Source: https://www.irs.gov/irb/2011-08_IRB
Timestamp: 2019-04-19 02:30:20+00:00

Document:
Final regulations under section 1001 of the Code clarify the extent to which the deterioration in an issuer’s financial condition is taken into account to determine whether a modified debt instrument will be recharacterized as an instrument that is not debt.
Proposed regulations under section 7623(a) of the Code relate to the payment of rewards and awards under section 7623(b).
Proposed regulations under section 1273 of the Code clarify the circumstances in which property is traded on an established market (that is, publicly traded) for purposes of determining the issue price of a debt instrument. A public hearing is scheduled for April 13, 2011.
Proposed regulations under section 6049 of the Code extend the annual information reporting requirement with respect to bank deposit interest to all nonresident alien individuals who are residents of any foreign country. These proposed regulations withdraw the 2002 proposed regulations which would require reporting only for nonresident aliens that are residents of Canada. A public hearing is scheduled for April 28, 2011.
This notice provides adjusted limitations on housing expenses for tax year 2011 for purposes of section 911 of the Code. Notices 2006-87, 2007-25, 2007-77, 2008-107, and 2010-27 superseded.
The IRS has revoked its determination that Acclimation Incorporated of Stockton, CA; At Your Service: Prestigious In-Home Care, Inc., of San Antonio, TX; Civil Liberty and Indigent Parents Institution and Charity of Adams Run, SC; Debt Serve, Inc., of Fort Lauderdale, FL; and International Fund for Protection of Victims of Crimes, Inc., of New York, NY, qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Code.
This notice provides that the procedure for determining the amount of income tax withholding on wages of nonresident alien employees changes for wages paid after December 31, 2010.
This document contains final regulations relating to the modification of debt instruments. The regulations clarify the extent to which the deterioration in the financial condition of the issuer is taken into account to determine whether a modified debt instrument will be recharacterized as an instrument or property right that is not debt. The regulations provide needed guidance to issuers and holders of debt instruments.
Effective Date: These regulations are effective on January 7, 2011.
Applicability Date: For dates of applicability, see §1.1001-3(h).
Diana Imholtz at (202) 622-3920 (not a toll-free number).
This document contains amendments to 26 CFR part 1. On June 4, 2010, a notice of proposed rulemaking (REG-106750-10, 2010-25 I.R.B. 765) was published in the Federal Register (75 FR 31736) that proposed amendments to §1.1001-3 to clarify the circumstances in which the credit quality of the issuer should be considered in determining the nature of the instrument resulting from an alteration or modification of a debt instrument. Because no requests to speak were submitted by August 11, 2010, no public hearing was held. One written comment was received in response to the notice of proposed rulemaking. After consideration of this comment, the proposed regulations are adopted as revised by this Treasury decision. The revisions are discussed in this preamble.
The only comment received on the proposed regulations requested that the regulations clarify that §1.1001-3 applies not only to determine whether an exchange of the original debt instrument for a modified instrument has occurred but also to classify the modified instrument resulting from the exchange. The IRS and the Treasury Department intend that Federal income tax principles be used to determine the classification of a modified instrument resulting from an exchange except as specifically provided in §1.1001-3(f)(7). To avoid doubt on the operation of the rules in the proposed regulations, the final regulations add language to the general rule of §1.1001-3(b) to make clear that the rules provided in §1.1001-3(f)(7) apply to determine whether the modified instrument received in an exchange will be classified as debt for Federal income tax purposes. Thus, unless there is a substitution of a new obligor or the addition or deletion of a co-obligor, all relevant factors (for example, creditor rights or subordination) other than any deterioration in the financial condition of the issuer are taken into account in determining whether a modified instrument is properly classified as debt for Federal income tax purposes.
The regulations apply to alterations of the terms of a debt instrument on or after January 7, 2011. A taxpayer, however, may rely on §1.1001-3(f)(7) for alterations of the terms of a debt instrument occurring before that date.
It has been determined that this Treasury decision 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, and because the regulation does 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 Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
1. Revising paragraphs (b), (c)(2)(ii), (e)(5)(i) and (h).
§1.1001-3 Modifications of debt instruments.
(b) General rule. For purposes of §1.1001-1(a), a significant modification of a debt instrument, within the meaning of this section, results in an exchange of the original debt instrument for a modified instrument that differs materially either in kind or in extent. A modification that is not a significant modification is not an exchange for purposes of §1.1001-1(a). Paragraphs (c) and (d) of this section define the term modification and contain examples illustrating the application of the rule. Paragraphs (e) and (f) of this section provide rules for determining when a modification is a significant modification. Paragraph (f) of this section also provides rules for determining whether the modified instrument received in an exchange will be classified as an instrument or property right that is not debt for federal income tax purposes. Paragraph (g) of this section contains examples illustrating the application of the rules in paragraphs (e) and (f) of this section.
(ii) Property that is not debt. An alteration that results in an instrument or property right that is not debt for Federal income tax purposes is a modification unless the alteration occurs pursuant to a holder’s option under the terms of the instrument to convert the instrument into equity of the issuer (notwithstanding paragraph (c)(2)(iii) of this section). The rules of paragraph (f)(7) of this section apply to determine whether an alteration or modification results in an instrument or property right that is not debt.
(5) Changes in the nature of a debt instrument—(i) Property that is not debt. A modification of a debt instrument that results in an instrument or property right that is not debt for Federal income tax purposes is a significant modification. The rules of paragraph (f)(7) of this section apply to determine whether a modification results in an instrument or property right that is not debt.
(7) Rules for determining whether an alteration or modification results in an instrument or property right that is not debt—(i) In general. Except as provided in paragraph (f)(7)(ii) of this section, the determination of whether an instrument resulting from an alteration or modification of a debt instrument will be recharacterized as an instrument or property right that is not debt for Federal income tax purposes shall take into account all of the factors relevant to such a determination.
(ii) Financial condition of the obligor—(A) Deterioration in financial condition of the obligor generally disregarded. Except as provided in paragraph (f)(7)(ii)(B) of this section, in making a determination as to whether an instrument resulting from an alteration or modification of a debt instrument will be recharacterized as an instrument or property right that is not debt, any deterioration in the financial condition of the obligor between the issue date of the debt instrument and the date of the alteration or modification (as it relates to the obligor’s ability to repay the debt instrument) is not taken into account. For example, any decrease in the fair market value of a debt instrument (whether or not the debt instrument is publicly traded) between the issue date of the debt instrument and the date of the alteration or modification is not taken into account to the extent that the decrease in fair market value is attributable to the deterioration in the financial condition of the obligor and not to a modification of the terms of the instrument.
(B) Substitution of a new obligor; addition or deletion of co-obligor. If there is a substitution of a new obligor or the addition or deletion of a co-obligor, the rules in paragraph (f)(7)(ii)(A) of this section do not apply.
(h) Effective/applicability date—(1) In general. Except as otherwise provided in paragraph (h)(2) of this section, this section applies to alterations of the terms of a debt instrument on or after September 24, 1996. Taxpayers, however, may rely on this section for alterations of the terms of a debt instrument after December 2, 1992, and before September 24, 1996.
(2) Exception. Paragraph (f)(7) of this section applies to an alteration of the terms of a debt instrument on or after January 7, 2011. A taxpayer, however, may rely on paragraph (f)(7) of this section for alterations of the terms of a debt instrument occurring before that date.
The principal author of these final regulations is Diana Imholtz, Office of Associate Chief Counsel (Financial Institutions & Products), IRS. However, other personnel from the IRS and the Treasury Department participated in their development.
This notice provides adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code (Code) for specific locations for 2011. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States.
Section 911(a) of the Code allows a qualified individual to elect to exclude from gross income the foreign earned income and housing cost amount of such individual. Section 911(c)(1) defines the term “housing cost amount” as an amount equal to the excess of (A) the housing expenses of an individual for the taxable year to the extent such expenses do not exceed the amount determined under section 911(c)(2), over (B) 16 percent of the exclusion amount (computed on a daily basis) in effect under section 911(b)(2)(D) for the calendar year in which such taxable year begins ($254.52 per day for 2011, or $92,900 for the full year), multiplied by the number of days of that taxable year within the applicable period described in section 911(d)(1). The applicable period is the period during which the individual meets the tax home requirement of section 911(d)(1) and either the bona fide residence requirement of section 911(d)(1)(A) or the physical presence requirement of section 911(d)(1)(B). Assuming that the entire taxable year of a qualified individual is within the applicable period, the section 911(c)(1)(B) amount for 2011 is $14,864 ($92,900 x .16).
Section 911(c)(2)(A) of the Code limits the housing expenses taken into account in section 911(c)(1)(A) to an amount equal to (i) 30 percent (adjusted as may be provided under the Secretary’s authority under section 911(c)(2)(B)) of the amount in effect under section 911(b)(2)(D) for the calendar year in which the taxable year of the individual begins, multiplied by (ii) the number of days of that taxable year within the applicable period described in section 911(d)(1). Thus, under this general limitation, a qualified individual whose entire taxable year is within the applicable period is limited to maximum housing expenses of $27,870 ($92,900 x .30) in 2011.
Section 911(c)(2)(B) of the Code authorizes the Secretary to issue regulations or other guidance to adjust the percentage under section 911(c)(2)(A)(i) based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the Internal Revenue Service (IRS) and the Treasury Department published Notice 2006-87, 2006-2 C.B. 766, and Notice 2007-25, 2007-1 C.B. 760, for 2006, Notice 2007-77, 2007-2 C.B. 735, for 2007, Notice 2008-107, 2008-2 C.B. 1266, for 2008 and 2009, and Notice 2010-27, for 2009 and 2010 to provide adjustments to the limitation on housing expenses for qualified individuals incurring housing expenses in countries with high housing costs relative to housing costs in the United States.
The following table provides adjusted limitations on housing expenses (in lieu of the otherwise applicable limitation of $27,870) for 2011.
For some locations, the limitation on housing expenses provided in section 3 of this notice may be higher than the limitation on housing expenses provided in the “Table of Adjusted Limitations for 2010” in Notice 2010-27. A qualified individual incurring housing expenses in such a location during 2010 may apply the adjusted limitation on housing expenses provided in section 3 of this notice in lieu of the amounts provided in the “Table of Adjusted Limitations for 2010” in Notice 2010-27 (and as set forth in the Instructions to Form 2555 (2010)).
Treasury and the IRS anticipate that future annual notices providing adjustments to housing expense limitations will make a similar election available to qualified individuals that incur housing expenses in the immediately preceding year. For example, when adjusted housing expense limitations for 2012 are issued, it is expected that taxpayers will be permitted to apply those adjusted limitations to the 2011 taxable year.
This notice supersedes Notice 2006-87, 2006-2 C.B. 766, Notice 2007-25, 2007-1 C.B. 760, Notice 2007-77, 2007-2 C.B. 735, Notice 2008-107, 2008-2 C.B. 1265, and Notice 2010-27, 2010-15 I.R.B. 531.
This notice is effective for taxable years beginning on or after January 1, 2011. However, as provided in section 4, a taxpayer may elect to apply the 2011 adjusted housing limitations contained in section 3 of this notice to his or her taxable year beginning in 2010.
This notice provides that Notice 2009-91, 2009-48 I.R.B. 717, will not apply to wages paid on or after January 1, 2011. Notice 2009-91 concerned procedures for determining the amount of income tax employers must withhold under section 3402 of the Internal Revenue Code (Code) from wages paid for services performed by nonresident alien employees within the United States.
Notice 2009-91 was published to provide procedures to take account of changes made in the withholding tables to reflect the Making Work Pay Credit (section 36A of the Code). The Making Work Pay Credit does not apply to taxable years beginning after December 31, 2010. Therefore, the withholding tables for wages paid on or after January 1, 2011, will not reflect the Making Work Pay Credit, and Notice 2009-91 will not apply in determining the withholding on nonresident aliens.
Notice 1036, Early Release Copies of the 2011 Percentage Method Tables for Income Tax Withholding, explains that employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011.
For wages paid on or after January 1, 2011, employers must determine the amount of income tax to withhold from wages paid to nonresident alien employees for services performed within the United States, using the procedure explained in Notice 2005-76, 2005-2 C.B. 947, together with the tables in the revisions of Publication 15 (Circular E), Employer’s Tax Guide, and Notice 1036 that are in effect when the wages are paid. This procedure is explained in Publication 15 and Notice 1036.
Notice 2009-91 has no effect for wages paid on or after January 1, 2011. Therefore, the modification to Notice 2005-76 made by Notice 2009-91 does not apply for wages paid on or after January 1, 2011. Notice 2005-76 continues in effect for wages paid on or after January 1, 2011.
The principal author of this notice is A. G. Kelley of the Office of Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact A. G. Kelley at (202) 622-6040 (not a toll-free call).
Notice of proposed rulemaking; notice of public hearing; and withdrawal of previously proposed rulemaking.
This document contains proposed regulations that provide guidance on the reporting requirements for interest on deposits maintained at U.S. offices of certain financial institutions and paid to nonresident alien individuals. These proposed regulations affect persons making payments of interest with respect to such deposits. This document also provides a notice of public hearing on these proposed regulations and withdraws the notice of proposed rulemaking published on August 2, 2002 (REG-133254-02, 2002-2 C.B. 412 [67 FR 50386]).
Written or electronic comments must be received by April 7, 2011. Outlines of topics to be discussed at the public hearing scheduled for April 27, 2011, at 10 a.m. must be received by April 8, 2011. The proposed rule published on August 2, 2002 is withdrawn as of January 7, 2011.
Send submissions to: CC:PA:LPD:PR (REG-146097-09), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-146097-09), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224 or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-146097-09). The public hearing will be held in auditorium of the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.
Concerning the proposed regulations, Kathryn Holman, (202) 622-3840; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Richard.A.Hurst@irscounsel.treas.gov, (202) 622-7180 (not toll-free numbers).
Estimates of capital or start-up costs and costs of operation, maintenance and purchase of service to provide information.
The collection of information in these proposed regulations is in §1.6049-4(b)(5)(i) and §1.6049-6(e)(4)(i) and (ii). This information is required to determine if taxpayers have properly reported amounts received as income. The collection of information is mandatory. The likely respondents are businesses and other for-profit institutions.
Estimated total annual reporting burden: 500 hours.
The estimated annual burden per respondent: 15 minutes.
Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential as required by 26 U.S.C. 6103.
On January 17, 2001, the IRS and Treasury Department published a notice of proposed rulemaking (REG-126100-00, 2001-1 C.B. 862) in the Federal Register (66 FR 3925, corrected by 66 FR 15820 and 66 FR 16019) under Section 6049 (the 2001 proposed regulations), which would provide that U.S. bank deposit interest paid to any nonresident alien individual must be reported annually to the IRS. On August 2, 2002, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-133254-02) in the Federal Register (67 FR 50386) which withdrew these regulations and proposed narrower regulations (the 2002 regulations) that would require reporting only on interest payments to nonresident alien individuals that are residents of certain designated countries or, at the option of the payor, on interest payments to all nonresident alien recipients of bank deposit interest. Under the 2002 regulations currently in effect, reporting of U.S. bank deposit interest is required only if the interest is paid to a U.S. person or a nonresident alien individual who is a resident of Canada. These proposed regulations withdraw the 2002 regulations and provide new proposed regulations that extend the information reporting requirement to include bank deposit interest paid to nonresident alien individuals who are residents of any foreign country.
This extension is appropriate for several reasons. First, since the 2002 proposed regulations were released, there is a growing global consensus regarding the importance of cooperative information exchange for tax purposes that has developed. Significant agreements have been reached on international standards for the exchange of information, including, for example, the understanding that information exchange will not be limited by bank secrecy or the absence of a domestic tax interest. Second, requiring routine reporting to the IRS of all U.S. bank deposit interest paid to any nonresident alien individual will further strengthen the United States exchange of information program, consistent with adequate provisions for reciprocity, usability, and confidentiality in respect of this information. Finally, this extension will help to improve voluntary compliance by U.S. taxpayers by making it more difficult to avoid the U.S. information reporting system (such as through false claims of foreign status).
In addition to requiring reporting of U.S. bank deposit interest paid to any nonresident alien individual, the proposed regulations also make the following minor changes and clarifications. Section 1.6049-6 provides that a copy of Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding”, must be furnished to the recipient for interest paid on deposits maintained at a bank’s office within the United States. Section 1.6049-6(e)(4) has been revised to clarify that the payor or middleman can satisfy this requirement by furnishing a copy of Form 1042-S either in person or to the last known address of the recipient.
These regulations are proposed to apply to payments made after December 31 of the year in which they are published as final regulations in the Federal Register.
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 has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to this regulation.
These regulations impose a collection of information on small entities, and the Regulatory Flexibility Act (5 U.S.C. chapter 6) applies. This rule regulates commercial banks, savings institutions, credit unions, and securities brokerages. The Small Business Administration (SBA) has established size standards for types of economic activities which are classified based on the North American Industry Classification Codes (NAICS). The regulations specifying size standards are set forth in Title 13, Code of Federal Regulations, part 121 (13 CFR part 121), Small Business Size Regulations. The NAICS Code for small commercial banks, savings institutions, credit unions, and securities brokerages is specified at 13 CFR 121.201. Pursuant to subsectors 522110, 522120, and 522130 of NAICS 2007, a small commercial bank, savings institution, or credit union is one with $175 million or less in assets. Pursuant to subsector 523120 of NAICS 2007, a small securities brokerage is one with receipts of less than $7 million. Because this rule will affect all institutions that maintain accounts for nonresident alien individuals, this rule may affect a substantial number of small entities.
The U.S. Census Bureau American FactFinder provides data based on the 2007 Economic Census released November 24, 2009 including the number of establishments and the annual revenue of the establishments within each NAICS Code. According to this data, for Sector 52: ECO752I1: Finance and Insurance Industry Series, there were 94,192 commercial banking establishments with revenue of approximately $609,748,098,000, 16,098 savings institutions with revenue of approximately $91,626,050,000, 17,984 credit unions with revenue of approximately $55,521,199,000, and 30,989 NAICS Code securities brokerages with revenue of approximately $167,337,807,000. It is estimated that approximately 25,000 commercial banks, 4,000 savings banks, and 4,000 credit unions with less than $175,000,000 in assets, and 15,000 securities brokerages with receipts of less than $7,000,000 that would be classified as small businesses.
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. Section 605, the Chief Counsel certifies that this rule will not have a significant economic impact on a substantial number of small entities. This conclusion is based on all of the following. The depository accounts, the interest on which is subject to reporting under these regulations, tend to be with larger financial institutions operating in the United States, and therefore the number of small entities that will be required to undertake this collection of information is expected to be limited. Banks are already required to gather the underlying information from nonresident aliens on Form W-8, so there will be no change in the collection of information. Currently under the 2002 regulations, banks, including small financial institutions, are required to report this information to the IRS with respect to Canadian account holders. This rule would simply extend the reporting requirement to all nonresident aliens. The reporting required by this rule would be done on Form 1042 and Form 1042-S. This rule also requires that institutions prepare and deliver a statement to nonresident alien individuals to the effect that the information on the 1042 form is being furnished to the IRS and may be furnished to the government of the foreign country where the recipient resides. The amount of time required to complete the Form 1042 and Form 1042-S is brief, and the statement that is required to be collected is brief.
The IRS requests information regarding the economic impact of this rule on small commercial banks, savings institutions, credit unions, and small securities brokerages engaged in business involving payment of bank deposit interest to a nonresident alien. The IRS invites specific comments on the economic impact of compliance from members of the public who believe there will be a significant economic impact on small businesses that are regulated by this rule. Pursuant to section 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel of Advocacy of the Small Business Administration for comment on its impact on small businesses.
Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying.
A public hearing has been scheduled for April 27, 2011, beginning at 10 a.m. in the auditorium of the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit electronic or written comments and an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by April 8, 2011. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.
Accordingly, under the authority of 26 U.S.C. 7805, the proposed amendment to 26 CFR parts 1 and 31 that was published in the Federal Register on Friday, August 2, 2002 (67 FR 50386) is withdrawn.
§1.6049-4 Return of information as to interest paid and original issue discount includible in gross income after December 31, 1982.
(5) Interest payments to nonresident alien individuals—(i) General rule. In the case of interest aggregating $10 or more paid to a nonresident alien individual (as defined in section 7701(b)(1)(B)) that is reportable under §1.6049-8(a), the payor shall make an information return on Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding”, for the calendar year in which the interest is paid. The payor or middleman shall prepare and file Form 1042-S at the time and in the manner prescribed by section 1461 and the regulations under that section and by the form and its accompanying instructions. See §§1.1461-1(b) (rules regarding the preparation of a Form 1042) and 1.6049-6(e)(4) (rules for furnishing a copy of the Form 1042-S to the payee). To determine whether an information return is required for original issue discount, see §§1.6049-5(f) and 1.6049-8(a). The Commissioner may by ruling or other administrative pronouncement prescribe rules pursuant to a treaty or executive agreement for uniform formatting, standards for sharing information, and for usability, reciprocity, and confidentiality of taxpayer information.
1. In paragraph (b)(12) the last sentence is revised.
2. In paragraph (f) the last sentence is revised.
§1.6049-5 Interest and original issue discount subject to reporting after December 31, 1982.
(12) * * * This paragraph (b)(12) does not apply to interest paid after December 31 of the year in which the final regulations are published in the Federal Register to a nonresident alien individual as provided in §1.6049-8.
(f) * * * Original issue discount on an obligation (including an obligation with a maturity of not more than 6 months from the date of original issue) held by a nonresident alien individual or foreign corporation is interest described in paragraph (b)(1)(vi)(A) or (B) of this section and, therefore is not interest subject to reporting under section 6049 unless it is described in §1.6049-8(a) (relating to bank deposit interest paid after December 31 of the year in which the final regulations are published in the Federal Register to a nonresident alien individual).
1. Paragraph (e)(4) is revised.
2. In paragraph (e)(5), the first sentence is revised and a new sentence is added at the end of the paragraph.
§1.6049-6 Statements to recipients of interest payments and holders of obligations for attributed original issue discount.
(4) Special rule for amounts described in §1.6049-8(a). In the case of amounts described in §1.6049-8(a) (relating to payments of deposit interest to nonresident alien individuals) paid after December 31 of the year in which the final regulations are published in the Federal Register, any person who makes a Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding”, under section 6049(a) and §1.6049-4(b)(5) shall furnish a statement to the recipient either in person or by first class mail to the recipient’s last known address. The statement shall include a copy of the Form 1042-S required to be prepared pursuant to §1.6049-4(b)(5) and a statement to the effect that the information on the form is being furnished to the United States Internal Revenue Service and may be furnished to the government of the foreign country where the recipient resides.
§1.6049-8 Interest and original issue discount paid to nonresidents.
§31.3406(g)-1 Exceptions for payments to certain payees and certain other payments.
The principal author of the regulations is Kathryn Holman, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.
This document contains a proposed regulation relating to the payment of rewards under section 7623(a) of the Internal Revenue Code and awards under section 7623(b). The guidance is necessary to clarify the definition of proceeds of amounts collected and collected proceeds under section 7623. This regulation provides needed guidance to the general public as well as officers and employees of the IRS who review claims under section 7623.
Written or electronic comments and requests for a public hearing must be received by April 18, 2011.
Send submissions to CC:PA:LPD:PR (REG-131151-10), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-131151-10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via the Federal eRulemaking Portal at www.regulations.gov (IRS — REG-131151-10).
Concerning the proposed regulation, Kirsten N. Witter, at (202) 927-0900; concerning submissions of comments and requests for a public hearing, Richard A. Hurst at Richard.A.Hurst@irscounsel.treas.gov or (202) 622-7180 (not toll-free numbers).
Section 7623(a) provides the Secretary with the authority to pay such sums as he deems necessary from proceeds of amounts collected based on information provided to the Secretary when the information relates to the detection of underpayments of tax or the detection and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same. Section 7623(b) provides the Secretary with the authority to pay awards to individuals if the Secretary proceeds with an administrative or judicial action described in section 7623(a) that results in collected proceeds based on information provided by the individuals. Section 301.7623-1(a) currently provides that proceeds of amounts (other than interest) collected by reason of the information provided include both amounts collected because of the information provided and amounts collected prior to receipt of the information if the information leads to the denial of a claim for refund that otherwise would have been paid. 63 Fed. Reg. 44777.
Section 301.7623-1(a) was promulgated prior to amendments of section 7623 as part of the Tax Relief and Health Care Act of 2006, division A, section 406, Public Law 109-432, 120 Stat. 2958. The amendments designated the existing section 7623 as section 7623(a). As originally enacted, section 7623 provided that rewards shall be paid “from the proceeds of amounts (other than interest) collected by reason of the information provided . . . ” The 2006 amendments to section 7623 struck the “other than interest” language. The amendments also added section 7623(b), which provides that in certain cases individuals shall receive an award of at least 15% but not more than 30% of the collected proceeds resulting from the action with which the Secretary proceeded based on information brought to the attention of the Secretary by the individual. The 2006 amendments to section 7623 also created the IRS Whistleblower Office, which is responsible for administering a whistleblower program within the IRS.
This regulation clarifies the definitions of proceeds of amounts collected and collected proceeds for purposes of section 7623 and that the provisions of Treas. Reg. §301.7623-1(a) concerning refund prevention claims are applicable to claims under section 7623(a) and (b). In clarifying the definitions of proceeds of amounts collected and collected proceeds, this regulation provides that the reduction of an overpayment credit balance is also considered proceeds of amounts collected and collected proceeds under section 7623.
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, and, 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, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.
Before this proposed regulation is adopted as a final regulation, consideration will be given to any electronic or written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The Treasury Department and the IRS request comments on the clarity of the proposed rule and how it may be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place of the hearing will be published in the Federal Register.
§301.7623-1 Rewards and awards for information relating to violations of internal revenue laws.
(a) In general—(1) Rewards and awards. When information that has been provided to the Internal Revenue Service results in the detection of underpayments of tax or the detection and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same, the IRS may approve a reward under section 7623(a) in a suitable amount from the proceeds of amounts collected in cases when rewards are not otherwise provided by law, or shall determine an award under section 7623(b) from collected proceeds.
(2) Proceeds of amounts collected and collected proceeds. For purposes of section 7623 and this section, both proceeds of amounts collected and collected proceeds include: tax, penalties, interest, additions to tax, and additional amounts collected by reason of the information provided; amounts collected prior to receipt of the information if the information provided results in the denial of a claim for refund that otherwise would have been paid; and a reduction of an overpayment credit balance used to satisfy a tax liability incurred because of the information provided.
This document contains proposed regulations relating to determining when property is traded on an established market (that is, publicly traded) for purposes of determining the issue price of a debt instrument. The regulations amend the current regulations to clarify the circumstances that cause property to be publicly traded. The regulations provide needed guidance to issuers and holders of debt instruments. This document also provides a notice of a public hearing on these proposed regulations.
Written or electronic comments must be received by March 8, 2011. Outlines of topics to be discussed at the public hearing scheduled for April 13, 2011, at 10:00 a.m. must be received by March 4, 2011.
Send submissions to: CC:PA:LPD:PR (REG-131947-10), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-131947-10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, DC, or sent electronically, via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-131947-10).
Concerning the proposed regulations, William E. Blanchard at (202) 622-3950; concerning submission of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Oluwafunmilayo.P.Taylor@irscounsel.treas.gov, at (202) 622-7180 (not toll-free numbers).
The issue price of a debt instrument is determined under section 1273(b) of the Internal Revenue Code or, in the case of certain debt instruments issued for property, under section 1274. Section 1273(b)(3) generally provides that in the case of a debt instrument that is issued for property and that is part of an issue some or all of which is traded on an established securities market (often referred to as “publicly traded”), the issue price of the debt instrument is the fair market value of the debt instrument. Similarly, if the debt instrument is issued for stock or securities (or other property) that are publicly traded, the issue price of the debt instrument is the fair market value of the property. Section 1.1273-2 of the Income Tax Regulations (the “current regulations”) also applies to determine the issue price of a debt instrument that is publicly traded or is issued for publicly traded property. Under §1.1273-2(c)(1), the term property means a debt instrument, stock, security, contract, commodity, or nonfunctional currency. Section 1.1273-2(f) defines when property is traded on an established market (that is, publicly traded) for purposes of section 1273(b)(3) and §1.1273-2.
In general, under §1.1273-2(f) of the current regulations, a debt instrument is traded on an established market if either the debt instrument or the property for which the debt instrument is exchanged is described in §1.1273-2(f)(2) through (f)(5) in the time period 30 days before or after the exchange. Property is described in §1.1273-2(f)(2) if it is listed on a specified exchange. Property is described in §1.1273-2(f)(3) if it is of a kind that is traded on a contract market designated by the Commodities Futures Trading Commission or an interbank market. Property is described in §1.1273-2(f)(4) if it appears on a system of general circulation that disseminates price quotations or recent trading prices. Property is described in §1.1273-2(f)(5) if price quotations are readily available from dealers, brokers or traders, subject to certain exceptions.
The issue price of a debt instrument has important income tax consequences. As an initial matter, the difference between the issue price of a debt instrument and its stated redemption price at maturity measures whether there is any original issue discount associated with the instrument. A debt-for-debt exchange (including a significant modification of existing debt) in the context of a work-out may result in a reduced issue price for the new debt, which generally would produce cancellation of indebtedness income for the issuer, a loss to the holder whose basis is greater than the issue price of the new debt, and original issue discount that generally must be accounted for by both the issuer and the holder of the new debt. These consequences, exacerbated by recent turmoil in the debt markets, have focused attention on the definition of when property is traded on an established market for purposes of §1.1273-2(f).
Commenters have criticized the definition of an established market in §1.1273-2(f) of the current regulations. They argue that comparatively little debt is listed on an exchange described in §1.1273-2(f)(2), and that even debt that is listed rarely trades on the exchange. They point out that the list of foreign exchanges in §1.1273-2(f)(2)(iii) is outdated. Commenters also struggle to interpret the meaning of an interbank market in §1.1273-2(f)(3).
Even more troublesome for commenters is the question of what constitutes a quotation medium for purposes of §1.1273-2(f)(4) of the current regulations. Debt instruments typically trade in various ways in the current markets, but the vast majority of debt instruments are purchased or sold over-the-counter for a price negotiated between a financial entity (such as a securities dealer or broker) and a customer. A dealer or broker may quote a firm price, sometimes referred to as a “firm” or “executable” quote, entitling a customer to purchase or sell at that price, subject to volume limits or other specified restrictions. Alternatively, a dealer, broker or listing service may quote a price that indicates a willingness to purchase and/or sell a specified debt instrument, again subject to volume limits or other limitations, but not necessarily at the quoted price. This is sometimes referred to as a “soft” or an “indicative” quote. The decision to send a price quote to a customer (or customers) may be initiated by a dealer or broker, or a customer may request a price quote from one or more dealers or brokers. Additionally, a service provider may provide subscribers with valuations based on data collected from contributors that may reflect actual sales, price quotes, or any other information it deems relevant to the value of the debt instrument in question. Commenters struggled to apply the description of a quotation medium in §1.1273-2(f)(4) to this informal marketplace, which has evolved considerably since the regulations were originally promulgated in 1994.
Finally, commenters pointed out that the general rule in §1.1273-2(f)(5) of the current regulations, which treats a debt instrument as publicly traded if price quotations are readily available from dealers, brokers or traders could cause almost every debt instrument to be within this definition but for the safe harbors in §1.1273-2(f)(5)(ii).
As a general matter, the Treasury Department and the IRS believe that the “traded on an established market” standard established by section 1273(b)(3) is intended to be interpreted broadly. When section 1275(a)(4) was repealed by section 11325(a)(2) of the Revenue Reconciliation Act of 1990, Public Law 101-508, 104 Stat. 1388, 1388-466 (1990), issue price was required to be determined under section 1273 and section 1274 even in a debt-for-debt exchange that qualified as a corporate reorganization. As the depth of trading and the transparency of the markets that trade debt instruments has improved, the earlier concerns that trading prices may not reflect the fair market value of a debt instrument have diminished. Thus, to the extent accurate pricing information exists, whether it derives from executed sales, reliable price quotations, or valuation estimates that are based on some combination of sales and quotes, the Treasury Department and the IRS believe that that information should be the basis for the issue price determined under section 1273(b)(3).
To address concerns with the current regulations, the proposed regulations simplify and clarify the determination of when property is traded on an established market. The proposed regulations identify four ways for property to be traded on an established market. In each case, the time period for determining whether the property is publicly traded is the 31-day period ending 15 days after the issue date of the debt instrument.
First, property that is listed on an exchange continues to be publicly traded property under §1.1273-2(f)(2) of the proposed regulations. Although relatively few debt instruments are listed or traded on an exchange, the regulations may still apply to other property that is listed, such as stock for which a debt instrument is issued in a debt-for-stock exchange. The proposed regulations, however, delete the reference to an interdealer quotation system that is sponsored by a national securities association registered under section 15A of the Securities Exchange Act of 1934 because none exist or are contemplated. Rather than list foreign exchanges, the proposed regulations specify that a foreign securities exchange that is officially recognized, sanctioned, regulated or supervised by a governmental authority of the foreign country in which the market is located is an exchange that causes property to be publicly traded.
Second, §1.1273-2(f)(3) of the proposed regulations treats property as publicly traded when a sales price for the property is reasonably available. Market participants have access to information about the securities markets from a variety of sources, which are constantly changing and evolving. If information about the sales price of a debt instrument (or information sufficient to calculate the sales price) appears in a medium that is made available to persons that regularly purchase or sell debt instruments, or persons that broker purchases or sales of debt instruments, the sales price will be considered reasonably available. For example, in the case of a debt instrument, a sale that is reported electronically at any time in the 31-day time period, such as in the Trade Reporting and Compliance Engine (“TRACE”) database maintained by the Financial Industry Regulatory Authority, would cause the instrument to be publicly traded, as would other pricing services and trading platforms that report prices of executed sales on a general basis or to subscribers.
Third, property is considered to be traded on an established market if a firm price quote to buy or sell the property is available. A firm, or executable, price quote may be labeled as such, or a price quote may function as a firm quote as a matter of law or industry practice. In either case, §1.1273-2(f)(4) of the proposed regulations treats property with a firm quote as publicly traded.
Finally, a price quote (other than a firm quote) that is provided by a dealer, a broker, or a pricing service (an indicative quote) will cause property to be publicly traded under §1.1273-2(f)(5) of the proposed regulations.
The proposed regulations provide that the fair market value of property described in §1.1273-2(f) will be presumed to be equal to its trading price, sales price, or quoted price, whichever is applicable. However, if there is more than one price or quote, a taxpayer is permitted to reconcile competing prices or quotes in a reasonable manner. In the case of an indicative quote, if a taxpayer determines that the quoted price or prices misrepresents the fair market value of the property by a material amount, §1.1273-2(f)(6)(ii) of the proposed regulations permits the taxpayer to use any method that provides a reasonable basis to determine the fair market value of the property, provided the taxpayer can establish that the method chosen more accurately reflects the value of the property than the extant quote or quotes for the property.
In response to commenters, the proposed regulations also contain guidance in areas ancillary to publicly traded debt, such as proposed regulations clarifying and revising the rules to determine when an issue of debt instruments is eligible to be part of a qualified reopening under §1.1275-2(k) and proposed regulations clarifying the treatment of a debt instrument issued in a debt-for-debt exchange under the potentially abusive rules in section 1274(b)(3). In addition, in response to commenters, the proposed regulations include a business day convention to determine if certain stated interest payments affect whether the payments are qualified stated interest.
The regulations, as proposed, apply to debt instruments that have an issue date on or after the publication date of the Treasury decision adopting these rules as final regulations in the Federal Register.
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, and because the regulation does 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 Internal Revenue Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying.
A public hearing has been scheduled for April 13, 2011, beginning at 10 a.m. in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. All visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit electronic or written comments and an outline of the topics to be discussed and the time to be devoted to each topic by March 4, 2011. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.
(6) Business day convention—(i) Rule. For purposes of this paragraph (c), if a scheduled payment date for stated interest falls on a Saturday, Sunday, or Federal holiday (within the meaning of 5 U.S.C. 6103) but, under the terms of the debt instrument, the stated interest is payable on the first business day that immediately follows the scheduled payment date, the stated interest is treated as payable on the scheduled payment date, provided no additional interest is payable as a result of the deferral.
(ii) Effective/applicability date. Paragraph (c)(6)(i) of this section applies to debt instruments that are issued on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. A taxpayer, however, may rely on paragraph (c)(6)(i) of this section for debt instruments issued before that date.
§1.1273-2 Determination of issue price and issue date.
(iv) There are one or more indicative quotes for the property as described in paragraph (f)(5) of this section.
(iv) Any other exchange, board of trade, or other market which the Commissioner identifies in guidance published in the Internal Revenue Bulletin (see §601.601(d)(2)(ii)) as an exchange for purposes of this paragraph (f)(2).
(3) Sales price—(i) In general. A sales price exists if the price for an executed purchase or sale of the property is reasonably available.
(ii) Pricing information for a debt instrument. For purposes of paragraph (f)(3)(i) of this section, the price of a debt instrument is considered reasonably available if the sales price (or information sufficient to calculate the sales price) appears in a medium that is made available to persons that regularly purchase or sell debt instruments (including a price provided only to certain customers or to subscribers), or persons that broker purchases or sales of debt instruments.
(4) Firm quote. A firm quote is considered to exist when a price quote is available from at least one broker, dealer, or pricing service (including a price provided only to certain customers or to subscribers) for property and the quoted price is substantially the same as the price for which the property could be purchased or sold. The identity of the person providing the quote must be reasonably ascertainable for a quote to be considered a firm quote for purposes of this paragraph (f)(4). A quote will be considered a firm quote if market participants typically purchase or sell, as the case may be, at the quoted price, even if the party providing the quote is not legally obligated to do so.
(5) Indicative quote. An indicative quote is considered to exist when a price quote is available from at least one broker, dealer, or pricing service (including a price provided only to certain customers or to subscribers) for property and the price quote is not a firm quote described in paragraph (f)(4) of this section.
(6) Presumption that price or quote is equal to fair market value—(i) In general. The fair market value of property described in this section will be presumed to be equal to its trading price on an exchange described in paragraph (f)(2) of this section, or its sales price or quoted price determined under paragraphs (f)(3) through (f)(5) of this section. If there is more than one trading price under paragraph (f)(2) of this section, sales price under paragraph (f)(3) of this section, or quoted price under paragraph (f)(4) or (f)(5) of this section, a taxpayer may use any reasonable method, consistently applied, to determine the price.
(ii) Special rule for property for which there is only an indicative quote. If property is described only in paragraph (f)(5) of this section, and the taxpayer determines that the quote (or an average of the quotes) materially misrepresents the fair market value of the property, the taxpayer can use any method that provides a reasonable basis to determine the fair market value of the property. A taxpayer must establish that the method chosen more accurately reflects the value of the property than the quote or quotes for the property to use the method provided in this paragraph (f)(6)(ii). For an equity or debt instrument, a volume discount or control premium will not be considered to create a material misrepresentation of value for purposes of this paragraph (f)(6).
(7) Exception for property for which there is de minimis trading—(i) In general.Notwithstanding any other provision in this section, property will not be treated as traded on an established market if there is no more than de minimis trading of the property.
(B) The aggregate amount of all such trades does not exceed US$5 million (or, for debt denominated in a currency other than the U.S. dollar, the equivalent amount in the currency in which the debt is denominated).
(8) Exception for small debt issues. Notwithstanding any other provision in this section, a debt instrument will not be treated as traded on an established market if the original stated principal amount of the issue that includes the debt instrument does not exceed US$50 million (or, for debt denominated in a currency other than the U.S. dollar, the equivalent amount in the currency in which the debt is denominated).
(9) Anti-abuse rules—(i) Effect of certain temporary restrictions on trading. If there is any temporary restriction on trading a purpose of which is to avoid the characterization of the property as one that is traded on an established market for Federal income tax purposes, then the property is treated as traded on an established market. For purposes of the preceding sentence, a temporary restriction on trading need not be imposed by the issuer.
(ii) Artificial pricing information. If a principal purpose for the existence of any sale or price quotation is to materially misrepresent the value of property, that sale or price quotation may be disregarded.
(10) Convertible debt instruments. A debt instrument is not treated as traded on an established market solely because the debt instrument is convertible into property that is so traded.
(11) Effective/applicability date. Paragraph (f) of this section applies to a debt instrument issued on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.
§1.1274-3 Potentially abusive situations defined.
(4) Debt-for-debt exchange—(i) Rule. A debt instrument issued in a debt-for-debt exchange, including a deemed exchange under §1.1001-3, will not be treated as the subject of a recent sales transaction for purposes of section 1274(b)(3)(B)(ii)(I) even if the debt instrument exchanged for the newly issued debt instrument was recently acquired prior to the exchange. Therefore, the issue price of the debt instrument will not be determined under section 1274(b)(3). However, if the debt instrument or the property for which the debt instrument is issued is publicly traded within the meaning of §1.1273-2(f), the rules of §1.1273-2 will apply to determine the issue price of the debt instrument.
(ii) Effective/applicability date. Paragraph (b)(4)(i) of this section applies to a debt instrument issued on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.
§1.1275-2 Special rules relating to debt instruments.
(v) Non-publicly traded debt issued for cash. Notwithstanding paragraphs (k)(3)(ii)(A) and (k)(3)(iii)(A) of this section, a qualified reopening includes a reopening of original debt instruments if the additional debt instruments are issued for cash to persons unrelated to the issuer (as determined under section 267(b) or 707(b)) for an arm’s length price and the other requirements in paragraph (k)(3)(ii) or (k)(3)(iii) of this section are satisfied, whichever is applicable. For purposes of paragraph (k)(3)(ii)(C) of this section, the yield test is satisfied if, on the reopening date of the additional debt instruments, the yield of the additional debt instruments (based on their cash purchase price) is not more than 110 percent of the yield of the original debt instruments on their issue date (or, if the original debt instruments were issued with no more than a de minimis amount of OID, the coupon rate).
(5) Effective/applicability dates—(i) Except as provided in paragraph (k)(5)(ii) of this section, this paragraph (k) applies to debt instruments that are part of a reopening where the reopening date is on or after March 13, 2001.
(ii) Paragraph (k)(3)(v) of this section applies to debt instruments that are part of a reopening if the reopening date is on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.
These regulations were drafted by personnel in the Office of Associate Chief Counsel (Financial Institutions and Products) and the Treasury Department.
If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin February 22, 2011, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

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