Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Rules and Regulations 50887 

filing as an agent and not an importer 

of record) will now have to obtain the 

notification from their broker or view 

the information via CBP’s ACE Portal. 

To the extent that brokers send the 

notification to the importer, they will 

bear a small cost, but because of the low 

cost of forwarding this information 

either electronically or by mail, this cost 

does not rise to the level of significance. 

CBP solicited comments on the 

economic impact of this rule on small 

entities in the Notice of Proposed 

Rulemaking, but did not receive any of 

substance. For these reasons, CBP 

certifies that this final rule will not have 

a significant economic impact on a 

substantial number of small entities. 

Paperwork Reduction Act 

As there is no collection of 

information in this document, the 

provisions of the Paperwork Reduction 

Act of 1995 (44 U.S.C. 3507) are 

inapplicable. 

Signing Authority 

This document is being issued in 

accordance with 19 CFR 0.1(a)(1) 

pertaining to the Secretary of the 

Treasury’s authority (or that of his 

delegate) to approve regulations related 

to certain customs revenue functions. 

List of Subjects in 19 CFR Part 159 

Antidumping, Countervailing duties, 

Customs duties and inspection, Foreign 

currencies. 

Amendments to the CBP Regulations 

For the reasons set forth in the 

preamble, part 159 of title 19 of the CFR 

(19 CFR part 159) is amended as set 

forth below. 

PART 159—LIQUIDATION OF DUTIES 

■ 1. The general authority citation for 

part 159 continues to read as follows: 

Authority: 19 U.S.C. 66, 1500, 1504, 1624. 

* * * * * 

■ 2. In § 159.9, paragraph (d) is revised 

to read as follows: 

§ 159.9 Notice of liquidation and date of 

liquidation for formal entries. 

* * * * * 

(d) Courtesy notice of liquidation. 

CBP will endeavor to provide importers 

or their agents with a courtesy notice of 

liquidation for all entries scheduled to 

be liquidated or deemed liquidated by 

operation of law. The courtesy notice of 

liquidation that CBP will endeavor to 

provide will be electronically 

transmitted pursuant to an authorized 

electronic data interchange system if the 

entry summary was filed electronically 

in accordance with part 143 of this 

chapter or on CBP Form 4333–A if the 

entry was filed on paper pursuant to 

parts 141 and 142 of this chapter. This 

notice will serve as an informal, 

courtesy notice and not as a direct, 

formal, and decisive notice of 

liquidation. 

§ 159.11 [Amended] 

■ 3. In § 159.11, paragraph (a) is 

amended in the last sentence, by 

removing the words ‘‘on CBP Form 

4333–A’’. 

§ 159.12 [Amended] 

■ 4. In § 159.12: 

■ a. Paragraph (f)(1) is amended, in the 

last sentence, by removing the words 

‘‘on CBP Form 4333–A’’; 

■ b. Paragraph (g) is amended, in the 

last sentence, by removing the words 

‘‘on CBP Form 4333–A’’. 

Alan D. Bersin, 

Commissioner, U.S. Customs and Border 

Protection. 

Approved: August 12, 2011. 

Timothy E. Skud, 

Deputy Assistant Secretary of the Treasury. 

[FR Doc. 2011–20957 Filed 8–16–11; 8:45 am] 

BILLING CODE 9111–14–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9542] 

RIN 1545–BE77 

Elections Regarding Start-Up 

Expenditures, Corporation 

Organizational Expenditures, and 

Partnership Organizational Expenses 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations and removal of 

temporary regulations. 

SUMMARY: This document contains final 

regulations relating to elections to 

deduct start-up expenditures, 

organizational expenditures of 

corporations, and organizational 

expenses of partnerships. The American 

Jobs Creation Act of 2004 amended the 

Internal Revenue Code to permit the 

optional deduction of a limited amount 

of these types of expenses that are paid 

or incurred after October 22, 2004. The 

regulations affect taxpayers that pay or 

incur these expenses and provide 

guidance on how to elect to deduct the 

expenses in accordance with the new 

rules. 

DATES: Effective Date: These regulations 

are effective on August 16, 2011. 

Applicability Dates: For dates of 

applicability, see §§ 1.195–1(d), 1.248– 

1(f), and 1.709–1(b)(5). 

FOR FURTHER INFORMATION CONTACT: 

R. Matthew Kelley, (202) 622–7900 (not 

a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains final 

amendments to the Income Tax 

Regulations (26 CFR part 1) under 

sections 195, 248, and 709 of the 

Internal Revenue Code to reflect 

amendments made by section 902 of the 

American Jobs Creation Act of 2004 

(Pub. L. 108–357, 118 Stat. 1418) (the 

Act). The amendments made by section 

902 of the Act are effective for amounts 

paid or incurred after October 22, 2004, 

the date of the enactment of the Act. 

As amended by section 902(a) of the 

Act, section 195(b) allows an electing 

taxpayer to deduct, in the taxable year 

in which the taxpayer begins an active 

trade or business, an amount equal to 

the lesser of (1) the amount of the startup expenditures that relate to the active 

trade or business, or (2) $5,000, reduced 

(but not below zero) by the amount by 

which the start-up expenditures exceed 

$50,000. The remainder of the start-up 

expenditures is deductible ratably over 

the 180-month period beginning with 

the month in which the active trade or 

business begins. 

As amended by section 902(b) of the 

Act, section 248(a) allows an electing 

corporation to deduct, in the taxable 

year in which the corporation begins 

business, an amount equal to the lesser 

of (1) the amount of the organizational 

expenditures of the corporation, or (2) 

$5,000, reduced (but not below zero) by 

the amount by which the organizational 

expenditures exceed $50,000. The 

remainder of the organizational 

expenditures is deductible ratably over 

the 180-month period beginning with 

the month in which the corporation 

begins business. 

As amended by section 902(c) of the 

Act, section 709(b) allows an electing 

partnership to deduct, in the taxable 

year in which the partnership begins 

business, an amount equal to the lesser 

of (1) the amount of the organizational 

expenses of the partnership, or (2) 

$5,000, reduced (but not below zero) by 

the amount by which the organizational 

expenses exceed $50,000. The 

remainder of the organizational 

expenses is deductible ratably over the 

180-month period beginning with the 

month in which the partnership begins 

business. 


Emcdonald on DSK2BSOYB1PROD with RULES
50888 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Rules and Regulations 

On July 8, 2008, temporary 

regulations (TD 9411) regarding 

elections to deduct start-up and 

organizational expenditures under 

sections 195, 248, and 709 were 

published in the Federal Register (73 

FR 38910). A notice of proposed 

rulemaking (REG–164965–04) crossreferencing the temporary regulations 

was published in the Federal Register 

(73 FR 38940) on the same day. One 

written comment responding to the 

notice of proposed rulemaking was 

received. No public hearing was 

requested or held. After consideration of 

the comment, the regulations are 

adopted as amended by this Treasury 

decision. The comment is discussed 

elsewhere in this preamble. 

These regulations apply to 

expenditures paid or incurred after 

August 16, 2011. However, taxpayers 

may apply all the provisions of these 

regulations to expenditures paid or 

incurred under sections 195, 248, and 

709 after October 22, 2004, provided the 

period of limitations on assessment of 

tax has not expired for the year the 

election under section 195, 248, or 709 

is deemed made. Expenditures paid or 

incurred on or before October 22, 2004, 

may be amortized over a period of not 

less than 60 months as provided for 

under prior law. 

Summary of Comment 

The commentator recommended that 

the final regulations clarify what is 

meant in the proposed regulations by 

‘‘clearly electing to capitalize’’ start-up 

and organizational costs. The 

commentator noted that it is unclear 

whether a taxpayer that unintentionally 

does not deduct or amortize start-up and 

organizational costs could be considered 

to have ‘‘clearly elected to capitalize’’ 

them. The IRS and the Treasury 

Department agree with the 

recommendation to clarify the election 

requirements, and the final regulations 

provide that a taxpayer wishing to make 

an election to capitalize start-up and 

organizational costs must ‘‘affirmatively 

elect to capitalize’’ the costs on a timely 

filed Federal income tax return. 

Special Analyses 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 12866 as supplemented 

by Executive Order 13563. Therefore, a 

regulatory assessment is not required. It 

also has been determined that section 

553(b) of the Administrative Procedure 

Act (5 U.S.C. chapter 5) does not apply 

to these regulations. Because the 

regulations do not impose a collection 

of information on small entities, the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) does not apply. Pursuant to 

section 7805(f) of the Code, the notice 

of proposed rulemaking preceding these 

final regulations was submitted to the 

Chief Counsel for Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

Drafting Information 

The principal author of these 

regulations is R. Matthew Kelley of the 

Office of the Associate Chief Counsel 

(Income Tax & Accounting). However, 

other personnel from the IRS and 

Treasury Department participated in 

their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.195–1 is revised to 

read as follows: 

§ 1.195–1 Election to amortize start-up 

expenditures. 

(a) In general. Under section 195(b), a 

taxpayer may elect to amortize start-up 

expenditures as defined in section 

195(c)(1). In the taxable year in which 

a taxpayer begins an active trade or 

business, an electing taxpayer may 

deduct an amount equal to the lesser of 

the amount of the start-up expenditures 

that relate to the active trade or 

business, or $5,000 (reduced (but not 

below zero) by the amount by which the 

start-up expenditures exceed $50,000). 

The remainder of the start-up 

expenditures is deductible ratably over 

the 180-month period beginning with 

the month in which the active trade or 

business begins. All start-up 

expenditures that relate to the active 

trade or business are considered in 

determining whether the start-up 

expenditures exceed $50,000, including 

expenditures incurred on or before 

October 22, 2004. 

(b) Time and manner of making 

election. A taxpayer is deemed to have 

made an election under section 195(b) 

to amortize start-up expenditures as 

defined in section 195(c)(1) for the 

taxable year in which the active trade or 

business to which the expenditures 

relate begins. A taxpayer may choose to 

forgo the deemed election by 

affirmatively electing to capitalize its 

start-up expenditures on a timely filed 

Federal income tax return (including 

extensions) for the taxable year in which 

the active trade or business to which the 

expenditures relate begins. The election 

either to amortize start-up expenditures 

under section 195(b) or to capitalize 

start-up expenditures is irrevocable and 

applies to all start-up expenditures that 

are related to the active trade or 

business. A change in the 

characterization of an item as a start-up 

expenditure is a change in method of 

accounting to which sections 446 and 

481(a) apply if the taxpayer treated the 

item consistently for two or more 

taxable years. A change in the 

determination of the taxable year in 

which the active trade or business 

begins also is treated as a change in 

method of accounting if the taxpayer 

amortized start-up expenditures for two 

or more taxable years. 

(c) Examples. The following examples 

illustrate the application of this section: 

Example 1. Expenditures of $5,000 or less. 

Corporation X, a calendar year taxpayer, 

incurs $3,000 of start-up expenditures after 

October 22, 2004, that relate to an active 

trade or business that begins on July 1, 2011. 

Under paragraph (b) of this section, 

Corporation X is deemed to have elected to 

amortize start-up expenditures under section 

195(b) in 2011. Therefore, Corporation X may 

deduct the entire amount of the start-up 

expenditures in 2011, the taxable year in 

which the active trade or business begins. 

Example 2. Expenditures of more than 

$5,000 but less than or equal to $50,000. The 

facts are the same as in Example 1 except that 

Corporation X incurs start-up expenditures of 

$41,000. Under paragraph (b) of this section, 

Corporation X is deemed to have elected to 

amortize start-up expenditures under section 

195(b) in 2011. Therefore, Corporation X may 

deduct $5,000 and the portion of the 

remaining $36,000 that is allocable to July 

through December of 2011 ($36,000/180 × 6 

= $1,200) in 2011, the taxable year in which 

the active trade or business begins. 

Corporation X may amortize the remaining 

$34,800 ($36,000 ¥ $1,200 = $34,800) ratably 

over the remaining 174 months. 

Example 3. Subsequent change in the 

characterization of an item. The facts are the 

same as in Example 2 except that 

Corporation X determines in 2013 that 

Corporation X incurred $10,000 for an 

additional start-up expenditure erroneously 

deducted in 2011 under section 162 as a 

business expense. Under paragraph (b) of this 

section, Corporation X is deemed to have 

elected to amortize start-up expenditures 

under section 195(b) in 2011, including the 

additional $10,000 of start-up expenditures. 

Corporation X is using an impermissible 

method of accounting for the additional 

$10,000 of start-up expenditures and must 

change its method under § 1.446–1(e) and the 

applicable general administrative procedures 

in effect in 2013. 


Emcdonald on DSK2BSOYB1PROD with RULES
Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Rules and Regulations 50889 

Example 4. Subsequent redetermination of 

year in which business begins. The facts are 

the same as in Example 2 except that, in 

2012, Corporation X deducted the start-up 

expenditures allocable to January through 

December of 2012 ($36,000/180 × 12 = 

$2,400). In addition, in 2013 it is determined 

that Corporation X actually began business in 

2012. Under paragraph (b) of this section, 

Corporation X is deemed to have elected to 

amortize start-up expenditures under section 

195(b) in 2012. Corporation X impermissibly 

deducted start-up expenditures in 2011, and 

incorrectly determined the amount of startup expenditures deducted in 2012. 

Therefore, Corporation X is using an 

impermissible method of accounting for the 

start-up expenditures and must change its 

method under § 1.446–1(e) and the 

applicable general administrative procedures 

in effect in 2013. 

Example 5. Expenditures of more than 

$50,000 but less than or equal to $55,000. 

The facts are the same as in Example 1 

except that Corporation X incurs start-up 

expenditures of $54,500. Under paragraph (b) 

of this section, Corporation X is deemed to 

have elected to amortize start-up 

expenditures under section 195(b) in 2011. 

Therefore, Corporation X may deduct $500 

($5,000 ¥ $4,500) and the portion of the 

remaining $54,000 that is allocable to July 

through December of 2011 ($54,000/180 × 6 

= $1,800) in 2011, the taxable year in which 

the active trade or business begins. 

Corporation X may amortize the remaining 

$52,200 ($54,000 ¥ $1,800 = $52,200) ratably 

over the remaining 174 months. 

Example 6. Expenditures of more than 

$55,000. The facts are the same as in 

Example 1 except that Corporation X incurs 

start-up expenditures of $450,000. Under 

paragraph (b) of this section, Corporation X 

is deemed to have elected to amortize startup expenditures under section 195(b) in 

2011. Therefore, Corporation X may deduct 

the amounts allocable to July through 

December of 2011 ($450,000/180 × 6 = 

$15,000) in 2011, the taxable year in which 

the active trade or business begins. 

Corporation X may amortize the remaining 

$435,000 ($450,000 ¥ $15,000 = $435,000) 

ratably over the remaining 174 months. 

(d) Effective/applicability date. This 

section applies to start-up expenditures 

paid or incurred after August 16, 2011. 

However, taxpayers may apply all the 

provisions of this section to start-up 

expenditures paid or incurred after 

October 22, 2004, provided that the 

period of limitations on assessment of 

tax for the year the election under 

paragraph (b) of this section is deemed 

made has not expired. For start-up 

expenditures paid or incurred on or 

before September 8, 2008, taxpayers 

may instead apply § 1.195–1, as in effect 

prior to that date (§ 1.195–1 as 

contained in 26 CFR part 1 edition 

revised as of April 1, 2008). 

§ 1.195–1T [Removed] 

■ Par. 3. Section 1.195–1T is removed. 

■ Par. 4. Section 1.248–1 is amended by 

revising paragraphs (a) and (c), and 

adding paragraphs (d), (e), and (f) to 

read as follows: 

§ 1.248–1 Election to amortize 

organizational expenditures. 

(a) In general. Under section 248(a), a 

corporation may elect to amortize 

organizational expenditures as defined 

in section 248(b) and § 1.248–1(b). In 

the taxable year in which a corporation 

begins business, an electing corporation 

may deduct an amount equal to the 

lesser of the amount of the 

organizational expenditures of the 

corporation, or $5,000 (reduced (but not 

below zero) by the amount by which the 

organizational expenditures exceed 

$50,000). The remainder of the 

organizational expenditures is deducted 

ratably over the 180-month period 

beginning with the month in which the 

corporation begins business. All 

organizational expenditures of the 

corporation are considered in 

determining whether the organizational 

expenditures exceed $50,000, including 

expenditures incurred on or before 

October 22, 2004. 

* * * * * 

(c) Time and manner of making 

election. A corporation is deemed to 

have made an election under section 

248(a) to amortize organizational 

expenditures as defined in section 

248(b) and § 1.248–1(b) for the taxable 

year in which the corporation begins 

business. A corporation may choose to 

forgo the deemed election by 

affirmatively electing to capitalize its 

organizational expenditures on a timely 

filed Federal income tax return 

(including extensions) for the taxable 

year in which the corporation begins 

business. The election either to amortize 

organizational expenditures under 

section 248(a) or to capitalize 

organizational expenditures is 

irrevocable and applies to all 

organizational expenditures of the 

corporation. A change in the 

characterization of an item as an 

organizational expenditure is a change 

in method of accounting to which 

sections 446 and 481(a) apply if the 

corporation treated the item consistently 

for two or more taxable years. A change 

in the determination of the taxable year 

in which the corporation begins 

business also is treated as a change in 

method of accounting if the corporation 

amortized organizational expenditures 

for two or more taxable years. 

(d) Determination of when 

corporation begins business. The 

deduction allowed under section 248 

must be spread over a period beginning 

with the month in which the 

corporation begins business. The 

determination of the date the 

corporation begins business presents a 

question of fact which must be 

determined in each case in light of all 

the circumstances of the particular case. 

The words ‘‘begins business,’’ however, 

do not have the same meaning as ‘‘in 

existence.’’ Ordinarily, a corporation 

begins business when it starts the 

business operations for which it was 

organized; a corporation comes into 

existence on the date of its 

incorporation. Mere organizational 

activities, such as the obtaining of the 

corporate charter, are not alone 

sufficient to show the beginning of 

business. If the activities of the 

corporation have advanced to the extent 

necessary to establish the nature of its 

business operations, however, it will be 

deemed to have begun business. For 

example, the acquisition of operating 

assets which are necessary to the type 

of business contemplated may 

constitute the beginning of business. 

(e) Examples. The following examples 

illustrate the application of this section: 

Example 1. Expenditures of $5,000 or less. 

Corporation X, a calendar year taxpayer, 

incurs $3,000 of organizational expenditures 

after October 22, 2004, and begins business 

on July 1, 2011. Under paragraph (c) of this 

section, Corporation X is deemed to have 

elected to amortize organizational 

expenditures under section 248(a) in 2011. 

Therefore, Corporation X may deduct the 

entire amount of the organizational 

expenditures in 2011, the taxable year in 

which Corporation X begins business. 

Example 2. Expenditures of more than 

$5,000 but less than or equal to $50,000. The 

facts are the same as in Example 1 except that 

Corporation X incurs organizational 

expenditures of $41,000. Under paragraph (c) 

of this section, Corporation X is deemed to 

have elected to amortize organizational 

expenditures under section 248(a) in 2011. 

Therefore, Corporation X may deduct $5,000 

and the portion of the remaining $36,000 that 

is allocable to July through December of 2011 

($36,000/180 × 6 = $1,200) in 2011, the 

taxable year in which Corporation X begins 

business. Corporation X may amortize the 

remaining $34,800 ($36,000 ¥ $1,200 = 

$34,800) ratably over the remaining 174 

months. 

Example 3. Subsequent change in the 

characterization of an item. The facts are the 

same as in Example 2 except that 

Corporation X determines in 2013 that 

Corporation X incurred $10,000 for an 

additional organizational expenditure 

erroneously deducted in 2011 under section 

162 as a business expense. Under paragraph 

(c) of this section, Corporation X is deemed 

to have elected to amortize organizational 

expenditures under section 248(a) in 2011, 

including the additional $10,000 of 

organizational expenditures. Corporation X is 

using an impermissible method of accounting 

for the additional $10,000 of organizational 

expenditures and must change its method 


Emcdonald on DSK2BSOYB1PROD with RULES
50890 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Rules and Regulations 

under § 1.446–1(e) and the applicable general 

administrative procedures in effect in 2013. 

Example 4. Subsequent redetermination of 

year in which business begins. The facts are 

the same as in Example 2 except that, in 

2012, Corporation X deducted the 

organizational expenditures allocable to 

January through December of 2012 ($36,000/ 

180 × 12 = $2,400). In addition, in 2013 it is 

determined that Corporation X actually began 

business in 2012. Under paragraph (c) of this 

section, Corporation X is deemed to have 

elected to amortize organizational 

expenditures under section 248(a) in 2012. 

Corporation X impermissibly deducted 

organizational expenditures in 2011, and 

incorrectly determined the amount of 

organizational expenditures deducted in 

2012. Therefore, Corporation X is using an 

impermissible method of accounting for the 

organizational expenditures and must change 

its method under § 1.446–1(e) and the 

applicable general administrative procedures 

in effect in 2013. 

Example 5. Expenditures of more than 

$50,000 but less than or equal to $55,000. 

The facts are the same as in Example 1 

except that Corporation X incurs 

organizational expenditures of $54,500. 

Under paragraph (c) of this section, 

Corporation X is deemed to have elected to 

amortize organizational expenditures under 

section 248(a) in 2011. Therefore, 

Corporation X may deduct $500 ($5,000 ¥ 

$4,500) and the portion of the remaining 

$54,000 that is allocable to July through 

December of 2011 ($54,000/180 × 6 = $1,800) 

in 2011, the taxable year in which 

Corporation X begins business. Corporation X 

may amortize the remaining $52,200 ($54,000 

¥ $1,800 = $52,200) ratably over the 

remaining 174 months. 

Example 6. Expenditures of more than 

$55,000. The facts are the same as in 

Example 1 except that Corporation X incurs 

organizational expenditures of $450,000. 

Under paragraph (c) of this section, 

Corporation X is deemed to have elected to 

amortize organizational expenditures under 

section 248(a) in 2011. Therefore, 

Corporation X may deduct the amounts 

allocable to July through December of 2011 

($450,000/180 × 6 = $15,000) in 2011, the 

taxable year in which Corporation X begins 

business. Corporation X may amortize the 

remaining $435,000 ($450,000 ¥ $15,000 = 

$435,000) ratably over the remaining 174 

months. 

(f) Effective/applicability date. This 

section applies to organizational 

expenditures paid or incurred after 

August 16, 2011. However, taxpayers 

may apply all the provisions of this 

section to organizational expenditures 

paid or incurred after October 22, 2004, 

provided that the period of limitations 

on assessment of tax for the year the 

election under paragraph (c) of this 

section is deemed made has not expired. 

For organizational expenditures paid or 

incurred on or before September 8, 

2008, taxpayers may instead apply 

§ 1.248–1, as in effect prior to that date 

(§ 1.248–1 as contained in 26 CFR part 

1 edition revised as of April 1, 2008). 

§ 1.248–1T [Removed] 

■ Par. 5. Section 1.248–1T is removed. 

■ Par. 6. Section 1.709–1 is amended by 

revising paragraph (b) to read as follows: 

§ 1.709–1 Treatment of organization and 

syndication costs. 

* * * * * 

(b) Election to amortize organizational 

expenses—(1) In general. Under section 

709(b), a partnership may elect to 

amortize organizational expenses as 

defined in section 709(b)(3) and 

§ 1.709–2(a). In the taxable year in 

which a partnership begins business, an 

electing partnership may deduct an 

amount equal to the lesser of the 

amount of the organizational expenses 

of the partnership, or $5,000 (reduced 

(but not below zero) by the amount by 

which the organizational expenses 

exceed $50,000). The remainder of the 

organizational expenses is deductible 

ratably over the 180-month period 

beginning with the month in which the 

partnership begins business. All 

organizational expenses of the 

partnership are considered in 

determining whether the organizational 

expenses exceed $50,000, including 

expenses incurred on or before October 

22, 2004. 

(2) Time and manner of making 

election. A partnership is deemed to 

have made an election under section 

709(b) to amortize organizational 

expenses as defined in section 709(b)(3) 

and § 1.709–2(a) for the taxable year in 

which the partnership begins business. 

A partnership may choose to forgo the 

deemed election by affirmatively 

electing to capitalize its organizational 

expenses on a timely filed Federal 

income tax return (including 

extensions) for the taxable year in which 

the partnership begins business. The 

election either to amortize 

organizational expenses under section 

709(b) or to capitalize organizational 

expenses is irrevocable and applies to 

all organizational expenses of the 

partnership. A change in the 

characterization of an item as an 

organizational expense is a change in 

method of accounting to which sections 

446 and 481(a) apply if the partnership 

treated the item consistently for two or 

more taxable years. A change in the 

determination of the taxable year in 

which the partnership begins business 

also is treated as a change in method of 

accounting if the partnership amortized 

organizational expenses for two or more 

taxable years. 

(3) Liquidation of partnership. If there 

is a winding up and complete 

liquidation of the partnership prior to 

the end of the amortization period, the 

unamortized amount of organizational 

expenses is a partnership deduction in 

its final taxable year to the extent 

provided under section 165 (relating to 

losses). However, there is no 

partnership deduction with respect to 

its capitalized syndication expenses. 

(4) Examples. The following examples 

illustrate the application of this section: 

Example 1. Expenditures of $5,000 or less. 

Partnership X, a calendar year taxpayer, 

incurs $3,000 of organizational expenses after 

October 22, 2004, and begins business on 

July 1, 2011. Under paragraph (b)(2) of this 

section, Partnership X is deemed to have 

elected to amortize organizational expenses 

under section 709(b) in 2011. Therefore, 

Partnership X may deduct the entire amount 

of the organizational expenses in 2011, the 

taxable year in which Partnership X begins 

business. 

Example 2. Expenditures of more than 

$5,000 but less than or equal to $50,000. The 

facts are the same as in Example 1 except that 

Partnership X incurs organizational expenses 

of $41,000. Under paragraph (b)(2) of this 

section, Partnership X is deemed to have 

elected to amortize organizational expenses 

under section 709(b) in 2011. Therefore, 

Partnership X may deduct $5,000 and the 

portion of the remaining $36,000 that is 

allocable to July through December of 2011 

($36,000/180 x 6 = $1,200) in 2011, the 

taxable year in which Partnership X begins 

business. Corporation X may amortize the 

remaining $34,800 ($36,000¥$1,200 = 

$34,800) ratably over the remaining 174 

months. 

Example 3. Subsequent change in the 

characterization of an item. The facts are the 

same as in Example 2 except that Partnership 

X realizes in 2013 that Partnership X 

incurred $10,000 for an additional 

organizational expense erroneously deducted 

in 2011 under section 162 as a business 

expense. Under paragraph (b)(2) of this 

section, Partnership X is deemed to have 

elected to amortize organizational expenses 

under section 709(b) in 2011, including the 

additional $10,000 of organizational 

expenses. Partnership X is using an 

impermissible method of accounting for the 

additional $10,000 of organizational 

expenses and must change its method under 

§ 1.446–1(e) and the applicable general 

administrative procedures in effect in 2013. 

Example 4. Subsequent redetermination of 

year in which business begins. The facts are 

the same as in Example 2 except that, in 

2012, Partnership X deducted the 

organizational expenses allocable to January 

through December of 2012 ($36,000/180 × 12 

= $2,400). In addition, in 2013 it is 

determined that Partnership X actually began 

business in 2012. Under paragraph (b)(2) of 

this section, Partnership X is deemed to have 

elected to amortize organizational expenses 

under section 709(b) in 2012. Partnership X 

impermissibly deducted organizational 

expenses in 2011, and incorrectly determined 

the amount of organizational expenses 

deducted in 2012. Therefore, Partnership X is 

using an impermissible method of accounting 


Emcdonald on DSK2BSOYB1PROD with RULES
Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Rules and Regulations 50891 

for the organizational expenses and must 

change its method under § 1.446–1(e) and the 

applicable general administrative procedures 

in effect in 2013. 

Example 5. Expenditures of more than 

$50,000 but less than or equal to $55,000. 

The facts are the same as in Example 1 

except that Partnership X incurs 

organizational expenses of $54,500. Under 

paragraph (b)(2) of this section, Partnership 

X is deemed to have elected to amortize 

organizational expenses under section 709(b) 

in 2011. Therefore, Partnership X may deduct 

$500 ($5,000¥$4,500) and the portion of the 

remaining $54,000 that is allocable to July 

through December of 2011 ($54,000/180 × 6 

= $1,800) in 2011, the taxable year in which 

Partnership X begins business. Corporation X 

may amortize the remaining $52,200 

($54,000¥$1,800 = $52,200) ratably over the 

remaining 174 months. 

Example 6. Expenditures of more than 

$55,000. The facts are the same as in 

Example 1 except that Partnership X incurs 

organizational expenses of $450,000. Under 

paragraph (b)(2) of this section, Partnership 

X is deemed to have elected to amortize 

organizational expenses under section 709(b) 

in 2011. Therefore, Partnership X may deduct 

the amounts allocable to July through 

December of 2011 ($450,000/180 × 6 = 

$15,000) in 2011, the taxable year in which 

Partnership X begins business. Corporation X 

may amortize the remaining $435,000 

($450,000¥$15,000 = $435,000) ratably over 

the remaining 174 months. 

(5) Effective/applicability date. This 

section applies to organizational 

expenses paid or incurred after August 

16, 2011. However, taxpayers may apply 

all the provisions of this section to 

organizational expenses paid or 

incurred after October 22, 2004, 

provided that the period of limitations 

on assessment of tax for the year the 

election under paragraph (b)(2) of this 

section is deemed made has not expired. 

For organizational expenses paid or 

incurred on or before September 8, 

2008, taxpayers may instead apply 

§ 1.709–1, as in effect prior to that date 

(§ 1.709–1 as contained in 26 CFR part 

1 edition revised as of April 1, 2008). 

§ 1.709–1T [Removed] 

■ Par. 7. Section 1.709–1T is removed. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: August 9, 2011. 

Emily S. McMahon, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2011–20872 Filed 8–16–11; 8:45 am] 

BILLING CODE 4830–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R09–OAR–2011–0545; FRL–9447–4] 

Revisions to the California State 

Implementation Plan, South Coast Air 

Quality Management District 

(SCAQMD) 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: EPA is finalizing approval of 

revisions to the SCAQMD portion of the 

California State Implementation Plan 

(SIP). These revisions were proposed in 

the Federal Register on October 5, 2010 

and concern volatile organic compound 

(VOC) emissions from architectural 

coatings. We are approving a local rule 

that regulates these emission sources 

under the Clean Air Act as amended in 

1990 (CAA or the Act). 

DATES: Effective Date: This rule is 

effective on September 16, 2011. 

ADDRESSES: EPA has established docket 

number EPA–R09–OAR–2011–0545 for 

this action. Generally, documents in the 

docket for this action are available 

electronically at http:// 

www.regulations.gov or in hard copy at 

EPA Region IX, 75 Hawthorne Street, 

San Francisco, California. While all 

documents in the docket are listed at 

http://www.regulations.gov, some 

information may be publicly available 

only at the hard copy location (e.g., 

copyrighted material, large maps, multivolume reports), and some may not be 

available in either location (e.g., 

confidential business information 

(CBI)). To inspect the hard copy 

materials, please schedule an 

appointment during normal business 

hours with the contact listed in the FOR

FURTHER INFORMATION CONTACT section. 

FOR FURTHER INFORMATION CONTACT: 

David Grounds, EPA Region IX, (415) 

972–3019, grounds.david@epa.gov. 

SUPPLEMENTARY INFORMATION: 

Throughout this document, ‘‘we,’’ ‘‘us’’ 

and ‘‘our’’ refer to EPA. 

Table of Contents 

I. Proposed Action 

II. Public Comments and EPA Responses 

III. EPA Action 

IV. Statutory and Executive Order Reviews 

I. Proposed Action 

On October 5, 2010 (75 FR 61367), 

EPA proposed to approve the following 

rule into the California SIP. 

Local agency Rule No. Rule title Adopted Submitted 

SCAQMD .......... 1113 Architectural Coatings ................................................................................... 07/13/07 03/07/08 

We proposed to approve this rule 

because we determined that it complied 

with the relevant CAA requirements. 

Our proposed action contains more 

information on the rule and our 

evaluation. 

II. Public Comments and EPA 

Responses 

EPA’s proposed action provided a 30- 

day public comment period. During this 

period, we received comments from the 

following parties. 

1. Dan Pourreau and Dave Roznowski, 

Lyondell Chemical; letter dated October 

25, 2010. 

2. David Darling, American Coatings 

Association; letter dated November 3, 

2010. 

The comments and our responses are 

summarized below. 

Comment #1: Lyondell Chemical 

commented that, in 2009, they 

requested that EPA remove all reporting 

and recordkeeping requirements for 

tertiary-butyl acetate (TBAc), but has 

not yet received a formal response from 

EPA. Lyondell’s comment requests that 

EPA respond to the 2009 request by 

removing the unique tracking 

requirement for TBAc and moving TBAc 

to the 40 CFR 51.100(s)(1) list of exempt 

compounds. Lyondell further requests 

that EPA remove the proposed 

recommendation to include a 

recordkeeping requirement for future 

Rule 1113 revisions, because this is 

complicating the rule development 

process and making TBAc a less 

attractive VOC-compliance option than 

it should be regarding Rule 1113 as well 

as coatings subject to other South Coast 

rules. 

In support of these requests, Lyondell 

states that EPA is not using the TBAc 

data for modeling purposes and does 

not require reporting for any other 

exempt compound with ‘‘borderline’’ 

reactivity, that TBAc has low toxicity 

and negligible environmental impact, 

and that reporting and tracking its 

emissions does not help protect human 

health or the environment. Lyondell 

also states most States do not track and 

report TBAc emissions. Lyondell feels 

that tracking and reporting TBAc 

emissions is a new and burdensome 


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