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									                                                                                                Bulletin No. 2007-42
                                                                                                   October 15, 2007



HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.


INCOME TAX                                                           Announcement 2007–90, page 856.
                                                                     Pre-approved defined contribution plans; determination
                                                                     letters. This announcement states that the program for de-
Rev. Rul. 2007–61, page 799.                                         termination letters for pre-approved defined contribution plans,
This ruling suspends Rev. Rul. 2007–54, 2007–38 I.R.B. 604,          which are submitted on Form 5307, is being closed for a tem-
and informs taxpayers that Treasury and the Service intend           porary period of time.
to address the issues considered in Rev. Rul. 2007–54 by
regulations. Rev. Rul. 2007–54 suspended.

Notice 2007–79, page 809.                                            EXEMPT ORGANIZATIONS
This notice allows Electronic Return Originators (EROs) to sign
the following forms by rubber stamp, mechanical device (such         Announcement 2007–96, page 859.
as signature pen), or computer software program: Form 8453,          The IRS has revoked its determination that The Georgetown
U.S. Individual Income Tax Declaration for an IRS e-file Return;     Foundation of Sandy, UT; Lumberton Family Life Center, Inc.,
Form 8878, IRS e-file Signature Authorization for Form 4868 or       of Lumberton, MS; Truth in Youth & Family Services, Inc., of
Form 2350; and Form 8879, IRS e-file Signature Authorization.        Leland, NC; and Cunningham Charitable Group of Los Angeles,
                                                                     CA, qualify as organizations described in sections 501(c)(3)
Announcement 2007–88, page 801.                                      and 170(c)(2) of the Code.
This announcement contains an official copy of the diplomatic
notes exchanged between the United States and Angola provid-
ing for a reciprocal exemption from taxation for income from         TAX CONVENTIONS
the international operation of ships and aircraft. It includes the
United States offer and the Angola acceptance in Portuguese
and an English translation of the Angolan note.                      Announcement 2007–88, page 801.
                                                                     This announcement contains an official copy of the diplomatic
                                                                     notes exchanged between the United States and Angola provid-
EMPLOYEE PLANS                                                       ing for a reciprocal exemption from taxation for income from
                                                                     the international operation of ships and aircraft. It includes the
                                                                     United States offer and the Angola acceptance in Portuguese
REG–113891–07, page 821.                                             and an English translation of the Angolan note.
Proposed regulations under section 436 of the Code provide
guidance regarding benefit restrictions for certain underfunded
defined benefit pension plans and regarding the use of certain
funding balances maintained for defined benefit pension plans.




                                                                                                (Continued on the next page)



Finding Lists begin on page ii.
ADMINISTRATIVE

Notice 2007–79, page 809.
This notice allows Electronic Return Originators (EROs) to sign
the following forms by rubber stamp, mechanical device (such
as signature pen), or computer software program: Form 8453,
U.S. Individual Income Tax Declaration for an IRS e-file Return;
Form 8878, IRS e-file Signature Authorization for Form 4868 or
Form 2350; and Form 8879, IRS e-file Signature Authorization.

Rev. Proc. 2007–63, page 809.
This procedure provides optional rules for deeming substan-
tiated the amount of certain business expenses of traveling
away from home reimbursed to an employee or deductible by
an employee or self-employed individual. Rev. Proc. 2006–41
superseded.

Rev. Proc. 2007–64, page 818.
This procedure modifies a scope provision and one of the terms
and conditions under which the Service grants approval of re-
quests by corporations for changes in annual accounting pe-
riods filed under Rev. Proc. 2006–45, 2006–45 I.R.B. 851.
Rev. Proc. 2006–45 modified and clarified.

Announcement 2007–91, page 857.
This document provides a change of location for a public
hearing on proposed regulations (REG–142695–05, 2007–39
I.R.B. 681) providing guidance on cafeteria plans under section
125 of the Code.

Announcement 2007–92, page 857.
This document provides a change of location for a public
hearing on proposed regulations (REG–128224–06, 2007–36
I.R.B. 551) providing guidance on which costs incurred by
estates or non-grantor trusts are subject to the 2–percent
floor for miscellaneous itemized deductions under section
67(a) of the Code.

Announcement 2007–93, page 858.
This document contains corrections to final and temporary reg-
ulations (T.D. 9344, 2007–36 I.R.B. 535) relating to the dis-
charge of liens under sections 7425 and 6343 of the Code.

Announcement 2007–94, page 858.
This document contains corrections to proposed regulations by
cross-reference to temporary regulations (REG–148951–05,
2007–36 I.R.B. 550) relating to the discharge of liens under
sections 7425 and 6343 of the Code.




October 15, 2007                                                   2007–42 I.R.B.
The IRS Mission
Provide America’s taxpayers top quality service by helping                        applying the tax law with integrity and fairness to all.
them understand and meet their tax responsibilities and by


Introduction
The Internal Revenue Bulletin is the authoritative instrument of                  court decisions, rulings, and procedures must be considered,
the Commissioner of Internal Revenue for announcing official                      and Service personnel and others concerned are cautioned
rulings and procedures of the Internal Revenue Service and for                    against reaching the same conclusions in other cases unless
publishing Treasury Decisions, Executive Orders, Tax Conven-                      the facts and circumstances are substantially the same.
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
                                                                                  The Bulletin is divided into four parts as follows:
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.                                            Part I.—1986 Code.
                                                                                  This part includes rulings and decisions based on provisions of
It is the policy of the Service to publish in the Bulletin all sub-               the Internal Revenue Code of 1986.
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-                  Part II.—Treaties and Tax Legislation.
ify, or amend any of those previously published in the Bulletin.                  This part is divided into two subparts as follows: Subpart A,
All published rulings apply retroactively unless otherwise indi-                  Tax Conventions and Other Related Items, and Subpart B, Leg-
cated. Procedures relating solely to matters of internal man-                     islation and Related Committee Reports.
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.                                                          Part III.—Administrative, Procedural, and Miscellaneous.
                                                                                  To the extent practicable, pertinent cross references to these
                                                                                  subjects are contained in the other Parts and Subparts. Also
Revenue rulings represent the conclusions of the Service on the                   included in this part are Bank Secrecy Act Administrative Rul-
application of the law to the pivotal facts stated in the revenue                 ings. Bank Secrecy Act Administrative Rulings are issued by
ruling. In those based on positions taken in rulings to taxpayers                 the Department of the Treasury’s Office of the Assistant Sec-
or technical advice to Service field offices, identifying details                 retary (Enforcement).
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.                                                                     Part IV.—Items of General Interest.
                                                                                  This part includes notices of proposed rulemakings, disbar-
                                                                                  ment and suspension lists, and announcements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be                        The last Bulletin for each month includes a cumulative index
relied on, used, or cited as precedents by Service personnel in                   for the matters published during the preceding months. These
the disposition of other cases. In applying published rulings and                 monthly indexes are cumulated on a semiannual basis, and are
procedures, the effect of subsequent legislation, regulations,                    published 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.




2007–42 I.R.B.                                                                                                                    October 15, 2007
                   Place missing child here.




October 15, 2007                               2007–42 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 62.—Adjusted                                   Section 436.—Funding-                                  under the Life Insurance Company Tax Act
Gross Income Defined                                   Based Limits on Benefits                               of 1959 (the 1959 Act) are to serve as in-
                                                       and Benefit Accruals Under                             terpretive guides to those 1984 Act provi-
   A revenue procedure provides optional rules for
deeming substantiated the amount of certain business
                                                       Single-Employer Plans                                  sions that carry over the provisions of prior
                                                                                                              law. See H. Rep. No. 432, Pt. 2, 98th
expenses of traveling away from home reimbursed to     26 CFR 1.436–1: Limits on benefits and benefit ac-
an employee or deductible by an employee or self-                                                             Cong., 2d Sess. 1402; S. Prt. 169, Vol.
                                                       cruals under single employer defined benefit plans.
employed individual. See Rev. Proc. 2007-63, page                                                             1, 98th Cong. 2d Sess. 524. Since Rev.
809.                                                      The proposed regulations under section 436 pro-     Rul. 2007–54 was issued, some taxpayers
                                                       vide guidance regarding benefit restrictions that      have argued that the provisions on which
                                                       apply to certain underfunded defined benefit pension   the ruling is based carried over from the
Section 162.—Trade or                                  plans. The proposed regulations reflect changes        1959 Act to the 1984 Act, and that the rul-
Business Expenses                                      made by the Pension Protection Act of 2006. See        ing should not be applied retroactively be-
                                                       REG-113891-07, page 821.
   A revenue procedure provides optional rules for                                                            cause its analysis is not consistent with cer-
deeming substantiated the amount of certain business                                                          tain authorities under the 1959 Act.
expenses of traveling away from home reimbursed to     Section 442.—Change of                                    The Treasury Department and the Inter-
an employee or deductible by an employee or self-      Annual Accounting Period                               nal Revenue Service (IRS) believe it is im-
employed individual. See Rev. Proc. 2007-63, page
                                                                                                              portant that the company’s share and poli-
809.                                                      This revenue procedure modifies a scope provision
                                                                                                              cyholders’ share of net investment income
                                                       and one of the terms and conditions under which the
                                                       Service grants approval of requests by corporations
                                                                                                              be determined in a manner that effectively
Section 267.—Losses,                                   for changes in annual accounting periods filed under   prevents the double benefit that otherwise
Expenses, and Interest With                            Rev. Proc. 2006–45, 2006–45 I.R.B. 851. See Rev.       would result from the use of tax favored in-
Respect to Transactions                                Proc. 2007-64, page 818.                               vestment income (such as dividends qual-
Between Related Taxpayers                                                                                     ifying for the dividends received deduc-
                                                                                                              tion) to fund the company’s obligations to
   A revenue procedure provides optional rules for     Section 807.—Rules for
                                                                                                              policyholders. In addition, the Treasury
deeming substantiated the amount of certain business   Certain Reserves
expenses of traveling away from home reimbursed to
                                                                                                              Department and the IRS are mindful of
an employee or deductible by an employee or self-      (Also § 812.)                                          the benefit of notice and public comment
employed individual. See Rev. Proc. 2007-63, page                                                             and believe the issues in the revenue ruling
809.                                                      This ruling suspends Rev.          Rul.             would more appropriately be addressed by
                                                       2007–54, 2007–38 I.R.B. 604, and informs               regulation. Accordingly, this ruling sus-
                                                       taxpayers that Treasury and the Service                pends Rev. Rul. 2007–54 and informs tax-
Section 274.—Disallowance                              intend to address the issues considered in             payers that the Treasury Department and
of Certain Entertainment,                              Rev. Rul. 2007–54 by regulations. Rev.                 the IRS intend to address in regulations the
etc., Expenses                                         Rul. 2007–54 suspended.                                issues considered in Rev. Rul. 2007–54.
   A revenue procedure provides optional rules for                                                            Until such time, the issues should be an-
deeming substantiated the amount of certain business   Rev. Rul. 2007–61                                      alyzed as though Rev. Rul. 2007–54 had
expenses of traveling away from home reimbursed to                                                            not been issued. Regulations also may pro-
an employee or deductible by an employee or self-          Rev. Rul. 2007–54, 2007–38 I.R.B.
                                                                                                              vide guidance for determining required in-
employed individual. See Rev. Proc. 2007-63, page      604, released on August 16, 2007, ad-
                                                                                                              terest under section 812(b)(2) if neither the
809.                                                   dresses the determination of life insurance
                                                                                                              prevailing State assumed rate nor the ap-
                                                       reserves under section 807 of the Inter-
                                                                                                              plicable Federal rate is used to determine
                                                       nal Revenue Code for a variable contract
Section 430.—Minimum                                                                                          the reserves for an insurance or annuity
                                                       where some or all of the reserves are ac-
Funding Standards for                                                                                         contract. This project has been added to
                                                       counted for as part of a life insurance com-
Single-Employer Defined                                pany’s separate account reserves. The rul-
                                                                                                              the 2007-2008 Priority Guidance Plan and
Benefit Pension Plans                                  ing also addresses the interest rate used un-
                                                                                                              will be reflected in the next periodic update
                                                                                                              to that plan.
26 CFR 1.430(f)–1: Effect of prefunding balance and    der section 812(b)(2) to calculate required
funding standard carryover balance.                    interest on the reserves if the amounts of
                                                                                                              EFFECT ON OTHER DOCUMENTS
                                                       those reserves are determined under sec-
   The proposed regulations under section 430(f)       tion 807(d)(2).
provide guidance regarding the use of certain fund-                                                              Rev. Rul. 2007–54 is suspended.
                                                           Sections 807 and 812 were added to
ing balances maintained for defined benefit pension
plans. The proposed regulations reflect changes
                                                       the Code by the Deficit Reduction Act of               DRAFTING INFORMATION
made by the Pension Protection Act of 2006. See        1984, P.L. 98–369 (the 1984 Act). The leg-
REG-113891-07, page 821.                               islative history of the 1984 Act provides                 The principal author of this revenue rul-
                                                       that the regulations, rulings and case law             ing is Stephen D. Hooe of the Office of


2007–42 I.R.B.                                                                799                                                October 15, 2007
Associate Chief Counsel (Financial Insti-             issues considered in Rev. Rul. 2007–54 by regula-      Section 6061.—Signing
tutions & Products). For further infor-               tions. See Rev. Rul. 2007-61, page 799.                of Returns and Other
mation regarding this revenue ruling, con-                                                                   Documents
tact Mr. Hooe at (202) 622–3900 (not a                Section 898.—Taxable
toll-free call).                                                                                                This notice allows Electronic Return Originators
                                                      Year of Certain Foreign                                (EROs) to sign the following forms by rubber stamp,
                                                      Corporations                                           mechanical device (such as signature pen), or com-
                                                                                                             puter software program: Form 8453, U.S. Individ-
Section 812.—Definition                                  This revenue procedure modifies a scope provision   ual Income Tax Declaration for an IRS e-file Return;
of Company’s Share and                                and one of the terms and conditions under which the    Form 8878, IRS e-file Signature Authorization for
Policyholders’ Share                                  Service grants approval of requests by corporations    Form 4868 or Form 2350; and Form 8879, IRS e-file
                                                      for changes in annual accounting periods filed under   Signature Authorization. See Notice 2007-79, page
   A revenue ruling that suspends Rev.         Rul.   Rev. Proc. 2006–45, 2006–45 I.R.B. 851. See Rev.       809.
2007–54, 2007–38 I.R.B. 604, and informs taxpayers    Proc. 2007-64, page 818.
that Treasury and the Service intend to address the




October 15, 2007                                                             800                                                        2007–42 I.R.B.
Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
United States Angola                        and aircraft for taxable years beginning on   The text of the agreement is as follows.
Reciprocol Exemption                        or after January 1, 2006. The diplomatic
Agreement                                   notes reproduced herein contain the terms
                                            of the reciprocal exemptions.
Announcement 2007–88                           The principal author of this announce-
                                            ment is Patricia Bray of the Office of
   The United States and Angola have ex-    Associate Chief Counsel (International).
changed diplomatic notes evidencing a re-   For further information regarding this an-
ciprocal exemption agreement for income     nouncement, contact Patricia Bray at (202)
from the international operation of ships   622–5871 (not a toll-free call).




2007–42 I.R.B.                                                 801                                       October 15, 2007
October 15, 2007   802   2007–42 I.R.B.
2007–42 I.R.B.   803   October 15, 2007
October 15, 2007   804   2007–42 I.R.B.
2007–42 I.R.B.   805   October 15, 2007
October 15, 2007   806   2007–42 I.R.B.
2007–42 I.R.B.   807   October 15, 2007
October 15, 2007   808   2007–42 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous
Alternative Signature Methods                 SECTION 3. REQUIREMENTS FOR                             of an employee for lodging, meal, and in-
for Electronic Return                         USE OF ALTERNATIVE METHODS                              cidental expenses, or for meal and inci-
Originators                                   OF SIGNING                                              dental expenses, incurred while traveling
                                                                                                      away from home are deemed substantiated
                                                 The alternative methods of signing that              under § 1.274–5 of the Income Tax Reg-
Notice 2007–79                                this notice authorizes must include either              ulations when a payor (the employer, its
SECTION I. PURPOSE                            a facsimile of the individual ERO’s signa-              agent, or a third party) provides a per diem
                                              ture or of the ERO’s printed name. EROs                 allowance under a reimbursement or other
    This notice provides that the Internal    using one of these alternative means are                expense allowance arrangement to pay for
Revenue Service will allow Electronic Re-     personally responsible for affixing their               the expenses. In addition, this revenue
turn Originators (EROs) to sign the follow-   signatures to returns or requests for exten-            procedure provides an optional method for
ing forms by rubber stamp, mechanical de-     sion.                                                   employees and self-employed individuals
vice (such as signature pen), or computer        This notice applies only to EROs that                who are not reimbursed to use in comput-
software program: Form 8453, U.S. Indi-       sign Form 8453, Form 8878, or Form                      ing the deductible costs paid or incurred
vidual Income Tax Declaration for an IRS      8879, and does not alter the signature re-              for business meal and incidental expenses,
e-file Return; Form 8878, IRS e-file Signa-   quirements for any other type of document               or for incidental expenses only if no meal
ture Authorization for Form 4868 or Form      currently required to be manually signed,               costs are paid or incurred, while travel-
2350; and Form 8879, IRS e-file Signature     such as elections, applications for changes             ing away from home. Use of a method
Authorization.                                in accounting method, powers of attorney,               described in this revenue procedure is not
                                              or consent forms. In addition, this notice              mandatory, and a taxpayer may use actual
SECTION 2. BACKGROUND                         does not alter the requirement that Form                allowable expenses if the taxpayer main-
                                              8453, Form 8878, or Form 8879 be signed                 tains adequate records or other sufficient
   Section 6061 of the Internal Revenue
                                              by the taxpayer making these forms by                   evidence for proper substantiation. This
Code and Treas. Reg. § 1.6061–1(a) gen-
                                              handwritten signature or other authorized               revenue procedure does not provide rules
erally provide that any tax return, state-
                                              means.                                                  under which the amount of an employee’s
ment, or other document shall be signed
in accordance with forms, instructions, or                                                            lodging expenses will be deemed substan-
                                              SECTION 4. EFFECTIVE DATE                               tiated when a payor provides an allowance
regulations prescribed by the Secretary.
Publication 1345, Handbook for Autho-           This notice applies to any Form 8453,                 to pay for those expenses but not meal and
rized IRS e-file Providers of Individual      Form 8878, or Form 8879 filed on or after               incidental expenses.
Income Tax Returns, sets forth the proce-     October 15, 2007.                                       SECTION 2. BACKGROUND AND
dures for completing the Form 8453, Form                                                              CHANGES
8878, and Form 8879. If providing the sig-    SECTION 5. DRAFTING
nature on a paper declaration, the taxpayer   INFORMATION
                                                                                                         .01 Section 162(a) of the Internal Rev-
and the ERO (and the paid preparer if dif-                                                            enue Code allows a deduction for all the or-
ferent from the ERO) must complete and            The principal author of this notice is
                                              Michael E. Hara of the Office of Asso-                  dinary and necessary expenses paid or in-
sign the Form 8453 before the electronic                                                              curred during the taxable year in carrying
data portion of the return is submitted.      ciate Chief Counsel (Procedure & Admin-
                                              istration). For further information regard-             on any trade or business. Under that pro-
Taxpayers may wish to sign their returns                                                              vision, an employee or self-employed in-
electronically, but may choose to authorize   ing this notice, contact Michael E. Hara at
                                              (202) 622–4910 (not a toll-free call).                  dividual may deduct expenses paid or in-
their ERO to enter their Personal Identi-                                                             curred while traveling away from home in
fication Number (PIN) in the electronic                                                               pursuit of a trade or business. However,
return record by completing the appro-                                                                under § 262, no portion of the travel ex-
                                              26 CFR 601.105: Examination of returns and claims
priate IRS e-file signature authorization     for refund, credit, or abatement; determination of      penses that is attributable to personal, liv-
form. Form 8879 authorizes an ERO to          correct tax liability.                                  ing, or family expenses is deductible.
enter PINs on Individual Income Tax Re-       (Also Part I, §§ 62, 162, 267, 274; 1.62–2, 1.162–17,
                                              1.267(a)–1, 1.274–5.)
                                                                                                         .02 Section 274(n) generally limits the
turns, and Form 8878 authorizes an ERO                                                                amount allowable as a deduction under
to enter PINs on Forms 4868, Application                                                              § 162 for any expense for food, bever-
for Automatic Extension of Time To File       Rev. Proc. 2007–63
                                                                                                      ages, or entertainment to 50 percent of
U.S. Individual Income Tax Return; and                                                                the amount of the expense that otherwise
Form 2350, Application for Extension of       SECTION 1. PURPOSE                                      would be allowable as a deduction. In the
Time To File U.S. Income Tax Return.                                                                  case of any expenses for food or bever-
                                                 This revenue procedure updates Rev.                  ages consumed while away from home
                                              Proc. 2006–41, 2006–43 I.R.B. 777, and                  (within the meaning of § 162(a)(2)) by an
                                              provides rules under which the amount of                individual during, or incident to, the pe-
                                              ordinary and necessary business expenses                riod of duty subject to the hours of service


2007–42 I.R.B.                                                       809                                                 October 15, 2007
limitations of the Department of Trans-         Section 62(c) further provides that the sub-    travel pursuant to rules prescribed under
portation, § 274(n)(3) gradually increases      stantiation requirements described therein      § 274(d) and § 1.274–5(g) or (j), and that
the deductible percentage to 80 percent         do not apply to any expense to the extent       the employee is not required to return, is
for taxable years beginning in 2008 or          that, under the grant of regulatory authority   subject to withholding and payment of
thereafter. For taxable years beginning in      prescribed in § 274(d), the Commissioner        employment taxes. See §§ 31.3121(a)–3,
2007, the deductible percentage for these       has provided that substantiation is not re-     31.3231(e)–1(a)(5), 31.3306(b)–2, and
expenses is 75 percent.                         quired for the expense.                         31.3401(a)–4 of the Employment Tax
    .03 Section 274(d) provides, in part,           .07 Under § 1.62–2(c), a reimburse-         Regulations. Because the employee is not
that no deduction is allowed under § 162        ment or other expense allowance arrange-        required to return this excess portion, the
for any travel expense (including meals         ment satisfies the requirements of § 62(c)      reasonable period of time provisions of
and lodging while away from home) unless        if it meets the requirements of business        § 1.62–2(g) (relating to the return of ex-
the taxpayer complies with certain sub-         connection, substantiation, and returning       cess amounts) do not apply to this portion.
stantiation requirements. Section 274(d)        amounts in excess of expenses as specified         .09 Under § 1.62–2(h)(2)(i)(B)(4), the
further provides that regulations may pre-      in the regulations. If an arrangement meets     Commissioner has the discretion to pre-
scribe that some or all of the substantiation   these requirements, all amounts paid under      scribe special rules regarding the timing of
requirements do not apply to an expense         the arrangement are treated as paid under       withholding and payment of employment
that does not exceed an amount prescribed       an accountable plan and are excluded from       taxes on per diem allowances.
by the regulations.                             income and wages. If an arrangement does           .10 Section 1.274–5(j)(1) grants the
    .04 Section 1.274–5(g), in part, grants     not meet these requirements, all amounts        Commissioner the authority to establish a
the Commissioner the authority to pre-          paid under the arrangement are treated as       method under which a taxpayer may elect
scribe rules relating to reimbursement          paid under a nonaccountable plan and are        to use a specified amount for meals paid or
arrangements or per diem allowances for         included in the employee’s gross income,        incurred while traveling away from home
ordinary and necessary expenses paid            must be reported as wages or compensa-          in lieu of substantiating the actual cost of
or incurred while traveling away from           tion on the employee’s Form W–2, and are        meals.
home. Pursuant to this grant of author-         subject to the withholding and payment of          .11 Section 1.274–5(j)(3) grants the
ity, the Commissioner may prescribe             employment taxes. Section 1.62–2(e)(2)          Commissioner the authority to establish a
rules under which these arrangements or         specifically provides that substantiation of    method under which a taxpayer may elect
allowances, if in accordance with reason-       certain business expenses in accordance         to use a specified amount for incidental
able business practice, are regarded (1) as     with rules prescribed under the authority of    expenses paid or incurred while traveling
equivalent to substantiation, by adequate       § 1.274–5(g) or (j) is treated as substantia-   away from home in lieu of substantiating
records or other sufficient evidence, of the    tion of the amount of the expenses for pur-     the actual cost of incidental expenses.
amount of travel expenses for purposes          poses of § 1.62–2. Under § 1.62–2(f)(2),           .12 Sections 3.02(1)(a), 4.04(6), and
of § 1.274–5(c), and (2) as satisfying the      the Commissioner may prescribe rules un-        5.06 of this revenue procedure provide
requirements of an adequate accounting          der which an arrangement providing per          transition rules for the last 3 months of
to the employer of the amount of travel         diem allowances is treated as satisfying the    calendar year 2007.
expenses for purposes of § 1.274–5(f).          requirement of returning amounts in ex-            .13 Section 5.02 of this revenue pro-
    .05 For purposes of determining ad-         cess of expenses, even though the arrange-      cedure contains revisions to the per diem
justed gross income, § 62(a)(2)(A) allows       ment does not require the employee to re-       rates for high-cost localities and for other
an employee a deduction for expenses al-        turn the portion of the allowance that re-      localities for purposes of section 5.
lowed by Part VI (§ 161 and following),         lates to days of travel substantiated and          .14 Section 5.03 of this revenue proce-
subchapter B, chapter 1 of the Code, paid       that exceeds the amount of the employee’s       dure contains the list of high-cost localities
or incurred by the employee in connection       expenses deemed substantiated pursuant to       and section 5.04 of this revenue procedure
with the performance of services as an em-      rules prescribed under § 274(d), provided       describes changes to the list of high-cost
ployee under a reimbursement or other ex-       the allowance is reasonably calculated not      localities for purposes of section 5.
pense allowance arrangement with a payor.       to exceed the amount of the employee’s             .15 Sections 7.10 and 8.06 of this
    .06 Section 62(c) provides that an ar-      expenses or anticipated expenses and the        revenue procedure refer to Rev. Rul.
rangement is not treated as a reimburse-        employee is required to return within a rea-    2006–56, 2006–46 I.R.B. 874, which
ment or other expense allowance arrange-        sonable period of time any portion of the       describes circumstances when a payor’s
ment for purposes of § 62(a)(2)(A) if it—       allowance that relates to days of travel not    reimbursement or other expense allowance
    (1) does not require the employee to        substantiated.                                  arrangement evidences a pattern of abuse
substantiate the expenses covered by the            .08 Section 1.62–2(h)(2)(i)(B) pro-         of the rules of § 62(c) and the regulations
arrangement to the payor, or                    vides that, if a payor pays a per diem          thereunder.
    (2) provides the employee with the right    allowance that meets the requirements of
to retain any amount in excess of the sub-      § 1.62–2(c)(1), the portion, if any, of the     SECTION 3. DEFINITIONS
stantiated expenses covered under the ar-       allowance that relates to days of travel sub-
rangement.                                      stantiated in accordance with § 1.62–2(e),         .01 Per diem allowance. The term “per
                                                that exceeds the amount of the employee’s       diem allowance” means a payment under a
                                                expenses deemed substantiated for the


October 15, 2007                                                   810                                                  2007–42 I.R.B.
reimbursement or other expense allowance        connection with the performance of ser-         was identified by the payor either by mak-
arrangement that is —                           vices as an employee of the employer stops      ing a separate payment or by specifically
    (1) paid with respect to ordinary and       for sleep or rest.                              identifying the amount of the allowance,
necessary business expenses incurred, or            (3) Incidental expenses. The term “in-      or (b) an allowance computed on that ba-
that the payor reasonably anticipates will      cidental expenses” has the same meaning         sis was commonly used in the industry
be incurred, by an employee for lodging,        as in the Federal Travel Regulations, 41        in which the employee is employed. See
meal, and incidental expenses, or for meal      C.F.R. 300–3.1 (2007). Thus, based on the       § 1.62–2(d)(3)(ii).
and incidental expenses, for travel away        current definition of “incidental expenses”
from home in connection with the perfor-        in the Federal Travel Regulations, “inci-       SECTION 4. PER DIEM
mance of services as an employee of the         dental expenses” means fees and tips given      SUBSTANTIATION METHOD
employer,                                       to porters, baggage carriers, bellhops, ho-
    (2) reasonably calculated not to exceed     tel maids, stewards or stewardesses and             .01 Per diem allowance. If a payor pays
the amount of the expenses or the antici-       others on ships, and hotel servants in for-     a per diem allowance in lieu of reimburs-
pated expenses, and                             eign countries; transportation between          ing actual lodging, meal, and incidental ex-
    (3) paid at or below the applicable fed-    places of lodging or business and places        penses incurred or to be incurred by an
eral per diem rate, a flat rate or stated       where meals are taken, if suitable meals        employee for travel away from home, the
schedule, or in accordance with any other       can be obtained at the temporary duty           amount of the expenses that is deemed sub-
Service-specified rate or schedule.             site; and the mailing cost associated with      stantiated for each calendar day is equal to
    .02 Federal per diem rate and federal       filing travel vouchers and payment of em-       the lesser of the per diem allowance for
M&IE rate.                                      ployer-sponsored charge card billings.          that day or the amount computed at the
    (1) In general. The federal per diem            .03 Flat rate or stated schedule.           federal per diem rate (see section 3.02 of
rate is equal to the sum of the applicable          (1) In general. Except as provided in       this revenue procedure) for the locality of
federal lodging expense rate and the appli-     section 3.03(2) of this revenue procedure,      travel for that day (or partial day, see sec-
cable federal meal and incidental expense       an allowance is paid at a flat rate or stated   tion 6.04 of this revenue procedure).
(M&IE) rate for the day and locality of         schedule if it is provided on a uniform             .02 Meal and incidental expenses only
travel.                                         and objective basis with respect to the ex-     per diem allowance. If a payor pays a
    (a) CONUS rates. The rates for lo-          penses described in section 3.01 of this        per diem allowance only for meal and in-
calities in the continental United States       revenue procedure. The allowance may be         cidental expenses in lieu of reimbursing
(“CONUS”) are set forth in Appendix A           paid with respect to the number of days         actual meal and incidental expenses in-
to 41 C.F.R. ch. 301. However, in apply-        away from home in connection with the           curred or to be incurred by an employee
ing section 4.01, 4.02, or 4.03 of this rev-    performance of services as an employee          for travel away from home, the amount of
enue procedure, taxpayers may continue          or on any other basis that is consistently      the expenses that is deemed substantiated
to use the CONUS rates in effect for the        applied and in accordance with reasonable       for each calendar day is equal to the lesser
first 9 months of 2007 for expenses of all      business practice. Thus, for example, an        of the per diem allowance for that day or
CONUS travel away from home that are            hourly payment to cover meal and inciden-       the amount computed at the federal M&IE
paid or incurred during calendar year 2007      tal expenses paid to a pilot or flight atten-   rate for the locality of travel for that day
in lieu of the updated GSA rates. A tax-        dant who is traveling away from home in         (or partial day). A per diem allowance
payer must consistently use either these        connection with the performance of ser-         is treated as paid only for meal and inci-
rates or the updated rates for the period Oc-   vices as an employee is an allowance paid       dental expenses if (1) the payor pays the
tober 1, 2007, through December 31, 2007.       at a flat rate or stated schedule. Likewise,    employee for actual expenses for lodging
    (b) OCONUS rates. The rates for local-      a payment based on the number of miles          based on receipts submitted to the payor,
ities outside the continental United States     traveled (such as cents per mile) to cover      (2) the payor provides the lodging in kind,
(“OCONUS”) are established by the Sec-          meal and incidental expenses paid to an         (3) the payor pays the actual expenses for
retary of Defense (rates for non-foreign lo-    over-the-road truck driver who is traveling     lodging directly to the provider of the lodg-
calities, including Alaska, Hawaii, Puerto      away from home in connection with the           ing, (4) the payor does not have a reason-
Rico, the Northern Mariana Islands, and         performance of services as an employee is       able belief that lodging expenses were or
the possessions of the United States) and       an allowance paid at a flat rate or stated      will be incurred by the employee, or (5) the
by the Secretary of State (rates for for-       schedule.                                       allowance is computed on a basis similar
eign localities), and are published in the          (2) Limitation. An allowance that is        to that used in computing the employee’s
Per Diem Supplement to the Standardized         computed on a basis similar to that used        wages or other compensation (such as the
Regulations (Government Civilians, For-         in computing the employee’s wages or            number of hours worked, miles traveled,
eign Areas) (updated on a monthly basis).       other compensation (such as the number          or pieces produced).
    (c) Internet access to the rates. The       of hours worked, miles traveled, or pieces          .03 Optional method for meal and in-
CONUS and OCONUS rates may be found             produced) does not meet the business con-       cidental expenses only deduction. In lieu
on the Internet at www.gsa.gov.                 nection requirement of § 1.62–2(d), is not      of using actual expenses in computing the
    (2) Locality of travel. The term “lo-       a per diem allowance, and is not paid at        amount allowable as a deduction for or-
cality of travel” means the locality where      a flat rate or stated schedule, unless, as      dinary and necessary meal and inciden-
an employee traveling away from home in         of December 12, 1989, (a) the allowance         tal expenses paid or incurred for travel


2007–42 I.R.B.                                                      811                                            October 15, 2007
away from home, employees and self-em-          CONUS locality of travel, and $58 as the                     (6) Transition rules. Under the calen-
ployed individuals who pay or incur meal        federal M&IE rate for any OCONUS lo-                      dar-year convention provided in section
expenses may use an amount computed at          cality of travel. A payor that uses either (or            4.04(3), a taxpayer who used the federal
the federal M&IE rate for the locality of       both) of these special rates with respect to              M&IE rates during the first 9 months of
travel for each calendar day (or partial day)   an employee must use the special rate(s)                  calendar year 2007 to substantiate the
the employee or self-employed individual        for all amounts subject to section 4.02 of                amount of an individual’s travel expenses
is away from home. This amount will be          this revenue procedure paid to that em-                   under sections 4.02 or 4.03 of Rev. Proc.
deemed substantiated for purposes of para-      ployee for travel away from home within                   2006–41 may not use, for that individual,
graphs (b)(2) and (c) of § 1.274–5, pro-        CONUS and/or OCONUS, as the case may                      the special transportation industry rates
vided the employee or self-employed indi-       be, during the calendar year. Similarly, an               provided in this section 4.04 until January
vidual substantiates the elements of time,      employee or self-employed individual that                 1, 2008. Similarly, a taxpayer who used
place, and business purpose of the travel       uses either (or both) of these special rates              the special transportation industry rates
for that day (or partial day) in accordance     must use the special rate(s) for all amounts              during the first 9 months of calendar year
with those regulations. See section 6.05(1)     computed pursuant to section 4.03 of this                 2007 to substantiate the amount of an in-
of this revenue procedure for rules related     revenue procedure for travel away from                    dividual’s travel expenses may not use,
to the application of the limitation under      home within CONUS and/or OCONUS, as                       for that individual, the federal M&IE rates
§ 274(n) to amounts determined under this       the case may be, during the calendar year.                until January 1, 2008.
section 4.03. See section 4.05 of this rev-     See section 4.04(6) of this revenue proce-                   .05 Optional method for incidental ex-
enue procedure for a method for substanti-      dure for transition rules.                                penses only deduction. In lieu of using
ating incidental expenses that may be used          (4) Periodic rule. A payor described in               actual expenses in computing the amount
by employees or self-employed individu-         section 4.04(1) of this revenue procedure                 allowable as a deduction for ordinary and
als who do not pay or incur meal expenses.      may compute the amount of the em-                         necessary incidental expenses paid or in-
    .04 Special rules for transportation in-    ployee’s expenses that is deemed substan-                 curred for travel away from home, employ-
dustry.                                         tiated under section 4.02 of this revenue                 ees and self-employed individuals who do
    (1) In general. This section 4.04 ap-       procedure periodically (not less frequently               not pay or incur meal expenses for a calen-
plies to (a) a payor that pays a per diem       than monthly), rather than daily, by com-                 dar day (or partial day) of travel away from
allowance only for meal and incidental ex-      paring the total per diem allowance paid                  home may use, for each calendar day (or
penses for travel away from home as de-         for the period to the sum of the amounts                  partial day) the employee or self-employed
scribed in section 4.02 of this revenue pro-    computed either at the federal M&IE                       individual is away from home, an amount
cedure to an employee in the transportation     rate(s) for the localities of travel, or at the           computed at the rate of $3 per day for any
industry, or (b) an employee or self-em-        special rate described in section 4.04(3),                CONUS or OCONUS locality of travel.
ployed individual in the transportation in-     for the days (or partial days) the employee               This amount will be deemed substantiated
dustry who computes the amount allow-           is away from home during the period.                      for purposes of paragraphs (b)(2) and (c)
able as a deduction for meal and incidental         (5) Examples.                                         of § 1.274–5, provided the employee or
expenses for travel away from home in ac-            (a) Example 1. Taxpayer, an employee in the          self-employed individual substantiates the
cordance with section 4.03 of this revenue      transportation industry, travels away from home on        elements of time, place, and business pur-
                                                business within CONUS on 17 days (including par-
procedure.                                      tial days) during a calendar month and receives a per
                                                                                                          pose of the travel for that day (or partial
    (2) Transportation industry defined.        diem allowance only for meal and incidental expenses      day) in accordance with those regulations.
For purposes of this section 4.04, an em-       from a payor that uses the special rule under sec-        See section 4.03 of this revenue procedure
ployee or self-employed individual is in        tion 4.04(3) of this revenue procedure. The amount        for a method that may be used by em-
the transportation industry only if the em-     deemed substantiated under section 4.02 of this rev-      ployees or self-employed individuals who
                                                enue procedure is equal to the lesser of the total per
ployee’s or individual’s work (a) is of the     diem allowance paid for the month or $884 (17 days
                                                                                                          pay or incur meal expenses. The method
type that directly involves moving people       at $52 per day).                                          authorized by this section 4.05 may not
or goods by airplane, barge, bus, ship,              (b) Example 2. Taxpayer, a truck driver employee     be used by payors that use section 4.01,
train, or truck, and (b) regularly requires     in the transportation industry, is paid a “cents-per-     4.02, or 5.01 of this revenue procedure, or
travel away from home which, during             mile” allowance that qualifies as an allowance paid       by employees or self-employed individu-
                                                under a flat rate or stated schedule as defined in sec-
any single trip away from home, usually         tion 3.03 of this revenue procedure. Taxpayer travels
                                                                                                          als who use the method described in sec-
involves travel to localities with differ-      away from home on business for 10 days. Based on          tion 4.03 of this revenue procedure. See
ing federal M&IE rates. For purposes            the number of miles driven by Taxpayer, Taxpayer’s        section 6.05(4) of this revenue procedure
of the preceding sentence, a payor must         employer pays an allowance of $500 for the 10 days        for rules related to the application of the
determine that an employee or a group of        of business travel. Taxpayer actually drives for 8        limitation under § 274(n) to amounts de-
                                                days, and does not drive for the other 2 days Taxpayer
employees is in the transportation indus-       is away from home. Taxpayer is paid under the peri-
                                                                                                          termined under this section 4.05.
try by using a method that is consistently      odic rule used for transportation industry employers
applied and in accordance with reasonable       and employees in accordance with section 4.04(4) of       SECTION 5. HIGH-LOW
business practice.                              this revenue procedure. The amount deemed substan-        SUBSTANTIATION METHOD
    (3) Rates. A taxpayer described in sec-     tiated is the full $500 because that amount does not
                                                exceed $520 (ten days away from home at $52 per
tion 4.04(1) of this revenue procedure may      day).
                                                                                                             .01 In general. If a payor pays a per
treat $52 as the federal M&IE rate for any                                                                diem allowance in lieu of reimbursing ac-


October 15, 2007                                                        812                                                      2007–42 I.R.B.
tual lodging, meal, and incidental expenses      tion method may be used in lieu of the           as if it were the federal per diem rate for
incurred or to be incurred by an employee        per diem substantiation method provided          the locality of travel. For purposes of ap-
for travel away from home and the payor          in section 4.01 of this revenue procedure,       plying the high-low substantiation method
uses the high-low substantiation method          but may not be used in lieu of the meal and      and the § 274(n) limitation on meal ex-
described in this section 5 for travel within    incidental expenses only per diem substan-       penses (see section 6.05(3) of this revenue
CONUS, the amount of the expenses that           tiation method provided in section 4.02 of       procedure), the amount of the high and low
is deemed substantiated for each calendar        this revenue procedure.                          rates that is treated as paid for meals is
day is equal to the lesser of the per diem           .02 Specific high-low rates. Except as       $58 for a high-cost locality and $45 for any
allowance for that day or the amount com-        provided in section 5.06 of this revenue         other locality within CONUS.
puted at the rate set forth in section 5.02 of   procedure, the per diem rate set forth in this      .03 High-cost localities. The following
this revenue procedure for the locality of       section 5.02 is $237 for travel to any “high-    localities have a federal per diem rate of
travel for that day (or partial day, see sec-    cost locality” specified in section 5.03 of      $194 or more, and are high-cost localities
tion 6.04 of this revenue procedure). Ex-        this revenue procedure, or $152 for travel       for all of the calendar year or the portion of
cept as provided in section 5.06 of this rev-    to any other locality within CONUS. The          the calendar year specified in parentheses
enue procedure, this high-low substantia-        high or low rate, as appropriate, applies        under the key city name:


 Key City                                                                                     County or other defined location
 Arizona
     Phoenix/Scottsdale                                                                       Maricopa
       (January 1-March 31)
     Sedona                                                                                   City Limits of Sedona
       (March 1-April 30)

 California
     Napa                                                                                     Napa
     Palm Springs                                                                             Riverside
       (January 1-April 30)
     San Diego                                                                                San Diego
     San Francisco                                                                            San Francisco
     Santa Barbara                                                                            Santa Barbara
     Santa Monica                                                                             City limits of Santa Monica
     South Lake Tahoe                                                                         El Dorado
       (December 1-March 31)
     Yosemite National Park                                                                   Mariposa

 Colorado
    Aspen                                                                                     Pitkin
       (December 1-April 30)
    Crested Butte/Gunnison                                                                    Gunnison
       (December 1-March 31)
    Silverthorne/Breckenridge                                                                 Summit
       (December 1-March 31)
    Steamboat Springs                                                                         Routt
       (December 1-February 29)
    Telluride                                                                                 San Miguel
       (October 1-March 31)
    Vail                                                                                      Eagle

 District of Columbia
     Washington, D.C. (also the cities of Alexandria, Falls Church, and Fairfax, and the counties of Arlington and Fairfax, in
     Virginia; and the counties of Montgomery and Prince George’s in Maryland) (See also Maryland and Virginia)




2007–42 I.R.B.                                                       813                                             October 15, 2007
Key City                                                        County or other defined location
Florida
    Fort Lauderdale                                             Broward
      (October 1-April 30)
    Fort Walton Beach/De Funiak Springs                         Okaloosa and Walton
      (June 1-July 31)
    Key West                                                    Monroe
    Miami                                                       Miami-Dade
      (October 1-February 29)
    Naples                                                      Collier
      (February 1-March 31)
    Palm Beach                                                  Boca Raton, Delray Beach, Jupiter, Palm
      (January 1-March 31)                                      Beach Gardens, Palm Beach, Palm Beach
                                                                Shores, Singer Island and West Palm Beach
   Stuart                                                       Martin
     (February 1-March 31)

Illinois
     Chicago                                                    Cook and Lake

Maryland
   (For the counties of Montgomery and Prince George’s,
   see District of Columbia)
   Baltimore City                                               Baltimore
   Cambridge/St. Michaels                                       Dorchester and Talbot
      (April 1-August 31)
   Ocean City                                                   Worcester
      (June 1-August 31)

Massachusetts
   Boston/Cambridge                                             Suffolk, City of Cambridge
   Martha’s Vineyard                                            Dukes
     (July 1-August 31)
   Nantucket                                                    Nantucket

Nevada
   Incline Village/Crystal Bay/Reno/Sparks                      Washoe
      (June 1-August 31)

New Hampshire
   Conway                                                       Caroll
     (July 1-August 31)

New York
   Floral Park/Garden City/Glen Cove/Great Neck/Roslyn          Nassau
   Manhattan                                                    The Boroughs of Manhattan, Brooklyn, the
                                                                Bronx and Staten Island
   Queens                                                       Queens
   Saratoga Springs/Schenectady                                 Saratoga and Schenectady
     (July 1-August 31)
   Tarrytown/White Plains/New Rochelle/Yonkers                  Westchester

Pennsylvania
   Philadelphia                                                 Philadelphia




October 15, 2007                                          814                            2007–42 I.R.B.
 Key City                                                                              County or other defined location
 Rhode Island
    Jamestown/Middletown/Newport                                                       Newport
      (October 1-November 30 and
      February 1-September 30)
    Providence                                                                         Providence

 Utah
    Park City                                                                          Summit
      (January 1-March 31)

 Virginia
     (For the cities of Alexandria, Falls Church, and Fairfax, and the counties of Arlington and Fairfax, see District of Columbia)
     Loudon County                                                                      Loudon
     Virginia Beach                                                                     City of Virginia Beach
       (June 1-August 31)

 Washington
    Seattle                                                                            King

 Wisconsin
    Lake Geneva                                                                        Walworth
      (June 1-September 30)

    .04 Changes in high-cost localities.      ities: New Orleans, Louisiana and Lake       Proc. 2006–41 for an employee during the
The list of high-cost localities in section   Placid, New York.                            first 9 months of calendar year 2007 must
5.03 of this revenue procedure differs from       .05 Specific limitation.                 continue to use the high-low substantiation
the list of high-cost localities in section       (1) Except as provided in section        method for the remainder of calendar year
5.03 of Rev. Proc. 2006–41 (changes           5.05(2) of this revenue procedure, a         2007 for that employee. A payor described
listed by key cities).                        payor that uses the high-low substanti-      in the previous sentence may use the rates
    (1) The following localities have         ation method with respect to an employee     and high-cost localities published in sec-
been added to the list of high-cost lo-       must use that method for all amounts paid    tion 5 of Rev. Proc. 2006–41, in lieu of
calities: Sedona, Arizona; Napa, Cal-         to that employee for travel away from        the updated rates and high-cost localities
ifornia; Palm Springs, California; San        home within CONUS during the calendar        provided in section 5 of this revenue proce-
Diego, California; Yosemite National          year. See section 5.06 of this revenue       dure, for travel on or after October 1, 2007,
Park, California; Silverthorne/Brecken-       procedure for transition rules.              and before January 1, 2008, if those rates
ridge, Colorado; Incline Village/Crystal          (2) With respect to an employee de-      and localities are used consistently during
Bay/Reno/Sparks, Nevada; Conway, New          scribed in section 5.05(1) of this revenue   this period for all employees reimbursed
Hampshire; Tarrytown/White Plains/New         procedure, the payor may reimburse ac-       under this method.
Rochelle/Yonkers, New York; Loudon            tual expenses or use the meal and inci-
County, Virginia; Virginia Beach, Vir-        dental expenses only per diem substan-       SECTION 6. LIMITATIONS AND
ginia; and Lake Geneva, Wisconsin.            tiation method described in section 4.02     SPECIAL RULES
    (2) The portion of the year for which     of this revenue procedure for any travel
the following are high-cost localities has    away from home, and may use the per             .01 In general. The federal per diem
been changed: Santa Barbara, Califor-         diem substantiation method described in      rate and the federal M&IE rate described in
nia; Crested Butte/Gunnison, Colorado;        section 4.01 of this revenue procedure for   section 3.02 of this revenue procedure for
Steamboat Springs, Colorado; Telluride,       any OCONUS travel away from home.            the locality of travel will be applied in the
Colorado; Vail, Colorado; Fort Laud-              .06 Transition rules. A payor who used   same manner as applied under the Federal
erdale, Florida; Miami, Florida; Palm         the substantiation method of section 4.01    Travel Regulations, 41 C.F.R. Part 301–11
Beach, Florida; Cambridge/St. Michaels,       of Rev. Proc. 2006–41 for an employee        (2007), except as provided in sections 6.02
Maryland; Ocean City, Maryland; Nan-          during the first 9 months of calendar year   through 6.04 of this revenue procedure.
tucket, Massachusetts; Jamestown/Mid-         2007 may not use the high-low substanti-        .02 Federal per diem rate. A receipt
dletown/Newport, Rhode Island; and Park       ation method in section 5 of this revenue    for lodging expenses is not required in de-
City, Utah.                                   procedure for that employee until January    termining the amount of expenses deemed
    (3) The following localities have been    1, 2008. A payor who used the high-low       substantiated under section 4.01 or 5.01 of
removed from the list of high-cost local-     substantiation method of section 5 of Rev.   this revenue procedure. See section 7.01
                                                                                           of this revenue procedure for the require-


2007–42 I.R.B.                                                  815                                           October 15, 2007
ment that the employee substantiate the        allowed under the Federal Travel Regula-          dental expenses, in accordance with sec-
time, place, and business purpose of the       tions).                                           tion 4 or 5 of this revenue procedure, and
expense.                                           .05 Application of the appropriate            such amounts are treated as paid under an
   .03 Federal per diem or M&IE rate. A        § 274(n) limitation on meal expenses. Ex-         accountable plan, any additional payment
payor is not required to reduce the federal    cept as provided in section 6.05(4), all or       with respect to those expenses is treated
per diem rate or the federal M&IE rate for     part of the amount of an expense deemed           as paid under a nonaccountable plan, is
the locality of travel for meals provided in   substantiated under this revenue procedure        included in the employee’s gross income,
kind, provided the payor has a reasonable      is subject to the appropriate limitation un-      is reported as wages or other compensa-
belief that meal and incidental expenses       der § 274(n) (see section 2.02 of this            tion on the employee’s Form W–2, and
were or will be incurred by the employee       revenue procedure) on the deductibility of        is subject to withholding and payment of
during each day of travel.                     food and beverage expenses.                       employment taxes. Similarly, if an em-
   .04 Proration of the federal per diem or        (1) If an amount for meal and incidental      ployee or self-employed individual com-
M&IE rate. Pursuant to the Federal Travel      expenses is computed pursuant to section          putes the amount allowable as a deduction
Regulations, in determining the federal per    4.03 of this revenue procedure, the tax-          for meal and incidental expenses for travel
diem rate or the federal M&IE rate for         payer must treat that amount as an expense        away from home in accordance with sec-
the locality of travel, the full applicable    for food and beverages.                           tion 4.03 or 4.04 of this revenue procedure,
federal M&IE rate is available for a full          (2) If a per diem allowance is paid only      no other deduction is allowed to the em-
day of travel from 12:01 a.m. to 12:00         for meal and incidental expenses, the payor       ployee or self-employed individual with
midnight. The method described in sec-         must treat an amount equal to the lesser of       respect to those expenses. For example,
tion 6.04(1) of this revenue procedure must    the allowance or the federal M&IE rate for        assume an employee receives a per diem
be used for purposes of determining the        the locality of travel for each day (or partial   allowance from a payor for lodging, meal,
amount deemed substantiated under sec-         day, see section 6.04 of this revenue pro-        and incidental expenses, or for meal and
tion 4.03 or 4.05 of this revenue procedure    cedure) as an expense for food and bever-         incidental expenses, incurred while travel-
for partial days of travel away from home.     ages.                                             ing away from home and such amounts are
For purposes of determining the amount             (3) If a per diem allowance is paid for       treated as paid under an accountable plan.
deemed substantiated under section 4.01,       lodging, meal, and incidental expenses for        During that trip, the employee pays for din-
4.02, 4.04, or 5 of this revenue procedure     each calendar day (or partial day) the em-        ner for the employee and two business as-
for partial days of travel away from home,     ployee is away from home at a rate equal to       sociates. The payor reimburses as a busi-
either of the following methods may be         or in excess of the federal per diem rate for     ness entertainment meal expense the meal
used to prorate the federal M&IE rate to       the locality of travel, the payor must treat      expense for the employee and the two busi-
determine the federal per diem rate or the     an amount equal to the federal M&IE rate          ness associates. Because the payor also
federal M&IE rate for the partial days of      for the locality of travel for each calendar      pays a per diem allowance to cover the cost
travel:                                        day (or partial day) as an expense for food       of the employee’s meals, the amount paid
   (1) The rate may be prorated using the      or beverages.                                     by the payor for the employee’s portion of
method prescribed by the Federal Travel            (4) If a per diem allowance is paid for       the business entertainment meal expense
Regulations. Currently the Federal Travel      lodging, meal, and incidental expenses for        is treated as paid under a nonaccountable
Regulations allow three-fourths of the ap-     each calendar day (or partial day) the em-        plan, is reported as wages or other com-
plicable federal M&IE rate for each partial    ployee is away from home at a rate less           pensation on the employee’s Form W–2,
day during which the employee or self-em-      than the federal per diem rate for the lo-        and is subject to withholding and payment
ployed individual is traveling away from       cality of travel, the payor must:                 of employment taxes.
home in connection with the performance            (a) treat an amount equal to the federal          .07 Related parties. Sections 4.01 and
of services as an employee or self-em-         M&IE rate for the locality of travel for          5 of this revenue procedure do not apply if
ployed individual. The same ratio may be       each calendar day (or partial day) or, if         a payor and an employee are related within
applied to prorate the allowance for inci-     less, the amount of the allowance, as an          the meaning of § 267(b), but for this pur-
dental expenses described in section 4.05      expense for food or beverages; or                 pose the percentage of ownership interest
of this revenue procedure; or                      (b) treat an amount equal to 40 percent       referred to in § 267(b)(2) is 10 percent.
   (2) The rate may be prorated using any      of the allowance as an expense for food or
method that is consistently applied and in     beverages.                                        SECTION 7. APPLICATION
accordance with reasonable business prac-          (5) If an amount for incidental expenses
tice. For example, if an employee travels      is computed under section 4.05 of this rev-          .01 If the amount of travel expenses is
away from home from 9 a.m. one day to          enue procedure, none of the amount so             deemed substantiated under the rules pro-
5 p.m. the next day, a method of proration     computed is subject to limitation under           vided in section 4 or 5 of this revenue pro-
that results in an amount equal to two times   § 274(n) on the deductibility of food and         cedure, and the employee substantiates to
the federal M&IE rate will be treated as       beverage expenses.                                the payor the elements of time, place, and
being in accordance with reasonable busi-          .06 No double reimbursement or deduc-         business purpose of the travel for that day
ness practice (even though only one and a      tion. If a payor pays a per diem allowance        (or partial day) in accordance with para-
half times the federal M&IE rate would be      in lieu of reimbursing actual lodging, meal,      graphs (b)(2) and (c) (other than subpara-
                                               and incidental expenses, or meal and inci-        graph (2)(iii)(A) thereof) of § 1.274–5, the


October 15, 2007                                                   816                                                  2007–42 I.R.B.
employee is deemed to satisfy the adequate       § 1.274–5(f)(2)(i). Assuming that the re-       procedure) on meal and entertainment
accounting requirements of § 1.274–5(f)          maining requirements for an accountable         expenses provided in § 274(n) and the
as well as the requirement to substantiate       plan provided in § 1.62–2 are satisfied, that   2-percent floor on miscellaneous itemized
by adequate records or other sufficient ev-      portion of the allowance is treated as paid     deductions provided in § 67.
idence for purposes of § 1.274–5(c). See         under an accountable plan, is not reported          .06 An employee who pays or incurs
also § 1.62–2(e)(1) for the rule that in order   as wages or other compensation on the em-       amounts for meal expenses and does not
to satisfy the substantiation requirement of     ployee’s Form W–2, and is exempt from           receive a per diem allowance for meal and
an accountable plan, an arrangement must         the withholding and payment of employ-          incidental expenses may deduct an amount
require business expenses to be substanti-       ment taxes. See § 1.62–2(c)(2) and (c)(4).      computed pursuant to section 4.03 of this
ated to the payor within a reasonable pe-            .04 An employee is required to include      revenue procedure only as an itemized de-
riod of time.                                    in gross income only the portion of the per     duction. This itemized deduction is sub-
    .02 An arrangement providing per diem        diem allowance received from a payor that       ject to the appropriate limitation on meal
allowances will be treated as satisfying the     exceeds the amount deemed substantiated         and entertainment expenses provided in
requirement of § 1.62–2(f)(2) of return-         under the rules provided in section 4 or 5      § 274(n) and the 2-percent floor on miscel-
ing amounts in excess of expenses if the         of this revenue procedure if the employee       laneous itemized deductions provided in
employee is required to return within a          substantiates the business travel expenses      § 67. See section 7.07 of this revenue pro-
reasonable period of time (as defined in         covered by the per diem allowance in ac-        cedure for the treatment of an employee
§ 1.62–2(g)) any portion of the allowance        cordance with section 7.01 of this revenue      who does not pay or incur amounts for
that relates to days of travel not substan-      procedure. See § 1.274–5(f)(2)(ii). In ad-      meal expenses and does not receive a per
tiated, even though the arrangement does         dition, the excess portion of the allowance     diem allowance for incidental expenses.
not require the employee to return the por-      is treated as paid under a nonaccountable           .07 An employee who does not pay or
tion of the allowance that relates to days       plan, is reported as wages or other compen-     incur amounts for meal expenses and does
of travel substantiated and that exceeds         sation on the employee’s Form W–2, and          not receive a per diem allowance for in-
the amount of the employee’s expenses            is subject to withholding and payment of        cidental expenses may deduct an amount
deemed substantiated. For example, as-           employment taxes. See § 1.62–2(c)(3)(ii),       computed pursuant to section 4.05 of this
sume a payor provides an employee an ad-         (c)(5), and (h)(2)(i)(B).                       revenue procedure only as an itemized de-
vance per diem allowance for meal and in-            .05 If the amount of the expenses that      duction. This itemized deduction is sub-
cidental expenses of $250, based on an an-       is deemed substantiated under the rules         ject to the 2-percent floor on miscellaneous
ticipated 5 days of business travel at $50       provided in section 4.01, 4.02, or 5 of this    itemized deductions provided in § 67. See
per day to a locality for which the fed-         revenue procedure is less than the amount       section 7.06 of this revenue procedure for
eral M&IE rate is $39, and the employee          of the employee’s business expenses for         the treatment of an employee who pays or
substantiates 3 full days of business travel.    travel away from home, the employee             incurs amounts for meal expenses and does
The requirement to return excess amounts         may claim an itemized deduction for the         not receive a per diem allowance for meal
is treated as satisfied if the employee is       amount by which the business travel ex-         and incidental expenses.
required to return within a reasonable pe-       penses exceed the amount that is deemed             .08 A self-employed individual who
riod of time (as defined in § 1.62–2(g)) the     substantiated, provided the employee sub-       pays or incurs meal expenses for a calen-
portion of the allowance that is attribut-       stantiates all the business travel expenses     dar day (or partial day) of travel away from
able to the 2 unsubstantiated days of travel     (not just the excess over the federal per       home may deduct an amount computed
($100), even though the employee is not          diem rate), includes on Form 2106, “Em-         pursuant to section 4.03 of this revenue
required to return the portion of the al-        ployee Business Expenses,” the deemed           procedure in determining adjusted gross
lowance ($33) that exceeds the amount of         substantiated portion of the per diem al-       income under § 62(a)(1). This deduction
the employee’s expenses deemed substan-          lowance received from the payor, and in-        is subject to the appropriate limitation on
tiated under section 4.02 of this revenue        cludes in gross income the portion (if any)     meal and entertainment expenses provided
procedure ($117) for the 3 substantiated         of the per diem allowance received from         in § 274(n).
days of travel. However, the $33 excess          the payor that exceeds the amount deemed            .09 A self-employed individual who
portion of the allowance is treated as paid      substantiated. See § 1.274–5(f)(2)(iii).        does not pay or incur meal expenses for
under a nonaccountable plan as discussed         However, for purposes of claiming this          a calendar day (or partial day) of travel
in section 7.04 of this revenue procedure.       itemized deduction with respect to meal         away from home may deduct an amount
    .03 An employee is not required to in-       and incidental expenses, substantiation of      computed pursuant to section 4.05 of this
clude in gross income the portion of a           the amount of the expenses is not required      revenue procedure in determining adjusted
per diem allowance received from a payor         if the employee is claiming a deduction         gross income under § 62(a)(1).
that is less than or equal to the amount         that is equal to or less than the amount            .10 If a payor’s reimbursement or
deemed substantiated under the rules pro-        computed under section 4.03 of this rev-        other expense allowance arrangement ev-
vided in section 4 or 5 of this revenue pro-     enue procedure minus the amount deemed          idences a pattern of abuse of the rules of
cedure if the employee substantiates the         substantiated under sections 4.02 and 7.01      § 62(c) and the regulations thereunder,
business travel expenses covered by the          of this revenue procedure. The itemized         all payments under the arrangement will
per diem allowance in accordance with            deduction is subject to the appropriate         be treated as made under a nonaccount-
section 7.01 of this revenue procedure. See      limitation (see section 2.02 of this revenue    able plan. See § 1.62–2(k) and Rev. Rul.


2007–42 I.R.B.                                                       817                                            October 15, 2007
2006–56. Thus, these payments are in-            ated for the period under section 4.02 of      employee on or after October 1, 2007, with
cluded in the employee’s gross income,           this revenue procedure (after applying sec-    respect to travel away from home on or af-
are reported as wages or other compen-           tion 4.04(4) of this revenue procedure),       ter October 1, 2007. For purposes of com-
sation on the employee’s Form W–2, and           is subject to withholding and payment of       puting the amount allowable as a deduc-
are subject to withholding and payment           employment taxes no later than the first       tion for travel away from home, this rev-
of employment taxes. See § 1.62–2(c)(3),         payroll period following the payroll pe-       enue procedure is effective for meal and
(c)(5), and (h)(2), and section 8.06 of this     riod in which the excess is computed. See      incidental expenses or for incidental ex-
revenue procedure.                               § 1.62–2(h)(2)(i)(B)(4).                       penses only paid or incurred on or after Oc-
                                                     .05 For example, assume that an em-        tober 1, 2007.
SECTION 8. WITHHOLDING AND                       ployer pays an employee a per diem
PAYMENT OF EMPLOYMENT TAXES                      allowance under an arrangement that            SECTION 10. EFFECT ON OTHER
                                                 otherwise meets the requirements of an         DOCUMENTS
   .01 The portion of a per diem al-             accountable plan to cover business ex-
lowance, if any, that relates to the days        penses for meals and lodging for travel           Rev. Proc. 2006–41 is superseded.
of business travel substantiated and that        away from home at a rate of 120 percent
exceeds the amount deemed substantiated          of the federal per diem rate for the local-    DRAFTING INFORMATION
for those days under section 4.01, 4.02, or      ities to which the employee travels. The
5 of this revenue procedure is treated as        employer does not require the employee            The principal author of this revenue
paid under a nonaccountable plan and is          to return the 20 percent by which the re-      procedure is Jeffrey T. Rodrick of the Of-
subject to withholding and payment of em-        imbursement for those expenses exceeds         fice of Associate Chief Counsel (Income
ployment taxes. See § 1.62–2(h)(2)(i)(B).        the federal per diem rate. The employee        Tax and Accounting). For further infor-
   .02 In the case of a per diem allowance       substantiates 6 days of travel away from       mation regarding this revenue procedure,
paid as a reimbursement, the excess de-          home: 2 days in a locality in which the        contact Mr. Rodrick at (202) 622–4930
scribed in section 8.01 of this revenue pro-     federal per diem rate is $160 and 4 days       (not a toll-free call).
cedure is subject to withholding and pay-        in a locality in which the federal per diem
ment of employment taxes in the payroll          rate is $120. The employer reimburses
period in which the payor reimburses the         the employee $960 for the 6 days of travel     26 CFR 601.204: Changes in accounting periods and
expenses for the days of travel substanti-       away from home (2 x (120% x $160) + 4          in methods of accounting.
ated. See § 1.62–2(h)(2)(i)(B)(2).               x (120% x $120)), and does not require         (Also Part I, §§ 442, 898; 1.442–1.)
   .03 In the case of a per diem allowance       the employee to return the excess payment
paid as an advance, the excess described         of $160 (2 days x $32 ($192-$160) + 4          Rev. Proc. 2007–64
in section 8.01 of this revenue procedure        days x $24 ($144-$120)). For the payroll
is subject to withholding and payment of         period in which the employer reimburses
employment taxes no later than the first                                                        SECTION 1. PURPOSE
                                                 the expenses, the employer must withhold
payroll period following the payroll period      and pay employment taxes on $160. See
in which the days of travel with respect         section 8.02 of this revenue procedure.           This revenue procedure modifies a
to which the advance was paid are sub-               .06 If a per diem allowance arrange-       scope provision and one of the terms and
stantiated. See § 1.62–2(h)(2)(i)(B)(3). If      ment has no mechanism or process to            conditions under which the Internal Rev-
some or all of the days of travel with re-       determine when an allowance exceeds the        enue Service grants approval of requests
spect to which the advance was paid are          amount that may be deemed substantiated        by corporations for changes in annual ac-
not substantiated within a reasonable pe-        and the arrangement routinely pays al-         counting periods filed under Rev. Proc.
riod of time and the employee does not re-       lowances in excess of the amount that may      2006–45, 2006–45 I.R.B. 851. Specifi-
turn the portion of the allowance that re-       be deemed substantiated without requiring      cally, this revenue procedure modifies the
lates to those days within a reasonable pe-      actual substantiation of all the expenses or   scope provision regarding a corporation
riod of time, the portion of the allowance       repayment of the excess amount, the fail-      that exits a consolidated group. See sec-
that relates to those days is subject to with-   ure of the arrangement to treat the excess     tion 4.02(13) of Rev. Proc. 2006–45. In
holding and payment of employment taxes          allowances as wages for employment tax         addition, this revenue procedure modifies
no later than the first payroll period follow-   purposes causes all payments made under        the terms and conditions relating to record-
ing the end of the reasonable period. See        the arrangement to be treated as made un-      keeping and book conformity in the case of
§ 1.62–2(h)(2)(i)(A).                            der a nonaccountable plan. See Rev. Rul.       a controlled foreign corporation (“CFC”)
   .04 In the case of a per diem allowance       2006–56.                                       that has a majority U.S. shareholder year
only for meal and incidental expenses for                                                       (as defined in § 898(c)(3) of the Internal
travel away from home paid to an em-             SECTION 9. EFFECTIVE DATE                      Revenue Code) and that is changing to
ployee in the transportation industry by a                                                      a one-month deferral year described in
payor that uses the rule in section 4.04(4)         This revenue procedure is effective for     § 898(c)(2) or to a 52–53-week taxable
of this revenue procedure, the excess of         per diem allowances for lodging, meal and      year that references such one-month de-
the per diem allowance paid for the pe-          incidental expenses, or for meal and inci-     ferral year. See section 6.02 of Rev. Proc.
riod over the amount deemed substanti-           dental expenses only, that are paid to an      2006–45.


October 15, 2007                                                    818                                                   2007–42 I.R.B.
SECTION 2. BACKGROUND                           U.S. shareholder year and that is chang-       a 52–53-week taxable year that references
                                                ing to a one-month deferral year or to a       such one-month deferral year.
    .01 Section 442 and § 1.442–1(a) of the     52–53-week taxable year that references
Income Tax Regulations generally provide        such one-month deferral year.                  SECTION 4. MODIFICATIONS
that a taxpayer that wants to change its           .08 With respect to the terms and condi-
annual accounting period and use a new          tions of change under Rev. Proc. 2006–45,         .01 Section 4.02(13) is modified to
taxable year must obtain the approval of        section 6.02(1) of that revenue procedure      read as follows: “Corporation that exits
the Commissioner.                               generally requires that a corporation com-     a consolidated group. A corporation that
    .02 Section 1.442–1(b)(2) provides that     pute its income and keep its books and         ceases to be a member of a consolidated
a change in annual accounting period will       records (including financial statements        group and wants to change its annual ac-
be approved only if the taxpayer agrees         and reports to creditors) on the basis of      counting period during the consolidated
to the Commissioner’s prescribed terms,         the requested taxable year. That section       group’s taxable year in which the cor-
conditions, and adjustments for effecting       further requires that the books and records    poration ceases to be a member of the
the change.                                     of the corporation be closed as of the last    consolidated group. For purposes of the
    .03 Rev. Proc. 2006–45 provides the         day of the first effective year and that the   prior sentence, the consolidated group’s
exclusive procedures for certain corpora-       corporation conform the accounting pe-         taxable year is determined without regard
tions to obtain automatic approval of the       riod used for financial statement purposes     to a change in the consolidated group’s an-
Commissioner to change their annual ac-         and reports to creditors concurrently.         nual accounting period. A corporation that
counting periods.                                  .09 The Service has determined that in      ceases to be a member of a consolidated
    .04 Section 4.02(13) of Rev. Proc.          the case of a CFC changing to a one-month      group must continue to use the annual ac-
2006–45 excludes from the scope of the          deferral year or to a 52–53-week taxable       counting period of the consolidated group,
revenue procedure a corporation that            year that references such one-month defer-     unless the corporation receives approval
ceases to be a member of a consolidated         ral year, the CFC is not required to issue     under Rev. Proc. 2002–39 to change its
group during the consolidated group’s first     financial statements and reports to credi-     annual accounting period (or is required to
effective year (as defined in section 5.05      tors on the basis of the requested year as     change its annual accounting period upon
of Rev. Proc. 2006–45).                         otherwise required by section 6.02(1) of       joining another consolidated group). A
    .05 The Service has determined that it      Rev. Proc. 2006–45. However, as re-            corporation that ceases to be a member of
is appropriate to modify the scope of Rev.      quired by section 6.02(1) of Rev. Proc.        a consolidated group during the consoli-
Proc. 2006–45 to clarify that any corpo-        2006–45, the CFC must close its books and      dated group’s first effective year is not a
ration leaving a consolidated group is ex-      records as of the last day of the first ef-    member of the consolidated group for pur-
cluded from the automatic change proce-         fective year and, every year after the first   poses of the consolidated group’s change
dures under Rev. Proc. 2006–45 dur-             effective year, must close its books and       in accounting period. See section 7.02(7)
ing the consolidated group’s taxable year       records as of the last day of the requested    of this revenue procedure.
                                                                                                   (a) Example 1. On March 31, 2006, ABC Corpo-
(without regard to a change in the consoli-     taxable year, either a one-month deferral      ration ceases to be a member of a consolidated group
dated group’s accounting period) in which       year or a 52–53-week taxable year that ref-    that has a taxable year ending on November 30. ABC
the corporation ceases to be a member of        erences such one-month deferral year. The      Corporation is not eligible to change its annual ac-
the consolidated group. A corporation that      CFC must also compute its income and           counting period under this revenue procedure to a tax-
ceases to be a member of a consolidated         earnings and profits for U.S. tax purposes     able year beginning before December 1, 2006.
                                                                                                   (b) Example 2. Assume the same facts as Exam-
group must continue to use the annual ac-       on the basis of the requested year.            ple 1, except that the consolidated group changes its
counting period of the consolidated group,                                                     annual accounting period to a taxable year ending on
unless the corporation receives approval        SECTION 3. SCOPE                               August 31, effective August 31, 2006. ABC Corpo-
under Rev. Proc. 2002–39, 2002–1 C.B.                                                          ration is not eligible to change its annual accounting
1046, to change its annual accounting pe-          .01 Corporations leaving a consol-          period under this revenue procedure to a taxable year
                                                idated group. This revenue procedure           beginning before December 1, 2006.
riod (or is required to change its annual ac-
                                                                                                   (c) Example 3. Assume the same facts as Exam-
counting period upon joining another con-       applies to a corporation leaving a con-
                                                                                               ple 2, except that the consolidated group changes its
solidated group).                               solidated group that wants to change its       annual accounting period to a taxable year ending on
    .06 Section 898(c)(2) provides that a       annual accounting period in the year the       January 31, effective January 31, 2006. ABC Corpo-
specified foreign corporation (i.e., a CFC)     corporation ceases to be a member of the       ration is not eligible to change its annual accounting
                                                consolidated group.                            period under this revenue procedure to a taxable year
may elect, in lieu of the taxable year un-
                                                                                               beginning before February 1, 2007.”
der § 898(c)(1)(A) (i.e., the majority U.S.        .02 CFCs changing to one-month de-
                                                ferral year or to a 52–53-week taxable            .02 Section 6.02 of Rev.         Proc.
shareholder year as defined in § 898(c)(3)),
                                                year that references such one-month de-        2006–45 is modified to add paragraph
a taxable year beginning one month ear-
                                                ferral year. This revenue procedure also       (4) as follows: “(4) CFCs changing to
lier than the majority U.S. shareholder year
                                                applies to a CFC that has a majority U.S.      a year described in § 898(c)(2) or to a
(i.e., one-month deferral year described in
                                                shareholder year, and that is properly         52–53-week taxable year that references
§ 898(c)(2)).
                                                applying under Rev. Proc. 2006–45 to           such one-month deferral year. The terms
    .07 Section 4.02(8) of Rev. Proc.
                                                change to a one-month deferral year or to      and conditions regarding financial state-
2006–45 includes in the scope of the rev-
                                                                                               ments and reports to creditors in section
enue procedure a CFC that has a majority


2007–42 I.R.B.                                                     819                                                October 15, 2007
6.02(1) of this revenue procedure do not      tax purposes on the basis of the requested      section 5.05 of Rev. Proc. 2006–45) ends
apply in the case of a CFC that has a ma-     taxable year.                                   on or after October 18, 2006.
jority U.S. shareholder year (as defined
in § 898(c)(3)), and that is changing to      SECTION 5. EFFECT ON OTHER                      DRAFTING INFORMATION
a one-month deferral year described in        DOCUMENTS
§ 898(c)(2) or to a 52–53-week taxable                                                           The principal author of this revenue
year that references such one-month de-          Rev. Proc. 2006–45 is modified and           procedure is Jeffrey S. Marshall of the Of-
ferral year. Such a CFC is nevertheless       clarified.                                      fice of Associate Chief Counsel (Income
required to close its books and records                                                       Tax and Accounting). For further infor-
as of the last day of the first effective     SECTION 6. EFFECTIVE DATE                       mation regarding this revenue procedure,
year and every year thereafter to close its                                                   contact Mr. Marshall at (202) 622–4960
books and records on the last day of the         This revenue procedure is effective for      (not a toll-free call).
requested taxable year, and to compute its    changes in annual accounting periods for
income and earnings and profits for U.S.      which the first effective year (as defined in




October 15, 2007                                                  820                                               2007–42 I.R.B.
Part IV. Items of General Interest
Notice of Proposed                                              SUPPLEMENTARY INFORMATION:                                       dition, these proposed regulations provide
Rulemaking                                                                                                                       for several written elections to be made by
                                                                Paperwork Reduction Act                                          the plan sponsor upon occasion. This in-
Benefit Restrictions for                                                                                                         formation is voluntary to obtain a benefit.
                                                                    The collections of information con-
                                                                                                                                 The likely respondents are qualified retire-
Underfunded Pension Plans                                       tained in this notice of proposed rulemak-
                                                                                                                                 ment plan sponsors and enrolled actuaries.
                                                                ing have been submitted to the Office of
                                                                                                                                     Estimated total annual reporting bur-
REG–113891–07                                                   Management and Budget for review in
                                                                                                                                 den: 60,000 hours.
                                                                accordance with the Paperwork Reduc-
                                                                                                                                     Estimated average annual burden hours
AGENCY: Internal Revenue Service                                tion Act of 1995 (44 U.S.C. 3507(d)).
                                                                                                                                 per respondent: 0.75 hours.
(IRS), Treasury.                                                Comments on the collections of infor-
                                                                                                                                     Estimated number of respondents:
                                                                mation should be sent to the Office of
ACTION: Notice of proposed rulemaking.                                                                                           80,000.
                                                                Management and Budget, Attn: Desk Of-
                                                                                                                                     Estimated annual frequency of re-
                                                                ficer for the Department of the Treasury,
SUMMARY: This document contains pro-                                                                                             sponses: occasional.
                                                                Office of Information and Regulatory
posed regulations providing guidance re-                                                                                             An agency may not conduct or sponsor,
                                                                Affairs, Washington, DC 20503, with
garding the use of certain funding bal-                                                                                          and a person is not required to respond to, a
                                                                copies to the Internal Revenue Service,
ances maintained for defined benefit pen-                                                                                        collection of information unless it displays
                                                                Attn: IRS Reports Clearance Officer,
sion plans and regarding benefit restric-                                                                                        a valid control number assigned by the Of-
                                                                SE:W:CAR:MP:T:T:SP, Washington, DC
tions for certain underfunded defined ben-                                                                                       fice of Management and Budget.
                                                                20224. Comments on the collection of
efit pension plans. The proposed regu-                                                                                               Books or records relating to a collection
                                                                information should be received by Octo-
lations reflect changes made by the Pen-                                                                                         of information must be retained as long
                                                                ber 29, 2007. Comments are specifically
sion Protection Act of 2006. These regula-                                                                                       as their contents may become material in
                                                                requested concerning:
tions affect sponsors, administrators, par-                                                                                      the administration of any internal revenue
                                                                    Whether the proposed collection of in-
ticipants, and beneficiaries of single em-                                                                                       law. Generally, tax returns and tax return
                                                                formation is necessary for the proper per-
ployer defined benefit pension plans.                                                                                            information are confidential, as required
                                                                formance of the functions of the Internal
                                                                                                                                 by 26 U.S.C. 6103.
DATES: Written or electronic comments                           Revenue Service, including whether the
and requests for a public hearing must be                       information will have practical utility;                         Background
received by November 28, 2007.                                      The accuracy of the estimated burden
                                                                associated with the proposed collection of                           This document contains proposed In-
ADDRESSES: Send submissions to:                                 information;                                                     come Tax Regulations (26 CFR part 1) un-
CC:PA:LPD:PR           (REG–113891–07),                             How the quality, utility, and clarity of                     der sections 430(f) and 436, as added to
room 5203, Internal Revenue Service,                            the information to be collected may be en-                       the Code by the Pension Protection Act of
P.O. Box 7604, Ben Franklin Sta-                                hanced;                                                          2006 (PPA ’06), Public Law 109–280, 120
tion, Washington, DC 20044. Submis-                                 How the burden of complying with the                         Stat. 780.
sions may be hand-delivered Monday                              proposed collections of information may                              Section 412 contains minimum funding
through Friday between the hours of                             be minimized, including through the appli-                       rules that generally apply to defined bene-
8 a.m. to 4 p.m. to CC:PA:LPD:PR                                cation of automated collection techniques                        fit plans.1 The minimum funding rules that
(REG–113891–07), Courier’s Desk, In-                            or other forms of information technology;                        apply specifically to single employer de-
ternal Revenue Service, 1111 Constitution                       and                                                              fined benefit plans (including multiple em-
Avenue, NW, Washington, DC, or sent                                 Estimates of capital or start-up costs                       ployer plans within the meaning of section
electronically via the Federal eRulemak-                        and costs of operation, maintenance, and                         413(c)) are set forth in new section 430.
ing Portal at www.regulations.gov (IRS                          purchase of service to provide information.                          Section 430 generally provides that the
REG–113891–07).                                                     The collection of information in this                        minimum required contribution for a year
                                                                proposed regulation is in §1.430(f)–1(f)                         is the sum of the target normal cost for the
FOR      FURTHER        INFORMATION                             and §§1.436–1(f) and 1.436–1(h). This in-                        year and the shortfall and waiver amorti-
CONTACT: Lauson C. Green or                                     formation is required in order for a qual-                       zation charges. Under section 430(f)(3),
Linda S.F. Marshall at (202) 622–6090;                          ified defined benefit plan’s enrolled ac-                        certain funding balances referred to as the
concerning submissions and requests for                         tuary to provide a timely certification of                       prefunding balance and the funding stan-
a public hearing, contact Kelly Banks at                        the plan’s AFTAP for each plan year to                           dard carryover balance are permitted to
(202) 622–7180 (not toll-free numbers).                         avoid certain benefit restrictions. In ad-                       be used to reduce the otherwise applica-

1 Section 302 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), sets forth funding rules that are parallel to those in section 412 of the Code, section 303 of
ERISA sets forth additional funding rules for defined benefit plans (other than multiemployer plans) that are parallel to those in section 430 of the Code, and section 206(g) of ERISA sets
forth funding-based limitations for defined benefit plans (other than multiemployer plans) that are parallel to those in section 436 of the Code. Under section 101 of Reorganization Plan
No. 4 of 1978 (43 FR 47713) and section 302 of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed in these proposed regulations for purposes
of ERISA, as well as the Code. Thus, these proposed Treasury regulations issued under sections 430(f) and 436 of the Code apply as well for purposes of ERISA sections 303(f) and 206(g),
respectively.



2007–42 I.R.B.                                                                             821                                                             October 15, 2007
ble minimum required contribution for a            Section 436(b) sets forth a limitation      tion, but only if the rate of increase does
plan year in certain situations. Under sec-    on plant shutdown and other unpredictable       not exceed the contemporaneous rate of in-
tion 430(f)(7), the funding standard carry-    contingent event benefits in situations         crease in average wages of the participants
over balance is based on the funding stan-     where the plan’s adjusted funding target        covered by the amendment.
dard account credit balance as determined      attainment percentage (AFTAP) for the               Under section 436(d), a plan is required
under section 412 for a plan as of the last    plan year is less than 60 percent or would      to set forth certain limitations on accel-
day of the last plan year beginning in 2007.   be less than 60 percent taking into account     erated benefit distributions. If the plan’s
Under section 430(f)(6), the prefunding        the occurrence of the event. For this pur-      AFTAP for a plan year is less than 60 per-
balance represents the accumulation of the     pose, an “unpredictable contingent event        cent, the plan must not make any prohib-
contributions that an employer makes for       benefit” means any benefit payable solely       ited payments after the valuation date for
a plan year that exceed the minimum re-        by reason of (1) a plant shutdown (or a         the plan year. If the plan’s AFTAP for a
quired contribution for the year. Thus, an     similar event) or (2) an event other than       plan year is at least 60 percent but is less
employer that makes additional contribu-       attainment of age, performance of service,      than 80 percent, the plan must not pay any
tions for a plan year is permitted in cer-     receipt or derivation of compensation,          prohibited payment to the extent the pay-
tain circumstances to use those excess con-    or the occurrence of death or disability.       ment exceeds the lesser of (1) 50 percent
tributions in order to satisfy the minimum     Under section 436(b)(2), the limitation         of the amount otherwise payable under the
funding requirement in a subsequent plan       does not apply for a plan year if the plan      plan and (2) the present value of the max-
year.                                          sponsor makes a specified contribution (in      imum PBGC guarantee with respect to a
    The treatment of these balances under      addition to any minimum required con-           participant. In addition, if the plan spon-
section 430 reflects congressional concern     tribution). If the AFTAP for a plan year        sor is in bankruptcy proceedings, the plan
with the treatment of a funding standard       is less than 60 percent, then the specified     may not pay any prohibited payment un-
account credit balance under the section       contribution is equal to the amount of the      less the plan’s enrolled actuary certifies
412 rules in effect prior to PPA ’06. Ac-      increase in the plan’s funding target for       that the AFTAP of the plan is at least 100
cordingly, section 430(f)(3) sets forth new    the plan year attributable to the occurrence    percent. However, section 436(d) does not
limits on the ability of a poorly funded       of the event. If the AFTAP for a plan year      apply to a plan for a plan year if the terms
plan to use the prefunding balance and the     is 60 percent or more but would be less         of the plan provide for no benefit accruals
funding standard carryover balance for a       than 60 percent taking into account the         with respect to any participant for the pe-
plan year. In addition, section 430(f)(4)      occurrence of the event, then the specified     riod beginning on September 1, 2005, and
requires that the prefunding balance and       contribution is the amount sufficient to        extending throughout the plan year.
the funding standard carryover balance be      result in an AFTAP of 60 percent taking             Under section 436(d)(5), a “prohibited
subtracted from the value of plan assets for   into account the occurrence of the event.       payment” is (1) any payment, in excess of
certain purposes (including the determina-         Under section 436(c), a plan amend-         the monthly amount paid under a single
tion of the plan’s funding target attainment   ment that has the effect of increasing the      life annuity (plus any social security sup-
percentage (FTAP), as defined under sec-       liabilities of the plan by reason of any in-    plements that are provided under the plan),
tion 430(d)(2)) and section 430(f)(8) re-      crease in benefits (including changes in        to a participant or beneficiary, (2) any pay-
quires that the prefunding balance and the     vesting) may not take effect if the plan’s      ment for the purchase of an irrevocable
funding standard carryover balance be ad-      AFTAP for the plan year is less than 80         commitment from an insurer to pay ben-
justed for actual investment return on the     percent or would be less than 80 percent        efits (an annuity contract), or (3) any other
plan assets. In order to give employers the    taking into account the amendment. Un-          payment specified by the Secretary by reg-
opportunity to minimize the impact of the      der section 436(c)(2), the limitation does      ulations.
requirement to subtract the prefunding bal-    not apply for a plan year if the plan spon-         Under section 436(e), a plan is required
ance and funding standard carryover bal-       sor makes a specified contribution (in ad-      to provide that if the plan’s AFTAP is less
ance from the plan assets, section 430(f)(5)   dition to any minimum required contribu-        than 60 percent for a plan year, all fu-
permits an employer to elect to reduce the     tion). If the plan’s AFTAP for the plan year    ture benefit accruals under the plan must
balances.                                      is less than 80 percent, then the specified     cease as of the valuation date for the plan
    Section 401(a)(29) requires that a de-     contribution is equal to the amount of the      year. Under section 436(e)(2), the limi-
fined benefit plan (other than a multiem-      increase in the plan’s funding target for the   tation ceases to apply with respect to any
ployer plan) satisfy the requirements of       plan year attributable to the amendment.        plan year, effective as of the first day of the
section 436. Section 436 sets forth a series   If the plan’s AFTAP for the plan year is        plan year, if the plan sponsor makes a con-
of limitations on the accrual and payment      80 percent or more but would be less than       tribution (in addition to any minimum re-
of benefits under an underfunded plan.         80 percent taking into account the amend-       quired contribution for the plan year) equal
Under section 436(g), these limitations        ment, then the specified contribution is the    to the amount sufficient to result in an
(other than the limitations on accelerated     amount sufficient to result in an AFTAP of      AFTAP of 60 percent.
benefit payments under section 436(d))         80 percent taking into account the amend-           Section 436(f) sets forth a series of rules
do not apply to a plan for the first 5 plan    ment. In addition, under section 436(c)(3),     under which the limitations of section 436
years of the plan, taking into account any     the limitation does not apply to an amend-      will not apply to a plan. Under section
predecessor plan.                              ment that provides for a benefit increase       436(f)(1), an employer is permitted to pro-
                                               under a formula not based on compensa-          vide security to the plan (in the form of a


October 15, 2007                                                   822                                                 2007–42 I.R.B.
surety bond, cash, or other forms satisfac-                    ceding the current plan year, the plan’s                       sets forth a transition rule for determining
tory to the Treasury Department and the                        AFTAP for the current year is presumed to                      eligibility for this special rule.
parties involved) that is treated as an asset                  be the same as for the preceding year un-                          Section 436(k) provides that, for plan
of the plan for purposes of determining the                    til the plan’s enrolled actuary certifies the                  years that begin in 2008, the determination
plan’s AFTAP. Under section 436(f)(2),                         plan’s AFTAP for the current year. Un-                         of the plan’s FTAP for the preceding year
if an employer uses the option in section                      der section 436(h)(3), if any of these lim-                    is to be made pursuant to guidance issued
436(b)(2), 436(c)(2), or 436(e)(2) to make                     itations did not apply to the plan for the                     by the Secretary.
the specified contribution that would avoid                    preceding year, but the plan’s AFTAP for
a limitation under section 436, the speci-                     the preceding year was within 10 percent-                      Explanation of Provisions
fied contribution must be an actual contri-                    age points of the limitation’s threshold, the
bution and the employer may not use a pre-                     plan’s AFTAP is presumed to be reduced                         I. Section 430(f) — Effect of Prefunding
funding balance or funding standard carry-                     by 10 percentage points as of the first day                    Balance and Funding Standard Carryover
over balance in lieu of making the speci-                      of the 4th month of the current plan year,                     Balance.
fied contribution. In addition, a contribu-                    unless the plan’s enrolled actuary has certi-
                                                                                                                              A. Overview.
tion to avoid a benefit limitation is disre-                   fied the plan’s AFTAP for the current year
garded in determining whether the mini-                        by that day (and that day is deemed to be
                                                                                                                              1. In general.
mum required contribution under section                        the plan’s valuation date for purposes of
430 has been made and in determining the                       applying the benefit limitations). If the                         The proposed regulations would be the
plan’s prefunding balance.                                     plan’s enrolled actuary has not certified the                  second in a series of proposed regulations
    Section 436(f)(3) describes certain sit-                   plan’s AFTAP by the first day of the 10th                      under new section 430.2 These regulations
uations in which an employer is deemed to                      month of the current plan year, section                        would provide guidance on the applica-
have made the election in section 430(f)(5)                    436(h)(2) provides that the plan’s AFTAP                       tion of section 430(f), relating to the es-
to reduce the plan’s funding standard car-                     is conclusively presumed to be less than                       tablishment and maintenance of a funding
ryover balance or prefunding balance.                          60 percent as of that day (and that day is                     standard carryover balance and a prefund-
Such an election has the effect of increas-                    deemed to be the valuation date for pur-                       ing balance for purposes of sections 430
ing the plan’s FTAP (because the result of                     poses of applying the benefit limitations).                    and 436. The Treasury Department and
the election is a higher asset value used                          Under section 436(i), unless the plan                      the IRS intend to issue additional proposed
to determine the FTAP) and could lead                          provides otherwise, if a limitation on pro-                    regulations relating to other portions of the
to the plan not being subject to a benefit                     hibited payments or future benefit accruals                    rules under section 430 later in 2007.
limitation under section 436. In particu-                      under section 436(d) or (e) ceases to apply
lar, if the limitation under section 436(d)                    to a plan, all such payments and benefit ac-                   2. Multiple employer plans.
would otherwise apply to a plan, the plan                      cruals resume, effective as of the day fol-
sponsor is treated as having made an elec-                     lowing the close of the limitation period.                        The proposed regulations under section
tion (a deemed election) to reduce any                             Section 436(j) provides definitions that                   430(f) apply to plans subject to section
prefunding balance or funding standard                         are used under section 436, including the                      412 that are maintained by one employer
carryover balance by the amount neces-                         plan’s AFTAP. In general, the plan’s                           or a controlled group of employers and to
sary to prevent the benefit limitation from                    AFTAP is based on the plan’s FTAP for                          multiple employer plans within the mean-
applying. A comparable rule applies to                         the plan year. However, the plan’s AFTAP                       ing of section 413(c). In the case of a
the other benefit limitations under sections                   is determined by adding the aggregate                          multiple employer plan to which section
436(b), 436(c), and 436(e), but only in the                    amount of purchases of annuities for em-                       413(c)(4)(A) applies, the rules under the
case of a plan maintained pursuant to a                        ployees other than highly compensated                          proposed regulations would be applied
collective bargaining agreement. In either                     employees (within the meaning of section                       separately for each employer under the
case, this deeming rule applies only if the                    414(q)) made by the plan during the two                        plan, as if each employer maintained a
prefunding balance and funding standard                        preceding plan years to the numerator and                      separate plan. Thus, each employer under
carryover balances are large enough to                         the denominator of the fraction used to                        such a multiple employer plan may have
avoid the application of a section 436 lim-                    determine the FTAP.                                            a separate funding standard carryover bal-
itation.                                                           In addition, section 436(j)(3) provides a                  ance and a prefunding balance for the plan.
    Section 436(h) sets forth a series of                      special rule which applies to certain well-                    In the case of a multiple employer plan
presumptions that apply during the por-                        funded plans under which the plan’s FTAP                       to which section 413(c)(4)(A) does not
tion of the plan year that is before the                       for purposes of section 436 (and hence the                     apply (that is, a plan described in section
plan’s enrolled actuary has certified the                      plan’s AFTAP) is determined by using the                       413(c)(4)(B) that has not made the elec-
plan’s AFTAP for the year. Under sec-                          plan’s assets without reduction for the pre-                   tion for section 413(c)(4)(A) to apply), the
tion 436(h)(1), if a plan was subject to                       funding balance and the funding standard                       proposed regulations under section 430(f)
a limitation under section 436(b), 436(c),                     carryover balance. Section 436(j)(3)(B)                        would apply as if all participants in the
436(d), or 436(e) for the plan year pre-                                                                                      plan were employed by a single employer.

2 Proposed regulation §§1.430(h)(3)–1 and 1.430(h)(3)–2, relating to the mortality tables used to determine liabilities under section 430(h)(3), were issued May 29, 2007 (REG–143601–06,
2007–24 I.R.B. 1398 [72 FR 29456]).



2007–42 I.R.B.                                                                           823                                                           October 15, 2007
B. Establishment of prefunding balance           interest adjustments with respect to min-         valuation date for the preceding plan year,
and funding standard carryover balance.          imum required contributions for the plan          reduced by the amount of any prefunding
                                                 year).                                            balance (but not the amount of any fund-
    The proposed regulations would pro-              The proposed regulations would pro-           ing standard carryover balance), and the
vide that an employer is permitted to es-        vide that the funding standard carryover          denominator of which is the funding target
tablish a prefunding balance for a plan that     balance is initialized as the balance in the      of the plan for the preceding plan year (de-
represents the accumulation of contribu-         funding standard account as of the last day       termined without regard to the at-risk rules
tions made for plan years beginning on or        of the last plan year before section 430 ap-      of section 430(i)(1)).
after the effective date of section 430 with     plies to a plan (the pre-effective plan year).        The proposed regulations would pro-
respect to the plan (the first effective plan    This is generally the last plan year begin-       vide a transition rule to determine a plan’s
year) that are in excess of the minimum re-      ning in 2007, but could be a later year in the    prior year funding ratio for the first effec-
quired contributions (determined without         case of a plan to which a delayed effective       tive plan year. Under this transition rule,
regard to the prefunding balance and fund-       date applies under the rules of sections 104      the current liability for the plan for the
ing standard carryover balance) for those        through 106 of PPA ’06.                           pre-effective plan year is substituted for
plan years. Specifically, for the first ef-                                                        the funding target of the plan for that plan
fective plan year of a plan, the prefunding      C. Maintenance of prefunding balance              year. In addition, the transition rule pro-
balance is initialized at zero dollars and an    and funding standard carryover balance.           vides that the value of plan assets is deter-
employer is permitted to elect to add some                                                         mined under section 412(c)(2) as in effect
                                                    The proposed regulations would pro-
or all of the excess contributions made to                                                         for that pre-effective plan year, except that
                                                 vide that a plan’s prefunding balance and
a plan for each plan year to the prefund-                                                          the value of plan assets must be limited so
                                                 funding standard carryover balance as of
ing balance as of the first day of the next                                                        that it is not less than 90 percent and not
                                                 the beginning of a plan year are adjusted
plan year. For this purpose, the excess con-                                                       more than 110 percent of the fair market
                                                 to reflect the actual rate of return on plan
tributions are generally determined as the                                                         value of plan assets.
                                                 assets for the plan year. This calculation
amount by which the employer contribu-                                                                 The proposed regulations would reflect
                                                 of the actual rate of return on plan assets
tions to the plan for the plan year exceed                                                         the rule in section 430(f)(3)(B) that re-
                                                 for the plan year is determined on the basis
the minimum required contribution for the                                                          quires the plan sponsor to have reduced
                                                 of fair market value and must take into ac-
plan year, with appropriate adjustments for                                                        the funding standard carryover balance
                                                 count the amount and timing of all contri-
interest determined at the effective inter-                                                        in full (either by using the funding stan-
                                                 butions, distributions, and other plan pay-
est rate under section 430(h)(2)(A). How-                                                          dard carryover balance to offset the min-
                                                 ments made during the year. The adjust-
ever, the proposed regulations would pro-                                                          imum required contribution for a year
                                                 ment for investment return is applied to the
vide that any contribution that is made to                                                         or through a voluntary reduction under
                                                 prefunding balance and funding standard
avoid the application of a benefit limitation                                                      section 430(f)(5)) before the prefunding
                                                 carryover balance after any reductions to
under section 436 is not taken into account                                                        balance is permitted to be used to offset
                                                 those balances as described under the fol-
in determining the amount of excess con-                                                           a current year minimum funding require-
                                                 lowing two headings in this preamble. In
tributions.                                                                                        ment.
                                                 addition, the proposed regulations would
    The proposed regulations would also
                                                 provide special rules in the case of a plan
provide that the minimum required con-                                                             E. Subtraction from plan assets and
                                                 with a valuation date that is not the first day
tribution for purposes of determining the                                                          employer election to reduce balances.
                                                 of the plan year.
amount of excess contributions for the year
is determined without regard to any offset       D. Use of prefunding balance and funding             The proposed regulations would reflect
of the minimum required contribution for         standard carryover balance to offset              the rules under section 430(f)(4) which
the year as a result of the use of the pre-      minimum funding requirements for a year.          provide that the prefunding balance and
funding or funding standard carryover bal-                                                         funding standard carryover balance are
ances. Accordingly, an employer would               The proposed regulations would pro-            subtracted from the plan assets for certain
not be permitted to add to the prefund-          vide that the employer may elect to use           purposes. These include the determination
ing balance any amount of contributions          some or all of the prefunding balance or          of the FTAP, which is also relevant for
that are “excess” by reason of an offset         funding standard carryover balance to off-        purposes of applying the benefit limita-
of the minimum required contribution for         set the otherwise applicable minimum re-          tions of section 436.
the year through the use of the prefunding       quired contribution for a plan year, pro-            In     accordance      with      section
balance or funding standard carryover bal-       vided that the plan met a funding percent-        430(f)(4)(A), the proposed regula-
ance. This prohibition precludes an em-          age threshold for the preceding plan year.        tions would provide that the amount of
ployer from avoiding the requirement to          Specifically, an employer is permitted to         the prefunding balance is subtracted from
adjust the prefunding balance and funding        make such an election only if the plan’s          the value of plan assets for purposes of
standard carryover balance by the actual         prior year funding ratio was at least 80 per-     determining whether a plan is exempt
rate of return on plan assets in the situation   cent. For this purpose, the plan’s prior year     from the requirement to establish a new
where the plan assets have experienced a         funding ratio generally is a fraction (ex-        shortfall amortization base under section
loss (or a rate of return that is lower than     pressed as a percentage), the numerator of        430(c)(5) only if an election to use the
the effective interest rate that is used for     which is the value of plan assets on the          prefunding balance to offset the minimum


October 15, 2007                                                     824                                                  2007–42 I.R.B.
required contribution is made for the plan      rules. The written notification must set       II. Section 436 — Limits on Benefits and
year. In addition, pursuant to section          forth the relevant details of the election,    Benefit Accruals Under Single Employer
430(f)(4)(B)(ii), the proposed regulations      including the specific amounts involved in     Defined Benefit Plans.
would provide that the prefunding balance       the election with respect to the prefunding
and funding standard carryover balance          balance and funding standard carryover         A. Overview and general rules.
are not subtracted from plan assets for pur-    balance. An election under section 430(f)
                                                                                               1. In general.
poses of determining the funding shortfall      generally must be made on or before the
under section 430(c)(4) to the extent that      due date (with extensions) for the filing of      The proposed regulations would set
there is a binding written agreement with       the plan’s Form 5500, “Annual Return/Re-       forth the rules that a defined benefit pen-
the Pension Benefit Guaranty Corporation        port of Employee Benefit Plan”, for the        sion plan that is subject to section 412
(PBGC) which provides that all or a por-        plan year to which the election relates        and that is not a multiemployer plan must
tion of those balances cannot be used to        (or, in the case of a plan not required to     satisfy in order to comply with the re-
offset the minimum required contribution        file a Form 5500 for the plan year, on or      quirement in section 401(a)(29) that the
for a plan year. For this purpose, an           before the last day of the seventh month       plan meet the requirements of section 436.
agreement with the PBGC is taken into           after the end of the plan year to which        This requirement is a qualification require-
account with respect to a plan year only if     the election relates). For this purpose, an    ment. A plan satisfies the requirements
the agreement was executed prior to the         election to add to the prefunding balance      of section 436 only if the plan meets the
valuation date for the plan year.               relates to the plan year for which excess      requirements of these regulations.
    In addition, section 436(j) sets forth an   contributions were made. However, the
exception from the requirement to subtract      proposed regulations would require any         2. New plans.
the plan’s prefunding balance and fund-         section 430(f)(5) election to reduce a por-
ing standard carryover balance from the         tion of the prefunding balance or funding          In accordance with section 436(g),
value of plan assets in determining a plan’s    standard carryover balance for a plan year     the proposed regulations would provide
FTAP for purposes of the benefit limita-        to be made by the end of the plan year to      that the limitations described in sections
tion rules of section 436 provided that the     which the election relates. For example,       436(b), 436(c), and 436(e) do not apply
plan’s FTAP would meet certain standards        in the case of a calendar year plan required   to a plan for the first five plan years of
if it were calculated without subtracting       to file Form 5500, an election to add to       the plan. For purposes of applying this
the balances from plan assets.                  the prefunding balance as of the first day     new plan rule, plan years under a plan
    Section 430(f)(5) provides that an em-      of the 2010 plan year (in an amount not        are aggregated with plan years under a
ployer may elect to reduce the amount           in excess of the 2009 interest-adjusted ex-    predecessor plan. Thus, the only benefit
of the prefunding balance and the fund-         cess contributions), must be made no later     limitation that could apply under a plan
ing standard carryover balance. This will       than the due date for filing the 2009 Form     that is not a successor plan during the first
have the effect of increasing the plan as-      5500 (with extensions), while an election      five years of its existence is the section
sets for various purposes. For example,         to reduce the prefunding balance as of the     436(d) limitation applicable to accelerated
the increase in plan assets will increase the   first day of the 2010 plan year must be        benefit payments (such as single sum dis-
FTAP, which may allow the plan to avoid         made by the end of the 2010 plan year. In      tributions).
the application of section 436 limitations.     both cases, the election would be reported
                                                                                               3. Multiple employer plans.
The proposed regulations would reflect the      on the 2010 Form 5500 (Schedule SB) that
rule in section 430(f)(5)(B) that requires      would be filed in 2011.                            The proposed regulations under sec-
the employer to reduce the funding stan-            The proposed regulations would pro-        tion 436 apply to plans maintained by one
dard carryover balance in full (either by       vide that, for purposes of elections under     employer (including a controlled group of
using the funding standard carryover bal-       section 430(f), any reference in the pro-      employers) and to multiple employer plans
ance to offset the minimum required con-        posed regulations to the plan sponsor gen-     (within the meaning of section 413(c)). In
tribution for a year or through a voluntary     erally means the employer or employers         the case of a multiple employer plan
reduction under section 430(f)(5)) before       responsible for making contributions to the    to which section 413(c)(4)(A) applies,
any reduction is permitted for the prefund-     plan. However, in the case of elections un-    the rules under the proposed regulations
ing balance.                                    der section 430(f) for multiple employer       would be applied separately for each em-
                                                plans to which section 413(c)(4)(A) does       ployer under the plan, as if each employer
F. Elections under section 430(f).              not apply, any reference in the proposed       maintained a separate plan. Thus, the ben-
                                                regulations to the plan sponsor means the      efit limitations under section 436 could
   The proposed regulations would pro-
                                                plan administrator within the meaning of       apply differently to employees of different
vide that an election under section 430(f)
                                                section 414(g).                                employers under such a multiple employer
is made by the plan sponsor by provid-
ing written notification of the election to                                                    plan. In the case of a multiple employer
the plan’s enrolled actuary and the plan                                                       plan to which section 413(c)(4)(A) does
administrator, must be irrevocable when                                                        not apply (that is, a plan described in
made, and must satisfy certain timing                                                          section 413(c)(4)(B) that has not made
                                                                                               the election for section 413(c)(4)(A) to



2007–42 I.R.B.                                                     825                                            October 15, 2007
apply), the proposed regulations under                           ing liabilities under the plan if the pe-                      required if the limitation would still apply
section 436 would apply as if all partic-                        riod of the limitation exceeded 12 months.                     for a year even if those balances were re-
ipants in the plan were employed by a                            Whether a plan is amended or is treated as                     duced to zero.
single employer.                                                 having been amended as described above,                            In addition, the proposed regulations
                                                                 the amendment or pre-existing plan provi-                      would provide that, in the case of a plan
4. Treatment of plan as of close of                              sion is subject to the limitations of section                  maintained pursuant to one or more col-
prohibited or cessation period.                                  436(c).3                                                       lective bargaining agreements between an
                                                                     In addition, the proposed regulations                      employee representative and one or more
    The proposed regulations would pro-
                                                                 would provide that a plan is permitted to be                   employers in which a benefit limitation
vide that, if a limitation on accelerated ben-
                                                                 amended to provide that any unpredictable                      under section 436(b), 436(c), or 436(e)
efit payments under section 436(d) (such
                                                                 contingent event benefits that were limited                    would otherwise apply to the plan, the em-
as single sum distributions) applies to a
                                                                 under the rules of section 436(b) will be                      ployer is treated for purposes of section
plan as of a section 436 measurement date,
                                                                 paid or reinstated when the limitation no                      436 as having made an election under sec-
but that limit subsequently ceases to ap-
                                                                 longer applies, subject to applicable qual-                    tion 430(f) to reduce the prefunding bal-
ply to the plan as of a later section 436
                                                                 ification requirements. Any such amend-                        ance or funding standard carryover bal-
measurement date, then the limitation does
                                                                 ment is subject to the limitations of sec-                     ance by such amount as is necessary for
not apply to benefits with annuity starting
                                                                 tion 436(c). A plan is not permitted to                        the AFTAP to be at or above the applica-
dates that are on or after that later section
                                                                 provide for restoration of any such unpre-                     ble threshold for the benefit limitation not
436 measurement date. In addition, the
                                                                 dictable contingent event benefits without                     to apply to the plan, taking into account the
proposed regulations would provide that, if
                                                                 an amendment that complies with section                        unpredictable contingent event benefits or
a limitation on benefit accruals under sec-
                                                                 436(c).                                                        plan amendment, as applicable. The pro-
tion 436(e) applies to a plan, unless the
                                                                                                                                posed regulations would provide that, in
plan provides otherwise, benefit accruals                        5. Deemed election to reduce prefunding                        the case of a plan with respect to which
under the plan will resume effective as of                       and funding standard carryover balances.                       collective bargaining agreements apply to
the section 436 measurement date as of
                                                                                                                                some, but not all, of the plan participants,
which benefit accruals are no longer re-                             The proposed regulations would pro-
                                                                                                                                the plan is considered a collectively bar-
stricted.                                                        vide that, if a limitation on accelerated ben-
                                                                                                                                gained plan for purposes of this provision
    With respect to a participant who had an                     efit payments under section 436(d) would
                                                                                                                                if at least 25 percent of the participants in
annuity starting date within a period dur-                       otherwise apply to a plan, the plan spon-
                                                                                                                                the plan are members of the collective bar-
ing which the accelerated benefit payment                        sor is treated as having made an election
                                                                                                                                gaining units for whom the benefit levels
limitation rules of section 436(d) applied                       under section 430(f) to reduce the prefund-
                                                                                                                                under the plan are specified under the col-
to the plan, once the limitation ceases to                       ing balance or funding standard carryover
                                                                                                                                lective bargaining agreements. As in the
apply, the participant’s benefits will con-                      balance by such amount as is necessary for
                                                                                                                                case of the deemed reduction in funding
tinue to be paid in the form previously                          the AFTAP to be at or above the applica-
                                                                                                                                balances for the accelerated benefit distri-
elected unless the plan permits the partic-                      ble threshold (60, 80, or 100 percent, as the
                                                                                                                                butions under section 436(d), the deemed
ipant to be offered a new election which                         case may be) in order for the benefit limita-
                                                                                                                                reduction applies only if the prefunding
would modify the prior election. The pro-                        tion not to apply to the plan. In such a case,
                                                                                                                                and funding standard carryover balances to
posed regulations would permit a plan to                         the plan sponsor is treated as having made
                                                                                                                                be reduced are large enough to avoid the
provide that the participant will be offered                     that election on the section 436 measure-
                                                                                                                                application of the limitation under section
the opportunity to have a new election un-                       ment date as of which the benefit limita-
                                                                                                                                436(b), 436(c), or 436(e), as applicable.
der which the form of benefit previously                         tion would otherwise apply. This deemed
                                                                                                                                    If the mandatory reduction of funding
elected may be modified, subject to appli-                       election applies if the plan provides for ac-
                                                                                                                                balances applies to a plan, the employer
cable qualification requirements, and that                       celerated distributions that would be lim-
                                                                                                                                is treated as having made that election on
new election will constitute a new annu-                         ited in a plan year, regardless of whether a
                                                                                                                                the date as of which the applicable bene-
ity starting date for purposes of section                        plan participant is eligible or elects to re-
                                                                                                                                fit restriction would otherwise apply. In
417. Similarly, a plan is permitted to be                        ceive such a distribution during the plan
                                                                                                                                addition, the proposed regulations would
amended to provide that any benefit ac-                          year (but does not apply if the plan does
                                                                                                                                provide that, if a plan (whether or not col-
cruals that were limited under the rules of                      not provide for any accelerated distribu-
                                                                                                                                lectively bargained) is presumed to have
section 436(e) will be credited under the                        tions that are subject to the benefit limita-
                                                                                                                                an AFTAP of less than 60 percent under
plan once the limitation no longer applies,                      tion). However, the deemed reduction ap-
                                                                                                                                the section 436(h) presumption rules, then
subject to applicable qualification require-                     plies with respect to this limitation only if
                                                                                                                                the plan is treated as if the plan’s funding
ments. If a plan provides for the restora-                       the prefunding and funding standard car-
                                                                                                                                standard carryover balance and prefund-
tion of benefit accruals for the period of                       ryover balances to be reduced are large
                                                                                                                                ing balance are insufficient to increase the
the limitation under preexisting plan terms,                     enough to avoid the application of the lim-
                                                                                                                                plan’s AFTAP to the threshold percentage.
the plan is treated as having adopted an                         itation. Thus, no reduction of prefunding
amendment that has the effect of increas-                        and funding standard carryover balances is


3   The PBGC has informed the IRS and the Treasury Department that it expects similarly to treat such an automatic restoration of missed benefit accruals as a plan amendment.



October 15, 2007                                                                           826                                                                  2007–42 I.R.B.
6. Section 436 measurement date.                                 plies for a plan year, effective as of the                       that its shutdown benefits are not subject
                                                                 first day of the plan year, if the employer                      to the limitation for that plan year, benefits
    The “section 436 measurement date” is                        makes the contribution specified in section                      paid pursuant to that shutdown are per-
a defined term under the proposed regu-                          436(b)(2), as described in paragraph II.F                        mitted to be paid in a later plan year even
lations that is used to describe the date                        in this preamble.                                                if the plan’s AFTAP for the subsequent
that stops or starts the application of the                          For this purpose, the proposed reg-                          year is less than 60 percent. Conversely,
limitations of sections 436(d) and 436(e)                        ulations would provide that an “unpre-                           if a plant shutdown occurs in 2010 and a
and is also used for calculations with re-                       dictable contingent event benefit” means                         plan’s funded status is such that its shut-
spect to applying the limitations of sec-                        any benefit or increase in benefits to the                       down benefits are subject to the limitation
tions 436(b) and 436(c). The regulations                         extent the benefit or increase would not                         under section 436(b) for that plan year and
would provide that the date of the enrolled                      be payable but for the occurrence of an                          cannot be paid, those shutdown benefits
actuary’s certification of the AFTAP for                         unpredictable contingent event, and an                           related to the 2010 plant shutdown are not
the plan year is a section 436 measure-                          “unpredictable contingent event” means                           permitted to be paid in a later year even
ment date if it occurs within the first nine                     a plant shutdown (whether full or partial)                       if the plan’s AFTAP for the later year is
months of the plan year. If the date of                          or similar event, or an event other than                         at or above the 60 percent threshold for
an enrolled actuary’s certification of the                       the attainment of any age, performance                           the section 436(b) limitation (subject to
AFTAP is between the first day of the 10th                       of any service, receipt or derivation of                         the rules permitting plan amendments to
month of a plan year and the last day of                         any compensation, or the occurrence of                           reinstate previously restricted benefits,
that plan year, that date is not a section                       death or disability. Thus, for example,                          including unpredictable contingent event
436 measurement date for purposes of the                         if a plan provides for an unreduced early                        benefits, as described in paragraph II.A.4
limitations of section 436(d) or 436(e) be-                      retirement benefit upon the occurrence                           of this preamble).
cause, in that case, the plan’s AFTAP is                         of an event other than the attainment of
presumed to be under 60 percent (however,                        any age, performance of any service, re-                         C. Limitations on plan amendments
receipt of the enrolled actuary’s certifica-                     ceipt or derivation of any compensation,                         increasing liability for benefits.
tion during that period impacts the plan’s                       or the occurrence of death or disability,
presumed “carryover” AFTAP for the fol-                                                                                               In accordance with section 436(c), the
                                                                 then that unreduced early retirement ben-
lowing year). The proposed regulations                                                                                            proposed regulations would provide that a
                                                                 efit is an unpredictable contingent event
would provide that a section 436 measure-                                                                                         plan satisfies the limitation on plan amend-
                                                                 benefit to the extent of any portion of the
ment date occurs where there is a change                                                                                          ments increasing liability for benefits only
                                                                 benefit that would not be payable but for
in the plan’s AFTAP under the presump-                                                                                            if the plan provides that no amendment
                                                                 the occurrence of the event, even if the
tion rules of section 436(h). In addition,                                                                                        to the plan that has the effect of increas-
                                                                 remainder of the benefit is payable with-
the proposed regulations would provide a                                                                                          ing liabilities of the plan by reason of in-
                                                                 out regard to the occurrence of the event.
series of rules in cases where the enrolled                                                                                       creases in benefits, establishment of new
                                                                 Similarly, an unpredictable contingent
actuary’s certification of the AFTAP for a                                                                                        benefits, changing the rate of benefit ac-
                                                                 event benefit under the proposed regu-
plan year is made after the end of the plan                                                                                       crual, or changing the rate at which bene-
                                                                 lations includes a benefit payable upon
year, as described below under the head-                                                                                          fits become nonforfeitable is permitted to
                                                                 the presence of circumstances specified in
ing “Presumed underfunding for purposes                                                                                           take effect if the AFTAP for the plan year
                                                                 the plan (other than the attainment of any
of benefit limitations.”                                                                                                          is less than 80 percent (or is 80 percent
                                                                 age, performance of any service, receipt
                                                                                                                                  or more but would be less than 80 percent
                                                                 or derivation of any compensation, or the
B. Limitation on plant shutdown and other                                                                                         if the benefits attributable to the amend-
                                                                 occurrence of death or disability), so that
unpredictable contingent event benefits.                                                                                          ment were taken into account in determin-
                                                                 a plan that provides those benefits upon a
                                                                                                                                  ing the AFTAP). However, this prohibi-
                                                                 participant’s severance from employment
   In accordance with section 436(b),                                                                                             tion on plan amendments no longer applies
                                                                 in those circumstances, but not upon a
the proposed regulations would provide                                                                                            for a plan year if the employer makes the
                                                                 severance from employment that does not
that a plan that provides for any unpre-                                                                                          contribution specified in section 436(c)(2),
                                                                 involve those circumstances, is providing
dictable contingent event benefit4 must                                                                                           as described in paragraph II.F of this pre-
                                                                 an unpredictable contingent event benefit.
provide that the benefit will not be paid                                                                                         amble.
                                                                     Unpredictable contingent event ben-
to a plan participant during a plan year                                                                                              In accordance with section 436(c)(3),
                                                                 efits attributable to a plant shutdown or
if the AFTAP for the plan year is less                                                                                            the limitation on amendments increasing
                                                                 other unpredictable contingent event that
than 60 percent (or is 60 percent or more                                                                                         liabilities does not apply to any amend-
                                                                 occurred within a period during which no
but would be less than 60 percent if the                                                                                          ment that provides for an increase in ben-
                                                                 limitation under section 436(b) applied to
benefits attributable to the unpredictable                                                                                        efits under a formula that is not based on
                                                                 the plan are not affected by the limitation
contingent event were taken into account                                                                                          a participant’s compensation, but only if
                                                                 as it applies in a subsequent period. For
in determining the AFTAP). However, this                                                                                          the rate of increase in benefits does not ex-
                                                                 example, if a plant shutdown occurs in
prohibition on payment of unpredictable                                                                                           ceed the contemporaneous rate of increase
                                                                 2010 and a plan’s funded status is such
contingent event benefits no longer ap-                                                                                           in average wages of participants covered

4 See also Notice 2007–14, 2007–7 I.R.B. 501 (see §601.601(d)(2) of this chapter), requesting comments on the types of benefits that are permitted to be provided in a qualified defined benefit
plan, including benefits payable in the event of a plant shutdown or similar event.



2007–42 I.R.B.                                                                              827                                                              October 15, 2007
by the amendment. The proposed regula-          with an annuity starting date that is on            If an optional form of benefit that is
tions would provide that the determination      or after the applicable section 436 mea-        otherwise available under the terms of the
of the rate of increase in average wages is     surement date. However, if a participant        plan is not available as of the annuity start-
made by taking into consideration the net       requests such a prohibited distribution, the    ing date because it is a prohibited pay-
increase in average wages during the pe-        plan must permit the participant to elect       ment that cannot be paid under the preced-
riod beginning with the effective date of       another form of benefit available under         ing paragraph, then the plan must provide
the most recent benefit increase applicable     the plan or to defer payment to a later date    a participant who elects such an optional
to all of those participants who are cov-       to the extent permitted under applicable        form with the option either to defer pay-
ered by the current amendment and end-          qualification requirements. Similar rules       ment to a later date (to the extent permit-
ing on the effective date of the current        apply in any case in which a beneficiary        ted under applicable qualification require-
amendment. If the participants covered by       is entitled to a prohibited payment (for        ments) or to bifurcate the benefit into un-
an amendment include both currently em-         example, where a qualified pre-retirement       restricted and restricted portions. If the
ployed participants and terminated partic-      survivor annuity is offered in an alterna-      participant elects to bifurcate the bene-
ipants (who will have no increase or de-        tive single sum payment).                       fit, the plan must permit the participant to
crease in wages for this purpose after sev-                                                     elect, with respect to the unrestricted por-
erance from employment), all covered par-       2. Bankruptcy.                                  tion, any optional form of benefit other-
ticipants must be included in determining                                                       wise available under the plan with respect
                                                    In accordance with section 436(d)(2),
the increase in average wages of the par-                                                       to the participant’s entire benefit (whether
                                                under the proposed regulations, a plan
ticipants covered by the amendment. Al-                                                         or not the optional form of benefit with re-
                                                must provide that the plan will not pay
ternatively, the employer could adopt two                                                       spect to the unrestricted portion is a pro-
                                                any prohibited payment with an annuity
amendments — one that increases ben-                                                            hibited payment). The unrestricted portion
                                                starting date that is during any period dur-
efits for currently employed participants                                                       of the benefit is the lesser of (i) 50 percent
                                                ing a plan year in which the plan sponsor
and another one that increases benefits for                                                     of the benefit and (ii) the benefit that has
                                                is a debtor in a case under title 11, United
the terminated participants. In that case,                                                      a present value that does not exceed 100
                                                States Code, or similar Federal or State
this exception from application of the sec-                                                     percent of the present value of the maxi-
                                                law, until the date on which the enrolled
tion 436(c) limitation generally would ap-                                                      mum PBGC guarantee with respect to the
                                                actuary of the plan certifies that the plan’s
ply to the amendment that increases ben-                                                        participant under section 4022 of ERISA.
                                                AFTAP is not less than 100 percent.
efits for currently employed participants                                                       If the participant elects payment of the un-
(based solely on the wages of those current     3. Limited payment if percentage at least       restricted portion of the benefit in the form
employees), but the amendment that ap-          60 percent but less than 80 percent.            of a prohibited payment, then the plan must
plies only to terminated participants (who                                                      permit the participant to elect payment of
received no increase in wages from the em-         In accordance with section 436(d)(3),        the restricted portion in any optional form
ployer during the period over which the         under the proposed regulations, a plan          of benefit under the plan that would have
increase in average wages is determined)        must provide that, in any case in which         been permitted with respect to the partici-
would not be eligible for the exception.        the plan’s AFTAP for a plan year is 60          pant’s entire benefit other than a prohibited
    In addition, the proposed regulations       percent or more but is less than 80 per-        payment. A plan is also permitted (but not
would provide that, to the extent that any      cent, a participant is permitted to elect       required) to offer optional forms of benefit
amendment results in (or is made pursuant       a prohibited payment only if the present        that are solely available during the period
to) a mandatory increase in the vesting of      value of the portion of the payment that        section 436(d)(3) applies to the plan, such
benefits under the Code or ERISA (such          is greater than the amount of the monthly       as an optional form of benefit that provides
as vesting rate increases pursuant to statute   straight life annuity under the plan (and       for the current payment of the unrestricted
and plan termination amendments under           any social security supplement, if appli-       portion of the benefit, with a delayed com-
section 411(d)(3)), that amendment does         cable) does not exceed 50 percent of the        mencement for the restricted portion of the
not constitute an amendment that changes        present value of the participant’s benefits     benefit, subject to other applicable qualifi-
the rate at which benefits become nonfor-       (or if less, 100 percent of the present value   cation requirements.
feitable for purposes of section 436(c).        of the maximum guarantee with respect               A participant who receives a prohib-
                                                to the participant under section 4022 of        ited payment (or a series of prohibited pay-
D. Limitations on accelerated benefit           ERISA). For this purpose, present value         ments under a single optional form of ben-
distributions.                                  is determined using the rules of section        efit) under the rule permitting certain pro-
                                                417(e) except that, if the plan provides a      hibited payments cannot receive any ad-
1. Funding percentage less than 60              single sum distribution that is larger than     ditional payment that would be a prohib-
percent.                                        the present value of the benefit determined     ited payment until there is a plan year for
                                                using the rules of section 417(e), then that    which none of the limitations on accel-
   In accordance with section 436(d)(1),        larger benefit is substituted for the present   erated distributions under section 436(d)
under the proposed regulations, a plan          value of the participant’s benefits before      apply. Benefits provided to a participant
must provide that, if the plan’s AFTAP          applying the 50 percent factor. Similar         and any beneficiary are aggregated for pur-
for a plan year is less than 60 percent, the    rules apply in any case in which a benefi-      poses of determining the limited distribu-
plan will not pay any prohibited payment        ciary is entitled to a prohibited payment.      tion under section 436(d)(3). The pro-


October 15, 2007                                                    828                                                 2007–42 I.R.B.
posed regulations would also reflect the         which entitle the participant to such bene-       balance, this will have the effect of increas-
rules of section 436(d)(3)(B)(ii), which de-     fit as described in section 417(f)(2)(A)(ii);     ing the plan assets that are taken into ac-
scribes how this limited distribution is al-         (c) In the case of an amount payable          count in determining the plan’s FTAP and
located among the beneficiaries of a par-        under a retroactive annuity starting date,        AFTAP and, thereby, will raise the AFTAP
ticipant.                                        the benefit commencement date; and                to a level so that the benefit limitations
                                                     (d) The date of any payment for the pur-      may no longer apply to the plan. Alter-
4. Exception for certain frozen plans.           chase of an irrevocable commitment from           natively, if the deadline for making prior
                                                 an insurer to pay benefits under the plan.        year contributions has not passed, the plan
   In accordance with section 436(d)(4),                                                           sponsor could utilize the second technique
the limitations under section 436(d) will        E. Limitation on benefit accruals.                — making additional contributions for the
not apply to a plan for any plan year if the                                                       prior plan year. If these additional con-
terms of the plan, as in effect for the period       In accordance with section 436(e), un-        tributions are not added to the prefunding
beginning on September 1, 2005, provided         der the proposed regulations, a plan must         balance, then the additional contributions
for no benefit accruals with respect to any      provide that, in any case in which the            will also have the effect of increasing the
participants. However, if such a plan pro-       plan’s AFTAP for a plan year is less than         plan’s FTAP and AFTAP.
vides for any benefit accruals during a plan     60 percent, benefit accruals under the plan           The third and fourth techniques for
year, this exception will cease to apply for     will cease as of the applicable section 436       avoiding the application of the benefit
the plan as of the date those accruals start.    measurement date. If a plan must cease            limitations of section 436 are described in
                                                 benefit accruals under this limitation,           §1.436–1(f) of the proposed regulations.
5. Prohibited payment.                           then the plan is also not permitted to be         Under the third technique, the plan spon-
                                                 amended in a manner that would increase           sor makes additional contributions that
    In accordance with section 436(d)(5),        the liabilities of the plan by reason of an in-   are specifically designated at the time the
the proposed regulations would provide           crease in benefits or establishment of new        contribution is used to avoid the applica-
that the term “prohibited payment” means:        benefits. This rule applies regardless of         tion of a limitation under section 436(b),
    (i) Any payment for a month that is in       whether an amendment would otherwise              436(c), or 436(e). The proposed regula-
excess of the monthly amount paid under a        be permissible under section 436(c)(3)            tions would provide for this designation to
single life annuity (plus any social security    (involving certain amendments to increase         be provided to the plan’s enrolled actuary
supplements described in the last sentence       benefits under a formula not based on a           and plan administrator in writing. Further-
of section 411(a)(9)), to a participant or       participant’s compensation). This prohi-          more, the designation must be irrevocable,
beneficiary whose annuity starting date (as      bition on additional benefit accruals will        except as described below. If the con-
defined in section 417(f)(2)) occurs during      no longer apply for a plan year if the plan       tributions are made on a date other than
any period that a limitation on accelerated      sponsor makes the contribution specified          the valuation date for the plan year, the
benefit payments is in effect;                   in section 436(e)(2), as described in para-       contributions must be adjusted for interest
    (ii) Any payment for the purchase of an      graph II.F of this preamble.                      (using the plan’s effective interest rate,
irrevocable commitment from an insurer to                                                          except as provided in the proposed regu-
pay benefits; and                                F. Rules relating to contributions required       lations). These contributions are separate
    (iii) Any other payment that is iden-        to avoid benefit limitations.                     from any minimum required contributions
tified as a prohibited payment by the                                                              required by section 430, and no prefund-
Commissioner in revenue rulings and                  The proposed regulations provide rules        ing balance or funding standard carryover
procedures, notices and other guidance           regarding contributions by the plan spon-         balance under section 430(f) may be used
published in the Internal Revenue Bulletin       sor to avoid benefit limitations under            as a contribution to avoid a section 436
(see §601.601(d)(2) of this chapter).            section 436. An employer sponsoring a             benefit limitation. A plan sponsor that
    In addition, for purposes of applying        plan that would otherwise be subject to the       makes such a current year contribution
the limitations on accelerated benefit pay-      limitations of section 436 can avoid the          will nonetheless fail to satisfy the mini-
ments under the requirements of section          application of those limits through one of        mum funding requirements if it does not
436(d), the term annuity starting date           four different techniques: 1) reducing the        make the minimum required contribution
means, as applicable—                            funding standard carryover balance and            under section 430 for the year. In addition,
    (a) The first day of the first period for    prefunding balance; 2) making additional          as noted above, these contributions are not
which an amount is payable as an annuity         contributions for a prior plan year that          taken into account in determining whether
as described in section 417(f)(2)(A)(i);         are not added to the prefunding balance;          a plan sponsor is making excess contribu-
    (b) In the case of a benefit not payable     3) making the specific contributions de-          tions for purposes of adding to the plan’s
in the form of an annuity, the first day on      scribed in sections 436(b)(2), 436(c)(2),         prefunding balance.
which all events have occurred (including        and 436(e)(2); and 4) providing security,             The fourth technique for a plan sponsor
the participant’s election, the participant’s    as described in section 436(f)(1).                to avoid the application of the benefit lim-
severance from employment if the partici-            As noted in this preamble, under the          itations of section 436 is for the plan spon-
pant is below normal retirement age, and,        first of the techniques, if a plan sponsor        sor to provide security. In such a case, the
if applicable, the participant’s survival to     elects to reduce the plan’s funding stan-         AFTAP for the plan year is determined by
the date as of which payment is made)            dard carryover balance or the prefunding          treating as an asset of the plan any security


2007–42 I.R.B.                                                       829                                              October 15, 2007
provided by a plan sponsor by the valua-        the plan year is a section 436 measurement       ter the date the conclusive presumption ap-
tion date for the plan year in a form meet-     date and the AFTAP of the plan for the           plies but on or before the last day of the
ing certain specified requirements. How-        current plan year is presumed to be equal        plan year, the proposed regulations would
ever, this security is not taken into account   to the preceding year’s certified AFTAP          provide that the certified percentage is dis-
for any other purpose, including section        until the plan’s enrolled actuary certifies      regarded for that plan year but is used for
430. The only security permitted to be pro-     the AFTAP of the plan for the current plan       purposes of the presumption rule of sec-
vided by a plan sponsor for this purpose        year. Because no plan could be subject to        tion 436(h)(1) starting with the beginning
is (i) a bond issued by a corporate surety      a benefit limitation for a plan year that pre-   of the following plan year (rather than con-
company that is an acceptable surety for        cedes the plan year that begins in 2008,         tinuing to apply the less-than-60 percent
purposes of section 412 of ERISA, or (ii)       the section 436(h)(1) presumption gener-         presumption that applied before the first
cash or United States obligations that ma-      ally will not apply to any plan before the       day of that following plan year). If the
ture in three years or less that are held       first plan year beginning in 2009.               date of the enrolled actuary’s certification
in escrow by a bank or insurance com-               In accordance with section 436(h)(3),        of the specific AFTAP for a plan year oc-
pany. The regulations would reflect sec-        the proposed regulations would provide           curs after the end of the plan year but prior
tions 436(f)(1)(C) and (D) in specifying        that, if the enrolled actuary of the plan has    to the first day of the 4th month in the fol-
when the security is to be contributed to       not certified the AFTAP of the plan for the      lowing plan year, the proposed regulations
the plan and when it may be released. If        current plan year by the first day of the 4th    would provide that the certification date is
the security is turned over to the plan, then   month of the plan year and the AFTAP for         treated as a section 436 measurement date
that amount is treated as an employer con-      the preceding year was certified to be at        for that following plan year and that, start-
tribution when it is turned over to the plan.   least 60 percent but less than 70 percent or     ing on that date, the plan’s AFTAP is pre-
The proposed regulations would provide          at least 80 percent but less than 90 percent     sumed to be the certified AFTAP for the
that any such security turned over to the       (or, if that preceding year is the pre-effec-    prior year (rather than continuing to ap-
plan pursuant to the enforcement mecha-         tive plan year, was certified to be less than    ply the less-than-60 percent presumption
nism cannot be treated as a contribution to     90 percent), then the first day of the 4th       that applied before the certification). If
avoid or terminate the application of a sec-    month of the current plan year is a section      the date of the enrolled actuary’s certifi-
tion 436 benefit limitation under section       436 measurement date, and the AFTAP              cation of the specific AFTAP for a plan
436(b)(2), 436(c)(2), or 436(e)(2).             of the plan is presumed to be equal to 10        year occurs after the first day of the 4th
                                                percentage points less than the AFTAP of         month in the following plan year but be-
G. Presumed underfunding for purposes           the plan for the preceding plan year. This       fore the first day of the 10th month, the
of benefit limitations.                         presumption will apply until the earlier of      proposed regulations would provide that
                                                the date the enrolled actuary certifies the      the certification date also is a section 436
    The proposed regulations reflect the        AFTAP for the plan year or the first day of      measurement date for that following plan
rules of section 436(h), which sets forth       the 10th month of the plan year.                 year, and the plan’s AFTAP for that fol-
a series of presumptions that are used to           In accordance with section 436(h)(2),        lowing year beginning on that date is pre-
apply the section 436 benefit limitations       the proposed regulations would provide           sumed to be the certified AFTAP for the
in situations where the plan’s enrolled         that, in any case in which no certifica-         prior year (rather than continuing to apply
actuary has not yet issued a certification      tion of the specific AFTAP for the current       the less-than-60 percent presumption that
of the plan’s AFTAP for the plan year. In       plan year is made before the first day of        applied before the certification). However,
addition, the proposed regulations also set     the 10th month of such year, that date is        in such a case, if a 10 percentage point re-
forth rules for the application of the limi-    a section 436 measurement date and, as           duction in the AFTAP would have applied
tations prior to and during the period those    of that date, the plan’s AFTAP is conclu-        on the first day of the 4th month of that fol-
presumptions apply to a plan, and describe      sively presumed to be less than 60 percent.      lowing plan year if the AFTAP for the prior
the interaction of those presumptions with      In such a case, the presumed AFTAP of un-        plan year had been certified before that
plan operations after the plan’s enrolled       der 60 percent for the current plan year will    day, then the same 10 percentage point re-
actuary has issued a certification of the       continue to apply under the rules of sec-        duction applies on the date of the certifica-
plan’s AFTAP for the plan year. These           tion 436(h)(1) for the next plan year, until     tion. These presumption rules based on the
rules are designed to encourage plans to        such time as the enrolled actuary certifies      prior year AFTAP do not apply once a cer-
obtain certifications in a timely manner,       the AFTAP for either the current plan year       tification of the following year’s AFTAP
with a particular emphasis with respect to      or the next plan year.                           is issued by the plan’s enrolled actuary.
plans that have a greater likelihood of hav-        The proposed regulations would pro-              The enrolled actuary’s certification of
ing a new section 436 benefit limitation        vide rules that apply the section 436(h)         the AFTAP for a plan year must be made
apply because they had an AFTAP for the         presumptions for the plan year in cases          in writing, must be provided to the plan
prior plan year that was near a threshold       in which the enrolled actuary’s certifica-       administrator, and must certify the plan’s
for a benefit limitation to apply.              tion for the prior plan year is made on or       AFTAP for the plan year. As an alterna-
    The proposed regulations would pro-         after the first day of the 10th month of         tive to certifying a specific number for the
vide that, in any case in which a plan was      that prior plan year. If the date of the en-     plan’s AFTAP, the regulations would pro-
subject to a benefit limitation on the last     rolled actuary’s certification of the specific   vide that the enrolled actuary is permitted
day of the prior plan year, the first day of    AFTAP for a plan year occurs on or af-           to certify during the first nine months of a


October 15, 2007                                                    830                                                  2007–42 I.R.B.
plan year that the plan’s AFTAP for that         time of the certification. However, if the        change where the plan was operated in ac-
year is within a percentage “range” that         plan sponsor does not make those contri-          cordance with the subsequent certification
is either (i) 60 percent or higher, but less     butions, the enrolled actuary’s certification     of the AFTAP during the period of time the
than 80 percent, (ii) 80 percent or higher,      will be incorrect, which will result in a fail-   prior certification applied, the plan will not
or (iii) 100 percent or higher. The pro-         ure to satisfy section 401(a)(29) and sec-        have been operated in accordance with its
posed regulations would provide that such        tion 436 if the difference constitutes a ma-      terms. In addition, in the case of a material
a “range” certification ends the application     terial change.                                    change, the rules requiring application of
of the presumptions provided that the en-            If the enrolled actuary for the plan          a presumed AFTAP under section 436(h)
rolled actuary follows up with a certifica-      provides a certification of the AFTAP for         continue to apply from and after the date
tion of the specific AFTAP before the first      the plan year (including a range certifi-         of the prior certification until the date of
day of the 10th month of that year and that      cation) and that certified percentage is          the subsequent certification. In the case of
the certified specific AFTAP is within the       superseded by a subsequent determination          an immaterial change, the revised percent-
range of the earlier certification.              of the AFTAP for that plan year, that later       age applies prospectively but it does not
    If this “range” certification alternative    percentage must be applied and a determi-         change the inapplicability of the presump-
is followed, the plan is treated as having       nation must be made whether the change            tions under section 436(h) for the plan year
a certified AFTAP at the smallest value          in the applicable percentage is a material        prior to the date of the subsequent certifi-
within the applicable range. Thus, for ex-       change or an immaterial change. For this          cation.
ample, if the enrolled actuary certified that    purpose, the proposed regulations would
the AFTAP was more than 60 percent but           specify that there is a material change if        H. Coordination between presumptions
less than 80 percent, then the plan is treated   plan operations with respect to benefits          and determination of AFTAP.
as having an AFTAP of 60 percent for pur-        that are addressed by section 436, taking
                                                                                                   1. Periods during which a presumption
poses of applying the limitations of sec-        into account any actual contributions and
                                                                                                   applies to the plan.
tion 436(b) until the earlier of the date        elections under section 430(f) made by the
of the specific AFTAP certification or the       plan sponsor based on the prior certified             A plan must provide that, for any pe-
first day of the 10th month of the plan          percentage, would have been different             riod during which a presumption under
year. In such a case, if the plan has an         based on the subsequent determination of          section 436(h) applies to the plan, the lim-
unpredictable contingent event or a plan         the plan’s AFTAP for the plan year. Thus,         itations applicable under sections 436(b),
amendment that increases liability for ben-      for example, if after the actuary certifies       436(c), 436(d), and 436(e) apply to the
efits, unpredictable contingent event ben-       the plan’s AFTAP for a plan year, the plan        plan as if the actual AFTAP for the year
efits cannot be paid and the plan amend-         sponsor elects to add excess contributions        were the presumed AFTAP. During that
ment cannot take effect unless the plan          for the prior plan year to the plan’s pre-        period, the rules relating to the deemed
sponsor makes a contribution described in        funding balance, this would have the effect       election to reduce the funding standard
section 436(b)(2) or 436(c)(2), as applica-      of reducing the plan’s AFTAP, and such a          carryover balance and the prefunding bal-
ble. If the plan sponsor makes a contri-         change could be a material change.                ance must be applied based on the pre-
bution under section 436(b)(2) or section            The proposed regulations would spec-          sumed percentage with respect to the ap-
436(c)(2), the proposed regulations would        ify that an immaterial change is a change in      plicable limitations. Thus, a plan’s pre-
provide that the contribution is recharac-       an AFTAP that is not a material change. In        funding balance and funding standard car-
terized as a regular employer contribution       addition, the proposed regulations would          ryover balance must be reduced if the re-
that is taken into account under section 430     provide that if the difference between the        duction would be sufficient to avoid the
for the current plan year to the extent it is    AFTAP for a plan year and the later revised       applicable limitation. The proposed reg-
determined that the contribution was not         determination of that percentage is the re-       ulations provide rules for determining the
needed to avoid the application of the ben-      sult of additional contributions for the pre-     amount of the reduction in balances.
efit limit, based on the subsequent calcula-     ceding year that are made by the plan spon-           If the presumed AFTAP for the plan
tion of the specific AFTAP.                      sor after the date of the enrolled actuary’s      year changes during the year because of
    The proposed regulations would spec-         certification or results from the plan spon-      application of the presumption in section
ify that the enrolled actuary is generally       sor’s election to reduce the prefunding or        436(h)(3), the rules regarding the deemed
not permitted to certify the AFTAP based         funding standard carryover balance after          election to reduce funding balances must
on a value of assets that includes contribu-     the date of the certification, such change        be reapplied based on the new presumed
tions receivable for the prior year that have    is always treated as an immaterial change         AFTAP. This reapplication of the deemed
not actually been made as of the date of         (regardless of whether it would otherwise         election may require an additional reduc-
the certification. However, this rule would      affect the application of the section 436         tion in funding balances if the amount of
not apply to certifications that are made        benefit limitations).                             the reduction in funding balances that is
for plan years beginning before January 1,           In the case of a material change where        necessary to reach the applicable threshold
2009. Thus, for a certification with respect     the plan was operated in accordance with          to avoid the application of the limitation
to 2008, the enrolled actuary is permitted       the prior certification of the AFTAP for          under section 436(d) or 436(e) is greater
to take in account contributions for 2007        the plan year, the plan will not have satis-      than the amount that was initially reduced.
that are reasonably expected but have not        fied the requirements of section 401(a)(29)
yet been made by the plan sponsor at the         and section 436. In the case of a material


2007–42 I.R.B.                                                       831                                              October 15, 2007
2. Periods prior to certification where no      amount of the reduction in those balances         4. Limitations based on AFTAP.
presumption applies.                            that would apply in such a situation and
                                                provide that, in making such determina-               The proposed regulations would pro-
    If no presumptions under section 436(h)     tion, the presumed adjusted funding target        vide that, on and after the date the enrolled
apply to a plan for a period and the plan’s     is increased to take into account the ben-        actuary for the plan issues a certification
enrolled actuary has not yet issued the cer-    efits attributable to the unpredictable con-      of the AFTAP for the current plan year,
tification of the plan’s AFTAP for the plan     tingent event or the plan amendment de-           the plan must apply that certified percent-
year, the plan is not permitted to limit the    scribed in section 436(b) and 436(c), re-         age (however, if the certification is issued
payment of unpredictable contingent event       spectively. For this purpose, if no pre-          on or after the first day of the 10th month
benefits or the accrual of benefits based       sumption applies under the rules of section       of the current plan year but before the first
on an expectation that the limitations un-      436(h) (for example, because the plan’s ac-       day of the following plan year, the certified
der section 436(d) or 436(e) will apply to      tual AFTAP for the prior year was certified       percentage applies under the presumption
the plan once the enrolled actuary’s certi-     to be at least 80 percent), then that prior       rules beginning on the first day of that fol-
fication of the AFTAP is issued. In addi-       year’s actual AFTAP is substituted for the        lowing plan year). For example, the plan
tion, the proposed regulations would pro-       presumed AFTAP for the plan year in de-           sponsor must apply the certified AFTAP
vide that, if no presumptions under sec-        termining the presumed adjusted funding           for a plan year to an unpredictable con-
tion 436(h) apply to a plan during a pe-        target. In the case of a plan that is not a       tingent event that occurs or a plan amend-
riod and the plan’s enrolled actuary has        collectively bargained plan with a funding        ment that is effective on or after the date
not yet issued a certification of the plan’s    standard carryover balance or a prefund-          of the enrolled actuary’s certification dur-
AFTAP for the plan year, the limitations        ing balance, the deemed election rules do         ing the plan year. Thus, the plan admin-
under sections 436(b) and 436(c) that ap-       not apply for purposes of sections 436(b)         istrator must determine if the AFTAP is at
ply to unpredictable contingent event ben-      and 436(c), and the plan sponsor is permit-       or above the applicable threshold, taking
efits and certain plan amendments, respec-      ted (but not required) to reduce those bal-       into account the increase in the funding tar-
tively, during that period must be applied      ances in order to increase the adjusted plan      get that would be attributable to the unpre-
following the special rules described be-       assets that are compared to the presumed          dictable contingent event or plan amend-
low in paragraph H.3. of this preamble.         AFTAP.                                            ment if the unpredictable contingent event
Thus, if after application of those rules the       If, after application of such funding bal-    benefits or the increase in liability attrib-
plan would be treated as having an AFTAP        ance reductions and the other calculations        utable to the plan amendment were taken
below the applicable threshold under sec-       set forth in the proposed regulations, the        into account.
tion 436(b) or 436(c), the limitation will      plan’s AFTAP (taking into account the ad-             After the AFTAP for a plan year is cer-
apply unless the plan sponsor makes a con-      ditional benefits) is less than the applicable    tified by the plan’s enrolled actuary, with
tribution to avoid application of the appli-    threshold under section 436(b) or 436(c),         respect to the application of limitations un-
cable benefit limitations described in sec-     as applicable, then the plan is not permit-       der sections 436(d) and 436(e) (acceler-
tion 436(b)(2) or 436(c)(2). In such case,      ted to provide any benefits attributable to       ated benefit payments and benefit accruals,
following the certification of the AFTAP        the unpredictable contingent event or plan        respectively) for the plan year, the deemed
for the current plan year by the plan’s en-     amendment unless the plan sponsor makes           election to reduce funding balances must
rolled actuary, the proposed regulations        a contribution that would allow payment of        be reapplied based on the actual funding
would provide that those contributions are      unpredictable contingent event benefits or        target for the year (provided the certifica-
recharacterized as employer contributions       would permit a plan amendment increas-            tion is issued by the first day of the 10th
under section 430 for the current plan year     ing benefit liabilities to go into effect under   month). This reapplication of the deemed
to the extent they exceed the amount nec-       the rules of section 436(b)(2) or 436(c)(2).      election may require an additional reduc-
essary to avoid application of the appli-           If, after application of such funding bal-    tion in funding balances if the amount of
cable limitation under section 436(b) or        ance reductions, the plan’s AFTAP (tak-           the reduction in funding balances that is
436(c) based on the certified percentage.       ing into account the additional benefits)         necessary to reach the applicable thresh-
                                                is greater than or equal to the applicable        old to avoid the application of those lim-
3. Periods prior to certification —                                                               itations is greater than the amount of a
                                                threshold under section 436(b) or 436(c),
special rules for unpredictable contingent                                                        prior reduction for the plan year. The pro-
                                                as applicable, then the plan is not permitted
event benefits and plan amendments that                                                           posed regulations would also reflect sec-
                                                to limit the payment of unpredictable con-
increase liability.                                                                               tion 436(d)(2), which provides that no pro-
                                                tingent event benefits under section 436(b)
                                                or to restrict a plan amendment increasing        hibited payments under section 436(d)(5)
   The proposed regulations would pro-
                                                liability for benefits from taking effect un-     are permitted to be paid by a plan during
vide that, during the pre-certification pe-
                                                der section 436(c) based on an expectation        any period in which the plan sponsor is
riod, the rules relating to the deemed elec-
                                                that those limitations will apply to the plan     a debtor in a case under title 11, United
tion to reduce the funding standard carry-
                                                once the enrolled actuary’s certification is      States Code, or any similar Federal or State
over balance and the prefunding balance
                                                issued.                                           law, if the plan’s enrolled actuary has not
must be applied based on the plan’s pre-
                                                                                                  yet certified the plan’s AFTAP for the plan
sumed AFTAP. The proposed regulations
                                                                                                  year to be at least 100 percent. Thus, the
would provide rules for determining the



October 15, 2007                                                    832                                                  2007–42 I.R.B.
presumptions do not apply for purposes of        I. Determination of funding target             to 100 percent for purposes of the preced-
section 436(d)(2).                               attainment percentage.                         ing sentence.
    The proposed regulations would pro-                                                            The proposed regulations would also
vide that the enrolled actuary’s certifica-         For purposes of section 436, the fund-      provide that, in the case of the first plan
tion of the AFTAP does not affect the ap-        ing target means the funding target under      year beginning in 2008, the FTAP for the
plication of the limitation under section        section 430(d) or section 430(i), as appli-    preceding plan year is determined as a
436(d) for participants with annuity start-      cable to the plan for a plan year.             fraction (expressed as a percentage), the
ing dates before the certification. Sim-            For purposes of section 436, the fund-      numerator of which is the value of net plan
ilarly, the enrolled actuary’s certification     ing target attainment percentage (FTAP)        assets, and the denominator of which is
for the plan year does not affect the ap-        for any plan year is the fraction (expressed   the plan’s current liability determined pur-
plication of the limitation under section        as a percentage), the numerator of which is    suant to section 412(l)(7) on the valuation
436(e) of this section prior to the date of      the value of net plan assets, and the denom-   date for the last plan year that begins be-
that certification.                              inator of which is the plan’s funding target   fore 2008 (the 2007 plan year). For this
    With respect to the impact of the en-        (determined without regard to the at-risk      purpose, the value of plan assets is de-
rolled actuary’s certification of the AFTAP      rules under section 430(i) even in the case    termined under section 412(c)(2) as in ef-
for a plan year on periods prior to the cer-     of a plan that is in at-risk status). For      fect for the 2007 plan year, except that
tification, the proposed regulations would       this purpose, pursuant to section 430(f)(4),   the value of plan assets prior to subtrac-
provide that the certification does not af-      the value of net plan assets for the plan      tion of the plan’s funding standard account
fect the application of limitations under        year is generally determined by subtract-      credit balance described below can neither
sections 436(b) and 436(c) for periods           ing the plan’s funding standard carryover      be less than 90 percent of the fair market
prior to the date the certification is issued,   balance and prefunding balance (if any) for    value of plan assets nor greater than 110
regardless of the extent to which the certi-     the plan year from the value of plan assets.   percent of the fair market value of plan as-
fied percentage varies from the presumed            The adjusted funding target attainment      sets on the valuation date for that plan year.
percentage. Notwithstanding the forego-          percentage (AFTAP) for any plan year is        If a plan has a funding standard account
ing, in the case of a plan that, for a plan      the fraction (expressed as a percentage),      credit balance as of the valuation date for
year, did not provide benefits attributable      the numerator of which is the adjusted plan    the 2007 plan year, that balance must be
to an unpredictable contingent event or          assets and the denominator of which is the     subtracted from the asset value described
plan amendment based on the preceding            adjusted funding target. The adjusted plan     above as of that date unless the value of
year’s certified AFTAP (and where suffi-         assets equals the net plan assets, increased   plan assets is greater than or equal to 90
cient contributions under section 436(b)(2)      by the aggregate amount of purchases of        percent of the plan’s current liability deter-
or 436(c)(2) were not made), the plan must       annuities for employees other than highly      mined under section 412(l)(7) on the valu-
provide any benefits that were not so pro-       compensated employees (as defined in           ation date for the 2007 plan year.
vided if those benefits would be permitted       section 414(q)) which were made by the            In the case of the first plan year begin-
under the rules of section 436 based on the      plan during the preceding 2 plan years.        ning in 2008, for purposes of determin-
certified AFTAP, taking into account the         The proposed regulations would provide         ing the AFTAP for the 2007 plan year, the
increase in the funding target that would        that the adjusted funding target equals the    proposed regulations provide that the ad-
be attributable to the unpredictable contin-     funding target for the plan year (deter-       justed funding target is equal to the cur-
gent event benefits or increase in liability     mined without regard to the at-risk rules      rent liability determined pursuant to sec-
due to the plan amendment.                       under section 430(i)), increased by the ag-    tion 412(l)(7) on the valuation date for the
    A special rule applies if a plan is pro-     gregate amount of purchases of annuities       2007 plan year, increased by the aggre-
viding benefits with respect to one or more      for employees other than highly compen-        gate amount of purchases of annuities for
unpredictable contingent events occurring        sated employees (as defined in section         employees other than highly compensated
within the plan year or amendments tak-          414(q)) which were made by the plan dur-       employees (as defined in section 414(q))
ing effect within the plan year. In such         ing the preceding 2 plan years.                which were made by the plan during the
a case, the restrictions on unpredictable           If the FTAP for a plan year, determined     preceding 2 plan years. In any case in
contingent event benefits and plan amend-        without regard to the section 430(f)(4) sub-   which the plan’s enrolled actuary has not
ments are applied with respect to a sub-         traction of the funding standard carryover     issued a certification of the AFTAP of the
sequent unpredictable contingent event or        balance and the prefunding balance from        plan for the 2007 plan year using this rule,
amendment by treating the increase in the        the value of plan assets, would be 100 per-    the AFTAP of the plan for the first plan
funding target attributable to the subse-        cent or more, then, for purposes of sec-       year beginning in 2008 is presumed to be
quent event or amendment as if it included       tion 436 (but not section 430(d)), the value   less than 60 percent until the AFTAP of the
the increases in the funding target attrib-      of net plan assets used in the determina-      plan for the 2007 plan year has been certi-
utable to all such earlier events or amend-      tion of the FTAP and the AFTAP is deter-       fied or the AFTAP of the plan for the first
ments.                                           mined without regard to any subtraction of     plan year beginning in 2008 has been certi-
                                                 funding balances under section 430(f)(4).      fied. This rule applies for purposes of sec-
                                                 The proposed regulations would reflect the     tions 436(b) and 436(c) at the beginning of
                                                 transition rule of section 436(j)(3)(B) un-    the first plan year beginning in 2008 and
                                                 der which a plan is permitted to phase up      applies for purposes of sections 436(d) and


2007–42 I.R.B.                                                      833                                            October 15, 2007
436(e) as of the first day of the 4th month                       or after January 1, 2009 (January 1, 2011                      •    At such other time as may be deter-
of the first plan year beginning in 2008.                         in the case of governmental plans). As de-                          mined by the Secretary of the Treasury.
The special rules permitting range certifi-                       scribed in Rev. Proc. 2007–44, 2007–28
cations for plan years beginning after 2007                       I.R.B. 54, this amendment deadline applies                     The notice is required to be provided in
do not apply to the 2007 plan year.                               to both interim and discretionary amend-                       writing, except that the notice may be in
    However, if the employer makes an                             ments that are made pursuant to PPA ’06                        electronic or other form to the extent that
election to reduce some or all of the fund-                       statutory provisions or any regulation is-                     such form is reasonably accessible to the
ing standard carryover balance as of the                          sued under PPA ’06. See §601.601(d)(2)                         recipient.
first day of the first plan year beginning                        of this chapter. If section 1107 of PPA ’06
in 2008 in accordance with proposed                               applies to an amendment of a plan, sec-                        Effective/Applicability Dates
§1.430(f)–1(e), then the present value                            tion 1107 provides that the plan does not
(determined as of the valuation date for                          fail to meet the requirements of section                       1. Section 1.430(f)–1.
the prior year using the valuation interest                       411(d)(6) by reason of such amendment,                            In general, these regulations under sec-
rate for that prior year) of the amount so                        except as provided by the Secretary of the                     tion 430(f) are proposed to apply to plan
reduced is not treated as part of the fund-                       Treasury.6 For example, section 411(d)(6)                      years beginning on or after January 1,
ing standard account credit balance when                          relief would be available for plan amend-                      2008. However, in the case of a plan for
that balance is subtracted from the value                         ments that would prohibit single sum or                        which the effective date of section 430 is
of net plan assets. Thus, an employer’s                           other accelerated distributions if the plan’s                  delayed in accordance with sections 104
election to reduce the funding standard                           AFTAP was less than 60 percent, in accor-                      through 106 of the Pension Protection
carryover balance in 2008 will have the                           dance with section 436(d) and §1.436–1(d)                      Act of 2006, Public Law 109–280, 120
effect of reducing the amount that must be                        of the proposed regulations. Plan sponsors                     Stat. 780, the regulations under section
subtracted from the assets in determining                         should note that the IRS and the Treasury                      430(f) are proposed to apply to plan years
the 2007 AFTAP for purposes of applying                           Department are reviewing whether sample                        beginning on or after the effective date
the presumptions under section 436(h)(3)                          plan amendments should be issued with re-                      of section 430 with respect to the plan.
as of the first day of the 4th month of the                       spect to section 436 and the §1.436–1 reg-                     Unlike section 436, section 430 and the
plan year beginning in 2008.                                      ulations.                                                      regulations under section 430(f) do not
Proposed Legislation                                                                                                             include a delayed effective date for collec-
                                                                  ERISA notice to participants and                               tively bargained plans.
                                                                  beneficiaries
   As of the date of issuance of these
proposed regulations, bills have been in-                                                                                        2. Section 1.436–1.
                                                                     Under section 101(j) of ERISA, as
troduced in the House of Representatives
                                                                  amended by PPA ’06, the plan administra-                           In general, the regulations under section
and the Senate that would exclude manda-
                                                                  tor of a single employer plan is required                      436 are proposed to apply to plan years be-
tory cash-out distributions under section
                                                                  to provide a written notice to participants                    ginning on or after January 1, 2008. How-
411(a)(11) from application of the accel-
                                                                  and beneficiaries within 30 days after:                        ever, in the case of a plan for which the ef-
erated payments limitation under section
                                                                                                                                 fective date of section 436 is delayed in ac-
436(d) and that would provide the Trea-
sury Department with authority to address
                                                                  •    The date the plan has become sub-                         cordance with sections 104 through 106 of
                                                                       ject to a restriction described in the                    the Pension Protection Act of 2006, Pub-
application of the presumptions under sec-
                                                                       ERISA provisions that are parallel to                     lic Law 109–280, 120 Stat. 780, the reg-
tion 436(h) to plans that have valuation
                                                                       paragraphs (b) and (d) of Code section                    ulations under section 436 are proposed to
dates that are later than the first day of the
                                                                       436;                                                      apply to plan years beginning on or after
plan year.5 Proposed §1.436–1(d)(6) and
                                                                                                                                 the effective date of section 436 with re-
§1.436–1(h)(5), respectively, are reserved
in order to accommodate such changes.
                                                                  •    In the case of a plan that is subject to                  spect to the plan. In addition, in the case
                                                                       the ERISA provisions that are parallel                    of a collectively bargained plan maintained
Section 1107 of PPA ’06 and Code Section                               to paragraph (e) of Code section 436,                     pursuant to one or more collective bargain-
411(d)(6)                                                              the valuation date for the plan year for                  ing agreements between employee repre-
                                                                       which the plan’s AFTAP is less than                       sentatives and one or more employers rat-
   Under section 1107 of PPA ’06, a plan                               60 percent (or, if earlier, the date the                  ified before January 1, 2008, the regula-
sponsor is permitted to delay adopting a                               AFTAP is presumed to be less than                         tions under section 436 would not apply to
plan amendment pursuant to statutory pro-                              60 percent under the ERISA provisions                     plan years beginning before the earlier of:
visions under PPA ’06 (or pursuant to any                              that parallel the presumption rules in                    (1) the later of the date on which the last
regulation issued under PPA ’06) until the                             paragraph (h) of Code section 436);                       collective bargaining agreement relating to
last day of the first plan year beginning on                           and                                                       the plan terminates (determined without

5   H.R. 3361 (August 3, 2007) and S. 1974 (August 2, 2007), at sections 2(c)(1)(C), 2(c)(2)(C), 2(c)(1)(F), and 2(c)(2)(F).
6 Except to the extent permitted under section 411(d)(6) and the §1.411(d)–4 regulations, or under a statutory provision such as section 1107 of PPA ’06, section 411(d)(6) prohibits a plan
amendment that decreases a participant’s accrued benefits or that has the effect of eliminating or reducing an early retirement benefit or retirement-type subsidy, or eliminating an optional
form of benefit, with respect to benefits attributable to service before the amendment. However, an amendment that eliminates or decreases benefits that have not yet accrued does not violate
section 411(d)(6), provided the amendment is adopted and effective before the benefits accrue.



October 15, 2007                                                                             834                                                                 2007–42 I.R.B.
regard to any extension thereof agreed to        flexibility analysis is not required. The      PART 1—INCOME TAXES
after August 17, 2006), or the first day of      estimated burden imposed by the collec-
the first plan year to which the proposed        tion of information contained in these pro-       Paragraph 1. The authority citation for
regulations under section 436 would oth-         posed regulations is 0.75 hours per respon-    part 1 continues to read in part as follows:
erwise apply, or (2) January 1, 2010. For        dent. Moreover, most of this burden is at-        Authority: 26 U.S.C. 7805 * * *
this purpose, any plan amendment made            tributable to the requirement for a quali-        Par. 2. Section 1.430(f)–1 is added to
pursuant to a collective bargaining agree-       fied defined benefit plan’s enrolled actu-     read as follows:
ment relating to the plan which amends the       ary to provide a timely certification of the
plan solely to conform to any requirement        plan’s AFTAP for each plan year to avoid       §1.430(f)–1 Effect of prefunding balance
under the proposed regulations would not         certain benefit restrictions, which is im-     and funding standard carryover balance.
be treated as a termination of the collec-       posed by section 436(h) of the Code. In ad-
tive bargaining agreement. The determina-        dition, these proposed regulations provide         (a) In general—(1) Overview. This sec-
tion of whether a plan is a collectively bar-    for several written elections to be made       tion provides rules relating to the appli-
gained plan is the same as described above       by the plan sponsor upon occasion; these       cation of prefunding balances and fund-
in paragraph II.A.5 of this preamble with        written elections will require minimal time    ing standard carryover balances under sec-
respect to a plan sponsor’s deemed elec-         to prepare. Pursuant to section 7805(f) of     tion 430(f). Section 430 and this section
tion to reduce funding balances.                 the Code, these regulations have been sub-     apply to single employer defined benefit
                                                 mitted to the Chief Counsel for Advocacy       plans (including multiple employer plans)
3. Reliance on proposed regulations.             of the Small Business Administration for       that are subject to section 412, but do not
                                                 comment on its impact on small business.       apply to multiemployer plans (as defined
    For periods following the issuance of                                                       in section 414(f)). Paragraph (b) of this
these proposed regulations and before final      Comments and Requests for a Public             section sets forth rules regarding a plan
regulations are issued, these proposed reg-      Hearing                                        sponsor’s election to maintain a funding
ulations may be relied upon for plan qual-                                                      standard carryover balance or a prefund-
ification purposes, provided that such re-          Before these proposed regulations are       ing balance. Paragraph (c) of this section
liance is on a consistent and reasonable ba-     adopted as final regulations, consideration    provides rules under which those balances
sis.                                             will be given to any written (one signed       must be subtracted from plan assets. Para-
                                                 and eight (8) copies) or electronic com-       graph (d) of this section describes a plan
4. Effect on plans subject to section 402        ments that are submitted timely to the         sponsor’s election to use those balances to
of PPA ’06.                                      IRS. The IRS and Treasury Department           offset the minimum required contribution.
                                                 specifically request comments on the clar-     Paragraph (e) of this section describes a
   The IRS and the Treasury Department           ity of the proposed regulations and how
are reviewing the applicability of section                                                      plan sponsor’s election to reduce those bal-
                                                 they may be made easier to understand.         ances (which will affect the determination
436 and the funding balance rules of sec-        All comments will be available for public
tion 430(f) to plans that have made elec-                                                       of the value of plan assets for purposes of
                                                 inspection and copying. A public hearing       sections 430 and 436). Paragraph (f) of
tions under section 402 of PPA ’06 (tak-         will be scheduled if requested in writing
ing into account the amendments to section                                                      this section sets forth rules regarding elec-
                                                 by any person who timely submits written       tions under this section. Paragraph (g) of
402 of PPA ’06 by section 6615 of the U.S.       comments. If a public hearing is sched-
Troop Readiness, Veterans’ Care, Katrina                                                        this section contains examples. Paragraph
                                                 uled, notice of the date, time, and place of   (h) of this section contains effective/appli-
Recovery, and Iraq Accountability Appro-         the public hearing will be published in the
priations Act, 2007 (Public Law 110–28))                                                        cability dates and transitional provisions.
                                                 Federal Register.                                  (2) Special rules for multiple employer
and any special rules for such plans will be
addressed in future guidance.                                                                   plans. In the case of a multiple employer
                                                 Drafting Information
                                                                                                plan to which section 413(c)(4)(A) applies,
Special Analyses                                    The principal authors of these reg-         the rules of this section are applied sep-
                                                 ulations are Lauson C. Green and               arately for each employer under the plan,
    It has been determined that this notice      Linda S.F. Marshall, Office of Division        as if each employer maintained a separate
of proposed rulemaking is not a significant      Counsel/Associate Chief Counsel (Tax           plan. Thus, each employer under such a
regulatory action as defined in Executive        Exempt and Government Entities). How-          multiple employer plan may have a sep-
Order 12866. Therefore, a regulatory as-         ever, other personnel from the IRS and the     arate funding standard carryover balance
sessment is not required. It has also been       Treasury Department participated in the        and a prefunding balance for the plan. In
determined that section 553(b) of the Ad-        development of these regulations.              the case of a multiple employer plan to
ministrative Procedure Act (5 U.S.C. chap-                                                      which section 413(c)(4)(A) does not ap-
                                                                   *****
ter 5) does not apply to these regulations. It                                                  ply (that is, a plan described in section
is hereby certified that the collection of in-   Proposed Amendments to the                     413(c)(4)(B) that has not made the elec-
formation imposed by these proposed reg-         Regulations                                    tion for section 413(c)(4)(A) to apply), the
ulations will not have a significant eco-                                                       rules of this section are applied as if all par-
nomic impact on a substantial number of             Accordingly, 26 CFR part 1 is proposed      ticipants in the plan were employed by a
small entities. Accordingly, a regulatory        to be amended as follows:                      single employer.


2007–42 I.R.B.                                                      835                                             October 15, 2007
    (b) Election to maintain balances—(1)           (B) As of the first day of each plan year,   ing balance under paragraph (b)(1) of this
Prefunding balance—(i) In general. A            any reduction in the prefunding balance          section or a plan’s funding standard car-
plan sponsor is permitted to maintain a pre-    under paragraph (e) of this section for the      ryover balance under paragraph (b)(2) of
funding balance for a plan. A prefunding        plan year.                                       this section as of the first day of a plan
balance maintained for a plan consists of           (iv) Adjustments for interest—(A) Ad-        year, the balance must be adjusted to re-
a beginning balance of zero, increased by       justment of excess contribution.          The    flect the actual rate of return on plan assets
the amount of excess contributions to the       amount of the excess contribution for            for the preceding plan year. This adjust-
extent the employer elects to do so as de-      the preceding year (as determined under          ment is applied to the balance after sub-
scribed in paragraph (b)(1)(ii) of this sec-    paragraph (b)(1)(ii)(B) of this section)         tracting amounts used to offset the mini-
tion, and decreased to the extent provided      is increased for interest accruing for the       mum required contribution for the preced-
in paragraph (b)(1)(iii) of this section. The   period between the valuation date for the        ing plan year pursuant to paragraph (d) of
prefunding balance is adjusted further for      preceding plan year and the first day of         this section and after any reduction of bal-
investment return and interest as provided      the current year. For this purpose, interest     ances for that preceding plan year under
in paragraphs (b)(3) and (b)(4) of this sec-    is determined by using the plan’s effective      paragraph (e) of this section. For this pur-
tion.                                           interest rate under section 430(h)(2)(A)         pose, the actual rate of return on plan assets
    (ii) Increases—(A) In general. If the       for the preceding plan year.                     for the preceding plan year is determined
plan sponsor of a plan elects to add to the         (B) Determination of present value.          on the basis of fair market value and must
plan’s prefunding balance, as of the first      The present value of the contributions           take into account the amount and timing of
day of each plan year following the first       described in paragraph (b)(1)(ii)(B)(1) of       all contributions, distributions, and other
effective plan year for the plan, the pre-      this section is determined as of the valua-      plan payments made during that period.
funding balance is increased by the amount      tion date for the preceding plan year, using         (4) Valuation date other than the first
so elected by the plan sponsor for the plan     the plan’s effective interest rate under sec-    day of the plan year—(i) In general. If
year. The amount added to the prefund-          tion 430(h)(2)(A) for the preceding plan         a plan’s valuation date is not the first day
ing balance cannot exceed the interest-ad-      year.                                            of the plan year, solely for purposes of
justed excess contributions for the preced-         (2) Funding standard carryover bal-          applying paragraphs (c), (d), and (e) of
ing plan year determined under paragraph        ance—(i) In general. A funding standard          this section, the plan’s prefunding balance
(b)(1)(ii)(B) of this section.                  carryover balance is only permitted to be        and funding standard carryover balance (if
    (B) Interest-adjusted excess contri-        maintained by a plan that had a positive         any) determined under this paragraph (b)
bution. For purposes of this paragraph          balance in the funding standard account          are increased to the valuation date using
(b)(1)(ii), the interest-adjusted excess        under section 412(b) as of the end of the        the plan’s effective interest rate under sec-
contribution for the preceding plan year        pre-effective plan year for the plan. The        tion 430(h)(2)(A) for the plan year.
is the amount, increased with interest in       funding standard carryover balance as of             (ii) Special rule for adjustments for in-
accordance with the rules of paragraph          the beginning of the first effective plan        vestment experience. For purposes of ap-
(b)(1)(iv)(A) of this section, of the excess,   year for the plan is the positive balance in     plying the rules regarding the adjustments
if any, of—                                     the funding standard account under section       for investment experience in paragraph
    (1) The present value of the employer       412(b) as of the end of the pre-effective        (b)(3) of this section, in the case of a plan
contributions (other than contributions to      plan year for the plan, decreased to the         with a valuation date that is not the first
avoid or terminate benefit limitations de-      extent provided in paragraph (b)(2)(ii) of       day of the plan year, the amount of the
scribed in §1.436–1(f)(2)) to the plan for      this section and adjusted further for in-        funding balances that must be subtracted
the preceding plan year determined under        vestment return and interest as provided         from plan assets under paragraph (d) of
the rules of paragraph (b)(1)(iv)(B) of this    in paragraphs (b)(3) and (b)(4) of this sec-     this section (because they are used to off-
section); over                                  tion.                                            set the minimum required contribution for
    (2) The minimum required contribution           (ii) Decreases. The funding standard         the plan year) must be adjusted to the first
for the preceding plan year (determined         carryover balance of a plan is decreased         day of the plan year using the effective
without regard to any election to offset        (but not below zero) by the sum of—              interest rate under section 430(h)(2)(A)
the minimum required contribution under             (A) As of the first day of each plan         for that year.
paragraph (d) of this section for the pre-      year after the first effective plan year for         (c) Effect of balances on plan as-
ceding plan year).                              the plan, any amount of the funding stan-        sets—(1) In general. In the case of any
    (iii) Decreases. The prefunding bal-        dard carryover balance that was used un-         plan with a prefunding balance or a fund-
ance of a plan is decreased (but not below      der paragraph (d) of this section to offset      ing standard carryover balance, the amount
zero) by the sum of—                            the minimum required contribution of the         of those balances must be subtracted from
    (A) As of the first day of each plan year   plan for the preceding plan year; and            the value of plan assets for purposes of
after the first effective plan year for the         (B) As of the first day of each plan year,   sections 430 and 436, except as provided
plan, any amount of the prefunding bal-         any reduction in the funding standard car-       in paragraphs (c)(2), (c)(3), and (c)(4) of
ance that was used under paragraph (d) of       ryover balance under paragraph (e) of this       this section.
this section to offset the minimum required     section for the plan year.                           (2) Subtraction of balances in determin-
contribution of the plan for the preceding          (3) Adjustments for investment experi-       ing new shortfall amortization base—(i)
plan year; and                                  ence. In determining a plan’s prefund-           Prefunding balance. For purposes of de-


October 15, 2007                                                    836                                                  2007–42 I.R.B.
termining whether a plan is exempt from        get attainment percentage for purposes of       suant to paragraph (c)(1) of this section
the requirement to establish a new shortfall   section 436.                                    will be smaller and, accordingly, the plan
amortization base under section 430(c)(5),         (d) Election to apply balances against      assets taken into account for purposes of
the amount of the prefunding balance is        minimum required contribution—(1) In            sections 430 and 436 will be larger. Thus,
subtracted from the value of plan assets       general. Subject to the limitations pro-        this election to reduce a plan’s prefund-
only if an election under paragraph (d) of     vided in paragraphs (d)(2) and (d)(3) of        ing balance and funding standard carry-
this section to use the prefunding balance     this section, in the case of any plan year      over balance is taken into account in the
to offset the minimum required contribu-       in which the plan sponsor elects to use all     determination of plan assets for the plan
tion is made for the plan year.                or a portion of the prefunding balance or       year and applies for all purposes under sec-
    (ii) Funding standard carryover bal-       the funding standard carryover balance to       tions 430 and 436, including for purposes
ance.      For purposes of determining         offset the minimum required contribution        of determining the plan’s prior year fund-
whether a plan is exempt from the re-          for the current plan year, the minimum          ing ratio under paragraph (d)(3) of this
quirement to establish a new shortfall         required contribution for the plan year         section for the following plan year. See
amortization base under section 430(c)(5),     (determined after taking into account any       also section 436(f)(3) and §1.436–1(a)(5)
the funding standard carryover balance         waiver under section 412(c)) is offset as       for a rule under which the plan sponsor is
is not subtracted from the value of plan       of the valuation date for the plan year by      deemed to make the election described in
assets regardless of whether any portion       the amount so used.                             this paragraph (e).
of either the funding standard carryover           (2) Requirement to use funding stan-            (2) Coordination between prefunding
balance or the prefunding balance is used      dard carryover balance before prefunding        balance and funding standard carryover
to offset the minimum required contribu-       balance. To the extent that a plan has a        balance. To the extent that a plan has
tion for the plan year under paragraph (d)     funding standard carryover balance greater      a funding standard carryover balance
of this section.                               than zero, no amount of the plan’s prefund-     greater than zero, no election under para-
    (3) Special rule for certain binding       ing balance may be used to offset the mini-     graph (e)(1) of this section is permitted to
agreements with PBGC. If there is in effect    mum required contribution. Thus, a plan’s       be made that reduces the plan’s prefund-
for a plan year a binding written agree-       funding standard carryover balance must         ing balance. Thus, a plan must exhaust
ment with the Pension Benefit Guaranty         be exhausted before the plan’s prefunding       its funding standard carryover balance
Corporation (PBGC) which provides that         balance may be applied under paragraph          before it is permitted to make an election
all or a portion of the prefunding balance     (d)(1) of this section to offset the minimum    under paragraph (e)(1) of this section with
or funding standard carryover balance (or      required contribution.                          respect to its prefunding balance.
both balances) is not available to offset          (3) Limitation for underfunded plans.           (f) Elections—(1) Method of making
the minimum required contribution for          An election to apply a funding standard         elections. Any election under this sec-
a plan year, that specified amount is not      carryover balance or a prefunding balance       tion by the plan sponsor must be made
subtracted from the value of plan assets       under paragraph (d)(1) of this section is not   by providing written notification of the
for purposes of determining the funding        available for a plan year if the plan’s prior   election to the plan’s enrolled actuary and
shortfall under section 430(c)(4). For         year funding ratio is less than 80 percent.     the plan administrator. The written no-
example, if a PBGC agreement provides          For purposes of this paragraph (d)(3), ex-      tification must set forth the relevant de-
that $5 million of a plan’s balances is un-    cept as provided in paragraph (h)(5) of this    tails of the election, including the specific
available to offset the minimum required       section, the plan’s prior year funding ra-      amounts involved in the election with re-
contribution for a plan year, the sum of       tio is the fraction (expressed as a percent-    spect to the prefunding balance and fund-
the plan’s prefunding balance and funding      age)—                                           ing standard carryover balance.
standard carryover balance is $20 million,         (i) The numerator of which is the value         (2) Timing of elections—(i) General
and the plan’s assets are $100 million, the    of plan assets on the valuation date for        rule. Except as provided in paragraph
value of plan assets for purposes of deter-    the preceding plan year, reduced by the         (f)(2)(ii) of this section, any election under
mining the funding shortfall under section     amount of any prefunding balance (but not       this section must be made on or before the
430(c)(4) is reduced by $15 million ($20       the amount of any funding standard carry-       due date (with extensions) for the filing of
million less $5 million) to $85 million.       over balance); and                              the plan’s Form 5500, “Annual Return/Re-
For purposes of this paragraph (c)(3), an          (ii) The denominator of which is the        port of Employee Benefit Plan”, for the
agreement with the PBGC is taken into          funding target of the plan for the preceding    plan year to which the election relates (or,
account with respect to a plan year only       plan year (determined without regard to         in the case of a plan not required to file a
if the agreement was executed prior to the     section 430(i)(1)).                             Form 5500 for the plan year, on or before
valuation date for the plan year.                  (e) Election to reduce balances—(1) In      the last day of the seventh month after the
    (4) Exception for section 436(j) and       general. A plan sponsor may make an             end of the plan year to which the election
(k) special adjustment rules. See section      election for a plan year to reduce any por-     relates). For this purpose, an election to
436(j) and (k) and §1.436–1(j)(2)(ii) and      tion of a plan’s prefunding balance and         add to the prefunding balance relates to the
(iii) for exceptions from the requirement      funding standard carryover balance under        plan year for which excess contributions
to subtract the prefunding and funding         this paragraph (e). If such an election is      were made. For example, in the case of
standard carryover balances from plan          made, the amount of those balances that         a plan required to file a Form 5500, an
assets in determining a plan’s funding tar-    must be subtracted from plan assets pur-        election to add to the prefunding balance


2007–42 I.R.B.                                                     837                                            October 15, 2007
as of the first day of the 2010 plan year                   The amount of the contribution after adjustment is             Example 5. (i) Plan Q is a defined benefit plan
(in an amount not in excess of the 2009                     $142,198, determined as $150,000 discounted for 11         with a plan year that is the calendar year and a valu-
interest-adjusted excess contributions un-                  months of compound interest at an effective annual         ation date of July 1. The funding standard carryover
                                                            interest rate of 6%.                                       balance of Plan Q is $50,000 as of January 1, 2009,
der the rules of paragraph (b)(1)(ii) of this                   (iii) The excess of employer contributions for         the beginning of the 2009 plan year. The prefunding
section) must be made no later than the                     2008 over the minimum required contribution for            balance of Plan Q as of the beginning of the 2009 plan
due date for filing the 2009 Form 5500                      2008, as of the valuation date, is $42,198 ($142,198       year is $0. The actual rate of return on Plan Q’s assets
even though the election is reported on the                 less $100,000). Accordingly, the increase in Plan          in 2009 is 10%. The effective interest rate for Plan Q
2010 Form 5500 (Schedule SB).                               P’s prefunding balance as of January 1, 2009, cannot       for 2009 is 5%. The funding ratio for Plan Q in 2008
                                                            exceed $44,730 (which is the excess contribution           is 85%, as determined under paragraph (d)(3) of this
    (ii) Election to reduce balances. Any                   of $42,198 adjusted for 12 months of interest at an        section. Thus, the prior year funding ratio for 2009 is
election under paragraph (e) of this section                effective interest rate of 6%).                            not less than 80%.
to reduce the prefunding balance or fund-                       (iv) Furthermore, if Sponsor S does not elect to           (ii) Pursuant to paragraph (b)(4) of this section,
ing standard carryover balance for a plan                   apply any portion of the funding standard carryover        the funding standard carryover balance is increased
year (for example, in order to avoid a ben-                 balance toward the minimum contribution in 2008,           to $51,235 as of July 1, 2009 (that is, an increase
                                                            the funding standard carryover balance as of January       to reflect 6 months of interest at an effective inter-
efit restriction under section 436) must be                 1, 2009, is $25,500 (which is the funding standard         est rate of 5%). Sponsor T does not elect in 2009
made by the end of the plan year to which                   carryover balance as of January 1, 2008, adjusted for      to reduce any portion of the funding standard carry-
the election relates.                                       investment experience at an effective interest rate of     over balance pursuant to paragraph (e) of this section.
    (3) Irrevocability of elections. A plan                 2%).                                                       The funding standard carryover balance ($51,235) is
sponsor’s election under this section with                      Example 2. (i) The facts are the same as in Exam-      subtracted from the value of plan assets, as of July
                                                            ple 1 except that the contribution of $150,000 is made     1, 2009, prior to the determination of the minimum
respect to the plan’s funding standard car-                 on February 1, 2009, for the 2008 plan year.               funding contribution and, accordingly, $51,235 is the
ryover balance or prefunding balance is ir-                     (ii) The amount of the contribution after adjust-      maximum amount that may applied against the mini-
revocable (and must be unconditional).                      ment is $140,824, which is determined as $150,000          mum required contribution.
    (4) Plan sponsor—(i) In general. For                    discounted for 13 months of interest at an effective           (iii) The minimum required contribution for Plan
purposes of the elections described in this                 interest rate of 6%. Accordingly, the increase in Plan     Q for 2009 is $200,000. Sponsor T makes a contri-
                                                            P’s prefunding balance as of January 1, 2009, cannot       bution to Plan Q of $190,000 on July 1, 2009, for the
section, except as provided in paragraph                    exceed $43,273 (which is the excess contribution of        2009 plan year, and makes no other contributions for
(f)(4)(ii) of this section, any reference to                $40,824 adjusted for 12 months of interest at an ef-       the 2009 plan year. Sponsor T elects to use $10,000 of
the plan sponsor means the employer or                      fective interest rate of 6%).                              the funding standard carryover balance to offset Plan
employers responsible for making contri-                        Example 3. (i) The facts are the same as in Ex-        Q’s minimum required contribution in 2009. Accord-
butions to or under the plan.                               ample 1 except that Sponsor S contributes $85,000          ingly, the value of the funding standard carryover bal-
                                                            to Plan P on January 1, 2008, for the 2008 plan year       ance as of July 1, 2009, prior to adjustment for in-
    (ii) Certain multiple employer plans.                   and makes no other contributions to Plan P for the         vestment experience, is $41,235 (that is, $51,235 less
For purposes of the elections described in                  2008 plan year. In addition, Sponsor S elects to use       $10,000).
this section, in the case of plans that are                 $15,000 of the funding standard carryover balance              (iv) The value of the funding standard carry-
multiple employer plans to which section                    to offset Plan P’s minimum required contribution in        over balance as of January 1, 2010, is determined
413(c)(4)(A) does not apply, any reference                  2008, pursuant to paragraph (d)(1) of this section.        by first discounting the value as of July 1, 2009,
                                                                (ii) With respect to the 2009 plan year, the ad-       after amounts have been used to offset the mini-
to the plan sponsor means the plan ad-                      justment for investment experience under paragraph         mum required contribution, to January 1, 2009, at
ministrator within the meaning of section                   (b)(3) of this section for the funding standard carry-     the effective interest rate and then crediting this so
414(g).                                                     over balance for the preceding plan year is $200, de-      determined amount with a full year’s investment
    (g) Examples. The following examples                    termined as the actual rate of return on plan assets for   experience at a rate equal to the actual rate of re-
illustrate the application of this section:                 2008 as applied to the 2008 funding standard carry-        turn. Thus, the July 1, 2009, value of $41,235 is
                                                            over balance after reduction for the amount of that        discounted for 6 months of interest, at an effective
    Example 1. (i) Plan P is a defined benefit plan
                                                            balance used under paragraph (d)(1) of this section        interest rate of 5%, to obtain a January 1, 2009, value
with a plan year that is the calendar year and a valu-
ation date of January 1. The funding standard carry-        (that is, $25,000 less $15,000, multiplied by the ac-      of $40,241. Accordingly, the value of the funding
                                                            tual rate of return of 2%).                                standard carryover balance as of January 1, 2010, is
over balance of Plan P is $25,000 as of the beginning
                                                                (iii) The funding standard carryover balance, as of    $44,265 (that is, $40,241 increased with one year’s
of the 2008 plan year. The sponsor of Plan P, Sponsor
S, does not elect in 2008, pursuant to paragraph (e)(1)     January 1, 2009, is $10,200, determined as the 2008        investment return at a rate of 10%).
                                                            funding standard carryover balance less the amount            (h) Effective/applicablility date and
of this section, to reduce any portion of the funding
                                                            used to offset the 2008 minimum required contribu-
standard carryover balance prior to the determination                                                                  transition rules—(1) General effective/ap-
of the value of plan assets. The actual rate of return on   tion, adjusted for investment experience during the
                                                            2008 year ($25,000 less $15,000 plus $200).
                                                                                                                       plicability date. Except as provided in
Plan P’s assets in 2008 is 2%. The effective interest
                                                                Example 4. (i) The facts are the same as in Ex-        paragraph (h)(2) of this section, this sec-
rate in 2008 for Plan P is 6%. The minimum required
contribution for Plan P under section 430 for 2008 is       ample 3 except that Sponsor S contributes $90,000          tion applies to plan years beginning on or
                                                            (instead of $85,000) to Plan P on January 1, 2008, for     after January 1, 2008.
$100,000. The prior year funding ratio for Plan P for
                                                            the 2008 plan year.
2008, as determined under paragraph (h)(5) of this                                                                        (2) Plans with delayed effective date.
section, is not less than 80%.                                  (ii) Notwithstanding the fact that the amount that
                                                            Sponsor S contributed to Plan P exceeds the mini-
                                                                                                                       In the case of a plan for which the effec-
    (ii) Sponsor S makes a contribution to Plan P of
                                                            mum required contribution ($85,000) after it has been      tive date of section 430 is delayed in ac-
$150,000 on December 1, 2008, for the 2008 plan
year and makes no other contributions for the 2008          offset as a result of the use of the funding standard      cordance with sections 104 through 106 of
                                                            carryover balance, the maximum amount that Spon-           the Pension Protection Act of 2006, Public
plan year. Because this contribution was made on a
                                                            sor S may add to the prefunding balance as of Jan-
date other than the valuation date for the 2008 plan                                                                   Law 109–280, 120 Stat. 780, this section
year, the contribution must be adjusted to reflect in-      uary 1, 2009, is $0. This is because the maximum
                                                            amount that may be added to the prefunding balance
                                                                                                                       applies to plan years beginning on or after
terest that would otherwise have accrued between the
                                                            is the excess of $90,000 over $100,000. See para-          the effective date of section 430 with re-
valuation date and the date of the contribution, at
the effective rate of interest for the 2008 plan year.      graphs (b)(1)(ii)(A) and (B) of this section.              spect to the plan.


October 15, 2007                                                                    838                                                             2007–42 I.R.B.
    (3) First effective plan year. For pur-       only if it satisfies the requirements of sec-   this section applies as if all participants in
poses of this section, the first effective plan   tion 436. This section provides rules re-       the plan were employed by a single em-
year for a plan is the first plan year to         lating to funding-based limitations on cer-     ployer.
which this section applies under paragraph        tain benefits under section 436, and the            (4) Treatment of plan as of close of
(h)(1) or (h)(2) of this section.                 requirements of section 436 are satisfied       prohibited or cessation period—(i) Re-
    (4) Pre-effective plan year. For pur-         only if the plan meets the requirements of      sumption of benefit payments and ac-
poses of this section, the pre-effective plan     this section beginning with the plan’s first    cruals—(A) Resumption of accelerated
year for a plan is the last plan year begin-      effective plan year. This section applies to    payments. If a limitation on accelerated
ning before the first effective date applica-     single employer defined benefit plans (in-      benefit payments under paragraph (d) of
ble under paragraph (h)(1) or (h)(2) of this      cluding multiple employer plans), but does      this section applied to a plan as of a sec-
section. Thus, except for plans with a de-        not apply to multiemployer plans.               tion 436 measurement date, but that limit
layed effective date under paragraph (h)(2)           (2) Organization of the regulation.         no longer applies to the plan as of a later
of this section, the pre-effective plan year      Paragraph (b) of this section describes a       section 436 measurement date, then the
for a plan is the last plan year beginning        limitation on shutdown benefits and other       prohibition on paying accelerated benefits
before January 1, 2008.                           unpredictable contingent event benefits.        under the plan does not apply to benefits
    (5) Special lookback rule for pre-effec-      Paragraph (c) of this section describes lim-    with annuity starting dates that are on or
tive plan year’s funding ratio—(i) Plan as-       itations on plan amendments increasing          after that later section 436 measurement
sets. For purposes of determining a plan’s        liabilities. Paragraph (d) of this section      date. Any amendment to eliminate the
prior year funding ratio pursuant to para-        describes limitations on accelerated bene-      payment of accelerated benefit payments
graph (d)(3) of this section for the first ef-    fit payments. Paragraph (e) of this section     for periods in which they are not restricted
fective plan year, the value of plan assets       describes limitations on benefit accru-         under section 436 is subject to the rules of
on the valuation date of the preceding plan       als. Paragraph (f) of this section provides     section 411(d)(6).
year is determined under section 412(c)(2)        rules relating to methods to avoid benefit          (B) Resumption of benefit accruals.
as in effect for that pre-effective plan year,    limitations. Paragraph (g) of this section      Unless the plan provides otherwise, bene-
except that—                                      provides rules for the operation of the plan    fit accruals under the plan resume effective
    (A) If the value of plan assets is less       in relation to benefit limitations under        as of the section 436 measurement date
than 90 percent of the fair market value of       section 436. Paragraph (h) of this section      on which benefit accruals are no longer
plan assets for the pre-effective plan year       describes related presumptions regard-          restricted under paragraph (e) of this sec-
on that date, for this purpose such value         ing underfunding that apply for purposes        tion.
is considered to be 90 percent of the fair        of the benefit limitations under section            (ii) Missed benefit payments and ac-
market value; and                                 436. Paragraph (j) of this section contains     cruals—(A) Option to amend plan to re-
    (B) If the value of plan assets is greater    definitions. Paragraph (k) of this section      store benefits. A plan is permitted to be
than 110 percent of the fair market value         contains effective/applicability date pro-      amended to provide participants who had
of plan assets on the valuation date for the      visions.                                        an annuity starting date within a period
pre-effective plan year on that date, for this        (3) Special rules for certain plans—(i)     during which the rules of paragraph (d)
purpose such value is considered to be 110        New plans. The limitations described in         of this section applied to the plan with
percent of the fair market value.                 paragraphs (b), (c), and (e) of this section    the opportunity to have a new election un-
    (ii) Funding target. For purposes of de-      do not apply to a plan for the first 5 plan     der which the form of benefit previously
termining a plan’s prior year funding ratio       years of the plan. For purposes of apply-       elected may be modified, subject to appli-
pursuant to paragraph (d)(3) of this section      ing this rule, plan years of a plan are ag-     cable qualification requirements. A par-
for the first effective plan year, the fund-      gregated with plan years of a predecessor       ticipant who makes such a new election
ing target of the plan for the preceding plan     plan in accordance with section 414(a) or       is treated as having a new annuity starting
year is equal to the plan’s current liabil-       §1.415(f)–1(c).                                 date under section 417. Similarly, a plan
ity under section 412(l)(7) on the valuation          (ii) Multiple employer plans. In the case   is permitted to be amended to provide that
date for the plan’s pre-effective plan year.      of a multiple employer plan to which sec-       any benefit accruals which were limited
    Par. 3. Section 1.436–1 is added to read      tion 413(c)(4)(A) applies, this section ap-     under the rules of paragraph (e) of this sec-
as follows:                                       plies separately with respect to each em-       tion are credited under the plan when the
                                                  ployer under the plan, as if each employer      limitation no longer applies, subject to ap-
§1.436–1 Limits on benefits and benefit           maintained a separate plan. Thus, the ben-      plicable qualification requirements. Any
accruals under single employer defined            efit limitations under section 436 and this     such plan amendment with respect to a
benefit plans.                                    section could apply differently to partici-     new annuity starting date or crediting of
                                                  pants who are employees of different em-        benefit accruals is subject to the require-
   (a) General rules—(1) Qualification re-        ployers under such a multiple employer          ments of section 436(c) and paragraph (c)
quirement. Section 401(a)(29) provides            plan. In the case of a multiple employer        of this section.
that a defined benefit pension plan that          plan to which section 413(c)(4)(A) does             (B) Automatic plan provisions to re-
is subject to section 412 and that is not         not apply (that is, a plan described in sec-    store benefits. A plan is permitted to pro-
a multiemployer plan (within the mean-            tion 413(c)(4)(B) that has not made the         vide that participants who had an annuity
ing of section 414(f)) is a qualified plan        election for section 413(c)(4)(A) to apply),    starting date within a period during which


2007–42 I.R.B.                                                        839                                            October 15, 2007
the rules of paragraph (d) of this section                 calendar year and a valuation date of January 1. As of     that is a prohibited payment described in
applied to the plan are automatically pro-                 January 1, 2011, Plan T does not have a funding stan-      paragraph (d)(5) of this section).
vided with the opportunity to have a new                   dard carryover balance or a prefunding balance. Plan           (ii) Other limitations for collectively
                                                           T’s sponsor is not in bankruptcy. Beginning January
annuity starting date (which would consti-                 1, 2011, Plan T is subject to the restriction on accel-
                                                                                                                      bargained plans—(A) General rule. In
tute a new annuity starting date under sec-                erated benefit distributions under paragraph (d)(3) of     the case of a collectively bargained plan
tion 417) under which the form of ben-                     this section based on a presumed adjusted funding tar-     to which a benefit limitation under para-
efit previously elected may be modified,                   get attainment percentage (AFTAP) of 75%, and can          graph (b), (c), or (e) of this section would
subject to applicable qualification require-               therefore only pay a portion (generally 50%) of the        (but for this paragraph (a)(5)) apply, the
                                                           accelerated benefit distributions otherwise payable to
ments, once the rules of paragraph (d) of                  participants who commence benefit payments while
                                                                                                                      employer is treated as having made an
this section cease to apply. In addition, a                the restriction is in effect.                              election under section 430(f) to reduce the
plan is permitted to provide for the auto-                     (ii) U is a participant in Plan T. Participant U re-   prefunding balance or funding standard
matic restoration of benefit accruals that                 tires on February 1, 2011, and elects to receive ben-      carryover balance by such amount as is
had been limited under section 436(e) as                   efits in the form of a single sum. However, because        necessary for the adjusted funding target
                                                           U elected a form of payment that is a prohibited pay-
of the section 436 measurement date that                   ment that is not permitted to be paid under paragraph
                                                                                                                      attainment percentage to be at or above
the limitation ceases to apply, as described               (d)(3)(i) of this section, U elects in accordance with     the applicable threshold in order for the
in paragraph (a)(4)(ii)(A) of this section.                paragraph (d)(3)(ii) of this section to receive 50% of     benefit limitation not to apply to the plan,
However, if a plan provides for the auto-                  his benefit in a single sum and the remainder as an        taking into account the unpredictable con-
matic restoration of those benefit accruals                immediately commencing straight life annuity.              tingent event benefits or plan amendment,
                                                               (iii) On March 1, 2011, the enrolled actuary for
and the period of the limitation exceeds 12                the Plan certifies that the AFTAP for 2011 is 80%.
                                                                                                                      as applicable. In such a case, the employer
months, the plan will be treated as hav-                   Accordingly, beginning March 1, 2011, Plan T is            is treated as having made that election on
ing adopted, effective as of the section 436               no longer subject to the restriction under paragraph       the date as of which the applicable benefit
measurement date on which the limitation                   (d)(3) of this section.                                    limitation would otherwise apply.
ceases to apply, a plan amendment that has                     (iv) Effective March 1, 2011, Plan T is amended            (B) Treatment of plans with both collec-
                                                           to provide that a participant whose benefits were
the effect of increasing liabilities under the             restricted under paragraph (d)(3) of this section may
                                                                                                                      tively bargained and non-collectively bar-
plan. Such an amendment is subject to the                  elect within a specified period on or after March 1,       gained employees. In the case of a plan
limitations of paragraph (c) of this section.              2011, a new annuity starting date and receive the          with respect to which collective bargain-
    (iii) Shutdown and other unpredictable                 remainder of his or her pension benefits in an accel-      ing agreements apply to some, but not all,
contingent event benefits—(A) In general.                  erated form of payment. Plan T’s enrolled actuary          of the plan participants, the plan is consid-
                                                           determines that the AFTAP, taking into account the
If any unpredictable contingent event ben-                 amendment, is still 80%. The amendment is per-
                                                                                                                      ered a collectively bargained plan for pur-
efits under paragraph (b) of this section are              mitted to take effect because Plan T has an AFTAP          poses of this paragraph (a)(5)(ii) if at least
limited with respect to an unpredictable                   of 80% taking into account the amendment, and is           25 percent of the participants in the plan
contingent event, that limitation applies                  therefore neither subject to the restriction on plan       are members of collective bargaining units
to all such benefits that otherwise would                  amendments in paragraph (c) of this section nor the        for which the benefit levels under the plan
                                                           restrictions on accelerated benefit payments under
have been paid to any plan participant                     paragraphs (d)(1) and (d)(3) of this section. Accord-
                                                                                                                      are specified under a collective bargaining
with respect to that unpredictable contin-                 ingly, Participant U may elect, subject to otherwise       agreement.
gent event.                                                applicable qualification rules, including spousal con-         (iii) Exception for insufficient funding
    (B) Benefits not paid. Notwithstand-                   sent, to receive the remainder of his benefits in the      balances—(A) In general. Paragraphs
ing paragraph (a)(4)(iii)(A) of this sec-                  form of a single sum on or after March 1, 2011.            (a)(5)(i) and (a)(5)(ii) of this section apply
tion, a plan is permitted to be amended                        (5) Deemed election to reduce fund-                    with respect to a benefit limitation for
to provide that any unpredictable contin-                  ing balances—(i) Limitations on acceler-                   any plan year only if the application of
gent event benefits that were limited under                ated benefit payments. If a benefit limi-                  those paragraphs would result in the cor-
the rules of paragraph (b) of this section                 tation under paragraph (d) of this section                 responding benefit limitation not applying
will be paid or reinstated as of the section               would (but for this paragraph (a)(5)) apply                for such plan year. Thus, if the plan’s
436 measurement date on which the limi-                    to a plan, the employer is treated as hav-                 prefunding and funding standard carry-
tation no longer applies, subject to appli-                ing made an election under section 430(f)                  over balances were reduced to zero and
cable qualification requirements. Such a                   to reduce the prefunding balance or fund-                  the resulting increase in plan assets taken
plan amendment is subject to the require-                  ing standard carryover balance by such                     into account would still not increase the
ments of section 436(c) and paragraph (c)                  amount as is necessary for the adjusted                    plan’s adjusted funding target attainment
of this section. A plan is not permitted to                funding target attainment percentage to be                 percentage enough to reach the threshold
provide for restoration of any such unpre-                 at or above the applicable threshold (60,                  percentage applicable to the benefit limi-
dictable contingent event benefits without                 80, or 100 percent, as the case may be) in                 tation, the deemed election to reduce those
an amendment that complies with section                    order for the benefit limitation not to apply              balances pursuant to paragraph (a)(5)(i) or
436(c).                                                    to the plan. In such a case, the employer is               (a)(5)(ii) of this section does not apply.
    (iv) Example. The following example                    treated as having made that election on the                    (B) Presumed adjusted funding target
illustrates the application of this paragraph              section 436 measurement date as of which                   attainment percentage less than 60 per-
(a)(4):                                                    the benefit limitation would otherwise ap-                 cent. If a plan is presumed to have an ad-
    Example. (i) Plan T is a non-collectively bar-         ply (without regard to whether a partici-                  justed funding target attainment percent-
gained defined benefit plan with a plan year that is the   pant is eligible for or requests a payment                 age of less than 60 percent under para-


October 15, 2007                                                                   840                                                        2007–42 I.R.B.
graph (h)(3) of this section, then the plan is              adjusted funding target attainment percent-     the event, even if the remainder of the ben-
treated as if the funding standard carryover                age.                                            efit is payable without regard to the oc-
balance and the prefunding balance are in-                      (2) Exemption—(i) In general. The           currence of the event. Similarly, if a plan
sufficient to increase the adjusted funding                 prohibition on payment of unpredictable         includes a benefit payable upon the pres-
target attainment percentage to the thresh-                 contingent event benefits under paragraph       ence of circumstances specified in the plan
old percentage of 60 percent. Accordingly,                  (b)(1) of this section ceases to apply with     (other than the attainment of any age, per-
paragraphs (a)(5)(i) and (a)(5)(ii) of this                 respect to a plan year, effective as of the     formance of any service, receipt or deriva-
section do not apply to such a plan.                        first day of the plan year, upon payment        tion of any compensation, or the occur-
    (iv) Example. The following example                     by the plan sponsor of the contribution de-     rence of death or disability), but not upon
illustrates the application of this paragraph               scribed in paragraph (f)(2) of this section.    a severance from employment that does
(a)(5):                                                         (ii) Prior unpredictable contingent         not include those circumstances, the plan
     Example. (i) Plan W is a collectively bargained,       event. Unpredictable contingent event           is providing an unpredictable contingent
single-employer defined benefit plan sponsored by           benefits attributable to an unpredictable       event benefit.
Sponsor X, with a plan year that is the calendar year
and a valuation date of January 1. Sponsor X is not
                                                            contingent event that occurred within a             (c) Limitations on plan amendments in-
in bankruptcy.                                              period during which no limitation under         creasing liability for benefits—(1) In gen-
     (ii) The enrolled actuary for Plan W issues a cer-     this paragraph (b) applied to the plan are      eral. Except as provided in this paragraph
tification on March 1, 2010, that the 2010 AFTAP is         not affected by the limitation described        (c), a plan satisfies section 436(c) and this
81%. Sponsor X adopts an amendment on March 25,             in this paragraph (b) as it applies in a        section only if the plan provides that no
2010, to increase benefits under a formula based on
participant compensation, with an effective date of
                                                            subsequent period. For example, if a            amendment to the plan that has the effect of
May 1, 2010. (Because the formula is based on com-          plant shutdown occurs in 2010 and the           increasing liabilities of the plan by reason
pensation, the exception in paragraph (c)(3) of this        plan’s funded status is such that shutdown      of increases in benefits, establishment of
section for increases with respect to a formula not         benefits related to that shutdown are not       new benefits, changing the rate of benefit
based on compensation does not apply.) The plan’s           subject to the limitation described in this     accrual, or changing the rate at which ben-
enrolled actuary determines that the plan’s AFTAP
for 2010 would be 75% if the benefits attributable to
                                                            paragraph (b) for that calendar plan year,      efits become nonforfeitable takes effect if
the plan amendment were taken into account. This            this paragraph (b) will not apply to restrict   the adjusted funding target attainment per-
percentage is below the 80% threshold for the plan          payment of those shutdown benefits even         centage for the plan year is—
amendment limitation under paragraph (c) of this sec-       if another shutdown occurs in 2012 that             (i) Less than 80 percent; or
tion.                                                       results in shutdown benefits related to that        (ii) Is 80 percent or more, but would be
     (iii) Because the AFTAP would be below the
80% threshold if the benefits attributable to the plan
                                                            later shutdown being restricted under this      less than 80 percent if the benefits attrib-
amendment were taken into account, Sponsor X is             paragraph (b) (where the plan’s adjusted        utable to the amendment were taken into
deemed to have made an election under paragraph             funding target attainment percentage for        account in determining the adjusted fund-
(a)(5)(ii) of this section to reduce Plan W’s prefund-      2012 is less than 60 percent taking into        ing target attainment percentage.
ing balance and funding standard carryover balance          account the liability attributable to those         (2) Exemption. The limitations on plan
by the amount necessary for the AFTAP to reach
the 80% threshold (reflecting the increase in funding
                                                            shutdown benefits).                             amendments in paragraph (c)(1) of this
target attributable to the plan amendment) in order             (3) Unpredictable contingent event. For     section cease to apply and the amendment
for the limitation under paragraph (c) of this section      purposes of this section, an unpredictable      is permitted to take effect as of the later of
not to apply.                                               contingent event benefit means any bene-        the first day of the plan year or the effec-
     (iv) In this case, provided the reduction in funding   fit or increase in benefits to the extent the   tive date of the amendment upon payment
balances is sufficient for the limitation not to apply,
the plan amendment will go into effect on its effec-
                                                            benefit or increase would not be payable        by the plan sponsor of the contribution de-
tive date (May 1). See paragraph (f) of this section        but for the occurrence of an unpredictable      scribed in paragraph (f)(2) of this section.
for other methods to avoid benefit limitations (where,      contingent event. For this purpose, an un-          (3) Exception for certain benefit in-
for example, the amount necessary for a benefit limi-       predictable contingent event means a plant      creases—(i) In general. The limitation
tation not to apply for a plan year exceeds the aggre-      shutdown (whether full or partial) or sim-      on plan amendments under paragraph
gate funding balances).
                                                            ilar event, or an event other than the at-      (c)(1) of this section does not apply to any
    (b) Limitation on shutdown benefits and
                                                            tainment of any age, performance of any         amendment that provides for an increase
other unpredictable contingent event ben-
                                                            service, receipt or derivation of any com-      in benefits under a formula that is not
efits—(1) In general. A plan that contains
                                                            pensation, or the occurrence of death or        based on a participant’s compensation, but
an unpredictable contingent event bene-
                                                            disability. Thus, for example, if a plan        only if the rate of increase in benefits does
fit satisfies section 436(b) and this section
                                                            provides for an unreduced early retirement      not exceed the contemporaneous rate of
only if it provides that the benefit will not
                                                            benefit upon the occurrence of an event         increase in average wages of participants
be paid to a plan participant during a plan
                                                            other than the attainment of any age, per-      covered by the amendment. The determi-
year if the adjusted funding target attain-
                                                            formance of any service, receipt or deriva-     nation of the rate of increase in average
ment percentage for the plan year—
                                                            tion of any compensation, or the occur-         wages is made by taking into consideration
    (i) Is less than 60 percent; or
                                                            rence of death or disability, then that unre-   the net increase in average wages from the
    (ii) Is 60 percent or more, but would be
                                                            duced early retirement benefit is an unpre-     period of time beginning with the effective
less than 60 percent if the benefits attribut-
                                                            dictable contingent event benefit to the ex-    date of the most recent benefit increase
able to the unpredictable contingent event
                                                            tent of any portion of the benefit that would   applicable to all of those participants who
were taken into account in determining the
                                                            not be payable but for the occurrence of        are covered by the current amendment and


2007–42 I.R.B.                                                                  841                                            October 15, 2007
ending on the effective date of the current   centage for a plan year is less than 60              (B) 100 percent of the PBGC guarantee
amendment.                                    percent, the plan will not pay any pro-          amount described in paragraph (d)(3)(iv)
    (ii) Application to terminated partici-   hibited payment with an annuity starting         of this section.
pants. If an amendment applies to both        date on or after the applicable section 436          (ii) Bifurcation if optional form un-
currently employed and terminated partic-     measurement date.                                available—(A) General rule. If an op-
ipants, all such participants must be in-        (ii) Request for prohibited distribution.     tional form of benefit that is otherwise
cluded in determining the increase in av-     If a participant or beneficiary requests a       available under the terms of the plan is
erage wages of the participants covered by    distribution that is prohibited under para-      not available as of the annuity starting
the amendment. For this purpose, termi-       graph (d)(1)(i) of this section, the plan        date because of the application of para-
nated participants are treated as having no   must permit the participant or beneficiary       graph (d)(3)(i) of this section, then the
increase or decrease in wages for the pe-     to elect another form of benefit available       plan must provide a participant or bene-
riod after severance from employment.         under the plan or to defer payment to a later    ficiary who elects such an optional form
    (iii) Separate amendments for differ-     date to the extent permitted under applica-      with the option either to defer payment to
ent plan populations. In lieu of a single     ble qualification requirements.                  a later date (to the extent permitted under
amendment that applies to both currently         (2) Bankruptcy. A plan satisfies the re-      applicable qualification requirements) or
employed participants and terminated          quirements of section 436(d)(2) and this         to bifurcate the benefit into unrestricted
participants as described in paragraph        paragraph (d)(2) only if the plan provides       and restricted portions. If the participant
(c)(3)(ii) of this section, the employer      that the plan will not pay any prohibited        or beneficiary elects to bifurcate the ben-
could adopt two amendments — one that         payment with an annuity starting date that       efit, the plan must permit the participant
increases benefits for currently employed     is during any period in which the plan           or beneficiary to elect, with respect to the
participants and another one that increases   sponsor is a debtor in a case under title 11,    unrestricted portion, any optional form of
benefits for terminated participants. In      United States Code, or similar Federal or        benefit otherwise available under the plan
that case, the two amendments are consid-     State law, except for payments made with         with respect to the participant’s or ben-
ered separately in determining the increase   an annuity starting date within a plan year      eficiary’s entire benefit (whether or not
in average wages, and the exception in this   that is on or after the date on which the        the optional form of benefit with respect
paragraph (c)(3) from application of the      enrolled actuary of the plan certifies that      to the unrestricted portion is a prohibited
section 436(c) limitation would apply         the plan’s adjusted funding target attain-       payment). In such a case, if the participant
separately to each amendment (so that an      ment percentage for that plan year is not        or beneficiary elects payment of the unre-
amendment providing for increases in ben-     less than 100 percent. The rules of para-        stricted portion of the benefit described in
efits for currently employed participants     graph (d)(1)(ii) of this section apply if pay-   paragraph (d)(3)(ii)(B) of this section in
could go into effect, but an amendment        ments are prohibited under this paragraph        the form of a prohibited payment, the plan
providing for increases in benefits for       (d)(2).                                          must permit the participant or beneficiary
terminated participants who received no          (3) Limited payment if percentage at          to elect payment of the restricted portion
increase in wages from the employer dur-      least 60 percent but less than 80 per-           described in paragraph (d)(3)(ii)(C) of this
ing the period over which the increase in     cent—(i) In general. A plan satisfies the        section in any optional form of benefit
average wages is determined could not go      requirements of section 436(d)(3) and            under the plan that is not a prohibited
into effect).                                 this paragraph (d)(3) only if the plan pro-      payment and that would have been per-
    (4) Exception for statutorily required    vides that, in any case in which the plan’s      mitted with respect to the participant’s or
vesting. To the extent that any amend-        adjusted funding target attainment per-          beneficiary’s entire benefit. A plan is also
ment results in (or is made pursuant to) a    centage for a plan year is 60 percent or         permitted to offer optional forms of benefit
mandatory increase in the vesting of ben-     more but is less than 80 percent, a partic-      that are solely available during the period
efits under the Code or ERISA (such as        ipant or beneficiary is permitted to elect       this paragraph (d)(3) applies to the plan,
vesting rate increases pursuant to statute,   the payment of a benefit with an annuity         such as an optional form of benefit that
plan termination amendments under sec-        starting date on or after the applicable         provides for the current payment of the
tion 411(d)(3), and amendments that lead      section 436 measurement date in the form         unrestricted portion of the benefit, with a
to vesting increases required by top heavy    of a prohibited payment only if the present      delayed commencement for the restricted
rules under section 416), that amendment      value, determined in accordance with             portion of the benefit, subject to other
does not constitute an amendment that         section 417(e)(3), of the portion of the         applicable qualification requirements.
changes the rate at which benefits become     payment that is greater than the amount of           (B) Unrestricted portion of the benefit.
nonforfeitable for purposes of section        the straight life annuity under the plan (as     The unrestricted portion of the benefit is
436(c) and this paragraph (c).                described in paragraph (d)(5)(i)(A) of this      the lesser of—
    (d) Limitations on accelerated ben-       section) does not exceed the lesser of—              (1) 50 percent of the benefit; and
efit payments—(1) Funding percentage             (A) 50 percent of the present value of            (2) The portion of the benefit that has a
less than 60 percent—(i) In general. A        the benefits, determined in accordance           present value equal to the PBGC guarantee
plan satisfies the requirements of section    with section 417(e)(3) (or, if greater, 50       amount described in paragraph (d)(3)(iv)
436(d)(1) and this paragraph (d)(1) only      percent of the amount of any single sum          of this section.
if the plan provides that, if the plan’s      that would be payable without regard to              (C) Restricted portion of the benefit.
adjusted funding target attainment per-       this paragraph (d)); or                          The restricted portion of the benefit is the


October 15, 2007                                                  842                                                 2007–42 I.R.B.
portion of the benefit that is not described                 tuarial assumptions under section 417(e). P’s single         maximum single sum that Q can receive is $212,400
in paragraph (d)(3)(ii)(B) of this section.                  sum payment, determined without regard to this para-         (that is, the lesser of 50% of $424,800, or $637,200).
    (iii) One-time application—(A) In gen-                   graph (d), is calculated to be $1,416,000, payable at            (iv) Because the present value of the portion of
                                                             age 65.                                                      Q’s benefit that is greater than the straight life annuity
eral. A plan satisfies the requirements of                        (iii) The PBGC guaranteed monthly benefit for a         ($99,120) is less than the lesser of 50% of the present
this paragraph (d) only if the plan pro-                     straight life annuity payable at age 65 in 2010 (for         value of benefits (50% of $424,800) and $637,200
vides that, in the case of a participant who                 purposes of this example) is $4,500. The present             (100% of the PBGC guaranteed benefit), the optional
receives a prohibited payment (or series                     value of the PBGC guaranteed benefit using actuarial         form described in paragraph (i) of this Example 2 is
of prohibited payments under a single op-                    assumptions under section 417(e) is $637,200.                permitted to be paid under paragraph (d)(3)(i) of this
                                                                  (iv) Because Participant P retires during a period      section.
tional form of benefit) pursuant to para-                    when the restriction in paragraph (d)(3) of this section         (4) Exception for cessation of benefit
graph (d)(3)(i) or (ii) of this section, the                 applies to Plan A, only a portion of the benefit can be      accruals. This paragraph (d) does not ap-
participant cannot thereafter receive any                    paid in the form of a single sum. P elects a single sum
                                                             payment. Because a single sum payment is a prohib-
                                                                                                                          ply to a plan for a plan year if the terms
additional prohibited payment during any
                                                             ited payment, a determination must be made whether           of the plan, as in effect for the period be-
period of consecutive plan years to which
                                                             the payment can be paid under paragraph (d)(3)(i)            ginning on September 1, 2005, provided
the limitations under either this paragraph                  of this section. In this case, because the portion of        for no benefit accruals with respect to any
(d)(3), paragraph (d)(1) of this section, or                 Participant P’s benefit that is greater than a straight      participants. If a plan that is described in
paragraph (d)(2) of this section apply.                      life annuity exceeds the lesser of 50% of the benefit
                                                             otherwise payable, or the present value of the PBGC
                                                                                                                          this paragraph (d)(4) provides for benefit
    (B) Treatment of beneficiaries. For
                                                             guaranteed benefit, it cannot be paid under paragraph        accruals during any time after September
purposes of this paragraph (d)(3), ben-
                                                             (d)(3)(i) of this section. Accordingly, the maximum          1, 2005, this paragraph (d)(4) ceases to ap-
efits provided to a participant and any                      single sum that Participant P can receive is $637,200        ply for the plan as of the date any benefits
beneficiary (including an alternate payee,                   (that is, the lesser of 50% of $1,416,000 or $637,200).      accrue under the plan.
as defined in section 414(p)(8)) are ag-                          (v) Pursuant to paragraph (d)(3)(ii) of this sec-
                                                             tion, the plan must offer P the option to bifurcate
                                                                                                                              (5) Prohibited payment—(i) In general.
gregated. If the accrued benefit of a
                                                             the benefit into restricted and unrestricted portions.       For purpose of this paragraph (d), the term
participant is allocated to such an alter-
                                                             The unrestricted portion is a monthly straight life an-      prohibited payment means—
nate payee and one or more other persons,                    nuity of $4,500, which can be paid in a single sum               (A) Any payment for a month that is in
the unrestricted amount under paragraphs                     of $637,200. If P elects to receive the unrestricted         excess of the monthly amount paid under a
(d)(3)(i) and (d)(3)(ii) of this section is                  portion of the benefit in the form of a single sum,
                                                             then, with respect to the $5,500 restricted portion, the
                                                                                                                          straight life annuity (plus any social secu-
allocated among such persons in the same
                                                             plan must permit P to elect any form of benefit that         rity supplements described in the last sen-
manner as the accrued benefit is allocated,
                                                             would otherwise be permitted with respect to the full        tence of section 411(a)(9)) to a participant
unless a qualified domestic relations order                  $10,000 that is not a prohibited payment. Alterna-           or beneficiary whose annuity starting date
(as defined in section 414(p)(1)(A)) with                    tively, the plan could permit P to elect to defer com-       occurs during any period that a limitation
respect to the participant or the alternate                  mencement of the restricted portion, subject to appli-
                                                             cable qualification rules.
                                                                                                                          under this paragraph (d) is in effect;
payee provides otherwise.
                                                                  Example 2. (i) The facts are the same as in Exam-           (B) Any payment for the purchase of an
    (iv) Present value of PBGC maximum
                                                             ple 1. In addition, Plan A provides an optional form         irrevocable commitment from an insurer to
benefit guarantee. The amount described                      of payment (subject to any benefit restrictions under        pay benefits; and
in this paragraph (d)(3)(iv) is, with re-                    section 436) that consists of a partial payment equal to         (C) Any other payment that is iden-
spect to a participant, the present value                    the total return of employee contributions to the plan
                                                             accumulated with interest, with an annuity payment
                                                                                                                          tified as a prohibited payment by the
(determined under guidance prescribed by
                                                             for the remainder of the participant’s benefit.              Commissioner in revenue rulings and
the Pension Benefit Guaranty Corporation,
                                                                  (ii) Participant Q is not married, and retires at age   procedures, notices and other guidance
using the interest and mortality assump-                     65 during 2010, while Plan A is subject to the re-           published in the Internal Revenue Bulletin
tions under section 417(e)) of the maxi-                     striction under paragraph (d)(3) of this section. Par-       (see §601.601(d)(2) of this chapter).
mum benefit guarantee under section 4022                     ticipant Q has an accrued benefit equal to a straight
                                                             life annuity of $3,000 per month. Under the optional
                                                                                                                              (ii) Annuity starting date. Solely for
of ERISA.
                                                             form described in paragraph (i) of this Example 2, Q         purposes of applying the limitations on ac-
    (v) Examples. The following examples
                                                             may elect a partial payment of $99,120 (represent-           celerated benefit payments under this para-
illustrate the application of this paragraph                 ing the return of employee contributions accumulated         graph (d), the term annuity starting date
(d)(3):                                                      with interest) plus a straight life annuity of $2,300
     Example 1. (i) Plan A is subject to the restriction
                                                                                                                          means, as applicable—
                                                             per month. The present value of Participant Q’s ac-
on accelerated benefit distributions under paragraph         crued benefit, using actuarial assumptions under sec-
                                                                                                                              (A) The first day of the first period for
(d)(3) of this section for the 2010 plan year, and can       tion 417(e), is $424,800. The present value of the           which an amount is payable as an annuity
therefore only pay a portion of the accelerated bene-        PBGC guarantee payable at age 65 in the form of a            as described in section 417(f)(2)(A)(i);
fit payments otherwise payable to participants whose         straight life annuity is determined to be $637,200 for           (B) In the case of a benefit not payable
annuity starting date occurs while the restriction ap-       the purposes of this Example 2.
plies.
                                                                                                                          in the form of an annuity, the first day on
                                                                  (iii) Under the bifurcation approach of paragraph
     (ii) Participant P is not married, and retires at age   (d)(3)(ii) of this section, Q can receive the partial
                                                                                                                          which all events have occurred (including
65 during 2010, while the restriction under paragraph        single sum payment available under the terms of Plan         the participant’s election, the participant’s
(d)(3) of this section applies to Plan A. P’s accrued        A as long as the amount of the single sum does not           severance from employment if the partici-
benefit is $10,000 per month, payable commencing             exceed the unrestricted portion of the benefit under         pant is below normal retirement age, and,
at age 65 as a straight life annuity. Plan A provides        paragraph (d)(3)(ii)(B) of this section. The unre-
for an optional single sum payment (subject to the
                                                                                                                          if applicable, the participant’s survival to
                                                             stricted portion of Q’s benefit is the lesser of 50% of
restrictions under section 436) equal to the present         the benefit otherwise payable, or the present value
                                                                                                                          the date as of which payment is made)
value of the participant’s accrued benefit using ac-         of the PBGC guaranteed benefit. Accordingly, the



2007–42 I.R.B.                                                                        843                                                          October 15, 2007
which entitle the participant to such bene-       funding target attainment percentage. The        (c)(2), and (e)(2), and are separate from
fit as described in section 417(f)(2)(A)(ii);     other two methods (making a contribution         any minimum required contributions un-
    (C) In the case of an amount payable          that is specifically designated as a current     der section 430. Thus, if a plan sponsor
under a retroactive annuity starting date,        year contribution to avoid application of        makes a contribution described in this
the benefit commencement date; and                a benefit limitation under paragraph (b),        paragraph (f)(2) for a plan year but does
    (D) The date of any payment for the           (c), or (e) of this section, and providing       not make the minimum required contri-
purchase of an irrevocable commitment             security under section 436(f)(1)) are de-        bution for the plan year, the plan will fail
from an insurer to pay benefits under the         scribed in paragraphs (f)(2) and (f)(3) of       to satisfy the minimum funding require-
plan.                                             this section, respectively.                      ments under section 430 for the plan year.
    (6) Involuntary distributions under sec-          (2) Current year contributions to avoid      In addition, a contribution described in
tion 411(a)(11). [Reserved].                      or terminate benefit limitations—(i) Gen-        this paragraph (f)(2) is disregarded in de-
    (e) Limitation on benefit accruals for        eral rules—(A) Amount of contribu-               termining the prefunding balance under
plans with severe funding shortfalls—(1)          tion—(1) In general. This paragraph              section 430(f)(6) and §1.430(f)–1(b)(1)(i).
In general. A plan satisfies the require-         (f)(2) sets forth rules regarding contribu-          (B) Designation requirement. Any con-
ments of section 436(e) and this paragraph        tions to avoid the application of section        tribution made by a plan sponsor pursuant
(e) only if it provides that, in any case in      436 limitations under a plan for a plan          to this paragraph (f)(2) must be designated
which the plan’s adjusted funding target at-      year that apply to unpredictable contin-         as such at the time the contribution is used
tainment percentage for a plan year is less       gent event benefits, plan amendments that        to avoid or terminate the limitations un-
than 60 percent, benefit accruals under the       increase liabilities for benefits, and benefit   der this paragraph (f)(2) and, except as
plan will cease as of the applicable sec-         accruals.                                        specifically provided in paragraph (g) or
tion 436 measurement date. If a plan is re-           (2) Interest adjustment. Any con-            (h) of this section, cannot subsequently be
quired to cease benefit accruals under this       tribution made by a plan sponsor pur-            recharacterized with respect to any plan
paragraph (e), then the plan is not permit-       suant to this paragraph (f)(2) on a date         year as a contribution to satisfy a mini-
ted to be amended in a manner that would          other than the valuation date for the plan       mum required contribution obligation, or
increase the liabilities of the plan by reason    year must be adjusted with interest at the       otherwise. The designation must be made
of an increase in benefits or establishment       plan’s effective interest rate under sec-        in accordance with the rules and proce-
of new benefits. The preceding sentence           tion 430(h)(2)(A) for the plan year. If the      dures that otherwise apply to elections un-
applies regardless of whether an amend-           plan’s effective interest rate for the plan      der §1.430(f)–1(f) with respect to funding
ment would otherwise be permissible un-           year has not been determined at the time         balances.
der paragraph (c)(3) of this section.             of the contribution, then this interest ad-          (iii) Contribution for unpredictable
    (2) Exemption. The prohibition on ad-         justment must be made using the highest          contingent event benefits. In the case of
ditional benefit accruals under a plan de-        of the three segment rates as applicable for     a contribution to avoid the application of
scribed in paragraph (e)(1) of this section       the plan year under section 430(h)(2)(C).        the limitation on benefits attributable to
ceases to apply with respect to any plan          In such a case, if the effective interest rate   an unpredictable contingent event under
year, effective as of the first day of the plan   for the year under section 430(h)(2)(A) is       section 436(b)—
year, upon payment by the plan sponsor            subsequently determined to be less than              (A) If the adjusted funding target at-
of the contribution described in paragraph        that highest rate, the excess is recharacter-    tainment percentage for the plan year de-
(f)(2) of this section.                           ized as a section 430 contribution for the       termined without taking into account the
    (f) Methods to avoid benefit limita-          current plan year.                               liability attributable to the unpredictable
tions—(1) In general. This paragraph                  (B) Prefunding balance or funding            contingent event benefits is less than 60
(f) sets forth rules relating to employer         standard carryover balance may not be            percent, then the amount of the contribu-
contributions and other methods to avoid          used. No prefunding balance or funding           tion under section 436(b)(2) is equal to the
the application of section 436 limitations        standard carryover balance under section         amount of the increase in the funding tar-
under a plan for a plan year. In general,         430(f) may be used as a contribution de-         get of the plan for the plan year if the ben-
there are four methods a plan sponsor may         scribed in this paragraph (f)(2). However,       efits attributable to the unpredictable con-
utilize to avoid or terminate one or more         a plan sponsor is permitted to elect to          tingent event were included in the determi-
of the benefit limitations under this sec-        reduce the funding standard carryover bal-       nation of the funding target.
tion for a plan year. Two of these methods        ance or the prefunding balance in order              (B) If the adjusted funding target at-
(where the plan sponsor elects to reduce          to increase the adjusted funding target at-      tainment percentage for the plan year de-
the prefunding balance or funding stan-           tainment percentage for a plan year. See         termined without taking into account the
dard carryover balance and where the plan         paragraph (a)(5) of this section for a rule      liability attributable to the unpredictable
sponsor makes additional contributions            mandating such a reduction in certain sit-       contingent event benefits is 60 percent or
under section 430 for the prior plan year         uations.                                         more, then the amount of the contribution
within the time period provided by sec-               (ii) Section 436 contributions sepa-         under section 436(b)(2) is the amount that
tion 430(j)(1) which are not added to the         rate from minimum required contribu-             would be sufficient to result in an adjusted
prefunding balance) involve increasing            tions—(A) In general. The contributions          funding target attainment percentage for
the amount of plan assets which are taken         described in this paragraph (f)(2) are con-      the plan year of 60 percent if—
into account in determining the adjusted          tributions described in section 436(b)(2),


October 15, 2007                                                      844                                                 2007–42 I.R.B.
    (1) The benefits attributable to the         paragraph (f)(3)(ii) of this section. How-       section) is treated as a contribution by
unpredictable contingent event were in-          ever, this security is not taken into account    the plan sponsor under section 430 when
cluded in the determination of the funding       as a plan asset for any other purpose, in-       contributed and, if turned over pursuant to
target; and                                      cluding section 430.                             paragraph (f)(3)(iii) of this section, is not
    (2) The contribution were included as            (ii) Form of security. The forms of se-      a contribution under paragraph (f)(2) of
part of the assets of the plan.                  curity permitted under paragraph (f)(3)(i)       this section.
    (iv) Contribution for plan amendments        of this section are limited to—                      (4) Examples. The following examples
increasing liability for benefits. In the case       (A) A bond issued by a corporate surety      illustrate the application of this paragraph
of a contribution to avoid the application of    company that is an acceptable surety for         (f):
the limitation on benefits attributable to a     purposes of section 412 of ERISA; or                  Example 1. (i) Plan Z is a non-collectively bar-
plan amendment under section 436(c)—                 (B) Cash, or United States obligations       gained defined benefit plan with a plan year that is
                                                                                                  the calendar year and a valuation date of January 1.
    (A) If the adjusted funding target attain-   which mature in 3 years or less, held in         Plan Z’s sponsor is not in bankruptcy and did not pur-
ment percentage for the plan year deter-         escrow by a bank or an insurance company.        chase any annuities in 2009 or 2010. As of January
mined without taking into account the li-            (iii) Enforcement. Any form of security      1, 2011, Plan Z does not have a funding standard car-
ability attributable to the plan amendment       provided under paragraph (f)(3)(i) of this       ryover balance or a prefunding balance. As of that
is less than 80 percent, then the amount of      section must provide—                            date, Plan Z has plan assets (and adjusted plan assets)
                                                                                                  of $2,000,000 and a funding target (and an adjusted
the contribution under section 436(c)(2) is          (A) That it will be paid to the plan upon    funding target) of $2,550,000. On March 1, 2011, the
equal to the amount of the increase in the       the earliest of—                                 enrolled actuary for the plan certifies that the AFTAP
funding target of the plan for the plan year         (1) The plan termination date as defined     as of January 1, 2011, is 78.43%. The effective rate
if the liabilities attributable to the amend-    in section 4048 of ERISA;                        of interest for Plan Z for the 2011 plan year is 5.5%.
ment were included in the determination of           (2) If there is a failure to make a pay-          (ii) On May 1, 2011, the plan sponsor amends
                                                                                                  Plan Z to increase benefits. The enrolled actuary for
the funding target.                              ment of the minimum required contri-             the plan determines that the present value, as of Jan-
    (B) If the adjusted funding target attain-   bution for any plan year beginning after         uary 1, 2011, of the increase in the funding target due
ment percentage for the plan year deter-         the security is provided, the due date for       to this amendment is $400,000. Because the AFTAP
mined without taking into account the lia-       the payment under section 430(j)(1) or           prior to the plan amendment is less than 80%, Plan
bility attributable to the plan amendment is     430(j)(3); or                                    Z is subject to the restriction on plan amendments in
                                                                                                  paragraph (c) of this section, and the amendment can-
80 percent or more, then the amount of the           (3) If the plan’s adjusted funding target    not take effect unless the employer utilizes one of the
contribution under section 436(c)(2) is the      attainment percentage is less than 60 per-       methods described in paragraph (f) of this section to
amount that would be sufficient to result in     cent (without regard to any security pro-        avoid benefit limitations.
an adjusted funding target attainment per-       vided under this paragraph (f)(3)) for a              (iii) In order for this amendment to be permitted
centage for the plan year of 80 percent if—      consecutive period of 7 years, the valua-        to become effective, the plan sponsor makes a con-
                                                                                                  tribution described in paragraph (f)(2) of this section.
    (1) The liabilities attributable to the      tion date for the last year in the 7-year pe-    Because the AFTAP prior to the amendment was less
plan amendment were included in the de-          riod; and                                        than 80%, the provisions of paragraph (f)(2)(iv)(A)
termination of the funding target; and               (B) That the plan administrator must         of this section apply. The amount of the contribution
    (2) The contribution were included as        notify the surety, bank, or insurance            as of January 1, 2011, needed to avoid the restriction
part of the assets of the plan.                  company that issued or holds the secu-           on plan amendments under paragraph (c) of this sec-
                                                                                                  tion is equal to the amount of the increase in the fund-
    (v) Contribution required for continued      rity of any event described in paragraph         ing target attributable to the amendment, or $400,000.
benefit accruals. In the case of a contribu-     (f)(3)(iii)(A) of this section within 10 days    Under the provisions of paragraph (f)(2)(iv)(A) of
tion to avoid the application of the limita-     of its occurrence.                               this section, this contribution is required even though,
tion on accruals under section 436(e), the           (iv) Release of security. The form of se-    if the contribution were included as part of the plan
amount of the contribution under section         curity is permitted to provide that it will      assets and the liability attributable to the plan amend-
                                                                                                  ment were included in the funding target, the AFTAP
436(e)(2) is equal to the amount sufficient      be released (and any amounts thereunder          would be 81.36% (because the adjusted plan assets
to result in an adjusted funding target at-      will be refunded together with any interest      would have been $2,400,000 and the adjusted fund-
tainment percentage for the plan year of 60      accrued thereon) as provided in the agree-       ing target would have been $2,950,000 (that is, ad-
percent if the contribution were included        ment governing the escrow, but such re-          justed plan assets of $2,000,000 plus the contribution
as part of the assets of the plan.               lease is not permitted until the plan’s en-      of $400,000 as of January 1, 2011; divided by the ad-
                                                                                                  justed funding target of $2,550,000 increased to re-
    (3) Security to increase adjusted fund-      rolled actuary has certified that the plan’s     flect the additional $400,000 in the funding target at-
ing target attainment percentage—(i) In          adjusted funding target attainment percent-      tributable to the plan amendment)).
general. For purposes of avoiding benefit        age for a plan year is at least 90 percent            (iv) However, because the contribution is not paid
limitations under section 436, a plan spon-      (without regard to any security provided         until May 1, 2011, the necessary contribution amount
sor may provide security in the form de-         under this paragraph (f)(3)).                    must be adjusted to reflect interest that would other-
                                                                                                  wise have accrued between the valuation date and the
scribed in paragraph (f)(3)(ii) of this sec-         (v) Contribution of security to plan.        date of the contribution, at Plan Z’s effective rate of
tion. In such a case, the adjusted funding       Any amount of security provided under            interest for the 2011 plan year. The amount of the re-
target attainment percentage for the plan        this paragraph (f)(3) that is subsequently       quired contribution after adjustment is $407,203, de-
year is determined by treating as an asset       turned over to the plan (whether pursuant        termined as $400,000 increased for 4 months of com-
of the plan any security provided by a plan      to the enforcement mechanism of para-            pound interest at an effective annual interest rate of
                                                                                                  5.5%.
sponsor by the valuation date for the plan       graph (f)(3)(iii) of this section or after its        (v) A contribution of $407,203 is made on May
year in a form meeting the requirements of       release under paragraph (f)(3)(iv) of this       1, 2011, and is designated as a contribution under



2007–42 I.R.B.                                                       845                                                  October 15, 2007
paragraph (f)(2) of this section. Accordingly, the              (ii) Because the enrolled actuary has not certi-       to periods during which no presumptions
contribution is not applied toward minimum fund-           fied the actual AFTAP as of January 1, 2011, and the        under section 436(h) apply but which are
ing requirements under section 430, and is not eli-        amendment is scheduled to take effect after April 1,        prior to the enrolled actuary’s certifica-
gible for inclusion in the prefunding balance under        2011, the rules of paragraph (h)(2)(ii) of this section
§1.430(f)–1(b)(1). Since this contribution meets the       apply. Accordingly, the AFTAP for 2011 (prior to re-
                                                                                                                       tion of the plan’s adjusted funding target
requirements of paragraph (f)(2) of this section, the      flecting the effect of the amendment) is presumed to        attainment percentage for the plan year.
plan amendment can take effect.                            be 10 percentage points lower than the 2010 AFTAP,          Paragraph (g)(4) of this section sets forth
    Example 2. (i) The facts are the same as in Ex-        or 72%. Because this presumed AFTAP is less than            rules that apply after the enrolled actu-
ample 1, except that the plan is in at-risk status un-     80%, the restriction on plan amendments in para-            ary’s certification of the plan’s adjusted
der section 430(i). The funding target determined          graph (c) of this section applies, and the plan amend-
under section 430(i) is $2,600,000, and the funding        ment cannot take effect.
                                                                                                                       funding target attainment percentage for
target determined without regard to section 430(i) is           (iii) In order to allow the plan amendment to take     a plan year. Paragraph (g)(5) of this sec-
$2,550,000.                                                effect, the plan sponsor decides to make a contribu-        tion sets forth additional rules that apply
    (ii) On May 1, 2011, the plan sponsor amends           tion under paragraph (f)(2) of this section on May          prior to the enrolled actuary’s certification
Plan Z to increase benefits. The plan’s enrolled ac-       1, 2011. Because the presumed AFTAP was less                of the adjusted funding target attainment
tuary determines that the present value as of January      than 80% prior to reflecting the plan amendment, the
1, 2011 of the increase in the funding target due to       rules of paragraph (f)(2)(iv)(A) of this section ap-
                                                                                                                       percentage for a plan year with respect to
the amendment (taking into account the at-risk sta-        ply, and the amount of the contribution under section       the limitations on unpredictable contin-
tus of the plan) is $440,000. Because the AFTAP            436(c)(2) is the amount of the increase in the fund-        gent event benefits and plan amendments
prior to the plan amendment is less than 80%, Plan         ing target for the year if the plan amendment were          that increase liabilities under paragraphs
Z is subject to the restriction on plan amendments in      included in the determination of the funding target.        (b) and (c) of this section, respectively.
paragraph (c) of this section, and the amendment can-      Accordingly, an additional contribution of $400,000
not take effect unless the employer utilizes one of the    is required as of January 1, 2011, to avoid the restric-
                                                                                                                       Paragraph (g)(6) of this section sets forth
methods described in paragraph (f) of this section to      tion on plan amendments under paragraph (c) of this         rules for multiple unpredictable contin-
avoid benefit limitations.                                 section.                                                    gent events and amendments during a plan
    (iii) In order for this amendment to be permitted           (iv) However, since the contribution is not made       year. Paragraph (g)(7) of this section sets
to become effective, the plan sponsor makes a con-         until May 1, 2011, the amount of the required contri-       forth examples of the application of this
tribution described in paragraph (f)(2) of this section.   bution must be adjusted to reflect interest that would
Because the AFTAP prior to the amendment was less          otherwise have accrued between the valuation date
                                                                                                                       paragraph (g).
than 80%, the provisions of paragraph (f)(2)(iv)(A) of     and the date of the contribution. Since the effective          (2) Periods prior to certification dur-
this section apply. The amount of the contribution as      interest rate has not yet been determined, the interest     ing which a presumption applies—(i) Plan
of January 1, 2011, needed to avoid the restriction on     adjustment is based on the highest of the three seg-        must follow presumptions. A plan must
plan amendments under paragraph (c) of this section        ment rates applicable for the 2011 plan year under          provide that, for any period during which
is equal to the amount of the increase in funding tar-     section 430(h)(2)(C), or 6%. The amount of the re-
get attributable to the amendment, or $440,000. Un-        quired contribution after adjustment is $407,845, de-
                                                                                                                       paragraph (h)(1), (2), or (3) of this section
der the provisions of paragraph (f)(2)(iv)(A) of this      termined as $400,000 increased for 4 months of com-         applies to the plan, the limitations appli-
section, this contribution is required even though, if     pound interest at the highest segment interest rate for     cable under paragraphs (b), (c), (d), and
the contribution were included as part of the plan as-     2011, or 6%.                                                (e) of this section apply to the plan as if
sets and the liability attributable to the plan amend-          (v) Once the plan’s effective interest rate has been   the actual adjusted funding target attain-
ment were included in the funding target, the AFTAP        determined, if that rate for the year is less than 6%,
would exceed 80%.                                          the amount of excess interest previously contributed
                                                                                                                       ment percentage for the year were the pre-
    (iv) However, because the contribution is not paid     is recharacterized as a section 430 contribution for the    sumed adjusted funding target attainment
until May 1, 2011, the necessary contribution amount       current plan year.                                          percentage determined under the rules of
must be adjusted to reflect interest that would other-        (g) Rules of operation for periods prior                 paragraph (h) of this section.
wise have accrued between the valuation date and the       to and after certification—(1) In general.                     (ii) Determination of amount of reduc-
date of the contribution, at Plan Z’s effective rate of
interest for the 2011 plan year. The amount of the re-
                                                           Section 436(h) and paragraph (h) of this                    tion in balances—(A) Valuation date ad-
quired contribution after adjustment is $447,923, de-      section set forth a series of presumptions                  justment. During the period described in
termined as $440,000 increased for 4 months of com-        that apply before the enrolled actuary for                  this paragraph (g)(2), the rules of para-
pound interest at an effective annual interest rate of     a plan issues a certification of the plan’s                 graph (a)(5) of this section (relating to
5.5%.                                                      adjusted funding target attainment per-                     the deemed election to reduce the fund-
    (v) A contribution of $447,923 is made on May
1, 2011, and is designated as a contribution under
                                                           centage for a plan year. This paragraph                     ing standard carryover balance and the pre-
paragraph (f)(2) of this section. Accordingly, the         (g) sets forth rules for the application of                 funding balance) must be applied based on
contribution is not applied toward minimum fund-           limitations under sections 436(b), 436(c),                  the presumed percentage with respect to
ing requirements under section 430, and is not eli-        436(d), and 436(e) prior to and during                      the limitations under paragraphs (b), (c),
gible for inclusion in the prefunding balance under        the period those presumptions apply to                      (d), and (e) of this section. In order to
§1.430(f)–1(b)(1). Since this contribution meets the
requirements of paragraph (f)(2) of this section, the
                                                           a plan, and describes the interaction of                    determine the amount of the reduction in
plan amendment can take effect.                            those presumptions with plan operations                     those balances that would apply in such
    Example 3. (i) The facts are the same as in Ex-        after the plan’s enrolled actuary has is-                   a situation, a presumed adjusted funding
ample 1, except that the enrolled actuary for the plan     sued a certification of the plan’s adjusted                 target must be established, which is then
does not issue the certification of the 2011 AFTAP         funding target attainment percentage for                    compared to the interim value of adjusted
until September 1, 2011. Prior to October 1, 2010, the
enrolled actuary had certified the 2010 AFTAP to be
                                                           the plan year. Paragraph (g)(2) of this                     plan assets as of the valuation date for
82%. The highest of the three segment rates applica-       section sets forth rules that apply to pe-                  the current plan year. For this purpose,
ble to the 2011 plan year under section 430(h)(2)(C)       riods during which a presumption under                      the interim value of adjusted plan assets
is 6%.                                                     section 436(h) applies. Paragraph (g)(3)                    is equal to the value of adjusted plan as-
                                                           of this section sets forth rules that apply                 sets as of the valuation date, determined


October 15, 2007                                                                    846                                                       2007–42 I.R.B.
without regard to future contributions, fu-          (iii) Bankruptcy of plan sponsor. Pur-       benefit liability—(A) In general. If no
ture elections to add to the prefunding bal-     suant to section 436(d)(2), during any pe-       presumptions under section 436(h) apply
ance for the prior year, and future elections    riod in which the plan sponsor of a plan         to a plan during a period and the plan’s
(including deemed elections under para-          is a debtor in a case under title 11, United     enrolled actuary has not yet issued a cer-
graph (a)(5) of this section) to reduce the      States Code, or any similar Federal or State     tification of the plan’s adjusted funding
prefunding and funding standard carryover        law (as described in paragraph (d)(2) of         target attainment percentage for the plan
balances for the current plan year, and the      this section), if the plan’s enrolled actu-      year, the limitations on unpredictable con-
presumed adjusted funding target is equal        ary has not yet certified the plan’s adjusted    tingent event benefits under paragraph (b)
to the interim value of adjusted plan assets     funding target attainment percentage for         of this section or plan amendments in-
for the plan year divided by the presumed        the plan year to be at least 100 percent,        creasing benefit liability under paragraph
adjusted funding target attainment percent-      no prohibited payments within the mean-          (c) of this section during that period must
age.                                             ing of paragraph (d)(5) of this section may      be applied following the rules of paragraph
    (B) Change in presumed percentage            be paid. Thus, the presumption rules of          (g)(5) of this section, based on the preced-
in 4th month. If the presumed adjusted           paragraph (h) of this section do not apply       ing year’s certified adjusted funding target
funding target attainment percentage for         for purposes of section 436(d)(2) and this       attainment percentage. Thus, if after ap-
the plan year changes during the year be-        paragraph (g)(2)(iii).                           plication of those rules the plan would
cause of application of the presumption in           (iv) Application to unpredictable con-       be treated as having an adjusted funding
paragraph (h)(2) of this section, the rules      tingent events and plan amendments. For          target attainment percentage below the ap-
regarding the deemed election to reduce          purposes of applying the limitations under       plicable threshold under paragraph (b) or
funding balances described in paragraph          paragraphs (b) and (c) of this section dur-      (c) of this section (taking into account the
(a)(5) of this section must be reapplied         ing the period described in this paragraph       increase in the funding target attributable
based on the new presumed adjusted fund-         (g)(2), the presumed adjusted funding tar-       to the unpredictable contingent event ben-
ing target attainment percentage. This will      get under paragraph (g)(2)(ii) of this sec-      efits or the increase in liability attributable
typically occur on the first day of the 4th      tion is adjusted to reflect the increase in      to the plan amendment), the unpredictable
month of a plan year, but could happen           the funding target that would be attribut-       contingent event benefits are not permitted
later if the enrolled actuary’s certification    able to the unpredictable contingent event       to be paid, and the plan amendment is not
of the adjusted funding target attainment        or the plan amendment if the unpredictable       permitted to go into effect, unless the con-
percentage for a plan year occurs after the      contingent event benefits or the increase        tribution described in paragraph (g)(5)(ii)
first day of the 4th month of the following      in liability attributable to the plan amend-     of this section is made.
plan year. In order to perform this reappli-     ment were taken into account. See para-              (B) Recharacterization of contributions
cation, a new adjusted funding target must       graph (g)(5)(i) of this section for related      to avoid benefit limitations. If, pursuant
be determined based on the new presumed          rules regarding funding balances that ap-        to paragraph (g)(3)(ii)(A) of this section,
adjusted funding target attainment percent-      ply in the case of unpredictable contin-         the plan sponsor makes contributions de-
age and must be compared to an updated           gent event benefits or plan amendments in-       scribed in paragraph (g)(5)(ii) of this sec-
interim value of adjusted plan assets. For       creasing benefit liabilities.                    tion to avoid application of the applicable
this purpose, the new presumed adjusted              (3) Periods prior to certification dur-      benefit limitations, then, after the certifica-
funding target is redetermined based on          ing which no presumption applies—(i) Ac-         tion of the adjusted funding target attain-
the new presumed adjusted funding target         celerated benefit payments and benefit ac-       ment percentage for the current plan year
attainment percentage, and is compared to        cruals. If no presumptions under section         is issued by the plan’s enrolled actuary,
the adjusted plan assets updated to take         436(h) apply to a plan during a period and       those contributions are recharacterized as
into account the plan sponsor’s contri-          the plan’s enrolled actuary has not yet is-      employer contributions under section 430
butions made for the prior plan year and         sued the certification of the plan’s actual      for the current plan year to the extent they
section 430(f) elections with respect to the     adjusted funding target attainment percent-      exceed the amount necessary to avoid ap-
plan’s prefunding and funding standard           age for the plan year, the plan is not per-      plication of the applicable limitation under
carryover balances since the earlier deter-      mitted to limit the payment of accelerated       paragraph (b) or (c) of this section based
mination of the interim plan assets. This        benefits under paragraph (d) of this sec-        on the certified percentage.
reapplication of the deemed election may         tion or the accrual of benefits under para-          (4) Periods after certification of ad-
require an additional reduction in funding       graph (e) of this section based on an ex-        justed funding target attainment per-
balances if the amount of the reduction in       pectation that those paragraphs will apply       centage—(i) Plan must follow certified
funding balances that is necessary to reach      to the plan once an actuarial certification is   percentage—(A) In general. The rules of
the applicable threshold to avoid the ap-        issued. However, see paragraph (g)(2)(iii)       paragraphs (g)(2) and (g)(3) of this section
plication of the limitation under paragraph      of this section for a restriction on prohib-     no longer apply for a plan year on and
(d) or (e) of this section is greater than the   ited payments during any period in which         after the date the enrolled actuary for the
amount that was initially reduced. Prior         the plan sponsor of a plan is a debtor in a      plan issues a certification of the adjusted
reductions of funding balances continue          case under title 11, United States Code, or      funding target attainment percentage of
to apply in accordance with the rules of         any similar Federal or State law.                the plan for the current plan year, provided
paragraph (g)(4)(i)(C) of this section.              (ii) Unpredictable contingent event          that the certification is issued before the
                                                 benefits and plan amendments increasing          first day of the 10th month of the plan


2007–42 I.R.B.                                                       847                                              October 15, 2007
year. Thus, for example, the plan must          amount that was reduced under paragraph         ments that increase liability. If a plan
provide that paragraph (d) of this sec-         (g)(2) or (g)(3) of this section.               does not pay benefits attributable to an
tion applies for distributions with annuity         (C) Prior reductions continue to apply.     unpredictable contingent event or plan
starting dates on and after the date of that    If the amount of the reduction in funding       amendment because of the application of
certification using the certified adjusted      balances that is necessary to reach the ap-     paragraph (g)(5)(ii) of this section, the
funding target attainment percentage of         plicable threshold to avoid the application     plan must provide for benefits that were
the plan for the plan year. Similarly, the      of the benefit limitation is less than the      not previously paid (or accrued) if such
plan must provide that any prohibition on       amount that was reduced under paragraph         benefits would be permitted under the
accruals under paragraph (e) of this section    (g)(2) or (g)(3) of this section, then the      rules of section 436 based on the certified
as a result of the enrolled actuary’s cer-      prior reduction continues to apply. Sim-        actual adjusted funding target attainment
tification that the adjusted funding target     ilarly, if the amount of the reduction in       percentage, taking into account the in-
attainment percentage of the plan for the       funding balances that is necessary to reach     crease in the funding target that would be
plan year is less than 60 percent is effec-     the applicable threshold to avoid the appli-    attributable to the unpredictable contin-
tive as of the date of the certification and    cation of the corresponding benefit limita-     gent event benefits or increase in liability
that any prohibition on accruals ceases to      tion exceeds the amount of the funding bal-     due to the plan amendment.
be effective on the date the enrolled actu-     ances, then the prior reduction continues to        (5) Additional rules regarding limita-
ary issues a certification that the adjusted    apply and no further reduction under para-      tions on unpredictable contingent event
funding target attainment percentage of         graph (a)(5) of this section is provided.       benefits and certain plan amendments
the plan for the plan year is at least 60           (ii) Applicability to prior periods—(A)     based on presumed adjusted funding tar-
percent. In addition, in the case of a plan     In general. Except as provided in para-         get prior to certification—(i) Reduction
that has been issued a certification of the     graph (g)(4)(ii)(B) of this section, the        in funding balances—(A) Mandatory re-
plan’s adjusted funding target attainment       enrolled actuary’s certification of the         duction for collectively bargained plans.
percentage for a plan year by the plan’s        adjusted funding target attainment per-         During the period described in paragraph
enrolled actuary, the plan sponsor must         centage for the plan for the plan year does     (g)(2) or (g)(3) of this section, the rules of
comply with the requirements of para-           not affect the application of the limita-       paragraph (a)(5) of this section (relating to
graphs (b) and (c) of this section for an       tion under paragraph (b) of this section        the deemed election to reduce the funding
unpredictable contingent event that occurs      with respect to unpredictable contingent        standard carryover balance and the pre-
or a plan amendment that is effective on        events that occur during the periods to         funding balance) must be applied based
or after the date of the enrolled actuary’s     which paragraphs (g)(2) and (g)(3) of           on the presumed percentage. In order to
certification. Thus, the plan administrator     this section apply. Except as provided          determine the amount of the reduction
must determine if the adjusted funding          in paragraph (g)(4)(ii)(B) of this section,     in those balances that would apply to a
target attainment percentage is at or above     the enrolled actuary’s certification of the     collectively bargained plan during that
the applicable threshold, taking into ac-       adjusted funding target attainment per-         period with respect to an unpredictable
count the increase in the funding target that   centage for the plan for the plan year does     contingent event or a plan amendment
would be attributable to the unpredictable      not affect the application of the limita-       that increases liability for benefits, the
contingent event or plan amendment if the       tion under paragraph (c) of this section        rules of paragraph (g)(2)(ii) of this section
unpredictable contingent event benefits or      to a plan amendment that increases lia-         are applied, except that the presumed ad-
the increase in liability attributable to the   bility for benefits where the amendment         justed funding target is increased to take
plan amendment were taken into account.         is first effective during the periods to        into account the benefits attributable to
    (B) Application of rule for deemed          which paragraphs (g)(2) and (g)(3) ap-          the unpredictable contingent event or the
election to reduce funding balances. Af-        ply. The enrolled actuary’s certification       plan amendment. For this purpose, if no
ter the adjusted funding target attainment      of the adjusted funding target attainment       presumption applies under the rules of
percentage for a plan year is certified by      percentage for the plan for the plan year       paragraph (h) of this section (for example,
the plan’s enrolled actuary, the deemed         does not affect the application of the lim-     because the plan’s actual adjusted funding
election to reduce funding balances under       itation under paragraph (d) of this section     target attainment percentage for the prior
paragraph (a)(5) of this section must be        for distributions with annuity starting         year was certified to be at least 80 per-
reapplied based on the actual funding tar-      dates before the certification. Similarly,      cent), then that prior year’s actual adjusted
get for the year (provided the certification    the enrolled actuary’s certification of the     funding target attainment percentage is
is issued before the first day of the 10th      adjusted funding target attainment per-         substituted for the presumed adjusted
month of the plan year). This reapplica-        centage for the plan for the plan year does     funding target attainment percentage for
tion of the deemed election may require an      not affect the application of the limita-       the plan year in determining the presumed
additional reduction in funding balances        tion under paragraph (e) of this section        adjusted funding target.
if the amount of the reduction in funding       prior to the date of that certification. See        (B) Optional reduction for plans that
balances that is necessary to reach the         paragraph (a)(4) of this section for rules      are not collectively bargained plans. A
applicable threshold to avoid the applica-      relating to the period of time after benefits   plan sponsor of a plan that is not a collec-
tion of the limitations under paragraph (d)     cease to be limited.                            tively bargained plan (and, thus, is not re-
or (e) of this section is greater than the          (B) Special rule for unpredictable          quired to reduce the funding standard ac-
                                                contingent event benefits and plan amend-       count carryover balance and the prefund-


October 15, 2007                                                   848                                                  2007–42 I.R.B.
ing balance under the rules of paragraph         if it included the increases in the funding                 of $300,000, divided by the adjusted funding target
(a)(5) of this section) is permitted to reduce   target attributable to all such earlier events              of $3,700,000), and Plan A would not have been
those balances in order to increase the in-      or amendments.                                              subject to the restrictions under paragraph (d)(3) of
                                                                                                             this section.
terim value of adjusted plan assets (as de-          (7) Examples. The following examples                         (ii) However, paragraph (g)(4)(i)(C) of this sec-
fined in paragraph (g)(2)(ii)(A) of this sec-    illustrate the application of this paragraph                tion requires that any prior reductions in the prefund-
tion) that is compared to the presumed ad-       (g). Unless otherwise indicated, these ex-                  ing or funding standard carryover balances continue
justed funding target determined under this      amples are based on the following facts:                    to apply, and so Plan A’s prefunding balance remains
paragraph (g)(5)(i).                             each plan has a plan year that is the cal-                  at the reduced amount of $100,000 as of January 1,
                                                                                                             2011. The enrolled actuary certifies that the 2011
    (ii) Plans funded below the threshold.       endar year and a valuation date of January                  AFTAP is 86.49% (that is, plan assets of $3,300,000
If, after application of paragraph (g)(5)(i)     1; the first effective plan year is 2008; the               reduced by the prefunding balance of $100,000, di-
of this section, the ratio of the interim        plan sponsor is not in bankruptcy; and no                   vided by the adjusted funding target of $3,700,000).
value of adjusted plan assets (as defined        annuity purchases have been made from                            Example 4. (i) Plan B is a collectively bargained
in paragraph (g)(2)(ii)(A) of this section)      the plan. No plan is in at-risk status for the              plan with assets of $2,500,000 and a prefunding bal-
                                                                                                             ance of $150,000 as of January 1, 2011. Plan B has
to the presumed adjusted funding target          years discussed in the examples.                            no funding standard carryover balance. Beginning on
determined under that paragraph is less               Example 1. (i) As of January 1, 2011, Plan A
                                                                                                             January 1, 2011, Plan B’s AFTAP for 2011 is pre-
than the applicable threshold under sec-         has assets of $3,300,000 and a prefunding balance
                                                                                                             sumed to be 83% under the rules of paragraph (g)(3)
                                                 of $300,000. Plan A has no funding standard carry-
tion 436(b) or 436(c), as applicable, then                                                                   of this section and based on the certified AFTAP for
                                                 over balance. Beginning on January 1, 2011, Plan
the plan is not permitted to provide any                                                                     2010.
                                                 A’s AFTAP for 2011 is presumed to be 75%, under
                                                                                                                  (ii) On January 10, 2011, Plan B’s sponsor
benefits attributable to the unpredictable       the rules of paragraph (h) of this section and based on
                                                                                                             amends the plan to increase benefits effective on
contingent event or plan amendment un-           the certified AFTAP for 2010.
                                                                                                             February 1, 2011. The amendment would increase
less the plan sponsor makes a contribution            (ii) Based on Plan A’s presumed AFTAP of 75%,
                                                                                                             Plan B’s funding target by $350,000. Under the rules
                                                 Plan A would be subject to the restriction on prohib-
that would allow payment of unpredictable                                                                    of paragraph (g)(5) of this section, the presumed
                                                 ited payments in paragraph (d)(3) of this section as
contingent event benefits or would permit                                                                    adjusted funding target is calculated, and then the
                                                 of January 1, 2011. However, under the provisions
                                                                                                             presumed adjusted funding target is increased to
a plan amendment increasing benefit lia-         of paragraph (a)(5) of this section, if the prefunding
                                                                                                             take into account the benefits attributable to the plan
bilities to go into effect under the rules of    balance is large enough, Plan A’s sponsor is deemed
                                                                                                             amendment.
paragraph (b)(2) or (c)(2) of this section.      to elect to reduce the prefunding balance to the extent
                                                                                                                  (iii) Plan B’s interim value of adjusted plan
                                                 needed to avoid this restriction.
    (iii) Plans funded at or above the                                                                       assets as of the valuation date is $2,350,000 (that
                                                      (iii) The amount needed to avoid the restriction
threshold. If, after application of para-                                                                    is, $2,500,000 minus the prefunding balance of
                                                 in paragraph (d)(3) of this section is determined by
                                                                                                             $150,000). Prior to reflecting the amendment, Plan
graph (g)(5)(i) of this section, the ratio       comparing the presumed adjusted funding target for
                                                                                                             B’s presumed adjusted funding target as of January
of the interim value of adjusted plan as-        Plan A with the interim value of adjusted plan assets
                                                                                                             1, 2011, is $2,831,325, which is equal to the interim
sets (as defined in paragraph (g)(2)(ii)(A)      as of the valuation date. The interim value of plan
                                                                                                             value of adjusted plan assets as of the valuation date
                                                 assets for Plan A is $3,000,000 (that is, the asset value
of this section) to the presumed adjusted                                                                    of $2,350,000, divided by the presumed AFTAP of
                                                 of $3,300,000 reduced by the prefunding balance of
funding target is greater than or equal                                                                      83%. Increasing Plan B’s presumed adjusted funding
                                                 $300,000). The presumed adjusted funding target for
                                                                                                             target by $350,000 to reflect the amendment results
to the applicable threshold under section        Plan A is the interim value of the adjusted plan assets
                                                                                                             in a presumed adjusted funding target of $3,181,325
436(b) or 436(c), as applicable, then the        divided by the presumed AFTAP, or $4,000,000 (that
                                                                                                             and a presumed AFTAP of 73.87% (that is, the in-
plan is not permitted to limit the payment       is, $3,000,000 divided by 75%).
                                                                                                             terim value of adjusted plan assets as of the valuation
                                                      (iv) In order to avoid the restriction on prohibited
of unpredictable contingent event benefits                                                                   date of $2,350,000 divided by the presumed adjusted
                                                 payments in paragraph (d)(3) of this section, Plan A’s
described in paragraph (b) of this sec-                                                                      funding target of $3,181,325).
                                                 presumed AFTAP must be increased to 80%. This
                                                                                                                  (iv) Because Plan B’s presumed AFTAP was over
tion nor is the plan permitted to restrict       requires an increase in Plan A’s adjusted plan assets
                                                                                                             80% prior to taking the amendment into account but
a plan amendment increasing benefit li-          of $200,000 (that is, 80% of the presumed adjusted
                                                                                                             less than 80% when the amendment is reflected, sec-
ability described in paragraph (c) of this       funding target of $4,000,000, minus the interim value
                                                                                                             tion 436(c) and paragraph (c) of this section prohibit
                                                 of the adjusted plan assets of $3,000,000). Plan A’s
section from becoming effective based on                                                                     the plan amendment from taking effect unless the ad-
                                                 prefunding balance as of January 1, 2011, is reduced
an expectation that the limitations under                                                                    justed plan assets are increased so that the presumed
                                                 by $200,000 under the deemed election provisions
                                                                                                             AFTAP (reflecting the increase due to the amend-
paragraph (b) or (c) of this section will        of paragraph (a)(5) of this section. Accordingly,
                                                                                                             ment) is increased to 80%. This would require an ad-
apply to the plan once an actuarial certifi-     Plan A’s prefunding balance is $100,000 (that is,
                                                                                                             ditional amount of $195,060 (that is, 80% of the pre-
cation is received.                              $300,000 minus $200,000) and the interim value of
                                                                                                             sumed adjusted funding target of $3,181,325 less the
                                                 adjusted plan assets is increased to $3,200,000 (that
    (6) Application to multiple events and                                                                   interim value of adjusted plan assets of $2,350,000).
                                                 is, $3,300,000 minus the reduced prefunding balance
amendments. For purposes of this para-                                                                            (v) Plan B’s prefunding balance of $150,000 is
                                                 of $100,000). Plan A must pay the full amount of
                                                                                                             not large enough for Plan B to avoid the restriction
graph (g), if a plan is providing benefits       the accelerated benefit distributions elected by par-
                                                                                                             on plan amendments, and therefore the deemed elec-
with respect to one or more unpredictable        ticipants with an annuity starting date of January 1,
                                                                                                             tion to reduce the prefunding balance under para-
contingent events occurring within the           2011, or later.
                                                                                                             graph (a)(5) of this section does not apply and the
                                                      Example 2. [Reserved].
plan year or amendments taking effect                                                                        amendment cannot take effect.
                                                      Example 3. (i) The facts are the same as in Ex-
within the plan year, then paragraphs (b)                                                                         Example 5. (i) The facts are the same as in Exam-
                                                 ample 1. On July 1, 2011, the enrolled actuary for
                                                                                                             ple 4, except that Plan B’s sponsor decides to make
and (c) of this section are applied with         Plan A calculates the actual adjusted funding target
                                                                                                             a contribution on February 1, 2011, to avoid the ben-
respect to a subsequent unpredictable con-       as $3,700,000 as of January 1, 2011. Therefore,
                                                                                                             efit limitation as provided in paragraph (f)(2) of this
tingent event or amendment by treating the       the 2011 AFTAP would have been 81.08% with-                 section. Pursuant to paragraph (f)(2)(i)(A)(2) of this
                                                 out reducing the prefunding balance (that is, plan
increase in the funding target attributable                                                                  section, Plan B’s effective rate of interest for 2011 is
                                                 assets of $3,300,000 minus the prefunding balance
to the subsequent event or amendment as                                                                      treated as 5.25%.



2007–42 I.R.B.                                                            849                                                        October 15, 2007
    (ii) The amount of the contribution as of Jan-            Example 6. (i) The facts are the same as in Ex-          (iii) No certification for preceding
uary 1, 2011, needed to avoid the restriction on plan     ample 5, except that on July 1, 2011, the enrolled ac-   year issued during preceding year—(A)
amendments under paragraph (c) of this section is         tuary for Plan B calculates the actual adjusted fund-    Deemed percentage under 60 percent.
$195,060. However, because the contribution is not        ing target (before reflecting the plan amendment) as
paid until February 1, 2011, the necessary contribu-      $3,000,000 and certifies the actual AFTAP as 78.33%
                                                                                                                   In any case in which the plan’s enrolled
tion amount must be adjusted to reflect interest that     prior to reflecting the plan amendment (that is, ad-     actuary has not issued a certification un-
would otherwise have accrued between the valuation        justed plan assets of $2,350,000 divided by the actual   der paragraph (h)(4) of this section of
date and the date of the contribution, at Plan B’s ef-    adjusted funding target of $3,000,000). Based on the     the adjusted funding target attainment
fective rate of interest for the 2011 plan year. The      provisions of paragraph (c) of this section, because     percentage of the plan for the plan year
amount of the required contribution after adjustment      the AFTAP prior to reflecting the amendment is less
is $195,894, determined as $195,060 increased for         than 80%, the contribution required to avoid the re-
                                                                                                                   preceding the current year during that
one month of compound interest at an effective an-        striction on plan amendments would have been the         prior plan year, the adjusted funding target
nual interest rate of 5.25%.                              amount equal to the increase in funding target due to    attainment percentage of the plan for the
    (iii) As of April 1, 2011, the enrolled actuary for   the plan amendment, or $350,000.                         current plan year is presumed to be less
the plan has not certified the 2011 AFTAP. There-             (ii) However,         according to paragraph         than 60 percent until changed under para-
fore, beginning April 1, 2011, Plan A’s presumed          (g)(4)(ii)(A) of this section, the enrolled actu-
AFTAP is presumed to be 73%, 10 percentage points         ary’s certification of the 2011 AFTAP does not affect
                                                                                                                   graph (h)(1)(iii)(B) or (h)(2)(iii) of this
lower than the 2010 AFTAP, in accordance with             the application of the limitation under paragraph        section or where the plan’s enrolled actu-
paragraph (h)(2) of this section. However, para-          (c) of this section regardless of the extent to which    ary issues the certification of the adjusted
graph (g)(2)(ii)(B) of this section does not require      the certified percentage varies from the presumed        funding target attainment percentage for
reapplication of the deemed election if necessary         percentage, because the amendment to Plan B              the current year under paragraph (h)(4) of
to avoid the application of benefit restrictions un-      was effective prior to the date of the certification.
der paragraph (c) of this section. Therefore, since       Therefore, it is not necessary for Plan B’s sponsor to
                                                                                                                   this section.
the effective date of the plan amendment occurred         contribute an additional amount in order for the plan        (B) Enrolled actuary’s certification in
prior to April 1, 2011, no additional reduction in        amendment to remain in effect.                           first 3 months of following year. In any
the prefunding balance is required and no additional         (h) Presumed underfunding for pur-                    case in which the plan’s enrolled actu-
contribution is required for the plan amendment to        poses of benefit limitations—(1) Presump-                ary has issued the certification under para-
remain in effect.
    (iv) On July 1, 2011, the enrolled actuary for the
                                                          tion of continued underfunding—(i) In                    graph (h)(4) of this section of the adjusted
plan calculates the actual adjusted funding target,       general. This paragraph (h)(1) applies                   funding target attainment percentage of the
prior to taking the plan amendment into account,          to a plan for which a limitation under                   plan for the plan year preceding the cur-
as $2,700,000 and certifies the actual AFTAP for          paragraph (b), (c), (d), or (e) of this sec-             rent year on or after the first day of the cur-
2011 (prior to taking the amendment into account)         tion applied to the plan on the last day of              rent year but before the first day of the 4th
as 87.04% (that is, adjusted assets of $2,350,000 di-
vided by the adjusted funding target of $2,700,000).
                                                          the plan year preceding the current plan                 month of that year, the date of that prior
Reflecting the $350,000 increase in funding tar-          year. If this paragraph (h)(1) applies to                year certification is a new section 436 mea-
get due to the plan amendment would increase the          a plan, the first day of the plan year is a              surement date for the plan year. In such a
adjusted funding target to $3,050,000 and would           section 436 measurement date and the pre-                case, until it is changed by a certification
decrease Plan B’s AFTAP to 77.05%.                        sumed adjusted funding target attainment                 of the current year’s adjusted funding tar-
    (v) Based on the certified AFTAP, the amount
necessary to avoid the benefit restriction under para-
                                                          percentage for the plan is the percentage                get attainment percentage under paragraph
graph (c) of this section is $90,000 (that is, 80% of     under paragraph (h)(1)(ii) or (iii) of this              (h)(4) of this section or otherwise changed
the adjusted funding target reflecting the plan amend-    section, whichever applies to the plan, be-              under paragraph (h)(2) or (h)(3) of this sec-
ment (or $3,050,000), minus the adjusted value of         ginning on that first day until it is changed            tion, the presumed percentage for the cur-
plan assets of $2,350,000). This amount must be ad-       under this paragraph (h).                                rent year beginning on the date of certifi-
justed for interest between the valuation date and the
date the contribution was made using the effective in-
                                                             (ii) Rule where preceding year certifi-               cation is equal to the certified percentage
terest rate for Plan B. Therefore, the amount required    cation issued during preceding year. In                  for the preceding year.
on the payment date of February 1, 2011, is $90,385       any case in which the plan’s enrolled ac-                    (2) Presumption of underfunding after
(that is, $90,000 adjusted for compound interest for      tuary has issued a certification under para-             first day of 4th month for nearly under-
one month at Plan B’s effective interest rate of 5.25%    graph (h)(4) of this section of the adjusted             funded plans—(i) In general. This para-
per year).
    (vi) Under paragraph (g)(3)(ii)(B) of this section,
                                                          funding target attainment percentage for                 graph (h)(2) applies to a plan for which
the contribution made under paragraph (g)(5)(ii)          the plan year preceding the current year be-             the actual adjusted funding target attain-
of this section is recharacterized as an employer         fore the first day of the current year, the              ment percentage for the plan year preced-
contribution under section 430 to the extent that it      adjusted funding target attainment percent-              ing the current plan year was certified for
exceeds the amount necessary to avoid application of      age of the plan for the current plan year                that prior plan year to be at least 60 per-
the restriction on plan amendments under paragraph
(c) of this section. Therefore, $105,509 (that is, the
                                                          is presumed to be equal to the preceding                 cent but less than 70 percent, or was cer-
$195,894 actual contribution paid on February 1,          year’s actual adjusted funding target at-                tified for that prior plan year to be at least
2011, minus the $90,385 required contribution based       tainment percentage until the plan’s en-                 80 percent but less than 90 percent (or, if
on the actual certified AFTAP) is recharacterized as      rolled actuary issues a certification of the             that prior plan year is the pre-effective plan
an employer contribution under section 430 for the        adjusted funding target attainment percent-              year, was certified to be less than 90 per-
2011 plan year. As such, it may be applied toward
the minimum required contribution for 2011, or the
                                                          age of the plan for the current plan year un-            cent), and where the enrolled actuary for
plan sponsor can elect to credit the contribution to      der paragraph (h)(4) of this section or until            the plan has not issued a certification of
Plan B’s prefunding balance to the extent that the        changed under paragraph (h)(2) or (h)(3)                 the adjusted funding target attainment per-
contributions for the 2011 plan year exceed the min-      of this section.                                         centage for the plan year by the first day
imum required contribution.                                                                                        of the 4th month of the plan year. If this


October 15, 2007                                                                  850                                                      2007–42 I.R.B.
paragraph (h)(2) applies to a plan, the pre-          (B) The date of the prior year certifica-   sonably expected to be made for that prior
sumed adjusted funding target attainment          tion is treated as a section 436 measure-       plan year but have not been contributed by
percentage for the plan is the percentage         ment date.                                      the date of the enrolled actuary’s certifica-
under paragraph (h)(2)(ii) or (iii) of this           (3) Presumption of underfunding on          tion. See paragraph (h)(4)(iii) of this sec-
section, as applicable.                           and after first day of 10th month—(i) Sec-      tion for rules relating to changes in the cer-
    (ii) Presumed adjusted funding target         tion 436 measurement date. In any case          tified percentage.
attainment percentage. If this paragraph          in which no certification of the specific           (ii) Special rules for certification within
(h)(2) applies to a plan, and the date of         adjusted funding target attainment per-         range—(A) In general. Under this para-
the enrolled actuary’s certification under        centage for the current plan year under         graph (h)(4)(ii), the plan’s enrolled actu-
paragraph (h)(4) of this section for the plan     paragraph (h)(4) of this section is made        ary is permitted to certify during the first
year preceding the current year occurred          with respect to the plan before the first       nine months of a plan year that the plan’s
before the first day of the 4th month of          day of the 10th month of the plan year,         adjusted funding target attainment percent-
the current plan year, then, commencing           that first day is treated as a section 436      age for that plan year either is 60 percent
on the first day of the 4th month of the          measurement date.                               or higher (but is less than 80 percent), is
current plan year and continuing until the            (ii) Presumed percentage under 60 per-      80 percent or higher, or is 100 percent or
earlier of the date the enrolled actuary is-      cent. In any case in which no certifica-        higher. If the enrolled actuary has issued
sues a certification under paragraph (h)(4)       tion of the specific adjusted funding tar-      such a range certification for a plan year
of this section of the adjusted funding tar-      get attainment percentage for the current       and the enrolled actuary subsequently is-
get attainment percentage for the plan year       plan year under paragraph (h)(4) of this        sues a certification of the specific adjusted
or the first day of the 10th month of the         section is made with respect to the plan be-    funding target attainment percentage for
plan year as described in paragraph (h)(3)        fore the first day of the 10th month of the     the plan before the first day of the 10th
of this section—                                  plan year, the plan’s adjusted funding tar-     month of that plan year, the certification
    (A) The adjusted funding target attain-       get attainment percentage is presumed to        of the specific adjusted funding target at-
ment percentage of the plan as of the valu-       be less than 60 percent beginning on that       tainment percentage is treated as a change
ation date for the plan year is presumed to       date and continuing through the remainder       in the applicable percentage to which para-
be equal to 10 percentage points less than        of the plan year.                               graph (h)(4)(iii) of this section applies. If
the actual adjusted funding target attain-            (4) Certification of adjusted fund-         the enrolled actuary has issued a range cer-
ment percentage of the plan for the preced-       ing target attainment percentage—(i)            tification for a plan year but no specific
ing plan year; and                                Rules generally applicable to certifi-          certification of the adjusted funding target
    (B) The first day of the 4th month of         cations—(A) In general. The enrolled            attainment percentage of the plan for the
the plan year is treated as a section 436         actuary’s certification referred to in this     plan year is issued by the plan’s enrolled
measurement date.                                 section must be made in writing, must be        actuary before the first day of the 10th
    (iii) Certification for prior year. If this   provided to the plan administrator, and,        month of that plan year, then the rules of
paragraph (h)(2) applies to a plan, and the       except as provided in paragraph (h)(4)(ii)      paragraph (h)(3) of this section apply and
date of the enrolled actuary’s certification      of this section, must certify the plan’s ad-    the change in the applicable percentage to
under paragraph (h)(4) of this section of         justed funding target attainment percent-       under 60 percent on that date is treated
the actual adjusted funding target attain-        age for the plan year (including setting        as a change in the applicable percentage
ment percentage for the plan year preced-         forth the aggregate amount of annuity pur-      which is subject to the rules of paragraph
ing the current year occurs on or after the       chases taken into account under paragraph       (h)(4)(iii) of this section.
first day of the 4th month of the current         (j)(3)(ii) of this section).                        (B) Effect of range certification—(1)
plan year, then, commencing on the date               (B) Determination of plan assets. For       Before certification of specific percent-
of that prior year certification and contin-      purposes of making any determination of         age. If a plan’s enrolled actuary issues a
uing until the earlier of the date the en-        the adjusted funding target attainment per-     range certification pursuant to this para-
rolled actuary issues a certification under       centage under this section, the determina-      graph (h)(4)(ii), then, for all purposes
paragraph (h)(4) of this section of the ad-       tion is not permitted to take into account      under this section (for example, applying
justed funding target attainment percent-         assets that have not been contributed to the    the limitations of sections 436(b) and (c),
age for the plan year or the first day of the     plan by the certification date. For example,    making contributions described in sec-
10th month of the plan year as described in       the enrolled actuary’s certification of the     tions 436(b)(2), 436(c)(2), and 436(e)(2),
paragraph (h)(3) of this section—                 adjusted funding target attainment percent-     and the mandatory reduction of funding
    (A) The adjusted funding target attain-       age for a plan year cannot take into account    balances under paragraph (a)(5) of this
ment percentage of the plan as of the valu-       contributions that are expected to be made      section), the plan is treated as having a
ation date for the plan year is presumed to       after the certification date. Notwithstand-     certified percentage at the smallest value
be equal to 10 percentage points less than        ing the foregoing, for plan years beginning     within the applicable range.
the actual adjusted funding target attain-        before January 1, 2009, the enrolled ac-            (2) On and after certification of spe-
ment percentage of the plan for the preced-       tuary’s certification of the adjusted fund-     cific percentage. Once the certification of
ing plan year; and                                ing target attainment percentage is permit-     the specific adjusted funding target attain-
                                                  ted to take into account employer contri-       ment percentage is issued by the plan’s en-
                                                  butions for the prior plan year that are rea-   rolled actuary (before the first day of the


2007–42 I.R.B.                                                        851                                             October 15, 2007
10th month of the plan year), that certified    sults from the plan sponsor’s election to         bargained defined benefit plan with a plan
percentage applies for all purposes of this     reduce the prefunding balance or funding          year that is the calendar year and a valua-
section on and after the date of that cer-      standard carryover balance after the date of      tion date of January 1. The first effective
tification. If the plan sponsor made sec-       the certification, such change is not treated     plan year is 2008. The plan does not have
tion 436 contributions to avoid application     as a material change.                             a funding standard carryover balance or a
of a benefit limitation during the period a         (3) Definition of immaterial change.          prefunding balance as of any of the dates
range certification was in effect, those sec-   An immaterial change is any change in             mentioned, and the plan sponsor does not
tion 436 contributions will be recharacter-     an adjusted funding target attainment per-        elect to utilize any of the methods in para-
ized as employer contributions under sec-       centage for a plan year that is not a material    graph (f) of this section to avoid applica-
tion 430 to the extent the contributions ex-    change.                                           ble benefit restrictions. No range certifica-
ceed the amount necessary to avoid appli-           (C) Effect of change in percentage—(1)        tion under paragraph (h)(4) of this section
cation of a limitation based on the specific    Material change. In the case of a mate-           has been issued. The plan sponsor is not in
adjusted funding target attainment percent-     rial change where the plan was operated           bankruptcy.
age as certified by the plan’s enrolled ac-     in accordance with the prior certification             Example 1. (i) On July 15, 2010, the adjusted
tuary before the first day of the 10th month    of the adjusted funding target attainment         funding target attainment percentage (“AFTAP”) for
                                                                                                  Plan T is certified to be 65%. Based on this AFTAP,
of the plan year.                               percentage for the plan year, the plan will       Plan T is subject to the restriction on prohibited pay-
    (iii) Change of certified percent-          not have satisfied the requirements of sec-       ments in paragraph (d)(3) of this section for the re-
age—(A) Application of new percentage.          tion 401(a)(29) and section 436. In the           mainder of 2010.
If the enrolled actuary for the plan provides   case of a material change where the plan               (ii) Beginning January 1, 2011, Plan T’s AFTAP
a certification of the adjusted funding tar-    was operated in accordance with the sub-          for 2011 is presumed to be equal to the AFTAP for
                                                                                                  2010, or 65%, under the provisions of paragraph
get attainment percentage of the plan for       sequent certification of the adjusted fund-       (h)(1)(ii) of this section. Accordingly, the restriction
the plan year under this paragraph (h)(4)       ing target attainment percentage during the       on accelerated benefit distributions in paragraph
(including a range certification) and that      period of time the prior certification ap-        (d)(3) of this section continues to apply.
certified percentage is superseded by a         plied, the plan will not have been oper-               (iii) On March 1, 2011, the enrolled actuary for
subsequent determination of the adjusted        ated in accordance with its terms. In ad-         the plan certifies that the actual AFTAP for 2011 is
                                                                                                  80%. Therefore, beginning March 1, 2011, Plan T is
funding target attainment percentage for        dition, in the case of a material change, the     no longer subject to the restriction under paragraph
that plan year, that later percentage must      rules requiring application of a presumed         (d)(3) of this section, and so Plan T resumes paying
be applied.                                     adjusted funding target attainment percent-       the full amount of any accelerated benefit distribu-
    (B) Determination of materiality—(1)        age under paragraphs (h)(1) through (h)(3)        tions elected by participants with an annuity starting
In general. With respect to the effect of       of this section continue to apply from and        date of March 1, 2011, or later.
                                                                                                       Example 2. (i) The facts are the same as in Ex-
that subsequent determination of the ad-        after the date of the prior certification until   ample 1, except that the enrolled actuary for the plan
justed funding target attainment percent-       the date of the subsequent certification.         does not certify the AFTAP for 2011 until June 1,
age on the plan for the period during which         (2) Effect of immaterial change. If the       2011. Accordingly, Plan T’s AFTAP for 2011 is pre-
the plan’s operation was based on the prior     enrolled actuary for a plan provides a cer-       sumed to be equal to the AFTAP for 2010 of 65%
percentage, a determination must be made        tification of the adjusted funding target at-     from January 1, 2011, through March 31, 2011, and
                                                                                                  Plan T is subject to the restriction on accelerated ben-
whether the change in the applicable per-       tainment percentage of the plan for the           efit distributions under paragraph (d)(3) of this sec-
centage is a material change or an immate-      plan year under this paragraph (h)(4) and         tion during this period.
rial change.                                    that certified percentage is superseded by             (ii) Beginning April 1, 2011, the provisions of
    (2) Definition of material change. For      a subsequent determination of the adjusted        paragraph (h)(2)(ii) of this section apply because the
this purpose, there is a material change        funding target attainment percentage for          enrolled actuary for the plan still has not certified
                                                                                                  the actual AFTAP as of January 1, 2011. Under the
in a plan’s certified adjusted funding tar-     that plan year that does not result in a mate-    provisions of paragraph (h)(2)(ii) of this section, the
get attainment percentage if plan opera-        rial change under paragraph (h)(4)(iii)(B)        AFTAP for Plan T is presumed to be 10 percentage
tions with respect to benefits that are ad-     of this section, the revised percentage does      points lower, or 55%, beginning April 1, 2011. Ac-
dressed by section 436, taking into account     not change the inapplicability of the pre-        cordingly, Plan T is now subject to the restriction in
any actual contributions and elections un-      sumptions under paragraphs (h)(1), (2),           paragraph (d)(1) of this section, and so cannot pay any
                                                                                                  accelerated benefit distributions otherwise payable to
der section 430(f) made by the plan spon-       and (3) of this section prior to the date of      plan participants who have annuity starting dates on
sor based on the prior certified percent-       the later certification.                          or after April 1, 2011.
age, would have been different based on             (5) Application to plan with valuation             (iii) On June 1, 2011, the enrolled actuary for the
the subsequent determination of the plan’s      date after first day of plan year. [Re-           plan certifies that the AFTAP for 2011 for Plan T is
adjusted funding target attainment percent-     served].                                          66%. Accordingly, Plan T is no longer subject to the
                                                                                                  restriction under paragraph (d)(1) of this section, but
age for the plan year. However, if the dif-         (6) Examples of application of para-          it is subject to the restriction under paragraph (d)(3)
ference between the adjusted funding tar-       graphs (h)(1), (h)(2), and (h)(3) of this sec-    of this section.
get attainment percentage for a plan year       tion. The following examples illustrate the            (iv) Since Plan T is no longer subject to the re-
and the later revised determination of that     application of paragraphs (h)(1), (h)(2),         striction on payment of accelerated benefit distribu-
percentage is the result of additional con-     and (h)(3) of this section. Unless other-         tions under paragraph (d)(1) of this section, Plan T
                                                                                                  must resume paying the accelerated benefit distribu-
tributions for the preceding year that are      wise indicated, the examples in this sec-         tions, as restricted under paragraph (d)(3) of this sec-
made by the plan sponsor after the date of      tion are based on the information in this         tion, for participants who elect benefits in accelerated
the enrolled actuary’s certification or re-     paragraph. Each plan is a non-collectively


October 15, 2007                                                    852                                                        2007–42 I.R.B.
forms of payment and who have an annuity starting               (iv) Because the presumed AFTAP is over 60%            provisions, the AFTAP beginning April 1, 2011, is
date of June 1, 2011, or later.                             but less than 80%, the full restriction on accelerated     presumed to be 10 percentage points lower than the
    Example 3. (i) The facts are the same as in Ex-         benefit distributions under paragraph (d)(1) of this       presumed 2011 AFTAP, or 59%. Because Plan V’s
ample 1, except that the enrolled actuary for the plan      section no longer applies; however the partial restric-    presumed AFTAP for 2011 is less than 60%, the re-
does not certify the 2011 AFTAP until November 15,          tion on accelerated benefit distributions under para-      striction on the payment of accelerated benefit distri-
2011. Beginning October 1, 2011, Plan T is conclu-          graph (d)(3) of this section applies beginning on Feb-     butions under paragraph (d)(1) of this section and the
sively presumed to have an AFTAP of less than 60%,          ruary 1, 2012. Therefore, Plan T must pay a portion        restriction on benefit accruals under paragraph (e) of
in accordance with the provisions of paragraph (h)(3)       of accelerated benefit distributions elected by partici-   this section apply. Accordingly, Plan V cannot pay
of this section. Accordingly, Plan T is subject to the      pants with annuity starting dates on or after February     any accelerated benefit distributions to participants
restriction in paragraph (d)(1) of this section, and can-   1, 2012. Furthermore, based on the presumed AFTAP          with an annuity starting date on or after April 1, 2011,
not pay any accelerated benefit distributions to partic-    of 65%, the restriction on benefit accruals under para-    and benefit accruals cease as of March 31, 2011.
ipants whose annuity starting date occurs on or after       graph (e) of this section no longer applies, and unless         (iv) On June 1, 2011, Plan V’s enrolled actu-
October 1, 2011.                                            Plan T provides otherwise, benefit accruals will re-       ary certifies that the plan’s AFTAP for 2011 is 71%.
    (ii) On November 15, 2011, the enrolled actuary         sume as of February 1, 2012.                               Therefore, the restrictions on accelerated benefit dis-
for the plan certifies that the AFTAP for 2011 is 72%.          Example 5. (i) The facts are the same as in Ex-        tributions and benefit accruals in paragraphs (d)(1)
However, because the certification occurred after Oc-       ample 3, except that the enrolled actuary for the plan     and (e) of this section no longer apply, but the partial
tober 1, 2011, the certification does not constitute a      does not issue a certification of the actual AFTAP for     restriction on benefit payments in paragraph (d)(3) of
new section 436 measurement date, and Plan T con-           Plan T as of January 1, 2011, until May 1, 2012.           this section does apply. Accordingly, Plan V begins
tinues to be subject to the restrictions on accelerated         (ii) Beginning on January 1, 2012, the presump-        paying a portion of the accelerated benefit distribu-
benefit distributions and benefit accruals under para-      tions in paragraph (h)(1)(iii) of this section apply for   tions elected by participants with an annuity starting
graphs (d)(1) and (e) of this section.                      the 2012 plan year. Because the enrolled actuary for       date on or after June 1, 2011, and benefit accruals pre-
    (iii) Beginning January 1, 2012, the 2012 AFTAP         the plan has not certified the actual AFTAP as of Jan-     viously restricted under paragraph (e) of this section
for Plan T is presumed to be equal to the 2011 AFTAP        uary 1, 2011, the presumed AFTAP as of October 1,          resume effective June 1, 2011, unless Plan V provides
of 72%. Because the presumed 2012 AFTAP is be-              2011, continues to apply for the period beginning Jan-     otherwise.
tween 70% and 80% and, therefore, paragraph (h)(2)          uary 1, 2012. Therefore, the AFTAP as of January 1,             (v) Participants who were not able to elect an ac-
of this section (which provides for a 10 percentage         2012, is presumed to be less than 60%, and Plan T          celerated form of payment during the period from
point reduction in a plan’s AFTAP in certain cases)         continues to be subject to the restriction on acceler-     April 1, 2011, through May 31, 2011, would be able
will not apply, the presumed AFTAP will remain at           ated benefit distributions in paragraph (d)(1) of this     to elect a new annuity starting date with a partial
72% until the plan’s enrolled actuary certifies the         section and the restriction on benefit accruals under      distribution of accelerated benefits effective June 1,
AFTAP for 2012 or until paragraph (h)(3) of this sec-       paragraph (e) of this section.                             2011, if Plan V contained a preexisting provision per-
tion applies on the first day of the 10th month of the          (iii) Since the enrolled actuary for the plan has      mitting such an election after the restriction in para-
plan year. Because the presumed AFTAP is 72%,               not issued a certification of the actual AFTAP as of       graph (d)(1) of this section no longer applies. This
Plan T is no longer subject to the restrictions on ac-      January 1, 2011, the rules of paragraph (h)(1)(iii) of     is permitted because, under paragraph (a)(4)(ii)(A)
celerated benefit distributions under paragraph (d)(1)      this section apply beginning April 1, 2012, and the        of this section, a preexisting provision of this type
of this section, and Plan T must resume paying accel-       AFTAP is presumed to remain less than 60%. Plan T          is not considered a plan amendment and is therefore
erated benefit distributions, as restricted under para-     continues to be subject to the restriction on acceler-     not subject to the plan amendment restriction in para-
graph (d)(3) of this section, that are elected by partic-   ated benefit distributions and benefit accruals under      graph (c) of this section even though Plan V’s AFTAP
ipants with annuity starting dates on or after January      paragraphs (d)(1) and (e) of this section.                 for 2011 is less than 80%.
1, 2012. Similarly, Plan T is no longer subject to the          (iv) On May 1, 2012, the enrolled actuary for the           (vi) Benefit accruals for the period beginning
restriction on benefit accruals under paragraph (e) of      plan certifies that the actual AFTAP for 2011 for Plan     April 1, 2011, through May 31, 2011, would be auto-
this section, and benefit accruals resume under Plan        T is 65%. Because the enrolled actuary for the plan        matically restored if Plan V contained a preexisting
T beginning January 1, 2012, unless Plan T provides         has not issued a certification of the actual AFTAP         provision to retroactively restore benefit accruals
otherwise.                                                  as of January 1, 2012, the provisions of paragraph         restricted under paragraph (e) of this section after
    Example 4. (i) The facts are the same as in Ex-         (h)(2)(iii) of this section apply. Accordingly, on May     the restriction no longer applies. This is permitted
ample 3, except that the enrolled actuary for the plan      1, 2012, the 2012 AFTAP is presumed to be 10 per-          because under paragraph (a)(4)(ii)(A) of this section,
does not issue a certification of the AFTAP for 2011        centage points less than the 2011 AFTAP, or 55%, so        a preexisting provision of this type is not considered
for Plan T until February 1, 2012.                          that the restrictions under paragraphs (d) and (e) of      to be a plan amendment and is therefore not subject
    (ii) Beginning on January 1, 2012, the presump-         this section continue to apply.                            to the plan amendment restriction in paragraph (c) of
tions in paragraph (h)(1)(iii) of this section apply for        Example 6. (i) The enrolled actuary for Plan V         this section even though Plan V’s AFTAP for 2011
the 2012 plan year. Because the enrolled actuary for        certifies the plan’s AFTAP for 2010 to be 69%. Based       is less than 80%, because the period of the restriction
the plan has not certified the AFTAP for 2011, the          on this AFTAP, Plan V is subject to the restriction in     did not exceed 12 months.
presumed AFTAP as of October 1, 2011, continues             paragraph (d)(3) of this section, and can only pay a          (7) Examples of application of para-
to apply for the period beginning January 1, 2012.          portion (generally 50%) of accelerated benefit distri-
                                                                                                                       graph (h)(4) of this section. The following
Therefore, the AFTAP as of January 1, 2012, is pre-         butions otherwise due to plan participants who com-
sumed to be less than 60%, and Plan T continues to          mence benefits while the restriction is in effect. The
                                                                                                                       examples illustrate the application of para-
be subject to the restriction on accelerated benefit dis-   enrolled actuary for the plan does not issue a certifi-    graph (h)(4) of this section:
tributions in paragraph (d)(1) of this section and the      cation of the AFTAP for 2011 until June 1, 2011.               Example 1. (i) Plan Y is a non-collectively bar-
restriction on benefit accruals under paragraph (e) of          (ii) Beginning January 1, 2011, Plan V’s 2011          gained defined benefit plan with a plan year that is
this section.                                               AFTAP is presumed to be equal to the 2010 AFTAP,           the calendar year and a valuation date of January 1.
    (iii) On February 1, 2012, the enrolled actuary for     or 69%, under the provisions of paragraph (h)(1)(ii)       Plan Y does not have a funding standard carryover
the plan certifies that the AFTAP for 2011 for Plan T       of this section. Accordingly, the restriction on ac-       balance or a prefunding balance. Plan Y’s sponsor is
is 65%. Because the enrolled actuary for the plan has       celerated benefit distributions in paragraph (d)(3) of     not in bankruptcy. In June of 2010, the actual AFTAP
not issued a certification of the AFTAP for 2012, the       this section continues to apply from January 1, 2011,      for 2010 for Plan Y is certified as 65%. On the last
provisions of paragraph (h)(1)(iii)(B) of this section      through March 31, 2011, and Plan T may only pay a          day of the 2010 plan year, Plan Y is subject to the re-
apply. Accordingly, the certification date for the 2011     portion of accelerated benefit distributions otherwise     strictions in paragraph (d)(3) of this section.
AFTAP (February 1, 2012) is a section 436 measure-          due to participants who commence benefit payments              (ii) The enrolled actuary for the plan issues a
ment date and 65% is the presumed AFTAP for 2012            during this period.                                        range certification on March 21, 2011, certifying that
beginning on that date.                                         (iii) Beginning April 1, 2011, the provisions of       the AFTAP for 2011 is at least 60% and less than
                                                            paragraph (h)(2)(ii) of this section apply. Under those    80%. Because the certification was issued before the




2007–42 I.R.B.                                                                      853                                                        October 15, 2007
first day of the 4th month of the plan year, the 10                           (i) [Reserved].                                  centage of zero, regardless of the amount
percentage point reduction in the presumed AFTAP                              (j) Definitions. For purposes of this sec-       of the plan’s funding target.
under paragraph (h)(2) of this section does not apply.                    tion—                                                    (ii) Application to plans that are fully
In addition, because the enrolled actuary for the plan
has certified that the AFTAP is within this range,
                                                                              (1) Funding target. For purposes of              funded without regard to subtraction of
Plan Y is not subject to the full restriction on accel-                   section 436, the funding target means the            funding balances from plan assets—(A) In
erated benefit payments in paragraph (d)(1) of this                       funding target under section 430(d) or               general. If the funding target attainment
section or the restriction on benefit accruals under                      430(i), as applicable to the plan for the            percentage for a plan year, determined
paragraph (e) of this section.                                            plan year.                                           without regard to the section 430(f)(4)
     (iii) On August 1, 2011, the enrolled actuary for
the plan certifies that the actual AFTAP as of January
                                                                              (2) Funding target attainment percent-           subtraction of the funding standard carry-
1, 2011, is 75.86%. This AFTAP falls within the pre-                      age—(i) In general. For purposes of sec-             over balance and the prefunding balance
viously certified range. Thus, the change is immate-                      tion 436, the funding target attainment per-         from the value of plan assets, would be
rial under paragraph (h)(4)(iii) of this section and the                  centage for any plan year is the fraction            100 percent or more, then, solely for pur-
new certification does not change the applicability or                    (expressed as a percentage), the numera-             poses of section 436 and this section (but
inapplicability of the restrictions in this section.
     Example 2. (i) The facts are the same as in Ex-
                                                                          tor of which is the value of net plan assets         not section 430(d)), the value of net plan
ample 1, except that the plan sponsor makes an addi-                      for the plan year, and the denominator of            assets used in the determination of the
tional contribution for the 2010 plan year on Septem-                     which is the plan’s funding target for the           funding target attainment percentage de-
ber 1, 2011, that is not added to the prefunding bal-                     plan year (but determined without regard             scribed in this paragraph (j)(2) (and the
ance. Reflecting this contribution, the enrolled actu-                    to the at-risk rules under section 430(i)            adjusted funding target attainment per-
ary for the plan issues a revised certification stating
that the AFTAP for 2011 is 81%, and Plan Y is no
                                                                          even in the case of a plan that is in at-risk        centage described in paragraph (j)(3) of
longer subject to the restriction on accelerated bene-                    status). For this purpose, pursuant to sec-          this section) is determined without regard
fit payments under paragraph (d)(3) of this section on                    tion 430(f)(4), the value of net plan assets         to any subtraction of funding balances
that date.                                                                for the plan year is generally determined            under section 430(f)(4).
     (ii) Although the revised certification changes the                  by subtracting the plan’s funding standard               (B) Transition rule.         Paragraph
applicability of the restriction under paragraph (d)(3)
of this section, the change not a material change under
                                                                          carryover balance and prefunding balance             (j)(2)(ii)(A) of this section is applied to
paragraph (h)(4)(iii)(B)(2) of this section because it                    (if any) for the plan year from the value            plan years beginning after 2007 and before
changed only because of additional contributions for                      of plan assets. A plan with a value of net           2011 by substituting for “100 percent” the
the preceding year made by the plan sponsor after the                     plan assets for a plan year of zero is treated       applicable percentage determined in ac-
date of the enrolled actuary’s initial certification.                     as having a funding target attainment per-           cordance with the following table:


 In the case of a plan year                                                                                   The applicable
 beginning in calendar year:                                                                                  percentage is:
 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        92
 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        94
 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        96

    (C) Limitation. Paragraph (j)(2)(ii)(B)                               graph (j)(2)(iii)(B) of this section, and the            (2) Subtraction of credit balance. If a
of this section does not apply with re-                                   denominator of which is the plan’s cur-              plan has a funding standard account credit
spect to any plan year after 2008 unless                                  rent liability determined pursuant to sec-           balance as of the valuation date for the
the funding target attainment percentage                                  tion 412(l)(7) on the valuation date for the         plan’s pre-effective plan year, that bal-
(determined without regard to the section                                 plan’s pre-effective plan year.                      ance is subtracted from the net asset value
430(f)(4) subtraction of the funding stan-                                    (B) General determination of value               described in paragraph (j)(2)(iii)(B)(1)
dard carryover balance and the prefunding                                 of net plan assets—(1) In general. The               of this section as of that valuation date.
balance from the value of plan assets) of                                 value of net plan assets for purposes of             However, the subtraction does not apply
the plan for each preceding plan year (af-                                this paragraph (j)(2)(iii) is determined un-         if the value of plan assets determined in
ter 2007) was not less than the applica-                                  der section 412(c)(2) as in effect for the           paragraph (j)(2)(iii)(B)(1) of this section
ble percentage with respect to such preced-                               plan’s pre-effective plan year, except that          is greater than or equal to 90 percent of
ing plan year determined under paragraph                                  the value of plan assets prior to subtract-          the plan’s current liability as of the valu-
(j)(2)(ii)(B) of this section.                                            ing the plan’s funding standard account              ation date for the plan determined under
    (iii) Special rules for first effective plan                          credit balance described in paragraph                paragraph (j)(2)(iii)(A) of this section.
year—(A) In general. In the case of the                                   (j)(2)(iii)(B)(2) of this section can neither            (3) Effect of funding standard carry-
plan’s first effective plan year, the funding                             be less than 90 percent of the fair market           over balance reduction for first effective
target attainment percentage under section                                value of plan assets nor greater than 110            plan year. Notwithstanding paragraph
436 for the plan’s pre-effective plan year                                percent of the fair market value of plan             (j)(2)(iii)(B)(2) of this section, if, for the
is determined as the fraction (expressed as                               assets on the valuation date for that plan           first effective plan year, the employer has
a percentage), the numerator of which is                                  year.                                                made an election to reduce some or all of
the net plan assets determined under para-                                                                                     the funding standard carryover balance as



October 15, 2007                                                                                         854                                           2007–42 I.R.B.
of the first day of that year in accordance      In any case in which the plan’s enrolled                  than 80% but is at least 60%, Plan S is subject to the
with §1.430(f)–1(e), then the present value      actuary has not issued a certification un-                restrictions in paragraph (d)(3) of this section.
(determined as of the valuation date for         der paragraph (h)(4)(i) of this section of                     Example 2. (i) The facts are the same as in Ex-
                                                                                                           ample 1, except that it is reasonable to expect that
the pre-effective plan year using the val-       the adjusted funding target attainment per-               the plan sponsor will make a contribution of $80,000
uation interest rate for that pre-effective      centage of the plan for the pre-effective                 to Plan S for the 2007 plan year by September 15,
plan year) of the amount so reduced is           plan year, the adjusted funding target at-                2008. This amount is in excess of the minimum re-
not treated as part of the funding standard      tainment percentage of the plan for the first             quired contribution for 2007. The plan sponsor elects
account credit balance when that balance         effective plan year is presumed to be less                to reduce the funding standard carryover balance by
                                                                                                           $80,000.
is subtracted from the asset value under         than 60 percent until the adjusted funding                     (ii) Because it is reasonable to expect that the
paragraph (j)(2)(iii)(B)(2) of this section.     target attainment percentage of the plan for              $80,000 will be contributed by the plan sponsor, that
    (3) Adjusted funding target attainment       the pre-effective plan year has been certi-               amount is taken into account when the enrolled actu-
percentage—(i) In general. The adjusted          fied. The preceding sentence applies for                  ary certifies the 2008 AFTAP under the special rule
funding target attainment percentage for         purposes of paragraphs (b) and (c) of this                in paragraph (h)(4)(i)(B) of this section for plan years
                                                                                                           beginning before 2009. Accordingly, the enrolled ac-
any plan year is the fraction (expressed as      section at the beginning of the first effec-              tuary for the plan certifies the 2008 AFTAP as 80%
a percentage), the numerator of which is         tive plan year and applies for purposes of                (that is, adjusted plan assets of $2,080,000, reflect-
the adjusted plan assets described in para-      paragraphs (d) and (e) of this section as of              ing the $80,000 in contributions receivable, divided
graph (j)(3)(ii) of this section and the de-     the first day of the 4th month of the first               by the adjusted funding target of $2,600,000).
nominator of which is the adjusted fund-         effective plan year. See paragraph (h) of                      (iii) The ability to take contributions into account
                                                                                                           before they are actually paid to the plan is available
ing target described in paragraph (j)(3)(iii)    this section for rules that apply after the               only for plan years beginning before 2009. Further-
of this section.                                 adjusted funding target attainment percent-               more, if the employer does not actually make the
    (ii) Adjusted plan assets. The adjusted      age for the plan has been certified for ei-               contribution and the difference between the incorrect
plan assets equals the net plan assets (de-      ther the pre-effective plan year or the first             certification and the corrected AFTAP constitutes a
termined under paragraph (j)(2) of this sec-     effective plan year.                                      material change, the plan will have violated section
                                                                                                           401(a)(29) or will not have been operated in accor-
tion), increased by the aggregate amount             (4) Section 436 measurement date. The                 dance with its terms.
of purchases of annuities for employees          section 436 measurement date is the date                       Example 3. (i) Plan R is a defined benefit plan
other than highly compensated employees          that is used to stop or start the application             with a plan year that is the calendar year and a valu-
(as defined in section 414(q)) which were        of the limitations of sections 436(d) and                 ation date of January 1. The first effective plan year
made by the plan during the preceding 2          436(e), and is also used for calculations                 for Plan R is 2008. The valuation interest rate for
                                                                                                           the 2007 plan year for Plan R is 7%. The fair mar-
plan years.                                      with respect to applying the limitations                  ket value of assets of Plan R as of January 1, 2007, is
    (iii) Adjusted funding target—(A) In         of paragraphs (b) and (c) of this section.                $1,000,000. The actuarial value of assets of Plan R as
general. The adjusted funding target             See paragraph (h) of this section regarding               of January 1, 2007, is $1,200,000. The current liabil-
equals the funding target for the plan year      section 436 measurement dates that result                 ity of Plan R as of January 1, 2007, is $1,500,000. The
(determined in accordance with paragraph         from application of the presumptions un-                  funding standard account credit balance as of January
                                                                                                           1, 2007, is $80,000. The funding standard carryover
(j)(1) of this section but without regard        der that paragraph (h) of this section.                   balance of Plan R is $50,000 as of the beginning of
to the at-risk rules under section 430(i)),          (5) Examples. The following examples                  the 2008 plan year. The sponsor of Plan R, Spon-
increased by the aggregate amount of pur-        illustrate the application of this paragraph              sor T, elects in 2008 to reduce the funding standard
chases of annuities for employees other          (j):                                                      carryover balance in accordance with §1.430(f)–1 by
than highly compensated employees (as                Example 1. (i) Plan S is a non-collectively bar-      $45,000.
                                                 gained defined benefit plan with a plan year that is           (ii) Pursuant to paragraph (j)(2)(iii)(B)(1) of this
defined in section 414(q)) which were                                                                      section, the asset value used to determine the fund-
                                                 the calendar year and a valuation date of January 1.
made by the plan during the preceding 2          The first effective plan year is 2008.                    ing target attainment percentage (FTAP) for the 2007
plan years.                                          (ii) As of January 1, 2008, Plan S has a value of     plan year is limited to 110% of the fair market value
    (B) Special rule for first effective plan    plan assets (equal to the market value of assets) of      of assets on January 1, 2007, or $1,100,000 (110% of
year. In the case of the plan’s first effec-     $2,100,000 and a funding standard carryover balance       $1,000,000).
                                                 of $200,000. During 2006, assets from Plan S were              (iii) Pursuant to paragraph (j)(2)(iii)(B)(2) of
tive plan year, for purposes of determining                                                                this section, the funding standard account credit
                                                 used to purchase a total of $100,000 in annuities for
the adjusted funding target attainment per-      employees other than highly compensated employ-           balance as of January 1, 2007, is subtracted from
centage for the pre-effective plan year,         ees. No annuities were purchased during 2007. On          the asset value used to determine the FTAP for the
the adjusted funding target is equal to the      May 1, 2008, the enrolled actuary for the plan deter-     2007 plan year. However, pursuant to paragraph
current liability determined pursuant to         mines that the funding target as of January 1, 2008, is   (j)(2)(iii)(B)(3) of this section, the present value of
                                                 $2,500,000.                                               the amount by which Sponsor T elected to reduce the
section 412(l)(7) as of the plan’s valua-                                                                  funding standard carryover balance in 2008 is not
                                                     (iii) The adjusted value of assets for Plan S as of
tion date for the pre-effective plan year,       January 1, 2008, is $2,000,000 (that is, plan assets      subtracted.
increased by the aggregate amount of pur-        of $2,100,000 plus annuity purchases of $100,000               (iv) The present value, determined at an interest
chases of annuities for employees other          minus the funding standard carryover balance of           rate of 7%, of the $45,000 reduction in the funding
than highly compensated employees (as            $200,000). The adjusted funding target is $2,600,000      standard account carryover balance elected by Spon-
                                                 (that is, the funding target of $2,500,000, increased     sor T in 2008 is $42,056. Thus, $42,056 is not sub-
defined in section 414(q)) which were                                                                      tracted from the 2007 plan year asset value. Accord-
                                                 by the annuity purchases of $100,000).
made by the plan during the preceding 2              (iv) Based on the above adjusted plan assets and      ingly, the funding standard account credit balance that
plan years.                                      adjusted funding target, the AFTAP as of January 1,       is subtracted from the 2007 plan year asset value is
    (iv) Special rule where current liabil-      2008, would be 76.92%. Since the AFTAP is less            $37,944 (that is, $80,000 less $42,056).
ity not certified for pre-effective plan year.


2007–42 I.R.B.                                                           855                                                       October 15, 2007
    (v) Thus, the asset value that is used to deter-     with respect to which a collective bargain-                  5307 during the approximately two-year
mine the FTAP for the 2007 plan year is $1,100,000       ing agreement applies to some, but not all,                  period which the Service expects to an-
less $37,944, or $1,062,056. Accordingly, for pur-       of the plan participants, the plan is consid-                nounce early in 2008. The temporary hia-
poses of this section, the FTAP for the 2007 plan year
for Plan R is 70.8% (that is, $1,062,056 divided by
                                                         ered a collectively bargained plan for pur-                  tus in accepting Form 5307 applications
$1,500,000).                                             poses of this paragraph (k)(3) if it is con-                 will allow the Service to prepare to receive
   (k) Effective/applicability dates—(1) In              sidered a collectively bargained plan under                  the EGTRRA applications.
general. In general, this section applies to             the rules of paragraph (a)(5)(ii)(B) of this                     Rev. Proc. 2007–44, 2007–28 I.R.B.
plan years beginning on or after January 1,              section.                                                     54, and Rev. Proc. 2005–16, 2005–1 C.B.
2008.                                                       (4) First effective plan year. For pur-                   674, describe a staggered remedial amend-
   (2) Plans with delayed effective/appli-               poses of this section, the first effective plan              ment system for plans that are qualified
cability date. In the case of a plan for                 year for a plan is the first plan year to                    under § 401(a) of the Internal Revenue
which the effective date of section 436 is               which this section applies under paragraph                   Code, with five-year amendment/approval
delayed in accordance with sections 104                  (k)(1), (k)(2), or (k)(3) of this section.                   cycles for individually designed plans and
through 106 of the Pension Protection Act                   (5) Pre-effective plan year. For pur-                     six-year cycles for pre-approved plans.
of 2006, Public Law 109–280, 120 Stat.                   poses of this section, the pre-effective plan                The submission period for the initial
780, this section applies to plan years be-              year for a plan is the last plan year begin-                 six-year cycle for pre-approved defined
ginning on or after the effective date of sec-           ning before the effective date applicable                    contribution plans ran from February 17,
tion 436 with respect to the plan.                       under paragraph (k)(1), (k)(2), or (k)(3) of                 2005, to January 31, 2006. Sponsors and
   (3) Collective bargaining excep-                      this section. Thus, except for plans with                    practitioners were required to restate their
tion—(i) In general. In the case of a                    a delayed effective date under paragraph                     pre-approved defined contribution plans
collectively bargained plan that is main-                (k)(2) or (k)(3) of this section, the pre-ef-                for EGTRRA and other changes in plan
tained pursuant to one or more collective                fective plan year for a plan is the last plan                qualification requirements described in
bargaining agreements between employee                   year beginning before January 1, 2008.                       Notice 2004–84, 2004–2 C.B. 1030, the
representatives and one or more employ-                                                                               “2004 Cumulative List,” and apply for
ers ratified before January 1, 2008, this                                            Kevin M. Brown,                  new opinion or advisory letters during
section does not apply to plan years begin-                                  Deputy Commissioner for                  this submission period. As provided in
ning before the earlier of—                                                  Services and Enforcement.                Rev. Proc. 2007–44, when the review
   (A) The date described in paragraph                   (Filed by the Office of the Federal Register on August 28,   of the pre-approved defined contribution
(k)(3)(ii) of this section; or                           2007, 8:45 a.m., and published in the issue of the Federal   plans is near completion, the Service will
                                                         Register for August 31, 2007, 72 F.R. 50543)
   (B) January 1, 2010.                                                                                               publish an announcement providing the
   (ii) Termination of collective bargain-                                                                            date by which adopting employers must
ing agreement. The date described in this                                                                             adopt the newly approved plans. This date
paragraph (k)(3)(ii) is the later of—                    Temporary Closing of the                                     will also be the deadline for adopting em-
   (A) The date on which the last col-                   Determination Letter Program                                 ployers to file Form 5307 determination
lective bargaining agreement relating to                 for Adopters of Pre-Approved                                 letter applications for their EGTRRA-re-
the plan terminates (determined in accor-                Defined Contribution Plans                                   stated pre-approved defined contribution
dance with paragraph (k)(3)(iii) of this sec-                                                                         plans. The Service expects to publish
tion and without regard to any extension                 Announcement 2007–90                                         this announcement early next year and
thereof agreed to after August 17, 2006);                                                                             anticipates that adopting employers will
or                                                          On December 18, 2007, the Service will                    have approximately two years to adopt the
   (B) The first day of the first plan year              temporarily stop accepting applications for                  restated plans and request determination
to which this section would (but for this                determination letters for defined contribu-                  letters.
paragraph (k)(3)) apply.                                 tion plans that are filed on Form 5307, Ap-                      In order to prepare to receive the Form
   (iii) Treatment of certain plan amend-                plication for Determination for Adopters                     5307 applications for the EGTRRA-re-
ments. Any plan amendment made pur-                      of Master or Prototype or Volume Submit-                     stated defined contribution plans that will
suant to a collective bargaining agreement               ter Plans. The Service is taking this ac-                    be filed starting next year, the Service will
relating to the plan which amends the                    tion because all pre-approved (i.e., mas-                    temporarily stop accepting determination
plan solely to conform to any requirement                ter and prototype and volume submitter)                      letter applications for defined contribu-
added by section 436 is not treated as a                 defined contribution plans are required to                   tion plans filed on Form 5307, beginning
termination of the collective bargaining                 be restated to comply with the Economic                      December 18, 2007. The Service will
agreement.                                               Growth and Tax Relief Reconciliation Act                     continue to process determination letter
   (iv) Treatment of plans with both collec-             of 2001, Pub. L. 107–16, (“EGTRRA”)                          applications for defined contribution plans
tively bargained and non-collectively bar-               and to be submitted to the Service for a de-                 filed on Form 5307 before December 18,
gained employees. In the case of a plan                  termination letter (if needed) using Form                    2007, provided the plan has a favorable




October 15, 2007                                                                  856                                                        2007–42 I.R.B.
GUST1 opinion or advisory letter. Any                               ADDRESSES: The public hearing was                                ACTION: Change of location for public
determination letter application for a de-                          originally being held in the IRS Audito-                         hearing.
fined contribution plan filed on Form 5307                          rium, Internal Revenue Building, 1111
on or after December 18, 2007 and before                            Constitution Avenue, NW, Washington,                             SUMMARY: This document provides a
the opening of the approximately two-year                           DC. The hearing location has changed.                            change of location for a public hearing on
period for adopting EGTRRA-restated                                 The public hearing will be held in room                          proposed regulations (REG–128224–06,
pre-approved defined contribution plans                             2615, Internal Revenue Building, 1111                            2007–36 I.R.B. 551) providing guid-
will be returned to the applicant.                                  Constitution Avenue, NW, Washington,                             ance on which costs incurred by estates
    This announcement does not affect the                           DC.                                                              or non-grantor trusts are subject to the
ability of adopting employers to apply                                                                                               2-percent floor for miscellaneous itemized
for determination letters on Form 5307                              FOR      FURTHER        INFORMATION                              deductions under section 67(a).
for pre-approved defined benefit plans.                             CONTACT: LaNita Van Dyke, (202)
                                                                    622–3215 or Oluwafunmilayo Taylor,                               DATES: The public hearing is being held
The Service will continue to accept and
                                                                    (202) 622–7180 (not toll-free numbers).                          on Wednesday, November 14, 2007, at
process such applications until further
                                                                                                                                     10 a.m.
notice. This announcement also does not
                                                                    SUPPLEMENTARY INFORMATION:
affect the ability of adopting employers of                                                                                          ADDRESSES: The public hearing was
pre-approved plans (whether defined con-                               The subject of the public hearing                             originally being held in the IRS Audito-
tribution or defined benefit) to apply on                           is a notice of proposed rulemaking                               rium, Internal Revenue Building, 1111
Form 5307 for a determination letter for                            (REG–142695–05) that was published                               Constitution Avenue, NW, Washington,
plan amendments related to a voluntary                              in the Federal Register on Monday, Au-                           DC. The hearing location has changed.
correction program (VCP) submission or                              gust 6, 2007 (72 FR 43938).                                      The public hearing will be held in room
as required under the correction on audit                              The rules of 26 CFR 601.601(a)(3) ap-                         2615, Internal Revenue Building, 1111
program (Audit CAP), under the proce-                               ply to the hearing. Persons, who submit                          Constitution Avenue, NW, Washington,
dures described in Rev. Proc. 2006–27,                              outlines and written comments by Octo-                           DC.
2006–1 C.B. 945.                                                    ber 25 and November 5, 2007 respectively,
                                                                    may present oral comments at the hearing.                        FOR     FURTHER       INFORMATION
                                                                       A period of 10 minutes is allotted to                         CONTACT:       LaNita    Van      Dyke,
Employee Benefits—Cafeteria                                         each person for presenting oral comments.                        (202) 622–3215 or Richard Hurst at
Plans; Hearing                                                      The IRS will prepare an agenda contain-                          Richard.A.Hurst@irscounsel.treas.gov.
                                                                    ing the schedule of speakers. Copies of
Announcement 2007–91                                                                                                                 SUPPLEMENTARY INFORMATION:
                                                                    the agenda will be made available, free of
                                                                    charge, at the hearing.                                             The subject of the public hearing
AGENCY: Internal Revenue Service
(IRS), Treasury.                                                                                                                     is a notice of proposed rulemaking
                                                                                              LaNita Van Dyke,
                                                                                                                                     (REG–128224–06) that was published
                                                                                         Chief, Publications and
ACTION: Change of location for public                                                                                                in the Federal Register on Friday, July
                                                                                             Regulations Branch,
hearing.                                                                                                                             27, 2007 (72 FR 41243).
                                                                                       Legal Processing Division,
                                                                                                                                        The rules of 26 CFR 601.601(a)(3) ap-
SUMMARY: This document provides a                                                        Associate Chief Counsel
                                                                                                                                     ply to the hearing. Persons, who submit
change of location for a public hearing on                                        (Procedure and Administration).
                                                                                                                                     outlines and written comments by October
proposed regulations (REG–142695–05,                                (Filed by the Office of the Federal Register on September        24 and 25, 2007 respectively, may present
2007–39 I.R.B. 681) providing guidance                              20, 2007, 8:45 a.m., and published in the issue of the Federal
                                                                    Register for September 21, 2007, 72 F.R. 53977)                  oral comments at the hearing.
on cafeteria plans.                                                                                                                     A period of 10 minutes is allotted to
                                                                                                                                     each person for presenting oral comments.
DATES: The public hearing is being held                                                                                              The IRS will prepare an agenda contain-
on Thursday, November 15, 2007, at                                  Section 67 Limitations on
                                                                    Estates or Trusts; Hearing                                       ing the schedule of speakers. Copies of
10 a.m.                                                                                                                              the agenda will be made available, free of
                                                                    Announcement 2007–92                                             charge, at the hearing.

                                                                    AGENCY: Internal Revenue Service
                                                                    (IRS), Treasury.



1   The term “GUST” refers to the following:
      •    the Uruguay Round Agreements Act, Pub. L. 103–465;
      •    the Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. 103–353;
      •    the Small Business Job Protection Act of 1996, Pub. L. 104–188;
      •    the Taxpayer Relief Act of 1997, Pub. L. 105–34;
      •    the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105–206; and
      •    the Community Renewal Tax Relief Act of 2000, Pub. L. 106–554.




2007–42 I.R.B.                                                                                  857                                                    October 15, 2007
                         LaNita Van Dyke,                        Correction of Publication                                    FOR    FURTHER     INFORMATION
                    Chief, Publications and                                                                                   CONTACT: Robin M. Ferguson at (202)
                        Regulations Branch,                         Accordingly, the final and temporary                      622–3630.
                  Legal Processing Division,                     regulations (T.D. 9344) that were the sub-
                    Associate Chief Counsel                      ject of FR. Doc. E7–14053 are corrected                      SUPPLEMENTARY INFORMATION:
             (Procedure and Administration).                     as follows:
                                                                    1. On page 39738, column 1, in the                        Background
(Filed by the Office of the Federal Register on September        preamble, under the caption “FOR FUR-
20, 2007, 8:45 a.m., and published in the issue of the Federal                                                                   The notice of proposed rulemaking by
Register for September 21, 2007, 72 F.R. 53977)                  THER INFORMATION CONTACT:”,
                                                                                                                              cross-reference to temporary regulations
                                                                 line 2, the language “Robin M. Ferguson,
                                                                                                                              (REG–148951–05) that is the subject of
                                                                 (202) 622–3610 (not” is corrected to read
                                                                                                                              these corrections is under sections 7425
                                                                 “Robin M. Ferguson, (202) 622–3630
Change to Office to Which                                                                                                     and 6343 of the Internal Revenue Code.
                                                                 (not”.
Notices of Nonjudicial Sale                                         2. On page 39739, column 1, in the pre-                   Need for Correction
and Requests for Return of                                       amble, under paragraph heading “Drafting
Wrongfully Levied Property                                       Information”, lines 4 and 5, the language                       As published, the notice of proposed
                                                                 “and Administration (Collection, Bank-                       rulemaking by cross-reference to tempo-
Must Be Sent; Correction                                         ruptcy and Summonses Division)” should                       rary regulations (REG–148951–05) con-
                                                                 be corrected to read “and Administration.”                   tains errors that may prove to be mislead-
Announcement 2007–93                                                                                                          ing and are in need of clarification.
                                                                                        LaNita Van Dyke,
AGENCY: Internal Revenue Service                                                            Branch Chief,                     Correction of Publication
(IRS), Treasury.                                                      Publications and Regulations Branch,
                                                                                Legal Processing Division,                       Accordingly, the notice of proposed
ACTION: Correction to final and tempo-                                            Associate Chief Counsel                     rulemaking by cross-reference to tempo-
rary regulations.                                                          (Procedure and Administration).                    rary regulations (REG–148951–05) that
                                                                                                                              was the subject of FR. Doc. E7–14051 is
                                                                 (Filed by the Office of the Federal Register on August 22,
SUMMARY: This document contains cor-                             2007, 8:45 a.m., and published in the issue of the Federal
                                                                                                                              corrected as follows:
rections to final and temporary regulations                      Register for August 23, 2007, 72 F.R. 48236)                    1. On page 39771, column 3, in
(T.D. 9344, 2007–36 I.R.B. 535) that were                                                                                     the preamble, under the caption “FOR
published in the Federal Register on Fri-                                                                                     FURTHER         INFORMATION         CON-
day, July 20, 2007 relating to the discharge                     Change to Office to Which                                    TACT:”, line 1, the language “Robin
of liens under section 7425 and return of                        Notices of Nonjudicial Sale                                  M. Ferguson, (202) 622–3610; is cor-
wrongfully levied property under section                         and Requests for Return of                                   rected to read “Robin M. Ferguson, (202)
6343.                                                                                                                         622–3630;”.
                                                                 Wrongfully Levied Property                                      2. On page 39772, column 1, in the pre-
FOR    FURTHER     INFORMATION                                   Must Be Sent; Correction                                     amble, under paragraph heading “Drafting
CONTACT: Robin M. Ferguson at (202)                                                                                           Information”, lines 4 and 5, the language
622–3630.
                                                                 Announcement 2007–94                                         “and Administration (Collection, Bank-
                                                                                                                              ruptcy and Summonses Division)” should
                                                                 AGENCY: Internal Revenue Service
SUPPLEMENTARY INFORMATION:                                                                                                    be corrected to read “and Administration.”
                                                                 (IRS), Treasury.
Background                                                                                                                                           LaNita Van Dyke,
                                                                 ACTION: Correction to notice of pro-
                                                                                                                                                         Branch Chief,
                                                                 posed rulemaking by cross-reference to
   The final and temporary regulations                                                                                             Publications and Regulations Branch,
                                                                 temporary regulations.
(T.D. 9344) that are the subject of these                                                                                                    Legal Processing Division,
corrections are under sections 7425 and                          SUMMARY: This document contains cor-                                          Associate Chief Counsel
6343 of the Internal Revenue Code.                               rections to notice of proposed rulemaking                              (Procedure and Administration).
                                                                 (REG–148951–05, 2007–36 I.R.B. 550)                          (Filed by the Office of the Federal Register on August 22,
Need for Correction                                              by cross-reference to temporary regula-                      2007, 8:45 a.m., and published in the issue of the Federal
                                                                                                                              Register for August 23, 2007, 72 F.R. 48249)
                                                                 tions that was published in the Federal
   As published, the final and temporary                         Register on Friday, July 20, 2007 relating
regulations (T.D. 9344) contain errors that                      to the discharge of liens under section 7425
may prove to be misleading and are in need                       and return of wrongfully levied property
of clarification.                                                under section 6343.




October 15, 2007                                                                          858                                                               2007–42 I.R.B.
Deletions From Cumulative                      precluded from disallowing a deduction         scribed in section 170(c)(2) as more partic-
List of Organizations                          for any contributions made after an or-        ularly set forth in section 7428(c)(1). For
Contributions to Which                         ganization ceases to qualify under section     individual contributors, the maximum de-
                                               170(c)(2) if the organization has not timely   duction protected is $1,000, with a hus-
are Deductible Under Section                   filed a suit for declaratory judgment under    band and wife treated as one contributor.
170 of the Code                                section 7428 and if the contributor (1) had    This benefit is not extended to any indi-
                                               knowledge of the revocation of the ruling      vidual, in whole or in part, for the acts or
Announcement 2007–96                           or determination letter, (2) was aware that    omissions of the organization that were the
                                               such revocation was imminent, or (3) was       basis for revocation.
    The Internal Revenue Service has re-       in part responsible for or was aware of the
voked its determination that the organi-       activities or omissions of the organization    The Georgetown Foundation
zations listed below qualify as organiza-      that brought about this revocation.              Sandy, UT
tions described in sections 501(c)(3) and          If on the other hand a suit for declara-   Lumberton Family Life Center, Inc.
170(c)(2) of the Internal Revenue Code of      tory judgment has been timely filed, con-        Lumberton, MS
1986.                                          tributions from individuals and organiza-      Truth in Youth & Family Services, Inc.
    Generally, the Service will not disallow   tions described in section 170(c)(2) that        Leland, NC
deductions for contributions made to a         are otherwise allowable will continue to       Cunningham Charitable Group
listed organization on or before the date      be deductible. Protection under section          Los Angeles, CA
of announcement in the Internal Revenue        7428(c) would begin on October 15, 2007,
Bulletin that an organization no longer        and would end on the date the court first
qualifies. However, the Service is not         determines that the organization is not de-




2007–42 I.R.B.                                                    859                                            October 15, 2007
Definition of Terms
Revenue rulings and revenue procedures           and B, the prior ruling is modified because      of a prior ruling, a combination of terms
(hereinafter referred to as “rulings”) that      it corrects a published position. (Compare       is used. For example, modified and su-
have an effect on previous rulings use the       with amplified and clarified, above).            perseded describes a situation where the
following defined terms to describe the ef-          Obsoleted describes a previously pub-        substance of a previously published ruling
fect:                                            lished ruling that is not considered deter-      is being changed in part and is continued
    Amplified describes a situation where        minative with respect to future transac-         without change in part and it is desired to
no change is being made in a prior pub-          tions. This term is most commonly used in        restate the valid portion of the previously
lished position, but the prior position is be-   a ruling that lists previously published rul-    published ruling in a new ruling that is self
ing extended to apply to a variation of the      ings that are obsoleted because of changes       contained. In this case, the previously pub-
fact situation set forth therein. Thus, if       in laws or regulations. A ruling may also        lished ruling is first modified and then, as
an earlier ruling held that a principle ap-      be obsoleted because the substance has           modified, is superseded.
plied to A, and the new ruling holds that the    been included in regulations subsequently            Supplemented is used in situations in
same principle also applies to B, the earlier    adopted.                                         which a list, such as a list of the names of
ruling is amplified. (Compare with modi-             Revoked describes situations where the       countries, is published in a ruling and that
fied, below).                                    position in the previously published ruling      list is expanded by adding further names in
    Clarified is used in those instances         is not correct and the correct position is       subsequent rulings. After the original rul-
where the language in a prior ruling is be-      being stated in a new ruling.                    ing has been supplemented several times, a
ing made clear because the language has              Superseded describes a situation where       new ruling may be published that includes
caused, or may cause, some confusion.            the new ruling does nothing more than re-        the list in the original ruling and the ad-
It is not used where a position in a prior       state the substance and situation of a previ-    ditions, and supersedes all prior rulings in
ruling is being changed.                         ously published ruling (or rulings). Thus,       the series.
    Distinguished describes a situation          the term is used to republish under the              Suspended is used in rare situations
where a ruling mentions a previously pub-        1986 Code and regulations the same po-           to show that the previous published rul-
lished ruling and points out an essential        sition published under the 1939 Code and         ings will not be applied pending some
difference between them.                         regulations. The term is also used when          future action such as the issuance of new
    Modified is used where the substance         it is desired to republish in a single rul-      or amended regulations, the outcome of
of a previously published position is being      ing a series of situations, names, etc., that    cases in litigation, or the outcome of a
changed. Thus, if a prior ruling held that a     were previously published over a period of       Service study.
principle applied to A but not to B, and the     time in separate rulings. If the new rul-
new ruling holds that it applies to both A       ing does more than restate the substance


Abbreviations
The following abbreviations in current use       ER—Employer.                                     PRS—Partnership.
and formerly used will appear in material        ERISA—Employee Retirement Income Security Act.   PTE—Prohibited Transaction Exemption.
                                                 EX—Executor.                                     Pub. L.—Public Law.
published in the Bulletin.
                                                 F—Fiduciary.                                     REIT—Real Estate Investment Trust.
                                                 FC—Foreign Country.                              Rev. Proc.—Revenue Procedure.
A—Individual.
                                                 FICA—Federal Insurance Contributions Act.        Rev. Rul.—Revenue Ruling.
Acq.—Acquiescence.
B—Individual.                                    FISC—Foreign International Sales Company.        S—Subsidiary.
                                                 FPH—Foreign Personal Holding Company.            S.P.R.—Statement of Procedural Rules.
BE—Beneficiary.
                                                 F.R.—Federal Register.                           Stat.—Statutes at Large.
BK—Bank.
B.T.A.—Board of Tax Appeals.                     FUTA—Federal Unemployment Tax Act.               T—Target Corporation.
                                                 FX—Foreign corporation.                          T.C.—Tax Court.
C—Individual.
                                                 G.C.M.—Chief Counsel’s Memorandum.               T.D. —Treasury Decision.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.                 GE—Grantee.                                      TFE—Transferee.
                                                 GP—General Partner.                              TFR—Transferor.
CI—City.
                                                 GR—Grantor.                                      T.I.R.—Technical Information Release.
COOP—Cooperative.
Ct.D.—Court Decision.                            IC—Insurance Company.                            TP—Taxpayer.
                                                 I.R.B.—Internal Revenue Bulletin.                TR—Trust.
CY—County.
                                                 LE—Lessee.                                       TT—Trustee.
D—Decedent.
DC—Dummy Corporation.                            LP—Limited Partner.                              U.S.C.—United States Code.
                                                 LR—Lessor.                                       X—Corporation.
DE—Donee.
                                                 M—Minor.                                         Y—Corporation.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.   Nonacq.—Nonacquiescence.                         Z —Corporation.
                                                 O—Organization.
DR—Donor.
                                                 P—Parent Corporation.
E—Estate.
                                                 PHC—Personal Holding Company.
EE—Employee.
                                                 PO—Possession of the U.S.
E.O.—Executive Order.
                                                 PR—Partner.


October 15, 2007                                                       i                                                 2007–42 I.R.B.
Numerical Finding List1                                       Notices— Continued:                                            Revenue Procedures— Continued:

Bulletins 2007–27 through 2007–42                             2007-68, 2007-35 I.R.B. 468                                    2007-57, 2007-36 I.R.B. 547
                                                              2007-69, 2007-35 I.R.B. 468                                    2007-58, 2007-37 I.R.B. 585
Announcements:                                                2007-70, 2007-40 I.R.B. 735                                    2007-59, 2007-40 I.R.B. 745
                                                              2007-71, 2007-35 I.R.B. 472                                    2007-60, 2007-39 I.R.B. 679
2007-61, 2007-28 I.R.B. 84
                                                              2007-72, 2007-36 I.R.B. 544                                    2007-61, 2007-40 I.R.B. 747
2007-62, 2007-29 I.R.B. 115
                                                              2007-73, 2007-36 I.R.B. 545                                    2007-62, 2007-41 I.R.B. 786
2007-63, 2007-30 I.R.B. 236
                                                              2007-74, 2007-37 I.R.B. 585                                    2007-63, 2007-42 I.R.B. 809
2007-64, 2007-29 I.R.B. 125
                                                              2007-75, 2007-39 I.R.B. 679                                    2007-64, 2007-42 I.R.B. 818
2007-65, 2007-30 I.R.B. 236
                                                              2007-76, 2007-40 I.R.B. 735
2007-66, 2007-31 I.R.B. 296                                                                                                  Revenue Rulings:
                                                              2007-77, 2007-40 I.R.B. 735
2007-67, 2007-32 I.R.B. 345
                                                              2007-78, 2007-41 I.R.B. 780                                    2007-42, 2007-28 I.R.B. 44
2007-68, 2007-32 I.R.B. 348
                                                              2007-79, 2007-42 I.R.B. 809                                    2007-43, 2007-28 I.R.B. 45
2007-69, 2007-33 I.R.B. 371
                                                                                                                             2007-44, 2007-28 I.R.B. 47
2007-70, 2007-33 I.R.B. 371                                   Proposed Regulations:
2007-71, 2007-33 I.R.B. 372                                                                                                  2007-45, 2007-28 I.R.B. 49
2007-72, 2007-33 I.R.B. 373                                   REG-121475-03, 2007-35 I.R.B. 474                              2007-46, 2007-30 I.R.B. 126
2007-73, 2007-34 I.R.B. 435                                   REG-128274-03, 2007-33 I.R.B. 356                              2007-47, 2007-30 I.R.B. 127
2007-74, 2007-35 I.R.B. 483                                   REG-114084-04, 2007-33 I.R.B. 359                              2007-48, 2007-30 I.R.B. 129
2007-75, 2007-36 I.R.B. 540                                   REG-149036-04, 2007-33 I.R.B. 365                              2007-49, 2007-31 I.R.B. 237
2007-76, 2007-36 I.R.B. 560                                   REG-149036-04, 2007-34 I.R.B. 411                              2007-50, 2007-32 I.R.B. 311
2007-77, 2007-38 I.R.B. 662                                   REG-101001-05, 2007-36 I.R.B. 548                              2007-51, 2007-37 I.R.B. 573
2007-78, 2007-38 I.R.B. 663                                   REG-119097-05, 2007-28 I.R.B. 74                               2007-52, 2007-37 I.R.B. 575
2007-79, 2007-40 I.R.B. 749                                   REG-128843-05, 2007-37 I.R.B. 587                              2007-53, 2007-37 I.R.B. 577
2007-80, 2007-38 I.R.B. 667                                   REG-142695-05, 2007-39 I.R.B. 681                              2007-54, 2007-38 I.R.B. 604
2007-81, 2007-38 I.R.B. 667                                   REG-143397-05, 2007-41 I.R.B. 790                              2007-55, 2007-38 I.R.B. 604
2007-82, 2007-40 I.R.B. 749                                   REG-147171-05, 2007-32 I.R.B. 334                              2007-56, 2007-39 I.R.B. 668
2007-83, 2007-40 I.R.B. 752                                   REG-148951-05, 2007-36 I.R.B. 550                              2007-57, 2007-36 I.R.B. 531
2007-84, 2007-41 I.R.B. 797                                   REG-163195-05, 2007-33 I.R.B. 366                              2007-58, 2007-37 I.R.B. 562
2007-85, 2007-39 I.R.B. 719                                   REG-118886-06, 2007-37 I.R.B. 591                              2007-59, 2007-37 I.R.B. 582
2007-86, 2007-39 I.R.B. 719                                   REG-128224-06, 2007-36 I.R.B. 551                              2007-60, 2007-38 I.R.B. 606
2007-87, 2007-40 I.R.B. 753                                   REG-138707-06, 2007-32 I.R.B. 342                              2007-61, 2007-42 I.R.B. 799
2007-88, 2007-42 I.R.B. 801                                   REG-139268-06, 2007-34 I.R.B. 415                              2007-62, 2007-41 I.R.B. 767
2007-89, 2007-41 I.R.B. 798                                   REG-142039-06, 2007-34 I.R.B. 415                              2007-63, 2007-41 I.R.B. 778
2007-90, 2007-42 I.R.B. 856                                   REG-144540-06, 2007-31 I.R.B. 296
                                                                                                                             Tax Conventions:
2007-91, 2007-42 I.R.B. 857                                   REG-148393-06, 2007-39 I.R.B. 714
2007-92, 2007-42 I.R.B. 857                                   REG-103842-07, 2007-28 I.R.B. 79                               2007-75, 2007-36 I.R.B. 540
2007-93, 2007-42 I.R.B. 858                                   REG-113891-07, 2007-42 I.R.B. 821                              2007-88, 2007-42 I.R.B. 801
2007-94, 2007-42 I.R.B. 858                                   REG-116215-07, 2007-38 I.R.B. 659
                                                                                                                             Treasury Decisions:
2007-96, 2007-42 I.R.B. 859                                   REG-118719-07, 2007-37 I.R.B. 593

                                                              Revenue Procedures:                                            9326, 2007-31 I.R.B. 242
Notices:
                                                                                                                             9327, 2007-28 I.R.B. 50
2007-54, 2007-27 I.R.B. 12                                    2007-42, 2007-27 I.R.B. 15                                     9328, 2007-27 I.R.B. 1
2007-55, 2007-27 I.R.B. 13                                    2007-43, 2007-27 I.R.B. 26                                     9329, 2007-32 I.R.B. 312
2007-56, 2007-27 I.R.B. 15                                    2007-44, 2007-28 I.R.B. 54                                     9330, 2007-31 I.R.B. 239
2007-57, 2007-29 I.R.B. 87                                    2007-45, 2007-29 I.R.B. 89                                     9331, 2007-32 I.R.B. 298
2007-58, 2007-29 I.R.B. 88                                    2007-46, 2007-29 I.R.B. 102                                    9332, 2007-32 I.R.B. 300
2007-59, 2007-30 I.R.B. 135                                   2007-47, 2007-29 I.R.B. 108                                    9333, 2007-33 I.R.B. 350
2007-60, 2007-35 I.R.B. 466                                   2007-48, 2007-29 I.R.B. 110                                    9334, 2007-34 I.R.B. 382
2007-61, 2007-30 I.R.B. 140                                   2007-49, 2007-30 I.R.B. 141                                    9335, 2007-34 I.R.B. 380
2007-62, 2007-32 I.R.B. 331                                   2007-50, 2007-31 I.R.B. 244                                    9336, 2007-35 I.R.B. 461
2007-63, 2007-33 I.R.B. 353                                   2007-51, 2007-30 I.R.B. 143                                    9337, 2007-35 I.R.B. 455
2007-64, 2007-34 I.R.B. 385                                   2007-52, 2007-30 I.R.B. 222                                    9338, 2007-35 I.R.B. 463
2007-65, 2007-34 I.R.B. 386                                   2007-53, 2007-30 I.R.B. 233                                    9339, 2007-35 I.R.B. 437
2007-66, 2007-34 I.R.B. 387                                   2007-54, 2007-31 I.R.B. 293                                    9340, 2007-36 I.R.B. 487
2007-67, 2007-35 I.R.B. 467                                   2007-55, 2007-33 I.R.B. 354                                    9341, 2007-35 I.R.B. 449
                                                              2007-56, 2007-34 I.R.B. 388                                    9342, 2007-35 I.R.B. 451

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin
2007–26, dated June 25, 2007.


2007–42 I.R.B.                                                                            ii                                                        October 15, 2007
Treasury Decisions— Continued:
9343, 2007-36 I.R.B. 533
9344, 2007-36 I.R.B. 535
9345, 2007-36 I.R.B. 523
9346, 2007-37 I.R.B. 570
9347, 2007-38 I.R.B. 624
9348, 2007-37 I.R.B. 563
9349, 2007-39 I.R.B. 668
9350, 2007-38 I.R.B. 607
9351, 2007-38 I.R.B. 616
9352, 2007-38 I.R.B. 621
9353, 2007-40 I.R.B. 721
9354, 2007-41 I.R.B. 759
9355, 2007-37 I.R.B. 577
9356, 2007-39 I.R.B. 675
9357, 2007-41 I.R.B. 773
9358, 2007-41 I.R.B. 769




October 15, 2007                 iii   2007–42 I.R.B.
Finding List of Current Actions on                               Proposed Regulations— Continued:                               Revenue Procedures— Continued:
Previously Published Items1                                      REG-243025-96                                                  2002-9
                                                                 Withdrawn by                                                   Modified and amplified by
Bulletins 2007–27 through 2007–42                                REG-142695-05, 2007-39 I.R.B. 681                              Rev. Proc. 2007-48, 2007-29 I.R.B. 110
                                                                                                                                Rev. Proc. 2007-53, 2007-30 I.R.B. 233
Announcements:                                                   REG-117162-99
                                                                 Withdrawn by                                                   2003-43
84-26                                                                                                                           Supplemented by
                                                                 REG-142695-05, 2007-39 I.R.B. 681
Obsoleted by                                                                                                                    Rev. Proc. 2007-62, 2007-41 I.R.B. 786
T.D. 9336, 2007-35 I.R.B. 461                                    REG-157711-02
                                                                 Corrected by                                                   2004-42
84-37                                                                                                                           Superseded by
                                                                 Ann. 2007-74, 2007-35 I.R.B. 483
Obsoleted by                                                                                                                    Notice 2007-59, 2007-30 I.R.B. 135
T.D. 9336, 2007-35 I.R.B. 461                                    REG-119097-05
                                                                 Hearing location change by                                     2004-48
Notices:                                                         Ann. 2007-81, 2007-38 I.R.B. 667                               Supplemented by
                                                                                                                                Rev. Proc. 2007-62, 2007-41 I.R.B. 786
89-110                                                           REG-142695-05
Modified by                                                      Hearing location change by                                     2005-16
REG-142695-05, 2007-39 I.R.B. 681                                Ann. 2007-91, 2007-42 I.R.B. 857                               Modified by
                                                                                                                                Rev. Proc. 2007-44, 2007-28 I.R.B. 54
99-6                                                             REG-148951-05
Obsoleted as of January 1, 2009 by                               Corrected by                                                   2005-27
T.D. 9356, 2007-39 I.R.B. 675                                    Ann. 2007-94, 2007-42 I.R.B. 858                               Superseded by
                                                                                                                                Rev. Proc. 2007-56, 2007-34 I.R.B. 388
2002-45                                                          REG-109367-06
Modified by                                                      Hearing scheduled by                                           2005-66
REG-142695-05, 2007-39 I.R.B. 681                                Ann. 2007-66, 2007-31 I.R.B. 296                               Clarified, modified, and superseded by
                                                                                                                                Rev. Proc. 2007-44, 2007-28 I.R.B. 54
2003-81                                                          REG-128224-06
Modified and supplemented by                                     Hearing location change by                                     2006-25
Notice 2007-71, 2007-35 I.R.B. 472                               Ann. 2007-92, 2007-42 I.R.B. 857                               Superseded by
                                                                                                                                Rev. Proc. 2007-42, 2007-27 I.R.B. 15
2006-1                                                           REG-138707-06
Modified by                                                      Corrected by                                                   2006-27
Notice 2007-70, 2007-40 I.R.B. 735                               Ann. 2007-79, 2007-40 I.R.B. 749                               Modified by
                                                                                                                                Rev. Proc. 2007-49, 2007-30 I.R.B. 141
2006-43                                                          REG-143601-06
Modified by                                                      Corrected by                                                   2006-33
T.D. 9332, 2007-32 I.R.B. 300                                    Ann. 2007-71, 2007-33 I.R.B. 372                               Superseded by
                                                                                                                                Rev. Proc. 2007-51, 2007-30 I.R.B. 143
2006-56                                                          REG-143797-06
Clarified by                                                     Cancellation of hearing by                                     2006-41
Notice 2007-74, 2007-37 I.R.B. 585                               Ann. 2007-85, 2007-39 I.R.B. 719                               Superseded by
                                                                                                                                Rev. Proc. 2007-63, 2007-42 I.R.B. 809
2006-89                                                          REG-103842-07
Modified by                                                      Corrected by                                                   2006-45
Notice 2007-67, 2007-35 I.R.B. 467                               Ann. 2007-77, 2007-38 I.R.B. 662                               Modified and clarified by
                                                                                                                                Rev. Proc. 2007-64, 2007-42 I.R.B. 818
2007-3                                                           Revenue Procedures:
Modified by                                                                                                                     2006-53
Notice 2007-69, 2007-35 I.R.B. 468                               90-27                                                          Modified by
                                                                 Superseded by                                                  Rev. Proc. 2007-60, 2007-39 I.R.B. 679
2007-26
                                                                 Rev. Proc. 2007-52, 2007-30 I.R.B. 222
Modified by                                                                                                                     2006-55
Notice 2007-56, 2007-27 I.R.B. 15                                95-28                                                          Superseded by
                                                                 Superseded by                                                  Rev. Proc. 2007-43, 2007-27 I.R.B. 26
Proposed Regulations:                                            Rev. Proc. 2007-54, 2007-31 I.R.B. 293
                                                                                                                                2007-4
EE-16-79                                                         97-14                                                          Modified by
Withdrawn by                                                     Modified and superseded by                                     Notice 2007-69, 2007-35 I.R.B. 468
REG-142695-05, 2007-39 I.R.B. 681                                Rev. Proc. 2007-47, 2007-29 I.R.B. 108
                                                                                                                                2007-15
EE-130-86                                                        98-48                                                          Superseded by
Withdrawn by                                                     Modified by                                                    Rev. Proc. 2007-50, 2007-31 I.R.B. 244
REG-142695-05, 2007-39 I.R.B. 681                                T.D. 9353, 2007-40 I.R.B. 721



1   A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin 2007–26, dated June 25, 2007.


2007–42 I.R.B.                                                                               iv                                                        October 15, 2007
Revenue Rulings:                        Revenue Rulings— Continued:
                                        2006-36
54-378
                                        Modified by
Clarified by
                                        REG-142695-05, 2007-39 I.R.B. 681
Rev. Rul. 2007-51, 2007-37 I.R.B. 573
                                        2006-57
67-93
                                        Modified by
Obsoleted by
                                        Notice 2007-76, 2007-40 I.R.B. 735
T.D. 9347, 2007-38 I.R.B. 624
                                        2007-54
69-141
                                        Suspended by
Modified by
                                        Rev. Rul. 2007-61, 2007-42 I.R.B. 799
REG-142695-05, 2007-39 I.R.B. 681
                                        2007-59
74-299
                                        Amplified by
Amplified by
                                        Notice 2007-74, 2007-37 I.R.B. 585
Rev. Rul. 2007-48, 2007-30 I.R.B. 129
                                        Treasury Decisions:
75-425
Obsoleted by                            8073
Rev. Rul. 2007-60, 2007-38 I.R.B. 606   Removed by
76-278                                  T.D. 9349, 2007-39 I.R.B. 668
Obsoleted by                            9321
T.D. 9354, 2007-41 I.R.B. 759           Corrected by
76-288                                  Ann. 2007-68, 2007-32 I.R.B. 348
                                        Ann. 2007-78, 2007-38 I.R.B. 663
Obsoleted by
T.D. 9354, 2007-41 I.R.B. 759           9330
                                        Corrected by
76-450
                                        Ann. 2007-80, 2007-38 I.R.B. 667
Obsoleted by
T.D. 9347, 2007-38 I.R.B. 624           9332
                                        Corrected by
78-257
                                        Ann. 2007-83, 2007-40 I.R.B. 752
Obsoleted by
                                        Ann. 2007-84, 2007-41 I.R.B. 797
T.D. 9347, 2007-38 I.R.B. 624
                                        9334
78-369
                                        Corrected by
Revoked by
                                        Ann. 2007-93, 2007-42 I.R.B. 858
Rev. Rul. 2007-53, 2007-37 I.R.B. 577

89-96
Amplified by
Rev. Rul. 2007-47, 2007-30 I.R.B. 127

92-17
Modified by
Rev. Rul. 2007-42, 2007-28 I.R.B. 44

94-62
Supplemented by
Rev. Rul. 2007-58, 2007-37 I.R.B. 562

2001-48
Modified by
T.D. 9332, 2007-32 I.R.B. 300

2002-41
Modified by
REG-142695-05, 2007-39 I.R.B. 681

2003-102
Modified by
REG-142695-05, 2007-39 I.R.B. 681

2005-24
Modified by
REG-142695-05, 2007-39 I.R.B. 681



October 15, 2007                                               v                2007–42 I.R.B.
                                  INTERNAL REVENUE BULLETIN
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Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
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                  INTERNAL REVENUE BULLETINS ON CD-ROM
   Internal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.


                                                 HOW TO ORDER
   Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.


            WE WELCOME COMMENTS ABOUT THE INTERNAL
                       REVENUE BULLETIN
  If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
we would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224




   Internal Revenue Service
   Washington, DC 20224
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