Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules 55699 

Background 

The correction notice that is the 

subject of this document is under 

section 108 of the Internal Revenue 

Code. 

Need for Correction 

As published, the notice of proposed 

rulemaking by cross-reference to 

temporary regulations (REG–142800–09) 

contains an error that may prove to be 

misleading and is in need of 

clarification. 

Correction of Publication 

Accordingly, the publication of the 

notice of proposed rulemaking by crossreference to temporary regulations 

(REG–142800–09), which was the 

subject of FR Doc. 2010–20059, is 

corrected as follows: 

On page 49429, column 2, in the 

authority citation for part 1, the 

language ‘‘Section 1.108(i)-0T also 

issued under 26 U.S.C. 108(i)(7). * * *’’ 

is removed and the language ‘‘Section 

1.108(i)-0T also issued under 26 U.S.C. 

108(i)(7) and 1502. * * *’’ is added in 

its place. 

LaNita Van Dyke, 

Chief, Publications and Regulations Branch, 

Legal Processing Division, Associate Chief 

Counsel, Procedure and Administration. 

[FR Doc. 2010–22791 Filed 9–13–10; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 301 

[REG–119921–09] 

RIN 1545–BI69 

Series LLCs and Cell Companies 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations regarding the 

classification for Federal tax purposes of 

a series of a domestic series limited 

liability company (LLC), a cell of a 

domestic cell company, or a foreign 

series or cell that conducts an insurance 

business. The proposed regulations 

provide that, whether or not a series of 

a domestic series LLC, a cell of a 

domestic cell company, or a foreign 

series or cell that conducts an insurance 

business is a juridical person for local 

law purposes, for Federal tax purposes 

it is treated as an entity formed under 

local law. Classification of a series or 

cell that is treated as a separate entity 

for Federal tax purposes generally is 

determined under the same rules that 

govern the classification of other types 

of separate entities. The proposed 

regulations provide examples 

illustrating the application of the rule. 

The proposed regulations will affect 

domestic series LLCs; domestic cell 

companies; foreign series, or cells that 

conduct insurance businesses; and their 

owners. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by December 13, 2010. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–119921–09), Room 

5203, Internal Revenue Service, PO Box 

7604, Ben Franklin Station, Washington, 

DC 20044. Submissions may be handdelivered Monday through Friday 

between the hours of 8 a.m. and 4 p.m. 

to CC:PA:LPD:PR (REG–119921–09), 

Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue, 

NW., Washington, DC, or sent 

electronically, via the Federal 

eRulemaking portal at http:// 

www.regulations.gov (IRS REG–119921– 

09). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Joy Spies, (202) 622–3050; concerning 

submissions of comments, 

Oluwafunmilayo (Funmi) Taylor, (202) 

622–7180 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

1. Introduction 

A number of States have enacted 

statutes providing for the creation of 

entities that may establish series, 

including limited liability companies 

(series LLCs). In general, series LLC 

statutes provide that a limited liability 

company may establish separate series. 

Although series of a series LLC 

generally are not treated as separate 

entities for State law purposes and, 

thus, cannot have members, each series 

has ‘‘associated’’ with it specified 

members, assets, rights, obligations, and 

investment objectives or business 

purposes. Members’ association with 

one or more particular series is 

comparable to direct ownership by the 

members in such series, in that their 

rights, duties, and powers with respect 

to the series are direct and specifically 

identified. If the conditions enumerated 

in the relevant statute are satisfied, the 

debts, liabilities, and obligations of one 

series generally are enforceable only 

against the assets of that series and not 

against assets of other series or of the 

series LLC. 

Certain jurisdictions have enacted 

statutes providing for entities similar to 

the series LLC. For example, certain 

statutes provide for the chartering of a 

legal entity (or the establishment of 

cells) under a structure commonly 

known as a protected cell company, 

segregated account company or 

segregated portfolio company (cell 

company). A cell company may 

establish multiple accounts, or cells, 

each of which has its own name and is 

identified with a specific participant, 

but generally is not treated under local 

law as a legal entity distinct from the 

cell company. The assets of each cell are 

statutorily protected from the creditors 

of any other cell and from the creditors 

of the cell company. 

Under current law, there is little 

specific guidance regarding whether for 

Federal tax purposes a series (or cell) is 

treated as an entity separate from other 

series or the series LLC (or other cells 

or the cell company, as the case may 

be), or whether the company and all of 

its series (or cells) should be treated as 

a single entity. 

Notice 2008–19 (2008–5 IRB 366) 

requested comments on proposed 

guidance concerning issues that arise if 

arrangements entered into by a cell 

constitute insurance for Federal income 

tax purposes. The notice also requested 

comments on the need for guidance 

concerning similar segregated 

arrangements that do not involve 

insurance. The IRS received a number of 

comments requesting guidance for 

similar arrangements not involving 

insurance, including series LLCs and 

cell companies. These comments 

generally recommended that series and 

cells should be treated as separate 

entities for Federal tax purposes if they 

are established under a statute with 

provisions similar to the series LLC 

statutes currently in effect in several 

States. The IRS and Treasury 

Department generally agree with these 

comments. See § 601.601(d)(2)(ii)(b). 

2. Entity Classification for Federal Tax 

Purposes 

A. Regulatory Framework 

Sections 301.7701–1 through 

301.7701–4 of the Procedure and 

Administration Regulations provide the 

framework for determining an 

organization’s entity classification for 

Federal tax purposes. Classification of 

an organization depends on whether the 

organization is treated as: (i) A separate 

entity under § 301.7701–1, (ii) a 

‘‘business entity’’ within the meaning of 

§ 301.7701–2(a) or a trust under 

§ 301.7701–4, and (iii) an ‘‘eligible 

entity’’ under § 301.7701–3. 

Section 301.7701–1(a)(1) provides 

that the determination of whether an 


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entity is separate from its owners for 

Federal tax purposes is a matter of 

Federal tax law and does not depend on 

whether the organization is recognized 

as an entity under local law. Section 

301.7701–1(a)(2) provides that a joint 

venture or other contractual 

arrangement may create a separate 

entity for Federal tax purposes if the 

participants carry on a trade, business, 

financial operation, or venture and 

divide the profits therefrom. However, a 

joint undertaking merely to share 

expenses does not create a separate 

entity for Federal tax purposes, nor does 

mere co-ownership of property where 

activities are limited to keeping 

property maintained, in repair, and 

rented or leased. Id. 

Section 301.7701–1(b) provides that 

the tax classification of an organization 

recognized as a separate entity for tax 

purposes generally is determined under 

§§ 301.7701–2, 301.7701–3, and 

301.7701–4. Thus, for example, an 

organization recognized as an entity that 

does not have associates or an objective 

to carry on a business may be classified 

as a trust under § 301.7701–4. 

Section 301.7701–2(a) provides that a 

business entity is any entity recognized 

for Federal tax purposes (including an 

entity with a single owner that may be 

disregarded as an entity separate from 

its owner under § 301.7701–3) that is 

not properly classified as a trust or 

otherwise subject to special treatment 

under the Internal Revenue Code 

(Code). A business entity with two or 

more members is classified for Federal 

tax purposes as a corporation or a 

partnership. See § 301.7701–2(a). A 

business entity with one owner is 

classified as a corporation or is 

disregarded. See § 301.7701–2(a). If the 

entity is disregarded, its activities are 

treated in the same manner as a sole 

proprietorship, branch, or division of 

the owner. However, § 301.7701– 

2(c)(2)(iv) and (v) provides for an 

otherwise disregarded entity to be 

treated as a corporation for certain 

Federal employment tax and excise tax 

purposes. 

Section 301.7701–3(a) generally 

provides that an eligible entity, which is 

a business entity that is not a 

corporation under § 301.7701–2(b), may 

elect its classification for Federal tax 

purposes. 

B. Separate Entity Classification 

The threshold question for 

determining the tax classification of a 

series of a series LLC or a cell of a cell 

company is whether an individual 

series or cell should be considered an 

entity for Federal tax purposes. The 

determination of whether an 

organization is an entity separate from 

its owners for Federal tax purposes is a 

matter of Federal tax law and does not 

depend on whether the organization is 

recognized as an entity under local law. 

Section 301.7701–1(a)(1). In Moline 

Properties, Inc. v. Commissioner, 319 

U.S. 436 (1943), the Supreme Court 

noted that, so long as a corporation was 

formed for a purpose that is the 

equivalent of business activity or the 

corporation actually carries on a 

business, the corporation remains a 

taxable entity separate from its 

shareholders. Although entities that are 

recognized under local law generally are 

also recognized for Federal tax 

purposes, a State law entity may be 

disregarded if it lacks business purpose 

or any business activity other than tax 

avoidance. See Bertoli v. Commissioner, 

103 T.C. 501 (1994); Aldon Homes, Inc. 

v. Commissioner, 33 T.C. 582 (1959). 

The Supreme Court in Commissioner 

v. Culbertson, 337 U.S. 733 (1949), and 

Commissioner v. Tower, 327 U.S. 280 

(1946), set forth the basic standard for 

determining whether a partnership will 

be respected for Federal tax purposes. In 

general, a partnership will be respected 

if, considering all the facts, the parties 

in good faith and acting with a business 

purpose intended to join together to 

conduct an enterprise and share in its 

profits and losses. This determination is 

made considering not only the stated 

intent of the parties, but also the terms 

of their agreement and their conduct. 

Madison Gas & Elec. Co. v. 

Commissioner, 633 F. 2d 512, 514 (7th 

Cir. 1980); Luna v. Commissioner, 42 

T.C. 1067, 1077–78 (1964). 

Conversely, under certain 

circumstances, arrangements that are 

not recognized as entities under State 

law may be treated as separate entities 

for Federal tax purposes. Section 

301.7701–1(a)(2). For example, courts 

have found entities for tax purposes in 

some co-ownership situations where the 

co-owners agree to restrict their ability 

to sell, lease or encumber their interests, 

waive their rights to partition property, 

or allow certain management decisions 

to be made other than by unanimous 

agreement among co-owners. Bergford v. 

Commissioner, 12 F. 3d 166 (9th Cir. 

1993); Bussing v. Commissioner, 89 T.C. 

1050 (1987); Alhouse v. Commissioner, 

T.C. Memo. 1991–652. However, the 

Internal Revenue Service (IRS) has ruled 

that a co-ownership does not rise to the 

level of an entity for Federal tax 

purposes if the owner employs an agent 

whose activities are limited to collecting 

rents, paying property taxes, insurance 

premiums, repair and maintenance 

expenses, and providing tenants with 

customary services. Rev. Rul. 75–374 

(1975–2 CB 261). See also Rev. Rul. 79– 

77 (1979–1 CB 448), (see 

§ 601.601(d)(2)(ii)(b)). 

Rev. Proc. 2002–22 (2002–1 CB 733), 

(see § 601.601(d)(2)(ii)(b)), specifies the 

conditions under which the IRS will 

consider a request for a private letter 

ruling that an undivided fractional 

interest in rental real property is not an 

interest in a business entity under 

§ 301.7701–2(a). A number of factors 

must be present to obtain a ruling under 

the revenue procedure, including a limit 

on the number of co-owners, a 

requirement that the co-owners not treat 

the co-ownership as an entity (that is, 

that the co-ownership may not file a 

partnership or corporate tax return, 

conduct business under a common 

name, execute an agreement identifying 

any or all of the co-owners as partners, 

shareholders, or members of a business 

entity, or otherwise hold itself out as a 

partnership or other form of business 

entity), and a requirement that certain 

rights with respect to the property 

(including the power to make certain 

management decisions) must be 

retained by co-owners. The revenue 

procedure provides that an organization 

that is an entity for State law purposes 

may not be characterized as a coownership under the guidance in the 

revenue procedure. 

The courts and the IRS have 

addressed the Federal tax classification 

of investment trusts with assets divided 

among a number of series. In National 

Securities Series-Industrial Stocks 

Series v. Commissioner, 13 T.C. 884 

(1949), acq., 1950–1 CB 4, several series 

that differed only in the nature of their 

assets were created within a statutory 

open-end investment trust. Each series 

regularly issued certificates representing 

shares in the property held in trust and 

regularly redeemed the certificates 

solely from the assets and earnings of 

the individual series. The Tax Court 

stated that each series of the trust was 

taxable as a separate regulated 

investment company. See also Rev. Rul. 

55–416 (1955–1 CB 416), (see 

§ 601.601(d)(2)(ii)(b)). But, see Union 

Trusteed Funds v. Commissioner, 8 T.C. 

1133 (1947), (series funds organized by 

a State law corporation could not be 

treated as if each fund were a separate 

corporation). 

In 1986, Congress added section 

851(g) to the Code. Section 851(g) 

contains a special rule for series funds 

and provides that, in the case of a 

regulated investment company (within 

the meaning of section 851(a)) with 

more than one fund, each fund generally 

is treated as a separate corporation. For 

these purposes, a fund is a segregated 

portfolio of assets the beneficial 


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interests in which are owned by holders 

of interests in the regulated investment 

company that are preferred over other 

classes or series with respect to these 

assets. 

C. Insurance Company Classification 

Section 7701(a)(3) and § 301.7701– 

2(b)(4) provide that an arrangement that 

qualifies as an insurance company is a 

corporation for Federal income tax 

purposes. Sections 816(a) and 831(c) 

define an insurance company as any 

company more than half the business of 

which during the taxable year is the 

issuing of insurance or annuity 

contracts or the reinsuring of risks 

underwritten by insurance companies. 

See also § 1.801–3(a)(1), (‘‘[T]hough its 

name, charter powers, and subjection to 

State insurance laws are significant in 

determining the business which a 

company is authorized and intends to 

carry on, it is the character of the 

business actually done in the taxable 

year which determines whether a 

company is taxable as an insurance 

company under the Internal Revenue 

Code.’’). Thus, an insurance company 

includes an arrangement that conducts 

insurance business, whether or not the 

arrangement is a State law entity. 

3. Overview of Series LLC Statutes and 

Cell Company Statutes 

A. Domestic Statutes 

Although § 301.7701–1(a)(1) provides 

that State classification of an entity is 

not controlling for Federal tax purposes, 

the characteristics of series LLCs and 

cell companies under their governing 

statutes are an important factor in 

analyzing whether series and cells 

generally should be treated as separate 

entities for Federal tax purposes. 

Series LLC statutes have been enacted 

in Delaware, Illinois, Iowa, Nevada, 

Oklahoma, Tennessee, Texas, Utah and 

Puerto Rico. Delaware enacted the first 

series LLC statute in 1996. Del. Code 

Ann. Tit. 6, section 18–215 (the 

Delaware statute). Statutes enacted 

subsequently by other States are similar, 

but not identical, to the Delaware 

statute. All of the statutes provide a 

significant degree of separateness for 

individual series within a series LLC, 

but none provides series with all of the 

attributes of a typical State law entity, 

such as an ordinary limited liability 

company. Individual series generally are 

not treated as separate entities for State 

law purposes. However, in certain 

States (currently Illinois and Iowa), a 

series is treated as a separate entity to 

the extent provided in the series LLC’s 

articles of organization. 

The Delaware statute provides that a 

limited liability company may establish, 

or provide for the establishment of, one 

or more designated series of members, 

managers, LLC interests or assets. Under 

the Delaware statute, any such series 

may have separate rights, powers, or 

duties with respect to specified property 

or obligations of the LLC or profits and 

losses associated with specified 

property or obligations, and any such 

series may have a separate business 

purpose or investment objective. 

Additionally, the Delaware statute 

provides that the debts, liabilities, 

obligations, and expenses of a particular 

series are enforceable against the assets 

of that series only, and not against the 

assets of the series LLC generally or any 

other series of the LLC, and, unless the 

LLC agreement provides otherwise, 

none of the debts, liabilities, obligations, 

and expenses of the series LLC generally 

or of any other series of the series LLC 

are enforceable against the assets of the 

series, provided that the following 

requirements are met: (1) The LLC 

agreement establishes or provides for 

the establishment of one or more series; 

(2) records maintained for any such 

series account for the assets of the series 

separately from the other assets of the 

series LLC, or of any other series of the 

series LLC; (3) the LLC agreement so 

provides; and (4) notice of the limitation 

on liabilities of a series is set forth in the 

series LLC’s certificate of formation. 

Unless otherwise provided in the LLC 

agreement, a series established under 

Delaware law has the power and 

capacity to, in its own name, contract, 

hold title to assets, grant liens and 

security interests, and sue and be sued. 

A series may be managed by the 

members of the series or by a manager. 

Any event that causes a manager to 

cease to be a manager with respect to a 

series will not, in itself, cause the 

manager to cease to be a manager of the 

LLC or of any other series of the LLC. 

Under the Delaware statute, unless 

the LLC agreement provides otherwise, 

any event that causes a member to cease 

to be associated with a series will not, 

in itself, cause the member to cease to 

be associated with any other series or 

with the LLC, or cause termination of 

the series, even if there are no remaining 

members of the series. Additionally, the 

Delaware statute allows a series to be 

terminated and its affairs wound up 

without causing the dissolution of the 

LLC. However, all series of the LLC 

terminate when the LLC dissolves. 

Finally, under the Delaware statute, a 

series generally may not make a 

distribution to the extent that the 

distribution will cause the liabilities of 

the series to exceed the fair market 

value of the series’ assets. 

The series LLC statutes of Illinois, 805 

ILCS 180/37–40 (the Illinois statute), 

and Iowa, I.C.A. § 489.1201 (the Iowa 

statute) provide that a series with 

limited liability will be treated as a 

separate entity to the extent set forth in 

the articles of organization. The Illinois 

statute provides that the LLC and any of 

its series may elect to consolidate their 

operations as a single taxpayer to the 

extent permitted under applicable law, 

elect to work cooperatively, elect to 

contract jointly, or elect to be treated as 

a single business for purposes of 

qualification to do business in Illinois or 

any other State. 

In addition, under the Illinois statute, 

a series’ existence begins upon filing of 

a certificate of designation with the 

Illinois secretary of state. A certificate of 

designation must be filed for each series 

that is to have limited liability. The 

name of a series with limited liability 

must contain the entire name of the LLC 

and be distinguishable from the names 

of the other series of the LLC. If different 

from the LLC, the certificate of 

designation for each series must list the 

names of the members if the series is 

member-managed or the names of the 

managers if the series is managermanaged. The Iowa and Illinois statutes 

both provide that, unless modified by 

the series LLC provisions, the 

provisions generally applicable to LLCs 

and their managers, members, and 

transferees are applicable to each series. 

Some States have enacted series 

provisions outside of LLC statutes. For 

example, Delaware has enacted series 

limited partnership provisions (6 Del. C. 

§ 17–218). In addition, Delaware’s 

statutory trust statute permits a statutory 

trust to establish series (12 Del. C. 

§ 3804). Both of these statutes contain 

provisions that are nearly identical to 

the corresponding provisions of the 

Delaware series LLC statute with respect 

to the ability of the limited partnership 

or trust to create or establish separate 

series with the same liability protection 

enjoyed by series of a Delaware series 

LLC. 

All of the series LLC statutes contain 

provisions that grant series certain 

attributes of separate entities. For 

example, individual series may have 

separate business purposes, investment 

objectives, members, and managers. 

Assets of a particular series are not 

subject to the claims of creditors of 

other series of the series LLC or of the 

series LLC itself, provided that certain 

recordkeeping and notice requirements 

are observed. Finally, most series LLC 

statutes provide that an event that 

causes a member to cease to be 


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associated with a series does not cause 

the member to cease to be associated 

with the series LLC or any other series 

of the series LLC. 

However, all of the State statutes limit 

the powers of series of series LLCs. For 

example, a series of a series LLC may 

not convert into another type of entity, 

merge with another entity, or 

domesticate in another State 

independent from the series LLC. 

Several of the series LLC statutes do not 

expressly address a series’ ability to sue 

or be sued, hold title to property, or 

contract in its own name. Ordinary 

LLCs and series LLCs generally may 

exercise these rights. Additionally, most 

of the series LLC statutes provide that 

the dissolution of a series LLC will 

cause the termination of each of its 

series. 

B. Statutes with Respect to Insurance 

The insurance codes of a number of 

States include statutes that provide for 

the chartering of a legal entity 

commonly known as a protected cell 

company, segregated account company, 

or segregated portfolio company. See, 

for example, Vt. Stat. Ann. tit. 8, 

chap.141, §§ 6031–6038 (sponsored 

captive insurance companies and 

protected cells of such companies); S.C. 

Code Ann. tit. 38, chap. 10, §§ 38–10– 

10 through 39–10–80 (protected cell 

insurance companies). Under those 

statutes, as under the series LLC statutes 

described above, the assets of each cell 

are segregated from the assets of any 

other cell. The cell may issue insurance 

or annuity contracts, reinsure such 

contracts, or facilitate the securitization 

of obligations of a sponsoring insurance 

company. Rev. Rul. 2008–8 (2008–1 CB 

340), (see § 601.601(d)(2)(ii)(b)), 

analyzes whether an arrangement 

entered into between a protected cell 

and its owner possesses the requisite 

risk shifting and risk distribution to 

qualify as insurance for Federal income 

tax purposes. Under certain domestic 

insurance codes, the sponsor may be 

organized under a corporate or 

unincorporated entity statute. 

Series or cell company statutes in a 

number of foreign jurisdictions allow 

series or cells to engage in insurance 

businesses. See, for example, The 

Companies (Guernsey) Law, 2008 Part 

XXVII (Protected Cell Companies), Part 

XXVIII (Incorporated Cell Companies); 

The Companies (Jersey) law, 1991, Part 

18D; Companies Law, Part XIV (2009 

Revision) (Cayman Isl.) (Segregated 

Portfolio Companies); and Segregated 

Accounts Companies Act (2000) 

(Bermuda). 

Explanation of Provisions 

1. In General 

The proposed regulations provide 

that, for Federal tax purposes, a 

domestic series, whether or not a 

juridical person for local law purposes, 

is treated as an entity formed under 

local law. 

With one exception, the proposed 

regulations do not apply to series or 

cells organized or established under the 

laws of a foreign jurisdiction. The one 

exception is that the proposed 

regulations apply to a foreign series that 

engages in an insurance business. 

Whether a series that is treated as a 

local law entity under the proposed 

regulations is recognized as a separate 

entity for Federal tax purposes is 

determined under § 301.7701–1 and 

general tax principles. The proposed 

regulations further provide that the 

classification of a series that is 

recognized as a separate entity for 

Federal tax purposes is determined 

under § 301.7701–1(b), which provides 

the rules for classifying organizations 

that are recognized as entities for 

Federal tax purposes. 

The proposed regulations define a 

series organization as a juridical entity 

that establishes and maintains, or under 

which is established and maintained, a 

series. A series organization includes a 

series limited liability company, series 

partnership, series trust, protected cell 

company, segregated cell company, 

segregated portfolio company, or 

segregated account company. 

The proposed regulations define a 

series statute as a statute of a State or 

foreign jurisdiction that explicitly 

provides for the organization or 

establishment of a series of a juridical 

person and explicitly permits (1) 

members or participants of a series 

organization to have rights, powers, or 

duties with respect to the series; (2) a 

series to have separate rights, powers, or 

duties with respect to specified property 

or obligations; and (3) the segregation of 

assets and liabilities such that none of 

the debts and liabilities of the series 

organization (other than liabilities to the 

State or foreign jurisdiction related to 

the organization or operation of the 

series organization, such as franchise 

fees or administrative costs) or of any 

other series of the series organization 

are enforceable against the assets of a 

particular series of the series 

organization. For purposes of this 

definition, a ‘‘participant’’ of a series 

organization includes an officer or 

director of the series organization who 

has no ownership interest in the series 

or series organization, but has rights, 

powers, or duties with respect to the 

series. 

The proposed regulations define a 

series as a segregated group of assets 

and liabilities that is established 

pursuant to a series statute by agreement 

of a series organization. A series 

includes a cell, segregated account, or 

segregated portfolio, including a cell, 

segregated account, or segregated 

portfolio that is formed under the 

insurance code of a jurisdiction or is 

engaged in an insurance business. 

However, the term ‘‘series’’ does not 

include a segregated asset account of a 

life insurance company, which consists 

of all assets the investment return and 

market value of which must be allocated 

in an identical manner to any variable 

life insurance or annuity contract 

invested in any of the assets. See 

§ 1.817–5(e). Such an account is 

accorded special treatment under 

subchapter L. See generally section 

817(a) through (c). 

Certain series statutes provide that the 

series liability limitation provisions do 

not apply if the series organization or 

series does not maintain records 

adequately accounting for the assets 

associated with each series separately 

from the assets of the series organization 

or any other series of the series 

organization. The IRS and the Treasury 

Department considered whether a 

failure to elect or qualify for the liability 

limitations under the series statute 

should affect whether a series is a 

separate entity for Federal tax purposes. 

However, limitations on liability of 

owners of an entity for debts and 

obligations of the entity and the rights 

of creditors to hold owners liable for 

debts and obligations of the entity 

generally do not alter the 

characterization of the entity for Federal 

tax purposes. Therefore, the proposed 

regulations provide that an election, 

agreement, or other arrangement that 

permits debts and liabilities of other 

series or the series organization to be 

enforceable against the assets of a 

particular series, or a failure to comply 

with the recordkeeping requirements for 

the limitation on liability available 

under the relevant series statute, will 

not prevent a series from meeting the 

definition of ‘‘series’’ in the proposed 

regulations. For example, a series 

generally will not cease to be an entity 

under the proposed regulations simply 

because it guarantees the debt of another 

series within the series organization. 

The proposed regulations treat a 

series as created or organized under the 

laws of the same jurisdiction in which 

the series is established. Because a 

series may not be a separate juridical 

entity for local law purposes, this rule 


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provides the means for establishing the 

jurisdiction of the series for Federal tax 

purposes. 

Under § 301.7701–1(b), § 301.7701– 

2(b) applies to a series that is recognized 

as a separate entity for Federal tax 

purposes. Therefore, a series that is 

itself described in § 301.7701–2(b)(1) 

through (8) would be classified as a 

corporation regardless of the 

classification of the series organization. 

The proposed regulations also provide 

that, for Federal tax purposes, 

ownership of interests in a series and of 

the assets associated with a series is 

determined under general tax 

principles. A series organization is not 

treated as the owner of a series or of the 

assets associated with a series merely 

because the series organization holds 

legal title to the assets associated with 

the series. For example, if a series 

organization holds legal title to assets 

associated with a series because the 

statute under which the series 

organization was organized does not 

expressly permit a series to hold assets 

in its own name, the series will be 

treated as the owner of the assets for 

Federal tax purposes if it bears the 

economic benefits and burdens of the 

assets under general Federal tax 

principles. Similarly, for Federal tax 

purposes, the obligor for the liability of 

a series is determined under general tax 

principles. 

In general, the same legal principles 

that apply to determine who owns 

interests in other types of entities apply 

to determine the ownership of interests 

in series and series organizations. These 

principles generally look to who bears 

the economic benefits and burdens of 

ownership. See, for example, Rev. Rul. 

55–39 (1955–1 CB 403), (see 

§ 601.601(d)(2)(ii)(b)). Furthermore, 

common law principles apply to the 

determination of whether a person is a 

partner in a series that is classified as a 

partnership for Federal tax purposes 

under § 301.7701–3. See, for example, 

Commissioner v. Culbertson, 337 U.S. 

733 (1949); Commissioner v. Tower, 327 

U.S. 280 (1946). 

The IRS and the Treasury Department 

considered other approaches to the 

classification of series for Federal tax 

purposes. In particular, the IRS and the 

Treasury Department considered 

whether series should be disregarded as 

entities separate from the series 

organization for Federal tax purposes. 

This approach would be supported by 

the fact that series are not generally 

considered entities for local law 

purposes (except, for example, 

potentially under the statutes of Illinois 

and Iowa, where a series may be treated 

as a separate entity to the extent set 

forth in the articles of organization). 

Additionally, while the statutes 

enabling series organizations grant 

series significant autonomy, under no 

current statute do series possess all of 

the attributes of independence that 

entities recognized under local law 

generally possess. For example, series 

generally cannot convert into another 

type of entity, merge with another 

entity, or domesticate in another 

jurisdiction independent of the series 

organization. In addition, the 

dissolution of a series organization 

generally will terminate all of its series. 

The IRS and the Treasury Department 

believe that, notwithstanding that series 

differ in some respects from more 

traditional local law entities, domestic 

series generally should be treated for 

Federal tax purposes as entities formed 

under local law. Because Federal tax 

law, and not local law, governs the 

question of whether an organization is 

an entity for Federal tax purposes, it is 

not dispositive that domestic series 

generally are not considered entities for 

local law purposes. Additionally, the 

IRS and the Treasury Department 

believe that, overall, the factors 

supporting separate entity status for 

series outweigh the factors in favor of 

disregarding series as entities separate 

from the series organization and other 

series of the series organization. 

Specifically, managers and equity 

holders are ‘‘associated with’’ a series, 

and their rights, duties, and powers 

with respect to the series are direct and 

specifically identified. Also, individual 

series may (but generally are not 

required to) have separate business 

purposes and investment objectives. 

The IRS and the Treasury Department 

believe these factors are sufficient to 

treat domestic series as entities formed 

under local law. 

Although some statutes creating series 

organizations permit an individual 

series to enter into contracts, sue, be 

sued, and/or hold property in its own 

name, the IRS and the Treasury 

Department do not believe that the 

failure of a statute to explicitly provide 

these rights should alter the treatment of 

a domestic series as an entity formed 

under local law. These attributes 

primarily involve procedural formalities 

and do not appear to affect the 

substantive economic rights of series or 

their creditors with respect to their 

property and liabilities. Even in 

jurisdictions where series may not 

possess these attributes, the statutory 

liability shields would still apply to the 

assets of a particular series, provided 

the statutory requirements are satisfied. 

Furthermore, the rule provided in the 

proposed regulations would provide 

greater certainty to both taxpayers and 

the IRS regarding the tax status of 

domestic series and foreign series that 

conduct insurance businesses. In effect, 

taxpayers that establish domestic series 

are placed in the same position as 

persons that file a certificate of 

organization for a State law entity. The 

IRS and the Treasury Department 

believe that the approach of the 

proposed regulations is straightforward 

and administrable, and is preferable to 

engaging in a case-by-case 

determination of the status of each 

series that would require a detailed 

examination of the terms of the relevant 

statute. Finally, the IRS and the 

Treasury Department believe that a rule 

generally treating domestic series as 

local law entities would be consistent 

with taxpayers’ current ability to create 

similar structures using multiple local 

law entities that can elect their Federal 

tax classification pursuant to 

§ 301.7701–3. 

The IRS and the Treasury Department 

believe that domestic series should be 

classified as separate local law entities 

based on the characteristics granted to 

them under the various series statutes. 

However, except as specifically stated in 

the proposed regulations, a particular 

series need not actually possess all of 

the attributes that its enabling statute 

permits it to possess. The IRS and the 

Treasury Department believe that a 

domestic series should be treated as a 

separate local law entity even if its 

business purpose, investment objective, 

or ownership overlaps with that of other 

series or the series organization itself. 

Separate State law entities may have 

common or overlapping business 

purposes, investment objectives and 

ownership, but generally are still treated 

as separate local law entities for Federal 

tax purposes. 

The proposed regulations do not 

address the entity status for Federal tax 

purposes of a series organization. 

Specifically, the proposed regulations 

do not address whether a series 

organization is recognized as a separate 

entity for Federal tax purposes if it has 

no assets and engages in no activities 

independent of its series. 

Until further guidance is issued, the 

entity status of a foreign series that does 

not conduct an insurance business will 

be determined under applicable law. 

Foreign series raise novel Federal 

income tax issues that continue to be 

considered and addressed by the IRS 

and the Treasury Department. 


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55704 Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules 

2. Classification of a Series That Is 

Treated as a Separate Entity for Federal 

Tax Purposes 

If a domestic series or a foreign series 

engaged in an insurance business is 

treated as a separate entity for Federal 

tax purposes, then § 301.7701–1(b) 

applies to determine the proper tax 

classification of the series. However, the 

proposed regulations do not provide 

how a series should be treated for 

Federal employment tax purposes. If a 

domestic series is treated as a separate 

entity for Federal tax purposes, then the 

series generally is subject to the same 

treatment as any other entity for Federal 

tax purposes. For example, a series that 

is treated as a separate entity for Federal 

tax purposes may make any Federal tax 

elections it is otherwise eligible to make 

independently of other series or the 

series organization itself, and regardless 

of whether other series (or the series 

organization) do not make certain 

elections or make different elections. 

3. Entity Status of Series Organizations 

The proposed regulations do not 

address the entity status or filing 

requirements of series organizations for 

Federal tax purposes. A series 

organization generally is an entity for 

local law purposes. An organization that 

is an entity for local law purposes 

generally is treated as an entity for 

Federal tax purposes. However, an 

organization characterized as an entity 

for Federal income tax purposes may 

not have an income or information tax 

filing obligation. For example, 

§ 301.6031(a)–(1)(a)(3)(i) provides that a 

partnership with no income, 

deductions, or credits for Federal 

income tax purposes for a taxable year 

is not required to file a partnership 

return for that year. Generally, filing 

fees of a series organization paid by 

series of the series organization would 

be treated as expenses of the series and 

not as expenses of the series 

organization. Thus, a series organization 

characterized as a partnership for 

Federal tax purposes that does not have 

income, deductions, or credits for a 

taxable year need not file a partnership 

return for the year. 

4. Continuing Applicability of Tax Law 

Authority to Series 

Notwithstanding that a domestic 

series or a foreign series engaged in an 

insurance business is treated as an 

entity formed under local law under the 

proposed regulations, the Commissioner 

may under applicable law, including 

common law tax principles, characterize 

a series or a portion of a series other 

than as a separate entity for Federal tax 

purposes. Series covered by the 

proposed regulations are subject to 

applicable law to the same extent as 

other entities. Thus, a series may be 

disregarded under applicable law even 

if it satisfies the requirements of the 

proposed regulations to be treated as an 

entity formed under local law. For 

example, if a series has no business 

purpose or business activity other than 

tax avoidance, it may be disregarded 

under appropriate circumstances. See 

Bertoli v. Commissioner, 103 T.C. 501 

(1994); Aldon Homes, Inc. v. 

Commissioner, 33 T.C. 582 (1959). 

Furthermore, the anti-abuse rule of 

§ 1.701–2 is applicable to a series or 

series organization that is classified as a 

partnership for Federal tax purposes. 

5. Applicability to Organizations That 

Qualify as Insurance Companies 

Notice 2008–19 requested comments 

on proposed guidance setting forth 

conditions under which a cell of a 

protected cell company would be 

treated as an insurance company 

separate from any other entity for 

Federal income tax purposes. Those 

who commented on the notice generally 

supported the proposed guidance, and 

further commented that it should extend 

to non-insurance arrangements as well, 

including series LLCs. Rather than 

provide independent guidance for 

insurance company status setting forth 

what is essentially the same standard, 

the proposed regulations define the term 

series to include a cell, segregated 

account, or segregated portfolio that is 

formed under the insurance code of a 

jurisdiction or is engaged in an 

insurance business (other than a 

segregated asset account of a life 

insurance company). 

Although the proposed regulations do 

not apply to a series organized or 

established under the laws of a foreign 

jurisdiction, an exception is provided 

for certain series conducting an 

insurance business. Under this 

exception, a series that is organized or 

established under the laws of a foreign 

jurisdiction is treated as an entity if the 

arrangements and other activities of the 

series, if conducted by a domestic 

company, would result in its being 

classified as an insurance company. 

Thus, a foreign series would be treated 

as an entity if more than half of the 

series’ business is the issuing or 

reinsuring of insurance or annuity 

contracts. The IRS and the Treasury 

Department believe it is appropriate to 

provide this rule even though the 

proposed regulations otherwise do not 

apply to a foreign series because an 

insurance company is classified as a per 

se corporation under section 7701(a)(3) 

regardless of how it otherwise would be 

treated under §§ 301.7701–1, 301.7701– 

2, or 301.7701–3. 

The IRS and the Treasury Department 

are aware that insurance-specific 

guidance may still be needed to address 

the issues identified in § 3.02 of Notice 

2008–19 and insurance-specific 

transition issues that may arise for 

protected cell companies that 

previously reported in a manner 

inconsistent with the regulations. See 

§ 601.601(d)(2)(ii)(b). 

6. Effect of Local Law Classification on 

Tax Collection 

The IRS and Treasury Department 

understand that there are differences in 

local law governing series (for example, 

rights to hold title to property and to sue 

and be sued are expressly addressed in 

some statutes but not in others) that may 

affect how creditors of series, including 

State taxing authorities, may enforce 

obligations of a series. Thus, the 

proposed regulations provide that, to 

the extent Federal or local law permits 

a creditor to collect a liability 

attributable to a series from the series 

organization or other series of the series 

organization, the series organization and 

other series of the series organization 

may also be considered the taxpayer 

from whom the tax assessed against the 

series may be collected pursuant to 

administrative or judicial means. 

Further, when a creditor is permitted to 

collect a liability attributable to a series 

organization from any series of the 

series organization, a tax liability 

assessed against the series organization 

may be collected directly from a series 

of the series organization by 

administrative or judicial means. 

7. Employment Tax and Employee 

Benefits Issues 

A. In General 

The domestic statutes authorizing the 

creation of series contemplate that a 

series may operate a business. If the 

operating business has workers, it will 

be necessary to determine how the 

business satisfies any employment tax 

obligations, whether it has the ability to 

maintain any employee benefit plans 

and, if so, whether it complies with the 

rules applicable to those plans. 

Application of the employment tax 

requirements will depend principally 

on whether the workers are employees, 

and, if so, who is considered the 

employer for Federal income and 

employment tax purposes. In general, an 

employment relationship exists when 

the person for whom services are 

performed has the right to control and 

direct the individual who performs the 


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Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules 55705 

services, not only as to the result to be 

accomplished by the work but also as to 

the details and means by which that 

result is accomplished. See 

§§ 31.3121(d)–1(c)(2), 31.3306(i)–1(b), 

and 31.3401(c)– 1(b). 

B. Employment Tax 

An entity must be a person in order 

to be an employer for Federal 

employment tax purposes. See sections 

3121(b), 3306(a)(1), 3306(c), and 3401(d) 

and § 31.3121(d)–2(a). However, status 

as a person, by itself, is not enough to 

make an entity an employer for Federal 

employment tax purposes. The entity 

must also satisfy the criteria to be an 

employer under Federal employment 

tax statutes and regulations for purposes 

of the determination of the proper 

amount of employment taxes and the 

party liable for reporting and paying the 

taxes. Treatment of a series as a separate 

person for Federal employment tax 

purposes would create the possibility 

that the series could be an ‘‘employer’’ 

for Federal employment tax purposes, 

which would raise both substantive and 

administrative issues. 

The series structure would make it 

difficult to determine whether the series 

or the series organization is the 

employer under the relevant criteria 

with respect to the services provided. 

For example, if workers perform all of 

their services under the direction and 

control of individuals who own the 

interests in a series, but the series has 

no legal authority to enter into contracts 

or to sue or be sued, could the series 

nonetheless be the employer of the 

workers? If workers perform services 

under the direction and control of the 

series, but they are paid by the series 

organization, would the series 

organization, as the nominal owner of 

all the series assets, have control over 

the payment of wages such that it would 

be liable as the employer under section 

3401(d)? 

The structure of a series organization 

could also affect the type of 

employment tax liability. For example, 

if a series were recognized as a distinct 

person for Federal employment tax 

purposes, a worker providing services as 

an employee of one series and as a 

member of another series or the series 

organization would be subject to FICA 

tax on the wages paid for services as an 

employee and self-employment tax on 

the member income. Note further that, 

if a domestic series were classified as a 

separate entity that is a business entity, 

then, under § 301.7701–3, the series 

would be classified as either a 

partnership or a corporation. While a 

business entity with one owner is 

generally classified as a corporation or 

is disregarded for Federal tax purposes, 

such an entity cannot be disregarded for 

Federal employment tax purposes. See 

§ 301.7701–2(c)(2)(iv). 

Once the employer is identified, 

additional issues arise, including but 

not limited to the following: How would 

the wage base be determined for 

employees, particularly if they work for 

more than one series in a common line 

of business? How would the common 

paymaster rules apply? Who would be 

authorized to designate an agent under 

section 3504 for reporting and payment 

of employment taxes, and how would 

the authorization be accomplished? 

How would the statutory exceptions 

from the definitions of employment and 

wages apply given that they may be 

based on the identity of the employer? 

Which entity would be eligible for tax 

credits that go to the employer such as 

the Work Opportunity Tax Credit under 

section 51 or the tip credit under section 

45B? If a series organization handles 

payroll for a series and is also the 

nominal owner of the series assets, 

would the owners or the managers of 

the series organization be responsible 

persons for the Trust Fund Recovery 

Penalty under section 6672? 

Special administrative issues might 

arise if the series were to be treated as 

the employer for Federal employment 

tax purposes but not for State law 

purposes. For example, if the series 

were the employer for Federal 

employment tax purposes and filed a 

Form W–2, ‘‘Wage and Tax Statement,’’ 

reporting wages and employment taxes 

withheld, but the series were not 

recognized as a juridical person for State 

law purposes, then administrative 

problems might ensue unless separate 

Forms W–2 were prepared for State and 

local tax purposes. Similarly, the IRS 

and the States might encounter 

challenges in awarding the FUTA credit 

under section 3302 to the appropriate 

entity and certifying the amount of State 

unemployment tax paid. 

In light of these issues, the proposed 

regulations do not currently provide 

how a series should be treated for 

Federal employment tax purposes. 

C. Employee Benefits 

Various issues arise with respect to 

the ability of a series to maintain an 

employee benefit plan, including issues 

related to those described above with 

respect to whether a series may be an 

employer. The proposed regulations do 

not address these issues. However, to 

the extent that a series can maintain an 

employee benefit plan, the aggregation 

rules under section 414(b), (c), (m), (o) 

and (t), as well as the leased employee 

rules under section 414(n), would 

apply. In this connection, the IRS and 

Treasury Department expect to issue 

regulations under section 414(o) that 

would prevent the avoidance of any 

employee benefit plan requirement 

through the use of the separate entity 

status of a series. 

8. Statement Containing Identifying 

Information About Series 

As the series organization or a series 

of the series organization may be treated 

as a separate entity for Federal tax and 

related reporting purposes but may not 

be a separate entity under local law, the 

IRS and Treasury Department believe 

that a new statement may need to be 

created and required to be filed 

annually by the series organization and 

each series of the series organization to 

provide the IRS with certain identifying 

information to ensure the proper 

assessment and collection of tax. 

Accordingly, these regulations propose 

to amend the Procedure and 

Administration Regulations under 

section 6011 to include this requirement 

and a cross-reference to those 

regulations is included under 

§ 301.7701–1. The IRS and Treasury 

Department are considering what 

information should be required by these 

statements. Information tentatively 

being considered includes (1) the name, 

address, and taxpayer identification 

number of the series organization and 

each of its series and status of each as 

a series of a series organization or as the 

series organization; (2) the jurisdiction 

in which the series organization was 

formed; and (3) an indication of whether 

the series holds title to its assets or 

whether title is held by another series or 

the series organization and, if held by 

another series or the series organization, 

the name, address, and taxpayer 

identification number of the series 

organization and each series holding 

title to any of its assets. The IRS and 

Treasury Department are also 

considering the best time to require 

taxpayers to file the statement. For 

example, the IRS and Treasury 

Department are considering whether the 

statement should be filed when returns, 

such as income tax returns and excise 

tax returns, are required to be filed or 

whether it should be a stand-alone 

statement filed separately by a set date 

each year, as with information returns 

such as Forms 1099. A cross-reference 

to these regulations was added to the 

Procedure and Administration 

regulations under section 6071 for the 

time to file returns and statements. The 

proposed regulations under section 

6071 provide that the statement will be 

a stand-alone statement due March 15th 

of each year. In addition, the IRS and 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
55706 Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules 

Treasury Department are considering 

revising Form SS–4, ‘‘Application for 

Employer Identification Number,’’ to 

include questions regarding series 

organizations. 

Proposed Effective Date 

These regulations generally apply on 

the date final regulations are published 

in the Federal Register. Generally, when 

final regulations become effective, 

taxpayers that are treating series 

differently for Federal tax purposes than 

series are treated under the final 

regulations will be required to change 

their treatment of series. In this 

situation, a series organization that 

previously was treated as one entity 

with all of its series may be required to 

begin treating each series as a separate 

entity for Federal tax purposes. General 

tax principles will apply to determine 

the consequences of the conversion 

from one entity to multiple entities for 

Federal tax purposes. See, for example, 

section 708 for rules relating to 

partnership divisions in the case of a 

series organization previously treated as 

a partnership for Federal tax purposes 

converting into multiple partnerships 

upon recognition of the series 

organization’s series as separate entities. 

While a division of a partnership may 

be tax-free, gain may be recognized in 

certain situations under section 

704(c)(1)(B) or section 737. Sections 355 

and 368(a)(1)(D) provide rules that 

govern certain divisions of a 

corporation. The division of a series 

organization into multiple corporations 

may be tax-free to the corporation and 

to its shareholders; however, if the 

corporate division does not satisfy one 

or more of the requirements in section 

355, the division may result in taxable 

events to the corporation, its 

shareholders, or both. 

The regulations include an exception 

for series established prior to 

publication of the proposed regulations 

that treat all series and the series 

organization as one entity. If the 

requirements for this exception are 

satisfied, after issuance of the final 

regulations the series may continue to 

be treated together with the series 

organization as one entity for Federal 

tax purposes. Specifically, these 

requirements are satisfied if (1) The 

series was established prior to 

September 14, 2010; (2) The series 

(independent of the series organization 

or other series of the series organization) 

conducted business or investment 

activity or, in the case of a foreign 

series, more than half the business of 

the series was the issuing of insurance 

or annuity contracts or the reinsuring of 

risks underwritten by insurance 

companies, on and prior to September 

14, 2010; (3) If the series was 

established pursuant to a foreign statute, 

the series’ classification was relevant (as 

defined in § 301.7701–3(d)), and more 

than half the business of the series was 

the issuing of insurance or annuity 

contracts or the reinsuring of risks 

underwritten by insurance companies 

for all taxable years beginning with the 

taxable year that includes September 14, 

2010; (4) No owner of the series treats 

the series as an entity separate from any 

other series of the series organization or 

from the series organization for 

purposes of filing any Federal income 

tax returns, information returns, or 

withholding documents for any taxable 

year; (5) The series and series 

organization had a reasonable basis 

(within the meaning of section 6662) for 

their claimed classification; and (6) 

Neither the series nor any owner of the 

series nor the series organization was 

notified in writing on or before the date 

final regulations are published in the 

Federal Register that classification of 

the series was under examination (in 

which case the series’ classification will 

be determined in the examination). 

This exception will cease to apply on 

the date any person or persons who 

were not owners of the series 

organization (or series) prior to 

September 14, 2010 own, in the 

aggregate, a 50 percent or greater 

interest in the series organization (or 

series). For this purpose, the term 

interest means (i) in the case of a 

partnership, a capital or profits interest 

and (ii) in the case of a corporation, an 

equity interest measured by vote or 

value. This transition rule does not 

apply to any determination other than 

the entity status of a series, for example, 

tax ownership of a series or series 

organization or qualification of a series 

or series organization conducting an 

insurance business as a controlled 

foreign corporation. 

Special Analyses 

It has been determined that this notice 

of proposed rulemaking is not a 

significant regulatory action as defined 

in Executive Order 12866. 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. 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), it is hereby 

certified that the regulations will not 

have a significant economic impact on 

a substantial number of small entities. 

The regulations require that series and 

series organizations file a statement to 

provide the IRS with certain identifying 

information to ensure the proper 

assessment and collection of tax. The 

regulations affect domestic series LLCs, 

domestic cell companies, and foreign 

series and cells that conduct insurance 

businesses, and their owners. Based on 

information available at this time, the 

IRS and the Treasury Department 

believe that many series and series 

organizations are large insurance 

companies or investment firms and, 

thus, are not small entities. Although a 

number of small entities may be subject 

to the information reporting 

requirement of the new statement, any 

economic impact will be minimal. The 

information that the IRS and the 

Treasury Department are considering 

requiring on the proposed statement 

should be known by or readily available 

to the series or the series organization. 

Therefore, it should take minimal time 

and expense to collect and report this 

information. For example, the IRS and 

the Treasury Department are 

considering requiring the following 

information: (1) The name, address, and 

taxpayer identification number of the 

series organization and each of its series 

and status of each as a series of a series 

organization or as the series 

organization; (2) The jurisdiction in 

which the series organization was 

formed; and (3) An indication of 

whether the series holds title to its 

assets or whether title is held by another 

series or the series organization and, if 

held by another series or the series 

organization, the name, address, and 

taxpayer identification number of the 

series organization and each series 

holding title to any of its assets. The IRS 

and the Treasury Department request 

comments on the accuracy of the 

statement that the regulations in this 

document will not have a significant 

economic impact on a substantial 

number of small entities. Pursuant to 

section 7805(f) of the Code, this notice 

of proposed rulemaking has been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small businesses. 

Comments and Requests for a Public 

Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

written comments (a signed original and 

eight (8) copies) that are submitted 

timely to the IRS. Alternatively, 

taxpayers may submit comments 

electronically directly to the Federal 

eRulemaking portal at http:// 

www.regulations.gov. 

The IRS and the Treasury Department 

request comments on the proposed 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules 55707 

regulations. In addition, the IRS and the 

Treasury Department request comments 

on the following issues: 

(1) Whether a series organization 

should be recognized as a separate 

entity for Federal tax purposes if it has 

no assets and engages in no activities 

independent of its series; 

(2) The appropriate treatment of a 

series that does not terminate for local 

law purposes when it has no members 

associated with it; 

(3) The entity status for Federal tax 

purposes of foreign cells that do not 

conduct insurance businesses and other 

tax consequences of establishing, 

operating, and terminating all foreign 

cells; 

(4) How the Federal employment tax 

issues discussed and similar technical 

issues should be resolved; 

(5) How series and series 

organizations will be treated for State 

employment tax purposes and other 

state employment-related purposes and 

how that treatment should affect the 

Federal employment tax treatment of 

series and series organizations 

(comments from the states would be 

particularly helpful); 

(6) What issues could arise with 

respect to the provision of employee 

benefits by a series organization or 

series; and 

(7) The requirement for the series 

organization and each series of the 

series organization to file a statement 

and what information should be 

included on the statement. 

All comments will be available for 

public inspection and copying. A public 

hearing may be scheduled if requested 

in writing by a person who timely 

submits comments. If a public hearing is 

scheduled, notice of the date, time and 

place for the hearing will be published 

in the Federal Register. 

Drafting Information 

The principal author of these 

proposed regulations is Joy Spies, IRS 

Office of the Associate Chief Counsel 

(Passthroughs and Special Industries). 

However, other personnel from the IRS 

and the Treasury Department 

participated in their development. 

List of Subjects in 26 CFR Part 301 

Employment taxes, Estate taxes, 

Excise taxes, Gift taxes, Income taxes, 

Penalties, Reporting and Recordkeeping 

requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 301 is 

proposed to be amended as follows: 

PART 301—PROCEDURE AND 

ADMINISTRATION 

Paragraph 1. The authority citation 

for part 301 is amended by adding 

entries in numerical order to read in 

part as follows: 

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

Section 301.6011–6 also issued under 26 

U.S.C. 6011(a). * * * 

Section 301.6071–2 also issued under 26 

U.S.C. 6071(a). * * * 

Par. 2. Section 301.6011–6 is added to 

read as follows: 

§ 301.6011–6 Statements of series and 

series organizations. 

(a) Statement required. Each series 

and series organization (as defined in 

paragraph (b) of this section) shall file 

a statement for each taxable year 

containing the identifying information 

with respect to the series or series 

organization as prescribed by the 

Internal Revenue Service for this 

purpose and shall include the 

information required by the statement 

and its instructions. 

(b) Definitions—(1) Series. The term 

series has the same meaning as in 

§ 301.7701–1(a)(5)(viii)(C). 

(2) Series organization. The term 

series organization has the same 

meaning as in § 301.7701– 

1(a)(5)(viii)(A). 

(c) Effective/applicability date. This 

section applies to taxable years 

beginning after the date of publication 

of the Treasury decision adopting these 

rules as final regulations in the Federal 

Register. 

Par. 3. Section 301.6071–2 is added to 

read as follows: 

§ 301.6071–2 Time for filing statements of 

series and series organizations. 

(a) In general. Statements required by 

§ 301.6011–6 must be filed on or before 

March 15 of the year following the 

period for which the return is made. 

(b) Effective/applicability date. This 

section applies to taxable years 

beginning after the date of publication 

of the Treasury decision adopting these 

rules as final regulations in the Federal 

Register. 

Par. 4. Section 301.7701–1 is 

amended by: 

1. Adding paragraph (a)(5). 

2. Revising paragraphs (e) and (f). 

The additions and revisions read as 

follows: 

§ 301.7701–1 Classification of 

organizations for Federal tax purposes. 

(a) * * * 

(5) Series and series organizations— 

(i) Entity status of a domestic series. For 

Federal tax purposes, except as 

provided in paragraph (a)(5)(ix) of this 

section, a series (as defined in paragraph 

(a)(5)(viii)(C) of this section) organized 

or established under the laws of the 

United States or of any State, whether 

or not a juridical person for local law 

purposes, is treated as an entity formed 

under local law. 

(ii) Certain foreign series conducting 

an insurance business. For Federal tax 

purposes, except as provided in 

paragraph (a)(5)(ix) of this section, a 

series organized or established under 

the laws of a foreign jurisdiction is 

treated as an entity formed under local 

law if the arrangements and other 

activities of the series, if conducted by 

a domestic company, would result in 

classification as an insurance company 

within the meaning of section 816(a) or 

section 831(c). 

(iii) Recognition of entity status. 

Whether a series that is treated as a local 

law entity under paragraph (a)(5)(i) or 

(ii) of this section is recognized as a 

separate entity for Federal tax purposes 

is determined under this section and 

general tax principles. 

(iv) Classification of series. The 

classification of a series that is 

recognized as a separate entity for 

Federal tax purposes is determined 

under paragraph (b) of this section. 

(v) Jurisdiction in which series is 

organized or established. A series is 

treated as created or organized under 

the laws of a State or foreign jurisdiction 

if the series is established under the 

laws of such jurisdiction. See 

§ 301.7701–5 for rules that determine 

whether a business entity is domestic or 

foreign. 

(vi) Ownership of series and the assets 

of series. For Federal tax purposes, the 

ownership of interests in a series and of 

the assets associated with a series is 

determined under general tax 

principles. A series organization is not 

treated as the owner for Federal tax 

purposes of a series or of the assets 

associated with a series merely because 

the series organization holds legal title 

to the assets associated with the series. 

(vii) Effect of Federal and local law 

treatment. To the extent that, pursuant 

to the provisions of this paragraph 

(a)(5), a series is a taxpayer against 

whom tax may be assessed under 

Chapter 63 of Title 26, then any tax 

assessed against the series may be 

collected by the Internal Revenue 

Service from the series in the same 

manner the assessment could be 

collected by the Internal Revenue 

Service from any other taxpayer. In 

addition, to the extent Federal or local 

law permits a debt attributable to the 

series to be collected from the series 

organization or other series of the series 

organization, then, notwithstanding any 


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55708 Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules 

other provision of this paragraph (a)(5), 

and consistent with the provisions of 

Federal or local law, the series 

organization and other series of the 

series organization may also be 

considered the taxpayer from whom the 

tax assessed against the series may be 

administratively or judicially collected. 

Further, when a creditor is permitted to 

collect a liability attributable to a series 

organization from any series of the 

series organization, a tax liability 

assessed against the series organization 

may be collected directly from a series 

of the series organization by 

administrative or judicial means. 

(viii) Definitions—(A) Series 

organization. A series organization is a 

juridical entity that establishes and 

maintains, or under which is 

established and maintained, a series (as 

defined in paragraph (a)(5)(viii)(C) of 

this section). A series organization 

includes a series limited liability 

company, series partnership, series 

trust, protected cell company, 

segregated cell company, segregated 

portfolio company, or segregated 

account company. 

(B) Series statute. A series statute is 

a statute of a State or foreign jurisdiction 

that explicitly provides for the 

organization or establishment of a series 

of a juridical person and explicitly 

permits— 

(1) Members or participants of a series 

organization to have rights, powers, or 

duties with respect to the series; 

(2) A series to have separate rights, 

powers, or duties with respect to 

specified property or obligations; and 

(3) The segregation of assets and 

liabilities such that none of the debts 

and liabilities of the series organization 

(other than liabilities to the State or 

foreign jurisdiction related to the 

organization or operation of the series 

organization, such as franchise fees or 

administrative costs) or of any other 

series of the series organization are 

enforceable against the assets of a 

particular series of the series 

organization. 

(C) Series. A series is a segregated 

group of assets and liabilities that is 

established pursuant to a series statute 

(as defined in paragraph (a)(5)(viii)(B) of 

this section) by agreement of a series 

organization (as defined in paragraph 

(a)(5)(viii)(A) of this section). A series 

includes a series, cell, segregated 

account, or segregated portfolio, 

including a cell, segregated account, or 

segregated portfolio that is formed 

under the insurance code of a 

jurisdiction or is engaged in an 

insurance business. However, the term 

series does not include a segregated 

asset account of a life insurance 

company. See section 817(d)(1); 

§ 1.817–5(e). An election, agreement, or 

other arrangement that permits debts 

and liabilities of other series or the 

series organization to be enforceable 

against the assets of a particular series, 

or a failure to comply with the record 

keeping requirements for the limitation 

on liability available under the relevant 

series statute, will be disregarded for 

purposes of this paragraph 

(a)(5)(viii)(C). 

(ix) Treatment of series and series 

organizations under Subtitle C— 

Employment Taxes and Collection of 

Income Tax (Chapters 21, 22, 23, 23A, 

24 and 25 of the Internal Revenue 

Code). [Reserved.] 

(x) Examples. The following examples 

illustrate the principles of this 

paragraph (a)(5): 

Example 1. Domestic Series LLC. (i) Facts. 

Series LLC is a series organization (within 

the meaning of paragraph (a)(5)(viii)(A) of 

this section). Series LLC has three members 

(1, 2, and 3). Series LLC establishes two 

series (A and B) pursuant to the LLC statute 

of state Y, a series statute within the meaning 

of paragraph (a)(5)(viii)(B) of this section. 

Under general tax principles, Members 1 and 

2 are the owners of Series A, and Member 3 

is the owner of Series B. Series A and B are 

not described in § 301.7701–2(b) or 

paragraph (a)(3) of this section and are not 

trusts within the meaning of § 301.7701–4. 

(ii) Analysis. Under paragraph (a)(5)(i) 

of this section, Series A and Series B are 

each treated as an entity formed under 

local law. The classification of Series A 

and Series B is determined under 

paragraph (b) of this section. The default 

classification under § 301.7701–3 of 

Series A is a partnership and of Series 

B is a disregarded entity. 

Example 2. Foreign Insurance Cell. 

(i) Facts. Insurance CellCo is a series 

organization (within the meaning of 

paragraph (a)(5)(viii)(A) of this section) 

organized under the laws of foreign Country 

X. Insurance CellCo has established one cell, 

Cell A, pursuant to a Country X law that is 

a series statute (within the meaning of 

paragraph (a)(5)(viii)(B) of this section). More 

than half the business of Cell A during the 

taxable year is the issuing of insurance or 

annuity contracts or the reinsuring of risks 

underwritten by insurance companies. If the 

activities of Cell A were conducted by a 

domestic company, that company would 

qualify as an insurance company within the 

meaning of sections 816(a) and 831(c). 

(ii) Analysis. Under paragraph 

(a)(5)(ii) of this section, Cell A is treated 

as an entity formed under local law. 

Because Cell A is an insurance 

company, it is classified as a 

corporation under § 301.7701–2(b)(4). 

* * * * * 

(e) State. For purposes of this section 

and §§ 301.7701–2 and 301.7701–4, the 

term State includes the District of 

Columbia. 

(f) Effective/applicability dates—(1) In 

general. Except as provided in 

paragraphs (f)(2) and (f)(3) of this 

section, the rules of this section are 

applicable as of January 1, 1997. 

(2) Cost sharing arrangements. The 

rules of paragraph (c) of this section are 

applicable on January 5, 2009. 

(3) Series and series organizations— 

(i) In general. Except as otherwise 

provided in this paragraph (f)(3), 

paragraph (a)(5) of this section applies 

on and after the date final regulations 

are published in the Federal Register. 

(ii) Transition rule—(A) In general. 

Except as provided in paragraph 

(f)(3)(ii)(B) of this section, a taxpayer’s 

treatment of a series in a manner 

inconsistent with the final regulations 

will be respected on and after the date 

final regulations are published in the 

Federal Register, provided that— 

(1) The series was established prior to 

September 14, 2010; 

(2) The series (independent of the 

series organization or other series of the 

series organization) conducted business 

or investment activity, or, in the case of 

a series established pursuant to a foreign 

statute, more than half the business of 

the series was the issuing of insurance 

or annuity contracts or the reinsuring of 

risks underwritten by insurance 

companies, on and prior to September 

14, 2010. 

(3) If the series was established 

pursuant to a foreign statute, the series’ 

classification was relevant (as defined in 

§ 301.7701–3(d)), and more than half the 

business of the series was the issuing of 

insurance or annuity contracts or the 

reinsuring of risks underwritten by 

insurance companies for all taxable 

years beginning with the taxable year 

that includes September 14, 2010; 

(4) No owner of the series treats the 

series as an entity separate from any 

other series of the series organization or 

from the series organization for 

purposes of filing any Federal income 

tax returns, information returns, or 

withholding documents in any taxable 

year; 

(5) The series and series organization 

had a reasonable basis (within the 

meaning of section 6662) for their 

claimed classification; and 

(6) Neither the series nor any owner 

of the series nor the series organization 

was notified in writing on or before the 

date final regulations are published in 

the Federal Register that classification 

of the series was under examination (in 

which case the series’ classification will 

be determined in the examination). 

(B) Exception to transition rule. 

Paragraph (f)(3)(ii)(A) of this section 


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Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules 55709 

will not apply on and after the date any 

person or persons who were not owners 

of the series organization (or series) 

prior to September 14, 2010 own, in the 

aggregate, a fifty percent or greater 

interest in the series organization (or 

series). For purposes of the preceding 

sentence, the term interest means— 

(1) In the case of a partnership, a 

capital or profits interest; and 

(2) In the case of a corporation, an 

equity interest measured by vote or 

value. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2010–22793 Filed 9–13–10; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 167 

[Docket No. USCG–2009–0765] 

Port Access Route Study: In the 

Approaches to Los Angeles-Long 

Beach and in the Santa Barbara 

Channel 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of public meetings; 

request for comments. 

SUMMARY: The Coast Guard announces 

two separate public meetings to receive 

comments on the study entitled ‘‘Port 

Access Route Study: In the Approaches 

to Los Angeles-Long Beach and in the 

Santa Barbara Channel’’ that was 

published in the Federal Register on 

Wednesday, April 7, 2010. As stated in 

that document, the Coast Guard is 

conducting a Port Access Route Study 

(PARS) to evaluate the continued 

applicability of and the potential need 

for modifications to the current vessel 

routing in the approaches to Los 

Angeles-Long Beach and in the Santa 

Barbara Channel. 

DATES: Public meetings will be held on 

Wednesday, October 13, 2010 from 7 

p.m. to 9 p.m., and on Thursday, 

October 14, 2010 from 7 p.m. to 9 p.m. 

to provide an opportunity for oral 

comments. Written comments and 

related material may also be submitted 

to Coast Guard personnel specified at 

the meetings. 

ADDRESSES: The October 13, 2010 public 

meeting will be held at Oxnard Harbor 

District Offices at 333 Ponoma Street in 

Port Hueneme, CA. Visitor parking is 

available in the adjacent parking lot. 

The October 14, 2010 public meeting 

will be held at the Port of Los Angeles 

Administration Building at 425 S. Palos 

Verdes St., San Pedro, CA 90731. Visitor 

parking is available in the Liberty Hill 

Plaza parking lot directly across the 

street from the Port of Los Angeles 

Administration Building. Governmentissued photo identification will be 

required for entrance into both 

buildings. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions concerning the 

meeting or the study, please call or email LTJG Lucas Mancini, Coast Guard; 

telephone 510–437–3801, e-mail 

Lucas.W.Mancini@uscg.mil. If you have 

questions on viewing the docket call 

Ms. Renee V. Wright, Program Manager, 

Docket Operations, telephone 202–366– 

9826. 

SUPPLEMENTARY INFORMATION: 

Background and Purpose 

We published a notice of study in the 

Federal Register on April 7, 2010 (75 FR 

17562), entitled ‘‘Port Access Route 

Study: In the Approaches to Los 

Angeles-Long Beach and In the Santa 

Barbara Channel’’ in which we did not 

state a plan to hold a public meeting. 

We received several requests for a 

meeting in comments submitted to the 

docket and have concluded that a public 

meeting would aid this study. 

Therefore, we are publishing this notice. 

In the notice of PARS, we discussed 

increased vessel traffic observed 

bypassing the Santa Barbara Channel 

Traffic Separation Scheme (TSS) and 

opting for routes south of San Miguel, 

Santa Rosa, and Santa Cruz Islands 

approaching the San Pedro Channel. 

This study will assess whether the 

creation of a vessel routing system is 

necessary to increase the predictability 

of vessel movements, which may 

decrease the potential for collisions, oil 

spills, and other events that could 

threaten the marine environment. 

You may view the notice of PARS in 

our online docket, in addition to 

comments submitted thus far by going 

to http://www.regulations.gov. Once 

there, insert ‘‘USCG–2009–0765’’ in the 

‘‘Keyword’’ box and click ‘‘Search.’’ If 

you do not have access to the internet, 

you may view the docket online by 

visiting the Docket Management Facility 

in Room W12–140 on the ground floor 

of the Department of Transportation 

West Building, 1200 New Jersey 

Avenue, SE., Washington, DC 20590, 

between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays. 

We have an agreement with the 

Department of Transportation to use the 

Docket Management Facility. 

We encourage you to participate in 

this study by submitting comments at 

the meeting either orally or in writing. 

If you bring written comments to the 

meeting, you may submit them to Coast 

Guard personnel specified at the 

meeting to receive written comments. 

These comments will be posted to our 

online public docket. All comments 

received will be posted without change 

to http://www.regulations.gov and will 

include any personal information you 

have provided. 

Anyone can search the electronic 

form of comments received into any of 

our dockets by the name of the 

individual submitting the comment (or 

signing the comment, if submitted on 

behalf of an association, business, labor 

union, etc.). You may review a Privacy 

Act notice regarding our public dockets 

in the January 17, 2008, issue of the 

Federal Register (73 FR 3316). 

Information on Service for Individuals 

With Disabilities 

For information on facilities or 

services for individuals with disabilities 

or to request special assistance at the 

public meeting, contact LTJG Lucas 

Mancini at the telephone number or email address indicated under the FOR

FURTHER INFORMATION CONTACT section of 

this notice. 

Public Meeting 

The Coast Guard will hold public 

meetings regarding its Port Access Route 

Study In the Approaches to Los 

Angeles-Long Beach and In the Santa 

Barbara Channel proposed rule on 

Wednesday, October 13, 2010 from 7 

p.m. to 9 p.m. at the Oxnard Harbor 

District Offices and Thursday, October 

14, 2010 from 7 p.m. to 9 p.m. in the 

2nd floor board room at the Port of Los 

Angeles Administration Building, 

telephone (310) SEA–PORT (732–7668). 

Government-issued photo identification 

(for example, a driver’s license or TWIC) 

will be required for entrance into both 

buildings. We will provide a written 

summary of the meeting and additional 

comments received at the meeting in the 

docket. 

Dated: September 2, 2010. 

S.P. Metruck, 

Captain, U.S. Coast Guard, Acting 

Commander, Eleventh Coast Guard District. 

[FR Doc. 2010–22799 Filed 9–13–10; 8:45 am] 

BILLING CODE 9110–04–P 


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