IRB 2011-35 (Rev. August 29, 2011) - IRS

Bulletin No. 2011-35August 29, 2011

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

INCOME TAX

T.D. 9539, page 179.Final regulations under section 280C of the Code amend theregulations concerning the election to claim the reduced re-search credit. The final regulations simplify how taxpayersmake the election and affect taxpayers that claim the reducedresearch credit.

Notice 2011–66, page 184.This notice provides guidance with regard to the time and man-ner in which the executor of the estate of a decedent who diedin 2010 elects to have the provisions of section 1022 of theCode apply to determine a recipient’s basis in certain prop-erty deemed acquired from the decedent. This notice also pro-vides guidance with respect to generation-skipping transfers(GSTs) and transfers that have GST potential that occurred dur-ing 2010.

Rev. Proc. 2011–41, page 188.This procedure provides optional safe harbor guidance to theexecutor of the estate of a decedent who died in 2010 andelects to have the provisions of section 1022 of the Code applyto determine a recipient’s basis in certain property acquiredfrom the decedent.

ESTATE TAX

Notice 2011–66, page 184.This notice provides guidance with regard to the time and man-ner in which the executor of the estate of a decedent who diedin 2010 elects to have the provisions of section 1022 of theCode apply to determine a recipient’s basis in certain prop-

erty deemed acquired from the decedent. This notice also pro-vides guidance with respect to generation-skipping transfers(GSTs) and transfers that have GST potential that occurred dur-ing 2010.

Rev. Proc. 2011–41, page 188.This procedure provides optional safe harbor guidance to theexecutor of the estate of a decedent who died in 2010 andelects to have the provisions of section 1022 of the Code applyto determine a recipient’s basis in certain property acquiredfrom the decedent.

EXCISE TAX

T.D. 9537, page 181.REG–122813–11, page 197.Final, temporary, and proposed regulations under section 6071of the Code provide guidance on the filing of Form 2290 (HeavyHighway Vehicle Use Tax Return) and payment of the associatedhighway use tax for the taxable period beginning July 1, 2011.

ADMINISTRATIVE

T.D. 9537, page 181.REG–122813–11, page 197.Final, temporary, and proposed regulations under section 6071of the Code provide guidance on the filing of Form 2290 (HeavyHighway Vehicle Use Tax Return) and payment of the associatedhighway use tax for the taxable period beginning July 1, 2011.

(Continued on the next page)

Finding Lists begin on page ii.Index for July through August begins on page iv.

Announcement 2011–43, page 198.This document contains a correction to final regulations (T.D.9475, 2010–4 I.R.B. 304) that provide guidance regardingthe qualification of certain transactions as reorganizations de-scribed in section 368(a)(1)(D) of the Code where no stockand/or securities of the acquiring corporation is issued anddistributed in the transaction.

August 29, 2011 2011–35 I.R.B.

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

force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

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

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

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

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

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

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

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

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

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2011–35 I.R.B. August 29, 2011

August 29, 2011 2011–35 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 280C.—CertainExpenses for Which Creditsare Allowable26 CFR1.280C–4: Credit for increasing research ac-tivities.

T.D. 9539

Election of Reduced ResearchCredit under Section280C(c)(3)

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations that amend the regulationsconcerning the election to claim the re-duced research credit. The final regu-lations simplify how taxpayers make theelection and affect taxpayers that claim thereduced research credit.

DATES: Effective Date: These regulationsare effective on July 27, 2011.

Applicability Date: For dates of appli-cability, see §1.280C–4(c).

FOR FURTHER INFORMATIONCONTACT: David Selig, (202) 622–3040(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendmentsto the Income Tax Regulations (26 CFRPart 1) relating to the election for claimingthe reduced research credit under section280C(c)(3). On July 16, 2009, a notice ofproposed rulemaking (REG–130200–08,2009–31 I.R.B. 174) was published in theFederal Register (74 FR 34523). No pub-lic hearing was requested or held. Writtenand electronic comments responding tothe notice of proposed rulemaking werereceived. After considering the com-ments received the proposed regulationsare adopted as revised by this Treasurydecision.

Section 280C(c)(1) provides that no de-duction shall be allowed for that portion

of the qualified research expenses (as de-fined in section 41(b)) or basic research ex-penses (as defined in section 41(e)(2)) oth-erwise allowable as a deduction for the tax-able year which is equal to the amount ofthe credit determined for such taxable yearunder section 41(a).

Similarly, section 280C(c)(2) providesthat if the amount of the credit deter-mined for the taxable year under section41(a)(1) exceeds the amount allowable asa deduction for such taxable year for qual-ified research expenses or basic researchexpenses (determined without regard tosection 280C(c)(1)), the amount charge-able to capital account for the taxable yearfor such expenses shall be reduced by theamount of such excess.

Section 280C(c)(3)(A) provides, ingeneral, that in the case of any taxableyear for which an election is made undersection 280C(c)(3), sections 280C(c)(1)and (c)(2) shall not apply, and theamount of the credit under section 41(a)shall be the amount determined undersection 280C(c)(3)(B). Under section280C(c)(3)(B), the amount of credit forany taxable year shall be the amount equalto the excess of the amount of credit deter-mined under section 41(a) without regardto section 280C(c)(3), over the productof the amount of credit determined undersection 280C(c)(3)(B)(i), and the maxi-mum rate of tax under section 11(b)(1).

Section 280C(c)(3)(C) provides that anelection under section 280C(c)(3) for anytaxable year shall be made not later thanthe time for filing the return of tax forsuch year (including extensions), shall bemade on such return, and shall be madein such manner as the Secretary may pre-scribe. Section 1.280C–4(a) provides thatthe section 280C(c)(3) election to have theprovisions of section 280C(c)(1) and (c)(2)not apply shall be made by claiming thereduced credit under section 41(a) deter-mined by the method provided in section280C(c)(3)(B) on an original return for thetaxable year, filed at any time on or beforethe due date (including extensions) for fil-ing the income tax return for such year.

Section 280C(c)(4) provides that sec-tion 280C(b)(3) shall apply for pur-poses of section 280C(c). Under section

280C(b)(3), in the case of a corporationwhich is a member of a controlled group ofcorporations (within the meaning of sec-tion 41(f)(5)) or a trade or business whichis treated as being under common controlwith other trades or businesses (withinthe meaning of section 41(f)(1)(B)), sec-tion 280C(b) shall be applied under rulesprescribed by the Secretary similar to therules applicable under section 41(f)(1)(A)and (f)(1)(B).

Section 1.41–6(a)(1) provides that todetermine the amount of research credit (ifany) allowable to a trade or business thatat the end of its taxable year is a mem-ber of a controlled group, a taxpayer must:(i) compute the group credit in the man-ner described in §1.41–6(b), and (ii) allo-cate the group credit among the membersof the group in the manner described under§1.41–6(c). All members of the controlledgroup are required to use the same compu-tation method, that is, the section 41(a)(1)method or the section 41(c)(5) alternativesimplified research credit method, in com-puting the group credit for the credit year.

Explanation and Summary ofComments

These final regulations simplify the sec-tion 280C(c)(3) election to have the provi-sions of section 280C(c)(1) and (c)(2) notapply by requiring the election to be madeon Form 6765, “Credit for Increasing Re-search Activities.” The form must be filedwith an original return for the taxable yearfiled on or before the due date (includingextensions) for filing the income tax returnfor such year. An election, once made forany taxable year, is irrevocable for that tax-able year.

These final regulations also providethat each member of a controlled groupmay make the election under section280C(c)(3) after the group credit is com-puted and allocated under §§1.41–6(b)(1)and 1.41–6(c).

One commentator was concerned thatthe controlled group rules in the proposedregulations might cause administrativecomplexity for some members of a con-trolled group filing a consolidated returnbecause each member would be required

2011–35 I.R.B. 179 August 29, 2011

to file a separate Form 6765 to makethe election under section 280C(c)(3).Generally, the proposed regulations pro-vided that each member of a controlledgroup of corporations (within the mean-ing of section 41(f)(5)), or a trade orbusiness which is treated as being un-der common control with other trades orbusinesses (within the meaning of section41(f)(1)(B)), could make the election un-der section 280C(c)(3). In order to clarifyand simplify the election procedure formembers of consolidated groups, how-ever, the final regulations add that onlya common parent (within the meaningof §1.1502–77(a)(1)(i)) of a consolidatedgroup may make the election under section280C(c)(3) on behalf of the members ofthe consolidated group. An attachment toa Form 6765 filed by a common parent of aconsolidated group adequately identifyingthe members for which an election undersection 280C(c)(3) is made is generallysufficient to clearly indicate the intent ofthe common parent to make the electionfor those members.

Another commentator believed thatsome members of a controlled group mayfail to make a timely election under section280C(c)(3) because, at the time of filingthe Form 6765 with the original return, nocredit was reported by such members. Theelection under section 280C(c)(3) may bemade whether or not a taxpayer claimsany amount of credit on its original return.An example has been added to the finalregulations showing that a taxpayer maymake an election under section 280C(c)(3)on its original return without reporting anycredit.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) doesnot apply to these regulations.

When an agency promulgates a fi-nal rule, the Regulatory Flexibility Act(5 U.S.C. chapter 6) requires the agencyto “prepare a final regulatory flexibilityanalysis” with “a description of and anestimate of the number of small entities towhich the rule will apply.” See 5 U.S.C.

604(a). Section 605 of the RegulatoryFlexibility Act provides an exception tothis requirement if the agency certifies thatthe final rule will not have a significanteconomic impact on a substantial numberof small entities.

The final rule affects individuals andsmall businesses engaged in research ac-tivities under section 41. The IRS has de-termined that the final rule will have animpact on a substantial number of smallentities. However, the IRS also has de-termined that the impact on entities af-fected by the final rule will not be sig-nificant. This determination is based onthe fact that the regulations would sim-plify the procedure for making the electionfor the reduced research credit under sec-tion 280C(c)(3)(C). Instead of requiringsuch an election to be made by claimingthe reduced credit “on an original return,”the regulations specify that the electionis made by clearly indicating an intent tomake the election on Form 6765, “Creditfor Increasing Research Activities,” whichis attached to the return. This form re-quires only a minimal amount of time tocomplete and places no greater burden onthe taxpayer than the current procedure.Accordingly, a final regulatory flexibilityanalysis is not required. Pursuant to sec-tion 7805(f) of the Internal Revenue Code,the notice of proposed rulemaking preced-ing these regulations was submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Drafting Information

The principal author of these regula-tions is David Selig, Office of AssociateChief Counsel (Passthroughs and SpecialIndustries). However, other personnelfrom the IRS and the Treasury Departmentparticipated in their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.280C–4 is revised to

read as follows:

§1.280C–4 Credit for increasing researchactivities.

(a) In general. An election under sec-tion 280C(c)(3) to have the provisions ofsection 280C(c)(1) and (c)(2) not applyand elect the reduced research credit un-der section 280C(c)(3)(B) shall be madeon Form 6765, “Credit for IncreasingResearch Activities” (or any successorform). In order for the election to be effec-tive, the Form 6765 must clearly indicatethe taxpayer’s intent to make the section280C(c)(3) election, and must be filedwith an original return for the taxable yearfiled on or before the due date (includingextensions) for filing the income tax returnfor such year, regardless of whether anyresearch credits are claimed on the origi-nal return. An election, once made for anytaxable year, is irrevocable for that taxableyear.

(b) Controlled groups of corporations;trades or businesses under common con-trol—(1) In general. A member of a con-trolled group of corporations (within themeaning of section 41(f)(5)), or a tradeor business which is treated as being un-der common control with other trades orbusinesses (within the meaning of section41(f)(1)(B)), may make the election un-der section 280C(c)(3). However, onlythe common parent (within the meaningof §1.1502–77(a)(1)(i)) of a consolidatedgroup may make the election on behalf ofthe members of a consolidated group. Amember or trade or business shall make theelection on Form 6765 and by the time pre-scribed in paragraph (a) of this section.

(2) Example. The following exampleillustrates an application of paragraph (b)of this section:

Example. A, B, and C, all of which are cal-endar year taxpayers, are members of a controlledgroup of corporations (within the meaning of section41(f)(5)). A, B, and C each attach a statement to the2009 Form 6765, “Credit for Increasing ResearchActivities,” showing A and C had stand-alone entitycredits (within the meaning of §1.41–6(c)(2)) thatexceeded the group credit (within the meaning of§1.41–6(a)(3)(iv)). A and C report their allocatedportions of the group credit (as determined under§1.41–6(c)) on the 2009 Form 6765 and B reportsno research credit on the 2009 Form 6765. A andB, but not C, each make an election for the reducedcredit on the 2009 Form 6765. In December 2010, A

August 29, 2011 180 2011–35 I.R.B.

determines that it understated its qualified researchexpenses in 2009 resulting in the group credit ex-ceeding the sum of the stand-alone credits. On anamended 2009 Form 6765, A, B, and C each reporttheir allocated portions of the group credit (includingthe excess group credit). B reports its credit as a reg-ular credit under section 41(a) and reduces the creditunder section 280C(c)(3)(B). C may not reduce itscredit under section 280C(c)(3)(B) because C didnot make an election for the reduced credit with itsoriginal return.

(c) Effective/applicability date. Thissection applies to taxable years ending onor after July 27, 2011.

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

Approved July 19, 2011.

Emily S. McMahon,Acting Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 26, 2011,8:45 a.m., and published in the issue of the Federal Registerfor July 27, 2011, 76 F.R. 44800)

Section 6001.—Noticeor Regulations RequiringRecords, Statements, andSpecial Returns.26 CFR 41.6001–2: Proof of payments for State reg-istration purposes.

T.D. 9537

Highway Use Tax; Filing andPayment for Taxable PeriodBeginning July 1, 2011

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final and temporary regula-tions.

SUMMARY: This document containsfinal and temporary regulations that pro-vide guidance on the filing of Form 2290(“Heavy Highway Vehicle Use Tax Re-turn”) and payment of the associatedhighway use tax for the taxable periodbeginning July 1, 2011. The regulationsaffect owners and operators of highwaymotor vehicles with a taxable gross weightof 55,000 pounds or more. The text of thetemporary regulations (REG–122813–11)also serves as the text of the proposed

regulations on this subject in this issue ofthe Bulletin.

DATES: Effective Date: These regulationsare effective on July 20, 2011.

Applicability Date: For dates ofapplicability, see §§41.6001–2T(d),41.6071(a)–1T(c)(3), and41.6151(a)–1T(b).

FOR FURTHER INFORMATIONCONTACT: Natalie Payne, (202)622–3130 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends the HighwayUse Tax Regulations (26 CFR Part 41) un-der section 4481 of the Internal RevenueCode (Code).

Section 4481 imposes a tax on the usein any taxable period of a highway mo-tor vehicle with a taxable gross weight of55,000 pounds or more. The person inwhose name the vehicle is registered at thetime of the first use must pay the tax. Therate of tax is based on the weight of the ve-hicle with a maximum of $550 per vehicleper taxable period (the standard amount).

Generally, a “taxable period” is the yearthat begins on July 1 and ends on the fol-lowing June 30. For the taxable period be-ginning on July 1, 2011, however, section4482(c)(4) of present law provides that thetaxable period ends at the close of Septem-ber 30, 2011. For this three month period,the tax rate is a reduced amount that is 25percent of the tax rate for a 12-month pe-riod.

Section 41.6011(a)–1(a)(1) requireseach person that is liable for the tax im-posed by section 4481 to file a return foreach taxable period and §41.6011(a)–1(b)provides that the return is Form 2290,“Heavy Highway Vehicle Use Tax Return.”

The due date for filing Form 2290 isnot prescribed by statute and section 6071provides that when the Code does not setthe time for filing a return, the Secretaryis to prescribe such time by regulations.Under §41.6071(a)–1(a), Form 2290 gen-erally must be filed by the last day of themonth following the month in which a per-son becomes liable for tax. For most tax-payers, their first use of a vehicle in a tax-able period occurs in July and thus their re-turn is due by August 31.

Section 41.6001–2(b) provides, gener-ally, that a State that receives an applica-tion to register a highway motor vehiclemust receive from the applicant “proof ofpayment” of the tax imposed by section4481(a). Section 41.6001–2(c) specifiesthat this proof of payment generally con-sists of a receipted Schedule 1 (Form 2290)that is returned by the IRS to a taxpayerthat files Form 2290 and pays the amountof tax due with the return. The taxpayergenerally must present proof of paymentfor the taxable period that includes the dateon which the application for registration isfiled, but in the case of an application filedin July, August, or September proof of pay-ment for the preceding taxable period maybe used.

The tax imposed under section 4481will expire on September 30, 2011, unlessCongress changes the law. Under exist-ing regulations, the person liable for thehighway use tax must file a Form 2290by the last day of the month followingthe month in which the person becomesliable for the tax. Therefore, under currentstatutory and regulatory provisions, theperson liable for the tax will be requiredto file a Form 2290 for taxable use dur-ing the period of July 1, 2011, throughSeptember 30, 2011 (the “2011 shorttaxable period”). Further, if Congressextends the tax past September 30, 2011,a person who filed Form 2290 for the2011 short taxable period would have tofile a second Form 2290 covering theperiod after September 30, 2011, throughthe earlier of the expiration date of theextension or June 30, 2012.

Explanation of Provisions

For purposes of efficient tax admin-istration and alleviating taxpayers’ po-tential administrative burden, the tem-porary regulations postpone the due dateof Form 2290 for the 2011 short tax-able period until November 30, 2011. IfCongress does not extend the tax pastSeptember 30, 2011, taxpayers will fileone Form 2290 and will pay the reducedamount for the 2011 short taxable periodby November 30; if Congress does extendthe tax past September 30, 2011, andsubstitutes a longer taxable period for the2011 short taxable period, taxpayers whobecome liable for the highway use tax afterJune 30, 2011, and before November 1,

2011–35 I.R.B. 181 August 29, 2011

2011, also will file a Form 2290 for theperiod July 1, 2011 — June 30, 2012(or the end of the new taxable period, ifearlier), by November 30, 2011. In eithercase, most taxpayers will have to file onlyone return for the taxable period beginningJuly 1, 2011. But for the change made bythe temporary regulations, most taxpayerswould have to file two returns if Congressextends the tax past September 30.

Further, the temporary regulations statethat taxpayers should file a Form 2290 noearlier than November 1, 2011, for taxableuse during the 2011 short taxable pe-riod. The IRS will not provide a receiptedSchedule 1 for a return and associatedpayment for the taxable period begin-ning July 1, 2011, before November 1,2011. Because taxpayers will not beable to receive a receipted Schedule 1for filing a Form 2290 and paying thetax for the taxable period beginningJuly 1, 2011, until November 1, 2011,the temporary regulations provide thatthe receipted Schedule 1 for the taxableperiod ending June 30, 2010, must beaccepted by a State as a substitute proof ofpayment for registration applications filedduring the period of July 1, 2011, throughNovember 30, 2011.

Section 41.6001–2(b)(1) provides thata State may register a highway motorvehicle without proof of payment if theperson registering the vehicle presents theoriginal or a photocopy of a bill of sale (orother document evidencing transfer) indi-cating that the vehicle was purchased bythe owner either as a new or used vehicleduring the preceding 60 days before thedate that the State receives the applicationfor registration of such vehicle. Becausetaxpayers will not be able to obtain proofof payment during the period betweenJuly 1, 2011, and November 1, 2011,the temporary regulations provide thatbetween July 1, 2011, and November 30,2011, a State must register a highwaymotor vehicle without proof of payment ifthe person registering the vehicle presentsthe original or a photocopy of a bill ofsale (or other document evidencing thesale) that demonstrates that the ownerpurchased the vehicle, either as a new orused vehicle, within 150 days of the datethat the State receives the application forregistration, and the vehicle has not beenregistered in any state since the purchasedate.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It also has been de-termined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to this regulation. Forapplicability of the Regulatory FlexibilityAct (5 U.S.C. chapter 6), please refer tothe Special Analysis section in the pream-ble to the cross-referenced notice of pro-posed rulemaking in this issue of the Bul-letin. Pursuant to section 7805(f) of theCode, this final and temporary regulationwas submitted to the Chief Counsel forAdvocacy of the Small Business Admin-istration for comment on their impact onsmall business.

Drafting Information

The principal author of these regu-lations is Natalie Payne, Office of theAssociate Chief Counsel (Passthroughsand Special Industries). However, otherpersonnel from the IRS and the TreasuryDepartment participated in their develop-ment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 41 isamended as follows:

PART 41—EXCISE TAX ON USEOF CERTAIN HIGHWAY MOTORVEHICLES

Paragraph 1. The authority citation forpart 41 is amended to read in part as fol-lows:

Authority: 26 U.S.C. 7805. * * *Section 41.6001–2T also issued under

26 U.S.C. 6001. * * *Section 41.6071(a)–1T also issued un-

der 26 U.S.C. 6071(a). * * *Section 41.6151(a)–1T also issued un-

der 26 U.S.C. 6151(a). * * *Par. 2. Section 41.6001–2 is amended

by:1. Redesignating paragraph (b)(1) as

paragraph (b)(1)(i) and adding a paragraph

heading to newly designated paragraph(b)(1)(i).

2. Adding paragraph (b)(1)(ii).3. Redesignating paragraph (b)(4) as

paragraph (b)(4)(i) and adding a paragraphheading to newly designated paragraph(b)(4)(i).

4. Adding paragraph (b)(4)(ii).5. Redesignating paragraph (c)(2) as

paragraph (c)(2)(i), adding a paragraphheading to newly designated paragraph(c)(2)(i) and adding paragraph (c)(2)(ii).

The additions read as follows:

§41.6001–2 Proof of payment for Stateregistration purposes.

* * * * *(b) * * *(1) * * *(i) Registration generally. * * *(ii) [Reserved]. For further guidance,

see §41.6001–2T(b)(1)(ii).

* * * * *(4) * * *(i) General rule. * * *(ii) [Reserved]. For further guidance,

see §41.6001–2T(b)(4)(ii).

* * * * *(c) * * *(2) * * *(i) General rule. * * *(ii) [Reserved]. For further guidance,

see §41.6001–2T(c)(2)(ii).

* * * * *Par. 3. Section 41.6001–2T is added to

read as follows:

§41.6001–2T Proof of payment for Stateregistration purposes (temporary).

(a) [Reserved]. For further guidance,see §41.6001–2(a) .

(b)(1)(i) [Reserved]. For further guid-ance, see §41.6001–2(b)(1)(i).

(ii) Special rule for registration afterJune 30, 2011, and before December 1,2011. Between July 1, 2011, and Novem-ber 30, 2011, a State must register a high-way motor vehicle without proof of pay-ment if the person registering the vehiclepresents the original or a photocopy of abill of sale (or other document evidenc-ing transfer) indicating that the vehicle waspurchased by the owner either as a new orused vehicle during the preceding 150 daysbefore the date that the State receives theapplication for registration of the vehicle,

August 29, 2011 182 2011–35 I.R.B.

and the vehicle has not been registered inany state subsequent to such date of pur-chase.

(b)(2) through (b)(4)(i) [Reserved]. Forfurther guidance, see §41.6001–2(b)(2)through (b)(4)(i).

(ii) Special rule for registration afterJune 30, 2011, and before December 1,2011. In the case of a highway motor ve-hicle subject to tax under section 4481(a)for which a State receives an applicationfor registration during the months of July,August, September, October, or Novemberof 2011, a State shall accept proof of pay-ment for the taxable period of July 1, 2010,through June 30, 2011, to verify paymentof the tax imposed by section 4481(a).

(c) introductory text through (c)(2)(i)[Reserved]. For further guidance, see§41.6001–2(c) through (c)(2)(i).

(ii) Substitute proof of payment for thetaxable period beginning July 1, 2011. Forpurposes of this section and §41.6001–2,in the case of a highway motor vehicle forwhich a State receives an application forregistration during the period of July 1,2011, through November 30, 2011, a Stateshall accept as a substitute for proof ofpayment, proof of payment for the taxableperiod of July 1, 2010, through June 30,2011.

(iii) Cross reference. For provisionsrelating to the use of proof of paymentfor the taxable period of July 1, 2010,through June 30, 2011, to verify paymentof the tax imposed by section 4481(a), see§41.6001–2T(b)(4)(ii).

(d) Effective/applicability date. Para-graphs (b)(1)(ii), (b)(4)(ii), (c)(2)(ii) and(c)(2)(iii) of this section apply on and af-ter July 20, 2011.

(e) Expiration date. The applicabilityof this section expires on or before July 15,2014.

Par. 4. Section 41.6071(a)–1 isamended as follows:

1. In paragraph (a) introductory text,the phrase “Except as provided in para-graph (b) of this section” is removed and“Except as provided in paragraph (b) orparagraph (c) of this section” is added inits place.

2. Add paragraph (c).The addition reads as follows:

§41.6071(a)–1 Time for filing returns.

* * * * *(c) [Reserved]. For further guidance,

see §41.6071(a)–1T(c) through (c)(3).Par. 5. Section 41.6071(a)–1T is added

to read as follows:

§41.6071(a)–1T Time for filing returns(temporary).

(a) through (b) [Reserved]. For furtherguidance, see §41.6071(a)–1(a) through(b).

(c) Special rule for highway motor vehi-cles for which a taxable use occurs duringthe period July 1, 2011, through Septem-ber 30, 2011—(1) Date for filing returns.In the case of a highway motor vehicle forwhich a taxable use occurs during the pe-riod July 1, 2011, through September 30,2011, the person liable for the tax mustfile a return described in §41.6011(a)–1 nolater than November 30, 2011. The returnshould be filed no earlier than November 1,2011. If the return is filed and paymentis submitted before November 1, 2011, theIRS will not provide a receipted Schedule1 (Form 2290, “Heavy Highway VehicleUse Tax Return”) as proof of payment untilafter November 1, 2011, and will providesuch receipted Schedule 1 only if the fullamount of the tax for the 2011 taxableperiod (determined under the law in effectas of November 1, 2011) has been paid.

(2) Cross reference. For provisionsrelating to time and place for payingthe tax imposed under section 4481, see§41.6151(a)–1.

(3) Effective/applicability date. Thisparagraph (c) applies on and after July 20,2011.

(4) Expiration date. The applicabilityof this section expires on or before July 15,2014.

Par. 6. Section 41.6151(a)–1 is revisedto read as follows:

§41.6151(a)–1 Time and place for payingtax.

[Reserved]. For further guidance, see§41.6071(a)–1T(a) and (b).

Par. 7. Section 41.6151(a)–1T is addedto read as follows:

§41.6151(a)–1T Time and place forpaying tax (temporary).

(a) In general. The tax must be paid atthe time prescribed in §41.6071(a)–1 (or§41.6071(a)–1T, as appropriate) for filingthe return and at the place prescribed in§41.6091–1 for filing the return.

(b) Effective/applicability date. Thissection applies on and after July 20, 2011.

(c) Expiration date. The applicabilityof this section expires on or before July 15,2014.

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

Approved July 13, 2011.

Emily S. McMahon,Acting Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 15, 2011,4:15 p.m., and published in the issue of the Federal Registerfor July 20, 2011, 76 F.R. 43121)

2011–35 I.R.B. 183 August 29, 2011

Part III. Administrative, Procedural, and MiscellaneousMethod for Making Electionto Apply Carryover BasisTreatment under Section1022 to the Estates ofDecedents who Died in 2010and Rules Applicable toInter Vivos and TestamentaryGeneration-Skipping Transfersin 2010

Notice 2011–66

PURPOSE

This notice provides guidance with re-gard to the time and manner in which theexecutor of the estate of a decedent whodied in 2010 elects, pursuant to section301(c) of the Tax Relief, UnemploymentInsurance Reauthorization, and Job Cre-ation Act of 2010, P.L. 111–312 (124 Stat.3296) (TRUIRJCA), to have the estate taxnot apply and to have the carryover ba-sis rules in section 1022 apply to prop-erty transferred as a result of the dece-dent’s death. This notice also addresseshow a donor may elect out of the automaticallocation of generation-skipping transfer(GST) tax exemption to direct skips oc-curring during 2010. It also clarifies thedue dates for returns for the taxable yearending December 31, 2010, that report ageneration-skipping transfer, that allocateGST exemption, or that opt out of the au-tomatic allocation of GST exemption. Inaddition, the notice discusses the applica-tion of chapter 13 (the GST tax) to tes-tamentary transfers during 2010. Finally,this notice addresses certain other collat-eral issues arising from the determinationof basis under section 1022.

This notice applies to executors of theestates of decedents who died in 2010 andto recipients of property acquired fromsuch decedents (within the meaning ofsection 1022(e)) (hereinafter, acquiredfrom the decedent), if the executors makethe election under section 301(c) of TRU-IRJCA. This notice also applies to donorswho made a gift during 2010 that is a gen-eration-skipping transfer or an indirect giftfor purposes of the GST tax. See RevenueProcedure 2011–41 for a safe harbor with

regard to the interpretation and applicationof section 1022.

BACKGROUND

Subtitle A of title V of the EconomicGrowth and Tax Relief Reconciliation Actof 2001, P.L. 107–16 (EGTRRA) enactedsection 2210, which made chapter 11 (theestate tax) inapplicable to the estate of anydecedent who died in 2010 and chapter13 (the GST tax) inapplicable to genera-tion-skipping transfers made in 2010. OnDecember 17, 2010, TRUIRJCA becamelaw, and section 301(a) of TRUIRJCAretroactively reinstated the estate andGST taxes. However, section 301(c) ofTRUIRJCA allows the executor of theestate of a decedent who died in 2010to elect to apply the Internal RevenueCode (IRC) as though section 301(a) ofTRUIRJCA did not apply with respect tochapter 11 and with respect to propertyacquired or passing from the decedent(within the meaning of section 1014(b)).Thus, section 301(c) of TRUIRJCA allowsthe executor of the estate of a decedentwho died in 2010 to elect not to havethe provisions of chapter 11 apply to thedecedent’s estate, but rather, to have theprovisions of section 1022 apply (Section1022 Election).

Even though an executor may electout of the estate tax under TRUIRJCA,the provisions of chapter 13 (GST tax)nonetheless continue to apply. Section302(c) of TRUIRJCA, however, providesthat the applicable tax rate for each GSToccurring during 2010 is zero. Section301(d)(2) provides that, in the case ofany generation-skipping transfer madeafter December 31, 2009, and beforeDecember 17, 2010, the due date for filinga return required under section 2662 of theIRC (including any election required to bemade on such return) shall not be earlierthan September 17, 2011.

TRUIRJCA also retroactively repealedsection 2511(c), which treated each trans-fer in trust during 2010 as a gift unless thetrust was treated as wholly owned by thedonor or the donor’s spouse. Because ofthis retroactive repeal, this section does notapply even if a Section 1022 Election ismade.

GUIDANCE

I Section 1022 Election and FilingRequirements.

A. Section 1022 Election.

The executor of the estate of a decedentwho died in 2010 may make the Section1022 Election by filing a Form 8939, Al-location of Increase in Basis for PropertyAcquired From a Decedent, on or beforeNovember 15, 2011. Once made, the elec-tion is irrevocable except as provided insection I.D.1 or D.2 of this notice. Prior fil-ings purporting to make the Section 1022Election must be replaced with a timelyfiled Form 8939.

If, for the same decedent, the InternalRevenue Service (IRS) receives a Form8939 and either a Form 706, United StatesEstate (and Generation-Skipping Trans-fer) Tax Return, or a Form 706–NA, UnitedStates Estate (and Generation-SkippingTransfer) Tax Return Estate of Nonresidentnot a Citizen of the United States, the IRSwill issue a letter to each person who filedsuch a form. The letter will include thename and address of each person who fileda Form 706 (or Form 706–NA) or a Form8939 with respect to the decedent, and willexplain that each of those persons mustcollectively sign and file either a restatedForm 706 (or Form 706–NA) or Form8939 on or before 90 days from the datethe IRS mails such letters. If no restatedForm 706 (or Form 706–NA) or Form8939, signed by each person who previ-ously filed any such form, is filed withinthat 90-day period, the IRS will determinewhether the executor has made a Section1022 Election for the decedent’s estate orwhether the decedent’s estate is subject tochapter 11. In making this determination,the IRS will consider all relevant factsand circumstances disclosed to the IRS,including without limitation the relativetotal fair market values of the decedent’sproperty in the possession of the executorsand the nature and significance of the eco-nomic impact of the Section 1022 Election(or its loss) on the beneficial owners ofthe property held by each executor. Somefactors may be more relevant, and may beaccorded more weight, than others for anyparticular estate.

August 29, 2011 184 2011–35 I.R.B.

B. Method to Allocate Basis.

The executor must allocate Basis In-crease, as defined in section 4.02 of Rev-enue Procedure 2011–41, on a timely filedForm 8939. For purposes of this section,references to the term “executor” shall beconstrued in accordance with section 2203as if that section was applicable. Accord-ingly, if an executor has been appointed,has qualified, and is acting for a dece-dent’s estate within the United States, theIRS generally will only accept Forms 8939filed by such executor.

If an executor has not been appointed,any person in actual or constructive pos-session of property acquired from thedecedent may file a Form 8939 for theproperty he or she actually or construc-tively possesses. If the IRS receives mul-tiple Forms 8939 that collectively purportto allocate Basis Increase in an amountgreater than the amount of Basis Increaseavailable to the estate, the IRS will issuea letter to each person who filed such aform. The letter will include the name andaddress of each other person who filed aForm 8939 with respect to the decedent,and will explain that each of those personsmust collectively sign and file a single,restated Form 8939 allocating availableBasis Increase in order to make the Sec-tion 1022 Election. The restated Form8939 must be filed on or before 90 daysfrom the date the IRS mails such letters.If no restated Form 8939, signed by eachsuch person who previously submitted aForm 8939, is filed within that 90-dayperiod, the IRS will allocate the availableBasis Increase as the IRS, in its discretion,may determine. In making this determi-nation and exercising its discretion, theIRS will consider all relevant facts andcircumstances disclosed to the IRS. Thatallocation might be made on a pro-ratabasis, based on the amount of unrecog-nized appreciation in the property ownedby the decedent (within the meaning ofsection 1022(d)) (hereinafter, owned bythe decedent) at death and acquired fromthe decedent that was reported on thetimely filed Forms 8939, or in any othermanner deemed appropriate for the par-ticular decedent’s estate by the IRS in theexercise of its discretion.

The recipient’s basis in a particularproperty (including the amount of Basis

Increase allocated to that property) is sub-ject to adjustment upon the examinationby the IRS of any tax return reporting avalue dependent upon the property’s basis(for example, the property’s depreciation,sale, or other disposition that triggers gainor loss on the property, or otherwise).

C. Reporting Requirements.

If the executor makes the Section 1022Election, the executor must report andvalue on Form 8939 all property (ex-cluding cash and property that constitutesthe right to receive an item of income inrespect of a decedent under section 691(IRD)) acquired from the decedent. Sec-tion 6018(b)(1). In addition, the executoralso must report all appreciated propertyacquired from the decedent, valued asof the decedent’s date of death, that wasrequired to be included on the donor’sForm 709, United States Gift (and Genera-tion-Skipping Transfer) Tax Return, if suchproperty was acquired by the decedent bygift or by inter vivos transfer for less thanadequate and full consideration in moneyor money’s worth during the 3-year periodending on the date of the decedent’s death.Section 6018(b)(2). This does not includeproperty transferred to the decedent by thedecedent’s spouse, who had not acquiredthe property in whole or in part by gift orby inter vivos transfer for less than ade-quate and full consideration in money ormoney’s worth during that same 3-yearperiod.

In the case of a deceased nonresidentwho is not a citizen of the United States,the property to be reported is limited to tan-gible property situated in the United Statesthat is acquired from the decedent and anyother property acquired from the decedentby a United States person. Section 6018describes the information that must be pro-vided on Form 8939.

In addition to the information as pro-vided in this paragraph C, the executormust include with the Form 8939 any otherinformation and supporting documenta-tion as identified in the instructions to theForm 8939 or in any Internal RevenueBulletin (see § 601.601(d)(2)(ii)(b)).

Within 30 days after the executor filesa timely filed Form 8939, the executor (oreach executor filing such a form) must pro-vide a statement to each recipient acquir-

ing property reported on that form, set-ting forth the information required undersection 6018(c), regardless of whether theexecutor allocates Basis Increase to suchproperty on the form. Section 6018(e). Ifan adjustment is made to the basis of prop-erty reported on a Form 8939, the executormust provide updated statements to eachrecipient of property affected by that ad-justment within 30 days after making theadjustment or receiving notice of the ad-justment from the IRS, whichever is appli-cable.

D. Time for Filing Return.

1. In General.

Form 8939 is due November 15, 2011.A Form 8939 filed prior to that date maybe amended or revoked, but only on asubsequent Form 8939 filed on or beforeNovember 15, 2011. The Form 8939 thatis timely filed by an executor is the lastForm 8939 filed by that executor on or be-fore November 15, 2011. No executor’sForm 8939 will have any effect on anyForm 8939 filed by a different executor.The IRS will not grant extensions of timeto file a Form 8939 and will not accept aForm 8939 or an amended Form 8939 filedafter the due date, except as provided insection I.A or B (in the event of conflict-ing filings) or in section I.D.2 (regardingrelief provisions) of this notice. Thus, ataxpayer may not file an estate tax return aswell as a conditional Form 8939 that wouldtake effect only if an estate tax audit resultsin an increase in the gross estate abovethe applicable exclusion amount. Notwith-standing the previous sentences, however,for persons qualifying under section 7508or 7508A, the due date for filing a Form8939 is postponed as provided in those sec-tions. Any executor filing a Form 8939 af-ter November 15, 2011, pursuant to section7508 or 7508A should write “Filed Pur-suant to Section 7508” or “Filed Pursuantto Section 7508A”, as applicable, on thetop of the form. The failure to write thesenotations at the top of the Form 8939, how-ever, does not adversely impact the exten-sion granted under section 7508 or 7508A.Furthermore, for decedents qualifying forrelief under section 692, an executor mustfile a Form 8939 to make the Section 1022Election.

2011–35 I.R.B. 185 August 29, 2011

2. Relief Provisions.

Four types of relief from the require-ments of section I.D.1 of this notice areavailable. First, an amended Form 8939may be filed after the due date of that formfor the sole purpose of allocating SpousalProperty Basis Increase, as that term isdefined in section 1022(c)(2) and section4.02(3) of Revenue Procedure 2011–41,among the property eligible to receive anallocation of that basis, provided that eachof the two following requirements is satis-fied. The first requirement is that the Form8939 must have been timely filed and wascomplete when filed except for the alloca-tion of the full amount of the Spousal Prop-erty Basis Increase to the eligible propertyreported on that Form 8939. The secondrequirement is that each amended Form8939 must be filed no more than 90 daysafter the date of the distribution of the qual-ified spousal property to which SpousalProperty Basis Increase is allocated on thatamended Form 8939.

Second, provided an executor timelyfiled a Form 8939, the executor may file anamended Form 8939 under the provisionsof § 301.9100–2(b) on or before May 15,2012, for any purpose except to make or re-voke a Section 1022 Election. The execu-tor must write “Filed Pursuant to Section301.9100–2” on the top of the amendedForm 8939.

Third, an executor may apply for reliefto supplement a timely filed Form 8939under § 301.9100–3. A request for reliefto supplement a timely filed Form 8939is limited to an extension of time to allo-cate any Basis Increase that has not previ-ously been validly allocated, and such re-lief, if appropriate, will be granted only if:(1) after filing the Form 8939, the executordiscovers additional property to which re-maining Basis Increase could be allocated;and/or (2) the fair market value of prop-erty reported on the Form 8939 is adjustedas the result of an IRS examination or in-quiry. Relief will not be granted to reducean allocation of Basis Increase made on atimely filed Form 8939.

Fourth, an executor may apply for re-lief under § 301.9100–3 in the form ofan extension of the time in which to filethe Form 8939 (thus, making the Section1022 Election and the allocation of BasisIncrease), which relief may be granted if

the requirements of § 301.9100–3 are sat-isfied. Taxpayers should be aware, how-ever, that, in this context, the amount oftime that has elapsed since the decedent’sdeath may constitute a lack of reasonable-ness and good faith and/or prejudice to theinterests of the government (for example,the use of hindsight to achieve a more fa-vorable tax result and/or the lack of recordsavailable to establish what property was orwas not owned by the decedent at death),which would prevent the grant of the re-quested relief.

II GST Tax in 2010.

A. With Respect to Decedents WhoDied in 2010

The GST tax was retroactively rein-stated by TRUIRJCA and applies to the es-tates of all decedents who died after De-cember 31, 2009, regardless of whether aSection 1022 Election is made. The GSTtax is computed by multiplying the tax-able amount by the applicable rate. Sec-tion 2602. Section 2641(a) defines the ap-plicable rate for this purpose as the max-imum federal estate tax rate applicable tothe estate of a decedent dying at the timeof the transfer, multiplied by the inclusionratio with respect to that transfer. Sec-tion 302(c) of TRUIRJCA provides that,for each GST occurring during 2010, theapplicable rate under section 2641(a) iszero. This provision is interpreted to meanthat the maximum federal estate tax ratefor purposes of computing the GST taxon such a transfer is deemed to be zerowhich, when multiplied by any inclusionratio, will result in an applicable rate ofzero. As under the law applicable to GSTsoccurring prior to 2010, the only way toachieve a zero inclusion ratio for the trans-fer is to make a timely allocation of GSTexemption to the transfer.

If the executor of a decedent who diedin 2010 makes the Section 1022 Elec-tion, the executor allocates that decedent’savailable GST exemption by attaching theSchedule R of Form 8939 to the Form8939 for that decedent’s estate. If the Form8939 is timely filed, this allocation willbe considered a timely allocation of thedecedent’s GST exemption under section2632.

B. Inter Vivos Direct Skips

In the case of inter vivos direct skipsthat occurred in 2010, if the donor wishesto pay GST tax at the rate of zero per-cent and therefore does not wish to haveany GST exemption allocated to thattransfer, the donor may elect out of theautomatic allocation of GST exemptionto that direct skip in either of two ways.First, the donor affirmatively may electout of the automatic allocation by de-scribing, on a timely filed Form 709,both the transfer and the extent to whichthe automatic allocation is not to apply.See section 26.2632–1(b)(1)(i). Alterna-tively, that same regulation also providesthat, “. . . a timely-filed Form 709accompanied by payment of the GST tax(as shown on the return with respect tothe direct skip) is sufficient to prevent anautomatic allocation of GST exemptionwith respect to the transferred property.”Because it is clear that a 2010 transfernot in trust to a skip person is a directskip to which the donor would never wantto allocate GST exemption, the IRS willinterpret the reporting of an inter vivosdirect skip not in trust occurring in 2010 ona timely filed Form 709 as constituting thepayment of tax (at the rate of zero percent)and therefore as an election out of theautomatic allocation of GST exemptionto that direct skip. This interpretationalso applies to a direct skip not in trustoccurring at the close of an estate taxinclusion period (ETIP) in 2010 other thanby reason of the donor’s death. However,a donor may or may not want to allocateGST exemption to a 2010 direct skip madeto a trust. Therefore, this interpretationwill not apply to any transfer in trustthat is a direct skip or that occurs at theend of an ETIP. In addition, because thisinterpretation only applies to inter vivosdirect skips, it will also not apply to anydirect skip, or to the close of an ETIP,by reason of the donor’s death. Section26.2632–1(c)(4). The rules regarding theautomatic allocation of GST exemptionwill apply to transfers described in thepreceding sentence unless the transferoraffirmatively elects to have those rules notapply.

August 29, 2011 186 2011–35 I.R.B.

C. Filing Deadlines

Section 2611(a) defines a GST transferas a direct skip, a taxable distribution, ora taxable termination. An indirect skip,as defined in section 2632(c)(3), is nota GST transfer. Section 2631 providesthat each individual is allowed a GST ex-emption amount which may be allocatedto any property with respect to whichsuch individual is the transferor. Under§ 26.2632–1(b)(3) and (4), an election totreat a trust as a GST trust or to allocateGST exemption to any inter vivos trans-fer other than a direct skip, is made on atimely filed Form 709. Section 2632(b)(1)and (c)(1) provide that, if any individ-ual makes a direct or indirect skip duringlife, any unused portion of such individ-ual’s GST exemption shall be allocatedto the property transferred to the extentnecessary to make the inclusion ratio forsuch property zero. Sections 2632(b)(3)and (c)(5) and § 26.2632–1(b)(1)(i) and(b)(2)(ii) provide that an individual mayprevent the automatic allocation of GSTexemption by so providing on a timelyfiled Form 709.

Section 301(d)(2) of TRUIRJCA ex-tends the time for filing any return re-quired under section 2662 (including anyelection required to be made on suchreturn) to report a GST transfer madeafter December 31, 2009, and beforeDecember 17, 2010, to September 17,2011. Accordingly, the due date for filinga return reporting a direct skip, a taxabledistribution, or a taxable termination(including any election required to bemade on such return) that occurredon or after January 1, 2010, throughDecember 16, 2010, is September 19,2011, including extensions (becauseSeptember 17, 2011, falls on a Saturday),except in the case of a Schedule R attachedto Form 8939, which is due on or beforeNovember 15, 2011.

However, the language of Section301(d)(2) of TRUIRJCA does not extendthe due date of all gift and GST returnsfor 2010. Specifically, to the extent areturn relates to an indirect skip, or to apost-December 16, 2010, direct skip, thedue date of the return is not extended.Thus, the due date for filing a Form 709that does not report a GST transfer or thatreports a GST transfer (or any electionpertaining to such transfer) that occurs

on or after December 17, 2010, throughDecember 31, 2010, was April 18, 2011,including extensions. In addition, the duedate for filing a Form 709 to elect to treata trust as a GST trust or to allocate GSTexemption to a transfer occurring during2010 under § 26.2632–1(b)(3) or (4) wasApril 18, 2011, including extensions.However, if a donor timely filed Form 709for the taxable year ending December 31,2010, but failed to allocate GST exemptionto a transfer occurring during such year,see § 301.9100–2 for possible relief.

D. Application of Chapter 13 toTestamentary Transfers During 2010

For purposes of chapter 13, the Trea-sury Department and IRS will construeand apply any reference to chapter 11without regard to whether the executorof a decedent who died in 2010 made aSection 1022 Election. For example, ref-erences to chapter 11 in §§ 2612(c)(1),2642(b)(2)(A), 2642(f), 2651(e)(1)(B),and 2661(2) will be construed as if thedecedent was subject to chapter 11 even ifthe decedent’s executor made the Section1022 Election.

III Transfer Certificates Under§ 20.6325–1

Section 6324(a)(1) generally providesthat, unless the estate tax is paid in full,a lien is imposed upon the gross estate ofa decedent for 10 years from the date ofdeath for any unpaid estate tax liability.Section 6324(a)(2) generally provides that,if the estate tax is not paid when due, then(1) any transferee, trustee, person in pos-session of property, or person who receivesproperty from the gross estate as describedin sections 2034 to 2042 shall be person-ally liable for the estate tax to the extentof the value of that property on the dece-dent’s date of death and (2) any part of anyproperty included in the gross estate thatis transferred by such person shall be di-vested of the lien and a like lien shall at-tach to all of the property of such person.Section 6325(c) and the regulations there-under provide procedures for issuing a cer-tificate of discharge of lien for any prop-erty subject to any lien imposed by section6324.

In the case of a transfer agent holdingproperty registered in the name of a non-resident decedent who is not a citizen of

the United States, § 20.6325–1(a) providesthat the IRS may issue a transfer certifi-cate to permit the transfer of property with-out liability for such decedent’s estate tax.Specifically—

[a] transfer certificate is a certificatepermitting the transfer of property of anonresident decedent without liability.. . . Corporations, transfer agents ofdomestic corporations, transfer agentsof foreign corporations (except as toshares held in the name of a nonresi-dent decedent not a citizen of the UnitedStates), banks, trust companies, or othercustodians in actual or constructive pos-session of property, of such a dece-dent can insure avoidance of liabilityfor taxes and penalties only by demand-ing and receiving transfer certificatesbefore transfer of property of nonresi-dent decedents.Thus, transfer certificates requested

with respect to property of a nonresidentdecedent who is not a citizen of the UnitedStates have been issued by the IRS whenthe Commissioner has been satisfied thatthe “tax imposed upon the estate, if any,has been fully discharged or provided for.”Section 20.6325–1(c).

Concerns have been raised as towhether it is still necessary to obtain suchtransfer certificates prior to transferringproperty owned by nonresident decedentswho are not citizens of the United States,who died in 2010, and whose executorsmake the Section 1022 Election. Thisnotice clarifies that a transfer certificateis not required, and the IRS will not issuetransfer certificates, with respect to theproperty of a nonresident decedent whois not a citizen of the United States, whodied in 2010, and whose executor makesthe Section 1022 Election.

IV Election to Treat a Trust as Part ofan Estate Under Section 645

Under section 645, if the executor (ifany) of an estate and the trustee of a qual-ified revocable trust so elect, the trust willbe treated as part of the estate (and not as aseparate trust) for income tax purposes forall taxable years of the estate ending afterthe date of the decedent’s death and beforethe applicable date. Section 645(b)(2) de-fines “applicable date” as, “(A) if no returnof tax imposed by chapter 11 is requiredto be filed, the date which is 2 years after

2011–35 I.R.B. 187 August 29, 2011

the date of the decedent’s death, and (B)if such a return is required to be filed, thedate which is 6 months after the date ofthe final determination of the liability fortax imposed by chapter 11.” If an execu-tor makes the Section 1022 Election, noreturn of tax imposed by chapter 11 is re-quired to be filed. Accordingly, if an ex-ecutor makes the Section 1022 Election,section 645(b)(2)(A) applies and the appli-cable date is the date that is 2 years after thedate of the decedent’s death.

REQUEST FOR COMMENTS

The Treasury Department and the IRSinvite public comments on the guidanceprovided in this notice. All materials sub-mitted will be available for public inspec-tion and copying.

Comments may be submitted to In-ternal Revenue Service, CC:PA:LPD:PR(Notice 2011–66), Room 5203, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may also behand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to the Couriers Desk at 1111 ConstitutionAvenue, NW, Washington, DC 20224,Attn:CC:PA:LPD:PR (Notice 2011–66),Room 5203. Submissions may also besent electronically via the internet to thefollowing email address: [email protected]. Include thenotice number (Notice 2011–66) in thesubject line.

EFFECTIVE DATE

This notice is applicable to executors ofthe estates of decedents who died in 2010,and to persons acquiring property fromsuch a decedent whose executor makesthe Section 1022 Election. This noticeis also applicable to donors who made aGST transfer or an indirect gift for pur-poses of the GST tax during 2010. TheTreasury Department and the IRS intend toissue regulations to confirm the guidanceset forth in this notice.

DRAFTING INFORMATION

The principal authors of this notice areLaura Urich Daly, Theresa Melchiorre,and Mayer Samuels of the Office ofAssociate Chief Counsel (Passthroughs& Special Industries). For furtherinformation regarding this notice, contact

Laura Urich Daly, Theresa Melchiorre, orMayer Samuels at (202) 622–3090 (not atoll-free call).

PAPERWORK REDUCTION ACT

The collection of information containedin this notice has been submitted to the Of-fice of Management and Budget (OMB) inaccordance with the Paperwork ReductionAct (44 U.S.C. 3507) and OMB approvalis pending. An agency may not conductor sponsor, and a person is not required torespond to, a collection of information un-less the collection of information displaysa valid control number.

The first, second, and third collectionof information requirements, as requiredby section 6018(c) and (e), are in sectionI.C. of this notice. The collection of in-formation relates to the requirement thatthe executor provide a statement to eachrecipient acquiring property reported onForm 8939. Section I.C of this notice alsorequires the executor to provide updatedstatements to each recipient of property af-fected by any adjustment made to Form8939. Finally, section I.C of this notice re-quires the executor to provide any other in-formation and supporting documentationas identified in the instructions to the Form8939 or in any Internal Revenue Bulletin(see § 601.601(d)(2)(ii)(b)). This collec-tion of information is necessary for theproper performance of the function of theIRS in the collection of income tax whenthe property is later disposed of by the re-cipient or other holder of the property.

It is anticipated that the decedent’s ex-ecutor will complete and attach to Form8939 schedules showing property receivedby each recipient acquiring property froma decedent. To meet this collection of in-formation requirement, the executor is re-quired to send a copy of the schedule re-lating to property received by that particu-lar recipient to such recipient and to sendan updated schedule to each recipient inthe event the information on the schedulechanges. The decedent’s executor will alsohave to provide any other information andsupporting documentation as identified inthe instructions to the Form 8939 or in anyInternal Revenue Bulletin. We estimatethat approximately 7,000 estates of dece-dents who died in 2010 will file Form 8939and that it will take an executor approxi-mately 10 hours to comply with these re-

quirements. The total reporting burden isestimated to be 70,000 hours.

The fourth collection of informationrequirement in this notice is in sectionII.A, as provided in Treasury Regulation§ 26.2632–1(d)(1), and relates to allocat-ing the decedent’s unused GST exemption.This information collection is necessaryfor the proper performance of the functionof the IRS in the collection of GST taxwhen there is a taxable termination or tax-able distribution. We estimate that 6,000executors of estates of decedents who diedin 2010 will allocate the decedent’s un-used GST exemption on a Schedule R forForm 8939 attached to Form 8939 and thatit will take each executor approximately3 hours to prepare the documentation. Thetotal reporting burden is estimated to be18,000 hours.

Books or records relating to collectionsof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby section 6103.

26 CFR 601.105: Examination of returns and claimsfor refund, credit or abatement; determination of cor-rect liability(Also Part 1 §§1022, 172, 165, 469, 1212, 1040, 684,6018, 20.6325–1)

Rev. Proc. 2011–41

SECTION 1. PURPOSE

This revenue procedure provides op-tional safe harbor guidance under sec-tion 1022 of the Internal Revenue Code(Code), enacted by section 542 of theEconomic Growth and Tax Relief Rec-onciliation Act of 2001 (EGTRRA), P.L.107–16 (115 Stat. 76–81). Section 1022determines a recipient’s basis in propertyacquired from the decedent (within themeaning of section 1022(e)) who diedin 2010 if the decedent’s executor electsto have section 1022 apply. Section301(c) of the Tax Relief, UnemploymentInsurance Reauthorization, and JobCreation Act of 2010, P.L. 111–312 (124Stat. 3296) (TRUIRJCA), allows suchan executor to elect to have the estatetax not apply and to have the carryoverbasis rules in section 1022 apply to

August 29, 2011 188 2011–35 I.R.B.

property transferred as a result of thedecedent’s death (Section 1022 Election).This revenue procedure does not addressthe time or manner in which such anexecutor makes the Section 1022 Electionor allocates generation-skipping transfer(GST) exemption to transfers occurring asa result of such decedent’s death. Instead,taxpayers must see Notice 2011–66 forsuch guidance.

SECTION 2. BACKGROUND

Subtitle A of title V of EGTRRA en-acted section 2210, which made chapter 11(the estate tax) inapplicable to the estate ofany decedent who died in 2010 and chapter13 (the GST tax) inapplicable to genera-tion-skipping transfers made in 2010. OnDecember 17, 2010, TRUIRJCA becamelaw, and section 301(a) of TRUIRJCAretroactively reinstated the estate andGST taxes. However, section 301(c) ofTRUIRJCA allows the executor of theestate of a decedent who died in 2010to elect to apply the Code as thoughsection 301(a) of TRUIRJCA did notapply with respect to chapter 11 and withrespect to property acquired or passingfrom a decedent (within the meaning ofsection 1014(b)). Thus, section 301(c)of TRUIRJCA allows the executor of theestate of a decedent who died in 2010 toelect not to have the provisions of chapter11 apply to the decedent’s estate, butrather, to have the provisions of section1022 apply.

SECTION 3. SCOPE

The safe harbor procedures of this rev-enue procedure apply to executors of theestates of decedents who died in 2010 andto recipients of property acquired fromsuch decedents, if the executors make theSection 1022 Election. If the executor ofthe estate of the decedent who died in 2010makes the Section 1022 Election and fol-lows the applicable provisions of section4 of this revenue procedure and takes noreturn position contrary to any provisionsof section 4, the Internal Revenue Service(IRS) will not challenge the taxpayer’sability to rely on the provisions of section4 either on the Form 8939, Allocation ofIncrease in Basis for Property AcquiredFrom a Decedent, or any other return oftax.

SECTION 4. APPLICATION

.01 Application of Section 1022.(1) In General. Section 1022 applies to

the estate of a decedent who died in 2010only if the executor, as defined in section2203, makes the Section 1022 Electionas described in Notice 2011–66. Section1022(a)(1) generally provides that prop-erty acquired from the decedent (within themeaning of section 1022(e)) (hereinafter,acquired from the decedent) is treated ashaving been transferred by gift. If thedecedent’s adjusted basis is less than orequal to the property’s fair market value(FMV) determined as of the decedent’sdate of death, the recipient’s basis is theadjusted basis of the decedent. Section1022(a)(2)(A). If the decedent’s adjustedbasis is greater than that FMV, the recip-ient’s basis is limited to that FMV. Section1022(a)(2)(B).

If the executor of the estate of a dece-dent who died in 2010 makes the Section1022 Election, section 1022 applies to de-termine a recipient’s basis in all propertyacquired from that decedent, regardless ofthe year in which the property is sold ordistributed. Accordingly, if property isacquired from the decedent who died in2010 and the executor makes the Section1022 Election, then when the property issold during 2010, 2011 or any subsequentyear, the recipient’s (seller’s) basis in theproperty is determined under section 1022rather than under section 1014.

Furthermore, sections 1022(b) and (c)allow the executor of such a decedent’sestate to allocate additional basis (BasisIncrease) to increase the basis of certainassets that both are acquired from thedecedent and are owned by the decedent(within the meaning of section 1022(d))(hereinafter, owned by the decedent) atdeath. If the property is acquired fromand owned by the decedent, and if thedecedent’s adjusted basis in the propertyis less than the property’s FMV on thedecedent’s date of death, then the executorgenerally may allocate Basis Increase tothe property, provided that the property’stotal basis may not exceed the property’sFMV on the date of death.

(2) Property Not Subject to Section1022. If the decedent’s executor makesthe Section 1022 Election, section 1022will apply to determine a recipient’s basisonly in property acquired from the dece-

dent as further described in section 4.01(3)of this revenue procedure. Thus, section1022 does not determine the recipient’sbasis in every type of property transferredfrom a decedent who died in 2010. Anexample of property that is not propertyacquired from the decedent is propertythat constitutes a right to receive an itemof income in respect of a decedent undersection 691 (IRD). Section 1022(f). Forpurposes of section 1022, annuities sub-ject to income tax under section 72 areconsidered property that constitutes theright to receive an item of IRD. Rev. Rul.2005–30, 2005–1 C.B. 1015. The recipi-ent’s basis in property that is not subjectto section 1022 is determined under otherapplicable sections of the Code.

(3) Property Acquired From the Dece-dent — Section 1022(e). Property acquiredfrom the decedent (within the meaning ofsection 1022(e)) is property acquired bybequest, devise, or inheritance, or by thedecedent’s estate from the decedent. Theterm also includes property transferred bythe decedent during the decedent’s life-time: (i) to a qualified revocable trust asdefined in section 645(b)(1), regardless ofwhether the election under section 645 ismade for that trust; or (ii) to any othertrust with respect to which the decedent re-served the right to make any change in theenjoyment thereof through the exercise ofa power to alter, amend, or terminate thetrust (which, for this purpose, is deemed toinclude a retained reversionary interest inthe trust on death and trust property subjectto any retained power of appointment). Fi-nally, the term includes any other propertythat passes from the decedent by reasonof death to the extent that such propertypasses without consideration, such as: (i)any property transferred at the decedent’sdeath by reason of the decedent’s hold-ing and/or exercising a general power ofappointment (as defined in section 2041)with respect to such property if that powerwas not created by the decedent, (ii) prop-erty held by the decedent and another per-son as joint tenants with right of survivor-ship or as tenants by the entirety; and (iii)the surviving spouse’s one-half interest incommunity property (as discussed in sec-tion 4.05 of this revenue procedure).

The term does not include, however,a decedent’s interest in a qualified ter-minable interest property (QTIP) trust orsimilar arrangement described in section

2011–35 I.R.B. 189 August 29, 2011

1022(c)(5) funded for the benefit of thedecedent by the decedent’s predeceasedspouse. As a result, this property is notsubject to section 1022 and a recipient’sbasis in this property will not be deter-mined under section 1022. See section4.01(2) of this revenue procedure.

(4) Property Owned by the Decedent —Section 1022(d). Property acquired fromthe decedent must also be owned by thedecedent at death (within the meaning ofsection 1022(d)) to be eligible for the al-location of Basis Increase under sections1022(b) and/or (c). Section 1022(d)(1)(A).Thus, property may be acquired from thedecedent, and its basis will be determinedunder section 1022(a), but will not be eli-gible to receive an allocation of Basis In-crease unless that property is also ownedby the decedent at death. Property ownedby the decedent at death includes, but is notlimited to: (i) any property legally titled inthe name of the decedent at death (and notheld by the decedent solely in a legal orrepresentative capacity); (ii) certain jointlyowned property, whether owned as tenantsin common or with rights of survivorship(see section 1022(d)(1)(B)(i)); (iii) prop-erty transferred by the decedent during lifeto a qualified revocable trust as definedin section 645(b)(1), regardless of whetherthe election under section 645 is madefor that trust; and (iv) certain communityproperty (see section 1022(d)(1)(B)(iv)).

Section 1022(d)(1)(B) provides addi-tional rules defining ownership for thispurpose and specifically states that, forpurposes of determining whether Basis In-crease may be allocated to property, certainproperty is not owned by the decedent atdeath. For example, property over whichthe decedent holds any power of appoint-ment is not considered owned by the dece-dent at death. In addition, although consid-ered to have been acquired from the dece-dent, property transferred to a trust by thedecedent during life in which the decedentretained a power to alter, amend, or ter-minate the trust is not considered ownedby the decedent at death for this purpose.Property transferred to a trust by the dece-dent during life in which the decedent re-tained an income interest is not consid-ered owned by the decedent at death solelyby reason of that retained income interest.In addition, because of the different defi-nitions of ownership in sections 679 and1022, although a transfer of property to a

foreign trust by a United States grantor, forexample, may be sufficient to cause thatgrantor to be treated as the owner of at leasta portion of that trust for income tax pur-poses under section 679, such a transferis not sufficient to result in the trust’s be-ing considered to be owned by the UnitedStates grantor at that grantor’s death forpurposes of section 1022(d).

Notwithstanding these examples, how-ever, even though the property in thesetypes of trusts would not be deemed tobe owned by the decedent, if the terms ofthe trust require the trust property to re-vert back to the decedent upon death, thensuch property is deemed to be owned bythe decedent. Finally, an interest in a QTIPtrust or similar arrangement described insection 1022(c)(5) funded for the benefitof the decedent by a predeceased spouse ofthe decedent is not owned by the decedentfor this purpose.

The provisions of sections 4.01(2), (3),and (4) are illustrated by the following ex-amples:

Example 1. On August 1, 2006, decedent (D) cre-ated a qualified personal residence trust (QPRT) pur-suant to § 25.2702–5(c). The term of the QPRT ex-pires on July 31, 2011. The QPRT instrument pro-vided that, if D dies prior to July 31, 2011, the prop-erty in the QPRT is to be distributed to D’s child (C).D died in 2010, and D’s executor made the Section1022 Election. In this case, the property in the trusthad been transferred to the trust by D during D’s life-time. The QPRT is not a qualified revocable trustas defined in section 645(b)(1) nor is it a trust overwhich the decedent reserved the right to make anychange in the enjoyment thereof through the exerciseof a power to alter, amend, or terminate the trust. Theproperty that passes to C under the QPRT instrumentby reason of D’s death is not considered to have beenacquired from D and thus, section 1022 is not appli-cable to determine C’s basis in the property held inthe QPRT. Instead, C’s basis in this property is deter-mined under other applicable sections of the Code.

Example 2. Assume the same facts as in Example1, except that the QPRT instrument provided that, ifD dies prior to July 31, 2011, the QPRT terminatesand the property in the QPRT is to be distributed toD’s estate. Because the trust property becomes theproperty of D’s estate at D’s death, the trust propertyis considered to have been acquired from D. Section1022(e)(1). For the same reason, the property is alsoconsidered owned by D and, therefore, Basis Increasemay be allocated to this trust property.

(5) Property Owned By and AcquiredFrom the Decedent But Not Eligible forthe Allocation of Basis Increase. Notwith-standing the rules regarding the definitionof property owned by and acquired fromthe decedent, section 1022 provides thatBasis Increase may not be allocated to twotypes of property. First, pursuant to sec-

tion 1022(d)(1)(C), the executor may notallocate Basis Increase to property that isacquired by the decedent by gift or by in-ter vivos transfer for less than adequate andfull consideration in money or money’sworth during the three-year period end-ing on the date of the decedent’s death.This prohibition does not apply, however,to property acquired by the decedent fromthe decedent’s spouse, provided the prop-erty had not been transferred to the spouseduring such three-year period in whole orin part by gift or by inter vivos transfer forless than adequate and full consideration inmoney or money’s worth.

Second, pursuant to section1022(d)(1)(D), the executor may notallocate Basis Increase to the stock orsecurities of a foreign personal holdingcompany, a DISC or former DISC, aforeign investment company, or a passiveforeign investment company, unless suchcompany is a qualified electing fund asdefined in section 1295 with respect to thedecedent.

.02 Amount of Basis Increase.(1) Basis Increase. Basis Increase con-

sists of the sum of the General Basis In-crease (Aggregate Basis Increase and Car-ryovers/Unrealized Losses Increase) undersection 1022(b) and the Spousal PropertyBasis Increase under section 1022(c).

(2) General Basis Increase. The Gen-eral Basis Increase is the sum of theAggregate Basis Increase and the Carry-overs/Unrealized Losses Increase undersection 1022(b).

(a) Aggregate Basis Increase. The Ag-gregate Basis Increase is $1,300,000 undersection 1022(b)(2)(B).

(b) Carryovers/Unrealized Losses In-crease. The Carryovers/Unrealized LossesIncrease consists of the sum of: (i) theamount of any capital loss carryovers un-der section 1212(b) that would (but forthe decedent’s death) have been carriedfrom the decedent’s last taxable year to alater taxable year; (ii) the amount of anynet operating loss carryovers under sec-tion 172 that would (but for the decedent’sdeath) have been carried from the dece-dent’s last taxable year to a later taxableyear; and (iii) the amount of unrealizedlosses that would have been allowable un-der section 165 if the property acquiredfrom the decedent had been sold at FMVimmediately before the decedent’s death.Section 1022(b)(2)(C).

August 29, 2011 190 2011–35 I.R.B.

The capital loss carryovers under sec-tion 1212(b) and the net operating loss car-ryovers under section 172 available to beincluded in General Basis Increase are thelosses that would carry forward to years af-ter the year of the decedent’s death.

The amount of unrealized losses con-sists solely of the losses described in sec-tion 165(c)(1) and (2) from all property ac-quired from the decedent that would havebeen allowable as a deduction, if the prop-erty had been sold at FMV immediatelybefore the decedent’s death. However,losses described in section 165(c)(3) aresustained prior to the decedent’s death andwould not arise on a hypothetical sale ofthe property. These losses therefore mustbe claimed instead on the decedent’s fi-nal Form 1040, and may not be includedin the Carryovers/Unrealized Losses In-crease. For the purpose of computing un-realized losses, the capital loss limitationsreferred to in section 165(f) are ignored.Thus, for example, the amount of any lossthat would have been allowable under sec-tion 165 if the property acquired from thedecedent had been sold at FMV imme-diately before the decedent’s death is de-termined without the dollar limitations oncapital losses under section 1211. Section1022(b)(2)(C)(ii).

Existing income tax rules will apply todetermine the decedent’s share of theseloss carryovers and unrealized losses un-der section 172 and section 1212(b) if thedecedent’s final Form 1040 is filed jointlywith the decedent’s surviving spouse.Thus for example, if a calendar year dece-dent and the surviving spouse file a jointForm 1040 for 2010, these amounts willbe determined based on their tax liabilitywith respect to the decedent’s final taxableyear ending on the date of the decedent’sdeath and the surviving spouse’s taxableyear ending on December 31, 2010. Withregard to such loss carryovers and un-realized losses arising from communityproperty, see sections 4.05 and 4.06(4) ofthis revenue procedure.

The provisions of this section4.02(2)(b) are illustrated by the followingexample:

Example 3. D owned 100 shares of stock thatD held for profit within the meaning of section165(c)(2). The stock is a capital asset, and any gainor loss from the sale of the stock would be long-termcapital gain or loss under sections 1221 and 1222(3).D died in 2010, still owning the stock. As of D’s dateof death, D’s adjusted basis in the stock pursuant

to section 1011 was $5,000, and the stock’s FMVon D’s date of death was $1,000. D did not sell thestock during life, and thus did not incur a loss undersection 165(c)(2) reportable on D’s final Form 1040.The stock is considered to be property owned byand acquired from D. D’s executor made the Section1022 Election. If D had sold the stock immediatelyprior to D’s death, D would have had a net long-termcapital loss of $4,000. Based on D’s 2010 taxableincome, D would have been able to deduct $3,000 ofthe loss and $1,000 would have been carried over tofuture years. Section 1211(b). For purposes of sec-tion 1022, however, the full unrealized net long-termcapital loss of $4,000, that would have been availableto D if D had sold the stock before death, is availableas a Carryovers/Unrealized Losses Basis Increase.

(3) Spousal Property Basis Increase.The Spousal Property Basis Increase is$3,000,000 under section 1022(c)(2) andmay be allocated to any or all propertyowned by and acquired from the dece-dent that also satisfies the definition ofqualified spousal property in section1022(c)(3). Qualified spousal propertyis property that either is transferred out-right to the decedent’s surviving spouse(within the meaning of section 1022(c)(4))or is QTIP (within the meaning of section1022(c)(5)), whether or not held in trust.The definition of QTIP under this provi-sion does not require that a QTIP electionunder section 2056(b)(7) be made.

The executor may allocate SpousalProperty Basis Increase to qualifiedspousal property that has already beendistributed. See paragraph I.D.2 of Notice2011–66 regarding relief for allocatingSpousal Property Basis Increase to suchproperty distributed after the due date ofthe Form 8939.

In addition, Spousal Property Basis In-crease also may be allocated to propertythat is sold (regardless of whether the allo-cation of Spousal Property Basis Increaseis made before or after such sale) prior toits distribution. However, this allocationmay be made only to the extent that the ex-ecutor (1) certifies on the Form 8939 thatthe net proceeds from the sale of that prop-erty will be distributed to or for the ben-efit of the decedent’s surviving spouse ina manner that would qualify property asqualified spousal property, and (2) attachesto Form 8939 each document providing abequest or devise to the surviving spouse.

The allocation of Spousal Property Ba-sis Increase to property not distributed inkind is illustrated by the following exam-ples. In each example, assume that thedecedent’s Aggregate Basis Increase and

Carryovers/Unrealized Losses Increasehave been fully allocated to other assets.

Example 4. D died in 2010 owning 20,000 sharesof Corporation X stock. D’s executor made the Sec-tion 1022 Election. D’s adjusted basis in the stock is$600,000 ($30 per share), and the FMV on D’s dateof death is $2,000,000 ($100 per share). Under theterms of D’s will, D’s Spouse (S) is to receive 50 per-cent of D’s estate, outright. Four months after D’sdeath, the FMV of the stock declines to $1,800,000($90 per share). D’s executor sells all 20,000 sharesof the stock and receives $1,770,000 in proceeds netof sales commissions (thus, $88.50 per share). D’sexecutor intends to distribute all of the proceeds fromthe sale of the stock to S, in partial satisfaction ofS’s residuary bequest; there are no known outstand-ing liabilities that would reduce this distribution. D’sexecutor may allocate up to $1,400,000 of SpousalProperty Basis Increase ($70 to each of the 20,000shares of stock) if the required certification and sup-porting documentation is included on a timely filedForm 8939. (Note that, to the extent that more than$58.50 per share is allocated to the stock, the sale willgenerate a loss.)

Example 5. The facts are the same as in Example4 except that D’s executor applies $165,000 of the netproceeds from the sale of the stock to pay administra-tive expenses of D’s estate. D’s executor intends todistribute the remaining $1,605,000 of net proceedsfrom the sale of the stock to S. Spousal PropertyBasis Increase may be allocated to no more than18,135 shares. This number of shares is determinedeither by dividing the net proceeds to be distributedto S by the net per-share proceeds ($1,605,000 /$88.50 = 18,135.6 shares, limited for this purpose to18,135 whole shares), or by calculating the ratio ofthe net proceeds payable to S to the total net proceeds(20,000 shares x $1,605,000 / $1,770,000 = 18,135.6shares, thus limited to 18,135 whole shares). Asin Example 4, D’s executor may allocate up to $70of Spousal Property Basis Increase to each of these18,135 shares of the stock (for a total of $1,269,450),all of the net proceeds of which will be distributed toS, provided a certification and supporting documen-tation are included on a timely filed Form 8939.

Example 6. D died in 2010 owning personal prop-erty with an adjusted basis of $200,000 and a FMV onD’s date of death of $500,000. D’s executor made theSection 1022 Election. Under the terms of D’s will,D’s spouse (S) is to receive 50 percent of D’s estate,outright. Four months after D’s death, D’s executorsells the personal property for $600,000. D’s executorapplies $150,000 of the net proceeds from the sale ofthe personal property to pay administrative expensesof D’s estate and intends to distribute the remaining$450,000 of net proceeds from the sale of the personalproperty to S. D’s executor may allocate no more than$225,000 of Spousal Property Basis Increase to thepersonal property. This maximum allocation is de-termined by multiplying the unrealized appreciationat death ($300,000) by the ratio of net proceeds tobe distributed to S over the total net proceeds of thesale. Thus, D’s executor may allocate up to $225,000($300,000 X ($450,000 / $600,000)) of Spousal Prop-erty Basis Increase to the personal property, provideda certification and supporting documentation are in-cluded on a timely filed Form 8939.

2011–35 I.R.B. 191 August 29, 2011

Spousal Property Basis Increase alsomay be allocated to property held by atestamentary charitable remainder trust(CRT) as defined in section 664 (subjectto the limit of section 1022(d)(2)), if thesurviving spouse is the sole non-charitablebeneficiary of the CRT and the CRT wouldhave qualified for the marital deductionunder section 2056(b)(8) if the executorof the decedent’s estate had not made theSection 1022 Election.

(4) Nonresident Decedents who are notcitizens of the United States. In the caseof a nonresident decedent who was nota citizen of the United States at death,the amount of the Aggregate Basis In-crease is limited to $60,000 and is notincreased by any Carryovers/UnrealizedLosses Increase. This limitation in sec-tion 1022(b)(3), however, only applies tolimit the available General Basis Increaseto $60,000. Accordingly, an executor ofthe estate of a nonresident decedent whowas not a citizen of the United States atdeath may allocate Spousal Property Ba-sis Increase to qualified spousal property(within the meaning of section 1022(c)(3))owned by and acquired from the decedent.

.03 General Rules for Allocating BasisIncrease. The executor may allocate Ba-sis Increase to property owned by and ac-quired from the decedent on a property-by-property basis, provided that the dece-dent’s adjusted basis in each such property(after the allocation, if any) does not ex-ceed the FMV of that property at the dece-dent’s death. For example, Basis Increasemay be allocated to one or more shares ofstock or to a particular block of stock ratherthan to the decedent’s entire holding of thatstock. Generally, Basis Increase may be al-located to property owned by and acquiredfrom the decedent even after the executorhas disposed of or distributed the property.For a special rule regarding Spousal Prop-erty Basis Increase, see section 4.02(3) ofthis revenue procedure.

For each property, the sum of the dece-dent’s adjusted basis in that property andthe Basis Increase allocated to that prop-erty may not exceed the FMV of that prop-erty on the decedent’s date of death. Sec-tion 1022(d)(2). Under this rule, the ex-ecutor may not allocate any Basis Increaseto increases in value occurring after thedecedent’s death.

For purposes of section 1022(a), refer-ences to the term “property” include in-

terests in that property. Thus, Basis In-crease may be allocated to some or all ofthe decedent’s shares of stock in a particu-lar company, or to a life or remainder inter-est owned by the decedent at death. How-ever, if, by reason of the decedent’s death,the decedent’s property is divided into dif-ferent interests that are not undivided por-tions or fractional interests of each and ev-ery interest or right in the property thatwas owned by the decedent, Basis Increasemay not be allocated separately to the var-ious interests in that property created byreason of the decedent’s death. An exam-ple of such a division of property is the di-vision of property owned outright by thedecedent at death into a life interest and aremainder interest in that property. BasisIncrease may be allocated to the propertyowned by the decedent at death, but maynot be allocated separately to the life es-tate and/or remainder interest.

.04 Determination of Fair MarketValue.

(1) In General. The FMV of propertyacquired from the decedent who died in2010 is determined in the same manner forpurposes of section 1022 as for purposesof the estate tax. Thus, the provisionscontained in the regulations under section2031 that require appraisals to determinethe FMV of certain property included inthe gross estate for federal estate tax pur-poses also apply for purposes of determin-ing the FMV of property acquired from thedecedent under section 1022. The execu-tor must attach any appraisals required un-der section 2031 to the Form 8939.

(2) Aggregation Rule. The Basis In-crease allocated to property acquired fromthe decedent by a recipient cannot increasethe recipient’s basis in that property orproperty interest above the FMV of thatproperty or interest in the hands of thedecedent at death. See section 1022(d)(2).Therefore, for purposes of section 1022,the FMV of an undivided portion of thedecedent’s property that is acquired fromthe decedent at death is a fractional shareof the FMV of the decedent’s property atdeath. Thus, if each of two or more re-cipients acquires an undivided portion of aproperty from the decedent, then the FMVof each recipient’s portion of that propertyfor purposes of section 1022 is the FMV ofthe decedent’s entire interest in the prop-erty at death multiplied by a fraction. Thenumerator of that fraction is the undivided

portion of the decedent’s property acquiredby that recipient, and the denominator isthe decedent’s entire interest in that prop-erty at death. An undivided portion of thedecedent’s property refers to a fraction orpercentage of each and every interest orright the decedent held in the property atdeath.

.05 Special Rules for Community Prop-erty. The decedent’s interest in communityproperty held by the decedent and the sur-viving spouse under the community prop-erty laws of any state or possession of theUnited States or any foreign jurisdiction istreated as owned by and acquired from thedecedent if the decedent’s interest satisfiesthe requirements of sections 1022(d) and(e). If at least one-half of the whole ofthe community interest is treated as ownedby and acquired from the decedent underthese provisions (without regard to the spe-cial rule for community property in section1022(d)(1)(B)(iv)), the surviving spouse’sone-half interest in that community prop-erty also is treated as owned by and ac-quired from the decedent for purposes ofsection 1022. Section 1022(d)(1)(B)(iv).Accordingly, the surviving spouse’s ba-sis in his or her one-half interest in com-munity property, as determined under sec-tion 1022(a), will be the lesser of the sur-viving spouse’s adjusted basis of that in-terest in such community property or theFMV of that interest on the decedent’sdate of death. In addition, Basis Increasemay be allocated to the surviving spouse’sone-half interest in such community prop-erty.

If both spouses’ interests in such com-munity property are treated as owned byand acquired from the decedent as de-scribed in the preceding paragraph, all ofthe unrealized losses described in section4.02(2)(b) of this revenue procedure thatwould have been allowable to both thedecedent and the surviving spouse if theproperty had been sold at FMV imme-diately before the decedent’s death areincluded in the General Basis Increase. Incontrast, only the decedent’s net operatingloss carryovers and capital loss carryoversare eligible to be included in the GeneralBasis Increase. Further, to the extent thedecedent’s net operating loss carryoversand capital loss carryovers are deductibleon the final jointly filed Form 1040, theyare not available to be added to the Gen-eral Basis Increase.

August 29, 2011 192 2011–35 I.R.B.

The provisions of this section 4.05 areillustrated by the following examples:

Example 7. (i) D and D’s spouse (S) live in acommunity property state (State). D died in 2010,and D’s executor made the Section 1022 Election.At D’s death, Property X, community property of Dand S under the laws of State, had an adjusted ba-sis of $1,000,000 and a FMV of $8,000,000. D andS used Property X in a trade or business within themeaning of section 165(c)(1). Under the commu-nity property laws of State, each spouse is entitledto an undivided equal share of community property.D and S have filed joint Forms 1040 for all taxableyears in which they have owned Property X, includ-ing 2010, the year of D’s death. D and S have a totalof $100,000 of net operating losses under section 172,after the deductions taken on D’s and S’s final jointForm 1040. $50,000 of the $100,000 of net operatinglosses would (but for D’s death) be carried from D’slast taxable year to a later taxable year of D. Under thecommunity property laws of State, upon the death ofa married person, one-half of the community prop-erty belongs to the decedent and the other one-halfbelongs to the surviving spouse. Therefore, one-halfof Property X belongs to D and the other one-half be-longs to S. In D’s will, D bequeathed D’s one-half in-terest in Property X to D’s child (C). In this case, C ac-quired Property X by bequest, and therefore, PropertyX is acquired from D and is subject to the provisionsof section 1022. As a result, C’s basis in PropertyX under section 1022(a)(2) is $500,000, the lesser ofD’s adjusted basis in D’s one-half interest in PropertyX or the FMV of that interest at D’s death. In addi-tion, because Property X is considered as owned byD at the time of death, General Basis Increase maybe allocated to D’s interest in Property X. The execu-tor of D’s estate has $1,300,000 in Aggregate BasisIncrease and $50,000 (D’s share of the $100,000 ofthe unused net operating losses) in Carryovers/Unre-alized Losses Increase available to allocate to the in-terest acquired by C in Property X.

(ii) On the date of D’s death, the other one-halfinterest in Property X belongs to S under the lawsof State. As a result, for purposes of section 1022,S’s one-half interest in Property X is deemed to havebeen owned by and acquired from D. Under section1022(a)(2), S’s basis in S’s one-half interest in Prop-erty X is $500,000, the lesser of S’s adjusted basis inS’s one-half interest or the FMV of that interest as ofD’s death. That interest has a FMV on D’s death of$4,000,000.

(iii) The executor may allocate Basis Increase toS’s one-half interest in Property X. In this case, theexecutor decides to allocate $450,000 of AggregateBasis Increase, $50,000 of Carryovers/UnrealizedLosses Increase, and $3,000,000 in Spousal PropertyBasis Increase to S’s one-half interest in Property X.As a result, S’s basis in S’s one-half interest in Prop-erty X is $4,000,000 (the sum of S’s own adjustedbasis of $500,000 and S’s allocated Basis Increaseof the sum of $450,000, $50,000, and $3,000,000),equal to its FMV as of D’s date of death. D’s $50,000in unused net operating losses is included in BasisIncrease that is allocated by D’s executor to S’s inter-est in Property X; the other $50,000 of the unused netoperating losses is available to S on S’s subsequentincome tax returns.

(iv) With respect to the one-half interest in Prop-erty X passing from D to C, the executor may allocate

any or all of the remaining General Basis Increase of$850,000 to this property. In this case, the execu-tor allocates the entire remaining $850,000 of Gen-eral Basis Increase to C’s one-half interest in PropertyX. C’s basis in the one-half interest in Property X is$1,350,000 ($500,000 plus $850,000).

Example 8. (i) The facts are the same as in Exam-ple 7, except that the FMV of Property X on D’s dateof death was $800,000. Under section 1022(a)(2),S’s basis in S’s one-half interest in Property X is$400,000, the lesser of S’s $500,000 in adjusted ba-sis and the FMV of that interest in Property X asof D’s date of death. D’s executor may not allo-cate any Aggregate Basis Increase, Carryovers/Un-realized Losses Increase, or Spousal Property BasisIncrease to spouse’s one-half interest in the commu-nity property because the property’s basis, as aug-mented under section 1022, may not exceed its FMVon D’s date of death. For the same reason, D’s execu-tor may not allocate any General Basis Increase to theone-half interest in Property X passing to C.

(ii) A loss of $200,000 would have been incurredif Property X had been sold at FMV immediately be-fore D’s death. All of this $200,000 is available asCarryovers/Unrealized Losses Increase that may beallocated to property owned by and acquired from Dwith a basis pursuant to section 1022(a)(2) that is lessthan the FMV as of D’s date of death.

.06 Interaction of Section 1022 withCertain Other Income Tax Provisions.

(1) Holding Period of Inherited Prop-erty. To the extent the recipient’s basisin property acquired from the decedent isdetermined under section 1022, the recip-ient’s holding period of that property shallinclude the period during which the dece-dent held the property, whether or not theexecutor allocates any Basis Increase tothat property.

In computing the applicable percentageunder section 1250 for purposes of deter-mining the amount of ordinary gain onthe sale of section 1250 property, section1250(e) applies to determine the period oftime the recipient is deemed to have heldsection 1250 property acquired by gift oron the death of a decedent. Therefore, tothe extent a recipient’s basis in propertyis determined under section 1022, the re-cipient’s holding period of such propertyunder section 1250(e)(2) includes the pe-riod during which the property was held bythe decedent, regardless of whether the ex-ecutor allocates any Basis Increase to thatproperty.

(2) Tax Character of Inherited Prop-erty. The tax character of property ac-quired from the decedent by a recipient isdetermined in the same way as the holdingperiod. Thus, to the extent a recipient’sbasis in property is determined under sec-tion 1022, the tax character of the property

is the same as it would have been in thehands of the decedent. Consequently, forproperty described in section 1221 (capitalassets) or section 1231 (property used in atrade or business and involuntary conver-sions), and for property subject to section1245 (depreciation recapture upon dispo-sition of certain depreciable property) orsection 1250 (depreciation recapture upondisposition of certain depreciable realproperty), the tax character of the propertydescribed in these sections (the basis ofwhich is determined under section 1022)in the hands of the recipient is the sameas it would have been in the hands of thedecedent. However, the tax character ofthe property may be affected by a subse-quent change in the recipient’s use of theproperty.

The provisions of this section 4.06(2)are illustrated by the following example:

Example 9. D owned tangible personal property(section 1245 property) and claimed on D’s incometax return a depreciation deduction under section 168that would have been subject to recapture under sec-tion 1245 if D had sold the property prior to D’s death.D died in 2010 and D’s executor made the Section1022 Election. D bequeathed all of D’s tangible per-sonal property to D’s child (C). Because C’s basis isdetermined under section 1022, the property is sec-tion 1245 property in the hands of C and thereforewill be subject to recapture under section 1245 whensold by C, regardless of whether the property is de-preciable property in the hands of C or whether theexecutor allocates any Basis Increase to that property.See § 1.1245–3(a)(3).

(3) Depreciation of Property Acquiredfrom the Decedent. If section 1022 appliesto property acquired from the decedentthat is depreciable property in the handsof the recipient, regardless of whether theexecutor allocates any Basis Increase tothe property, the recipient is treated for de-preciation purposes as the decedent for theportion of the recipient’s basis in the prop-erty that equals the decedent’s adjustedbasis in that property. Consequently, therecipient determines any allowable de-preciation deductions for this carryoverbasis by using the decedent’s depreciationmethod, recovery period, and conventionapplicable to the property. If the propertyis depreciable property in the hands ofboth the decedent and the recipient during2010, the allowable depreciation deduc-tion for 2010 for the decedent’s adjustedbasis in the property is computed by us-ing the decedent’s depreciation method,recovery period, and convention appli-cable to the property, and is allocated

2011–35 I.R.B. 193 August 29, 2011

between the decedent and the recipienton a monthly basis. This allocation ismade in accordance with the rules in§ 1.168(d)–1(b)(7)(ii) of the Income TaxRegulations for allocating the depreciationdeduction between the transferor and thetransferee.

The portion of the recipient’s basis inthe property that exceeds the decedent’sadjusted basis in the property as of thedecedent’s date of death (for example, theBasis Increase allocated to the propertyby the executor) is treated for deprecia-tion purposes as applying to a separate as-set that the recipient placed in service onthe day after the date of the decedent’sdeath. Accordingly, the recipient deter-mines any allowable depreciation deduc-tions for this excess basis by using the de-preciation method, recovery period, andconvention applicable to the property onits placed-in-service date or, if not held onthat date as depreciable property by the re-cipient, on the date of the property’s con-version to depreciable property.

(4) Passive Activity Loss Provisions.Section 469(a) disallows certain lossesfrom passive activities. However, pur-suant to section 469(b), losses disallowedunder section 469(a) may be suspendedand carried forward. Section 469(g)(2)provides that, if an interest in a passiveactivity is transferred by reason of thetaxpayer’s death, the taxpayer may treatsuspended passive losses as losses that arenot from a passive activity (and thereforemay deduct the losses) to the extent suchlosses are greater than the excess (if any)of the basis of such property in the handsof the transferee, over the adjusted basisof such property immediately before thedeath of the taxpayer. Section 469(j)(6)provides that, when an interest in a passiveactivity is transferred by gift, the basisof such interest immediately before thetransfer is increased by the amount of anypassive activity losses allocable to suchinterest that have not been allowed asdeductions as a result of section 469(a).Once used to increase the donor’s basis,these losses may not be deducted for anytaxable year.

Because property owned by the dece-dent at death will be treated under sec-tion 1022 as having been transferred bygift, section 469(j)(6), rather than section469(g)(2), applies to determine the dece-dent’s adjusted basis in such property. The

basis adjustment under section 469(j)(6) isdeemed to occur immediately prior to thedecedent’s death, and thus is applied to de-termine the decedent’s adjusted basis in theproperty at death as described in section1022(a)(2)(A). In addition, any loss thatwould have been sustained under sections165(c)(1) or (c)(2) on a hypothetical saleof the property immediately prior to thedecedent’s death (equal to the excess ofthe decedent’s adjusted basis (determinedas described under section 469(j)(6)) overthe FMV at death) may be included in thesection 165 losses in the General Basis In-crease. Because the reduction in the hypo-thetical loss under section 165 by reasonof the section 469 basis adjustment equalsthe amount of section 469 loss added to thedecedent’s basis, there is no duplication ofa benefit under these two sections.

Section 1022(d)(1)(B)(iv) provides thatthe surviving spouse’s interest (as well asthe decedent’s interest) in certain com-munity property is deemed to have beenowned by and acquired from the decedent,and thus 100 percent of that communityproperty is deemed to have been trans-ferred by gift for purposes of section 1022.Because section 469(j)(6) increases ba-sis by the amount of suspended passiveactivity losses allocable to the interestthat is transferred by gift, 100 percent ofthose losses, rather than only the dece-dent’s one-half of such losses, are to beadded to determine the decedent’s and thespouse’s adjusted basis in that communityproperty for purposes of section 1022(a)and to determine the amount of unrealizedsection 165 losses to be included in theGeneral Basis Increase. To the extent thatlosses attributable to the spouse’s inter-est in the community property are usedto increase basis and/or were included inCarryovers/Unrealized Losses Increaseallocated by the decedent’s executor, suchlosses may not thereafter be deducted bythe spouse. However, to the extent thatlosses attributable to the spouse’s interestin community property are not so usedby the decedent’s executor, they remainthe spouse’s suspended passive activitylosses. For purposes of this computation,these losses will be deemed to be the lastpart of Basis Increase allocated, and thedecedent’s share of these losses will bedeemed to be allocated before the surviv-ing spouse’s share of these losses.

The provisions of this section 4.06(4)are illustrated by the following examples:

Example 10. D owned an apartment building thatgenerated losses that have been disallowed under sec-tion 469. D died in 2010 and D’s executor madethe Section 1022 Election. The building is propertyowned by and acquired from D. Pursuant to D’s will,D’s child (C) is to acquire the building. On D’s dateof death, the FMV of the building was $100,000, thebasis of the building was $10,000, and the suspendedpassive activity losses allocable to the building were$50,000. Pursuant to section 469(j)(6), the $50,000in suspended passive activity losses are added to D’sbasis of $10,000, resulting in an adjusted basis of$60,000. For purposes of section 1022(b)(2)(C)(ii), ahypothetical sale of the property just before D’s deathwould have produced a gain of $40,000 ($100,000FMV less D’s adjusted basis of $60,000), so there isno loss under section 165 from this property. C’s ba-sis in the building as of D’s date of death is $60,000,plus any amount of the General Basis Increase allo-cated to this property.

Example 11. Assume the same facts as in Ex-ample 10, except that the suspended passive activitylosses allocable to the building are $200,000 in-stead of $50,000. Pursuant to section 469(j)(6), the$200,000 in suspended passive activity losses areadded to D’s basis of $10,000 resulting in an adjustedbasis of $210,000. Under section 1022(a)(2), C’sbasis in the building is $100,000 (the lesser of D’sadjusted basis in the building ($210,000) and thebuilding’s FMV on the date of death ($100,000)).Thus, C’s basis in the building reflects $90,000 ofthe section 469 suspended losses. If the propertyhad been sold at FMV immediately before D’s death,a section 165 loss of $110,000 would have beenallowable (FMV of $100,000 minus $210,000 of D’sadjusted basis). This $110,000 constitutes the section165 loss that may be included in the General BasisIncrease.

(5) Recognition of Gain on Satisfac-tion of Pecuniary Bequest with Appreci-ated Property. Section 1040, as applica-ble to the estates of decedents who died in2010 and whose executors make the Sec-tion 1022 Election, provides that, if an ex-ecutor distributes appreciated property tosatisfy a pecuniary bequest, the estate mustrecognize gain to the extent the FMV ofthe distributed property on the date of dis-tribution exceeds its FMV on the date ofthe decedent’s death. The basis of thatproperty in the hands of the recipient thenequals the sum of the basis of that prop-erty immediately before the distributionand the amount of gain recognized by theestate.

Section 1040 further provides that thesame rule will apply to distributions of ap-preciated trust property made in satisfac-tion of trust provisions that are the equiv-alent of a pecuniary bequest, but only tothe extent so provided in regulations. Thissafe harbor will apply this rule to quali-

August 29, 2011 194 2011–35 I.R.B.

fied revocable trusts as defined in section645(b)(1), as well as to trusts that wouldhave been included in the decedent’s grossestate for federal estate tax purposes undersection 2036, 2037, or 2038 had the dece-dent’s executor not made the Section 1022Election.

The provisions of section 1040, how-ever, do not apply to the distribution ofproperty that constitutes the right to re-ceive an item of IRD in satisfaction of apecuniary bequest.

(6) Sale or Exchange Treatment ofTransfers to Nonresident Aliens. Section684, enacted in 1997, generally providesthat any transfer of property by a UnitedStates person to a foreign estate or trust(except to the extent that a person is treatedas the owner of the trust under section671) is treated as a sale or exchange ofsuch property, and requires the transferorto recognize gain in the amount of anyexcess of the FMV of the property at thetime of the transfer over the transferor’sadjusted basis in the property. For trans-fers of property occurring on the deathof a decedent whose executor makes theSection 1022 Election, this provision alsoapplies to transfers of property by UnitedStates persons to nonresident aliens.

The existing regulations provide an ex-ception to the general rule of taxation un-der section 684 in the case of a transfer ofproperty by reason of the death of a UnitedStates transferor, but only if the basis ofsuch property in the hands of the recipi-ent is determined under section 1014(a).Section 1.684–3(c). If the recipient’s ba-sis in such property is not determined un-der section 1014(a), section 684 continuesto apply, and the United States transferoris treated as having transferred the prop-erty immediately before death and is re-quired to recognize the built in gain in theproperty transferred at that time. Section1.684–3(g), Example 3.

For purposes of applying section 684 totransfers of property by reason of the deathof a United States person in 2010 whoseexecutor makes the Section 1022 Election,the question has arisen as to whether (1)section 684 applies prior to section 1022,with the effect of treating the transfer asa sale for FMV before any Basis Increasemay be allocated to the property, or (2)whether the executor’s allocation of Ba-sis Increase is deemed to increase the re-cipient’s basis in the property before the

amount of any unrecognized gain taxableunder section 684 is determined.

If the property is owned by and acquiredfrom the decedent, the executor’s alloca-tion of Basis Increase will be deemed tooccur prior to the application of section684. Specifically, in determining the ad-justed basis of the property in the handsof the decedent under section 684(a)(2),any allocation of Basis Increase shall bedeemed to occur prior to the computa-tion of gain under section 684. Thus, theamount of gain recognized under section684 on the transfer may be reduced or eveneliminated if sufficient Basis Increase is al-located to such property.

However, if the property transferred isnot owned by the decedent at death, thenno Basis Increase may be allocated to theproperty, and the decedent will be requiredto recognize all of the unrealized gain inthe property transferred to the foreign es-tate or trust or to the nonresident alien asprovided in section 684.

The provisions of this section 4.06(6)are illustrated by the following examples:

Example 12. D, a United States citizen, acquiredstock in 1984 for $1,000 that had a FMV of $30,000on D’s date of death in 2010. D bequeathed the stockto D’s brother (N), a nonresident alien. The executorof D’s estate made the Section 1022 Election, and,therefore, may allocate General Basis Increase of upto $29,000 to this stock. Such an allocation of basiswill be deemed to have occurred prior to the deemedsale under section 684. Accordingly, if the execu-tor allocates $29,000 of General Basis Increase to thestock, then D will recognize zero gain on D’s finalForm 1040 under section 684 on the bequest of thestock to N.

Example 13. D, a United States citizen, acquiredreal property located in the United States in 1984 for$1,000,000 that had a FMV of $10,000,000 on D’sdate of death in 2010. D’s executor made the Section1022 Election. D’s will devised the real property toD’s brother (N), a nonresident alien. Assuming thatthe General Basis Increase available to the executorof D’s estate for allocation is $1,300,000, the execu-tor may allocate up to the entire amount of GeneralBasis Increase to this property. Such an allocationwill be deemed to have occurred prior to the deemedsale under section 684. Accordingly, if the execu-tor allocates $1,300,000 of General Basis Increase tothis property, D will recognize gain on D’s final Form1040 under section 684 in the amount of $7,700,000($10,000,000 of FMV less $2,300,000 of basis) on thedevise of the property to N.

Example 14. In 2005, D, a United States citizen,transferred securities with a FMV of $5,000 and anadjusted basis of $1,000 to a foreign trust (FT). Theincome from FT was payable to D during D’s life,but D retained no other right to and no power overFT. At all times after the 2005 transfer through D’sdeath, FT has a United States beneficiary, D (withinthe meaning of section 679(c)), and D was treated

as the owner of FT under section 679(a). D died in2010 and D’s executor made the Section 1022 Elec-tion. The FMV of the assets of FT at D’s death was$30,000. Notwithstanding that D was the owner ofFT under section 679 on the date of death, becausethe securities were transferred by D in an inter vivostransfer to FT over which D retained no other rightor power, the securities were not acquired from thedecedent and section 1022 does not apply to the se-curities in FT. Under §1.684–2(e)(1), D is treated ashaving transferred the securities to FT immediatelybefore D’s death, and D must recognize $29,000 ofgain on D’s final Form 1040 under section 684(a).

.07 Testamentary Charitable Remain-der Trusts. Section 1.664–1(a)(1)(iii) pro-vides, among other things, that a trust isa CRT if a deduction is allowable undersection 170, 2055, 2106, or 2522 and thetrust meets the description of a charita-ble remainder annuity trust or a charita-ble remainder unitrust, as such terms aredescribed in §§ 1.664–2 and 1.664–3, re-spectively. A testamentary CRT that other-wise qualifies as a CRT under section 664and the regulations thereunder, but fails tomeet the requirement that a deduction is al-lowable under section 2055 solely becausethe decedent’s executor makes a Section1022 Election thus making section 2055inapplicable to the decedent’s estate, willqualify as a CRT under section 664.

SECTION 5. AREAS NOT COVEREDBY THIS REVENUE PROCEDURE

This Revenue Procedure does not ad-dress the manner in which the executorof the estate of a decedent who died in2010 makes the Section 1022 Election.For information on making that election,the deadline for making that election andrelated procedures, and on allocating thedecedent’s GST exemption to transfers oc-curring at a death occurring in 2010, seeNotice 2011–66.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective Au-gust 29, 2011, the date this revenue proce-dure was published in the Internal RevenueBulletin. However, taxpayers may applythe safe harbor in this revenue procedurefor prior periods.

SECTION 7. PAPERWORKREDUCTION ACT

The collection of information containedin this revenue procedure has been submit-ted to the Office of Management and Bud-

2011–35 I.R.B. 195 August 29, 2011

get (OMB) in accordance with the Paper-work Reduction Act (44 U.S.C. 3507) andOMB approval is pending. An agency maynot conduct or sponsor, and a person is notrequired to respond to, a collection of in-formation unless the collection of informa-tion displays a valid control number.

The collection of information require-ment in this revenue procedure is in section4.02(3) and section 4.04(1) of this revenueprocedure. The collection of informationin section 4.02(3) relates to certain doc-uments the executor is required to attachto the Form 8939 if the executor allocatesSpousal Property Basis Increase to prop-erty that is sold prior to its distribution tothe surviving spouse.

The collection of information in sec-tion 4.04(1) relates to the requirement that

the executor obtain and attach to the Form8939 the FMV appraisal of certain prop-erty acquired from the decedent. This col-lection of information is necessary for theproper performance of the function of theIRS in the collection of the income taxwhen the property is later sold by the recip-ient or other holder of the property. In ad-dition, this collection is necessary to com-ply with the requirements of section 6018.

We estimate that 7,000 executors of es-tates of decedents who died in 2010 willmake the Section 1022 Election and thuswill be required to file Form 8939, and thatit will take approximately 8 hours to pre-pare the documentation. The total report-ing burden is estimated to be 56,000 hours.

Books or records relating to collectionsof information must be retained as long

as their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby section 6103.

SECTION 8. DRAFTINGINFORMATION

The principal authors of this rev-enue procedure are Laura Urich Daly,Theresa Melchiorre, and Mayer Samuelsof the Office of Associate Chief Counsel(Passthroughs & Special Industries). Forfurther information regarding this rev-enue procedure, contact Laura Urich Daly,Theresa Melchiorre, or Mayer Samuels at(202) 622–3090 (not a toll-free call).

August 29, 2011 196 2011–35 I.R.B.

Part IV. Items of General InterestNotice of ProposedRulemaking byCross-Reference toTemporary Regulations

Highway Use Tax; Filing andPayment for Taxable PeriodBeginning July 1, 2011

REG–122813–11

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemakingby cross-reference to temporary regula-tions.

SUMMARY: In this issue of the Bulletin,the IRS is issuing temporary regulations(T.D. 9537) that provide guidance on thefiling of Form 2290 “Heavy Highway Ve-hicle Use Tax Return” and payment of theassociated highway use tax for the tax-able period beginning July 1, 2011. Theseregulations affect owners and operatorsof highway motor vehicles with a taxablegross weight of 55,000 pounds or more.The text of the temporary regulations alsoserves as the text of the proposed regula-tions on this subject.

DATES: Written and electronic commentsand requests for a public hearing must bereceived by October 18, 2011.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–122813–11),Room 5203, Internal Revenue Service, POBox 7604, Ben Franklin Station, Wash-ington, DC 20044. Submissions may behand-delivered to: CC:PA:LPD:PR Mon-day through Friday between the hours of8 a.m. and 4 p.m. to: CC:PA:LPD:PR(REG–122813–11), Courier’s Desk, Inter-nal Revenue Service, 1111 ConstitutionAvenue, NW; Washington, DC, or sentelectronically via the Federal eRulemak-ing Portal at http://www.regulations.gov(IRS REG–122813–11).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposed reg-ulations, Natalie Payne, (202) 622–3130;concerning submissions of commentsand requests for a public hearing,

Regina Johnson, (202) 622–7180 (nottoll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposedamendments to the Highway Use TaxRegulations (26 CFR part 41) under sec-tions 6001, 6071 and 6151 of the InternalRevenue Code (Code). The text of tem-porary regulations published in this issueof the Bulletin also serves as the text ofthese proposed regulations. The preambleto the temporary regulations explains thetemporary regulations.

Proposed Effective Date

These regulations are proposed to applyto taxable use of highway motor vehiclesoccurring on or after July 1, 2011.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866, as supplemented by Execu-tive Order 13563. Therefore, a regulatoryassessment is not required. It also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to this regulation, andbecause this regulation does not impose acollection of information on small entities,the provisions of the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) do not apply.Pursuant to section 7805(f) of the Code,this regulation has been submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Comments and Requests for a PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments(a signed original and eight (8) copies)or electronic comments that are submittedtimely to the IRS. All comments will beavailable for public inspection and copy-ing. A public hearing will be scheduledif requested in writing by any person thattimely submits written comments. If a

public hearing is scheduled, notice of thedate, time, and place for the hearing willbe published in the Federal Register.

Drafting Information

The principal author of these regu-lations is Natalie Payne, Office of theAssociate Chief Counsel (Passthroughsand Special Industries). However, otherpersonnel from the IRS and the TreasuryDepartment participated in their develop-ment.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 41 is pro-posed to be amended as follows:

PART 41—EXCISE TAX ON USEOF CERTAIN HIGHWAY MOTORVEHICLES

Paragraph 1. The authority citation forpart 41 is amended to read in part as fol-lows:

Authority: 26 U.S.C. 7805. * * *Section 41.6001–2 also issued under

26 U.S.C. 6001. * * *Section 41.6071(a)–1 also issued under

26 U.S.C. 6071(a). * * *Section 41.6151(a)–1 also issued under

26 U.S.C. 6151(a). * * *Par. 2. Section 41.6001–2 is

amended by revising paragraphs (b)(1)(ii),(b)(4)(ii), (c)(2)(ii) and (c)(2)(iii) to readas follows:

§41.6001–2 Proof of payment for Stateregistration purposes.

* * * * *(b) * * * (1) * * *(ii) [The text of this proposed amend-

ment to §41.6001–2(b)(1)(ii) is the sameas the text of §41.6001–2T(b)(1)(ii) pub-lished elsewhere in this issue of the Bul-letin].

* * * * *(4) * * *(ii) [The text of this proposed amend-

ment to §41.6001–2(b)(4)(ii) is the sameas the text of §41.6001–2T(b)(4)(ii) pub-lished elsewhere in this issue of the Bul-letin].

2011–35 I.R.B. 197 August 29, 2011

* * * * *(c) * * *(2) * * *(ii) [The text of this proposed amend-

ment to §41.6001–2(c)(2)(ii) is the sameas the text of §41.6001–2T(c)(2)(ii) pub-lished elsewhere in this issue of the Bul-letin].

(iii) [The text of this proposed amend-ment to §41.6001–2(c)(iii) is the same asthe text of §41.6001–2T(c)(2)(iii) pub-lished elsewhere in this issue of the Bul-letin].

* * * * *Par. 3. Section 41.6071(a)–1 is

amended by adding paragraph (c) to readas follows:

§41.6071(a)–1 Time for filing returns.

* * * * *(c) [The text of this proposed amend-

ment to §41.6071(a)–1(c) is the same asthe text of §41.6071(a)–1T(c) through(c)(3) published elsewhere in this issue ofthe Bulletin].

Par. 4. Section 41.6151(a)–1 is revisedto read as follows:

§41.6151(a)–1 Time and place for payingtax.

[The text of this proposed amendmentto §41.6151(a)–1 is the same as the text of§41.6151(a)–1T(a) and (b) published else-where in this issue of the Bulletin].

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on July 15, 2011,4:15 p.m., and published in the issue of the Federal Registerfor July 20, 2011, 76 F.R. 43225)

Corporate Reorganizations;Distributions Under Sections368(a)(1)(D) and 354(b)(1)(B);Correction

Announcement 2011–43

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document describes acorrection to final regulations (T.D. 9475,2010–4 I.R.B. 304) that were publishedon Friday, December 18, 2009 (74 FR67053). The regulations provide guidanceregarding the qualification of certain trans-actions as reorganizations described in sec-tion 368(a)(1)(D) where no stock and/orsecurities of the acquiring corporation isissued and distributed in the transaction.This document also contains final regula-tions under section 358 that provide guid-ance regarding the determination of the ba-sis of stock or securities in a reorganizationdescribed in section 368(a)(1)(D) whereno stock and/or securities of the acquiringcorporation is issued and distributed in thetransaction. This document also containsfinal regulations under section 1502 thatgovern reorganizations described in sec-tion 368(a)(1)(D) involving members of aconsolidated group.

DATES: This correction is effective onAugust 10, 2011, and is applicable on De-cember 18, 2009.

FOR FURTHER INFORMATIONCONTACT: Bruce A. Decker, (202)622–7790 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations (T.D. 9475) thatare the subject of this document are under

sections 358, 368 and 1502 of the InternalRevenue Code.

Need for Correction

As published, the final regulations(T.D. 9475) contain an error that mayprove to be misleading and is in need ofclarification.

* * * * *

Correction of Publication

Accordingly, 26 CFR part 1 is cor-rected by making the following correctingamendment:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805. * * *Par. 2. Section 1.1502–13 is amended

by adding paragraph (l)(6) to read as fol-lows:

§1.1502–13 Intercompany transactions.

* * * * *(l) * * *(6) Effective/applicability date. (i) In

general. Paragraph (f)(7)(i) Example 4.applies to transactions occurring on or af-ter December 18, 2009.

(ii) [Reserved]

* * * * *

LaNita Van Dyke,Chief, Publications and

Regulations Branch,Legal Processing Division,

Associate Chief Counsel(Procedure and Administration).

(Filed by the Office of the Federal Register on August 9,2011, 8:45 a.m., and published in the issue of the FederalRegister for August 10, 2011, 76 F.R. 49300)

August 29, 2011 198 2011–35 I.R.B.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2011–35 I.R.B. i August 29, 2011

Numerical Finding List1

Bulletins 2011–27 through 2011–35

Announcements:

2011-37, 2011-27 I.R.B. 37

2011-38, 2011-28 I.R.B. 45

2011-39, 2011-28 I.R.B. 46

2011-40, 2011-29 I.R.B. 56

2011-41, 2011-28 I.R.B. 47

2011-42, 2011-32 I.R.B. 138

2011-43, 2011-35 I.R.B. 198

2011-44, 2011-33 I.R.B. 164

2011-45, 2011-34 I.R.B. 178

2011-46, 2011-34 I.R.B. 178

2011-47, 2011-34 I.R.B. 178

Notices:

2011-47, 2011-27 I.R.B. 34

2011-50, 2011-27 I.R.B. 35

2011-51, 2011-27 I.R.B. 36

2011-52, 2011-30 I.R.B. 60

2011-53, 2011-32 I.R.B. 124

2011-54, 2011-29 I.R.B. 53

2011-55, 2011-29 I.R.B. 53

2011-56, 2011-29 I.R.B. 54

2011-57, 2011-31 I.R.B. 84

2011-58, 2011-31 I.R.B. 85

2011-59, 2011-31 I.R.B. 86

2011-60, 2011-31 I.R.B. 90

2011-61, 2011-31 I.R.B. 91

2011-62, 2011-32 I.R.B. 126

2011-63, 2011-34 I.R.B. 172

2011-65, 2011-34 I.R.B. 173

2011-66, 2011-35 I.R.B. 184

2011-67, 2011-34 I.R.B. 174

2011-70, 2011-32 I.R.B. 135

Proposed Regulations:

REG-137128-08, 2011-28 I.R.B. 43

REG-125592-10, 2011-32 I.R.B. 137

REG-101352-11, 2011-30 I.R.B. 75

REG-118809-11, 2011-33 I.R.B. 162

REG-122813-11, 2011-35 I.R.B. 197

Revenue Procedures:

2011-38, 2011-30 I.R.B. 66

2011-39, 2011-30 I.R.B. 68

2011-41, 2011-35 I.R.B. 188

Revenue Rulings:

2011-14, 2011-27 I.R.B. 31

2011-15, 2011-30 I.R.B. 57

2011-16, 2011-32 I.R.B. 93

2011-17, 2011-33 I.R.B. 160

Treasury Decisions:

9527, 2011-27 I.R.B. 1

9528, 2011-28 I.R.B. 38

9529, 2011-30 I.R.B. 57

9530, 2011-31 I.R.B. 77

9531, 2011-31 I.R.B. 79

9532, 2011-32 I.R.B. 95

9533, 2011-33 I.R.B. 139

9534, 2011-33 I.R.B. 144

9537, 2011-35 I.R.B. 181

9539, 2011-35 I.R.B. 179

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin2011–26, dated June 27, 2011.

August 29, 2011 ii 2011–35 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2011–27 through 2011–35

Notices:

2010-23

Modified and supplemented by

Notice 2011-54, 2011-29 I.R.B. 53

2010-81

Amended and supplemented by

Notice 2011-63, 2011-34 I.R.B. 172

2010-88

Modified by

Ann. 2011-40, 2011-29 I.R.B. 56

Proposed Regulations:

REG-118761-09

Hearing scheduled by

Ann. 2011-38, 2011-28 I.R.B. 45

Revenue Procedures:

2008-24

Modified and superseded by

Rev. Proc. 2011-38, 2011-30 I.R.B. 66

2008-32

Superseded by

Rev. Proc. 2011-39, 2011-30 I.R.B. 68

Revenue Rulings:

58-225

Obsoleted by

Rev. Rul. 2011-15, 2011-30 I.R.B. 57

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin 2011–26, dated June 27, 2011.

2011–35 I.R.B. iii August 29, 2011

INDEXInternal Revenue Bulletins 2011–27 through2011–35

The abbreviation and number in parenthesis following the index entryrefer to the specific item; numbers in roman and italic type followingthe parentheses refer to the Internal Revenue Bulletin in which the itemmay be found and the page number on which it appears.

Key to Abbreviations:Ann AnnouncementCD Court DecisionDO Delegation OrderEO Executive OrderPL Public LawPTE Prohibited Transaction ExemptionRP Revenue ProcedureRR Revenue RulingSPR Statement of Procedural RulesTC Tax ConventionTD Treasury DecisionTDO Treasury Department Order

EMPLOYEE PLANSAmendment to rules relating to internal claims and ap-

peals and external review processes (TD 9532) 32, 95;(REG–125592–10) 32, 137

Full funding limitations, weighted average interest rates, seg-ment rates for:July 2011 (Notice 59) 31, 86August 2011 (Notice 67) 34, 174

Proposed Regulations:26 CFR 54.9815–2719, amended; rules relating to inter-

nal claims and appeals and external review processes(REG–125592–10) 32, 137

Regulations:26 CFR 54.9815–2719T, amended; rules relating to inter-

nal claims and appeals and external review processes (TD9532) 32, 95

EMPLOYMENT TAXProposed Regulations:

26 CFR 301.6402–2 thru –4, amended; claims for credit orrefund (REG–137128–08) 28, 43

Publication:4436, General Rules and Specifications for Substitute Form

941, Schedule B (Form 941) and Schedule R (Form 941),revised (RP 39) 30, 68

Section 6402 claims for credit or refund (REG–137128–08) 28,43

Substitute Form 941, Schedule B (Form 941), and Schedule R(Form 941), general rules and specifications (RP 39) 30, 68

ESTATE TAXAutomatic five-month extensions for certain pass-through enti-

ties (TD 9531) 31, 79Election to apply the rules under section 1022 of the Code (Notice

66) 35, 184Regulations:

26 CFR 1.6081–2, –6, added; 1.6081–2T, –6T, added;54.6081–1, removed; automatic five-month extensions forcertain pass-through entities (TD 9531) 31, 79

Safe harbor guidance with respect to section 1022 of the Code(RP 41) 35, 188

Valuation of certain farm, etc., real property under section 2032A(RR 17) 33, 160

EXCISE TAXAmendment to rules relating to internal claims and ap-

peals and external review processes (TD 9532) 32, 95;(REG–125592–10) 32, 137

Automatic five-month extensions for certain pass-through enti-ties (TD 9531) 31, 79

Highway use tax, filing and payment (TD 9537) 35, 181;(REG–122813–11) 35, 197

Proposed Regulations:26 CFR 1.150–1, amended; 1.171–1, amended; 1.197–2,

amended; 1.249–1, amended; 1.475(a)–4, amended;1.860G–2, amended; 1.1001–3, amended; 48.4101–1,amended; removal of regulatory references to credit rat-ings pursuant to section 939A of the Dodd-Frank Act(REG–118809–11) 33, 162

26 CFR 41.6001–2, amended; 41.6071(a)–1, amended;41.6151(a)–1, amended; highway use tax, filing and pay-ment (REG–122813–11) 35, 197

26 CFR 54.9815–2719, amended; rules relating to inter-nal claims and appeals and external review processes(REG–125592–10) 32, 137

Regulations:26 CFR 1.150–1, amended; 1.150–1T, added; 1.171–1,

amended; 1.171–1T, added; 1.197–2, amended; 1.197–2T,added; 1.249–1, amended; 1.249–1T, added; 1.475(a)–4,amended; 1.475(a)–4T, added; 1.860G–2, amended;1.860G–2T, added; 1.1001–3, amended; 1.1001–3T, added;48.4101–1, –1T, amended; removal of regulatory refer-ences to credit ratings pursuant to section 939A of theDodd-Frank Act (TD 9533) 33, 139

26 CFR 1.6081–2, –6, added; 1.6081–2T, –6T, added;54.6081–1, removed; automatic five-month extensions forcertain pass-through entities (TD 9531) 31, 79

26 CFR 41.6001–2, amended; 41.6001–2T, added;41.6071(a)–1, amended; 41.6071(a)–1T, added;41.6151(a)–1, amended; 41.6151(a)–1T, added; highwayuse tax, filing and payment (TD 9537) 35, 181

26 CFR 54.9815–2719T, amended; rules relating to inter-nal claims and appeals and external review processes (TD9532) 32, 95

August 29, 2011 iv 2011–35 I.R.B.

EXCISE TAX—Cont.Removal of regulatory references to credit ratings pursuant to

section 939(A) of the Dodd-Frank Act (TD 9533) 33, 139;(REG–118809–11) 33, 162

EXEMPT ORGANIZATIONSCommunity health needs assessment requirements for tax-ex-

empt hospitals, request for comments (Notice 52) 30, 60Form 990, Schedule H, Part V, Section B, optional for 2010 tax

year (Ann 37) 27, 37Revocations (Ann 39) 28, 46; (Ann 45) 34, 178

INCOME TAXAccounting methods, use following reorganizations and liquida-

tions (TD 9534) 33, 144Automatic five-month extensions for certain pass-through enti-

ties (TD 9531) 31, 79Basis of stock (Notice 56) 29, 54Chapter 4 implementation (Notice 53) 32, 124Continuing education providers, request for comments (Notice

61) 31, 91Corporate reorganizations, distributions under sections

368(a)(1)(D) and 354(b)(1)(B), correction to TD 9475 (Ann43) 35, 198

Credits:Carbon dioxide sequestration, 2011 inflation adjustment (No-

tice 50) 27, 35Credit for increasing research activities:

Changes (TD 9528) 28, 38Election to claim the reduced research credit (TD 9539) 35,

179Enhanced oil recovery credit, 2011 inflation adjustment (No-

tice 57) 31, 84Low-income housing credit:

Relief for Alabama (Notice 65) 34, 173Relief for Missouri disasters (Notice 47) 27, 34Relief for North Dakota (Notice 60) 31, 90

Declaratory judgment suits (Ann 46) 34, 178; (Ann 47) 34, 178Deferred losses on property between members of a controlled

group, hearing (Ann 38) 28, 45Determination of basis in specified U.S. property acquired by a

controlled foreign corporation in certain nonrecognition trans-actions (TD 9530) 31, 77

Disciplinary actions involving attorneys, certified public accoun-tants, enrolled agents, and enrolled actuaries (Ann 41) 28, 47;(Ann 44) 33, 147

Election to apply the rules under section 1022 of the Code (Notice66) 35, 184

Equitable relief under section 6015(f), time limits (Notice 70) 32,135

Ex parte communication between appeals and other Internal Rev-enue Service employees (Notice 62) 32, 126

INCOME TAX—Cont.FBAR, additional administrative relief for individuals whose fil-

ing deadline was extended under Notice 2010–23 (Notice 54)29, 53

Form 5472, filing requirements (TD 9529) 30, 57;(REG–101352–11) 30, 75

Insurance companies:Life insurance gross income, prepaid interest on policyholder

loans (RR 15) 30, 57Partial exchange or partial annuitization (RP 38) 30, 66Treatment of Blue Cross/Blue Shield organizations and cer-

tain other health organizations (Notice 51) 27, 36Interest:

Investment:Federal short-term, mid-term, and long-term rates for:

July 2011 (RR 14) 27, 31August 2011 (RR 16) 32, 93

Marginal production rates for 2011 (Notice 58) 31, 85Optional standard mileage rates (Ann 40) 29, 56Per diem substantiation method (Ann 42) 32, 138Proposed Regulations:

26 CFR 1.150–1, amended; 1.171–1, amended; 1.197–2,amended; 1.249–1, amended; 1.475(a)–4, amended;1.860G–2, amended; 1.1001–3, amended; 48.4101–1,amended; removal of regulatory references to credit rat-ings pursuant to section 939A of the Dodd-Frank Act(REG–118809–11) 33, 162

26 CFR 1.6038A–1, –2, amended; requirements for taxpayersfiling Form 5472 (REG–101352–11) 30, 75

26 CFR 301.6402–2 thru –4, amended; claims for credit orrefund (REG–137128–08) 28, 43

Publication:4436, General Rules and Specifications for Substitute Form

941, Schedule B (Form 941) and Schedule R (Form 941),revised (RP 39) 30, 68

Regulations:26 CFR 1.41–0, –6, –8, amended; 1.41–0T, –6T, –8T, –9T, re-

moved; alternative simplified credit under section 41(c)(5)(TD 9528) 28, 38

26 CFR 1.150–1, amended; 1.150–1T, added; 1.171–1,amended; 1.171–1T, added; 1.197–2, amended; 1.197–2T,added; 1.249–1, amended; 1.249–1T, added; 1.475(a)–4,amended; 1.475(a)–4T, added; 1.860G–2, amended;1.860G–2T, added; 1.1001–3, amended; 1.1001–3T, added;48.4101–1, –1T, amended; removal of regulatory refer-ences to credit ratings pursuant to section 939A of theDodd-Frank Act (TD 9533) 33, 139

26 CFR 1.280C–4, revised; election of reduced research creditunder section 280(c)(3) (TD 9539) 35, 179

26 CFR 1.381(a)–1, revised; 1.381(c)4–1, revised;1.381(c)5–1, revised; 1.446–1, amended; methods of ac-counting used by corporations that acquire the assets ofother corporations (TD 9534) 33, 144

26 CFR 1.956–1, amended; 1.956–1T, amended; determina-tion of basis in specified U.S. property acquired by a con-trolled foreign corporation in certain nonrecognition trans-actions (TD 9530) 31, 77

2011–35 I.R.B. v August 29, 2011

INCOME TAX—Cont.26 CFR 1.1502–13, amended; corporate reorganizations; dis-

tributions under sections 368(a)(1)(D) and 354(b)(1)(B);correction to TD 9475 (Ann 43) 35, 198

26 CFR 1.6038A–1, –2, amended; 1.6038A–1T, –2T, added;requirements for taxpayers filing Form 5472 (TD 9529) 30,57

26 CFR 1.6081–2, –6, added; 1.6081–2T, –6T, removed;54.6081–1, added; automatic five-month extensions forcertain pass-through entities (TD 9531) 31, 79

31 CFR 10.0 thru 10.8, 10.9, added; 10.20, 10.25, 10.30,10.34, 10.36, 10.38, 10.50, 10.51, 10.53, revised; 10.60 thru10.66, revised; 10.69, 10.72, revised; 10.76 thru 10.82, re-vised; 10.90, revised; regulations governing practice beforethe Internal Revenue Service (TD 9527) 27, 1

Regulations governing practice before the Internal Revenue Ser-vice (TD 9527) 27, 1

Removal of regulatory references to credit ratings pursuant tosection 939(A) of the Dodd-Frank Act (TD 9533) 33, 139;(REG–118809–11) 33, 162

Revocations, exempt organizations (Ann 39) 28, 46; (Ann 45)34, 178

Safe harbor guidance with respect to section 1022 of the Code(RP 41) 35, 188

Section 6402 claims for credit or refund (REG–137128–08) 28,43

State and local bonds, volume cap and timing of issuing bonds(Notice 63) 34, 172

Substitute Form 941, Schedule B (Form 941), and Schedule R(Form 941), general rules and specifications (RP 39) 30, 68

Suspension of information reporting with respect to foreign fi-nancial assets and certain interests in a PFIC (Notice 55) 29,53

August 29, 2011 vi 2011–35 I.R.B.

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

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