highlights of this issue bulletin no. 2015–12 march 23, 2015 · notice 2015–22, page 768. this...

HIGHLIGHTS OF THIS ISSUE

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

SPECIAL ANNOUNCEMENT

Notice 2015–22, page 768.This notice provides for waiver of the section 6654(a) additionto tax for underpayment of estimated taxes for those farmersand fishermen who received erroneous 2014 Forms 1095–A,Health Insurance Marketplace Statements, and who file andpay by April 15, 2015.

INCOME TAX

REG–100400–14, page 779.These proposed regulations would revise the rules for report-ing certain items of income and deduction that are reportableon the day a corporation joins or leaves a consolidated group.

REG–132253–11, page 771.This document contains proposed regulations under section6041 regarding the filing of information returns to report win-nings from bingo, keno and slot machine play.

Notice 2015–21, page 765.This notice provides a proposed revenue procedure that, iffinalized, will provide an optional safe harbor method for indi-vidual taxpayers to determine a wagering gain or loss fromcertain slot machine play.

Notice 2015–22, page 768.This notice provides for waiver of the section 6654(a) additionto tax for underpayment of estimated taxes for those farmersand fishermen who received erroneous 2014 Forms 1095–A,Health Insurance Marketplace Statements, and who file andpay by April 15, 2015.

Notice 2015–23, page 769.Resident populations of the 50 states, the District of Columbia,Puerto Rico, and the insular areas for purposes of determiningthe 2015 calendar year (1) state housing credit ceiling undersection 42(h) of the Code, (2) private activity bond volume capunder section 146, and (3) private activity bond volume limitunder section 142(k) are reproduced.

EXEMPT ORGANIZATIONS

Announcement 2015–12, page 770.Revocation of IRC 501(c)(3) Organizations for failure to meetthe code section requirements. Contributions made to theorganizations by individual donors are no longer deductibleunder IRC 170(b)(1)(A).

Notice 2015–18, page 765.New section 529A permits a state (or a state agency orinstrumentality) to establish and maintain a qualified ABLE pro-gram, under which contributions may be made to an ABLEaccount that is established for the purpose of meeting thequalified disability expenses of the designated beneficiary ofthe account who is disabled. The notice announces that theTreasury Department and IRS currently anticipate issuing pro-posed regulations that will provide that the designated benefi-ciary of an ABLE account is the owner of the account. Thenotice also provides that, with regard to the ABLE account ofa designated beneficiary who is not the person with signatureauthority over that account, the person with signature authoritymay neither have nor acquire any beneficial interest in theaccount and must administer the account for the benefit of thedesignated beneficiary.

(Continued on the next page)

Finding Lists begin on page ii.

Bulletin No. 2015–12March 23, 2015

ADMINISTRATIVE

REG–132253–11, page 771.This document contains proposed regulations under section6041 regarding the filing of information returns to report win-nings from bingo, keno and slot machine play.

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-force the law with integrity and fairness to all.

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

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

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

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

against reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

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

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

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

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

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

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

March 23, 2015 Bulletin No. 2015–12

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986

Section 165.—PlainLanguage Summary

Notice 2015–21 provides a proposed revenueprocedure that, if finalized, will provide an optionalsafe harbor method for individual taxpayers to de-termine a wagering gain or loss from certain slotmachine play.


Part III. Administrative, Procedural, and MiscellaneousQualified ABLE Programs

Notice 2015–18

SECTION 1. PURPOSE

This notice provides advance notifica-tion of a provision anticipated to be in-cluded in the proposed regulations to beissued under section 529A of the InternalRevenue Code.

SECTION 2. BACKGROUND

The Stephen Beck, Jr., Achieving aBetter Life Experience Act of 2014(ABLE Act) was enacted on December19, 2014, as part of The Tax IncreasePrevention Act of 2014 (P.L. 113–295).The ABLE Act creates a new section529A of the Internal Revenue Code(Code) that permits a state (or a stateagency or instrumentality) to establish andmaintain a new type of tax-advantagedsavings program, a qualified ABLE pro-gram, under which contributions may bemade to an account (an ABLE account)that is established for the purpose of meet-ing the qualified disability expenses of thedesignated beneficiary of the account whois a resident of that state and who is dis-abled (as defined in section 529A). If astate does not establish and maintain itsown qualified ABLE program, it may en-ter into a contract with another state inorder to provide its residents with accessto a qualified ABLE program. The statutedirects the Secretary of the Treasury or hisdesignee to issue regulations or otherguidance to implement section 529A nolater than June 19, 2015.

The Treasury Department and the In-ternal Revenue Service (IRS) have beenadvised that several state legislatures cur-rently are in the process of enacting en-abling legislation in order to ensure thattheir citizens may create ABLE accountsduring 2015. While the Treasury Depart-ment and the IRS currently are workingon section 529A guidance, it is anticipatedthat ABLE programs may be in operationin some states before such guidance canbe issued.

The Treasury Department and the IRSdo not want the lack of guidance to dis-courage states from enacting their en-

abling legislation and creating their ABLEprograms, which could delay the ability ofthe families of disabled individuals or oth-ers to begin to fund ABLE accounts forthose disabled individuals. Therefore, theTreasury Department and the IRS are as-suring states that enact legislation creatingan ABLE program in accordance withsection 529A, and those individuals estab-lishing ABLE accounts in accordancewith such legislation, that they will notfail to receive the benefits of section 529Amerely because the legislation or the ac-count documents do not fully comportwith the guidance when it is issued. TheTreasury Department and the IRS intendto provide transition relief with regard tonecessary changes to ensure that the stateprograms and accounts meet the require-ments in the guidance, including provid-ing sufficient time after issuance of theguidance in order for changes to be im-plemented. For those states that are mov-ing forward before the issuance of addi-tional guidance, this notice providesadvance notice of certain important waysin which future section 529A guidance isexpected to differ from the section 529proposed regulations so that states pro-mulgating rules may appropriately reflecta fundamental statutory requirement.

SECTION 3. NOTICE

Section 529A was modeled on section529 of the Code, which provides tax-exempt status to qualified tuition pro-grams (QTPs) established and maintainedby a state (or agency or instrumentalitythereof), or by one or more eligible edu-cational institutions, under which contri-butions may be made to an account that isestablished for the purpose of meeting thequalified higher education expenses of thedesignated beneficiary of the account.However, there are a few significant dif-ferences between the statutory provisionsgoverning QTPs and those governingqualified ABLE programs.

To assist states currently contemplat-ing legislation regarding ABLE programsin advance of issuing further guidance toimplement section 529A, the TreasuryDepartment and the IRS advise that thesection 529A guidance, when issued, may

differ in various ways from the proposedregulations that have been promulgatedunder section 529. In particular, the Trea-sury Department and the IRS currentlyanticipate that, consistent with section529A(e)(3), the guidance will provide thatthe owner of an ABLE account is thedesignated beneficiary of the account. Inaddition, the Treasury Department and theIRS currently anticipate that the section529A guidance will provide that, with re-gard to the ABLE account of a designatedbeneficiary who is not the person withsignature authority over that account, theperson with signature authority over theaccount of the designated beneficiary mayneither have nor acquire any beneficialinterest in the account and must adminis-ter that account for the benefit of the des-ignated beneficiary of that account.

DRAFTING INFORMATION

The principal author of this notice isSean Barnett of the Office of AssociateChief Counsel (Tax Exempt and Govern-ment Entities). For further information re-garding this notice, contact Mr. Barnett at(202) 317-5800 (not a toll-free number).

Safe Harbor Method forDetermining a WageringGain or Loss from SlotMachine Play

Notice 2015–21

This notice provides a proposed reve-nue procedure that, if finalized, will pro-vide an optional safe harbor method forindividual taxpayers to determine a wa-gering gain or loss from certain slot ma-chine play.

Section 61 of the Internal RevenueCode provides that gross income meansall income from whatever source de-rived. See also § 1.61–1 of the IncomeTax Regulations. Gains from wageringtransactions are included in gross in-come. See Rev. Rul. 54 –339, 1954 –2C.B. 89. Neither the statute nor the reg-ulations define the term “transactions.”Gross income from a slot machine wa-gering transaction is determined on a

Bulletin No. 2015–12 March 23, 2015765

session basis. See Shollenberger v. Com-missioner, T.C. Memo. 2009–306 (2009);LaPlante v. Commissioner, T.C. Memo.2009–226 (2009). Section 165(d) pro-vides that losses from wagering transac-tions are allowed only to the extent of thegains from such transactions. See also§ 1.165–10 of the Income Tax Regula-tions. But see § 873(a) (for a nonresidentalien individual, deductions are allowedonly to the extent that they are connectedwith income that is effectively connectedwith the conduct of a trade or businesswithin the United States). The InternalRevenue Service (Service) and the Trea-sury Department are aware that determin-ing the amount of a wagering gain or lossfrom slot machine play is burdensome fortaxpayers and sometimes creates contro-versy between taxpayers and the Service.See, e.g., Shollenberger, supra; LaPlante,supra; Kochevar v. Commissioner, T.C.Memo. 1995–607 (1995). This contro-versy is complicated by changes in gam-bling technology. The increased use ofelectronic gambling, with the develop-ment of player’s cards and tickets, hascurtailed the redemption of tokens by slotmachine players.

To reduce the burden on taxpayers, thisproposed revenue procedure, if finalized,will provide an optional safe harbormethod for determining what constitutes asession of play for purposes of calculatingwagering gains or losses from electroni-cally tracked slot machine play under§ 61. The proposed revenue proceduredescribes the circumstances in which thesafe harbor method can be used and pro-vides examples of its application. Use ofthe safe harbor method will not relievetaxpayers of the requirement to maintainrecords that substantiate any items re-ported on their income tax returns. See§ 6001; Rev. Proc. 77–29, 1977–2 C.B.538.

This proposed revenue procedure doesnot address how the separate transactionsdetermined under the safe harbor aretaken into account in determining totalgain or loss for a taxable year. See Shol-lenberger, supra (gambling losses are al-lowable, if at all, as itemized deductionsin calculating taxable income). In partic-ular, this revenue procedure does not per-mit gains or losses from separate sessionsto be netted against each other to deter-

mine gain or loss for a taxable year. Inaddition, this safe harbor method appliesonly to wagering gains and losses; it doesnot apply to non-wagering expenses re-lated to gambling. See Mayo v. Commis-sioner, 136 T.C. 81 (2011), acq., 2012–3I.R.B. 285, action on dec., 2011–06 (Dec.21, 2011) (section 165(d) does not limitdeductions for expenses incurred to en-gage in the trade or business of gambling).

The Service and the Treasury Depart-ment request comments from the publicregarding the optional safe harbor methodunder this proposed revenue procedure. Inparticular, we request comments regard-ing: (1) alternative definitions for the term“slot machine;” (2) whether an interrup-tion in play, such as leaving the gamingarea for over 15 minutes, should affect thedetermination of what constitutes a singlesession of play; (3) whether a session ofplay should be based on a period otherthan a calendar day (making adjustmentswhen necessary to accommodate the endof a taxpayer’s year on December 31st);(4) whether the definition of a single ses-sion of play should be determined byother factors, such as the duration of a tripor by each slot machine played (com-ments should include an explanation ofthe benefits and drawbacks of the pro-posed method); (5) whether the safe har-bor should include payouts in the form ofmerchandise and bonus rewards; (6)whether the topic is appropriate for theIndustry Issue Resolution (IIR) programdescribed in Rev. Proc. 2003–36, 2003–1C.B. 859; (7) whether a safe harbormethod to determine a wagering gain orloss should be developed for other formsof gambling, including, but not limited to,keno, table games, and pari-mutuel wa-gers (comments should include the formof gambling, a description of the proposedsafe harbor method, and an explanation ofthe benefits and drawbacks of the pro-posed method); and (8) whether any as-pects of the optional safe harbor poseproblems of administrability for stake-holders (including whether the issues andpossible modifications on which com-ments are requested would pose problemsfor sound tax administration).

Comments must be submitted by June1st, 2015. Comments, identified by Notice2015–21, may be sent by one of the fol-lowing methods:

• By Mail:

Internal Revenue ServiceAttn: CC:PA:LPD:PR (Notice 2015–21)Room 5203P.O. Box 7602Ben Franklin StationWashington, D.C. 20044

• By Hand or Courier Delivery: Submis-sions may be hand-delivered Mondaythrough Friday between the hours of 8a.m. and 4 p.m. to:

Courier’s DeskInternal Revenue ServiceAttn: CC:PA:LPD:PR(Notice 2015–21)1111 Constitution Avenue, N.W.Washington, D.C. 20224

• Electronic: Alternatively, persons maysubmit comments electronically [email protected] include “Notice 2015–21” in thesubject line of any electronic communi-cations.

All submissions will be available for pub-lic inspection and copying in Room 1621,1111 Constitution Avenue, N.W., Wash-ington, D.C., from 9 a.m. to 4 p.m.

PROPOSED REVENUE PROCEDURE

SECTION 1. PURPOSE

This revenue procedure provides anoptional safe harbor method for taxpayersto determine a wagering gain or loss fromcertain slot machine play.

SECTION 2. BACKGROUND

.01 Section 61 of the Internal RevenueCode provides that gross income means allincome from whatever source derived. Seealso § 1.61–1 of the Income Tax Regulations.Wagering gains are included in gross income.See Rev. Rul. 54–339, 1954–2 C.B. 89.

.02 Section 165(a) allows a deductionfor any loss sustained during the taxableyear and not compensated for by insur-ance or otherwise.

.03 Section 165(d) provides that lossesfrom wagering transactions are allowedonly to the extent of the gains from suchtransactions.

.04 Section 1.165–10 of the IncomeTax Regulations provides that losses sus-


tained during the taxable year on wager-ing transactions are allowed as a deduc-tion but only to the extent of the gainsduring the taxable year from the transac-tions.

.05 Gross income from a wageringtransaction is calculated by subtractingwagers placed to produce the payoutsfrom the payouts as a preliminary step indetermining gross income. See Rev. Rul.83–130, 1983–2 C.B. 148.

.06 Gross income from a slot machinewagering transaction is determined on asession basis. See Shollenberger v. Com-missioner, T.C. Memo 2009–306 (2009);LaPlante v. Commissioner, T.C. Memo.2009–226 (2009). Determining whether aseries of wagers is a “session” requiresanalyzing the relevant facts and circum-stances and can present practical difficul-ties. Shollenberger, supra.

SECTION 3. DEFINITIONS

The following definitions apply solelyfor purposes of this proposed revenue pro-cedure.

.01 Slot Machine. “Slot machine”means a device that, by application of theelement of chance, may deliver, or entitlethe person playing or operating the deviceto receive cash, premiums, merchandise,or tokens whether or not the device isoperated by insertion of a coin, token, orsimilar object.

.02 Payout. “Payout” means theamount, if any, payable to the taxpayer asa result of a wager placed by the taxpayer.

.03 Electronically Tracked Slot Ma-chine Play. The term “electronicallytracked slot machine play” means slot ma-chine play using an electronic player sys-tem that is controlled by the gaming es-tablishment (such as through the use of aplayer’s card or similar system) and thatrecords the amount a specific individualwon and wagered on slot machine play.

.04 Session of Play. A session of playbegins when a patron places the first wa-ger on a particular type of game and endswhen the same patron completes his or herlast wager on the same type of game be-fore the end of the same calendar day. Forpurposes of this section, the time is deter-mined by the time zone of the locationwhere the patron places the wager. A ses-sion of play is always determined withreference to a calendar day (24-hour pe-

riod from 12:00 a.m. through 11:59 p.m.)and ends no later than the end of thatcalendar day.

SECTION 4. SCOPE

This revenue procedure applies to in-dividual taxpayers who engage in elec-tronically tracked slot machine play.

SECTION 5. APPLICATION

The Service will not challenge a tax-payer’s use of the definition of a sessionof play set forth in section 3.04 of thisrevenue procedure in calculating a wager-ing gain or wagering loss from electroni-cally tracked slot machine play providedthat the taxpayer complies with the provi-sions of section 6.01 through section 6.04of this revenue procedure.

SECTION 6. DETERMINING GAINOR LOSS IN A SESSION OF PLAY

.01 A taxpayer determines a wageringgain or loss from electronically trackedslot machine play at the end of a singlesession of play (as defined in section 3.04)as follows:

(1) A taxpayer recognizes a wageringgain if, at the end of a single session ofplay, the total dollar amount of payoutsfrom electronically tracked slot machineplay during that session exceeds the totaldollar amount of wagers placed by thetaxpayer on electronically tracked slotmachine play during that session;

(2) A taxpayer recognizes a wageringloss if, at the end of a single session ofplay, the total dollar amount of wagersplaced by the taxpayer on electronicallytracked slot machine play exceeds the to-tal dollar amount of payouts from elec-tronically tracked slot machine play dur-ing that session.

.02 A taxpayer must use the same ses-sion of play if the taxpayer stops and thenresumes electronically tracked slot ma-chine play within a single gaming estab-lishment during the same calendar day.

.03 If a taxpayer uses the definition ofa session of play set forth in section 3.04for any day in a calendar year at a partic-ular gaming establishment, the taxpayermust use that definition for all electroni-cally tracked slot machine play during thetaxable year at that same gaming estab-lishment.

.04 If, after engaging in slot machineplay at one gaming establishment, a tax-payer leaves that establishment and beginselectronically tracked slot machine play atanother gaming establishment, a separatesession of play begins at the second estab-lishment, even if played within the samecalendar day as the first.

.05 Examples. In each example below,the taxpayer uses the safe harbor methodprovided by this revenue procedure for allelectronically tracked slot machine playfor the calendar year and can properlysubstantiate all wagering gains and lossespursuant to § 6001. In addition, in eachexample below, the taxpayer complieswith the requirements of sections 6.02 and6.03 to use the session of play definitionset forth in section 3.04 consistently forelectronic play over the course of a dayand over the course of separate sessionsduring the taxable year.

Example 1. A taxpayer engages in electronicallytracked slot machine play at X, a casino, by using aplayer’s card. On January 1, the taxpayer plays slotmachines at X, for the first time that day, from 3:00p.m. to 5:00 p.m. At 6:00 p.m., the taxpayer leaves Xfor dinner. Later that day, the taxpayer returns to Xand plays slot machines from 10:00 p.m. to 11:59p.m. The play at X from 3:00 p.m. to 5:00 p.m. andfrom 10:00 p.m. to 11:59 p.m. is a single session ofplay on January 1.

Example 2. Assume the same facts as in Example1, except that the taxpayer plays from 10 p.m. to 2a.m. The play from 3 p.m. to 5 p.m. and the playfrom 10 p.m. through 11:59 p.m. constitute a singlesession of play. The play from 12:00 midnight to 2a.m. is another session of play on January 2nd.

Example 3. Assume the same facts as in Example1, except that the taxpayer goes to another casino, Y,to engage in electronically tracked slot machine playfrom 7:00 p.m. to 8:00 p.m. The taxpayer has 2separate sessions of play on January 1: (1) onesession of play from 3:00 p.m. to 5:00 p.m. and10:00 p.m. to 11:59 p.m. at X, and (2) anothersession of play from 7:00 p.m. to 8:00 p.m. at Y.

Example 4. On January 1, at 3:00 p.m., the tax-payer starts electronically tracked slot machine playat X for the first time that day. At 5:00 p.m., thetaxpayer finishes slot machine play for that day andhas payouts in excess of wagers of $300. For thesingle session of play on January 1, the taxpayer hasgambling winnings of $300.

Example 5. Assume the same facts as in Example4, except that at 5:00 p.m., the taxpayer leaves thepremises of X to eat dinner at a nearby restaurant. At8:00 p.m., the taxpayer returns to the premises of Xfor more slot machine play. The taxpayer placeswagers until 11:00 p.m. During the period from 8:00p.m. until 11:00 p.m., the taxpayer’s wagers placedon electronically tracked slot machine play exceededthe total dollar amount of payouts from electroni-cally tracked slot machine play earned by the tax-payer by $75. The taxpayer’s wagering gain for the


single session of play at X is $225, the extent towhich his payouts from electronically tracked slotmachine play during that session exceeds the dollaramount of wagers from electronically tracked slotmachine play.

Example 6. Assume the same facts as in Example4, except the taxpayer goes to another area of X andfrom 5:15 p.m. to 7:00 p.m., engages in additionalslot machine play that is not electronically tracked.This revenue procedure applies only to electronicallytracked slot machine play (the session from 3:00p.m. to 5:00 p.m.). Therefore, the taxpayer cannotinclude the slot machine play from 5:15 p.m. to 7:00p.m. in the session of play for January 1.

Example 7. Assume the same facts as in Example4, except that, three months later on April 1, thetaxpayer returns to X for slot machine play, andbegins electronically tracked slot machine play at6:00 p.m. For the slot machine play on April 1,section 6.03 of this revenue procedure requires thetaxpayer to use a session of play that runs from 6:00p.m. up through 11:59 p.m. (or earlier in that calen-dar day, if his play ends earlier).

SECTION 7. PROCEDURE

To use this revenue procedure, a tax-payer must write “Revenue Procedure2015–X” on Line 21 of the Form 1040,U.S. Individual Tax Return. A nonresidentalien who is a non-professional gamblermust write “Revenue Procedure 2015–X”on line 10, if a resident of Canada, or online 11, if not a resident of Canada, onSchedule NEC of the Form 1040NR. Anonresident alien who is a professionalgambler and uses this Revenue Proceduremust write “Revenue Procedure 2015–X”on line 21 of the Form 1040NR.

SECTION 8. EFFECTIVE DATE

This revenue procedure is effective fortaxable years ending on or after [insertdate of publication of final revenue proce-dure], except for section 7, which will beeffective no earlier than taxable years be-ginning on or after January 1, 2016.

DRAFTING INFORMATION

The principal authors of this notice areAmy S. Wei and Renay France of the Officeof Associate Chief Counsel (Income Tax &Accounting). For further information re-garding this notice contact Renay France at(202) 317-7003 (not a toll-free number).

Transitional Relief fromEstimated Tax Additions toTax for Farmers andFishermen Who ReceiveErroneous Forms 1095–ANotice 2015–22

This notice provides for waiver of theaddition to tax under section 6654(a) ofthe Internal Revenue Code (Code) for un-derpayment of estimated taxes for thosefarmers and fishermen who received erro-neous 2014 Forms 1095–A, Health Insur-ance Marketplace Statements and who fileand pay by April 15, 2015.

Background

Generally, the Code requires individualsto pay federal income tax as they earn in-come. To the extent these taxes are notwithheld from an individual’s wages, an in-dividual taxpayer must pay estimated taxes.

In general, estimated taxes are requiredin four installments, and the amount ofany required installment shall be 25 per-cent of the “required annual payment.”I.R.C. § 6654(c) and (d)(1)(A). Taxpayerswho fail to make a sufficient and timelypayment of tax are liable for an addition totax under section 6654(a).

Qualifying farmers and fisherman,however, are subject to a special rule,allowing them to make only one install-ment payment, due on January 15 of thefollowing taxable year. I.R.C. § 6654(i)(1)(A)and (B). A taxpayer qualifies as a farmeror fisherman for the 2014 tax year if atleast two-thirds of the taxpayer’s totalgross income was from farming or fishingin either 2013 or 2014. I.R.C. § 6654(i)(2).Qualifying farmers and fishermen whochoose not to make the required estimatedtax installment payment on January 15 arenot subject to an addition to tax for failingto pay estimated tax if they file their returnand pay the full amount of tax due byMarch 1 of that following taxable year.I.R.C. § 6654(i)(1)(D). When the last dayfor performing any act required under theCode falls on a Saturday, Sunday, or legalholiday, the performance of that act shallbe considered timely if it is performed onthe next succeeding day that is not a Sat-urday, Sunday, or legal holiday. I.R.C.§ 7503. March 1, 2015, is a Sunday. Ac-cordingly, farmers and fishermen who file

their returns and pay the amount owed onor before March 2, 2015, will qualify forthe special rule under section 6654(i)(1)(D).

The Internal Revenue Service maywaive section 6654 penalties for under-payments of estimated tax in unusual cir-cumstances to the extent its impositionwould be against equity and good con-science. I.R.C. § 6654(e)(3).

On February 20, 2015, the Departmentof Health and Human Services (HHS) an-nounced that it had issued Forms 1095–A,Health Insurance Marketplace Statements,containing erroneous information to sometaxpayers who received advance subsidiestoward their purchase of health insurancethrough healthcare.gov.

The Service is providing this relief be-cause a number of taxpayers have beeninformed that they will be receiving cor-rected Forms 1095–A from the Health In-surance Marketplace. Taxpayers need thisform to file a complete and accurate re-turn. The delay in the receiving accurateForms 1095–A may prevent some farmersand fishermen from filing their 2014 in-come tax returns by March 2, 2015. As aresult, the IRS is waiving the penalty forfailing to make 2014 estimated tax pay-ments for any farmer or fisherman who,due to this delay, files their return andpays any tax due by Wednesday, April 15.

As explained above, farmers and fisher-man are eligible for the special rule undersection 6654(i)(1)(D) that protects themagainst the addition to tax for failing to payestimated tax only if they file their individ-ual returns and pay all of the tax owed byMarch 2, 2015. Consequently, farmers andfisherman who wait to file and pay until theyreceive the corrected Forms 1095–A wouldnot get the benefit of section 6654(i)(1)(D)and would be subject to additional liabilityfor the addition to tax for failure to makeestimated taxes under section 6654(a).

Transitional Relief for Underpaymentof Estimated Taxes

Pursuant to the authority in section6654(e)(3), the Service will waive the sec-tion 6654 addition to tax for the 2014 taxyear for farmers and fishermen who re-ceived erroneous Forms 1095–A and whomiss the March filing and payment deadline,if they file their 2014 returns and pay in fullany tax due by April 15, 2015. Farmers andfishermen requesting this addition to tax


waiver must attach Form 2210–F, Under-payment of Estimated Tax by Farmers andFishermen, to their 2014 tax return. Theform can be submitted electronically or onpaper. The taxpayer’s name and identifyingnumber should be entered at the top of theform and the waiver box (Part I, Box A)should be checked. The rest of the formshould be left blank. Forms, instructions,and other tax assistance are available onIRS.gov. The IRS toll-free number for gen-eral tax questions is 1-800-829-1040.

Contact Information

The principal author of this notice is Da-vid W. Skinner of the Office of AssociateChief Counsel (Procedure & Administra-tion). For further information, please call(202) 317-3400 (not a toll-free number).

2015 Calendar YearResident Population FiguresNotice 2015–23

This notice advises State and local hous-ing credit agencies that allocate low-incomehousing tax credits under § 42 of the Inter-nal Revenue Code, and States and otherissuers of tax-exempt private activity bondsunder § 141, of the population figures to usein calculating: (1) the 2015 calendar yearpopulation-based component of the Statehousing credit ceiling (Credit Ceiling) under§ 42(h)(3)(C)(ii); (2) the 2015 calendar yearvolume cap (Volume Cap) under § 146; and(3) the 2015 volume limit (Volume Limit)under § 142(k)(5).

Generally, § 146(j) requires determin-ing the population figures for thepopulation-based component of both theCredit Ceiling and the Volume Cap forany calendar year on the basis of the mostrecent census estimate of the resident pop-ulation of a State (or issuing authority)released by the U.S. Census Bureau be-fore the beginning of the calendar year.Similarly, § 142(k)(5) bases the VolumeLimit on the State population.

Sections 42(h)(3)(H) and 146(d)(2) re-quire adjusting for inflation the population-based component of the Credit Ceilingand the Volume Cap. The adjustments forthe 2015 calendar year are in Rev. Proc.2014–61, 2014–47 I.R.B. 860. Section3.09 of Rev. Proc. 2014–61 provides that,

for calendar year 2015, the amount forcalculating the Credit Ceiling under§ 42(h)(3)(C)(ii) is the greater of $2.30multiplied by the State population, or$2,680,000. Further, section 3.20 of Rev.Proc. 2014–61 provides that the amountfor calculating the Volume Cap under§ 146(d)(1) for calendar year 2015 is thegreater of $100 multiplied by the Statepopulation, or $301,515,000.

For the 50 states, the District of Colum-bia, and Puerto Rico, the population figuresfor calculating the Credit Ceiling, the Vol-ume Cap, and the Volume Limit for the2015 calendar year are the resident popula-tion estimates released electronically by theU.S. Census Bureau on December 23, 2014,and described in Press Release CB14–232.For American Samoa, Guam, the NorthernMariana Islands, and the U.S. Virgin Is-lands, the population figures for the 2015calendar year are the 2014 midyear popula-tion figures in the U.S. Census Bureau’sInternational Data Base (IDB). The U.S.Census Bureau electronically announced anupdate of the IDB on December 19, 2013, inPress Release CB13–TPS.108.

For convenience, these figures are re-printed below.

Resident Population Figures

Alabama 4,849,377

Alaska 736,732

American Samoa 54,517

Arizona 6,731,484

Arkansas 2,966,369

California 38,802,500

Colorado 5,355,866

Connecticut 3,596,677

Delaware 935,614

District of Columbia 658,893

Florida 19,893,297

Georgia 10,097,343

Guam 161,001

Hawaii 1,419,561

Idaho 1,634,464

Illinois 12,880,580

Indiana 6,596,855

Iowa 3,107,126

Kansas 2,904,021

Kentucky 4,413,457

Resident Population Figures

Louisiana 4,649,676

Maine 1,330,089

Maryland 5,976,407

Massachusetts 6,745,408

Michigan 9,909,877

Minnesota 5,457,173

Mississippi 2,994,079

Missouri 6,063,589

Montana 1,023,579

Nebraska 1,881,503

Nevada 2,839,099

New Hampshire 1,326,813

New Jersey 8,938,175

New Mexico 2,085,572

New York 19,746,227

North Carolina 9,943,964

North Dakota 739,482

Northern MarianaIslands

51,483

Ohio 11,594,163

Oklahoma 3,878,051

Oregon 3,970,239

Pennsylvania 12,787,209

Puerto Rico 3,548,397

Rhode Island 1,055,173

South Carolina 4,832,482

South Dakota 853,175

Tennessee 6,549,352

Texas 26,956,958

Utah 2,942,902

Vermont 626,562

Virginia 8,326,289

Virgin Islands, U.S. 104,170

Washington 7,061,530

West Virginia 1,850,326

Wisconsin 5,757,564

Wyoming 584,153

The principal authors of this notice areJames A. Holmes, Office of the AssociateChief Counsel (Passthroughs and SpecialIndustries), and Timothy L. Jones, Officeof the Associate Chief Counsel (FinancialInstitutions and Products). For further in-formation regarding this notice, pleasecontact Mr. Holmes at (202) 317-4137(not a toll-free number).


Part IV. Items of General InterestDeletions From CumulativeList of Organizations,Contributions to Which areDeductible Under Section170 of the Code

Announcement 2015–12

Table of ContentsThe Internal Revenue Service has re-

voked its determination that the organiza-tions listed below qualify as organizationsdescribed in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986.

Generally, the IRS will not disallowdeductions for contributions made to alisted organization on or before the date of

announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the IRS is not pre-cluded from disallowing a deduction forany contributions made after an organiza-tion ceases to qualify under section170(c)(2) if the organization has nottimely filed a suit for declaratory judg-ment under section 7428 and if the con-tributor (1) had knowledge of the revoca-tion of the ruling or determination letter,(2) was aware that such revocation wasimminent, or (3) was in part responsiblefor or was aware of the activities or omis-sions of the organization that broughtabout this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-

tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on March 23, 2015and would end on the date the court firstdetermines the organization is not de-scribed in section 170(c)(2) as more par-ticularly set for in section 7428(c)(1). Forindividual contributors, the maximum de-duction protected is $1,000, with a hus-band and wife treated as one contributor.This benefit is not extended to any indi-vidual, in whole or in part, for the acts oromissions of the organization that werethe basis for revocation.

NAME OF ORGANIZATION Effective Date of Revocation LOCATION

American Debt Counseling Inc. 1/1/2007 Sunrise, FL

Ameridebt Inc. 1/1/2000 Washington, DC

C is for Cat 1/1/2010 Santa Clarita, CA

The Center for Entrepreneurial Management Inc. 1/1/2009 New York, NY

Changing Hearts Foundation 12/1/2007 Anaheim, CA

Community Health Network Inc. 1/1/2009 Savannah, TN

Earth Light 1/1/2010 San Diego, CA

El Dorado Charitable Foundation 1/1/2011 Sun City, AZ

Gateways Foundation for Youth and Families 1/1/2009 Tacoma, WA

Hilltoppers Girls Athletic Association 4/1/2010 Cleveland, OH

Jo Ann Davidson Ohio Leadership Institute 1/1/2011 Columbus, OH

Kentucky National Guard Historical Foundation Inc. 4/1/2010 Frankfort, KY

Learning Services of Northern California 7/1/2009 Oakland, CA

Mabel E & George C Ordway Memorial Student Aid TR 1/1/2013 Newport Coast, CA

Rio Verde University Inc. 1/1/2010 Provo, UT

Scripture Keys Ministries 1/1/2010 Denver, CO

Tegan Communities Inc. 1/1/2010 Phoenix, AZ

Turff Therapy 1/1/2010 Baird, TX

West Pittsburgh Partnership for Regional Development Inc. 1/1/2010 Pittsburgh, PA

World Religious Relief 6/1/2007 Southfield, MI


Information Returns;Winnings from Bingo, Keno,and Slot Machines

REG–132253–11

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemakingand notice of public hearing.

SUMMARY: This document containsproposed regulations under section 6041regarding the filing of information re-turns to report winnings from bingo,keno, and slot machine play. The pro-posed regulations affect persons whopay winnings of $1,200 or more frombingo and slot machine play, $1,500 ormore from keno, and recipients of suchpayments. This document also providesa notice of a public hearing on theseproposed regulations.

DATES: Written or electronic commentsmust be received by June 2, 2015. Out-lines of topics to be discussed at thepublic hearing scheduled for June 17,2015 at 10 a.m. must be received byJune 2, 2015.

ADDRESSES: Send submissions to: CC:PA: LPD:PR (REG–132253–11), Room5205, Internal Revenue Service, P.O. Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand-delivered Monday through Friday be-tween the hours of 8 a.m. and 4 p.m. toCC:PA:LPD:PR (REG–132253–11), Couri-er’s Desk, Internal Revenue Service,1111 Constitution Avenue, N.W., Wash-ington, DC, or sent electronically, viathe Federal eRulemaking Portal athttp://www.regulations.gov (IRS REG–132253–11). The public hearing will beheld in the IRS Auditorium, Internal Rev-enue Building, 1111 Constitution Avenue,N.W., Washington, DC.

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, David Bergman, (202) 317-6844; concerning submissions of com-ments, the hearing, or to be placed onthe building access list to attend the

hearing, Oluwafunmilayo P. Taylor(202) 317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposedregulations to Title 26 of the Code ofFederal Regulations under section 6041of the Internal Revenue Code. The pro-posed regulations would update andsimplify the existing information report-ing requirements under § 7.6041–1 ofthe Temporary Income Tax Regulationsunder the Tax Reform Act of 1976 forpersons who make reportable paymentsof bingo, keno, or slot machine win-nings. The updated requirements areproposed to be set forth in a new§ 1.6041–10 of the regulations. Accord-ingly, when § 1.6041–10 of the pro-posed regulations becomes final, theregulations under § 7.6041–1 will beremoved.

Section 6041 generally requires in-formation reporting by every person en-gaged in a trade or business who, in thecourse of such trade or business, makespayments of gross income of $600 ormore in any taxable year. The currentregulatory reporting thresholds for win-nings from bingo, keno, and slot ma-chines deviate from this general rule.Prior to the adoption of the currentthresholds in 1977, reporting frombingo, keno, and slot machines wasbased a sliding scale threshold tied tothe amount of the wager and requiredthe wager odds to be at least 300 to 1.On January 7, 1977, temporary regula-tion § 7.6041–1 was published estab-lishing reporting thresholds for pay-ments of winnings from bingo, keno,and slot machine play in the amount of$600. In Announcement 77– 63, 1977– 8IRB 25, the IRS announced that it wouldnot assert penalties for failure to fileinformation returns before May 1, 1977,to allow the casino industry to submit,and the IRS to consider, informationregarding the industry’s problems incomplying with the reporting require-ments. After considering the evidencepresented by the casino industry, theIRS announced in a press release thateffective May 1, 1977, information re-porting to the IRS would be required on

payments of winnings of $1,200 or morefrom a bingo game or a slot machineplay, and $1,500 or more from a kenogame net of the wager. On June 30,1977, § 7.6041–1 was amended to raisethe reporting thresholds for winningsfrom a bingo game and slot machineplay to $1,200, and the reporting thresh-old for winnings from a keno game to$1,500.

Section 7.6041–1(c) provides thatbingo, keno, and slot machine winningsare reported on the Form W–2G, “Cer-tain Gambling Winnings.” The payormust provide a copy of the Form W–2Gto the payee by January 31 of the yearfollowing the year in which the report-able payment is made, and the payormust file the Form W–2G with the IRSby February 28 of the year following theyear in which the reportable payment ismade. The Form W–2G must include,among other things, the name, address,and taxpayer identification number ofthe payee and a general description ofthe two forms of identification used toverify this information.

Explanation of Provisions

The current regulations governing in-formation reporting of winnings frombingo, keno, and slot machine play werepublished in 1977. There have been sig-nificant changes in gaming industrytechnology since that time. For instance,today many gaming establishments em-ploy electronic slot machines and othermechanisms, such as player’s cards, thatpermit electronic tracking of wagersand/or winnings. In addition, there havebeen many changes in the tax informa-tion reporting regime since the late1970s, such as the enactment of backupwithholding and requirements for elec-tronic filing of information returns, in-cluding the Form W–2G. Current regula-tions under § 7.6041–1 of the TemporaryIncome Tax Regulations do not take thesechanges into account. Accordingly, theTreasury Department and the IRS thinkthe regulations for reporting winningsfrom bingo, keno, and slot machine playneed to be updated in light of these devel-opments and that there are opportunitiesto reduce burden and simplify reporting.The changes proposed by this documentare intended to accomplish these goals. In


addition, the Treasury Department and theIRS specifically request comments on cer-tain topics addressed by the regulations.

Filing Requirement

Proposed § 1.6041–10(a) retains thegeneral rule from § 7.6041–1 of the Tem-porary Income Tax Regulations that ev-ery person engaged in a trade or busi-ness who, in the course of its trade orbusiness, pays reportable gambling win-nings must make an information returnwith respect to such payments. Proposed§ 1.6041–10(a) clarifies that, consistentwith current law and as provided in§ 1.6041–1(b) of the regulations, theterm “persons engaged in a trade orbusiness” includes not only those en-gaged in a trade or business for profit orgain, but also organizations whose ac-tivities are not for profit or gain, such astax-exempt organizations and govern-mental entities.

Proposed § 1.6041–10(b) sets thresh-olds for when winnings from bingo,keno, and slot machine play will betreated as reportable gambling winningsand subject to reporting. Existing§ 7.6041–1(b) of the Temporary IncomeTax Regulations sets one threshold forbingo and slots, and a different thresh-old for keno. In addition, under§ 7.6041–1(b) of the Temporary IncomeTax Regulations, winnings from a kenogame are reduced by the amount wa-gered in that game in determiningwhether the reporting threshold is satis-fied, whereas for bingo and slot machineplay winnings are not reduced by theamount wagered in determining whetherthe reporting threshold is satisfied.

Under the proposed regulations, the re-porting thresholds for winnings frombingo, keno and slot machine play (otherthan electronically tracked slot machineplay) remain the same as under the ex-isting regulations. These thresholds areintended to reach a balance between re-porting burden and compliance risk.Based on over 35 years of experiencewith the current thresholds, the IRSthinks they are sufficient at this time toverify correct reporting of wagering in-come. Accordingly, § 1.6041–10(b) ofthe proposed regulations provides thatreportable gambling winnings means (i)$1,200 or more in the case of one bingo

game or slot machine play, and (ii)$1,500 or more in the case of one kenogame. However, advances in technologyin the nearly four decades since the ex-isting rules were adopted may overcomethe compliance concerns that promptedthe higher reporting thresholds and maywarrant reducing the thresholds forbingo, keno, and slots to $600, consis-tent with other information reportingthresholds under § 6041(a). Accord-ingly, the IRS and Treasury will con-tinue to monitor the effectiveness of theexisting (and proposed) reportingthresholds, and may propose to reducethose thresholds at a future time. Com-ments are specifically requested regard-ing the proposed reporting thresholds,including the feasibility of reducingthose thresholds to $600 at a future time,whether electronically tracked slot ma-chine play should have a separate re-porting threshold, and whether theamounts should be uniform for bingo,keno, and slot machine play.

In addition, the proposed regulationsretain the rule from § 7.6041–1(b) of theTemporary Income Regulations that, indetermining whether the reportingthreshold is satisfied, the amount of thewinnings from bingo or slot machineplay is not reduced by the amount wa-gered, but the amount of winnings fromone keno game is reduced by the amountwagered in that one game. Allowing thewinnings from one keno game to bereduced by the amount wagered in thatone game has been permitted by theregulations for over 35 years. This rulehas been relied upon by payors and is anestablished norm in the gaming indus-try. The proposed regulations do notpermit the winnings from one bingogame or slot machine pull to be reducedby the amount wagered in that one gameor pull because the IRS does not havedata indicating that this is feasible.Comments are requested regardingwhether reportable gambling winningsin the case of bingo and slot machineplay (other than electronically trackedslot machine play) should be determinedby netting the wager against the win-nings as with keno.

The proposed regulations also in-clude new rules for determining the re-porting threshold for electronically

tracked slot machine play. Under§ 1.6041–10(b)(1) of the proposed reg-ulations, electronically tracked slot ma-chine play means slot machine playwhere an electronic player system that iscontrolled by the gaming establishment(such as through the use of a player’scard or similar system) records theamount a specific individual won andwagered on slot machine play. The newreporting threshold rules for electroni-cally tracked slot machine play rules areintended to simplify reporting by allow-ing payors to leverage their existingtechnology and processes to report win-nings from electronically tracked slotmachine play. In addition, these changesare intended to facilitate reporting thatmore closely reflects gross income thatwill be reported by payees on their in-dividual income tax returns. See Notice2015–21 for more information on com-puting gross income attributable to elec-tronically tracked slot machine play.Comments are specifically requestedwith respect to the definitions of sessionand electronically tracked slot machineplay.

Under these new rules, gambling win-nings for electronically tracked slot ma-chine play must be reported when twocriteria are met: (i) the total amount ofwinnings earned from electronicallytracked slot machine play during a sin-gle session netted against the totalamount of wagers placed on electroni-cally tracked slot machines during thesame session is $1,200 or more; and (ii)at least one single win during the ses-sion (without regard to the amount wa-gered) equals or exceeds $1,200. Thefirst criterion helps to implement thesafe harbor for computing gross incomeattributable to electronically tracked slotmachine play described in Notice 2015–21. The second criterion is intended tobe consistent with the casino industry’scurrent practice of gathering payee in-formation when a player wins a singlejackpot that satisfies the reportingthreshold. The $1,200 threshold for eachcriterion is intended to balance reportingburden and compliance risk as discussedpreviously. Pursuant to § 1.6041–10(b)(3) of the proposed regulations, asession begins when a patron places thefirst wager on a particular type of game


at the payor’s gaming establishment andends when the patron places his or herlast wager on the same type of gamebefore the end of the same calendar dayat the same establishment. Under thisrule, reporting with respect to electron-ically tracked slot machine play is notrequired if no single win (without reduc-tion for the amount of the wager) meetsthe $1,200 reporting threshold or if thenet amount of winnings reduced by theamount of all wagers for the session isless than $1,200. However, if the $1,200reporting threshold for a single win issatisfied and all winnings from electron-ically tracked slot machine play during asession netted against all wagers onelectronically tracked slot machine playduring that session are $1,200 or more,gambling winnings for the session mustbe reported on a Form W–2G.

Proposed § 1.6041–10(b)(2) also in-cludes several clarifications regardingthe definition of reportable gamblingwinnings. First, the proposed regula-tions clarify that all winnings from allcards played during one bingo game arecombined and that all winnings from all“ways” on a multi-way keno ticket arecombined. Second, the proposed regula-tions clarify that winnings from differ-ent types of games are not combined todetermine whether the reporting thresh-olds are satisfied, and that bingo, keno,electronically tracked slot machine play,and slot machine play that is not elec-tronically tracked are all different typesof games.

Proposed § 1.6041–10(b)(4) also addsa definition of the term “slot machine” tothese information reporting regulations.Under this definition, a slot machine is adevice that, by application of the elementof chance, may deliver or entitle the per-son playing or operating the device toreceive cash, premiums, merchandise, ortokens, whether or not the device is oper-ated by inserting a coin, token, or similarobject. The definition of slot machine inthe proposed regulations is intended to beconsistent with § 44.4402–1(b)(1) of theWagering Tax Regulations.

Filing and Form and Content of theInformation Return

Proposed § 1.6041–10(d) retains therequirement in § 7.6041–1(c) of the Tem-

porary Income Tax Regulations that apayor of reportable gambling winningsfile a Form W–2G, “Certain GamblingWinnings,” or successor form, on or be-fore February 28 (or March 31, if filedelectronically) of the year following thecalendar year in which the reportablegambling winnings were paid. Outdatedreferences to the place of filing havebeen replaced with a requirement thatthe return is filed with the appropriateInternal Revenue Service location des-ignated in the instructions to the form.

Proposed § 1.6041–10(g) requires apayor of reportable gambling winningsto provide a statement of the reportablegambling winnings to each payee on orbefore January 31st of the calendar yearafter the calendar year in which thegambling winnings were paid. Although§ 7.6041–1 of the Temporary IncomeTax Regulations does not address whento provide statements to the payees, theproposed regulations are a restatementof the requirement to furnish statementsto payees in section 6041(d). In addi-tion, proposed § 1.6041–10(i) clarifiesthat the rules for reporting winningsfrom bingo, keno, and slot machine playunder proposed § 1.6041–10 do not ap-ply to payments made to foreign per-sons. Instead, gambling winnings paidto a foreign person are generally subjectto 30 percent withholding under sections1441(a) and 1442(a) and are reportableon Form 1042, Annual Withholding TaxReturn for U.S. Source Income of For-eign Persons, and Form 1042–S, For-eign Person’s U.S. Source Income Sub-ject to Withholding. Proposed § 1.6041–10(e) retains the rules in § 7.6041–1(c)of the Temporary Regulations regardingthe information that is required on thereturn, including the requirement thatthe payor describe on the return the twotypes of identification relied on to verifythe payee’s identity. However, proposed§ 1.6041–10(e) now requires that one ofthe forms of identification include thepayee’s photograph to ensure that cer-tain safeguards are in place to properlyidentify the payee. In addition, underproposed § 1.6041–10(f), the type ofidentification that is acceptable has beenexpanded.

Payee Identification

Section 7.6041–1(c)(3) of the Tempo-rary Income Tax Regulations, which hasbeen in place since 1977, provides that theidentification verifying the payee’s iden-tity must include the payee’s social secu-rity number. According to those regula-tions, examples of acceptable identificationinclude a driver’s license, a social securitycard, or a voter registration card. How-ever, today most forms of identification donot include a person’s social securitynumber. Therefore, many payees do nothave identification that contains the pay-ee’s social security number and, even ifthey do, they may not have this identifi-cation with them at the time that theyreceive a payment of reportable gamblingwinnings. To address this issue, § 1.6041–10(f) of the proposed regulations providesthat, in addition to government-issuedidentification, a properly completed FormW–9 signed by the payee is an acceptableform of identification to verify the payee’sidentifying information. This rule is con-sistent with procedures currently used bymany payors to address the fact that mostforms of identification do not contain so-cial security numbers. Accordingly, pay-ors who verify payee information usingidentification set forth in proposed§ 1.6041–10(f) before the date that finalregulations implementing these provisionsare published in the Federal Register willbe treated as meeting the requirements of§ 7.6041–1(c) of the Temporary IncomeTax Regulations.

Aggregate Reporting Method

Proposed § 1.6041–10(h) provides analternative method for reporting multiplewinnings from bingo, keno, and slots. Un-der current regulations, each payment ofgambling winnings from a single bingo orkeno game, or slot machine play thatmeets the reporting threshold is requiredto be reported on a Form W–2G to thesame payee. To simplify reporting, pro-posed § 1.6041–10(h) would allow apayor who makes more than one paymentof reportable gambling winnings to thesame payee from the same type of gameduring the same session to report the ag-gregate amount of such reportable gam-bling winnings on one Form W–2G. Thisaggregate reporting method may be used


at the payor’s option. Proposed § 1.6041–10(h)(3) sets forth certain recordkeepingrequirements for a payor using the aggre-gate reporting method.

Gambling Winnings Other ThanBingo, Keno, and Slot Machine Play

These proposed regulations apply toreporting of gambling winnings frombingo, keno, and slot machine play. TheTreasury Department and the IRS areaware that taxpayers required to reportwinnings from pari-mutuel gambling mayhave concerns, similar to those addressedin these proposed regulations, relating towhen wagers with respect to horse races,dog races, and jai alai may be treated asidentical. Identical wagers are combinedand offset against winnings to determineproceeds from the wager for purposes ofdetermining whether the reporting thresh-olds are satisfied. The Treasury Depart-ment and the IRS intend to amend theregulations under § 31.3402(q)–1 in amanner consistent with these proposedregulations and request comments fromthe public on this topic. In addition, com-ments are requested regarding whether theaggregate reporting method should beavailable for gambling winnings otherthan winnings from bingo, keno, and slotmachine play.

Proposed Effective/Applicability Date

These regulations are proposed to ap-ply to payments made on or after the dateof publication of the Treasury decisionadopting these rules as final regulations inthe Federal Register.

Special Analyses

It has been determined that this no-tice of proposed rulemaking is not asignificant regulatory action as definedin Executive Order 12866, as supple-mented by Executive Order 13563.Therefore, a regulatory assessment isnot required. It has been determined thatsection 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) doesnot apply to these regulations. It ishereby certified that this rule will nothave a significant economic impact on asubstantial number of small entities.This certification is based on the factthat this rule merely provides guidance

as to the timing and filing of informationreporting returns for payors who makereportable payments of bingo, keno, orslot machine winnings and who are re-quired by section 6041 to make returnsreporting those payments. The require-ment for payors to make informationreturns is imposed by statute and notthese regulations. In addition, this ruleis reducing the existing burden on pay-ors to comply with the statutory require-ment by simplifying the process for pay-ors to verify payees’ identities using abroader range of documents that aremore readily available and also by al-lowing payors to reduce the number ofinformation returns they issue if theyadopt the new aggregate reporting meth-odology in the regulations. Therefore, aRegulatory Flexibility Analysis underthe Regulatory Flexibility Act (5 U.S.C.Chapter 6) is not required. Pursuant tosection 7805(f) of the Internal RevenueCode, this notice of proposed rulemak-ing has been submitted to the ChiefCounsel for Advocacy of the SmallBusiness Administration for commenton its impact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments (asigned original and eight (8) copies) orelectronic comments that are submittedtimely to the IRS. In addition to the re-quests for comments noted in the Back-ground Section, Treasury and the IRS re-quest comments on any other aspects ofthe proposed rules, and any other issuesrelating to the payment of bingo, keno,and slot machine winnings that are notaddressed in the proposed regulations. Allcomments will be available at www.regulations.gov for public inspection andcopying.

A public hearing has been scheduledfor June 17, 2015, beginning at 10 a.m. inthe IRS Auditorium, Internal RevenueBuilding, 1111 Constitution Avenue,N.W., Washington, DC. Due to buildingsecurity procedures, visitors must enterat the Constitution Avenue entrance. Inaddition, all visitors must present photoidentification to enter the building. Be-cause of access restrictions, visitors willnot be admitted beyond the immediate

entrance area more than 30 minutes be-fore the hearing starts. For informationabout having your name placed on thebuilding access list to attend the hear-ing, see the “FOR FURTHER INFOR-MATION CONTACT” section of thispreamble.

The rules of § 601.601(a)(3) apply tothe hearing. Persons who wish to presentoral comments at the hearing must submitelectronic or written comments and anoutline of the topics to be discussed andthe time to be devoted to each topic(signed original and eight (8) copies) andan outline of the topics to be discussedand the time to be devoted to each topicby [INSERT 90 DAYS AFTER PUBLI-CATION IN THE FEDERAL REGIS-TER]. A period of 10 minutes will beallotted to each person for making com-ments. An agenda showing the schedulingof the speakers will be prepared after thedeadline for receiving outlines has passed.Copies of the agenda will be available freeof charge at the hearing.

Drafting Information

The principal author of these pro-posed regulations is Charles W. Gor-ham, formerly of the Office of the As-sociate Chief Counsel (Procedure andAdministration).

List of Subjects

26 CFR Part 1

Income taxes, Reporting and record-keeping requirements.

26 CFR Part 31

Employment Taxes and Collection ofIncome Tax at Source.

Proposed Amendment to theRegulations

Accordingly, 26 CFR parts 1 and 31are proposed to 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 1.6041–10 is added to

read as follows:


§ 1.6041–10 Return of information as topayments of winnings from bingo, keno,and slot machine play.

(a) In general. Every person engagedin a trade or business (as defined in§ 1.6041–1(b)) and who, in the course ofsuch trade or business, makes a paymentof reportable gambling winnings (definedin paragraph (b)(2) of this section) mustmake an information return with respectto such payment. Unless the provisions ofparagraph (h) of this section (regardingaggregate reporting) apply, a separate in-formation return is required with respectto each payment of reportable gamblingwinnings.

(b) Definitions. (1) Electronicallytracked slot machine play. For purposes ofthis section, the term “electronicallytracked slot machine play” means slotmachine play using an electronic playersystem that is controlled by the gamingestablishment (such as through the useof a player’s card or similar system) thatrecords the amount a specific individualwon and wagered on slot machine play.

(2) Reportable gambling winnings. (i)For purposes of this section, the term “re-portable gambling winnings” is defined asfollows:

(A) For bingo, the term “reportablegambling winnings” means winnings of$1,200 or more from one bingo game,without reduction for the amount wa-gered. All winnings received from all wa-gers made during one bingo game arecombined (for example, all winnings fromall cards played during one bingo gameare combined).

(B) For keno, the term “reportablegambling winnings” means winnings of$1,500 or more from one keno game re-duced by the amount wagered on the samekeno game. All winnings received fromall wagers made during one keno gameare combined (for example, all winningsfrom all “ways” on a multi-way kenoticket are combined).

(C) For slot machine play (other thanelectronically tracked slot machine play asdefined in paragraph (b)(1) of this sec-tion), the term “reportable gambling win-nings” means winnings of $1,200 or morefrom one slot machine play, without re-duction for the amount wagered.

(D) For electronically tracked slotmachine play (as defined in (b)(1) of thissection), the term “reportable gamblingwinnings” means net winnings of$1,200 or more, but only if the winningsfrom at least one electronically trackedslot machine play during the session,without reduction for any amount wa-gered, is $1,200 or more. For purposesof this paragraph (b)(2)(i)(D) of thissection, net winnings is determined bycombining the amount of all winningsfrom all electronically tracked slot ma-chine play during the session reduced bythe amount of all wagers from all elec-tronically tracked slot machine play dur-ing the same session.

(ii) Winnings and wagers from differ-ent types of games are not combined todetermine if the reporting threshold is sat-isfied. Bingo, keno, and slot machine playare different types of games. Electroni-cally tracked slot machine play and slotmachine play that is not electronicallytracked are different types of games.

(iii) Winnings include the fair marketvalue of a payment in any medium otherthan cash.

(iv) The amount wagered in the case ofa free play is zero.

(v) For purposes of paragraph(b)(2)(i)(D) of this section, with respectto electronically tracked slot machineplay, if the amount wagered during asession exceeds the amount won duringthe same session, the amount of win-nings is zero.

(3) Session. For purposes of this sec-tion, a session of play begins when a pa-tron places the first wager on a particulartype of game at a gaming establishmentand ends when the patron places his or herlast wager on the same type of game be-fore the end of the same calendar day atthe same gaming establishment. For pur-poses of this section, the time is deter-mined by the time zone of the locationwhere the patron places the wager. Asession of play is always determinedwith reference to a calendar day (24-hour period from 12 a.m. through 11:59p.m.) and ends no later than the end ofthat calendar day. Nothing in this sec-tion prohibits a payor from terminatinga session for any reason before the endof that calendar day.

(4) Slot machine. The term “slot ma-chine” means a device that, by applicationof the element of chance, may deliver, orentitle the person playing or operating thedevice to receive cash, premiums, mer-chandise, or tokens whether or not thedevice is operated by insertion of a coin,token, or similar object.

(c) Examples. The following examplesillustrate the provisions of paragraphs (a)and (b) of this section:

Example 1. At 10 a.m., A wagers $20 at casino Ron one play on a slot machine that is not electroni-cally tracked. A wins $1,200 from this wager. At 2p.m. on the same day, A wagers $100 on one kenogame at casino R. A wins $1,550 from that wager. Amakes no other wagers that day:

(i) Under paragraph (b)(2)(i)(C) of this section,A’s $1,200 in winnings from slot machine play thatis not electronically tracked are not reduced by theamount wagered. Therefore, the $1,200 winningsfrom slot machine play that is not electronicallytracked are reportable gambling winnings. R mustreport the $1,200 in winnings from slot machine playthat it pays to A.

(ii) Under paragraph (b)(2)(ii) of this section,because winnings from different types of games arenot combined to determine whether the threshold forreportable gambling winnings is satisfied, A’s win-nings from slot machine play that is not electroni-cally tracked are not combined with A’s winningsfrom keno. A’s winnings from keno are below the$1,500 reporting threshold for keno, because thegross amount of $1,550 that A won is reduced by the$100 amount that A wagered. R is therefore notrequired to report the winnings from keno that itpays to A under paragraph (b)(2)(i)(B) of this sec-tion.

Example 2. Between 11 a.m. and 11 p.m. on thesame day, B places five wagers of $20 each at casinoQ on slot machine play that is not electronicallytracked. B wins a total of $1,600 during that periodof time as follows: an $800 win on the first play, nowin on the second play, no win on the third play, a$600 win on the fourth play, and a $200 win on thefifth play. Under paragraph (b)(2)(i)(C) of thissection, winnings from slot machine play that isnot electronically tracked are not combined todetermine whether the reporting threshold is sat-isfied. Therefore, none of B’s winnings is a report-able gambling winning and Q is not required toreport winnings from slot machine play that itpays to B.

Example 3. During one session at casino R, Cplaces two $20 wagers on one electronicallytracked slot machine and three $20 wagers on adifferent electronically tracked slot machine. Thefirst four wagers result in no wins. The fifth wagerresults in a win of $2,000. C makes no furtherwagers on any games at R during the same session.C’s combined winnings for the session ($2,000)reduced by C’s combined wagers for the session($100) is $1,900, which is over the $1,200 thresh-old described in paragraph (b)(2)(i)(D) of thissection. In addition, C had one win in the samesession of $1,200 or more ($2,000 win). There-


fore, under paragraph (b)(2)(i)(D) of this section,R paid reportable gambling winnings with respectto electronically tracked slot machine play of$1,900. Accordingly, R must report the winningsof $1,900 that it paid to C.

Example 4. Assume the same facts as in Example3, except that the fourth wager results in an $800 winand the fifth wager results in a $1,000 win. C’scombined winnings for the session of $1,800 ($800� $1,000) reduced by C’s combined wagersplaced during the session of $100 is $1,700. How-ever, C did not have a single win during thatsession of $1,200 or more, as required under para-graph (b)(2)(i)(D) of this section, for there to bereportable gambling winnings from electronicallytracked slot machine play. Accordingly, R is notrequired to report the winnings from the sessionfrom electronically tracked slot machine play thatit pays to C.

Example 5. During one session, D places ten$200 wagers on electronically tracked slot machineplay at casino S. The first nine wagers result in nowins. The last wager results in a $1,500 win. D’scombined winnings for the session ($1,500) reducedby D’s combined wagers placed during the session($2,000) did not result in any net winnings fromelectronically tracked slot machine play during thesession. Under paragraph (b)(2)(i)(D) of this sec-tion, gambling winnings from a session of elec-tronically tracked slot machine play are not report-able gambling winnings unless they include asingle win of $1,200 or more and the net amountof all winnings during the session reduced by allwagers placed during the session is $1,200 ormore. Here, there was a single win of $1,500,which exceeds the threshold for a single win underparagraph (b)(2)(i)(D) of this section. However,because the net amount of the winnings reducedby all the wagers placed during the session is not$1,200 or more, paragraph (b)(2)(i)(D) of thissection is not satisfied. Therefore, during the ses-sion, D did not have reportable gambling winningswith respect to electronically tracked slot machineplay during the session and S is not required toreport the winnings it pays D with respect toelectronically tracked slot machine play duringthis session.

Example 6. During one session, E places five$20 wagers at casino T on slot machine play thatis not electronically tracked. The first four wagersresult in no wins. The fifth wager results in a winof $1,200. During the same session, E also placesfive $20 wagers at casino T on slot machine playthat is electronically tracked. The first four wagersresult in no wins. The fifth wager results in a winof $1,400. E makes no wagers on any other gamesat T during that session. Under paragraph(b)(2)(ii) of this section, winnings from slot ma-chine play that is not electronically tracked andwinnings from electronically tracked slot machineplay are not combined. However, even withoutcombining the winnings from both types of slotmachine play, T paid reportable gambling win-nings with respect to both the slot machine playthat is not electronically tracked, and electroni-cally tracked slot machine play as follows:

(i) Under paragraph (b)(2)(i)(C) of this section,E’s $1,200 of winnings from slot machine play

that is not electronically tracked is not reduced bythe amount wagered, even though all of E’s wa-gers were placed during the same session. Accord-ingly, the $1,200 of winnings from slot machineplay that is not electronically tracked meets thethreshold in paragraph (b)(2)(i)(C) of this sectionand T must report the $1,200 in winnings from slotmachine play that is not electronically tracked thatit pays to E.

(ii) Because E’s combined winnings from elec-tronically tracked slot machine play during thesession ($1,400) reduced by E’s combined wagerson electronically tracked slot machine play placedduring the session ($100) is $1,200 or more($1,400�$100 � $1,300) and E had at least onewin during the same session of $1,200 or more (awin of $1,400), under paragraph (b)(2)(i)(D) ofthis section, T paid E reportable gambling win-nings with respect to electronically tracked slotmachine play. Accordingly, T must also reportwinnings from the electronically tracked slot ma-chine play during the session of $1,300 that it paysto E.

Example 7. During the same session, F makesfive $20 wagers at casino V on slot machine playthat is electronically tracked on the same slotmachine. The first three wagers result in no wins.The fourth wager results in a win of $900. Thefifth wager results in a win of $1,100. After thefifth wager, F uses free play to make a wager. Thefree play wager occurs during the same session asthe five wagers and is also electronically tracked.As a result of the free play, F wins $1,200. In thiscase, there are reportable gambling winnings fromelectronically tracked slot machine play. Underparagraph (b)(2)(i)(D) of this section, F’s com-bined winnings from electronically tracked slotmachine play during the session ($3,200) reducedby F’s combined wagers placed on electronicallytracked slot machine play during the session (($20x 5) � 0 � $100) is $3,100, and F had at least onewin in the same session of $1,200 or more (a winof $1,200 from the free play). Accordingly, Vmust report the $3,100 of winnings from the elec-tronically tracked slot machine play during thesession that it pays to F.

Example 8. Between 11 p.m. and 11:59 p.m. onDay 1, G makes five $20 wagers at casino W on slotmachine play that is electronically tracked. The firstfour wagers placed on Day 1 result in no wins. Thefifth wager placed on Day 1 results in an $800 win.Between 12:00 a.m. and 12:15 a.m. on Day 2, Gmakes two $20 wagers on the same slot machine atcasino W that is electronically tracked. The firstwager placed on Day 2 results in a win of $600. Thesecond wager placed on Day 2 results in a win of$900.

(i) Under paragraphs (b)(2)(i)(D) and (b)(3) ofthis section, the winnings from one session ofelectronically tracked slot machine play are notcombined with the winnings from another sessionof electronically tracked slot machine play forpurposes of determining reportable gambling win-nings. In this case, G engaged in electronicallytracked slot machine play during two sessions,even though he played the same type of game onthe same machine at the same gambling establish-ment. Therefore, each session must be analyzed to

determine whether there were reportable gamblingwinnings from electronically tracked slot machineplay.

(ii) During the session on Day 1, G won $800.Because no single win was $1,200 or more on Day 1,there were no reportable gambling winnings fromelectronically tracked slot machine play on Day 1under paragraph (b)(2)(i)(D) of this section, and Wdoes not have to report the winnings from electron-ically tracked slot machine play on Day 1 that it paidto G.

(iii) During the session on Day 2, G won $600and $900. Because no single win was $1,200 or moreon Day 2, there were no reportable gambling win-nings from electronically tracked slot machine playon Day 2 under paragraph (b)(2)(i)(D) of this sec-tion, and W does not have to report the winningsfrom electronically tracked slot machine play on Day2 that it paid to G.

(d) Prescribed form; time and place forfiling the return. The return described inparagraph (a) of this section is a FormW–2G, “Certain Gambling Winnings” orsuccessor form. The Form W–2G must befiled with the appropriate Internal Reve-nue Service location designated in the in-structions to the form on or before Febru-ary 28 (March 31, if filed electronically)of the year following the calendar year inwhich the reportable gambling winningswere paid. See section 6011 and§ 1.6011–2 for requirements to file elec-tronically.

(e) Information included on the return.Each return required by paragraph (a) ofthis section must contain:

(1) The name, address, and taxpayeridentification number of the payor;

(2) The name, address, and taxpayeridentification number of the payee;

(3) A general description of the twotypes of identification (as described inparagraph (f) of this section), one ofwhich must have the payee’s photographon it, that the payor relied on to verify thepayee’s name, address, and taxpayer iden-tification number;

(4) The date and amount of payment;(5) The type of wagering transaction

(bingo, keno, slot machine play, or elec-tronically tracked slot machine play);

(6) In the case of a bingo or keno game,any number, color, or other designationassigned to the game for which the pay-ment is made;

(7) In the case of slot machine play(including electronically tracked slot ma-chine play), the identification number ofthe slot machine(s) (for example, locationand asset number);


(8) Any other information required bythe form, instructions, revenue procedure,or other applicable guidance published inthe Internal Revenue Bulletin.

In the case of aggregate reporting un-der paragraph (h) of this section, theamount of the payment in paragraphs(e)(4) is the aggregate amount of pay-ments of reportable gambling winningsfrom the same type of game (bingo,keno, slot machine play, or electroni-cally tracked slot machine play) made tothe same payee during the same session(as defined in paragraph (b)(3) of thissection). Unless otherwise provided informs, instructions, or other guidance,in the case of aggregate reporting underparagraph (h) of this section the infor-mation required by paragraphs (e)(5),(6), (7) of this section, and this para-graph (e)(8) must be maintained by thepayor as described in paragraph (h)(3)of this section.

(f) Identification. The following itemsare treated as identification for purposesof paragraph (e)(3) of this section—

(1) Government-issued identification(for example, a driver’s license, passport,social security card, military identificationcard, or voter registration card) in thename of the payee; and

(2) A Form W–9, “Request for Tax-payer Identification Number and Certi-fication,” signed by the payee, that in-cludes the payee’s name, address,taxpayer identification number, andother information required by the form.A Form W–9 is not acceptable for thispurpose if the payee has modified theform (other than pursuant to instructionsto the form) or if the payee has deletedthe jurat or other similar provisions bywhich the payee certifies or affirms thecorrectness of the statements containedon the form.

(g) Furnishing a statement to thepayee. Every payor required to make areturn under paragraph (a) of this sectionmust also make and furnish to each payee,with respect to each payment of reportablegambling winnings, a written statementthat contains the information that is re-quired to be included on the return underparagraph (e) of this section. The payormust furnish the statement to the payeeon or before January 31st of the yearfollowing the calendar year in which

payment of the reportable gamblingwinnings is made. The statement will beconsidered furnished to the payee if it isprovided to the payee at the time ofpayment or if it is mailed to the payee onor before January 31st of the year fol-lowing the calendar year in which pay-ment was made.

(h) Aggregate reporting of bingo, keno,and slot machine winnings. (1) In general.In lieu of filing a separate informationreturn for each payment of reportablegambling winnings as required by para-graph (a) of this section, a payor mayuse the aggregate reporting method (de-fined in paragraph (h)(2) of this section)to report reportable gambling winningsfrom bingo, keno, or slot machine play(including electronically tracked slotmachine play). A payor using the aggre-gate reporting method to file informa-tion returns under paragraph (a) of thissection must also furnish statements tothe payee under paragraph (g) of thissection using the aggregate reportingmethod.

(2) Aggregate reporting method de-fined. (i) The aggregate reporting methodis a method of reporting more than onepayment of reportable gambling winningsfrom the same type of game (bingo, keno,slot machine play, or electronicallytracked slot machine play) made to thesame payee during the same session (asdefined in this paragraph (b)(3) of thissection) on one information return orstatement.

(ii) A payor may use the aggregatereporting method for payments to somepayees and not others, at its own discre-tion. In addition, with respect to a singlepayee, the payor may use the aggregatereporting method to report winnings fromone type of game, but not for winningsfrom another type of game.

(iii) Failure to report some reportablegambling winnings from a particular typeof game during one session to a particularpayee under the aggregate reportingmethod (for whatever reason, includingbecause the winnings are not permitted tobe reported using the aggregate reportingmethod under paragraph (h)(4) of this sec-tion) will not disqualify the payor fromusing the aggregate reporting method toreport other reportable gambling winnings

from that type of game during that sessionto that payee.

(3) Recordkeeping under the aggregatereporting method. A payor using the ag-gregate reporting method must maintaina record of every payment of reportablegambling winnings from the same typeof game made to the same payee duringthe session that will be reported usingthe aggregate reporting method. Everyindividual that the payor has determinedis responsible for an entry in the recordmust confirm the information in the en-try by signing the record in a mannerthat will enable the signature to be as-sociated with the relevant entry. Eachpayment of a reportable gambling win-ning made to the same payee and re-ported under the aggregate reportingmethod must have its own entry in therecord, however, the information re-quired by paragraphs (e)(1), (e)(2), and(e)(3) of this section is not required tobe recorded more than one time per ses-sion. A payor that uses the aggregatereporting method must retain a copy ofthe record in its files. The record (whichmay be electronic provided the require-ments set forth in forms, instructions, orguidance published in the Internal Rev-enue Bulletin are met) must include thefollowing information about each pay-ment:

(i) The payee’s signature confirmingthe information in the record;

(ii) The information required underparagraph (e) of this section;

(iii) The time of the win resulting in thereportable gambling winnings;

(iv) Except in the case of electronicallytracked slot machine play, the totalamount of reportable gambling winnings;

(v) In the case of electronically trackedslot machine play—

(A) The total amount of the winningsduring the session from electronicallytracked slot machine play; and

(B) The total amount of the wagersplaced during the session on electronicallytracked slot machine play;

(vi) The amount of reportable gam-bling winnings;

(vii) The method of payment to thepayee (for example, cash, check, voucher,token, or chips); and

(viii) The name and gaming licensenumber of the individual that the payor


has determined is responsible for ensur-ing that the entry with respect to thereportable gambling winnings (includ-ing the general description of two typesof identification used to verify the pay-ee’s name, address, and taxpayer iden-tification number) is complete and accu-rate. Such individual may or may not bethe same individual who prepared theentry.

(4) When the aggregate reportingmethod may not be used. A payor cannotuse the aggregate reporting method if—

(i) The payee is a foreign person;(ii) The payor knows or has reason to

know that the person making the wageris not the person entitled to the winningsor is not the only person entitled to thewinnings (regardless of whether the per-son making the wager furnishes a Form5754, “Statement by Person(s) Receiv-ing Gambling Winnings,” or successorform); or

(iii) Backup withholding under section3406(a) applies to the payment.

(5) Examples. The following examplesillustrate the provisions of this paragraph(h):

Example 1. On Day 1, C places five wagers atcasino R on five different slot machines that are notelectronically tracked. The first two wagers result inno win. The third wager results in a $1,500 win. Thefourth wager results in a $2,500 win. The fifth wagerresults in an $800 win:

(i) Under paragraph (b)(2)(i)(C) of this section,there are reportable gambling winnings from the slotmachine play that is not electronically tracked of$4,000 ($1,500 � $2,500). The $800 win is not areportable gambling winning from slot machine playthat is not electronically tracked because it does notequal or exceed the $1,200 threshold.

(ii) Because all of the amounts were won on thesame type of game (even though each of the win-nings occurred on different machines) during thesame session, R is permitted to use the aggregatereporting method under this paragraph (h). If R de-cides not to use the aggregate reporting method andmeets the requirements of paragraph (h), a separateForm W–2G would have to be filed and furnished forthe payment of reportable gambling winnings of$1,500 and for the payment of reportable gamblingwinnings of $2,500. However, if R decides to use theaggregate reporting method, R may report total re-portable gambling winnings from slot machine playthat is not electronically tracked of $4,000 ($1,500 �$2,500) on one Form W–2G.

Example 2. Assume the same facts as Example 1,except that in addition to the winnings described inExample 1, at 1 a.m. on Day 2, C wins $3,250 fromone slot machine play that is not electronicallytracked at casino R. Even though C played the same

type of game (slot machines that are not electroni-cally tracked) on Day 1 and Day 2, because underparagraph (b)(3) of this section the win at 1 a.m. onDay 2 is a win during a new session, under paragraph(h)(2)(i) of this section the $3,250 of reportablegambling winnings cannot be aggregated with thereportable gambling winnings of $4,000 from Day 1on a single Form W–2G. Accordingly, if R uses theaggregate reporting method, R must file two FormsW–2G with respect to C’s reportable gambling win-nings on Day 1 and Day 2. R must report $4,000 ofreportable gambling winnings from slot machineplay paid to C on Day 1 on the first Form W–2G, and$3,250 of reportable gambling winnings from slotmachine play paid to C on Day 2 on the second FormW–2G.

Example 3. At 2 p.m. on Day 1, D won $2,000(after reducing the amount of the win by the amountwagered) playing one keno game at casino S. Dprovides S with his driver’s license. The driver’slicense has D’s photograph on it, as well as D’s nameand address. The driver’s license does not includeD’s social security number. D cannot remember hissocial security number and has no other identifica-tion at the time with his social security number on it.D does not provide S with his social security numberbefore S pays the winnings to D. Because D cannotremember his social security number, D cannot com-plete and sign a Form W–9. S deducts and withholds$560 (28 percent of $2,000) under the backup with-holding provisions of section 3406(a) and pays theremaining $1,440 in winnings to D. D returns tocasino S and at 6 p.m. on Day 1 wins $1,500 (afterreducing the amount of the win by the amount wa-gered) in one keno game. D provides S with hisdriver’s license as well as D’s social security card. Sgenerally uses the aggregate reporting method and inall cases where it is used, S complies with the re-quirements of this paragraph (h). At 8 p.m. and 10p.m. on Day 1, D wins an additional $1,800 and$1,700 (after reducing the amount of the win by theamount wagered), respectively, from two differentkeno games. For each of these two wins, an em-ployee of S obtains the information from D requiredby this paragraph (h):

(i) Under paragraph (b)(2)(i)(B) of this section,each of D’s wins from the four games of keno onDay 1 ($2,000, $1,500, $1,700, and $1,800) arereportable gambling winnings. Because D’s first winon Day 1 was at 2 p.m. and D’s last win on Day 1was at 10 p.m., all of D’s reportable gambling win-nings from keno are won during the same session.Because S satisfies the requirements of paragraph(h)(2)(i), S may use the aggregate reporting methodto report D’s reportable gambling winnings fromkeno. However, pursuant to paragraph (h)(4)(iii) ofthis section, the $2,000 payment made to D at 2 p.m.cannot be reported under the aggregate reportingmethod because that payment was subject to backupwithholding. Accordingly, if S uses the aggregatereporting method under this paragraph (h), S willhave to file two Forms W–2G with respect to D’sreportable gambling winnings from keno on Day 1.On the first Form W–2G, S will report $2,000 ofreportable gambling winnings and $560 of backupwithholding with respect to the 2 p.m. win fromkeno, and on the second Form W–2G S will report

$5,000 of reportable gambling winnings from keno(representing the three payments of $1,500, $1,700,and $1,800 that D won between 6 p.m. and 10 p.m.on Day 1).

Example 4. In one session on Day 1, E won fivereportable gambling winnings from five differentbingo games at a casino T. T generally uses theaggregate reporting method and in all cases where itis used, T complies with the requirements of thisparagraph (h). Although E signed the entry in therecord T maintains for payment of the first fourreportable gambling winnings, E refuses to sign theentry in the record for the fifth payment of reportablegambling winnings. T may use the aggregate report-ing method for the first four payments of reportablegambling winnings to E. However, because the entryin the record for the fifth payment of reportablegambling winnings does not include E’s signature,that payment may not be reported under the aggre-gate reporting method. Accordingly, if T uses theaggregate reporting method under paragraph (h) ofthis section, T must prepare two Forms W–2G asfollows: On the first Form W–2G, T must report thefirst four payments of reportable gambling winningsfrom bingo made to E on Day 1. On the second FormW–2G, T must report the fifth payment of reportablegambling winnings from bingo made to E on Day 1.

(i) Payments to foreign persons. See§ 1.6041–4 regarding payments to foreignpersons. See § 1.6049–5(d) for determin-ing whether the payee is a foreign person.

(j) Effective/applicability date. Thissection applies to payments of reportablegambling winnings from bingo, keno, slotmachine play, and electronically trackedslot machine play made on or after thedate these regulations are published asfinal regulations in the Federal Register.For payments made before that date, otherthan payments from electronically trackedslot machine play, payors may rely on theprovisions of these proposed regulations.

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOMETAX AT SOURCE

Par. 3. The authority citation for part31 continues to read in part as follows:

26 U.S.C. 7805* * *Par. 4. In § 31.3406(g)–2, paragraph

(d)(3) is amended by removing the text“§ 7.6041–1” and adding the text“§ 1.6041–10” in its place.

* * * * *

John Dalrymple,Deputy Commissioner forServices and Enforcement


Guidance RegardingReporting Income andDeductions of aCorporation That Becomesor Ceases to be a Memberof a Consolidated Group

REG–100400–14

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document containsproposed amendments to the consolidatedreturn regulations. These proposed regu-lations would revise the rules for reportingcertain items of income and deduction thatare reportable on the day a corporationjoins or leaves a consolidated group. Theproposed regulations would affect suchcorporations and the consolidated groupsthat they join or leave.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by June 4, 2015.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–100400–14), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand-delivered Monday through Friday betweenthe hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–100400–14), Courier’sDesk, Internal Revenue Service, 1111 Con-stitution Avenue, NW, Washington, DC, orsent electronically via the Federal eRule-making Portal at http://www.regulations.gov/ (IRS REG–100400–14).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, Russell G. Jones, (202) 317-6847; concerning the submission of com-ments or to request a public hearing, Olu-wafunmilayo (Funmi) P. Taylor, (202)317-6901 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation ofProvisions

1. Introduction

This notice of proposed rulemakingcontains proposed regulations that amend26 CFR part 1 under section 1502 of theInternal Revenue Code (Code). Section1502 authorizes the Secretary to prescriberegulations for corporations that join infiling a consolidated return, and it ex-pressly provides that those rules may bedifferent from the provisions of chapter 1of subtitle A of the Code that wouldapply if those corporations filed separatereturns. Terms used in the consolidatedreturn regulations generally are definedin § 1.1502–1.

These proposed regulations provideguidance under § 1.1502–76, which pre-scribes rules for determining the taxableperiod in which items of income, gain,deduction, loss, and credit (tax items) of acorporation that joins in filing a consoli-dated return are included. Section 1.1502–76(b) provides, in part, that if a corpora-tion (S) becomes or ceases to be a memberof a consolidated group during a consoli-dated return year, S must include in theconsolidated return its tax items for theperiod during which it is a member. S alsomust file a separate return (including aconsolidated return of another group) thatincludes its items for the period duringwhich it is not a member.

2. Prior and Current Regulations

On September 8, 1966, the IRS and theTreasury Department promulgated regula-tions under § 1.1502–76 in TD 6894, 31FR 11794 (1966 regulations). Section1.1502–76(b) of the 1966 regulations wassilent regarding the treatment of S’s taxitems that accrued on the day S became orceased to be a member of a consolidatedgroup (S’s change in status). Thus,whether S’s tax items for the day of S’schange in status should have been re-flected on S’s tax return for the shortperiod ending with S’s change in status, orwhether these tax items should have beenreflected instead on S’s tax return for theshort period beginning after S’s change in

status, was unclear under the 1966 regu-lations.

On August 15, 1994, the IRS and theTreasury Department published final reg-ulations (TD 8560; 59 FR 41666) under§ 1.1502–76(b) (current regulations) thatrevised the 1966 regulations to eliminateuncertainty regarding the treatment of taxitems recognized by S on the day of S’schange in status. Under the general rule of§ 1.1502–76(b)(1)(ii)(A)(1) of the currentregulations (current end of the day rule), Sis treated for all federal income tax pur-poses as becoming or ceasing to be amember of a consolidated group at the endof the day of S’s change in status, and S’stax items that are reportable on that daygenerally are included in the tax return forthe taxable year that ends as a result of S’schange in status.

The notice of proposed rulemaking thatproposed the current end of the day rule(57 FR 53634, Nov. 12, 1992) (1992NPRM) indicated that the current end ofthe day rule was intended to provide cer-tainty and prevent inconsistent reportingof S’s items between the consolidated andseparate returns. Prior to the 1992 NPRM,some taxpayers had inferred (based uponthe administrative practice of the IRS) thatthe inclusion in a particular return of a taxitem of S incurred on the day of S’schange in status depended on a factualdetermination of whether the transactionoccurred before or after noon on the dayof S’s change in status (the so-called“lunch rule”).

There are two exceptions to the currentend of the day rule. The first exception (in§ 1.1502–76(b)(1)(ii)(A)(2)) provides thatif a corporation is an S corporation (withinthe meaning of section 1361(a)(1)) imme-diately before becoming a member of aconsolidated group, the corporation be-comes a member of the group at the be-ginning of the day the termination of its Scorporation election is effective (termina-tion date), and its taxable year ends for allfederal income tax purposes at the end ofthe preceding day (S corporation excep-tion). The S corporation exception wasadded by TD 8842 (64 FR 61205; Nov.10, 1999) to eliminate the need to file aone-day C corporation return for the dayan S corporation is acquired by a consol-idated group. No additional rule was nec-essary with respect to a qualified S corpo-


ration subsidiary (QSub) of an Scorporation that joins a consolidatedgroup. See § 1.1361–5(a)(3).

Added at the same time as the currentend of the day rule, the second exception(in § 1.1502–76(b)(1)(ii)(B)) providesthat if a transaction occurs on the day ofS’s change in status that is properly allo-cable to the portion of S’s day after theevent resulting in S’s change in status, Sand certain related persons must treat thetransaction as occurring at the beginningof the following day for all federal incometax purposes (current next day rule). Thecurrent next day rule was added in re-sponse to comments to the 1992 NPRMsuggesting that the current end of the dayrule created a “seller beware” problemwith respect to S’s tax items arising on theday of S’s change in status but after theevent causing S’s change in status. Com-menters suggested that, for example, ifconsolidated group A sold the stock of Sto consolidated group B, and group Bcaused S to sell one of its divisions on thesame day it was acquired by group B, thegain from the sale of the division wouldbe inappropriately allocable to group A’sconsolidated return. Commenters recom-mended that final regulations adopt rulessubstantially similar to the current nextday rule to protect the reasonable expec-tations of sellers and buyers of S’s stock.Commenters suggested that a rule provid-ing this type of protection was most ap-propriate with respect to extraordinaryitems, and some commenters suggestedthat a rule similar to the current next dayrule should operate unless the seller andbuyer of S agreed otherwise.

3. Proposed Regulations

A. Overview

The IRS and the Treasury Departmenthave determined that changes should bemade to the regulations under § 1.1502–76(b) due to uncertainty regarding the ap-propriate application of the current nextday rule. These proposed regulations ad-dress this concern as well as additionalconcerns with the current regulations, assummarized in this section 3.A. and dis-cussed in greater detail in sections 3.B.through 3.K. of this preamble.

To provide certainty, the proposed reg-ulations generally clarify the period inwhich S must report certain tax items byreplacing the current next day rule with anew exception to the end of the day rule(proposed next day rule) that is more nar-rowly tailored to clearly reflect taxableincome and prevent certain post-closingactions from adversely impacting S’s taxreturn for the period ending on the day ofS’s change in status. The proposed nextday rule applies only to “extraordinaryitems” (as defined in § 1.1502–76(b)(2)(ii)(C) of the proposed regula-tions) that result from transactions thatoccur on the day of S’s change in status,but after the event causing the change, andthat would be taken into account by S onthat day. This rule requires those extraor-dinary items to be allocated to S’s taxreturn for the period beginning the nextday. The proposed next day rule is ex-pressly inapplicable to any extraordinaryitem that arises simultaneously with theevent that causes S’s change in status.

The proposed regulations further clar-ify that fees for services rendered in con-nection with S’s change in status consti-tute a “compensation-related deduction”for purposes of § 1.1502–76(b)(2)(ii)(C)(9) (ifpayment of the fees would give rise to adeduction), and therefore an extraordinaryitem. The proposed regulations also clar-ify that the anti-avoidance rule in§ 1.1502–76(b)(3) may apply to situationsin which a person modifies an existingcontract or other agreement in anticipationof S’s change in status.

The proposed regulations also add arule (previous day rule, described in sec-tion 3.C. of this preamble) to clarify theapplication of the S corporation excep-tion. In addition, the proposed regula-tions limit the scope of the end of theday rule, the next day rule, the S corpo-ration exception, and the previous dayrule to determining the period in whichS must report certain tax items and de-termining the treatment of an asset or atax item for purposes of sections 382(h)and 1374 (as opposed to applying for allfederal income tax purposes).

Additionally, the proposed regulationsprovide that short taxable years resultingfrom intercompany transactions to whichsection 381(a) applies (intercompany sec-tion 381 transactions) are not taken into

account in determining the carryover pe-riod for a tax item of the distributor ortransferor member in the intercompanysection 381 transaction or for purposes ofsection 481(a). Furthermore, the proposedregulations provide that the due date forfiling S’s separate return for the taxableyear that ends as a result of S becoming amember is not accelerated if S ceases toexist in the same consolidated return year.

The proposed regulations make severalother conforming and non-substantivechanges to the current regulations as well.Finally, the proposed regulations add sev-eral examples to illustrate the proposedrules.

The IRS and the Treasury Departmentnote that neither the current regulationsnor the proposed regulations are intendedto supersede general rules in the Code andregulations concerning whether an item isotherwise includible or deductible.

B. Proposed Next Day Rule

The current next day rule provides thatS and certain related persons must treat atransaction as occurring at the beginningof the day following S’s change in statusif the transaction occurs on the day of S’schange in status and is “properly alloca-ble” to the portion of that day followingS’s change in status. The IRS and theTreasury Department believe, however,that the standards provided in the currentnext day rule for determining whether atransaction is “properly allocable” to theportion of S’s day after the event resultingin S’s change in status have been inappro-priately interpreted by taxpayers. The cur-rent next day rule provides that a determi-nation of whether a transaction is“properly allocable” to the portion of S’sday after the event resulting in S’s changein status is respected if it is “reasonableand consistently applied by all affectedpersons.” In determining whether an allo-cation is “reasonable,” certain factors enu-merated in the current regulations are tobe considered, including whether taxitems arising from the same transactionare allocated inconsistently. Some taxpay-ers have interpreted these rules as provid-ing flexibility in reporting tax items thatresult from transactions occurring on theday of S’s change in status so that thoseitems can be allocated by agreement to the


day of, or to the day following, S’s changein status. The IRS and the Treasury De-partment view this interpretation of thecurrent next day rule as inappropriate be-cause it effectively would permit taxpay-ers to elect the income tax return on whichthese tax items are reported and thereforemay not result in an allocation that clearlyreflects taxable income. This electivity isinconsistent with the purpose of § 1.1502–76(b) to clearly reflect the income of Sand the consolidated group. Further, theIRS and the Treasury Department haveobserved that the current regulations cre-ate controversy between taxpayers and theIRS as to whether certain of S’s tax itemsthat become reportable on the day of S’schange in status are properly allocated toS’s tax return for the period ending thatday rather than to S’s tax return for theperiod beginning the next day.

The proposed next day rule is intendedto eliminate the perceived electivity andthe source of these controversies. Underthe proposed regulations, the applicationof the proposed next day rule is manda-tory rather than elective—if an extraordi-nary item results from a transaction thatoccurs on the day of S’s change in status,but after the event resulting in the change,and if the item would be taken into ac-count by S on that day, the transactionresulting in the extraordinary item istreated as occurring at the beginning ofthe following day for purposes of deter-mining the period in which S must reportthe item.

The proposed regulations also providethat the proposed next day rule is inappli-cable to items that arise simultaneouslywith the event that causes S’s change instatus. Under the end of the day rule (asrevised by these proposed regulations),those items are reported on S’s tax returnfor the short period ending on the day ofS’s change in status. The proposed regu-lations are expected to afford taxpayersand the IRS greater certainty regarding theperiod to which S’s tax items resultingfrom such a transaction are allocated.

C. Previous Day Rule

As noted in section 2 of this preamble,the special rule for S corporations pro-vides an exception to the end of the dayrule if an S corporation joins a consoli-

dated group. To avoid creating a one-dayC corporation tax return for the termina-tion date, the S corporation exception pro-vides that S becomes a member of thegroup at the beginning of the terminationdate, and that S’s taxable year ends for allfederal income tax purposes at the end ofthe preceding day.

Although these proposed regulationsretain the S corporation exception, theproposed regulations add a previous dayrule that mirrors the principles of the pro-posed next day rule. Whereas the pro-posed next day rule requires extraordinaryitems resulting from transactions that oc-cur on the day of S’s change in status (butafter the event causing the change) to beallocated to S’s tax return for the shortperiod that begins the following day, theprevious day rule requires extraordinaryitems resulting from transactions that oc-cur on the termination date (but before orsimultaneously with the event causing S’sstatus as an S corporation to terminate) tobe allocated to S’s tax return for the shortperiod that ends on the previous day (thatis, the day preceding the terminationdate).

D. Revised Scope of the End of the DayRule and Related Rules

Under the current end of the day rule, Sbecomes or ceases to be a member at theend of the day on which its status as amember changes, and its tax year ends“for all federal income tax purposes” atthe end of that day. However, applying theend of the day rule for purposes other thanthe reporting of S’s tax items could yieldresults inconsistent with other consoli-dated return rules. For example, under§§ 1.1502–13 and 1.1502–80(d)(1), if amember contributes property subject to aliability in excess of the property’s basisto a nonmember in exchange for the non-member’s stock, and if the transferee be-comes a member of the transferor’s con-solidated group as a result of theexchange, the transaction is treated as anintercompany transaction and section357(c) does not apply. However, if theend of the day rule applies “for all federalincome tax purposes,” it may be unclearwhether the transferee becomes a member“immediately after the transaction,”whether the transaction is an intercom-

pany transaction, and whether section357(c) could apply to the transaction.

To eliminate possible confusion arisingfrom application of the current end of theday rule and related rules, these proposedregulations provide that the end of the dayrule, the proposed next day rule, the Scorporation exception, and the previousday rule apply for purposes of determin-ing the period in which S must report itstax items, as well as for purposes of sec-tions 382(h) and 1374 (discussed in sec-tion 3.I. of this preamble).

E. Extraordinary Items

The proposed next day rule mandato-rily applies to extraordinary items that re-sult from a transaction that occurs on theday of S’s change in status but after theevent that causes the change. In contrast,the previous day rule mandatorily appliesto extraordinary items that result from atransaction that occurs on the day of S’schange in status but before or simultane-ously with the event that causes S’s statusas an S corporation to terminate.

One category of extraordinary items,set forth in § 1.1502–76(b)(2)(ii)(C)(9) ofthe current regulations, applies to any“compensation-related deduction in con-nection with S’s change in status.” Theproposed regulations clarify that this cat-egory of extraordinary items includes(among other items) a deduction for feesfor services rendered in connection withS’s change in status. For example, if pay-ment of a fee for the services of a financialadviser is contingent upon a successfulacquisition of S’s stock, to the extent thefee gives rise to a deduction, the deductionfor the accrual of that expense is an ex-traordinary item, and the deduction is al-lowable only in S’s taxable year that endsat the close of the day of the change.

The IRS and the Treasury Departmentrequest comments as to whether the list ofextraordinary items set forth in § 1.1502–76(b)(2)(ii)(C) should be modified to in-clude any item not currently listed orwhether any item currently includedshould be deleted or modified. Specifi-cally, the IRS and the Treasury Depart-ment are considering whether the item in§ 1.1502–76(b)(2)(ii)(C)(5) (“[a]ny itemcarried to or from any portion of the orig-inal year (e.g., a net operating loss carried


under section 172), and any section 481(a)adjustment”) should be modified to in-clude “any section 481(a) adjustment orthe acceleration thereof,” and whether theitem in § 1.1502–76(b)(2)(ii)(C)(6)(“[t]he effects of any change in account-ing method initiated by the filing of theappropriate form after S’s change in sta-tus”) should continue to be included in thelist of extraordinary items.

The IRS and the Treasury Departmentalso request comments as to whether anyextraordinary item should be excluded, inwhole or in part, from application of thenext day rule and the previous day rule. Inparticular, the IRS and the Treasury De-partment request comments as to whetherthe extraordinary items set forth in§ 1.1502–76(b)(2)(ii)(C)(5) and (6) ofthe current regulations should be ex-cluded, in whole or in part, from appli-cation of these rules.

F. Ratable Allocation

Rather than require S to perform a clos-ing of the books on the day of its changein status, the current regulations under§ 1.1502–76(b)(2)(ii) permit S’s taxitems, other than the extraordinary items,to be ratably allocated between S’s twoshort taxable years if certain conditionsare met. The IRS and the Treasury De-partment request comments as to whetherS no longer should be permitted to elect toratably allocate its tax items between theperiods ending and beginning with S’schange in status.

G. Certain Foreign Entities

Solely for purposes of determining theshort taxable year of S to which the itemsof a passthrough entity in which S ownsan interest are allocated, § 1.1502–76(b)(2)(vi)(A) of the current regulationsgenerally provides that S is treated as sell-ing or exchanging its entire interest in theentity immediately before S’s change instatus. This rule does not apply to certainforeign corporations the ownership ofwhich may give rise to deemed incomeinclusions under the Code. In addition, adeemed income inclusion from a foreigncorporation and a deferred tax amountfrom a passive foreign investment com-pany under section 1291 are treated as

extraordinary items under § 1.1502–76(b)(2)(ii)(C)(11). The IRS and the Trea-sury Department request comments as towhether such deemed income inclusionsor deferred tax amounts should continueto be treated as extraordinary items,whether rules having similar effects to therule in § 1.1502–76(b)(2)(vi)(A) relatingto passthrough entities should be adoptedfor controlled foreign corporations andpassive foreign investment companies inwhich S owns an interest, and whether anyother changes should be made to§ 1.1502–76(b)(2)(vi) of the current reg-ulations.

H. Anti-Avoidance Rule

Under § 1.1502–76(b)(3) of the currentregulations, if any person acts with a prin-cipal purpose contrary to the purposes of§ 1.1502–76(b) to substantially reduce thefederal income tax liability of any person(prohibited purpose), adjustments must bemade as necessary to carry out the pur-poses of § 1.1502–76 of the current regu-lations (anti-avoidance rule). The pro-posed regulations clarify that the anti-avoidance rule may apply to situations inwhich a person modifies an existing con-tract or other agreement in anticipation ofS’s change in status in order to shift anitem between the taxable years that endand begin as a result of S’s change instatus if such actions are undertaken witha prohibited purpose. The IRS and theTreasury Department request commentsregarding this proposed amendment to theanti-avoidance rule.

I. Coordination with Sections 382(h) and1374

1. Section 382

For purposes of section 382, the termrecognized built-in loss (RBIL) meansany loss recognized during the recognitionperiod on the disposition of any asset heldby the loss corporation immediately be-fore the date of the section 382 ownershipchange (change date), to the extent theloss reflects a built-in loss on the changedate. Section 382(h)(2)(B). The term rec-ognition period means the five-year pe-riod beginning on the change date. Section382(h)(7)(A).

Section 382(h)(1)(B) generally pro-vides that if a loss corporation has a netunrealized built-in loss (NUBIL), thenany RBIL taken into account in a tax-able year any portion of which falls inthe recognition period (recognition pe-riod taxable year) is treated as a deduc-tion subject to the loss corporation’ssection 382 limitation as if the RBILwere a pre-change loss. The amount ofRBILs subject to the section 382 limi-tation in any recognition period taxableyear is limited, however, to the excessof the NUBIL over total RBILs in priortaxable years ending in the recognitionperiod. (The amount of such excess isreferred to in this preamble as the out-standing NUBIL balance.) In otherwords, the amount of the NUBIL limitsthe amount of RBILs that are treated aspre-change losses, and any built-in losstreated as an RBIL further reduces theoutstanding NUBIL balance.

In many cases, the event that causesS’s change in status for purposes of§ 1.1502–76(b)(1)(ii) also causes S to un-dergo an ownership change for purposesof section 382. Thus, an item of deductionor loss that becomes reportable on the dayof S’s change in status falls within therecognition period beginning that day,even if the item is allocated to S’s shortperiod ending that day under the end ofthe day rule. As a consequence, an itemthat should be a pre-change loss is treatedas an RBIL that reduces the outstandingNUBIL balance. For example, assumeconsolidated group A sells all of S’s stockto consolidated group B. If on the day ofS’s change in status (but before the eventcausing the change), S recognizes a losson the sale of an asset, under the end ofthe day rule the loss is reported on groupA’s consolidated return. However, not-withstanding that the loss may not beclaimed by group B, the loss may betreated as an RBIL and reduce the out-standing NUBIL balance.

To prevent such an outcome, these pro-posed regulations provide that, for pur-poses of section 382(h), items includiblein the short taxable year that ends as aresult of S’s change in status (includingitems allocated to that taxable year underthe end of the day rule) are not treated asoccurring in the recognition period.Rather, only items includible in S’s short


taxable year that begins as a result of S’schange in status (including items allocatedto that taxable year under the proposednext day rule) are treated as occurring inthe recognition period. Therefore, the be-ginning of the recognition period for pur-poses of section 382(h) would correspondwith the beginning of S’s short taxableyear that begins on the day after S’schange in status.

2. Section 1374

Section 1374 generally imposes acorporate-level tax (section 1374 tax) onthe recognition of gain by an S corpora-tion that formerly was a C corporation (orthat acquired assets from a C corporationin a transferred basis transaction) during arecognition period specified in section1374(d)(7) (section 1374 recognition pe-riod), but only to the extent of the corpo-ration’s net recognized built-in gain (asdefined in section 1374(d)(2)) for a giventaxable year. The section 1374 tax alsoapplies to certain tax items attributable tothe corporation’s C corporation taxableyears. In addition, regulations under sec-tion 337(d) extend section 1374 treatmentto (1) a C corporation’s conversion to areal estate investment trust (REIT), reg-ulated investment company (RIC), andcertain tax-exempt entities, or (2) cer-tain cases in which a REIT, RIC, ortax-exempt entity acquires assets in atransferred basis transaction from a Ccorporation.

As with the application of section382(h), the event that causes S’s change instatus for purposes of § 1.1502–76(b)(1)(ii)may be the event that results in S being acorporation that is subject to the section1374 tax. Therefore, it is necessary todetermine in which return (the group’sconsolidated return or S’s separate returnbeginning the day after S’s change in sta-tus) S’s tax items for the day of S’schange in status are included. Similarly, ifthe event that causes S’s change in sta-tus for purposes of § 1.1502–76(b)(1)(ii)is the event that results in S ceasing tobe a corporation subject to the section1374 tax, it is necessary to determine inwhich return (the group’s consolidatedreturn or S’s separate return for the pe-riod ending the day before S’s change instatus) S’s tax items for the day of S’s

change in status are included. The pro-posed regulations thus provide that if Sceases to be a corporation subject to thesection 1374 tax upon becoming a mem-ber, or if S elects to be a corporation thatis subject to the section 1374 tax for itsfirst separate return year after ceasing tobe a member, S’s items of recognizedbuilt-in gain or loss for purposes of sec-tion 1374 will include only the amountsreported on S’s separate return (includ-ing items reported on that return underthe previous day rule or the next dayrule).

J. Intercompany Section 381Transactions

Under the current consolidated returnregulations, if a member distributes ortransfers its assets to another corporationthat is a member immediately after thedistribution or transfer in an intercompanysection 381 transaction, and if the distrib-utor or transferor member has a net oper-ating loss carryover or a net capital losscarryover, the distributor or transferormember will not be treated as having ashort taxable year for purposes of deter-mining the years to which the loss may becarried. Sections 1.1502–21(b)(3)(iii) and1.1502–22(b)(4).

These proposed regulations wouldamend current law by moving these rulesto § 1.1502–76(b)(2)(i) and making con-forming changes to §§ 1.1502–21(b)(3)(iii) and 1.1502–22(b)(4). In ad-dition, these proposed regulations wouldexpand these rules by providing that ashort taxable year of the distributor ortransferor member by reason of an inter-company section 381 transaction is notcounted as a separate taxable year forpurposes of determining either the tax-able years to which any tax attribute ofthe distributor or transferor membermay be carried or the taxable years inwhich an adjustment under section481(a) is taken into account. No infer-ence should be drawn from the proposedchanges to these rules as to whether ashort taxable year of a member resultingfrom an intercompany section 381 trans-action is counted under current law forpurposes of determining the years towhich a tax credit may be carried or in

which a section 481 adjustment is takeninto account.

K. Due Date for Filing Tax Returns

The proposed regulations also elimi-nate a provision that could cause taxpay-ers to inadvertently miss a return filingdeadline. Under § 1.1502–76(b)(4) of thecurrent regulations, if S joins a consoli-dated group, the due date for filing S’sseparate return is the earlier of the duedate (with extensions) of the group’s re-turn or the due date (with extensions) ofS’s return if S had not joined the group. IfS goes out of existence during the consol-idated return year in which S joins agroup, its taxable year would end. Undersection 6072, the due date for S’s shortperiod return would be the 15th day of thethird month (ninth month, with exten-sions) following the date on which Sceases to exist. Accordingly, if S ceases toexist during the same consolidated returnyear in which it becomes a member, thedue date for S’s tax return for the shortperiod that ended as a result of S becom-ing a member could be accelerated. Toprevent a taxpayer from inadvertentlymissing a filing date and being subject topotential penalties for filing a late return,the proposed regulations provide that if Sgoes out of existence in the same consol-idated return year in which it becomes amember, the due date for filing S’s sepa-rate return is determined without regard toS’s ceasing to exist.

L. Non-Substantive Changes

In addition to the changes describedin this preamble, the proposed regula-tions make several non-substantivechanges to the current regulations, in-cluding moving an example concerning§ 1.1502– 80(d) from the text of § 1.1502–76(b)(1)(ii)(B)(2) of the current regula-tions to § 1.1502–13(c)(7)(ii), Example3(e).

Effective/Applicability Date

The amendments to §§ 1.1502–21(b)(3)(iii), 1.1502–22(b)(4)(i), 1.1502–76(b)(2)(i), and 1.1502–76(b)(4) will ap-ply to consolidated return years beginningon or after the date these regulations arepublished as final regulations in the Fed-


eral Register. The other amendments to§ 1.1502–76(b) will apply to corporationsbecoming or ceasing to be members ofconsolidated groups on or after the datethese regulations are published as finalregulations in the Federal Register.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866, as supplemented byExecutive Order 13563. Therefore, aregulatory assessment is not required. Itis hereby certified that these regulationswill not have a significant impact on asubstantial number of small entities.This certification is based on the factthat the regulations apply only to trans-actions involving corporations that fileconsolidated federal income tax returns,and that such corporations tend to belarger businesses. Accordingly, a Regu-latory Flexibility Analysis under theRegulatory Flexibility Act (5 U.S.C.chapter 6) is not required. Pursuant tosection 7805(f) of the Code, these reg-ulations will be submitted to the ChiefCounsel for Advocacy of the SmallBusiness Administration for commenton their impact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, consider-ation will be given to any comments thatare submitted timely to the IRS as pre-scribed in this preamble under the “Ad-dresses” heading. The IRS and the Trea-sury Department request comments onall aspects of the proposed rules. Allcomments will be available for publicinspection and copying. A public hear-ing may be scheduled if requested inwriting by any person who timely sub-mits written comments. If a public hear-ing is scheduled, notice of the date,time, and place of the hearing will bepublished in the Federal Register.

Drafting Information

The principal author of these pro-posed regulations is Russell G. Jones ofthe Office of Associate Chief Counsel(Corporate). However, other personnel

from the IRS and the Treasury Depart-ment participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and record-keeping requirements.

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is pro-posed to 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 * * *Section 1.1361–5 also issued under 26

U.S.C. 1361. * * *Section 1.1362–3 also issued under 26

U.S.C. 1362. * * *Section 1.1502–13 also issued under

26 U.S.C. 1502. * * *Section 1.1502–21 also issued under




26 U.S.C. 382(m) and 26 U.S.C. 1502.* * *

§ 1.1361–5 [Amended]

Par. 2. Section 1.1361–5 is amended:1. In paragraph (a)(3), by removing

“§ 1.1502–76(b)(1)(ii)(A)(2) (relating to aspecial rule” and adding “§ 1.1502–76(b)(1)(ii)(B) (relating to special rules”in its place.

2. In paragraph (a)(4), Example 4, byremoving “§ 1.1502–76(b)(1)(ii)(A)(2)”and adding “§ 1.1502–76(b)(1)(ii)(B)(1)”in its place.

§ 1.1362–3 [Amended]

Par. 3. Section 1.1362–3 is amended inparagraph (a)(ii) by removing “§ 1.1502–76(b)(1)(ii)(A)(2)” and adding “§ 1.1502–76(b)(1)(ii)(B)” in its place.

Par. 4. Section 1.1502–13 is amendedby adding Example 3(e) to paragraph(c)(7)(ii) to read as follows:

§ 1.1502–13 Intercompany transactions.

* * * * *(c) * * *(7) * * *(ii) * * *Example 3. * * *

(e) Liability in excess of basis. Thefacts are the same as in paragraph (a) ofthis Example 3, except that S and B arenot members of the same consolidatedgroup immediately before S’s transfer ofthe land to B, and the land is encumberedwith an $80 liability. Immediately afterthe transfer, S and B are members of thesame consolidated group. Thus, the trans-fer is an intercompany transaction towhich section 357(c) does not apply pur-suant to § 1.1502–80(d).

* * * * *Par. 5. Section 1.1502–21 is amended

by revising paragraph (b)(3)(iii) and add-ing paragraph (h)(1)(iv) to read as fol-lows:

§ 1.1502–21 Net operating losses.

* * * * *(b) * * *(3) * * *(iii) Short years in connection with in-

tercompany transactions to which section381(a) applies. If a member distributes ortransfers assets in an intercompany trans-action to which section 381(a) applies, see§ 1.1502–76(b)(2)(i).

* * * * *(h) * * *(1) * * *(iv) Paragraph (b)(3)(iii) of this section

applies to consolidated return years begin-ning on or after the date these regulationsare published as final regulations in theFederal Register. For transactions occur-ring before the date these regulations arepublished as final regulations in the Fed-eral Register, see § 1.1502–21(b) as con-tained in 26 CFR part 1, revised as ofApril 1 preceding the date these regula-tions are published as final regulations inthe Federal Register.

* * * * *Par. 6. Section 1.1502–22 is amended

by:1. Revising paragraph (b)(4)(i).2. Revising the heading of paragraph

(h).


3. Adding paragraph (h)(1)(iii).The revisions and addition read as fol-

lows:

§ 1.1502–22 Consolidated capital gainand loss.

* * * * *(b) * * *(4) Special rules—(i) Short years in

connection with intercompany transac-tions to which section 381(a) applies. If amember distributes or transfers assets inan intercompany transaction to which sec-tion 381(a) applies, see § 1.1502–76(b)(2)(i).

* * * * *(h) Effective/applicability date—* * *(1) * * *(iii) Paragraph (b)(4)(i) of this section

applies to consolidated return years begin-ning on or after the date these regulationsare published as final regulations in theFederal Register. For transactions occur-ring before the date these regulations arepublished as final regulations in the Fed-eral Register, see § 1.1502–22(b) as con-tained in 26 CFR part 1, revised as ofApril 1 preceding the date these regula-tions are published as final regulations inthe Federal Register.

* * * * *

§ 1.1502–28 [Amended]

Par. 7. Section 1.1502–28 is amendedin paragraph (b)(11) by removing“§ 1.1502–76(b)(1)(ii)(B)” and adding“§ 1.1502–76(b)(1)(ii)(A)(2)” in its place.

Par. 8. Section 1.1502–76 is amended:1. By adding a sentence at the end of

paragraph (b)(1)(i).2. By revising paragraphs (b)(1)(ii)(A)

and (B).3. By adding paragraph (b)(1)(ii)(D).4. By adding a sentence at the end of

paragraph (b)(2)(i).5. By revising paragraph (b)(2)(ii)(C)(9).6. By removing the last sentence of

paragraph (b)(2)(iii).7. By removing the last sentence of

paragraph (b)(2)(v).8. In paragraph (b)(2)(vi)(C) by remov-

ing “paragraph (b)(2)(v)” and adding“paragraph (b)(2)(vi)” in its place.

9. By revising paragraph (b)(3).10. By adding a sentence at the end of

paragraph (b)(4).

11. By adding Examples 8, 9, and 10 toparagraph (b)(5).

12. By revising paragraph (b)(6).The revisions and additions read as fol-

lows:

§ 1.1502–76 Taxable year of membersof group.

* * * * *(b) * * *(1) * * *(i) * * * If a corporation (S) becomes or

ceases to be a member in a stock disposi-tion or purchase for which an electionunder section 336(e) or section 338 ismade, paragraphs (b)(1)(ii), (b)(2)(ii), and(b)(2)(iii) of this section do not apply tothe transaction.

(ii) * * *(A) In general—(1) End of the day

rule. If S becomes or ceases to be a mem-ber during a consolidated return year, S’stax year ends, and (except as provided inparagraph (b)(1)(ii)(A)(2) or paragraph(b)(1)(ii)(B) of this section) for purposesof determining the period in which S mustreport an item of income, gain, deduction,loss, or credit, S is treated as becoming orceasing to be a member at the end of theday on which its status as a memberchanges (end of the day rule).

(2) Next day rule. If an extraordinaryitem (as defined in paragraph (b)(2)(ii)(C)of this section) results from a transactionthat occurs on the day of S’s change instatus as a member, but after the eventresulting in the change, and the itemwould be taken into account by S on thatday, the transaction resulting in the ex-traordinary item is treated as occurring atthe beginning of the following day forpurposes of determining the period inwhich S must report the item (next dayrule). The next day rule does not apply toany extraordinary item that becomes in-cludible or deductible simultaneouslywith the event that causes the change inS’s status.

(B) Special rules for former S corpo-rations—(1) Beginning of the day rule. Ifan election under section 1362(a) is ineffect for S immediately before S be-comes a member, S is treated as becominga member at the beginning of the day thetermination of its election under section1362(a) is effective (termination date),

and S’s taxable year ends at the end of theday preceding the termination date. See§ 1.1361–5(a)(3) for the treatment of cer-tain qualified S corporation subsidiaries.

(2) Previous day rule. If an extraordi-nary item (as defined in paragraph(b)(2)(ii)(C) of this section) results from atransaction that occurs on the termina-tion date, but before or simultaneouslywith the event resulting in the termina-tion of S’s election under section1362(a), and the item would be takeninto account by S on that day, the trans-action resulting in the extraordinaryitem is treated as occurring at the end ofthe previous day for purposes of deter-mining the period in which S must re-port the item (previous day rule). See§ 1.1361–5(a)(3) for the treatment ofcertain qualified S corporation subsid-iaries.

* * * * *(D) Coordination with sections 382

and 1374. If the day of S’s change instatus is also the date of an ownershipchange for purposes of section 382, therules and principles of this section applyin determining the treatment of any itemor asset for purposes of section 382(h).Accordingly, if the day of S’s change instatus is also a change date, the determi-nation of net unrealized built-in gain orloss will reflect the application of both theend of the day rule and the next day rule,to the extent each applies. Moreover,items includible in the taxable year thatends as a result of S’s change in status arenot treated as occurring in the recognitionperiod described in section 382(h)(7)(A),and items includible in the taxable yearthat begins as a result of S’s change instatus are treated as occurring in the rec-ognition period. If S ceases to be a corpo-ration subject to the tax imposed by sec-tion 1374 upon becoming a member of aconsolidated group, or if S elects to be acorporation that is subject to such tax forits first separate return year after ceasingto be a member, S’s items of recognizedbuilt-in gain or loss for purposes of sec-tion 1374 will include only the amountsreported on S’s separate return (includingitems reported on that return under theprevious day rule or the next day rule).

* * * * *(2) * * *


(i) * * * If a member distributes ortransfers assets in an intercompany trans-action to which section 381(a) applies, ashort taxable year of the distributor ortransferor corporation is not taken intoaccount either for purposes of determiningthe taxable years to which any tax attri-bute of the distributor or transferor corpo-ration may be carried or for purposes ofdetermining the taxable years in which anadjustment under section 481(a) is takeninto account.

(ii) * * *(C) * * *(9) Any compensation-related deduc-

tion in connection with S’s change in sta-tus (including, for example, a deductionfor fees for services rendered in connec-tion with S’s change in status and forbonus, severance, and option cancellationpayments made in connection with S’schange in status);

* * * * *(3) Anti-avoidance rule. If any person

acts with a principal purpose contrary tothe purposes of this paragraph (b) to sub-stantially reduce the federal income taxliability of any person (including by mod-ifying an existing contract or other agree-ment in anticipation of a change in S’sstatus to shift an item between the taxableyears that end and begin as a result of S’schange in status), adjustments must bemade as necessary to carry out the pur-poses of this section.

(4) * * * In addition, if S ceases to existin the same consolidated return year inwhich S becomes a member, the due datefor filing S’s separate return shall be de-termined without regard to S’s ceasing toexist in that year.

(5) * * *Example 8. Allocation of certain amounts that

become deductible on the day of S’s change in sta-tus—(a) Facts. P purchases all of the stock of S, anaccrual-basis, stand-alone C corporation, on June30 pursuant to a stock purchase agreement. At thetime of the stock purchase, S has outstandingnonqualified stock options issued to certain em-ployees. The options did not have a readily ascer-tainable fair market value when granted, and theoptions do not provide for a deferral of compen-sation (as defined in § 1.409A–1(b)). Under theoption agreements, S is obligated to pay its em-ployees certain amounts in cancellation of theirstock options upon a change in control of S. P’spurchase of S’s stock causes a change in control ofS, and S’s obligation to make option cancellationpayments to its employees becomes fixed and de-terminable upon the closing of the stock purchase.

Several days after the closing of the stock pur-chase, S pays its employees the amounts requiredunder the option agreements.

(b) Analysis. P’s purchase of S’s stock causes Sto become a member of the P group at the end of theday on June 30. Under paragraph (b)(2)(ii)(C)(9) ofthis section, a deduction arising from S’s liabilityto pay its employees in cancellation of their stockoptions in connection with S’s change in status isan extraordinary item that cannot be prorated andmust be allocated to June 30. The next day rule isinapplicable to this deduction because S’s liabilityto pay its employees becomes deductible on theday of S’s change in status simultaneously withthe event that causes S’s change in status. Conse-quently, a deduction for the option cancellationpayments must be reported under the end of theday rule on S’s tax return for the period endingJune 30.

(c) Success-based fees. The facts are the same asin paragraph (a) of this Example 8, except that S alsoengages a consulting firm to provide services inconnection with P’s purchase of S’s stock. Underthe terms of the engagement letter, S’s obligationto pay for these services is contingent upon thesuccessful closing of the stock purchase. The stockpurchase closes successfully, and S’s obligation topay its consultants becomes fixed and determin-able at closing. To the extent S’s payment of asuccess-based fee to its consultants is otherwisedeductible, this item is an extraordinary item thatcannot be prorated and must be reported under theend of the day rule on S’s return for the periodending June 30. (See paragraph (b)(2)(ii)(C)(9) ofthis section.) The next day rule is inapplicable tothe deduction because S’s liability to pay its con-sultants becomes deductible on the day of S’schange in status simultaneously with the event thatcauses S’s change in status.

(d) Unwanted assets. The facts are the same as inparagraph (a) of this Example 8, except that, afterclosing on June 30, S sells to an unrelated partycertain assets used in S’s trade or business that arenot wanted by the P group. Gain or loss on the saleof these assets is an extraordinary item that resultsfrom a transaction that occurs on the day of S’schange in status, but after the event resulting in thechange. Consequently, under the next day rule, thegain or loss must be reported on S’s tax return for theperiod beginning July 1.

Example 9. Redemption that causes a change instatus—(a) Facts. P owns 80 shares of S’s only classof outstanding stock, and a person whose ownershipof S stock is not attributed to P under section 302(c)owns the remaining 20 shares. On June 30, S dis-tributes land with a basis of $100 and a fair marketvalue of $140 to P in redemption of all of P’s stockin S.

(b) Analysis. As a result of the redemption, Sceases to be a member of P’s consolidated group onJune 30. S will recognize $40 of gain under sec-tion 311(b) on the distribution of the land to P.The next day rule is inapplicable because S’s gainbecomes includible on the day of S’s change instatus simultaneously with the event that causesS’s change in status. Consequently, S’s gain mustbe reported under the end of the day rule in itstaxable year ending June 30, during which S was

a member of the P group. Under § 1.1502–32(b)(2)(i), P’s basis in its S stock is increased toreflect S’s $40 gain immediately before the re-demption of S’s stock.

(c) Partial redemption. The facts are the same asin paragraph (a) of this Example 9, except that Sdistributes the land to P in redemption of 20 sharesof P’s stock in S. Thus, immediately after theredemption, P owns 75% (60 shares / 80 shares) ofS’s outstanding stock, and S’s minority share-holder owns 25% (20 shares / 80 shares). Theredemption does not satisfy the requirements ofsection 302(b) and is treated under section 302(d)as a distribution to which section 301 applies. Theend of the day rule does not apply for purposes ofdetermining whether P and S are members of thesame consolidated group immediately after theredemption. Because P owns only 75% of S’sstock immediately after the redemption, the distri-bution is not an intercompany distribution de-scribed in § 1.1502–13(f)(2)(i). Thus, P may notexclude any amount of the distribution that is adividend, and P’s basis in S’s stock is not reducedunder § 1.1502–32(b)(2)(iv). P may be entitled to adividends received deduction under section 243(c)(but see section 1059(e)). For the reasons discussedin paragraph (b) of this Example 9, S’s gain undersection 311(b) must be reported under the end of theday rule in S’s taxable year ending June 30, duringwhich S was a member of the P group.

(d) Distribution of loss property. The facts arethe same as in paragraph (a) of this Example 9,except that the land distributed by S to P has a fairmarket value of $60 rather than $140. The end ofthe day rule applies for purposes of determining thetaxable year in which S must take into account itsrealized loss on the distribution of the land. Thus,under the end of the day rule, S’s loss on the distri-bution of the land, which occurs simultaneously withS’s ceasing to be a member, is taken into account inS’s taxable year that ends as a result of the redemp-tion. However, the end of the day rule does not applyfor other purposes; for example, the rule does notapply in determining whether the transaction is anintercompany distribution or in determining the at-tributes (as defined in § 1.1502–13(b)(6)) of the loss.Therefore, because S is not a member immediatelyafter the distribution, S’s loss on the distribution isnot recognized under section 311(a). Under the endof the day rule, the loss is taken into account as anoncapital, nondeductible expense on the P group’sconsolidated return, and under § 1.1502–32(b)(1)(i),P’s basis in its S stock is decreased by $40 immedi-ately before S leaves the group.

Example 10. Extraordinary item of S corpora-tion—(a) Facts. On July 1, P purchases all thestock of S, an accrual-basis corporation with anelection in effect under section 1362(a). Prior tothe sale, S had engaged a consulting firm to find abuyer for S’s stock, and the consulting firm’s feewas contingent upon the successful closing of thesale of S’s stock.

(b) Analysis. To the extent S’s payment of thesuccess-based fee to its consultants is otherwisedeductible, this item is an extraordinary item (seeparagraph (b)(2)(ii)(C)(9) of this section) that be-comes deductible on July 1 simultaneously withthe event that terminates S’s election as an S


corporation. Under paragraph (b)(1)(ii)(B)(2) ofthis section, S’s obligation to pay the fee is treatedas becoming deductible on June 30 under theprevious day rule.

(6) Effective/applicability date. Para-graphs (b)(2)(i) and (b)(4) of this sec-tion apply to consolidated return years

beginning on or after the date these reg-ulations are published as final regula-tions in the Federal Register. Other-wise, this paragraph (b) applies tocorporations becoming or ceasing to bemembers of consolidated groups on or

after the date these regulations are publishedas final regulations in the Federal Register.

* * * * *

John Dalrymple,Deputy Commissioner forServices and Enforcement


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

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

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.

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

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

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

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

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

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the newruling does more than restate the sub-

stance of a prior ruling, a combination ofterms is used. For example, modified andsuperseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that isself contained. In this case, the previouslypublished ruling is first modified and then,as modified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the series.

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

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

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

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

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

Bulletin No. 2015–12 March 23, 2015i

Numerical Finding List1

Bulletin 2015–1 through 2015–12

Announcements:

2015-1, 2015-11 I.R.B. 7582015-2, 2015-3 I.R.B. 3242015-3, 2015-3 I.R.B. 3282015-4, 2015-5 I.R.B. 5652015-5, 2015-7 I.R.B. 6022015-6, 2015-8 I.R.B. 6852015-8, 2015-9 I.R.B. 6982015-10, 2015-11 I.R.B. 7582015-12, 2015-12 I.R.B. 770

Proposed Regulations:

REG-109187-11, 2015-2 I.R.B. 277REG-132751-14, 2015-2 I.R.B. 279REG-145878-14, 2015-2 I.R.B. 290REG-153656-3, 2015-5 I.R.B. 566REG-102648-15, 2015-10 I.R.B. 745REG-136018-13, 2015-11 I.R.B. 759REG-143416-14, 2015-11 I.R.B. 757REG-100400-14, 2015-12 I.R.B. 779REG-132253-11, 2015-12 I.R.B. 771

Notices:

2015-1, 2015-2 I.R.B. 2492015-2, 2015-4 I.R.B. 3342015-3, 2015-6 I.R.B. 5832015-4, 2015-5 I.R.B. 4072015-5, 2015-5 I.R.B. 4082015-6, 2015-5 I.R.B. 4122015-7, 2015-6 I.R.B. 5852015-8, 2015-6 I.R.B. 5892015-9, 2015-6 I.R.B. 5902015-11, 2015-8 I.R.B. 6182015-15, 2015-9 I.R.B. 6872015-12, 2015-8 I.R.B. 7002015-13, 2015-10 I.R.B. 7222015-14, 2015-10 I.R.B. 7222015-16, 2015-10 I.R.B. 7322015-19, 2015-9 I.R.B. 6902015-20, 2015-11 I.R.B. 7542015-18, 2015-12 I.R.B. 7652015-21, 2015-12 I.R.B. 7652015-22, 2015-12 I.R.B. 7682015-23, 2015-12 I.R.B. 769

Revenue Procedures:

2015-1, 2015-1 I.R.B. 12015-2, 2015-1 I.R.B. 1052015-3, 2015-1 I.R.B. 1292015-4, 2015-1 I.R.B. 1442015-5, 2015-1 I.R.B. 1862015-6, 2015-1 I.R.B. 1942015-7, 2015-1 I.R.B. 231

Revenue Procedures—Continued:

2015-8, 2015-1 I.R.B. 2352015-9, 2015-2 I.R.B. 2492015-10, 2015-2 I.R.B. 2612015-12, 2015-2 I.R.B. 2652015-13, 2015-5 I.R.B. 4192015-14, 2015-5 I.R.B. 4502015-15, 2015-5 I.R.B. 5642015-16, 2015-7 I.R.B. 5962015-17, 2015-7 I.R.B. 5992015-18, 2015-8 I.R.B. 6422015-19, 2015-8 I.R.B. 6782015-20, 2015-9 I.R.B. 6942015-22, 2015-11 I.R.B. 754

Revenue Rulings:

2015-1, 2015-4 I.R.B. 3312015-2, 2015-3 I.R.B. 3212015-3, 2015-6 I.R.B. 5802015-4, 2015-10 I.R.B. 743

Treasury Decisions:

9707, 2015-2 I.R.B. 2479708, 2015-5 I.R.B. 3379709, 2015-7 I.R.B. 5939710, 2015-8 I.R.B. 6039711, 2015-11 I.R.B. 7489712, 2015-11 I.R.B. 750

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2014–27 through 2014–52 is in Internal Revenue Bulletin2014–52, dated December 28, 2014.

March 23, 2015 Bulletin No. 2015–12ii

Finding List of Current Actions onPreviously Published Items1

Bulletin 2015–1 through 2015–12

Announcements:

2010-3Amplified byAnn. 2015-3, 2015-3 I.R.B. 328

Revenue Procedures:

2014-01Superseded byRev. Proc. 2015-01, 2015-01 I.R.B. 1










2011-14Modified byRev. Proc. 2015-12, 2015-2 I.R.B. 265


Revenue Procedures—Continued:

2011-14Amplified byRev. Proc. 2015-13, 2015-5 I.R.B. 419

2011-14Clarified byRev. Proc. 2015-13, 2015-5 I.R.B. 419

1997-27Clarified byRev. Proc. 2015-13, 2015-5 I.R.B. 419







Revenue Rulings:

92-19Supplemented byRev. Rul. 2015-02, 2015-3 I.R.B. 321

Notices:

2013-01Modified byNotice 2015-20, 2015-11 I.R.B. 754

2013-01Superseded byNotice 2015-20, 2015-11 I.R.B. 754

1A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2014–27 through 2014–52 is in Internal Revenue Bulletin 2014–52, dated December 28,2014.

Bulletin No. 2015–12 March 23, 2015iii

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

Bulletins are available at www.irs.gov/irb/.

We Welcome Comments About the Internal Revenue BulletinIf you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we

would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.NW, IR-6230 Washington, DC 20224.

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