(4) Qualified active low-income com-

munity business.(i) In general.(A) Gross-income requirement.(B) Use of tangible property.(1) In general.(2) Example.(C) Services performed.(D) Collectibles.(E) Nonqualified financial property.(1) In general.(2) Construction of real property.(ii) Proprietorships.(iii) Portions of business.(A) In general.(B) Examples.(iv) Active conduct of a trade or busi-

ness.(A) Special rule.(B) Example.(5) Qualified business.(i) In general.(ii) Rental of real property.(iii) Exclusions.(A) Trades or businesses involving in-

tangibles.(B) Certain other trades or businesses.(C) Farming.(6) Qualifications.

(i) In general.(ii) Control.(A) In general.(B) Definition of control.(C) Disregard of control.(7) Financial counseling and other ser-

vices.(8) Special rule for certain loans.(i) In general.(ii) Example.(9) Targeted populations.(i) Low-income persons.(A) Definition.(1) In general.(2) Area median family income.(3) Individual’s family income.(B) Qualified active low-income com-

munity business requirements for low-in-come targeted populations.

(1) In general.(2) Employee.(3) Owner.(4) Derived from.(5) Fair market value of sales, rentals,

services, or other transactions.(C) 120-percent-income restriction.(1) In general.(2) Population census tract location.(D) Rental of real property for low-in-

come targeted populations.(1) In general.(2) Special rule for entities whose sole

business is the rental to others of real prop-erty.

(ii) Individuals who otherwise lack ad-equate access to loans or equity invest-ments.

(A) In general.(B) GO Zone Targeted Population.(C) Qualified active low-income com-

munity business requirements for theGO Zone Targeted Population.

(1) In general.(2) Location.(i) In general.(ii) Determination.(D) 200-percent-income restriction.(1) In general.(2) Population census tract location.(E) Rental of real property for the

GO Zone Targeted Population.(e) Recapture.(1) In general.(2) Recapture event.(3) Redemption.(i) Equity investment in a C corpora-

tion.

(ii) Equity investment in an S corpora-tion.

(iii) Capital interest in a partnership.(4) Bankruptcy.(5) Waiver of requirement or extension

of time.(i) In general.(ii) Manner for requesting a waiver or

extension.(iii) Terms and conditions.(6) Cure period.(7) Example.(f) Basis reduction.(1) In general.(2) Adjustment in basis of interest in

partnership or S corporation.(g) Other rules.(1) Anti-abuse.(2) Reporting requirements.(i) Notification by CDE to taxpayer.(A) Allowance of new markets tax

credit.(B) Recapture event.(ii) CDE reporting requirements to Sec-

retary.(iii) Manner of claiming new markets

tax credit.(iv) Reporting recapture tax.(3) Other Federal tax benefits.(i) In general.(ii) Low-income housing credit.(4) Bankruptcy of CDE.(h) Effective/applicability dates.(1) In general.(2) Exception for certain provisions.(3) Targeted populations.Par. 3. Section 1.45D–1 is amended by:1. Revising paragraph (a).2. Revising the first sentence in para-

graph (b)(1).3. Revising paragraph (d)(4)(i) intro-

ductory text.4. Adding a new sentence to the end of

paragraph (d)(4)(i)(A).5. Adding a new sentence to the end of

paragraph (d)(4)(i)(B)(1).6. Adding a new sentence to the end of

paragraph (d)(4)(i)(C).7. Adding a new sentence at the end of

paragraph (d)(4)(iv)(A).8. Adding new paragraph (d)(9).9. Revising the heading for paragraph

(h) and adding new paragraph (h)(3).The additions and revisions read as fol-

lows:

2012–4 I.R.B. 303 January 23, 2012

§1.45D–1 New markets tax credit.

(a) Current year credit. The currentyear general business credit under section38(b)(13) includes the new markets taxcredit under section 45D(a).

(b) * * * (1) * * * A taxpayer holdinga qualified equity investment on a creditallowance date which occurs during thetaxable year may claim the new marketstax credit determined under section 45D(a)and this section for such taxable year in anamount equal to the applicable percentageof the amount paid to a qualified commu-nity development entity (CDE) for such in-vestment at its original issue. * * *

* * * * *(d) * * *(4) * * *(i) In general. The term qualified active

low-income community business means,with respect to any taxable year, a corpo-ration (including a nonprofit corporation)or a partnership engaged in the active con-duct of a qualified business (as definedin paragraph (d)(5) of this section), if therequirements of paragraphs (d)(4)(i)(A),(B), (C), (D), and (E) of this section aremet (or in the case of an entity serving tar-geted populations, if the requirements ofparagraphs (d)(4)(i)(D), (E), and (d)(9)(i)or (ii) of this section are met). Solely forpurposes of this section, a nonprofit cor-poration will be deemed to be engaged inthe active conduct of a trade or business ifit is engaged in an activity that furthers itspurpose as a nonprofit corporation.

(A) * * * See paragraph (d)(9) of thissection for rules relating to targeted popu-lations.

(B) * * *(1) * * * See paragraph (d)(9) of this

section for rules relating to targeted popu-lations.

* * * * *(C) * * * See paragraph (d)(9) of this

section for rules relating to targeted popu-lations.

* * * * *(iv) Active conduct of a trade or busi-

ness—(A) * * * This paragraph (d)(4)(iv)applies only for purposes of determiningwhether an entity is engaged in the activeconduct of a trade or business and does notapply for purposes of determining whetherthe gross-income requirement under para-

graph (d)(4)(i)(A), (d)(9)(i)(B)(1)(i), or(d)(9)(ii)(C)(1)(i) of this section is satis-fied.

* * * * *(9) Targeted populations. For purposes

of section 45D(e)(2), targeted populationsthat will be treated as a low-income com-munity are individuals, or an identifiablegroup of individuals, including an Indiantribe, who are low-income persons as de-fined in paragraph (d)(9)(i) of this sectionor who are individuals who otherwise lackadequate access to loans or equity invest-ments as defined in paragraph (d)(9)(ii) ofthis section.

(i) Low-income persons—(A) Defini-tion—(1) In general. For purposes of sec-tion 45D(e)(2) and this paragraph (d)(9),an individual shall be considered to below-income if the individual’s family in-come, adjusted for family size, is not morethan—

(i) For metropolitan areas, 80 percent ofthe area median family income; and

(ii) For non-metropolitan areas, thegreater of 80 percent of the area me-dian family income, or 80 percent of thestatewide non-metropolitan area medianfamily income.

(2) Area median family income. Forpurposes of paragraph (d)(9)(i)(A)(1) ofthis section, area median family incomeis determined in a manner consistent withthe determinations of median family in-come under section 8 of the Housing Actof 1937, as amended. Taxpayers must usethe annual estimates of median family in-come released by the Department of Hous-ing and Urban Development (HUD) andmay rely on those figures until 45 days af-ter HUD releases a new list of income lim-its, or until HUD’s effective date for thenew list, whichever is later.

(3) Individual’s family income. For pur-poses of paragraph (d)(9)(i)(A)(1) of thissection, an individual’s family income isdetermined using any one of the follow-ing three methods for measuring family in-come:

(i) Household income as measured bythe U.S. Census Bureau,

(ii) Adjusted gross income under sec-tion 62 as reported on Internal RevenueService Form 1040. Adjusted gross in-come must include the adjusted gross in-come of any member of the individual’sfamily (as defined in section 267(c)(4))

if the family member resides with the in-dividual regardless of whether the familymember files a separate return,

(iii) Household income determined un-der section 8 of the Housing Act of 1937,as amended.

(B) Qualified active low-income com-munity business requirements for low-in-come targeted populations—(1) In gen-eral. An entity will not be treated as a qual-ified active low-income community busi-ness for low-income targeted populationsunless—

(i) Except as provided in paragraph(d)(9)(i)(D)(2) of this section, at least 50percent of the entity’s total gross incomefor any taxable year is derived from sales,rentals, services, or other transactions withindividuals who are low-income personsfor purposes of section 45D(e)(2) and thisparagraph (d)(9);

(ii) At least 40 percent of the entity’semployees are individuals who are low-income persons for purposes of section45D(e)(2) and this paragraph (d)(9); or

(iii) At least 50 percent of the entity isowned by individuals who are low-incomepersons for purposes of section 45D(e)(2)and this paragraph (d)(9).

(2) Employee. The determination ofwhether an employee is a low-income per-son must be made at the time the employeeis hired. If the employee is a low-incomeperson at the time of hire, that employee isconsidered a low-income person for pur-poses of section 45D(e)(2) and this para-graph (d)(9) throughout the time of em-ployment, without regard to any increasein the employee’s income after the time ofhire.

(3) Owner. The determination ofwhether an owner is a low-income personmust be made at the time the qualifiedlow-income community investment ismade, or at the time the ownership interestis acquired by the owner, whichever islater. If an owner is a low-income per-son at the time the qualified low-incomecommunity investment is made or at thetime the ownership interest is acquired bythe owner, whichever is later, that owneris considered a low-income person forpurposes of section 45D(e)(2) and thisparagraph (d)(9) throughout the time theownership interest is held by that owner.

(4) Derived from. For purposes of para-graph (d)(9)(i)(B)(1)(i) of this section, the

January 23, 2012 304 2012–4 I.R.B.

term derived from includes gross incomederived from:

(i) Payments made directly by low-in-come persons to the entity; and

(ii) Money and the fair market value ofproperty or services provided to the en-tity primarily for the benefit of low-incomepersons, but only if the persons providingthe money, property, or services do not re-ceive a direct benefit from the entity (forthis purpose, a contribution that benefitsthe general public is not a direct benefit).

(5) Fair market value of sales, rentals,services, or other transactions. For pur-poses of paragraph (d)(9)(i)(B)(1)(i) ofthis section, an entity with gross incomethat is derived from sales, rentals, ser-vices, or other transactions with both nonlow-income persons and low-income per-sons may treat the gross income derivedfrom the sales, rentals, services, or othertransactions with low-income persons asincluding the full fair market value evenif the low-income persons do not pay fairmarket value.

(C) 120-percent-income restric-tion—(1) In general—(i) In no case willan entity be treated as a qualified activelow-income community business underparagraph (d)(9)(i) of this section if the en-tity is located in a population census tractfor which the median family income ex-ceeds 120 percent of, in the case of a tractnot located within a metropolitan area, thestatewide median family income, or in thecase of a tract located within a metropoli-tan area, the greater of statewide medianfamily income or metropolitan area me-dian family income (120-percent-incomerestriction).

(ii) The 120-percent-income restrictionshall not apply to an entity located withina population census tract with a populationof less than 2,000 if such tract is not locatedin a metropolitan area.

(iii) The 120-percent-income restric-tion shall not apply to an entity locatedwithin a population census tract with apopulation of less than 2,000 if such tractis located in a metropolitan area and morethan 75 percent of the tract is zoned forcommercial or industrial use. For thispurpose, the 75 percent calculation shouldbe made using the area of the popula-tion census tract. For purposes of thisparagraph (d)(9)(i)(C)(1)(iii), property forwhich commercial or industrial use is a

permissible zoning use will be treated aszoned for commercial or industrial use.

(2) Population census tract loca-tion—(i) For purposes of the 120-per-cent-income restriction, an entity will beconsidered to be located in a populationcensus tract for which the median fam-ily income exceeds 120 percent of theapplicable median family income underparagraph (d)(9)(i)(C)(1)(i) of this section(non-qualifying population census tract)if at least 50 percent of the total grossincome of the entity is derived from theactive conduct of a qualified business (asdefined in paragraph (d)(5) of this section)within one or more non-qualifying popu-lation census tracts (non-qualifying grossincome amount); at least 40 percent of theuse of the tangible property of the entity(whether owned or leased) is within oneor more non-qualifying population censustracts (non-qualifying tangible propertyusage); and at least 40 percent of theservices performed for the entity by itsemployees are performed in one or morenon-qualifying population census tracts(non-qualifying services performance).

(ii) The entity is considered to have thenon-qualifying gross income amount if theentity has non-qualifying tangible propertyusage or non-qualifying services perfor-mance of at least 50 percent instead of 40percent.

(iii) If the entity has no employees, theentity is considered to have the non-quali-fying gross income amount and non-qual-ifying services performance if at least 85percent of the use of the tangible propertyof the entity (whether owned or leased) iswithin one or more non-qualifying popula-tion census tracts.

(D) Rental of real property for low-in-come targeted populations—(1) In gen-eral. An entity that rents to others realproperty for low-income targeted pop-ulations and that otherwise satisfies therequirements to be a qualified businessunder paragraph (d)(5) of this section willbe treated as located in a low-income com-munity for purposes of paragraph (d)(5)(ii)of this section if at least 50 percent of theentity’s total gross income is derived fromrentals to individuals who are low-incomepersons for purposes of section 45D(e)(2)and this paragraph (d)(9) or rentals to aqualified active low-income communitybusiness that meets the requirements forlow-income targeted populations under

paragraphs (d)(9)(i)(B)(1)(i) or (ii) and(d)(9)(i)(B)(2) of this section.

(2) Special rule for entities whose solebusiness is the rental to others of real prop-erty. If an entity’s sole business is therental to others of real property under para-graph (d)(9)(i)(D)(1) of this section, thenthe gross income requirement in paragraph(d)(9)(i)(B)(1)(i) of this section will beconsidered satisfied if the entity is treatedas being located in a low-income commu-nity under paragraph (d)(9)(i)(D)(1) of thissection.

(ii) Individuals who otherwise lackadequate access to loans or equity in-vestments—(A) In general. Paragraph(d)(9)(ii) of this section may be appliedonly with regard to qualified low-incomecommunity investments made under theincrease in the new markets tax credit lim-itation pursuant to section 1400N(m)(2).Therefore, only CDEs with a significantmission of recovery and redevelopment ofthe Gulf Opportunity Zone (GO Zone) thatreceive an allocation from the increasedescribed in section 1400N(m)(2) maymake qualified low-income communityinvestments from that allocation pursuantto the rules in paragraph (d)(9)(ii) of thissection.

(B) GO Zone Targeted Population. Forpurposes of the targeted populations rulesunder section 45D(e)(2), an individual oth-erwise lacks adequate access to loans orequity investments only if the individualwas displaced from his or her principalresidence as a result of Hurricane Katrinaor the individual lost his or her principalsource of employment as a result of Hurri-cane Katrina (GO Zone Targeted Popula-tion). In order to meet this definition, theindividual’s principal residence or princi-pal source of employment, as applicable,must have been located in a populationcensus tract within the GO Zone that con-tains one or more areas designated by theFederal Emergency Management Agency(FEMA) as flooded, having sustained ex-tensive damage, or having sustained cata-strophic damage as a result of HurricaneKatrina.

(C) Qualified active low-income com-munity business requirements for theGO Zone Targeted Population—(1) Ingeneral. An entity will not be treated asa qualified active low-income communitybusiness for the GO Zone TargetedPopulation unless—

2012–4 I.R.B. 305 January 23, 2012

(i) At least 50 percent of the entity’s to-tal gross income for any taxable year isderived from sales, rentals, services, orother transactions with the GO Zone Tar-geted Population, low-income persons asdefined in paragraph (d)(9)(i) of this sec-tion, or some combination thereof;

(ii) At least 40 percent of the entity’semployees consist of the GO Zone Tar-geted Population, low-income persons asdefined in paragraph (d)(9)(i) of this sec-tion, or some combination thereof; or

(iii) At least 50 percent of the entityis owned by the GO Zone Targeted Pop-ulation, low-income persons as defined inparagraph (d)(9)(i) of this section, or somecombination thereof.

(2) Location—(i) In general. In or-der to be a qualified active low-incomecommunity business under paragraph(d)(9)(ii)(C) of this section, the entitymust be located in a population censustract within the GO Zone that containsone or more areas designated by FEMAas flooded, having sustained extensivedamage, or having sustained catastrophicdamage as a result of Hurricane Katrina(qualifying population census tract).

(ii) Determination— For purposes ofthe preceding paragraph, an entity will beconsidered to be located in a qualifyingpopulation census tract if at least 50 per-cent of the total gross income of the en-tity is derived from the active conduct ofa qualified business (as defined in para-graph (d)(5) of this section) within one ormore qualifying population census tracts(gross income requirement); at least 40percent of the use of the tangible propertyof the entity (whether owned or leased)is within one or more qualifying popula-tion census tracts (use of tangible propertyrequirement); and at least 40 percent ofthe services performed for the entity by itsemployees are performed in one or morequalifying population census tracts (ser-vices performed requirement). The entityis deemed to satisfy the gross income re-quirement if the entity satisfies the use oftangible property requirement or the ser-vices performed requirement on the basisof at least 50 percent instead of 40 per-cent. If the entity has no employees, theentity is deemed to satisfy the services per-formed requirement and the gross incomerequirement if at least 85 percent of theuse of the tangible property of the entity

(whether owned or leased) is within one ormore qualifying population census tracts.

(D) 200-percent-income restric-tion—(1) In general—(i) In no case willan entity be treated as a qualified activelow-income community business underparagraph (d)(9)(ii) of this section if theentity is located in a population censustract for which the median family incomeexceeds 200 percent of, in the case of atract not located within a metropolitanarea, the statewide median family income,or, in the case of a tract located within ametropolitan area, the greater of statewidemedian family income or metropolitanarea median family income (200-per-cent-income restriction).

(ii) The 200-percent-income restrictionshall not apply to an entity located withina population census tract with a populationof less than 2,000 if such tract is not locatedin a metropolitan area.

(iii) The 200-percent-income restric-tion shall not apply to an entity locatedwithin a population census tract with apopulation of less than 2,000 if such tractis located in a metropolitan area and morethan 75 percent of the tract is zoned forcommercial or industrial use. For thispurpose, the 75 percent calculation shouldbe made using the area of the populationcensus tract. For purposes of this para-graph (d)(9)(ii)(D)(1)(iii), property forwhich commercial or industrial use is apermissible zoning use will be treated aszoned for commercial or industrial use.

(2) Population census tract loca-tion—(i) For purposes of the 200-per-cent-income restriction, an entity will beconsidered to be located in a populationcensus tract for which the median fam-ily income exceeds 200 percent of theapplicable median family income underparagraph (d)(9)(ii)(D)(1)(i) of this sec-tion (non-qualifying population censustract) if— at least 50 percent of the totalgross income of the entity is derived fromthe active conduct of a qualified business(as defined in paragraph (d)(5) of this sec-tion) within one or more non-qualifyingpopulation census tracts (non-qualifyinggross income amount); at least 40 percentof the use of the tangible property of theentity (whether owned or leased) is withinone or more non-qualifying populationcensus tracts (non-qualifying tangibleproperty usage); and at least 40 percent of

the services performed for the entity by itsemployees are performed in one or morenon-qualifying population census tracts(non-qualifying services performance).

(ii) The entity is considered to have thenon-qualifying gross income amount if theentity has non-qualifying tangible propertyusage or non-qualifying services perfor-mance of at least 50 percent instead of 40percent.

(iii) If the entity has no employees, theentity is considered to have the non-quali-fying gross income amount and non-qual-ifying services performance if at least 85percent of the use of the tangible propertyof the entity (whether owned or leased) iswithin one or more non-qualifying popula-tion census tracts.

(E) Rental of real property for theGO Zone Targeted Population. Therental to others of real property forthe GO Zone Targeted Population thatotherwise satisfies the requirements tobe a qualified business under paragraph(d)(5) of this section will be treatedas located in a low-income communityfor purposes of paragraph (d)(5)(ii) ofthis section if at least 50 percent of theentity’s total gross income is derivedfrom rentals to the GO Zone TargetedPopulation, rentals to low-income personsas defined in paragraph (d)(9)(i) of thissection, or rentals to a qualified activelow-income community business thatmeets the requirements for the GO ZoneTargeted Population under paragraph(d)(9)(ii)(C)(1)(i) or (ii) of this section.

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

* * * * *(3) Targeted populations. The rules in

paragraph (d)(9) of this section and the lastsentence in paragraph (d)(4)(iv)(A) of thissection apply to taxable years ending onor after December 5, 2011. A taxpayermay apply the rules in paragraph (d)(9) ofthis section to taxable years ending be-fore December 5, 2011 for designationsmade by the Secretary after October 22,2004.

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

Approved November 22, 2011.

January 23, 2012 306 2012–4 I.R.B.

Emily S. McMahon,Acting Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on December 2,2011, 8:45 a.m., and published in the issue of the FederalRegister for December 5, 2011, 76 F.R. 75774)

2012–4 I.R.B. 307 January 23, 2012

Part III. Administrative, Procedural, and MiscellaneousIowa Low-Income HousingCredit Disaster Relief

Notice 2012–7

The Internal Revenue Service is sus-pending certain requirements under § 42 ofthe Internal Revenue Code for low-incomehousing credit projects to provide emer-gency housing relief needed as a result ofthe devastation in Iowa caused by floodingduring the period of May 25, 2011, to Au-gust 1, 2011. This relief is being grantedpursuant to the Service’s authority under§ 42(n) and § 1.42–13(a) of the Income TaxRegulations.

BACKGROUND

On June 27, 2011, the President de-clared a major disaster for the State ofIowa. This declaration was made underthe Robert T. Stafford Disaster Relief andEmergency Assistance Act, 42 U.S.C.5121 et seq. On October 18, 2011, theFederal Emergency Management Agency(FEMA) designated jurisdictions for In-dividual Assistance resulting from theflooding during the period of May 25,2011, to August 1, 2011. The State ofIowa has requested that the Service al-low owners of low-income housing creditprojects to provide temporary housing invacant units to individuals who residedin jurisdictions designated for IndividualAssistance in Iowa and who have beendisplaced because their residences weredestroyed or damaged as a result of thedevastation caused by the flooding. Basedupon this request and because of the wide-spread damage to housing caused by theflooding, the Service has determined thatthe Iowa Finance Authority (Authority)may provide approval to project owners toprovide temporary emergency housing fordisplaced individuals in accordance withthis notice.

I. SUSPENSION OF INCOMELIMITATIONS

The Service has determined that it isappropriate to temporarily suspend certainincome limitation requirements under § 42for certain qualified low-income housingprojects. The suspension will apply to

low-income housing projects approved bythe Authority, in which vacant units arerented to displaced individuals. The Au-thority will determine the appropriate pe-riod of temporary housing for each project,not to extend beyond December 31, 2012(temporary housing period).

II. STATUS OF UNITS

A. Units in the first year of the creditperiod

A displaced individual temporarilyoccupying a unit during the first year ofthe credit period under § 42(f)(1) will bedeemed a qualified low-income tenantfor purposes of determining the project’squalified basis under § 42(c)(1), and formeeting the project’s 20-50 test or 40-60test as elected by the project owner under§ 42(g)(1). After the end of the temporaryhousing period established by the Author-ity (not to extend beyond December 31,2012), a displaced individual will nolonger be deemed a qualified low-incometenant.

B. Vacant units after the first year of thecredit period

During the temporary housing periodestablished by the Authority, the status of avacant unit (that is, market-rate or low-in-come for purposes of § 42 or never previ-ously occupied) after the first year of thecredit period that becomes temporarily oc-cupied by a displaced individual remainsthe same as the unit’s status before thedisplaced individual moves in. Displacedindividuals temporarily occupying vacantunits will not be treated as low-incometenants under § 42(i)(3)(A)(ii). However,even if it houses a displaced individual, alow-income or market rate unit that wasvacant before the effective date of this no-tice will continue to be treated as a va-cant low-income or market rate unit. Sim-ilarly, a unit that was never previously oc-cupied before the effective date of this no-tice will continue to be treated as a unitthat has never been previously occupiedeven if it houses a displaced individual.Thus, the fact that a vacant unit becomesoccupied by a displaced individual willnot affect the building’s applicable frac-tion under § 42(c)(1)(B) for purposes of

determining the building’s qualified basis,nor will it affect the 20-50 test or 40-60test of § 42(g)(1). If the income of oc-cupants in low-income units exceeds 140percent of the applicable income limita-tion, the temporary occupancy of a unit bya displaced individual will not cause ap-plication of the available unit rule under§ 42(g)(2)(D)(ii). In addition, the projectowner is not required during the temporaryhousing period to make attempts to rentto low-income individuals the low-incomeunits that house displaced individuals.

III. SUSPENSION OFNON-TRANSIENT REQUIREMENTS

The non-transient use requirement of§ 42(i)(3)(B)(i) shall not apply to anyunit providing temporary housing to adisplaced individual during the temporaryhousing period determined by the Author-ity in accordance with section I of thisnotice.

IV. OTHER REQUIREMENTS

All other rules and requirements of§ 42 will continue to apply during thetemporary housing period establishedby the Authority. After the end of thetemporary housing period, the appli-cable income limitations contained in§ 42(g)(1), the available unit rule un-der § 42(g)(2)(D)(ii), the nontransientrequirement of § 42(i)(3)(B)(i), and therequirement to make reasonable attemptsto rent vacant units to low-income individ-uals shall resume. If a project owner offersto rent a unit to a displaced individual afterthe end of the temporary housing period,the displaced individual must be certifiedunder the requirements of § 42(i)(3)(A)(ii)and § 1.42–5(b) and (c) to be a qualifiedlow-income tenant. To qualify for the re-lief in this notice, the project owner mustadditionally meet all of the following re-quirements:

(1) Major Disaster Area

The displaced individual must haveresided in an Iowa jurisdiction designatedfor Individual Assistance by FEMA as aresult of the devastation in Iowa causedby flooding during the period of May 25,2011, to August 1, 2011.

January 23, 2012 308 2012–4 I.R.B.

(2) Approval of the Authority

The project owner must obtain approvalfrom the Authority for the relief describedin this notice. The Authority will deter-mine the appropriate period of temporaryhousing for each project, not to extend be-yond December 31, 2012.

(3) Certifications and Recordkeeping

To comply with the requirements of§ 1.42–5, project owners are required tomaintain and certify certain informationconcerning each displaced individual tem-porarily housed in the project, specificallythe following: name, address of damagedresidence, social security number, and astatement signed under penalties of perjuryby the displaced individual that, becauseof damage to the individual’s residencein an Iowa jurisdiction designated for In-dividual Assistance by FEMA as a resultof the devastation caused in Iowa causedby flooding during the period of May 25,2011, to August 1, 2011, the individualrequires temporary housing. The ownermust notify the Authority that vacant unitsare available for rent to displaced individ-uals.

The owner must also certify the date thedisplaced individual began temporary oc-cupancy and the date the project will dis-continue providing temporary housing asestablished by the Authority. The certi-fications and recordkeeping for displacedindividuals must be maintained as part ofthe annual compliance monitoring processwith the Authority.

(4) Rent Restrictions

Rents for the low-income units thathouse displaced individuals must not ex-ceed the existing rent-restricted rates forthe low-income units established under§ 42(g)(2).

(5) Protection of Existing Tenants

Existing tenants in occupied low-in-come units cannot be evicted or have theirtenancy terminated as a result of efforts toprovide temporary housing for displacedindividuals.

EFFECTIVE DATES

This notice is effective June 27, 2011(the date of the President’s major disas-

ter declaration for devastation caused byflooding during the period of May 25,2011, to August 1, 2011).

PAPERWORK REDUCTION ACT

The collection of information containedin this notice has been reviewed and ap-proved by the Office of Management andBudget in accordance with the PaperworkReduction Act (44 U.S.C. 3507) undercontrol number 1545–2223.

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

The collection of information in thisnotice is in the section titled “OTHER RE-QUIREMENTS” under “(3) Certificationsand Recordkeeping.” This information isrequired to enable the Service to verifywhether individuals are displaced as aresult of the devastation in Iowa causedby flooding during the period of May 25,2011, to August 1, 2011, and thus warranttemporary housing in vacant low-incomehousing units. The collection of informa-tion is required to obtain a benefit. Thelikely respondents are individuals andbusinesses.

The estimated total annual recordkeep-ing burden is 125 hours.

The estimated annual burden perrecordkeeper is approximately 15 minutes.The estimated number of recordkeepers is500.

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

DRAFTING INFORMATION

The principal author of this notice isDavid Selig of the Office of AssociateChief Counsel (Passthroughs & SpecialIndustries). For further information re-garding this notice, contact Mr. Selig at(202) 622–3040 (not a toll-free call).

26 CFR 601.105: Examination of returns and claimsfor refund, credit, or abatement; determination ofcorrect liability.(Also: Part I, sections 66, 6015.)

Notice 2012–8

This notice provides a proposed rev-enue procedure that would update Rev.Proc. 2003–61, 2003–2 C.B. 296, whichprovides guidance regarding equitable re-lief from income tax liability under section66(c) and section 6015(f) of the InternalRevenue Code. Since the issuance of Rev.Proc. 2003–61 in August 2003, the Inter-nal Revenue Service’s experience in work-ing section 6015(f) equitable relief caseshas grown significantly. This proposed up-date to Rev. Proc. 2003–61 addresses thecriteria used in making innocent spouse re-lief determinations for section 6015(f) eq-uitable relief cases and revises the factorsfor granting equitable relief. The factorshave been revised to ensure that requestsfor innocent spouse relief are granted un-der section 6015(f) when the facts and cir-cumstances warrant and that, when appro-priate, requests are granted in the initialstage of the administrative process.

Significantly, this proposed revenueprocedure expands how the IRS will takeinto account abuse and financial controlby the nonrequesting spouse in determin-ing whether equitable relief is warranted.Review of the innocent spouse programdemonstrated that when a requestingspouse has been abused by the nonre-questing spouse, the requesting spousemay not have been able to challenge thetreatment of any items on the joint return,question the payment of the taxes reportedas due on the joint return, or challengethe nonrequesting spouse’s assurance re-garding the payment of the taxes. Reviewof the program also highlighted that lackof financial control may have a similarimpact on the requesting spouse’s abilityto satisfy joint tax liabilities. As a result,this proposed revenue procedure providesthat abuse or lack of financial control maymitigate other factors that might otherwiseweigh against granting equitable reliefunder section 6015(f).

The proposed revenue procedure alsoprovides for certain streamlined case de-terminations; new guidance on the poten-tial impact of economic hardship; and theweight to be accorded to certain factual

2012–4 I.R.B. 309 January 23, 2012

circumstances in determining equitable re-lief.

The proposed revenue procedure setsforth the background concerning the re-lief from joint and several liability undersection 6015, a summary of the proposedchanges to Rev. Proc. 2003–61, and theproposed text of the updated revenue pro-cedure. Before issuing an updated revenueprocedure addressing the equitable reliefunder section 6015(f), the Department ofthe Treasury and the Internal RevenueService invite comments from the publicregarding the proposed revenue proce-dure. Treasury and the Service also invitecomments related to the administrationof the innocent spouse relief program.Because the provisions in the proposedrevenue procedure expand the equitablerelief analysis by providing additional con-siderations for taxpayers seeking relief,until the revenue procedure is finalized,the Service will apply the provisions inthe proposed revenue procedure insteadof Rev. Proc. 2003–61 in evaluatingclaims for equitable relief under section6015(f). If taxpayers conclude that theywould receive more favorable treatmentunder one or more of the factors providedin Rev. Proc. 2003–61 they should ad-vise the Service in their application forrelief or supplement an already existingapplication. Then the Service will applythose factors from Rev. Proc. 2003–61,until a new revenue procedure is final-ized. Comments also are requested on anyfactors contained in Rev. Proc. 2003–61that might be interpreted as being morefavorable to requesting spouses than thoseproposed in this notice.

Comments should be submitted by Feb-ruary 21, 2012 to:

Internal Revenue ServiceAttn: CC:PA:LPD:PR(Notice 2012–8)Room 5203P.O. Box 7604Ben Franklin StationWashington, D.C. 20044

or hand deliver comments Mondaythrough Friday between the hours of8 a.m. and 4 p.m. to:

Courier’s DeskInternal Revenue ServiceAttn: CC:PA:LPD:PR(Notice 2012–8)1111 Constitution Avenue, N.W.Washington, D.C. 20224

Alternatively, persons may sub-mit comments electronically viae-mail to the following address:Notice.Comments@irscounsel.treas.gov.Persons should include “Notice 2012–8”in the subject line. All commentssubmitted by the public will be availablefor public inspection and copying in theirentirety.

Proposed Rev. Proc. [XXXX–XX]

SECTION 1. PURPOSE AND SCOPE

.01 Purpose. This revenue procedureprovides guidance for a taxpayer seekingequitable relief from income tax liabilityunder section 66(c) or section 6015(f) ofthe Internal Revenue Code (a “request-ing spouse”). Section 4.01 of this rev-enue procedure provides the threshold re-quirements for any request for equitablerelief. Section 4.02 of this revenue proce-dure sets forth the conditions under whichthe Internal Revenue Service will makestreamlined relief determinations grantingequitable relief under section 6015(f) froman understatement of income tax or anunderpayment of income tax reported ona joint return. Section 4.03 of this rev-enue procedure provides a nonexclusivelist of factors for consideration in deter-mining whether relief should be grantedunder section 6015(f) because it wouldbe inequitable to hold a requesting spousejointly and severally liable when the con-ditions of section 4.02 are not met. Thefactors in section 4.03 also will apply indetermining whether to relieve a spousefrom income tax liability resulting fromthe operation of community property lawunder the equitable relief provision of sec-tion 66(c).

.02 Scope. This revenue procedure ap-plies to spouses who request either equi-table relief from joint and several liabilityunder section 6015(f), or equitable reliefunder section 66(c) from income tax lia-bility resulting from the operation of com-munity property law.

SECTION 2. BACKGROUND

.01 Section 6013(d)(3) provides thatmarried taxpayers who file a joint returnunder section 6013 will be jointly andseverally liable for the income tax arisingfrom that joint return. For purposes ofsection 6013(d)(3) and this revenue pro-cedure, the term “tax” includes penalties,additions to tax, and interest. See sections6601(e)(1) and 6665(a)(2).

.02 Section 3201(a) of the Internal Rev-enue Service Restructuring and ReformAct of 1998, Pub. L. No. 105–206, 112Stat. 685, 734 (RRA), enacted section6015, which provides relief in certaincircumstances from the joint and severalliability imposed by section 6013(d)(3).Section 6015(b) and (c) specify two setsof circumstances under which relief fromjoint and several liability is available incases involving understatements of tax.Section 6015(b) is modeled after formersection 6013(e), the prior innocent spousestatute, and section 6015(c) provides forseparation of liability. If relief is not avail-able under section 6015(b) or (c), section6015(f) authorizes the Secretary to grantequitable relief if, taking into account allthe facts and circumstances, the Secretarydetermines that it is inequitable to hold arequesting spouse liable for any unpaidtax or any deficiency (or any portion ofeither). Section 66(c) provides relief fromincome tax liability resulting from theoperation of community property law totaxpayers domiciled in a community prop-erty state who do not file a joint return.Section 3201(b) of RRA amended section66(c) to add an equitable relief provisionsimilar to section 6015(f).

.03 Section 6015 provides relief onlyfrom joint and several liability arising froma joint return. If an individual signs ajoint return under duress, the election tofile jointly is not valid and there is no validjoint return. The individual is not jointlyand severally liable for any income tax lia-bilities arising from that return. Therefore,section 6015 does not apply and is not nec-essary for obtaining relief.

.04 Under section 6015(b) and (c), re-lief is available only from an understate-ment or a deficiency. Section 6015(b) and(c) do not authorize relief from an under-payment of income tax reported on a jointreturn. Section 66(c) and section 6015(f)permit equitable relief from an underpay-

January 23, 2012 310 2012–4 I.R.B.

ment of income tax or from a deficiency.The legislative history of section 6015 pro-vides that Congress intended for the Secre-tary to exercise discretion in granting eq-uitable relief from an underpayment of in-come tax if a requesting spouse “does notknow, and had no reason to know, thatfunds intended for the payment of tax wereinstead taken by the other spouse for suchother spouse’s benefit.” H.R. Conf. Rep.No. 105–599, at 254 (1998). Congressalso intended for the Secretary to exercisethe equitable relief authority under section6015(f) in other situations if, “taking intoaccount all the facts and circumstances, itis inequitable to hold an individual liablefor all or part of any unpaid tax or defi-ciency arising from a joint return.” Id.

SECTION 3. SIGNIFICANT CHANGES

This revenue procedure supersedesRevenue Procedure 2003–61, changingthe following:

.01 Section 4.01(3) of this revenue pro-cedure provides that a request for equi-table relief under section 6015(f) or section66(c) must be filed before the expiration ofthe period of limitation for collection un-der section 6502, or, if applicable, the pe-riod of limitation for credit or refund undersection 6511. This is a significant changeto the requirement in Revenue Procedure2003–61, section 4.01(3) and Treas. Reg.§ 1.6015–5(b)(1) (T.D. 9003), that the re-questing spouse’s claim for equitable reliefmust be filed no later than two years afterthe date of the Service’s first collection ac-tivity. See Notice 2011–70.

.02 Section 4.01(7)(e) of this revenueprocedure adds a new exception to thethreshold condition in section 4.01(7) thatthe income tax liability must be attrib-utable to an item of the nonrequestingspouse, when the nonrequesting spouse’sfraud gave rise to the understatement oftax or deficiency.

.03 Section 4.02 of this revenue proce-dure has been revised to apply to under-statements of income tax in addition to un-derpayments. Section 4.02 has also beenrevised to apply to claims for equitable re-lief under section 66(c).

.04 Section 4.03(2) is revised to clar-ify that no one factor or a majority of fac-tors necessarily controls the determination.Therefore, depending on the facts and cir-cumstances of the case, relief may still be

appropriate if the number of factors weigh-ing against relief exceeds the number offactors weighing in favor of relief, or a de-nial of relief may still be appropriate if thenumber of factors weighing in favor of re-lief exceeds the number of factors weigh-ing against relief.

.05 Section 4.03(2)(b) of this revenueprocedure revises the economic hardshipequitable factor to provide minimum stan-dards based on income, expenses, andassets, for determining whether the re-questing spouse would suffer economichardship if relief is not granted. Section4.03(2)(b) is also revised to provide thatthe lack of a finding of economic hardshipdoes not weigh against relief.

.06 Section 4.03(2)(c)(i) of this revenueprocedure provides that actual knowledgeof the item giving rise to an understatementor deficiency will no longer be weighedmore heavily than other factors. Further,section 4.03(2)(c)(ii) clarifies that, forpurposes of this factor, if the nonrequest-ing spouse abused the requesting spouseor maintained control over the house-hold finances by restricting the requestingspouse’s access to financial information,and, therefore, because of the abuse orfinancial control the requesting spousewas not able to challenge the treatment ofany items on the joint return for fear of thenonrequesting spouse’s retaliation, thenthat abuse or financial control will result inthis factor weighing in favor of relief evenif the requesting spouse had knowledge orreason to know of the items giving rise tothe understatement or deficiency.

.07 Section 4.03(2)(c)(ii) of this rev-enue procedure provides that, in deter-mining whether the requesting spousehad knowledge or reason to know thatthe nonrequesting spouse would not paythe tax reported as due, the Service willconsider whether the requesting spousereasonably expected that the nonrequest-ing spouse would pay the tax liabilitywithin a reasonably prompt time. Fur-ther, section 4.03(2)(c)(ii) clarifies that forpurposes of this factor, if the nonrequest-ing spouse abused the requesting spouseor maintained control over the house-hold finances by restricting the requestingspouse’s access to financial information,and, therefore, because of the abuse or fi-nancial control the requesting spouse wasnot able to question the payment of thetaxes reported as due on the joint return

or challenge the nonrequesting spouse’sassurance regarding payment of the taxesfor fear of the nonrequesting spouse’sretaliation, then that abuse or financialcontrol will result in this factor weighingin favor of relief even if the requestingspouse had knowledge or reason to knowthat the nonrequesting spouse would notpay the tax liability.

.08 Section 4.03(2)(d) of this rev-enue procedure clarifies that a requestingspouse’s legal obligation to pay outstand-ing tax liabilities is a factor to considerin determining whether equitable reliefshould be granted, in addition to whetherthe nonrequesting spouse has a legal obli-gation to pay the tax liabilities.

.09 Section 4.03(2)(f) of this revenueprocedure is revised to provide that the factthat a requesting spouse is subsequentlycompliant with all Federal income tax lawsis a factor that may weigh in favor of relief.

.10 Section 4.04 of this revenue proce-dure broadens the availability of refunds incases involving deficiencies by eliminat-ing the rule in section 4.04(1) of Rev. Proc.2003–61 that limited refunds in cases in-volving deficiencies to payments made bythe requesting spouse pursuant to an in-stallment agreement.

SECTION 4. GENERAL CONDITIONSFOR RELIEF

.01 Eligibility for equitable relief. Arequesting spouse must satisfy all of thefollowing threshold conditions to be eli-gible to submit a request for equitable re-lief under section 6015(f). With the excep-tion of conditions (1) and (2), a request-ing spouse must satisfy all of the follow-ing threshold conditions to be eligible tosubmit a request for equitable relief undersection 66(c). The Service may relieve arequesting spouse who satisfies all the ap-plicable threshold conditions set forth be-low of all or part of the income tax liabil-ity under section 66(c) or section 6015(f)if, taking into account all the facts and cir-cumstances, the Service determines that itwould be inequitable to hold the requestingspouse liable for the income tax liability.The threshold conditions are as follows:

(1) The requesting spouse filed a jointreturn for the taxable year for which he orshe seeks relief.

(2) Relief is not available to the request-ing spouse under section 6015(b) or (c).

2012–4 I.R.B. 311 January 23, 2012

(3) Time for filing claim for relief:(a) If the requesting spouse is applying

for relief from a liability or a portion of a li-ability that remains unpaid, the request forrelief must be made before the expirationof the period of limitation on collection ofthe income tax liability, as provided in sec-tion 6502. Generally, that period expires10 years after the assessment of tax. Sec-tion 6502.

(b) Claims for credit or refund ofamounts paid must be made before theexpiration of the period of limitation oncredit or refund, as provided in section6511. Generally, that period expires threeyears from the time the return was filed ortwo years from the time the tax was paid,whichever is later.

(4) No assets were transferred betweenthe spouses as part of a fraudulent schemeby the spouses.

(5) The nonrequesting spouse did nottransfer disqualified assets to the request-ing spouse. For this purpose, the term“disqualified asset” has the meaning giventhe term by section 6015(c)(4)(B). If thenonrequesting spouse transferred disqual-ified assets to the requesting spouse, reliefwill be available only to the extent that theincome tax liability exceeds the value ofthe disqualified assets. This condition willnot result in the requesting spouse beingineligible for relief if the nonrequestingspouse abused the requesting spouse ormaintained control over the householdfinances by restricting the requestingspouse’s access to financial information,or the requesting spouse did not have ac-tual knowledge that disqualified assetswere transferred.

(6) The requesting spouse did notknowingly participate in the filing of afraudulent joint return.

(7) The income tax liability from whichthe requesting spouse seeks relief is attrib-utable (either in full or in part) to an itemof the nonrequesting spouse or an under-payment resulting from the nonrequestingspouse’s income. If the liability is partiallyattributable to the requesting spouse, thenrelief can only be considered for the por-tion of the liability attributable to the non-requesting spouse. Nonetheless, the Ser-vice will consider granting relief regard-less of whether the understatement, defi-ciency, or underpayment is attributable (infull or in part) to the requesting spouse ifany of the following exceptions applies:

(a) Attribution solely due to the oper-ation of community property law. If anitem is attributable or partially attribut-able to the requesting spouse solely due tothe operation of community property law,then for purposes of this revenue proce-dure, that item (or portion thereof) will beconsidered to be attributable to the nonre-questing spouse.

(b) Nominal ownership. If the item istitled in the name of the requesting spouse,the item is presumptively attributable tothe requesting spouse. This presumptionis rebuttable. For example, H opens an in-dividual retirement account (IRA) in W’sname and forges W’s signature on the IRAin 2006. Thereafter, H makes contribu-tions to the IRA and in 2008 takes a tax-able distribution from the IRA. H and Wfile a joint return for the 2008 taxable year,but do not report the taxable distributionon their joint return. The Service later de-termines a deficiency relating to the tax-able IRA distribution. W requests relieffrom joint and several liability under sec-tion 6015. W establishes that W did notcontribute to the IRA, sign paperwork re-lating to the IRA, or otherwise act as if Wwere the owner of the IRA. W thereby re-butted the presumption that the IRA is at-tributable to W.

(c) Misappropriation of funds. If therequesting spouse did not know, and hadno reason to know, that funds intended forthe payment of tax were misappropriatedby the nonrequesting spouse for the nonre-questing spouse’s benefit, the Service willconsider granting equitable relief althoughthe underpayment may be attributable inpart or in full to an item of the requestingspouse. The Service will consider grantingrelief in the case only to the extent that thefunds intended for the payment of tax weretaken by the nonrequesting spouse.

(d) Abuse not amounting to duress. Ifthe requesting spouse establishes that he orshe was the victim of abuse prior to thetime the return was signed, and that, asa result of the prior abuse, the requestingspouse did not challenge the treatment ofany items on the return, or question thepayment of any balance due reported onthe return, for fear of the nonrequestingspouse’s retaliation, the Service will con-sider granting equitable relief even thoughthe deficiency or underpayment may be at-tributable in part or in full to an item of therequesting spouse.

(e) Fraud committed by nonrequestingspouse. The Service will consider grantingrelief notwithstanding that the item givingrise to the understatement or deficiency isattributable to the requesting spouse, if therequesting spouse establishes that the non-requesting spouse’s fraud is the reason forthe erroneous item. For example, W fraud-ulently accesses H’s brokerage account tosell stock that H had separately receivedfrom an inheritance. W deposits the fundsfrom the sale in a separate bank accountto which H does not have access. H andW file a joint Federal income tax returnfor the year, which does not report the in-come from the sale of the stock. The Ser-vice determines a deficiency based on theomission of the income from the sale ofthe stock. H requests relief from the defi-ciency under section 6015(f). The incomefrom the sale of the stock normally wouldbe attributable to H. Because W commit-ted fraud with respect to H, however, andbecause this fraud was the reason for theerroneous item, the liability is properly at-tributable to W.

.02. Circumstances under which theService will make streamlined determina-tions granting equitable relief under sec-tions 66(c) and 6015(f).

If a requesting spouse who filed a jointreturn, or a requesting spouse who fileda separate return in a community prop-erty state, satisfies the threshold condi-tions of section 4.01, the Service will con-sider whether the requesting spouse is en-titled to a streamlined determination of eq-uitable relief under section 66(c) or sec-tion 6015(f) under section 4.02. If a re-questing spouse is not entitled to a stream-lined determination because the requestingspouse does not satisfy all the elements insection 4.02, the requesting spouse is stillentitled to be considered for relief underthe equitable factors in section 4.03. TheService will make streamlined determina-tions granting equitable relief under sec-tions 66(c) and 6015(f), in cases in whichthe requesting spouse establishes that therequesting spouse:

(1) Is no longer married to the non-requesting spouse as set forth in section4.03(2)(a);

(2) Would suffer economic hardship ifrelief were not granted as set forth in sec-tion 4.03(2)(b); and

(3) Did not know or have reason toknow that there was an understatement or

January 23, 2012 312 2012–4 I.R.B.

deficiency on the joint return, as set forthin section 4.03(2)(c)(i), or did not knowor have reason to know that the nonre-questing spouse would not or could notpay the underpayment of tax reported onthe joint income tax return, as set forth insection 4.03(2)(c)(ii). If the nonrequest-ing spouse abused the requesting spouseor maintained control over the house-hold finances by restricting the requestingspouse’s access to financial information,and therefore, because of the abuse or fi-nancial control the requesting spouse wasnot able to challenge the treatment of anyitems on the joint return, or to questionthe payment of the taxes reported as dueon the joint return or challenge the non-requesting spouse’s assurance regardingpayment of the taxes, for fear of the non-requesting spouse’s retaliation, then theabuse or financial control will result in thisfactor being satisfied even if the request-ing spouse had knowledge or reason toknow of the items giving rise to the under-statement or deficiency or had knowledgeor reason to know that the nonrequestingspouse would not pay the tax liability.

.03. Factors for determining whether togrant equitable relief.

(1) Applicability. This section 4.03 ap-plies to requesting spouses who request re-lief under section 66(c) or section 6015(f),and satisfy the threshold conditions of sec-tion 4.01, but do not qualify for stream-lined determinations granting relief undersection 4.02.

(2) Factors. In determining whether itis inequitable to hold the requesting spouseliable for all or part of the unpaid incometax liability or deficiency, and full or par-tial equitable relief under section 66(c) orsection 6015(f) should be granted, all thefacts and circumstances of the case areto be taken into account. The degree ofimportance of each factor varies depend-ing on the circumstances of the requestingspouse and the factual context surroundingthe marriage. The factors are designed asguides. It is not intended that only the fac-tors described in this paragraph are to betaken into account in making the determi-nation. No one factor or a majority of fac-tors necessarily determines the outcome.Factors to consider include the following:

(a) Marital status. Whether the request-ing spouse is no longer married to the non-requesting spouse as of the date the Servicemakes its determination. If the requesting

spouse is still married to the nonrequestingspouse, this factor is neutral. If the request-ing spouse is no longer married to the non-requesting spouse, this factor will weigh infavor of relief. For purposes of this sec-tion, a requesting spouse will be treated asbeing no longer married to the nonrequest-ing spouse only in the following situations:

(i) The requesting spouse is divorcedfrom the nonrequesting spouse,

(ii) The requesting spouse is legallyseparated from the nonrequesting spouseunder applicable state law,

(iii) The requesting spouse is a widowor widower and is not an heir to the nonre-questing spouse’s estate which would havesufficient assets to pay the tax liability, or

(iv) The requesting spouse has not beena member of the same household as thenonrequesting spouse at any time duringthe 12-month period ending on the daterelief was requested. For these purposes,a temporary absence (e.g., due to incarcer-ation, illness, business, military service,or education) is not considered separa-tion if the absent spouse is expected toreturn to the household. See Treas. Reg.§ 1.6015–3(b)(3)(i). A requesting spouseis a member of the same household asthe nonrequesting spouse for any periodin which the spouses maintain the sameresidence.

(b) Economic hardship. Whether therequesting spouse will suffer economichardship if relief is not granted. For pur-poses of this factor, an economic hardshipexists if satisfaction of the tax liability inwhole or in part will cause the requestingspouse to be unable to pay reasonable basicliving expenses. Whether the request-ing spouse will suffer economic hardshipis determined based on rules similar tothose provided in §301.6343–1(b)(4), andwill take into consideration a requestingspouse’s current income and expenses andthe requesting spouse’s assets. In deter-mining the requesting spouse’s reasonablebasic living expenses, the Service willconsider whether the requesting spouseshares expenses or has expenses paid byanother individual (such as a spouse). Ifdenying relief from the joint and severalliability will cause the requesting spouseto suffer economic hardship, this factorwill weigh in favor of relief. If denyingrelief from the joint and several liabilitywill not cause the requesting spouse to

suffer economic hardship, this factor willbe neutral.

In determining whether the requestingspouse would suffer economic hardship ifrelief is not granted, the Service will com-pare the requesting spouse’s income to theFederal poverty guidelines (as updated pe-riodically in the Federal Register by theU.S. Department of Health and HumanServices under the authority of 42 U.S.C.§ 9902(2)) for the requesting spouse’s fam-ily size and will determine by how much, ifat all, the requesting spouse’s monthly in-come exceeds the spouse’s reasonable ba-sic monthly living expenses. If the re-questing spouse’s income is below 250%of the Federal poverty guidelines, or if therequesting spouse’s monthly income ex-ceeds the requesting spouse’s reasonablebasic monthly living expenses by $300 orless, then this factor will weigh in favorof relief unless the requesting spouse hasassets out of which the requesting spousecan make payments towards the tax liabil-ity and still adequately meet the requestingspouse’s reasonable basic living expenses.If the requesting spouse’s income exceedsthese standards, the Service will considerall facts and circumstances in determin-ing whether the requesting spouse wouldsuffer economic hardship if relief is notgranted. If the requesting spouse is de-ceased, this factor is neutral.

(c) Knowledge or reason to know.(i) Understatement cases. Whether the

requesting spouse knew or had reason toknow of the item giving rise to the under-statement or deficiency at the time the re-questing spouse signed the joint return (in-cluding a joint amended return). In thecase of an income tax liability that arosefrom an understatement or a deficiency,this factor will weigh in favor of relief ifthe requesting spouse did not know andhad no reason to know of the item givingrise to the understatement. If the request-ing spouse knew or had reason to know ofthe item giving rise to the understatement,this factor will weigh against relief. Ac-tual knowledge of the item giving rise tothe understatement or deficiency will notbe weighed more heavily than any otherfactor. Depending on the facts and cir-cumstances, if the requesting spouse wasabused by the nonrequesting spouse (as de-scribed in section 4.03(2)(c)(iv)), or thenonrequesting spouse maintained controlof the household finances by restricting

2012–4 I.R.B. 313 January 23, 2012

the requesting spouse’s access to financialinformation and, therefore, the requestingspouse was not able to challenge the treat-ment of any items on the joint return forfear of the nonrequesting spouse’s retalia-tion, this factor will weigh in favor of reliefeven if the requesting spouse had knowl-edge or reason to know of the items givingrise to the understatement or deficiency.

(ii) Underpayment cases. In the case ofan income tax liability that was properlyreported on a joint return (including a jointamended return) but not paid, whether therequesting spouse knew or had reason toknow at the time the requesting spousesigned the joint return that the nonrequest-ing spouse would not or could not pay thetax liability at the time the joint return wasfiled or within a reasonably prompt timeafter the filing of the joint return. Thisfactor will weigh in favor of relief if therequesting spouse reasonably expected thenonrequesting spouse to pay the tax liabil-ity reported on the joint return. This factorwill weigh against relief if, based on thefacts and circumstances of the case, it wasnot reasonable for the requesting spouseto believe that the nonrequesting spousewould or could pay the tax liability shownon the joint return within a reasonablyprompt time after filing of the return. Forexample, if prior to signing the return, therequesting spouse knew of the nonrequest-ing spouse’s prior bankruptcies, financialdifficulties, or other issues with the IRS orother creditors, or was otherwise aware ofdifficulties in timely paying bills, then thisfactor will generally weigh against relief.Depending on the facts and circumstances,if the requesting spouse was abused by thenonrequesting spouse (as described in sec-tion 4.03(2)(c)(iv)), or the nonrequestingspouse maintained control of the house-hold finances by restricting the requestingspouse’s access to financial informationand, therefore, the requesting spouse wasnot able to question the payment of thetaxes reported as due on the joint returnor challenge the nonrequesting spouse’sassurance regarding payment of the taxesfor fear of the nonrequesting spouse’s re-taliation, this factor will weigh in favorof relief even if the requesting spouse hadknowledge or reason to know regardingthe nonrequesting spouse’s intent or abil-ity to pay the taxes due.

(iii) Reason to know. The facts and cir-cumstances that are considered in deter-

mining whether the requesting spouse hadreason to know of an understatement, orreason to know the nonrequesting spousecould not or would pay the reported tax li-ability, include, but are not limited to, therequesting spouse’s level of education, anydeceit or evasiveness of the nonrequest-ing spouse, the requesting spouse’s de-gree of involvement in the activity gener-ating the income tax liability, the request-ing spouse’s involvement in business andhousehold financial matters, the request-ing spouse’s business or financial exper-tise, and any lavish or unusual expendi-tures compared with past spending levels.

(iv) Abuse by the nonrequesting spouse.For purposes of this revenue procedure, ifthe requesting spouse establishes that he orshe was the victim of abuse (not amountingto duress, see Treas. Reg. § 1.6015–1(b)),then depending on the facts and circum-stances of the requesting spouse’s situa-tion, the abuse may result in certain fac-tors weighing in favor of relief when other-wise the factor may have weighed againstrelief. Abuse comes in many forms andcan include physical, psychological, sex-ual, or emotional abuse, including effortsto control, isolate, humiliate and intimidatethe requesting spouse, or to undermine therequesting spouse’s ability to reason inde-pendently and be able to do what is re-quired under the tax laws. All the factsand circumstances are considered in deter-mining whether a requesting spouse wasabused. The impact of a nonrequestingspouse’s alcohol or drug abuse is also con-sidered in determining whether a request-ing spouse was abused.

(d) Legal obligation. Whether therequesting spouse or the nonrequestingspouse has a legal obligation to pay theoutstanding Federal income tax liability.For purposes of this factor, a legal obliga-tion is an obligation arising from a divorcedecree or other legally binding agreement.This factor will weigh in favor of relief ifthe nonrequesting spouse has the sole legalobligation to pay the outstanding incometax liability pursuant to a divorce decreeor agreement. This factor, however, willbe neutral if the requesting spouse knewor had reason to know, when entering intothe divorce decree or agreement, that thenonrequesting spouse would not pay theincome tax liability. This factor will weighagainst relief if the requesting spouse hasthe sole legal obligation. The fact that the

nonrequesting spouse has been relieved ofliability for the taxes at issue as a result ofa discharge in bankruptcy is disregardedin determining whether the requestingspouse has the sole legal obligation. If,based on an agreement or consent order,both spouses have a legal obligation to paythe outstanding income tax liability, thespouses are not separated or divorced, orthe divorce decree or agreement is silentas to any obligation to pay the outstandingincome tax liability, this factor is neutral.

(e) Significant benefit. Whether therequesting spouse received significantbenefit (beyond normal support) from theunpaid income tax liability or item givingrise to the deficiency. See Treas. Reg.§ 1.6015–2(d). If the requesting spouseenjoyed the benefits of a lavish lifestyle,such as owning luxury assets and tak-ing expensive vacations, this factor willweigh against relief. If the nonrequest-ing spouse controlled the household andbusiness finances or there was abuse (asdescribed in section 4.03(2)(c)(iv)) suchthat the nonrequesting spouse made thedecision on spending funds for a lavishlifestyle, then this mitigates this factor sothat it is neutral. If only the nonrequest-ing spouse significantly benefitted fromthe unpaid tax or item giving rise to anunderstatement or deficiency, and the re-questing spouse had little or no benefit, orthe nonrequesting spouse enjoyed the ben-efit to the requesting spouse’s detriment,this factor will weigh in favor of relief. Ifthe amount of unpaid tax or understatedtax was small such that neither spousereceived a significant benefit, then thisfactor is neutral.

(f) Compliance with income tax laws.Whether the requesting spouse has madea good faith effort to comply with the in-come tax laws in the taxable years follow-ing the taxable year or years to which therequest for relief relates.

(1) If the requesting spouse is compliantfor taxable years after being divorced fromthe nonrequesting spouse, then this factorwill weigh in favor of relief. If the re-questing spouse is not compliant, then thisfactor will weigh against relief. If the re-questing spouse made a good faith effort tocomply with the tax laws but was unable tofully comply, then this factor will be neu-tral. For example, if the requesting spousetimely filed an income tax return but wasunable to fully pay the tax liability due to

January 23, 2012 314 2012–4 I.R.B.

spouse’s poor financial or economic situa-tion after the divorce, then this factor willbe neutral.

(2) If the requesting spouse remainsmarried to the nonrequesting spouse,whether or not legally separated or livingapart, and continues to file joint returnswith the nonrequesting spouse after re-questing relief, then this factor will beneutral if the joint returns are compliantwith the tax laws, but will weigh againstrelief if the returns are not compliant.

(3) If the requesting spouse remainsmarried to the nonrequesting spouse butfiles separate returns, this factor will weighin favor of relief if the requesting spouse iscompliant with the tax laws and will weighagainst relief if the requesting spouse isnot compliant with the tax laws. If therequesting spouse made a good faith effortto comply with the tax laws but was un-able to fully comply, then this factor willbe neutral. For example, if the requestingspouse timely filed an income tax returnbut was unable to fully pay the tax lia-bility due to the requesting spouse’s poorfinancial or economic situation as a resultof being separated or living apart from thenonrequesting spouse, then this factor willbe neutral.

(g) Mental or physical health. Whetherthe requesting spouse was in poor physicalor mental health. This factor will weighin favor of relief if the requesting spousewas in poor mental or physical health atthe time the requesting spouse signed thereturn or returns for which the request forrelief relates or at the time the requestingspouse requested relief. The Service willconsider the nature, extent, and duration ofthe condition. If the requesting spouse wasin neither poor physical nor poor mentalhealth, this factor is neutral.

04. Refunds. In both understatementand underpayment cases, a requestingspouse is eligible for a refund of separatepayments made by the requesting spouseafter July 22, 1998, and the requestingspouse establishes that the funds used tomake the payment for which a refund issought were provided by the requestingspouse. A requesting spouse is not eligiblefor refunds of payments made with thejoint return, joint payments, or paymentsthat the nonrequesting spouse made. A re-questing spouse, however, may be eligiblefor a refund of the requesting spouse’s por-tion of the requesting and nonrequesting

spouse’s joint overpayment from anothertax year that was applied to the joint in-come tax liability to the extent that therequesting spouse can establish that therequesting spouse provided the funds forthe overpayment. The availability of re-funds is subject to the refund limitationsof section 6511.

SECTION 5. PROCEDURE

A requesting spouse seeking equi-table relief under section 66(c) or section6015(f) must file Form 8857, Request forInnocent Spouse Relief (and Separation ofLiability, and Equitable Relief), or othersimilar statement signed under penaltiesof perjury, within the applicable period oflimitation as set forth in section 4.01(3) ofthis revenue procedure.

SECTION 6. EFFECT ON OTHERDOCUMENTS

Revenue Procedure 2003–61, 2003–2C.B. 296, is superseded.

SECTION 7. EFFECTIVE DATE

This revenue procedure is effectivefor requests for relief filed on or after[INSERT DATE REVENUE PROCE-DURE IS RELEASED TO THE PUB-LIC]. In addition, this revenue procedureis effective for requests for equitable reliefpending on [INSERT DATE REVENUEPROCEDURE IS RELEASED TO THEPUBLIC], whether with the Service, theOffice of Appeals, or in a case docketedwith a Federal court.

SECTION 8. DRAFTINGINFORMATION

The principal authors of this rev-enue procedure are Nancy Roseand Sheida Lahabi of the Office ofAssociate Chief Counsel (Procedure &Administration). For further informationregarding this revenue procedure, contactBranches 1 or 2 of Procedure andAdministration at (202) 622–4910 or (202)622–4940 (not a toll-free call).

Interim Guidance onInformational Reportingto Employees of the Cost ofTheir Group Health InsuranceCoverage

Notice 2012–9

I. PURPOSE

This notice restates and amends the in-terim guidance on informational reportingto employees of the cost of their em-ployer-sponsored group health plan cover-age initially provided in Notice 2011–28,2011–16 I.R.B. 656. This informationalreporting is required under § 6051(a)(14)of the Internal Revenue Code (Code),enacted as part of the Patient Protectionand Affordable Care Act of 2010 (the Af-fordable Care Act), Public Law, 111–148,to provide useful and comparable con-sumer information to employees on thecost of their health care coverage. Notice2011–28 solicited comments on variousaspects of the reporting requirement. Inresponse to comments, this notice su-persedes Notice 2011–28 and makes thefollowing changes to the guidance pro-vided in Notice 2011–28:

• Modifies Q&A–3 to provide that un-til further guidance is issued, the re-porting requirement will not apply totribally chartered corporations whollyowned by Federally recognized Indiantribal governments.

• Modifies Q&A–3 to clarify the appli-cation of the interim relief from the re-porting requirement for employers fil-ing fewer than 250 Forms W–2 for thepreceding calendar year.

• Modifies Q&A–7 to clarify the appli-cation of the reporting requirement tocertain related employers not using acommon paymaster.

• Adds a new example to Q&A–19that demonstrates that the reportingrequirement does not apply to cover-age under a health flexible spendingarrangement (FSA) if contributionsoccur only through employee salaryreduction elections.

• Modifies Q&A–20 to clarify that thestandard for determining whether cov-erage under a dental plan or vision planis subject to the reporting requirement

2012–4 I.R.B. 315 January 23, 2012

is based upon the same standard for de-termining whether the coverage is sub-ject to the rules set forth in the regula-tions under the Health Insurance Porta-bility and Accountability Act of 1996(HIPAA).

• Modifies and corrects Q&A–23 to clar-ify that the reporting requirement doesnot apply to the cost of coverage in-cludible in income under § 105(h), orpayments or reimbursements of healthinsurance premiums for a 2% share-holder-employee of an S corporationwho is required to include the premiumpayments in gross income.

• Modifies Q&A–28 to clarify the appli-cation of the reporting requirement ifa composite rate is used with respectto the premium charged active partic-ipants, but not the premium chargedunder COBRA to a qualifying benefi-ciary.

The notice also provides the followingadditional guidance through new Q&A’s:

• Provides that employers are not re-quired to include the cost of coverageunder an employee assistance program(EAP), wellness program, or on-sitemedical clinic in the reportable amountif the employer does not charge apremium with respect to that type ofcoverage provided under COBRA to aqualified beneficiary (Q&A–32).

• Clarifies that employers may includethe cost of coverage under programsnot required to be included under ap-plicable interim relief, such as the costof coverage under a Health Reimburse-ment Arrangement (HRA) (Q&A–33).

• Clarifies how to calculate the re-portable amount for coverage only aportion of which constitutes coverageunder a group health plan (Q&A–34).

• Clarifies how to calculate the re-portable amount if an employer isprovided notice after December 31 ofa calendar year of events that occurredon or before December 31 of a cal-endar year that affect the prior year’scoverage, such as an employee pro-viding an employer notice of a divorceor other change in family status thatoccurred during a prior calendar year(Q&A–35).

• Clarifies how to calculate the re-portable amount where coverage ex-

tends over the payroll period includingDecember 31 (Q&A–36).

• Clarifies the application of the excep-tion for certain hospital indemnity orother fixed indemnity insurance of-fered by an employer on an after-taxbasis (Q&A–37 and Q&A–38).

• Provides that the reportable amount isnot required to be included on a FormW–2 provided by a third-party sick payprovider (Q&A–39).

This reporting to employees is for theirinformation only. The reporting is in-tended to inform them of the cost of theirhealth care coverage, and does not causeexcludable employer-provided health carecoverage to become taxable. Nothing in§ 6051(a)(14), this notice, or the addi-tional guidance that is contemplated under§ 6051(a)(14), causes or will cause other-wise excludable employer-provided healthcare coverage to become taxable.

Section 6051(a)(14) was added to theCode by § 9002 of the Affordable CareAct, and provides that the reporting bemade on Form W–2, Wage and Tax State-ment. Notice 2010–69, 2010–44 I.R.B.576, provides that this reporting will notbe mandatory for 2011 Forms W–2 (thatis, the forms required for the calendar year2011 that employers are generally requiredto give employees by the end of January2012 and then file with the Social SecurityAdministration (SSA)).

This notice provides interim guidancethat generally is applicable beginning with2012 Forms W–2 (that is, the forms re-quired for the calendar year 2012 that em-ployers are generally required to give em-ployees by the end of January 2013 andthen file with the SSA). In addition, em-ployers may rely on the guidance providedin this notice if they voluntarily choose toreport the cost of coverage on 2011 FormsW–2, even though this reporting is not re-quired for 2011. This interim guidance isapplicable until further guidance is issued.Treasury and the IRS will continue to con-sider comments submitted in response toNotice 2011–28 as they work to developregulations under § 6051(a)(14). To theextent that future guidance applies the re-porting requirement to additional employ-ers or categories of employers or addi-tional types of coverage, that guidance willapply prospectively only and will not ap-ply to any calendar year beginning within

six months of the date the guidance is is-sued.

As explained above, this notice pro-vides transition relief for certain employ-ers and with respect to certain types ofemployer-sponsored coverage. This tran-sition relief will be available at least for2012 Forms W–2 and the availability ofthis transition relief for 2012 Forms W–2will not be affected by the issuance of anyfurther guidance. Thus, reporting by em-ployers and with respect to the types ofcoverage covered by the exceptions pro-vided in this notice will not be required for2012 Forms W–2. For example, as pro-vided in Q&A–3 of this notice, employ-ers that are required to file fewer than 2502011 Forms W–2 will not be subject tothe reporting requirement for 2012 FormsW–2.

The interim guidance is set forth insection III of this notice. Q&A–1 andQ&A–2 discuss the general requirements.Q&A–3 identifies the employers subjectto the reporting requirements. Q&A–4through Q&A–10 provide the methods forreporting the cost of the coverage on theForm W–2. Q&A–11 through Q&A–15define certain terms related to the cost ofcoverage required to be reported on theForm W–2. Q&A–16 through Q&A–23set forth the types of coverage the costof which is required to be included inthe amount reported on the Form W–2.Q&A–24 through Q&A–27 describe sev-eral calculation methods that may be usedto determine the cost of the coverage.Q&A–28 through Q&A–31 address anumber of other issues employers mayencounter in determining the cost of thecoverage. Q&A–32 through Q&A–38contain additions to the guidance initiallyset forth in Notice 2011–28. Section IVof this notice contains transition relieffor certain employers and with respect tocertain types of employer-sponsored cov-erage. Section V of this notice states thatNotice 2011–28 is superseded.

II. BACKGROUND

Section 6051(a) provides generally thatan employer must provide a written state-ment to each employee showing the re-muneration paid by such person to suchemployee during the calendar year on orbefore January 31 of the succeeding year(or, if the employee terminates employ-

January 23, 2012 316 2012–4 I.R.B.

ment during the year, within 30 days af-ter the date of receipt of a written requestfrom such employee submitted before Jan-uary 2). Form W–2, Wage and Tax State-ment, is the form used to provide an em-ployee this information.

Section 6051(a)(14) provides gener-ally that the aggregate cost of applicableemployer-sponsored coverage must beincluded in the information reported onForm W–2, effective for taxable yearsbeginning on or after January 1, 2011.Section 6051(a)(14), provides that, for thispurpose, the aggregate cost is to be deter-mined under rules similar to the rules of§ 4980B(f)(4), referring to the definitionof the “applicable premium” for purposesof COBRA continuation coverage.

Section 6051(a)(14) does not applyto the amount contributed to any ArcherMSA (as defined in § 220(d)) or to anyhealth savings account (as defined in§ 223(d)) of an employee or an employee’sspouse. See § 6051(a)(11) and (a)(12).Section 6051(a)(14) also does not applyto the amount of any salary reductioncontributions to a health flexible spend-ing arrangement (within the meaning of§§ 106(c)(2) and 125).

Section 6051(a)(14) provides thatthe aggregate cost of applicable em-ployer-sponsored coverage (the amountrequired to be reported on Form W–2)has the same meaning as in § 4980I(d)(1).Section 4980I(d)(1)(A) provides that theterm “applicable employer-sponsoredcoverage” means, with respect to anyemployee, coverage under any grouphealth plan made available to the em-ployee by an employer which is exclud-able from the employee’s gross incomeunder § 106, or would be so excludableif it were employer-provided coverage(within the meaning of § 106). Section4980I(f)(4) provides that, for purposesof § 4980I(d)(1), the term “group healthplan” has the same meaning as under§ 5000(b)(1).

Under § 4980I(d)(1)(B), the term “ap-plicable employer-sponsored coverage”does not include (i) any coverage (whetherthrough insurance or otherwise) describedin § 9832(c)(1) (other than coverage foron-site medical clinics described in sub-paragraph (G) thereof) or for long-termcare, or (ii) any coverage under a separatepolicy, certificate, or contract of insurancewhich provides benefits substantially all of

which are for treatment of the mouth (in-cluding any organ or structure within themouth) or for treatment of the eye, or (iii)any coverage described in § 9832(c)(3) thepayment for which is not excludable fromgross income and for which a deductionunder § 162(l) is not allowable.

The types of coverage described in§ 9832(c)(1) (providing that certain “ex-cepted benefits” are not subject to therequirements of chapter 100 of the Code)that are not subject to this reporting re-quirement are the following:

• coverage only for accident, or disabil-ity income insurance, or any combina-tion thereof;

• coverage issued as a supplement to li-ability insurance;

• liability insurance, including generalliability insurance and automobile lia-bility insurance;

• workers’ compensation or similar in-surance;

• automobile medical payment insur-ance;

• credit-only insurance;• other similar insurance coverage, spec-

ified in regulations, under which ben-efits for medical care are secondary orincidental to other insurance benefits.

The types of coverage described in§ 9832(c)(3) include the following, pro-vided that such coverage is offered asindependent, noncoordinated benefits:

(A) coverage only for a specified dis-ease or illness; and

(B) hospital indemnity or other fixedindemnity insurance.

Section 4980I(d)(1)(C) provides thatcoverage shall be treated as applicable em-ployer-sponsored coverage without regardto whether the employer or employee paysfor the coverage.

Section 4980I(d)(1)(E) provides thatapplicable employer-sponsored coverageshall include coverage under any grouphealth plan established and maintainedprimarily for its civilian employees bythe Government of the United States, bythe government of any State or politicalsubdivision thereof, or by any agency orinstrumentality of any such government.

Section 4980B(f)(4)(A) provides thatthe term “applicable premium” means,with respect to any period of continua-tion coverage of qualified beneficiaries,

the cost to the plan for such period of thecoverage for similarly situated beneficia-ries with respect to whom a qualifyingevent has not occurred (without regard towhether such cost is paid by the employeror employee). Section 4980B(f)(4)(B)provides a special rule for self-insuredplans, generally requiring that such planscalculate the applicable premium throughone of two methods — the actuarialmethod or the past cost method. Section4980B(f)(4)(C) provides that the determi-nation of any applicable premium shallbe made for a period of 12 months andshall be made before the beginning of suchperiod.

Section 54.4980B–1, Q&A–2 of theMiscellaneous Excise Tax Regulations,provides that, for purposes of § 4980B,for topics relating to the COBRA contin-uation coverage requirements of § 4980Bthat are not addressed in §§54.4980B–1through 54.4980B–10 (such as methodsfor calculating the applicable premium),plans and employers must operate in goodfaith compliance with a reasonable inter-pretation of the statutory requirements in§ 4980B.

III. INTERIM GUIDANCE

This interim guidance generally is ap-plicable to 2012 Forms W–2 (that is, theforms required for the calendar year 2012that employers generally are required tofurnish to employees by the end of Jan-uary 2013 and then file with the SSA) andForms W–2 for later years. In addition,employers may rely on the guidance pro-vided in this notice if they voluntarily re-port the cost of coverage on 2011 FormsW–2, even though such reporting is notrequired for 2011. This interim guidanceis applicable until further guidance is is-sued. To the extent that future guidanceapplies the reporting requirement to addi-tional employers or categories of employ-ers, additional types of coverage, or oth-erwise applies the reporting requirementmore expansively, that guidance will ap-ply prospectively only and will not applyto any calendar year beginning within sixmonths of the date the guidance is issued.See also Section IV of this notice for cer-tain transition relief that will be extendedat least for the 2012 Forms W–2.

Except as otherwise specified, the in-terim guidance in this section applies

2012–4 I.R.B. 317 January 23, 2012

solely for purposes of § 6051(a)(14) andno inference should be drawn concerningany other provision of the Code.

In General (Q&A–1 and Q&A–2)

Q–1: What does § 6051(a)(14) require?A–1: Section 6051(a)(14) generally re-

quires the aggregate cost of applicable em-ployer-sponsored coverage to be reportedon Form W–2.

Q–2: Does the requirement under§ 6051(a)(14) to report the aggregate costof employer-sponsored coverage on FormW–2, or compliance with this require-ment, have any impact on whether suchcoverage is taxable?

A–2: No. The requirement is in-formational only. The provisions of§ 6051(a)(14) do not affect whether anyparticular coverage is excludable fromgross income under § 106 or any otherCode provision, and the reporting of anyamount on Form W–2 in compliance withthe requirements of § 6051(a)(14) will notaffect the amount includable in income orthe amount reported in any other box onForm W–2. The purpose of the reportingis to provide useful and comparable con-sumer information to employees on thecost of their health care coverage.

Employers Subject to the ReportingRequirement (Q&A–3)

Q–3: What employers are sub-ject to the reporting requirement under§ 6051(a)(14)?

A–3: Except as provided in thisQ&A–3, all employers that provide ap-plicable employer-sponsored coverage(see Q&A–12) during a calendar year aresubject to the reporting requirement under§ 6051(a)(14). This includes employersthat are federal, state and local govern-ment entities, churches and other religiousorganizations, and employers that are notsubject to the COBRA continuation cov-erage requirements under § 4980B, to theextent such employers provide applica-ble employer-sponsored coverage undera group health plan. (Notice 2010–69,2010–44 I.R.B. 576, provides that report-ing by these employers is not mandatoryprior to the issuance of the 2012 FormsW–2 (the forms required for the calen-dar year 2012 that employers generallyare required to furnish to employees bythe end of January 2013 and then file

with the Social Security Administration(SSA))). Employers that are Federally rec-ognized Indian tribal governments are notsubject to the reporting requirements of§ 6051(a)(14). Until further guidance is is-sued, employers that are tribally charteredcorporations wholly-owned by a Federallyrecognized Indian tribal government alsoare not subject to the reporting require-ments.

Also, in the case of the 2012 FormsW–2 (and Forms W–2 for later years un-less and until further guidance is issued),an employer is not subject to the report-ing requirement for any calendar year ifthe employer was required to file fewerthan 250 Forms W–2 for the preceding cal-endar year. (This rule is based upon therule in § 6011(e) that exempts employersfrom filing returns electronically if theyfile fewer than 250 returns.) Therefore,if an employer is required to file fewerthan 250 2011 Forms W–2, the employerwould not be subject to the reporting re-quirement for 2012 Forms W–2. For thispurpose, whether an employer is requiredto file fewer than 250 Forms W–2 for acalendar year is determined based on theForms W–2 that employer would be re-quired to file if it filed Forms W–2 to re-port all wages paid by that employer andwithout regard to the use of an agent un-der § 3504. For example, an employer thatwould have filed only 100 Forms W–2 forthe previous year had it not used an agentunder § 3504 will not be subject to the re-porting requirement for the year, nor willan agent under § 3504 with respect to thatemployer’s Forms W–2 for the year. Incontrast, if the same employer would havefiled 300 Forms W–2 for the previous yearhad it not used an agent under § 3504 ofthe Code, that employer would be subjectto the reporting requirement for the year sothat if an agent under § 3504 is used againthe information will need to be provided tothe agent and reported on the Form W–2.

See also Q&A–21 for an exception tothe reporting requirement for coverage un-der a self-insured plan that is not subject toany federal continuation coverage require-ments and Q&A–22 for an exception fromthe reporting requirement for plans main-tained primarily for members of the mili-tary, or primarily for members of the mili-tary and their families.

Method of Reporting on the Form W–2(Q&A–4 through Q&A–10)

Q–4: Is the reporting of the aggregatecost of applicable employer-sponsoredcoverage required for Forms W–2 issuedfor the 2010 or 2011 calendar years?

A–4: No. Section 6051(a)(14) does notapply to Forms W–2 for calendar yearsprior to 2011 and, accordingly, reportingof the aggregate cost of applicable em-ployer-sponsored coverage is not requiredfor Forms W–2 issued for the 2010 calen-dar year. Moreover, Notice 2010–69 pro-vides that reporting will not be mandatoryfor the 2011 calendar year and, accord-ingly, an employer will not be treated asfailing to meet the requirements of § 6051for 2011, and will not be subject to anypenalties for failure to meet such require-ments, merely because it does not reportthe aggregate cost of applicable employer-sponsored coverage on Forms W–2 for2011.

Q–5: How is the aggregate reportablecost reported on Form W–2?

A–5: The aggregate reportable cost isreported on Form W–2 in box 12, usingcode DD.

Q–6: What rules apply in the case ofcoverage provided by the employer to anemployee for a period during a calendaryear after that employee has terminatedemployment?

A–6: An employer may apply any rea-sonable method of reporting the cost ofcoverage provided under a group healthplan for an employee who terminatedemployment during the calendar year, pro-vided that the method is used consistentlyfor all employees receiving coverageunder that plan who terminate employ-ment during the plan year and continueor otherwise receive coverage after thetermination of employment. However,regardless of the method of reporting usedby the employer for other terminated em-ployees, an employer is not required toreport any amount in box 12 using CodeDD for an employee who, pursuant to§31.6051–1(d)(1)(i), has requested to re-ceive a Form W–2 before the end of thecalendar year during which the employeeterminated employment.

Example 1. Employee is an employee of Em-ployer on January 1, and continues in employmentthrough April 25. During that entire period andthrough April 30, Employee had individual cov-erage for himself under a group health plan with

January 23, 2012 318 2012–4 I.R.B.

a cost of coverage of $350 per month. Employeeelects continuation coverage for the six months fol-lowing termination of employment, covering theperiod May 1 through October 31, for which theEmployee pays $350 per month. Employer reports$1,400 as the reportable cost under the plan for thecalendar year, covering the four months during whichEmployee performed services and had coverage asan active employee. Employer applies this methodconsistently for all employees terminating during thecalendar year who have coverage under that grouphealth plan. Employer has applied a reasonablemethod of reporting Employee’s reportable costunder the plan.

Example 2. Same facts as Example 1, except thatEmployer reports $3,500 as the reportable cost un-der the plan for the calendar year, covering both themonthly periods during which Employee performedservices and had coverage as an active employee, andthe monthly periods during which Employee retainedcontinuation coverage under the plan. Employer ap-plies this method consistently for all employees ter-minating during the calendar year who retained cov-erage under that group health plan. Employer has ap-plied a reasonable method of reporting Employee’sreportable cost under the plan.

Q–7: In the case of an individual who isan employee of multiple employers withina calendar year, must each employer pro-vide a Form W–2 reporting the aggregatereportable cost that such employer pro-vided?

A–7: Each employer providing em-ployer-sponsored coverage must reportthe aggregate reportable cost of coverageit provides. However, if the employersconcurrently employ an employee andare related employers within the meaningof § 3121(s) and one such employer is acommon paymaster within the meaning of§ 3121(s) for wages paid to an employeethat is concurrently employed, the com-mon paymaster must include the aggregatereportable cost of the coverage providedto that employee by all the employers forwhom it serves as the common paymasteron the Form W–2 issued by the commonpaymaster. In such case, the related em-ployers that use the common paymasterand that are not the common paymastermust not report the cost of coverage theyprovide. If the employers are related em-ployers within the meaning of § 3121(s)but do not compensate an employee thatis concurrently employed with a commonpaymaster, then with respect to that em-ployee, the related employers may eitherreport the entire aggregate reportable coston one of the Forms W–2 provided tothe employee, or allocate the aggregatereportable cost among the employers that

concurrently employ the employee usingany reasonable method of allocation.

For employers participating in a multi-employer healthcare plan, see Q&A–17.

Q–8: In the case of an individualwho transfers to a new employer thatqualifies as a successor employer under§ 3121(a)(1), must both the predecessorand successor employers report the ag-gregate reportable cost of coverage eachprovided?

A–8: Yes, each of the predecessor andsuccessor employers must report the ag-gregate reportable cost of coverage thatthat employer provided, unless the suc-cessor employer follows the optional pro-cedure in Rev. Proc. 2004–53, 2004–2C.B. 320, and issues one Form W–2 re-flecting wages paid to the employee dur-ing the calendar year by both the predeces-sor employer and the successor employer.Consistent with the rules applicable to re-porting of wages, the successor employerfollowing the optional procedure must in-clude the aggregate reportable cost of cov-erage provided by both employers on theForm W–2 that it issues, and the predeces-sor employer must not report the cost ofcoverage it provides.

Q–9: Must an employer issue a FormW–2 including the aggregate reportablecost to an individual to whom the employeris not otherwise required to issue a FormW–2, such as a retiree or other formeremployee receiving no compensation re-quired to be reported on a Form W–2?

A–9: No. An employer is not requiredto issue a Form W–2 reporting the ag-gregate reportable cost to an individual towhom the employer is not otherwise re-quired to issue a Form W–2.

Q–10: Is the total of the aggregate re-portable costs attributable to an employer’semployees required to be reported on FormW–3, Transmittal of Wage and Tax State-ments?

A–10: No. The total of the aggre-gate reportable costs attributable to an em-ployer’s employees is not required to be re-ported on Form W–3, Transmittal of Wageand Tax Statements.

Aggregate Cost of ApplicableEmployer-Sponsored Coverage(Q&A–11 through Q&A–15)

Q–11: What is the aggregate cost ofapplicable employer-sponsored coverage

and how is the aggregate cost of applica-ble employer-sponsored coverage referredto in this notice?

A–11: The aggregate cost of applicableemployer-sponsored coverage is the totalcost of coverage under all applicable em-ployer-sponsored coverage (as defined inQ&A–12) provided to the employee. Inthis notice, the cost of coverage under agroup health plan is referred to as the re-portable cost and the aggregate cost of ap-plicable employer-sponsored coverage isreferred to as the aggregate reportable cost.

Q–12: What is applicable employer-sponsored coverage?

A–12: Applicable employer-sponsoredcoverage means, with respect to any em-ployee, coverage under any group healthplan (see Q&A–13) made available to theemployee by an employer that is exclud-able from the employee’s gross income un-der § 106, or would be so excludable if itwere employer-provided coverage (withinthe meaning of such § 106), except thatapplicable employer-sponsored coveragedoes not include:

(1) any coverage for long-term care,(2) any coverage (whether through

insurance or otherwise) described in§ 9832(c)(1) (other than subparagraph(G) thereof (coverage for on-site medi-cal clinics)),

(3) any coverage under a separatepolicy, certificate, or contract of in-surance which provides benefits sub-stantially all of which are for treatmentof the mouth (including any organ orstructure within the mouth) or for treat-ment of the eye, and

(4) any coverage described in§ 9832(c)(3) the payment for which isnot excludable from gross income andfor which a deduction under § 162(l) isnot allowable.See Q&A–16 through Q&A–23 for

guidance on applicable employer-spon-sored coverage that is not required to beincluded in the aggregate reportable cost.

Q–13: What is a group health plan?A–13: A group health plan is a plan

(including a self-insured plan) of, or con-tributed to by, an employer (including aself-employed person) or employee organ-ization to provide health care (directly orotherwise) to the employees, former em-ployees, the employer, others associated orformerly associated with the employer ina business relationship, or their families.

2012–4 I.R.B. 319 January 23, 2012

Until further guidance is issued, for pur-poses of identifying whether a specific ar-rangement is a group health plan, taxpay-ers may rely upon a good faith applicationof a reasonable interpretation of the statu-tory provisions and applicable guidance,including §54.4980B–2, Q&A–1.

Q–14: Does the aggregate reportablecost include both the portion of the costpaid by the employer and the portion of thecost paid by the employee?

A–14: Yes. The aggregate reportablecost generally includes both the portion ofthe cost paid by the employer and the por-tion of the cost paid by the employee, re-gardless of whether the employee paid forthat cost through pre-tax or after-tax con-tributions. However, see Q&A–19 regard-ing contributions to a health FSA.

Q–15: Does the aggregate reportablecost include any portion of the cost of cov-erage under an employer-sponsored grouphealth plan that is includible in the em-ployee’s gross income, for example, thecost of coverage for a person other than anemployee, the spouse of the employee, adependent of the employee, or a child ofthe employee (provided that child will nothave attained age 27 by the end of the tax-able year)?

A–15: Yes. The aggregate reportablecost includes the cost of coverage underthe employer-sponsored group health planof the employee and any person coveredby the plan because of a relationship tothe employee, including any portion of thecost that is includible in an employee’sgross income. Thus, the aggregate re-portable cost is not reduced by the amountof the cost of coverage included in the em-ployee’s gross income. For the treatmentof coverage included in gross income un-der § 105(h), or payments or reimburse-ments of health insurance premiums fora 2% shareholder-employee of an S cor-poration who is required to include thepremium payments in gross income, seeQ&A–23.

Example. An employee has family health cover-age under an employer-sponsored group health planfor himself, his spouse and dependents, and an adultchild age 28, with a cost of coverage of $15,000. Thefair market value of the health coverage for the adultchild age 28 is included in the income and wages ofthe employee. The aggregate reportable cost with re-spect to the family health coverage is $15,000.

Cost of Coverage Required to beIncluded in the Aggregate ReportableCost (Q&A–16 through Q&A–23)

Q–16: Is the cost of coverage underall applicable employer-sponsored cover-age required to be included in the aggre-gate reportable cost?

A–16: Except as provided in this Q&Aand in Q&A–17 through Q&A–23, the costof coverage under all applicable employer-sponsored coverage must be included inthe aggregate reportable cost. However,the following amounts are not included inthe aggregate reportable cost and are notreported under § 6051(a)(14)1:

(1) the amount contributed to anyArcher MSA (as defined in § 220(d)),

(2) the amount contributed to anyHealth Savings Account (as defined in§ 223(d)), and

(3) the amount of any salary re-duction election to a health FlexibleSpending Arrangement (FSA)(withinthe meaning of §§ 106(c)(2) and 125).Q–17: Is the cost of coverage un-

der a multiemployer plan (as defined in§ 54.4980B–2, Q&A–3) required to beincluded in the aggregate reportable costreported on Form W–2?

A–17: No. An employer that con-tributes to a multiemployer plan is not re-quired to include the cost of coverage pro-vided to an employee under that multi-employer plan in determining the aggre-gate reportable cost. If the only applicableemployer-sponsored coverage provided toan employee is provided under a multiem-ployer plan, the employer is not requiredto report any amount under § 6051(a)(14)on the Form W–2 for that employee.

Q–18: Is the cost of coverage undera Health Reimbursement Arrangement(HRA) required to be included in the ag-gregate reportable cost reported on FormW–2?

A–18: No. An employer is not re-quired to include the cost of coverageunder an HRA in determining the aggre-gate reportable cost. If the only applicableemployer-sponsored coverage provided toan employee is an HRA, the employer isnot required to report any amount under§ 6051(a)(14) on the Form W–2 for thatemployee.

Q–19: If an employer offers a healthFSA through a § 125 cafeteria plan, is theamount of the health FSA required to beincluded in the aggregate reportable costreported on Form W–2?

A–19: Yes, the amount of the healthFSA is required to be included in the ag-gregate reportable cost reported on FormW–2, but only if the amount of the healthFSA for the plan year exceeds the salaryreduction elected by the employee for theplan year. The amount of a health FSAfor a cafeteria plan year equals the amountof salary reduction (as defined in Pro-posed Treas. Reg. §1.125–1(r)) electedby the employee for the plan year, plusthe amount of any optional employer flexcredits (as defined under Proposed Treas.Reg. §1.125–5(b)) that the employeeelects to apply to the health FSA. In deter-mining the aggregate reportable cost, theamount of the health FSA is reduced (butnot below zero) by the employee’s salaryreduction election (see Q&A–16).

If the amount of salary reduction (forall qualified benefits) elected by an em-ployee equals or exceeds the amount of thehealth FSA for the plan year, the employerdoes not include the amount of the healthFSA for that employee in the aggregate re-portable cost. However, if the amount ofthe health FSA for the plan year exceedsthe salary reduction elected by the em-ployee for the plan year, then the amount ofthat employee’s health FSA minus the em-ployee’s salary reduction election for thehealth FSA must be included in the ag-gregate reportable cost and reported under§ 6051(a)(14).

For purposes of this Q&A–19, a healthFSA means an FSA (as defined in Pro-posed Treas. Reg. §1.125–5(a)) that is amedical reimbursement arrangement.

Example 1: Employer maintains a § 125 cafe-teria plan that offers permitted taxable benefits (in-cluding cash) and qualified nontaxable benefits (in-cluding a health FSA). The plan permits contribu-tions only through employee salary reduction elec-tions, and does not offer any employer flex credits.Employee makes a $2,000 salary reduction electionfor several qualified benefits under the plan, includ-ing a health FSA for $1,500. For purposes of report-ing on Form W–2, none of the health FSA amountis included for purposes of determining the aggregatereportable cost.

Example 2: Employer maintains a § 125 cafeteriaplan that offers permitted taxable benefits (includingcash) and qualified nontaxable benefits (including a

1 Contributions to an Archer MSA are separately required to be reported on a Form W–2 under § 6051(a)(11), and contributions to a Health Savings Account are separately required to bereported on a Form W–2 under § 6051(a)(12).

January 23, 2012 320 2012–4 I.R.B.

health FSA). The plan offers an employer flex creditof $1,000. Employee makes a $2,000 salary reduc-tion election for several qualified benefits under theplan, including a health FSA for $1,500. The cost ofthe qualified benefits for Employee under the plan forthe year is $3,000. The amount of Employee’s salaryreduction election ($2,000) for the plan year equals orexceeds the amount of the health FSA ($1,500) for theplan year. Thus, for purposes of reporting on FormW–2, none of the health FSA amount is permitted tobe included for purposes of determining the aggregatereportable cost.

Example 3: Employer maintains a § 125 cafeteriaplan that offers permitted taxable benefits (includingcash) and qualified nontaxable benefits (including ahealth FSA). The plan offers a flex credit in the formof a match of each employee’s salary reduction con-tribution. Employee makes a $700 salary reductionelection for a health FSA. Employer provides an ad-ditional $700 to the health FSA to match Employee’ssalary reduction election. The amount of the healthFSA for Employee for the plan year is $1,400. Theamount of Employee’s health FSA ($1,400) for theplan year exceeds the salary reduction election ($700)for the plan year. The employer must include $700($1,400 health FSA amount minus $700 salary reduc-tion) in determining the aggregate reportable cost.

Q–20: Is the cost of coverage under adental plan or a vision plan included inthe aggregate reportable cost if that plansatisfies the requirements for being ex-cepted benefits for purposes of HIPAA un-der §54.9831–1(c)(3)?

A–20: No. An employer is not re-quired to include the cost of coverage un-der a dental plan or a vision plan if theplan satisfies the requirements for beingexcepted benefits for purposes of HIPAAunder §54.9831–1(c)(3). (Generally, to beexcepted benefits for purposes of HIPAAunder §54.9831–1(c)(3), the dental or vi-sion benefits must either (1) be offered un-der a separate policy, certificate, or con-tract of insurance (that is, not offered un-der the same policy, certificate, or contractof insurance under which major medical orother health benefits are offered) or (2) par-ticipants must have the right not to electthe dental or vision benefits and if they doelect the dental or vision benefits they mustpay an additional premium or contributionfor that coverage.) An employer must in-clude the cost of coverage under a den-tal plan or a vision plan if the plan doesnot satisfy the requirements for being ex-cepted benefits for purposes of HIPAA un-der §54.9831–1(c)(3).

Q–21: Is the cost of coverage pro-vided under a self-insured group healthplan that is not subject to any federalcontinuation coverage requirements (forexample, a church plan within the mean-

ing of § 4980B(d)(3) that is a self-insuredgroup health plan) required to be includedin the aggregate reportable cost reportedon Form W–2?

A–21: No. An employer is not requiredto include in the aggregate reportable costthe cost of coverage provided under aself-insured group health plan that is notsubject to any federal continuation cov-erage requirements. If the only grouphealth plan coverage provided to an em-ployee by the employer is provided undera self-insured group health plan that isnot subject to any federal continuationcoverage requirements, the employer isnot required to report any amount under§ 6051(a)(14) on the Form W–2 for thatemployee. Employers who provide cover-age under a self-insured group health planthat is subject to Federal continuation cov-erage requirements must report the cost ofcoverage on Form W–2. For this purpose,federal continuation coverage require-ments include the COBRA requirementsunder the Code, the Employee RetirementIncome Security Act of 1974, or the Pub-lic Health Service Act and the temporarycontinuation coverage requirement underthe Federal Employees Health BenefitsProgram.

Q–22: Is the cost of coverage providedby the Government of the United States,the government of any State or politicalsubdivision thereof, or any agency or in-strumentality of any such government, un-der a plan maintained primarily for mem-bers of the military or for members of themilitary and their families, required to beincluded in the aggregate reportable costreported on Form W–2?

A–22: No. The cost of coverage pro-vided by the Government of the UnitedStates, the government of any State or po-litical subdivision thereof, or any agencyor instrumentality of any such govern-ment, under a plan maintained primarilyfor members of the military or for mem-bers of the military and their families,is not required to be included in the ag-gregate reportable cost reported on FormW–2

Q–23: In determining the aggregatereportable cost, how should an employertreat an excess reimbursement of a highlycompensated individual that is included ingross income under § 105(h), or paymentsor reimbursements of health insurance

premiums for a 2% shareholder-employeeof an S corporation who is required toinclude the premium payments in grossincome?

A–23: The cost of applicable em-ployer-sponsored coverage does not in-clude excess reimbursements of highlycompensated individuals that are includedin gross income under § 105(h); that is,an excess reimbursement that is includedin income is subtracted from the cost ofcoverage in determining the aggregatereportable cost. Similarly, the cost ofapplicable employer-sponsored coveragedoes not include the cost of coverage takeninto income as the result of an employeebeing a 2% shareholder-employee of anemployer that is an S corporation. Formore information regarding the treatmentof the employer payment or reimburse-ment of health insurance premiums fora 2% shareholder-employee, see Notice2008–1, 2008–1 C.B. 251.

Example: Employer provides self-insured healthcoverage with a cost of coverage of $12,000 underwhich a highly compensated individual receives a$4,000 excess reimbursement. As a result, under§ 105(h), that individual must include the $4,000 ex-cess reimbursement in gross income. The excess re-imbursement is not included in the determination ofthe aggregate reportable cost, so that Employer mustinclude $8,000 as the cost of coverage under the planin determining the aggregate reportable cost for thatindividual.

Methods of Calculating the Cost ofCoverage (Q&A–24 through Q&A–27)

Q–24: How may an employer calculatethe reportable cost under a plan?

A–24: An employer may calculatethe reportable cost under a plan usingthe COBRA applicable premium method(Q&A–25). Alternatively, (1) an em-ployer that is determining the cost ofcoverage for an employee covered by theemployer’s insured plan may calculate thereportable cost using the premium chargedmethod (Q&A–26); and (2) an employerthat subsidizes the cost of coverage orthat determines the cost of coverage for ayear by applying the cost of coverage ina prior year may calculate the reportablecost using the modified COBRA premiummethod (Q&A–27). For employers thatcharge employees a composite rate (thesame premium for different types of cover-age under a plan, for example, a premiumfor self-only coverage versus family cov-erage), see Q&A–28.

2012–4 I.R.B. 321 January 23, 2012

The reportable cost for an employeereceiving coverage under the plan is thesum of the reportable costs for each period(such as a month) during the year as deter-mined under the method used by the em-ployer. An employer is not required to usethe same method for every plan, but mustuse the same method with respect to a planfor every employee receiving coverage un-der that plan.

Q–25: How does an employer calculatethe reportable cost for a period under theCOBRA applicable premium method?

A–25: Under the COBRA applicablepremium method, the reportable cost fora period equals the COBRA applicablepremium for that coverage for that pe-riod. If the employer applies this method,the employer must calculate the COBRAapplicable premium in a manner that satis-fies the requirements under § 4980B(f)(4).Under current guidance, the COBRA ap-plicable premium calculation would meetthese requirements if the employer madesuch calculation in good faith compliancewith a reasonable interpretation of thestatutory requirements under § 4980B (see§54.4980B–1, Q&A–2).

Q–26: How does an employer calculatethe reportable cost for a period under thepremium charged method?

A–26: The premium charged methodmay be used to determine the reportablecost only for an employee covered by anemployer’s insured group health plan. Insuch a case, if the employer applies thismethod, the employer must use the pre-mium charged by the insurer for that em-ployee’s coverage (for example, for self-only coverage or for family coverage, asapplicable to the employee) for each pe-riod as the reportable cost for that period.

Q–27: How does an employer calculatethe reportable cost for a period under themodified COBRA premium method?

A–27: An employer may use the mod-ified COBRA premium method withrespect to a plan only where it subsidizesthe cost of COBRA (so that the premiumcharged to COBRA qualified beneficiariesis less than the COBRA applicablepremium) or where the actual premiumcharged by the employer to COBRAqualified beneficiaries for each period inthe current year is equal to the COBRAapplicable premium for each period ina prior year. If the employer subsidizesthe cost of COBRA, the employer may

determine the reportable cost for aperiod based upon a reasonable goodfaith estimate of the COBRA applicablepremium for that period, if such reasonablegood faith estimate is used as the basisfor determining the subsidized COBRApremium. If the actual premium chargedby the employer to COBRA qualifiedbeneficiaries for each period in the currentyear is equal to the COBRA applicablepremium for each period in a prior year, theemployer may use the COBRA applicablepremium for each period in the prior yearas the reportable cost for each period inthe current year.

Example 1: For the calendar year 2012, EmployerA subsidizes 50% of a reasonable good faith esti-mate of the COBRA applicable premium. EmployerA’s reasonable good faith estimate of the COBRAapplicable premium for self-only coverage for eachmonth in 2012 is $300. Accordingly, the actualCOBRA premium Employer A charges individualseligible for COBRA continuation coverage electingself-only coverage is $150 per month. Solely forpurposes of § 6051(a)(14) reporting, if EmployerA uses the modified COBRA premium method, itmust treat $300 per month (the reasonable good faithestimate of the COBRA applicable premium) as themonthly reportable cost for self-only coverage forthe calendar year 2012.

Example 2: Employer B determined that theCOBRA applicable premium for each month incalendar year 2011 for individuals eligible forCOBRA continuation coverage electing self-onlycoverage would be $350 per month, and charged anactual COBRA premium for such coverage of $357per month ($350 x 102%). Employer B knows thatthe cost of coverage for 2012 is not less than theCOBRA applicable premium for 2011 and decidesnot to make a new determination of the COBRAapplicable premium for the calendar year 2012but rather to continue to charge an actual COBRApremium for self-only coverage of $357 per month($350 x 102%). Solely for purposes of § 6051(a)(14)reporting, if Employer B uses the modified COBRApremium method, it must treat $350 per month ($357charged - $7 increase permissible under COBRA) asthe monthly reportable cost for self-only coveragefor the calendar year 2012.

Example 3: Employer C makes a good faithestimate of the COBRA applicable premium forthe calendar year 2012 for individuals eligible forCOBRA continuation coverage electing self-onlycoverage of $500 per month. To ensure compli-ance with the COBRA requirements despite notcalculating a precise COBRA applicable premium,Employer C charges an actual COBRA premium of$350 per month for individuals eligible for COBRAcoverage electing self-only coverage. Solely forpurposes of § 6051(a)(14) reporting, if Employer Cuses the modified COBRA premium method, it musttreat $500 per month as the monthly reportable costfor self-only coverage for the calendar year 2012.

Other Issues Relating to Calculatingthe Cost of Coverage (Q&A–28 throughQ&A–31)

Q–28: How may an employer chargingan employee a composite rate calculate thereportable cost for a period?

A–28: An employer is considered tocharge employees a composite rate if (1)there is a single coverage class under theplan (that is, if an employee elects cover-age, all individuals eligible for coverageunder the plan because of their relation-ship to the employee are included in theelections and no greater amount is chargedto the employee regardless of whether thecoverage will include only the employee orthe employee plus other such individuals),or (2) there are different types of coverageunder a plan (for example, self-only cover-age and family coverage, or self-plus-onecoverage and family coverage) and em-ployees are charged the same premium foreach type of coverage. In such a case, theemployer using a composite rate may cal-culate and use the same reportable cost fora period for (1) the single class of cover-age under the plan, or (2) all the differenttypes of coverage under the plan for whichthe same premium is charged to employ-ees, provided this method is applied to alltypes of coverage provided under the plan.

For example, if a plan charges one pre-mium for either self-only coverage, or self-and-spouse coverage (the first coveragegroup), and also charges one premium forfamily coverage regardless of the numberof family members covered (the secondcoverage group), an employer may calcu-late and report the same reportable cost forall of the coverage provided in the firstcoverage group, and the same reportablecost for all of the coverage provided in thesecond coverage group. In such a case,the reportable costs under the plan must bedetermined under one of the methods de-scribed in Q&A–25 through Q&A–27 forwhich the employer is eligible.

If an employer is using a composite ratefor active employees, but is not using acomposite rate for determining applicableCOBRA premiums for qualified benefi-ciaries, the employer may use either thecomposite rate or the applicable COBRApremium for determining the aggregatecost of coverage, provided that the samemethod is used consistently for all activeemployees and is used consistently for all

January 23, 2012 322 2012–4 I.R.B.

qualified beneficiaries receiving COBRAcoverage.

Q–29: If the reportable cost for a pe-riod changes during the year, must the re-portable cost under the plan for the yearfor an employee reflect the increase or de-crease?

A–29: If the cost for a period changesduring the year (for example, under theCOBRA applicable premium method be-cause the 12-month period for determiningthe COBRA applicable premium is not thecalendar year), the reportable cost underthe plan for an employee for the year mustreflect the increase or decrease for the pe-riods to which the increase or decrease ap-plies. For examples of the application ofthis rule, see Q&A–30.

Q–30: How is the reportable cost un-der a plan calculated if an employee com-mences, changes or terminates coverageduring the year?

A–30: If an employee changes cover-age during the year, the reportable cost un-der the plan for the employee for the yearmust take into account the change in cov-erage by reflecting the different reportablecosts for the coverage elected by the em-ployee for the periods for which such cov-erage is elected. If the change in cover-age occurs during a period (for example,in the middle of a month where costs aredetermined on a monthly basis), an em-ployer may use any reasonable method todetermine the reportable cost for such pe-riod, such as using the reportable cost atthe beginning of the period or at the endof the period, or averaging or prorating thereportable costs, provided that the samemethod is used for all employees with cov-erage under that plan. Similarly, if anemployee commences coverage or termi-nates coverage during a period, an em-ployer may use any reasonable method tocalculate the reportable cost for that pe-riod, provided that the same method is usedfor all employees with coverage under theplan.

The following examples illustratethe principles set forth in Q&A–29 andQ&A–30:

Example 1: Employer determines that themonthly reportable cost under a group health planfor self-only coverage for the calendar year 2012 is$500. Employee is employed by employer for theentire calendar year 2012, and had self-only coverageunder the group health plan for the entire year. Forpurposes of reporting for the 2012 calendar year,

Employer must treat the 2012 reportable cost underthe plan for Employee as $6,000 ($500 x 12).

Example 2: Employer determines that themonthly reportable cost under a group health planfor self-only coverage for the period October 1, 2011through September 30, 2012 is $500, and that themonthly reportable cost under a group health planfor self-only coverage for the period October 1, 2012through September 30, 2013 is $520. Employee isemployed by employer for the entire calendar year2012 and had self-only coverage under the grouphealth plan for the entire year. For purposes of re-porting for the 2012 calendar year, Employer musttreat the 2012 reportable cost under the plan forEmployee as $6,060 (($500 x 9) + ($520 x 3)).

Example 3: Employer determines that themonthly reportable cost under a group health planfor self-only coverage for the calendar year 2012 is$500, and that the monthly reportable cost under thesame group health plan for self-plus-spouse coveragefor the calendar year 2012 is $1,000. Employeeis employed by Employer for the entire calendaryear 2012. Employee had self-only coverage un-der the group health plan from January 1, 2012through June 30, 2012, and then had self-plus-spousecoverage from July 1, 2012 through December 31,2012. For purposes of reporting for the 2012 calendaryear, Employer must treat the 2012 reportable costunder the plan for Employee as $9,000 (($500 x 6) +($1,000 x 6)).

Example 4: Employer determines that themonthly reportable cost under a group health planfor self-only coverage for the calendar year 2012is $500. Employee commences employment andself-only coverage under the group health plan onMarch 14, 2012, and continues employment andself-only coverage through the remainder of thecalendar year. For purposes of reporting for the 2012calendar year, Employer treats the cost of coverageunder the plan for Employee for March 2012 as $250($500 x 1/2). Because Employer’s method of calcu-lating the reportable cost under the plan for March2012 by prorating the reportable cost for March2012 to reflect Employee’s date of commencementof coverage is reasonable, Employer must treat the2012 reportable cost under the plan for Employee as$4,750 (($500 x 1/2) + ($500 x 9)).

Q–31: If an employer has used a12-month determination period that is notthe calendar year for purposes of applyingthe COBRA applicable premium undera plan, may the employer also use that12-month determination period for pur-poses of calculating the reportable cost forthe year under the plan?

A–31: No. The reportable cost undera plan must be determined on a calendaryear basis. For rules on translating theCOBRA applicable premium to a calendaryear amount, see Q&A–29 and Q&A–30.

Additional Issues

Q–32: Is the cost of coverage providedunder an employee assistance program(EAP), wellness program, or on-site med-

ical clinic required to be included in theaggregate reportable cost reported onForm W–2?

A–32: Coverage provided under anEAP, wellness program, or on-site medicalclinic is only includible in the aggregatereportable cost to the extent that the cov-erage is provided under a program thatis a group health plan for purposes of§ 5000(b)(1). An employer is not re-quired to include the cost of coverageprovided under an EAP, wellness program,or on-site medical clinic that otherwisewould be required to be included in theaggregate reportable cost reported onForm W–2 because it constitutes applica-ble employer-sponsored coverage, if thatemployer does not charge a premium withrespect to that type of coverage providedto a beneficiary qualifying for coveragein accordance with any applicable federalcontinuation coverage requirements. Ifan employer charges a premium with re-spect to that type of coverage providedto a beneficiary qualifying for coveragein accordance with any applicable federalcontinuation coverage requirements, thatemployer is required to include the costof that type of coverage provided. Anemployer that is not subject to any federalcontinuation coverage requirements is notrequired to include the cost of coverageprovided under an EAP, wellness program,or on-site medical clinic. For this purpose,federal continuation coverage require-ments include the COBRA requirementsunder the Code, the Employee RetirementIncome Security Act of 1974, or the Pub-lic Health Service Act and the temporarycontinuation coverage requirement underthe Federal Employees Health BenefitsProgram.

Q–33: Are there circumstances inwhich an employer may include in the ag-gregate reportable cost reported on FormW–2 the cost of coverage that is not re-quired to be included in the aggregatereportable cost under applicable interimrelief?

A–33: Yes. An employer may includein the aggregate reportable cost the cost ofcoverage that is not required to be includedin the aggregate reportable cost under ap-plicable interim relief, such as the cost ofcoverage under a Health ReimbursementAccount (HRA), a multi-employer plan, anEAP, wellness program, or on-site medicalclinic, provided that the calculation of the

2012–4 I.R.B. 323 January 23, 2012

cost of coverage otherwise meets the re-quirements of Q&A–24 through Q&A–27,and provided that such coverage consti-tutes applicable employer-sponsored cov-erage.

Q–34: How may an employer calculatethe reportable cost under a program pro-viding benefits that constitute applicableemployer-sponsored coverage and otherbenefits that do not constitute applicableemployer-sponsored coverage, such asa long-term disability program that alsoprovides certain health care benefits?

A–34: For a program under which anemployee receives benefits that constituteapplicable employer-sponsored coverageand other benefits that do not constitute ap-plicable employer-sponsored coverage, anemployer may use any reasonable alloca-tion method to determine the cost of theportion of the program providing applica-ble employer-sponsored coverage.

If the portion of the program providinga benefit that is applicable employer-spon-sored coverage is only incidental in com-parison to the portion of the programproviding other benefits, the employer isnot required to include either portion ofthe cost in the aggregate reportable cost.Similarly, if the portion of the programproviding a benefit that is not applica-ble employer-sponsored coverage is onlyincidental to the portion of the programproviding a benefit that is applicable em-ployer-sponsored coverage, the employermay, at its option, include the benefitthat is not applicable employer-sponsoredcoverage in determining the reportablecost, notwithstanding the prohibition inQ&A–33 on reporting coverage that is notapplicable employer-sponsored coverage.

Q–35: Must the aggregate reportablecost reported on Form W–2 for a calendaryear be adjusted for any elections or noti-fications in the subsequent year that mayhave an effect on the cost of coverage inthe earlier year, such as notice of a divorcein the earlier year?

A–35: No. The aggregate reportablecost for a calendar year reported onForm W–2 may be based on the in-formation available to the employer asof December 31 of the calendar year.Therefore, any election or notification thatis made or provided in the subsequentcalendar year that has a retroactive effecton coverage in the earlier year is notrequired to be included in the calculation

of the aggregate reportable cost for thecalendar year. In addition, an employeris not required to furnish a Form W–2c ifa Form W–2 has already been providedfor a calendar year, before this type ofelection or notification (for example, if aForm W–2 is provided on January 15, andthe election or notification is provided onJanuary 20).

Q–36: How may an employer addressa coverage period, such as the final pay-roll period of a calendar year that includesDecember 31 but continues into the subse-quent calendar year?

A–36: An employer may includethe coverage period that includesDecember 31 but continues into thesubsequent calendar year in one of thefollowing manners: (1) treat the coverageas provided during the calendar yearthat includes December 31; (2) treat thecoverage as provided during the calendaryear immediately subsequent to thecalendar year that includes December 31;or (3) allocate the cost of coverage forthe coverage period between each of thetwo calendar years under any reasonableallocation method, which generally shouldrelate to the number of days in theperiod of coverage that fall within eachof the two calendar years. Whichevermethod the employer uses must be appliedconsistently to all employees.

Q–37: Is the cost of coverage providedunder hospital indemnity or other fixed in-demnity insurance by an employer on anexcludible or pre-tax basis required to beincluded in the aggregate reportable costreported on Form W–2?

A–37: Yes. An employer is required toinclude in the aggregate reportable cost re-ported on Form W–2 the cost of coverageprovided under hospital indemnity or otherfixed indemnity insurance, or the cost ofcoverage only for a specified disease or ill-ness, if the employer makes any contribu-tion to the cost of coverage that is exclud-able under § 106 or if the employee pur-chases the policy on a pre-tax basis undera § 125 cafeteria plan.

Q–38: Is the cost of coverage providedunder hospital indemnity or other fixed in-demnity insurance required to be includedin the aggregate reportable cost reportedon Form W–2 if the payment for those ben-efits is includable in the employee’s grossincome (or, in the case of a self-employed

individual, the payment is one for which adeduction under § 162(l) is allowable) ?

A–38: No. An employer is not requiredto include in the aggregate reportable costreported on Form W–2 the cost of cov-erage provided under hospital indemnityor other fixed indemnity insurance, or thecost of coverage only for a specified dis-ease or illness, if those benefits are offeredas independent, noncoordinated benefitsand if the payment for those benefits is in-cludable in the employee’s gross income(or, in the case of a self-employed individ-ual, the payment is one for which a deduc-tion under § 162(l) is allowable). There-fore, to the extent the employer merelyprovides the opportunity for employees topurchase an independent, noncoordinatedfixed indemnity policy and the employeepays the full amount of the premium withafter-tax dollars, the cost of coverage pro-vided under that policy is not required tobe reported on Form W–2.

Q–39: Must the aggregate reportablecost be reported on a Form W–2 providedby a third-party sick pay provider?

A–39: No. Third-party sick payproviders are required to furnish FormsW–2 to employees to report the sick payunless (1) the third party withholds anddeposits the employee tax and notifies theemployer within the required time period,or (2) the third party is acting only as theagent of the employer and has not other-wise agreed with the employer to act as theemployer with respect to the sick pay. Theaggregate reportable cost is not required tobe reported on a Form W–2 furnished bya third-party sick pay provider. However,a Form W–2 furnished by the employer toan employee must include the aggregatereportable cost regardless of whether thatForm W–2 includes sick pay, or whether athird-party sick pay provider is furnishinga separate Form W–2 reporting the sickpay. For more information about reportingof third-party payments of sick pay, seePublication 15-A, Employer’s Supplemen-tal Tax Guide (Circular E), Section 6 (SickPay Reporting).

IV. TRANSITION RELIEF

Certain provisions of this interim guid-ance provide transition relief intended tofacilitate compliance with the reportingrequirement under § 6051(a)(14). SeeQ&A–3 (relief for employers filing fewer

January 23, 2012 324 2012–4 I.R.B.

than 250 Forms W–2); Q&A–6 (reliefwith respect to certain Forms W–2 fur-nished to terminated employees beforethe end of the year); Q&A–17 (relief withrespect to multiemployer plans); Q&A–18(relief for HRAs); Q&A–20 (relief withrespect to certain dental and vision plans);Q&A–21 (relief with respect to self-in-sured plans of employers not subject toCOBRA continuation coverage or similarrequirements); and Q&A–32 (relief forcertain employers with respect to coverageunder an employee assistance program,on-site medical clinic or wellness pro-gram). Future guidance may limit theavailability of some or all of this tran-

sition relief; however, any such futureguidance will be prospective only and willnot be applicable earlier than January 1of the calendar year beginning at least sixmonths after the date of issuance of theguidance. In no case will any such futureguidance limit the availability of this tran-sition relief for the 2012 Forms W–2 (theForms W–2 for the calendar year 2012that employers generally are required tofurnish to employees in January 2013 andthen file with the SSA). For example, in noevent will reporting be required for 2012Forms W–2 for any employer required tofile fewer than 250 2011 Forms W–2.

V. EFFECT ON OTHERDOCUMENTS

Notice 2011–28 is superseded by thisnotice.

VI. DRAFTING INFORMATION

The principal author of this noticeis Leslie Paul of the Office of DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities), thoughother Treasury Department and IRS offi-cials participated in its development. Forfurther information on the provisions ofthis notice, contact Leslie Paul at (202)622–6080 (not a toll-free number).

2012–4 I.R.B. 325 January 23, 2012

Part IV. Items of General InterestNotice of ProposedRulemaking and Notice ofPublic Hearing

Basis Reporting bySecurities Brokers andBasis Determination for DebtInstruments and Options

REG–102988–11

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemakingand notice of public hearing.

SUMMARY: This document contains pro-posed regulations relating to reporting bybrokers for transactions related to debt in-struments and options. The proposed reg-ulations reflect changes in the law madeby the Energy Improvement and ExtensionAct of 2008 (the Act) that require brokerswhen reporting the sale of securities to theIRS to include the customer’s adjusted ba-sis in the sold securities and to classifyany gain or loss as long-term or short-term.The proposed regulations also implementthe Act’s requirement that a broker reportgross proceeds from a sale or closing trans-action with respect to certain options. Inaddition, this document contains proposedregulations that implement reporting re-quirements for a transfer of a debt instru-ment or an option to another broker andfor an organizational action that affects thebasis of a debt instrument or option. Thisdocument also provides for a notice of apublic hearing on these proposed regula-tions.

DATES: Written or electronic commentsmust be received by February 23, 2012.Outlines of topics to be discussed atthe public hearing scheduled for Friday,March 16, 2012, must be received by Fri-day, February 24, 2012.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–102988–11),room 5203, Internal Revenue Service,PO Box 7604, Ben Franklin Station,Washington, DC 20044. Submissions may

be hand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–102988–11),Courier’s Desk, Internal RevenueService, 1111 Constitution Avenue, NW,Washington, DC, or sent electronicallyvia the Federal eRulemakingPortal at www.regulations.gov (IRSREG–102988–11). The public hearingwill be held in the Auditorium, beginningat 10:00 a.m. at the Internal RevenueBuilding, 1111 Constitution Avenue, NW,Washington, DC.

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, Pamela Lew of the Office ofAssociate Chief Counsel (Financial Insti-tutions and Products) at (202) 622–3950;concerning submissions of comments, thepublic hearing, and/or to be placed on thebuilding access list to attend the publichearing, Richard Hurst at (202) 622–7180(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information containedin this notice of proposed rulemaking re-lating to the furnishing of information inconnection with the transfer of securitieswas previously reviewed and approvedby the Office of Management and Budgetin accordance with the Paperwork Re-duction Act of 1995 (44 U.S.C. 3507(d))under control number 1545–2186. Com-ments on the collection of informationshould be sent to the Office of Man-agement and Budget, Attn: Desk Offi-cer for the Department of the Treasury,Office of Information and RegulatoryAffairs, Washington, DC 20503, withcopies to the Internal Revenue Service,Attn: IRS Reports Clearance Officer,SE:W:CAR:MP:T:M:S, Washington, DC20224. Comments on the collection ofinformation should be received by Febru-ary 23, 2012. Comments are specificallyrequested concerning:

Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the IRS, in-cluding whether the information will havepractical utility;

The accuracy of the estimated burdenassociated with the proposed collection ofinformation;

How the quality, utility, and clarity ofthe information to be collected may be en-hanced;

How the burden of complying with theproposed collection of information may beminimized, including through the appli-cation of automated collection techniquesor other forms of information technology;and

Estimates of capital or start-up costsand costs of operation, maintenance, andpurchase of services to provide informa-tion.

The collection of information is in§§ 1.6045–1(c)(3)(xi)(C) and 1.6045A–1of these proposed regulations and is anincrease in the total annual burden fromthe burden in the current regulations toreflect the addition of debt instrumentsand options to the definition of coveredsecurities. The collection of informationis necessary to allow brokers that effectsales of transferred covered securities todetermine and report the adjusted basis ofthe securities and whether any gain or losswith respect to the securities is long-termor short-term in compliance with section6045(g) of the Internal Revenue Code.The collection of information is required tocomply with the provisions of section 403of the Energy Improvement and ExtensionAct of 2008, Division B of Public Law110–343 (122 Stat. 3765, 3854 (2008)).The likely respondents are brokers of se-curities and issuers, transfer agents, andprofessional custodians of securities thatdo not effect sales.

Estimated total annual reporting burdenis 450,000 hours.

Estimated average annual burden perrespondent is 15 hours.

Estimated average burden per responseis 4 minutes.

Estimated number of respondents is30,000.

Estimated total frequency of responsesis 7 million.

The burden for the collection of infor-mation contained in the proposed amend-ments to §1.6045–1 will be reflected inthe burden on Form 1099–B, “Proceedsfrom Broker and Barter Exchange Trans-

January 23, 2012 326 2012–4 I.R.B.

actions,” when revised to request the addi-tional information in the regulation. Theburden for the collection of informationcontained in the proposed amendments to§1.6045B–1 will be reflected in the bur-den on Form 8937, “Report of Organi-zational Actions Affecting Basis of Secu-rities,” when revised to request the addi-tional information in the regulation.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number assigned by the Of-fice of Management and Budget.

Background

This document contains proposedamendments to the Income Tax Regula-tions (26 CFR part 1) relating to infor-mation reporting by brokers and othersas required by section 6045 of the Inter-nal Revenue Code (Code). This sectionwas amended by section 403 of the En-ergy Improvement and Extension Act of2008, Division B of Public Law 110–343(122 Stat. 3765, 3854 (2008)) (the Act)to require the reporting of adjusted basisfor a covered security and whether anygain or loss upon the sale of the securityis long-term or short-term. The Act alsorequires the reporting of gross proceedsfor an option that is a covered security. Inaddition, the Act added section 6045A tothe Code, which requires certain informa-tion to be reported in connection with atransfer of a covered security to anotherbroker, and section 6045B, which requiresan issuer of a specified security to file areturn relating to certain actions that affectthe basis of the security. Final regulationsunder these provisions relating to stockwere published in the Federal Register onOctober 18, 2010, in T.D. 9504, 2010–47I.R.B. 670. The proposed regulations inthis document address reporting by bro-kers under §1.6045–1 for debt instrumentsand options. This document also containsproposed amendments to the Income TaxRegulations under sections 6045A and6045B for debt instruments and options.

Section 6045(g)(1) requires every bro-ker that is required to file a return withthe IRS under section 6045(a) showing thegross proceeds from the sale of a coveredsecurity to include in the return the cus-tomer’s adjusted basis in the security andwhether any gain or loss with respect to the

security is long-term or short-term. Undersection 6045(g)(3), a note, bond, deben-ture, or other evidence of indebtedness ac-quired on or after January 1, 2013, is asecurity subject to the information report-ing rules in section 6045(g)(1). Section6045(h) provides rules for reporting cer-tain information, including gross proceeds,with respect to the sale, exercise, lapse, orother closing transaction with respect to anoption on a specified security granted oracquired on or after January 1, 2013.

Explanation of the Provisions

In general, these regulations wouldamend §§1.6045–1, 1.6045A–1, and1.6045B–1 to require additional infor-mation reporting by a broker for a debtinstrument acquired on or after January 1,2013. The proposed regulations also re-quire information reporting for an optiongranted or acquired on or after January 1,2013. Many of the changes are techni-cal provisions needed to incorporate debtinstruments and options into the rules es-tablished for stock in the final regulationspublished in T.D. 9504. As a result of thesechanges, the general rules of §1.6045–1that currently apply to stock also will ap-ply to a debt instrument or an option thatis a covered security, including the washsale and short sale provisions. In addition,the general rules of §1.6045A–1 relatingto transfer statement requirements and§1.6045B–1 relating to issuer statementrequirements will apply to a debt instru-ment or an option. Certain substantivechanges were also needed to accommo-date debt instruments and options. Certainother changes were made that will affectall specified securities, including stock.The significant substantive changes to theregulations are described in this preamble.

A. Section 1.6045–1

1. Options

Under section 6045(h), for any sale orother closing transaction with respect to anoption that is a covered security, a broker isrequired to report gross proceeds, adjustedbasis, and whether any gain or loss is short-term or long-term.

For purposes of §1.6045–1, certain op-tions have been added to the definitionof a security, specified security, and cov-ered security. In general, an option on

one or more specified securities, includ-ing an index of such securities or finan-cial attributes of such securities, that isgranted or acquired on or after January 1,2013, will be a covered security. For ex-ample, as indicated by the Joint Commit-tee on Taxation, the proposed regulationswould apply to an option on the S&P 500Index. See General Explanation of TaxLegislation Enacted in the 110th Congress,JCS–1–09 at 366.

An exception to the general rules de-scribed in proposed §1.6045–1(m) for re-porting basis for an option is provided fora compensation-related option. The pro-posed rules retain the existing rules fora compensation-related option, but makethose rules applicable to all compensation-related options, and not just those grantedor acquired before January 1, 2013. Un-der the regulations, if a customer exercisesa compensation-related option, a broker ispermitted, but not required, to adjust basisof the acquired stock for any amounts in-cluded as compensation income. Instruc-tions to the Form 1040 (Schedule D) andother IRS forms and publications will beamended to remind a taxpayer that a rec-onciliation of basis may be required if thesale reported on a Form 1099–B is a sale ofstock acquired through a stock grant or theexercise of a compensatory option. TheIRS is exploring the possibility of addingan indicator on the Form 1099–B to denotea sale of compensation-related stock.

The definitions for the terms closingtransaction and sale have been updatedto be consistent with sections 1234 and1234A and to accommodate the reportingof options granted or acquired on or afterJanuary 1, 2013. In particular, the cancel-lation, lapse, expiration, or other termina-tion of an option will be a closing transac-tion, as will a cash settlement.

For an option that is a covered secu-rity, reporting requirements will depend onwhether or not the option was physicallysettled. If an option is physically settled,the premium paid or received, as the casemay be, will be used by the broker forthe asset purchaser to adjust the basis ofthe purchased asset and by the broker forthe asset seller to adjust reported proceeds.Publication 550, Investment Income andExpenses, contains a detailed explanationof the appropriate tax treatment of the ex-ercise or lapse of an option. If an optionthat is a covered security is sold or is part

2012–4 I.R.B. 327 January 23, 2012

of a closing transaction that does not entailphysical settlement, a broker is required toreport gross proceeds and whether the gainor loss is long-term or short-term. It shouldbe noted that if a customer sells any optionprior to expiration, including an option ac-quired prior to January 1, 2013, the regu-lations currently in effect already requirea broker to report the gross proceeds fromthat sale except in cases in which an optionis closed by offset.

If a customer receives a warrant or stockright in a section 305(a) distribution, a bro-ker must determine the basis of the war-rant or stock right by applying the rules de-scribed in sections 305 and 307.

2. Debt instruments

Under section 6045(g), upon the sale ofa debt instrument that is a covered security,a broker is required to report the adjustedbasis of the debt instrument and whetherany gain or loss is short-term or long-term.Pursuant to section 6045(g), the proposedregulations amend §1.6045–1 to include adebt instrument in the definition of a spec-ified security and a debt instrument ac-quired for cash in an account on or afterJanuary 1, 2013, in the definition of a cov-ered security.

For purposes of §1.6045–1, the pro-posed regulations define a debt instrumentto include any instrument described in§1.1275–1(d) and any instrument or po-sition that is treated as a debt instrumentunder a specific provision of the InternalRevenue Code. This definition of a debtinstrument applies whenever the term debtinstrument, bond, debt obligation, or obli-gation is used anywhere in §1.6045–1.Under the proposed regulations, solely forpurposes of §1.6045–1, a security clas-sified as debt by the issuer is treated asa debt instrument. If the issuer has notclassified the security, however, the se-curity is not treated as a debt instrumentunless the broker knows that the secu-rity is reasonably classified as debt undergeneral Federal tax principles or that theinstrument or position is treated as a debtinstrument under a specific provision ofthe Internal Revenue Code.

Due to the difficulties in implementinga broker’s reporting obligations under sec-tion 6045(g) that would arise with respectto debt instruments described in section1272(a)(6) (debt instruments with princi-

pal subject to acceleration) that are ac-quired on or after January 1, 2013, the pro-posed regulations provide that a debt in-strument described in section 1272(a)(6) isnot a covered security.

If a debt instrument is acquired on orafter January 1, 2013, a broker will berequired to determine and account fororiginal issue discount (“OID”), bondpremium, acquisition premium, marketdiscount, and principal payments to de-termine the adjusted basis of the debtinstrument and whether any gain or lossupon the sale of the debt instrument isshort-term or long-term. Further, a brokerwill be required to report the amount ofany market discount that has accrued asof the date of a sale or transfer of a debtinstrument.

Under §1.6045–1(d)(6)(i) of the exist-ing final regulations, a broker is not re-quired to consider elections occurring out-side the account. Consistent with this rule,a broker generally is required to calcu-late amounts relating to OID, bond pre-mium, acquisition premium, and marketdiscount by assuming that the customerhas not made any elections with respect tothe debt instrument. The proposed regu-lations, however, provide two exceptionsto this general rule: 1) a broker must as-sume that a customer has elected to use theconstant interest rate method under sec-tion 1276(b)(2) to determine the amount ofaccrued market discount; and 2) a brokermust assume that the customer has electedunder section 171 to amortize bond pre-mium on a taxable debt instrument.

Both of these elections have the effectof minimizing the customer’s ordinary in-come inclusion when compared with thealternatives available under the existingrules. It is also expected that prescrib-ing which elections are to be ignored andwhich elections are assumed to be madewill standardize, and therefore simplify,the information reporting required with re-spect to OID, bond premium, acquisitionpremium, and market discount.

The Treasury Department and the IRSrecognize that the section 171 election as-sumption is inconsistent with the rule un-der section 6049 providing that a payor isnot permitted to take premium into accountfor purposes of reporting a holder’s inter-est or OID income on Form 1099–INT or1099–OID each year. However, becausethe Treasury Department and the IRS be-

lieve that most holders will make a section171 election to treat the premium as an off-set to ordinary income rather than as a cap-ital loss, the Treasury Department and theIRS believe that the section 171 electionassumption will result in fewer instancesin which a customer will need to reconcilethe reported adjusted basis number to theproper number.

In general, the proposed regulationswill result in the following outcomes for adebt instrument:

a. If a debt instrument is sold prior tomaturity, a broker will report any accruedmarket discount as of the sale date basedon a constant interest rate.

b. Except as provided in c below, a bro-ker must determine a customer’s basis ina debt instrument by computing any OID,bond premium, or acquisition premium us-ing the default method described in the rel-evant provisions of the Code or regula-tions. A broker also must adjust the basisfor any principal payments received.

c. If a taxable debt instrument hasbond premium, a broker must assume acustomer has elected current amortizationwhen computing the amount of the cus-tomer’s basis.

A broker generally must use a consis-tent accrual period to determine the accru-als of discount or premium on a debt in-strument. If a debt instrument has bothOID and market discount, the accrual pe-riod used for the OID computation must beused for the market discount computation.In all other situations, a broker must usethe shorter of an annual accrual period or aperiod that matches the frequency of regu-lar coupon or principal payments.

The rules in §1.6045–1(n) only applyfor purposes of a broker’s reporting obli-gation under section 6045. A customercan use any method or make any elec-tion permitted under the relevant provi-sions of the Code and regulations and isnot bound by the assumptions that the bro-ker uses to satisfy the broker’s reportingobligations under section 6045. For ex-ample, even though a broker will computeand report any accrued market discount ona debt instrument by assuming that a cus-tomer made the constant yield election un-der section 1276(b)(2), the customer candetermine the amount of accrued marketdiscount using ratable accrual as describedin section 1276(b)(1).

January 23, 2012 328 2012–4 I.R.B.

Notwithstanding the information re-ported by a broker, a customer is stillrequired to comply with all relevant pro-visions of the Code and regulations. Forexample, if a customer sells a debt instru-ment at a loss in one account with BrokerA and reacquires a substantially identi-cal debt instrument in a different accountwith Broker B within 30 days of the losstransaction, Broker A is not required toapply the wash sale rules under section1091 when reporting the sale. However,the customer is required to properly applythe rules of section 1091 to defer some orall of the loss and must make appropriatebasis adjustments.

If a customer uses an assumption ormethod different from the assumption ormethod used by the broker to determine adebt instrument’s adjusted basis or otherinformation for purposes of the Form1099–B sent to the customer, the customermust reconcile the amount reported on theForm 1099–B to the amount reported onthe customer’s tax return.

3. Changes affecting all specifiedsecurities (including stock)

Under §1.6045–1(d)(5) of the final reg-ulations relating to stock, a broker maychoose to report gross proceeds from thesale of a security as the entire proceedsfrom the sale or as the proceeds reduced bythe commissions and transfer taxes relatedto the sale. Commenters requested thatthe regulations remove this choice in orderto standardize broker reporting on Form1099–B and taxpayer reporting on Form1040. The proposed regulations adopt thisrequest and require brokers to reduce re-ported gross proceeds by commissions andtransfer taxes related to a sale.

Under §1.6045–1(d)(6) of the final reg-ulations relating to stock, a broker cur-rently must adjust basis reported for anorganizational action taken by an issuerof a security during the period the brokerhas custody of the security. For a trans-ferred security, the regulations exclude ad-justments for organizational actions takenon the transfer settlement date. The pro-posed regulations amend this exclusion toclarify that the exclusion applies only tothe broker receiving custody of a trans-ferred security. The proposed regulationsrequire that a broker transferring a securityreflect all necessary adjustments for orga-

nizational actions taken through and on thetransfer settlement date when completing atransfer statement.

B. Section 1.6045A–1

If a specified security is transferredbetween brokers, the transferring bro-ker must provide the receiving brokerwith certain information related to thetransferred security that will enable thereceiving broker to properly report undersection 6045. The existing regulations un-der §1.6045A–1(b)(1) list information thatmust be reported for a transfer of any spec-ified security. The proposed regulationsunder §1.6045A–1 modify this existinglist by adding information about whetherthe security was acquired through an eq-uity-based compensation arrangement.

Because debt instruments and optionsare being added to the definition of spec-ified security under proposed changesto §1.6045–1(a)(14), the information re-quired to be provided for stock under§1.6045A–1(b)(1) also will be requiredto be provided for debt instruments andoptions. Further, additional data specificto the transfer of a debt instrument or anoption is required to be provided. Thisadditional data falls into two broad cate-gories: 1) data that adequately identifiesthe instrument; and 2) data that is specificto the particular customer, particularlytrade date and price or premium.

This additional information is requiredto enable a broker that receives a debt in-strument pursuant to a transfer to computeOID, market discount, bond premium, oracquisition premium. The description ofthe payment terms may be done in anymanner that fully describes the debt instru-ment. The information can be in the formof a table of payments, or may be a descrip-tion of the payment terms. The use of asingle identifier, such as a CUSIP number,that can be used by the transferee brokerto identify the security and its related pay-ment terms is also an acceptable means ofproviding the additional information to thetransferee broker.

For an option, a transfer statement mustinclude the date the option was granted oracquired, the amount of the premium, andwhether the premium was paid or received.The data also must include any other infor-mation required to describe fully the op-tion. This information may be a descrip-

tion of the relevant terms, or it may bean identifier, such as a CUSIP or OptionsClearing Corporation number or code thatcan be used by the transferee broker toidentify the security and its related terms.

C. §1.6045B–1

Under §1.6045B–1, if the issuer of aspecified security takes an organizationalaction that affects the basis of the secu-rity, the issuer must file an issuer return.A commenter asked for clarification abouthow this rule applies to option writers, be-cause an organizational action usually isinitiated by the issuer of the security un-derlying an option. The proposed regula-tions amend §1.6045B–1 to provide rulesfor certain option writers if there is an or-ganizational action. If the organizationalaction results in an option writer replacingthe original option contract with a differ-ent number of option contracts, the optionwriter must prepare an issuer return as re-quired by §1.6045B–1.

Proposed Effective/Applicability Dates

These regulations are proposed to takeeffect when published in the Federal Reg-ister as final regulations. In general, theregulations regarding reporting of basisand whether any gain or loss on a saleis long-term or short-term under section6045(g) are proposed to apply to debt in-struments acquired on or after January 1,2013. The regulations regarding report-ing of gross proceeds, basis, and whetherany gain or loss on a sale is long-termor short-term under section 6045(h) areproposed to apply to options granted oracquired on or after January 1, 2013.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866, as supplemented by Execu-tive Order 13563. Therefore, a regulatoryassessment is not required. It also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to this regulation.

Pursuant to the Regulatory FlexibilityAct (5 U.S.C. chapter 6), it is hereby certi-fied that this regulation will not have a sig-nificant economic impact on a substantialnumber of small entities, because any ef-

2012–4 I.R.B. 329 January 23, 2012

fect on small entities by the rules proposedin this document flows directly from sec-tion 403 of the Energy Improvement andExtension Act of 2008, Division B of Pub-lic Law 110–343 (122 Stat. 3765, 3854(2008)).

Section 403(a) of the Act modifies sec-tion 6045 to require that brokers report theadjusted basis of the securities and whetherany gain or loss with respect to the secu-rities is long-term or short-term when re-porting the sale of a covered security. TheAct also requires gross proceeds report-ing for options. It is anticipated that thesestatutory requirements will fall only on fi-nancial services firms with annual receiptsgreater than $7 million and, therefore, onno small entities. Further, in implementingthe statutory requirements, the regulationproposes to limit reporting to informationrequired under the Act.

Section 403(c) of the Act added sec-tion 6045A, which requires applicable per-sons to furnish a transfer statement in con-nection with the transfer of custody of acovered security. The proposed modifica-tions to §1.6045A–1 effectuate the Act bygiving the broker who receives the trans-fer statement the information necessary todetermine and report adjusted basis andwhether any gain or loss with respect toa debt instrument or option is long-termor short-term as required by section 6045when the security is subsequently sold.Consequently, the regulation does not addto the impact on small entities imposed bythe statutory scheme. Instead, it limits theinformation to be reported to only thoseitems necessary to effectuate the statutoryscheme.

Section 403(d) of the Act added section6045B, which requires issuer reporting byall issuers of specified securities regardlessof size and even when the securities are notpublicly traded. The proposed modifica-tions to §1.6045B–1 limit reporting to theadditional information for options neces-sary to meet the Act’s requirements. Ad-ditionally, the regulation, as modified, re-tains the rule that permits an issuer to re-port each action publicly instead of filinga return and furnishing each nominee orholder a statement about the action. Theregulation therefore does not add to thestatutory impact on small entities but in-stead eases this impact to the extent thestatute permits.

Therefore, because this regulation willnot have a significant economic impacton a substantial number of small entities,a regulatory flexibility analysis is not re-quired. The Treasury Department and IRSrequest comments on the accuracy of thisstatement. Pursuant to section 7805(f) ofthe Code, this regulation has been sub-mitted to the Chief Counsel for Advocacyof the Small Business Administration forcomment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written (a signed origi-nal and eight (8) copies) or electronic com-ments that are timely submitted to the IRS.The IRS and Treasury Department specif-ically request comments on the clarity ofthe proposed regulations and how they canbe made easier to understand. The IRSand Treasury Department further requestcomments about suggested changes or im-provements to sections of §1.6045–1 thatare not specifically affected by the pro-posed regulation. The IRS and TreasuryDepartment also request comments on theaccuracy of the certification that the regu-lation in this document will not have a sig-nificant economic impact on a substantialnumber of small entities. All commentswill be available for public inspection andcopying.

A public hearing has been sched-uled for Friday, March 16, 2012,beginning at 10 a.m. in the IRSAuditorium, 1111 Constitution Avenue,NW, Washington, DC. Due to buildingsecurity procedures, visitors must enterthrough the Constitution Avenue entrance.In addition, all visitors must presentphoto identification to enter the building.Because of access restrictions, visitorswill not be admitted beyond the immediateentrance area more than 30 minutes beforethe hearing starts. For information abouthaving your name placed on the buildingaccess list to attend the hearing, see the“FOR FURTHER INFORMATIONCONTACT” section of this preamble.

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons who wish topresent oral comments at the hearing mustsubmit written or electronic comments byFebruary 23, 2012 and submit an outlineof the topics to be discussed and the time

to be devoted to each topic (a signed orig-inal and eight (8) copies) by Friday, Feb-ruary 24, 2012. A period of 10 minuteswill be allotted to each person for makingcomments. An agenda showing the sched-uling of speakers will be prepared after thedeadline for receiving outlines has passed.Copies of the agenda will be available freeof charge at the hearing.

Drafting Information

The principal author of these proposedregulations is Pamela Lew, Office of Asso-ciate Chief Counsel (Financial Institutionsand Products). However, other personnelfrom the IRS and the Treasury Departmentparticipated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is proposedto be amended as follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.6045–1 is amended

by:1. Revising paragraphs (a)(3)(v) and

(a)(3)(vi) and adding paragraph (a)(3)(vii).2. Revising paragraphs (a)(8) and

(a)(9).3. Revising paragraphs (a)(14) and

(a)(15)(i)(A).4. Redesignating paragraph

(a)(15)(i)(C) as paragraph (a)(15)(i)(E)and adding new paragraphs (a)(15)(i)(C)and (a)(15)(i)(D).

5. Revising newly redesignated para-graph (a)(15)(i)(E).

6. Adding a new sentence to the end ofparagraph (a)(15)(ii).

7. Adding a new paragraph(a)(15)(iv)(E).

8. Adding a new paragraph (a)(17).9. Revising paragraph (c)(3)(x) and

the first two sentences in paragraph(c)(3)(xi)(C).

10. Revising the last sentence of para-graph (c)(4) Example 9 (i).

11. Adding a sentence at the end ofparagraph (d)(2)(i) and revising paragraph(d)(2)(ii).

January 23, 2012 330 2012–4 I.R.B.

12. Revising paragraphs (d)(3), (d)(5),(d)(6)(i), and (d)(6)(ii)(A).

13. Revising the heading for paragraph(d)(6)(ii)(B).

14. Revising the sixth and seventh sen-tences and removing the last sentence inparagraph (d)(6)(vii) Example 4.

15. Adding paragraphs (m) and (n).The additions and revisions read as fol-

lows:

§1.6045–1 Returns of information ofbrokers and barter exchanges.

(a) * * *(3) * * *(v) An interest in or right to purchase

any of the foregoing in connection with theissuance thereof from the issuer or an agentof the issuer or from an underwriter thatpurchases any of the foregoing from theissuer;

(vi) An interest in a security describedin paragraph (a)(3)(i) or (iv) (but not in-cluding executory contracts that requiredelivery of such type of security); or

(vii) An option described in paragraph(m)(1) of this section.

* * * * *(8) The term closing transaction means

any cancellation, lapse, expiration, settle-ment, abandonment, or other terminationof a right or an obligation under a forwardcontract, a regulated futures contract, or anoption.

(9) The term sale means any dispositionof securities, commodities, options, reg-ulated futures contracts, or forward con-tracts, and includes redemptions of stock,retirements of debt instruments, and enter-ings into short sales, but only to the extentany of these actions are conducted for cash.In the case of an option, a regulated fu-tures contract, or a forward contract, a saleincludes any closing transaction. When aclosing transaction in a regulated futurescontract involves making or taking deliv-ery, the profit or loss on the contract isa sale and the delivery is a separate sale.When a closing transaction in a forwardcontract involves making or taking deliv-ery, the delivery is a sale without separat-ing the profit or loss on the contract fromthe profit or loss on the delivery, exceptthat taking delivery for United States dol-lars is not a sale. The term sale does not in-clude entering into a contract that requires

delivery of personal property or an interesttherein, the initial grant or purchase of anoption, or the exercise of a call option forphysical delivery. For purposes of this sec-tion only, a constructive sale under section1259 and a mark to fair market value undersection 475 or 1296 are not sales.

* * * * *(14) The term specified security means:(i) Any share of stock (or any interest

treated as stock, including, for example,an American Depositary Receipt) in an en-tity organized as, or treated for Federal taxpurposes as, a corporation, either foreignor domestic (Solely for purposes of thisparagraph (a)(14)(i), a security classifiedas stock by the issuer is treated as stock.If the issuer has not classified the security,the security is not treated as stock unlessthe broker knows that the security is rea-sonably classified as stock under generalFederal tax principles.);

(ii) Any debt instrument described inparagraph (a)(17) of this section; or

(iii) Any option described in paragraph(m)(1) of this section.

(15) * * *(i) * * *(A) A specified security described in

paragraph (a)(14)(i) of this section ac-quired for cash in an account on or afterJanuary 1, 2011, except stock for whichthe average basis method is available un-der §1.1012–1(e).

* * * * *(C) A debt instrument described in

paragraph (a)(14)(ii) of this section ac-quired for cash in an account on or afterJanuary 1, 2013.

(D) An option described in paragraph(a)(14)(iii) of this section granted or ac-quired for cash in an account on or afterJanuary 1, 2013.

(E) A specified security transferred toan account if the broker or other custodianof the account receives a transfer statement(as described in §1.6045A–1) reporting thesecurity as a covered security.

(ii) * * * Acquiring a security in an ac-count includes a security that represents aliability (for example, granting an option).

* * * * *(iv) * * *(E) A debt instrument that is described

in paragraph (n)(2)(ii) of this section.

* * * * *(17) For purposes of this section, the

terms debt instrument, bond, debt obliga-tion, and obligation mean a debt instru-ment as defined in §1.1275–1(d) and anyinstrument or position that is treated asa debt instrument under a specific pro-vision of the Internal Revenue Code (forexample, a regular interest in a REMICas defined in section 860G(a)(1) and§1.860G–1). Solely for purposes of thissection, a security classified as debt by theissuer is treated as debt. If the issuer hasnot classified the security, the security isnot treated as debt unless the broker knowsthat the security is reasonably classified asdebt under general Federal tax principlesor that the instrument or position is treatedas a debt instrument under a specific pro-vision of the Internal Revenue Code.

* * * * *(c) * * *(3) * * *(x) Certain retirements. No return of

information is required from an issuer orits agent with respect to the retirement ofbook entry or registered form debt instru-ments issued before January 1, 2013, as towhich the relevant books and records in-dicate that no interim transfers have oc-curred.

(xi) * * *(C) Short sale obligation transferred

to another account. If a short sale obli-gation is satisfied by delivery of a secu-rity transferred into a customer’s accountaccompanied by a transfer statement (asdescribed in §1.6045A–1(b)(7)) indicatingthat the security was borrowed, the brokerreceiving custody of the security may notfile a return of information under this sec-tion. The receiving broker must furnish astatement to the transferor that reports theamount of gross proceeds received fromthe short sale, the date of the sale, the quan-tity of shares, units, or amounts sold, andthe Committee on Uniform Security Iden-tification Procedures (CUSIP) number ofthe sold security (if applicable) or other se-curity identifier number that the Secretarymay designate by publication in the Fed-eral Register or in the Internal RevenueBulletin (see §601.601(d)(2) of this chap-ter). * * *

* * * * *(4) * * *

2012–4 I.R.B. 331 January 23, 2012

Example 9. ***(i) * * * N indicates on the transfer statement

that the transferred stock was borrowed in accordancewith §1.6045A–1(b)(7).

* * * * *(d) * * *(2) * * *(i) * * * See paragraph (m) of this sec-

tion for additional rules related to optionsand paragraph (n) of this section for addi-tional rules related to debt instruments.

(ii) Specific identification of securities.Except as provided in §1.1012–1(e)(7)(ii),for securities described in paragraph(a)(14)(i) of this section sold on or afterJanuary 1, 2011, or securities described inparagraph (a)(14)(ii) or (a)(14)(iii) of thissection sold on or after January 1, 2013, abroker must report a sale of less than theentire position in an account of a specifiedsecurity that was acquired on differentdates or at different prices consistentlywith a customer’s adequate and timelyidentification of the security to be sold.See §1.1012–1(c). If the customer doesnot provide an adequate and timely identi-fication for the sale, the broker must firstreport the sale of securities in the accountfor which the broker does not know the ac-quisition or purchase date followed by theearliest securities purchased or acquired,whether covered securities or noncoveredsecurities.

* * * * *(3) Sales between interest payment

dates. For each sale of a debt instrumentprior to maturity with respect to whicha broker is required to make a return ofinformation under this section, a brokermust show separately on Form 1099 theamount of accrued and unpaid interestas of the sale date that must be reportedby the customer as interest income under§1.61–7(d) (but not the amount of anymarket discount on a noncovered securityor original issue discount). Such interestinformation must be shown in the mannerand at the time required by Form 1099 andsection 6049.

* * * * *(5) Gross proceeds. For purposes of

this section, gross proceeds on a sale arethe total amount paid to the customer orcredited to the customer’s account as aresult of the sale reduced by the amountof any stated interest reported under para-graph (d)(3) of this section and increased

by any amount not paid or credited by rea-son of repayment of margin loans. In thecase of a closing transaction that results ina loss, gross proceeds are the amount deb-ited from the customer’s account. For salesbefore January 1, 2013, a broker may, butis not required to, reduce gross proceedsby the amount of commissions and trans-fer taxes, provided the treatment chosenis consistent with the books of the broker.For sales on or after January 1, 2013, abroker must reduce gross proceeds by theamount of commissions and transfer taxesrelated to the sale of the security. For secu-rities sold pursuant to the exercise of an op-tion granted or acquired before January 1,2013, a broker may, but is not required to,take the option premiums into account indetermining the gross proceeds of the se-curities sold, provided the treatment cho-sen is consistent with the books of the bro-ker. For securities sold pursuant to the ex-ercise of an option granted or acquired onor after January 1, 2013, see paragraph (m)of this section. A broker must report thegross proceeds of identical stock (withinthe meaning of §1.1012–1(e)(4)) by av-eraging the proceeds of each share if thestock is sold at separate times on the samecalendar day in executing a single trade or-der and the broker executing the trade pro-vides a single confirmation to the customerthat reports an aggregate total price or anaverage price per share. However, a bro-ker may not average the proceeds if thecustomer notifies the broker in writing ofan intent to determine the proceeds of thestock by the actual proceeds per share andthe broker receives the notification by Jan-uary 15 of the calendar year following theyear of the sale. A broker may extend theJanuary 15 deadline but not beyond the duedate for filing the return required under thissection.

(6) Adjusted basis—(i) In general. Forpurposes of this section, the adjusted basisof a security is determined from the initialbasis under paragraph (d)(6)(ii) of this sec-tion as of the date the security is acquiredin an account, increased by the commis-sions and transfer taxes related to its sale tothe extent not accounted for in gross pro-ceeds as described in paragraph (d)(5) ofthis section. A broker is not required toconsider transactions, elections, or eventsoccurring outside the account except foran organizational action taken by an issuerduring the period the broker holds custody

of the security (not including the settle-ment date that the broker received a trans-ferred security) reported on an issuer state-ment (as described in §1.6045B–1) fur-nished or deemed furnished to the broker.For rules related to the adjusted basis of adebt instrument, see paragraph (n) of thissection.

(ii) Initial basis—(A) Cost basis. For asecurity acquired for cash, the initial basisgenerally is the total amount of cash paidby the customer or credited against the cus-tomer’s account for the security, increasedby the commissions and transfer taxes re-lated to its acquisition. A broker may, butis not required to, take option premiumsinto account in determining the initial ba-sis of securities purchased or acquired pur-suant to the exercise of an option grantedor acquired before January 1, 2013. Forrules related to options granted or acquiredon or after January 1, 2013, see paragraph(m) of this section. A broker may, but isnot required to, increase initial basis forincome recognized upon the exercise of acompensatory option or the vesting or ex-ercise of other equity-based compensationarrangements. A broker must report thebasis of identical stock (within the mean-ing of §1.1012–1(e)(4)) by averaging thebasis of each share if the stock is purchasedat separate times on the same calendar dayin executing a single trade order and thebroker executing the trade provides a sin-gle confirmation to the customer that re-ports an aggregate total price or an aver-age price per share. However, a brokermay not average the basis if the customertimely notifies the broker in writing of anintent to determine the basis of the stockby the actual cost per share in accordancewith §1.1012–1(c)(1)(ii).

(B) Basis of transferred securities * * *

* * * * *(vii) * * *Example 4. * * * Under paragraph (d)(6)(ii)(A) of

this section, C is permitted, but not required, to deter-mine adjusted basis from the amount R pays under theterms of the option. Under paragraph (d)(6)(ii)(A) ofthis section, C is permitted, but not required, to adjustbasis for any amount R must include as wage incomewith respect to the October 2, 2013, stock purchase.

* * * * *(m) Additional rules for option trans-

actions—(1) Scope. This paragraph (m)applies to the following types of optionsgranted or acquired on or after January 1,2013:

January 23, 2012 332 2012–4 I.R.B.

(i) An option on one or more specifiedsecurities. For purposes of this paragraph(m), the phrase one or more specified secu-rities includes an index substantially all thecomponents of which are specified securi-ties, and the term option includes a warrantor a stock right.

(ii) An option on financial attributes ofspecified securities, such as interest ratesor dividend yields.

(2) Physically settled option. If a cov-ered security is acquired or disposed ofpursuant to the exercise of an option thatwas granted or acquired in the same ac-count as the covered security, a brokermust adjust the basis of the acquired assetor the gross proceeds amount as appropri-ate to account for any premium related tothe option.

(3) Rules for an option that is not phys-ically settled. For purposes of paragraph(d) of this section, for an option that is notphysically settled and is sold (as definedin paragraph (a)(9) of this section), the fol-lowing rules apply:

(i) Gross proceeds. A broker must in-crease gross proceeds for all payments re-ceived on the option and decrease grossproceeds for all payments paid on the op-tion.

(ii) Long-term or short-term gain orloss. For purposes of paragraph (d)(7) ofthis section, when determining if any gainor loss is long-term or short-term withinthe meaning of section 1222, a broker mustapply the rules described in sections 1234and 1234A.

(4) Rules for warrants and stock rights.For a right to acquire stock (including awarrant) received in the same account asthe underlying equity in a distribution thatis described in section 305(a), a brokermust determine basis in the option in ac-cordance with the rules described in sec-tions 305 and 307. Upon exercise or sale ofa warrant or stock right, a broker must ac-count for the warrant or stock right as if itwere purchased and must treat as premiumpaid any basis allocated to the warrant orstock right.

(5) Example. The following exampleillustrates the rules in this paragraph (m):

Example. (i) On January 15, 2013, C, an indi-vidual, sells a 2-year exchange-traded option on 100shares of Company X through Broker D. C receivesa premium for the option of $100 and pays no com-mission. In C’s hands, Company X stock is a capitalasset. On December 16, 2013, C pays $110 to closeout the option.

(ii) D is required to report information about theclosing transaction because the option is on a cov-ered security as described in paragraph (a)(15)(i)(D)of this section and was part of a closing transactiondescribed in paragraph (a)(8) of this section. D willreport as gross proceeds the net of the $100 receivedas option premium minus the $110 C paid to close outthe option, for a total of -$10. Under the rules of sec-tion 1234(b)(1) and paragraph (d)(2) of this section,D will also report that the loss on the closing transac-tion is a short-term loss.

(6) Multiple options documented in asingle contract. If more than one optiondescribed in paragraph (m)(1) of this sec-tion is documented in a single contract, abroker must separately report the requiredinformation for each option as that optionis sold.

(n) Reporting for bond transac-tions—(1) In general. For purposes ofparagraph (d) of this section, this para-graph (n) provides rules for brokers todetermine and report information for adebt instrument.

(2) Scope—(i) In general. Except asprovided in paragraph (n)(2)(ii) of this sec-tion, this paragraph (n) applies to a debt in-strument that is a covered security underparagraph (a)(15)(i)(C) of this section.

(ii) Excluded debt instruments. A debtinstrument subject to section 1272(a)(6)(certain interests in or mortgages held bya REMIC, certain other debt instrumentswith payments subject to acceleration,and pools of debt instruments the yield onwhich may be affected by prepayments) isnot a covered security.

(3) Reporting of accrued market dis-count. In addition to the information re-quired to be reported under paragraph (d)of this section, if a debt instrument is sub-ject to the market discount rules in sections1276 through 1278, a broker also must re-port the amount of market discount thathas accrued on the debt instrument as ofthe date of the sale. A broker must com-pute the accruals of market discount by as-suming that the customer elected to use theconstant interest rate method under section1276(b)(2) for the taxable year in whichthe customer acquired the debt instrument.See paragraph (n)(5) of this section to de-termine the accrual period to be used tocompute the accruals of market discount.

(4) Adjusted basis. For purposes of thissection, a broker must use the rules in thisparagraph (n)(4) to determine the adjustedbasis of a debt instrument. To the extentthe rules in this paragraph (n)(4) are incon-

sistent with the rules in paragraph (d)(6)of this section, the rules in this paragraph(n)(4) control.

(i) Original issue discount. If a debt in-strument is subject to the original issue dis-count rules in sections 1271 through 1275and section 6049, a broker must increase acustomer’s basis in the debt instrument bythe amount of original issue discount re-ported to the customer under section 6049for each year the debt instrument is held bythe customer in the account. If the debt in-strument is not subject to section 6049 oris a tax-exempt debt instrument subject tosection 1288, the broker must increase thecustomer’s basis in the debt instrument bythe amount of original issue discount thataccrued on the debt instrument while heldby the customer in the account. To deter-mine this amount, the broker must use theaccrual period required under paragraph(n)(5) of this section.

(ii) Bond premium. If a debt instrumentis subject to the bond premium rules in sec-tion 171, a broker must decrease a cus-tomer’s basis in the debt instrument by theamount of bond premium allocable to theperiod the debt instrument is held by thecustomer in the account. In the case ofa taxable debt instrument, a broker mustcompute any basis adjustment for bondpremium by assuming that the customerelected to amortize bond premium undersection 171(c) for the taxable year in whichthe customer acquired the debt instrumentand that such election remained in effectfor all subsequent years.

(iii) Acquisition premium. If a debtinstrument is acquired at an acquisi-tion premium (as determined under§1.1272–2(b)(3)), a broker must decreasethe customer’s basis in the debt instrumentby the amount of acquisition premiumthat is taken into account each year toreduce the amount of the original issuediscount that is otherwise includible inthe customer’s income for that year. See§1.1272–2(b)(4) to determine the amountof the acquisition premium taken into ac-count each year.

(iv) Principal and certain other pay-ments. A broker must decrease the cus-tomer’s basis by the amount of any pay-ment made to the customer during the pe-riod the debt instrument is held in the ac-count, other than a payment of qualifiedstated interest as defined in §1.1273–1(c).

2012–4 I.R.B. 333 January 23, 2012

(5) Accrual period. If a debt instrumentis subject both to the original issue dis-count and the market discount rules, a bro-ker must use the same accrual period thatis used to determine the original issue dis-count reported to the customer under sec-tion 6049 to compute accruals of marketdiscount. In any other situation, a brokermust use an annual accrual period or, ifthere are scheduled payments of principalor interest at regular intervals of one yearor less over the entire term of the debt in-strument, a broker must use an accrual pe-riod equal in length to this interval. Forexample, if a debt instrument provides forsemiannual payments of interest over theentire term of the debt instrument, the bro-ker should use a semiannual accrual pe-riod.

(6) Broker assumptions not controllingfor customer. The rules in this paragraph(n) only apply for purposes of a broker’sreporting obligation under section 6045. Acustomer is not bound by the assumptionsthat the broker uses to satisfy the broker’sreporting obligations under section 6045.

* * * * *Par. 3. Section 1.6045A–1 is amended

by:1. Revising paragraphs (b)(1) introduc-

tory text and (b)(1)(v).2. Redesignating paragraphs (b)(2)

through (b)(9) as paragraphs (b)(5)through (b)(12) respectively.

3. Redesignating paragraph (b)(1)(viii)as paragraph (b)(2).

4. Revising the introductory text to theexamples in newly redesignated paragraph(b)(2).

5. Revising newly redesignated para-graph (b)(5).

6. Revising the first and last sentencesof newly redesignated paragraph (b)(6).

7. Revising newly redesignated para-graph (b)(8)(ii).

8. Revising the first sentence of newlyredesignated paragraph (b)(9)(ii).

9. Revising the introductory text to theexamples in newly redesignated paragraph(b)(9)(iii), the fifth sentence of paragraph(b)(9)(iii) Example 1, and the second sen-tence of paragraph (b)(9)(iii) Example 2.

10. Revising the last sentence of newlyredesignated paragraph (b)(10).

11. Adding new paragraphs (b)(1)(viii),(b)(3) and (b)(4).

12. Revising paragraph (d).

The additions and revisions read as fol-lows:

§1.6045A–1 Statements of informationrequired in connection with transfers ofsecurities.

* * * * *(b) Information required—(1) In gen-

eral. For all specified securities, eachtransfer statement must include the infor-mation described in this paragraph (b)(1).

* * * * *(v) Security identifiers. The Committee

on Uniform Security Identification Pro-cedures (CUSIP) number of the securitytransferred (if applicable) or other secu-rity identifier number that the Secretarymay designate by publication in the Fed-eral Register or in the Internal RevenueBulletin (see §601.601(d)(2) of this chap-ter), quantity of shares, units, or amounts,and classification of the security (such asstock).

* * * * *(viii) Relationship to a compensation

arrangement. Whether the security was re-ceived in connection with the exercise ofa compensatory option or the vesting orexercise of any other equity-based com-pensation arrangement and whether basishas been adjusted for any compensation in-come.

(2) Examples. The following examplesillustrate the rules of paragraph (b)(1) ofthis section:

* * * * *(3) Additional information required for

a transfer of a debt instrument. In addi-tion to the information required in para-graph (b)(1) of this section, for a transferof a debt instrument that is a covered secu-rity, the following additional informationis required:

(i) A description of the payment terms;(ii) The issue price of the debt instru-

ment;(iii) The issue date of the debt instru-

ment;(iv) The adjusted issue price of the debt

instrument as of the transfer date;(v) The customer’s initial basis in the

debt instrument;(vi) The yield used to compute any ac-

cruals of original issue discount, bond pre-mium, and/or market discount;

(vii) Any market discount that has ac-crued as of the transfer date (as determinedunder §1.6045–1(n)); and

(viii) Any bond premium that has beenamortized as of the transfer date (as deter-mined under §1.6045–1(n)).

(4) Additional information required foroption transfers. In addition to the infor-mation required in paragraph (b)(1) of thissection, for a transfer of an option that is acovered security, the following additionalinformation is required:

(i) The date of grant or acquisition ofthe option;

(ii) The amount of premium paid or re-ceived; and

(iii) Any other information required tofully describe the option.

(5) Format of identification. An ap-plicable person furnishing a transfer state-ment and a broker receiving the transferstatement may agree to combine the in-formation required in paragraphs (b)(1),(b)(3), and (b)(4) of this section in any for-mat or to use a code in place of one or morerequired items. For example, a transferorand a receiving broker may agree to usea single code to represent the broker in-stead of the broker’s name, address, andtelephone number, or may use a securitysymbol or other identification number orscheme instead of the security identifierrequired by paragraphs (b)(1), (b)(3), and(b)(4) of this section.

(6) Transfers of noncovered securities.The information described in paragraphs(b)(1)(vii), (b)(8), and (b)(9) of this sectionis not required for a transfer of a noncov-ered security if the transfer statement iden-tifies the security as a noncovered security.* * * For purposes of this paragraph (b)(6),a transferor must treat a security for whicha broker makes a single-account electiondescribed in §1.1012–1(e)(11)(i) as a cov-ered security.

*****(8) * * *(ii) Transfers of shares to satisfy a cash

legacy. If a security is transferred from adecedent or a decedent’s estate to satisfy acash legacy, paragraph (b)(1) of this sec-tion applies and paragraph (b)(8)(i) of thissection does not apply.

* * * * *(9) * * *(ii) Subsequent transfers of gifts by the

same customer. If a transferor transfers to

January 23, 2012 334 2012–4 I.R.B.

a different account of the same customera security that a prior transfer statementreported as a gifted security, the trans-feror must include on the transfer state-ment the information described in para-graph (b)(9)(i) of this section for the dateof the gift to the customer. * * *

(iii) Examples. The following examplesillustrate the rules of this paragraph (b)(9):

Example 1. * * * Under paragraph (b)(9)(i) ofthis section, S must provide a transfer statement to Tthat identifies the securities as gifted securities andindicates X’s adjusted basis and original acquisitiondate. * * *

Example 2. * * * Under paragraph (b)(9)(ii) ofthis section, T must provide a transfer statement toU that identifies the securities as gifted securities andindicates X’s adjusted basis and original acquisitiondate of the stock. * * *

(10) * * * If the customer does not pro-vide an adequate and timely identificationfor the transfer, a transferor must first re-port the transfer of any securities in theaccount for which the transferor does notknow the acquisition or purchase date fol-lowed by the earliest securities purchasedor acquired, whether covered securities ornoncovered securities.

* * * * *(d) Effective/applicability dates. This

section applies to:(1) A transfer on or after January 1,

2011, of stock other than stock in a reg-ulated investment company within themeaning of §1.1012–1(e)(5);

(2) A transfer of stock in a regulatedinvestment company on or after January 1,2012; and

(3) A transfer of a debt instrument or anoption on or after January 1, 2013.

Par. 4. Section 1.6045B–1 is amendedby redesignating paragraph (h) as para-graph (j), adding new paragraphs (h) and(i), and revising newly-designated para-graph (j) to read as follows:

§1.6045B–1 Returns relating to actionsaffecting basis of securities.

* * * * *(h) Rule for options—(1) In general.

For an option granted or acquired on or af-ter January 1, 2013, if the original contractis replaced by a different number of optioncontracts, the option writer is the issuer ofthe option for purposes of section 6045Band the option writer must prepare an is-suer return.

(2) Example. The following exampleillustrates the rule of paragraph (h)(1) ofthis section:

Example. On January 15, 2013, F, an individual,purchases a one-year exchange-traded call option on100 shares of Company X stock, with a strike priceof $110. The call option is cleared through Clearing-house G. Company X undertakes a 2-for–1 stock splitas of April 1, 2013. Due to the stock split, the termsof F’s option are altered, resulting in two option con-tracts, each on 100 shares of Company X stock witha strike price of $55. All other terms of F’s optionremain the same. Under paragraph (h)(1) of this sec-tion, Clearinghouse G is required to prepare an issuerreport to F.

(i) [Reserved](j) Effective/applicability dates. This

section applies to—(1) Organizational actions occurring on

or after January 1, 2011, that affect the ba-sis of specified securities within the mean-ing of §1.6045–1(a)(14)(i) other than stockin a regulated investment company withinthe meaning of §1.1012–1(e)(5);

(2) Organizational actions occurring onor after January 1, 2012, that affect stockin a regulated investment company;

(3) Organizational actions occur-ring on or after January 1, 2013, thataffect debt instruments described in§1.6045–1(a)(14)(ii), and

(4) Actions occurring on or after Jan-uary 1, 2013, that affect options describedin §1.6045–1(a)(14)(iii).

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on November 22,2012, 4:15 p.m., and published in the issue of the FederalRegister for November 25, 2012, 76 F.R. 72652)

Deadline to Submit Opinionand Advisory LetterApplications for Pre-ApprovedDefined Contribution Plans isExtended to April 2, 2012

Announcement 2012–3

This announcement extends to April 2,2012, the deadline to submit on-cycle ap-plications for opinion and advisory let-ters for pre-approved defined contributionplans for the plans’ second six-year reme-dial amendment cycle. Under Rev. Proc.2007–44, 2007–2 C.B. 54, and Rev. Proc.

2011–49, 2011–44 I.R.B. 608, the sub-mission period for these applications wasscheduled to expire on January 31, 2012.

The extension provided by this an-nouncement applies to the deadline forsubmitting on-cycle applications for opin-ion and advisory letters for mass submitterlead plans, word-for-word identical plans,master and prototype plan minor modifierplaceholder applications and non-masssubmitter defined contribution plans.

Effect on Other Documents

Rev. Proc. 2007–44 and Rev. Proc.2011–49 are modified.

DRAFTING INFORMATION

The principal author of this an-nouncement is Angelique Carringtonof the Employee Plans, Tax Exemptand Government Entities Division.For further information regarding thisannouncement, please call the EmployeePlans taxpayer assistance answeringservice at (877) 829–5500 (a toll-freenumber) or email Ms. Carrington atretirementplanquestions@irs.gov.

Regulations Governing thePerformance of ActuarialServices Under the EmployeeRetirement Income SecurityAct of 1974; Correction

Announcement 2012–4

AGENCY: Joint Board for the Enrollmentof Actuaries.

ACTION: Correction to final regulations.

SUMMARY: This document contains cor-rections to final regulations (T.D. 9517,2011–15 I.R.B. 610) that were publishedin the Federal Register on Thursday,March 31, 2011 (76 FR 17762) relating tothe enrollment of actuaries.

DATES: This correction is effective onDecember 28, 2011, and is applicable onMarch 31, 2011.

FOR FURTHER INFORMATIONCONTACT: Patrick McDonough, Execu-tive Director, Joint Board for the Enroll-

2012–4 I.R.B. 335 January 23, 2012

ment of Actuaries, at (202) 622–8229 (nota toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations (T.D. 9517) thatare the subject of this correction are un-der section 3042 of the Employee Re-tirement Income Security Act of 1974(88 Stat. 829), Public Law 93–406(ERISA).

Need for Correction

As published, final regulations (T.D.9517) contain errors that may prove to bemisleading and are in need of clarification.

Correction of Publication

Accordingly, the publication of the fi-nal regulations (T.D. 9517) which were thesubject of FR Doc. 2011–7573 is correctedas follows:

On page 17762, column 1, inthe preamble, under the paragraphheading “Paperwork Reduction Act”,

last paragraph of the column, fourthline, the language “901.11(f)(2)(D),901.11(f)(2)(G) and (H),” is cor-rected to read “901.11(f)(2)(i)(D),901.11(f)(2)(i)(G) and (H),”.

Guy R. Traynor,Acting Chief, Publications

and Regulations Branch,Legal Processing Division,

Associate Chief Counsel(Procedure and Administration).

(Filed by the Office of the Federal Register on December 272011, 8:45 a.m., and published in the issue of the FederalRegister for December 28, 2011, 76 F.R. 81362)

January 23, 2012 336 2012–4 I.R.B.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2012–4 I.R.B. i January 23, 2012

Numerical Finding List1

Bulletins 2012–1 through 2012–4

Announcements:

2012-1, 2012-1 I.R.B. 249

2012-2, 2012-2 I.R.B. 285

2012-3, 2012-4 I.R.B. 335

2012-4, 2012-4 I.R.B. 335

Notices:

2012-1, 2012-2 I.R.B. 260

2012-3, 2012-3 I.R.B. 289

2012-4, 2012-3 I.R.B. 290

2012-5, 2012-3 I.R.B. 291

2012-6, 2012-3 I.R.B. 293

2012-7, 2012-4 I.R.B. 308

2012-8, 2012-4 I.R.B. 309

2012-9, 2012-4 I.R.B. 315

Proposed Regulations:

REG-149625-10, 2012-2 I.R.B. 279

REG-102988-11, 2012-4 I.R.B. 326

Revenue Procedures:

2012-1, 2012-1 I.R.B. 1

2012-2, 2012-1 I.R.B. 92

2012-3, 2012-1 I.R.B. 113

2012-4, 2012-1 I.R.B. 125

2012-5, 2012-1 I.R.B. 169

2012-6, 2012-1 I.R.B. 197

2012-7, 2012-1 I.R.B. 232

2012-8, 2012-1 I.R.B. 235

2012-9, 2012-2 I.R.B. 261

2012-10, 2012-2 I.R.B. 273

2012-12, 2012-2 I.R.B. 275

2012-13, 2012-3 I.R.B. 295

2012-14, 2012-3 I.R.B. 296

Revenue Rulings:

2012-1, 2012-2 I.R.B. 255

2012-2, 2012-3 I.R.B. 286

Treasury Decisions:

9559, 2012-2 I.R.B. 252

9560, 2012-4 I.R.B. 299

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin2011–52, dated December 27, 2011.

January 23, 2012 ii 2012–4 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2012–1 through 2012–4

Notices:

2010-88

As modified by Ann. 2011-40, is superseded by

Notice 2012-1, 2012-2 I.R.B. 260

2011-28

Superseded by

Notice 2012-9, 2012-4 I.R.B. 315

Revenue Procedures:

2003-61

Superseded by

Notice 2012-8, 2012-4 I.R.B. 309

2007-44

Modified by

Ann. 2012-3, 2012-4 I.R.B. 335

2011-1

Superseded by

Rev. Proc. 2012-1, 2012-1 I.R.B. 1

2011-2

Superseded by

Rev. Proc. 2012-2, 2012-1 I.R.B. 92

2011-3

Superseded by

Rev. Proc. 2012-3, 2012-1 I.R.B. 113

2011-4

Superseded by

Rev. Proc. 2012-4, 2012-1 I.R.B. 125

2011-5

Superseded by

Rev. Proc. 2012-5, 2012-1 I.R.B. 169

2011-6

Superseded by

Rev. Proc. 2012-6, 2012-1 I.R.B. 197

2011-7

Superseded by

Rev. Proc. 2012-7, 2012-1 I.R.B. 232

2011-8

Superseded by

Rev. Proc. 2012-8, 2012-1 I.R.B. 235

2011-9

Superseded by

Rev. Proc. 2012-9, 2012-2 I.R.B. 261

2011-10

Superseded by

Rev. Proc. 2012-10, 2012-2 I.R.B. 273

Revenue Procedures— Continued:

2011-49

Modified by

Ann. 2012-3, 2012-4 I.R.B. 335

Revenue Rulings:

2008-40

Modified by

Notice 2012-6, 2012-3 I.R.B. 293

2011-1

Modified by

Notice 2012-6, 2012-3 I.R.B. 293

Treasury Decision:

9517

Corrected by

Ann. 2012-4, 2012-4 I.R.B. 335

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin 2011–52, dated December 27,2011.

2012–4 I.R.B. iii January 23, 2012

January 23, 2012 2012–4 I.R.B.

2012–4 I.R.B. January 23, 2012

January 23, 2012 2012–4 I.R.B.

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