Low-income housing credit; satisfactory bond; “bond factor” amounts for the period January through March 2006. This ruling provides the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period January through March 2006.

Proposed regulations under section 7216 of the Code update the rules regarding the disclosure and use of tax return information by tax return preparers. The regulations announce new and additional rules for taxpayers to consent electronically to the disclosure or use of their tax return information by tax return preparers. The proposed rules provide guidelines for tax return preparers using or disclosing information obtained in the process of preparing income tax returns. A public hearing is scheduled for April 4, 2006.

Section 1(h) of the Code provides that certain dividends paid to an individual shareholder from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. This notice provides guidance for persons required to make returns and provide statements under section 6042 regarding distributions with respect to securities issued by a foreign corporation, and for individuals receiving such statements. This notice provides generally that the simplified procedures and other rules contained in Notice 2003-79 and Notice 2004-71 are extended to apply for 2005 information reporting of distributions with respect to securities issued by foreign corporations and for future years.

This notice addresses the application of section 409A of the Code to outstanding stock rights and specifically the determination, for purposes of the exclusion from coverage under section 409A for certain stock rights, of whether a stock right has an exercise price equal to or greater than the fair market value of the underlying stock at the date of grant. For stock rights issued before January 1, 2005, the notice provides that the determination will be made in accordance with the rules governing incentive stock options. For stock rights issued on or after January 1, 2005, but before the effective date of final regulations, the notice reiterates the standard set forth in Notice 2005-1 that the determination of fair market value may be made using any reasonable valuation method.

Simplified service cost and simplified production method change procedures. This document provides procedures under which a taxpayer may use either the advance consent procedures of Rev. Proc. 97-27 or the automatic consent procedures of Rev. Proc. 2002-9 to request a change in method of accounting to comply with section 1.263A-1T or 1.263A-2T for the taxpayer’s first taxable year ending on or after August 2, 2005. Rev. Procs. 97-27 and 2002-9 modified.

This document provides procedures under which certain taxpayers may obtain automatic consent for a taxable year ending on or after December 31, 2005, and for certain earlier taxable years, to change to a method of accounting provided in regulations sections 1.263(a)-4, 1.263(a)-5, or 1.167(a)-3(b). Rev. Procs. 97-27 and 2002-9 modified and amplified. Rev. Procs. 2004-23 and 2005-9 superseded for certain taxable years.

Reporting requirements; fair market value of conversion; Roth IRAs. This procedure provides safe harbor methods for determining the fair market value of an annuity contract that has not yet been annuitized for purposes of determining the amount includible in gross income as a result of a conversion of a traditional IRA to a Roth IRA, as described in Q&A-14 of section 1.408A-4T.

American Institute of Marine Studies, Inc., of Lauderdale by the Sea, FL, and Hampton Roads Community Foundation of Mechanicsville, VA, no longer qualify as organizations to which contributions are deductible under section 170 of the Code.

Final regulations under section 3121 of the Code provide guidance for payments made on account of sickness or accident disability under a workers’ compensation law for purposes of the Federal Insurance Contributions Act (FICA).

This document contains a notice of public hearing on proposed regulations (REG-138647-04) under section 4980G of the Code that provide guidance on employer comparable contributions to Health Savings Accounts (HSAs). The hearing is scheduled for February 23, 2006.

Proposed regulations under section 7216 of the Code update the rules regarding the disclosure and use of tax return information by tax return preparers. The regulations announce new and additional rules for taxpayers to consent electronically to the disclosure or use of their tax return information by tax return preparers. The proposed rules provide guidelines for tax return preparers using or disclosing information obtained in the process of preparing income tax returns. A public hearing is scheduled for April 4, 2006.

Simplified service cost and simplified production method change procedures. This document provides procedures under which a taxpayer may use either the advance consent procedures of Rev. Proc. 97-27 or the automatic consent procedures of Rev. Proc. 2002-9 to request a change in method of accounting to comply with section 1.263A-1T or 1.263A-2T for the taxpayer’s first taxable year ending on or after August 2, 2005. Rev. Procs. 97-27 and 2002-9 modified.

In Rev. Rul. 90-60, 1990-2 C.B. 3, the Internal Revenue Service provided guidance to taxpayers concerning the general methodology used by the Treasury Department in computing the bond factor amounts used in calculating the amount of bond considered satisfactory by the Secretary under § 42(j)(6) of the Internal Revenue Code. It further announced that the Secretary would publish in the Internal Revenue Bulletin a table of bond factor amounts for dispositions occurring during each calendar month.

Rev. Proc. 99-11, 1999-1 C.B. 275, established a collateral program as an alternative to providing a surety bond for taxpayers to avoid or defer recapture of the low-income housing tax credits under § 42(j)(6). Under this program, taxpayers may establish a Treasury Direct Account and pledge certain United States Treasury securities to the Internal Revenue Service as security.

This revenue ruling provides in Table 1 the bond factor amounts for calculating the amount of bond considered satisfactory under § 42(j)(6) or the amount of United States Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99-11 for dispositions of qualified low-income buildings or interests therein during the period January through March 2006.

For a list of bond factor amounts applicable to dispositions occurring during other calendar years, see: Rev. Rul. 98-3, 1998-1 C.B. 248; Rev. Rul. 2001-2, 2001-1 C.B. 255; Rev. Rul. 2001-53, 2001-2 C.B. 488; Rev. Rul. 2002-72, 2002-2 C.B. 759; Rev. Rul. 2003-117, 2003-2 C.B. 1051; Rev. Rul. 2004-100, 2004-2 C.B. 718; and Rev. Rul. 2005-67, 2005-43 I.R.B. 771.

The principal author of this revenue ruling is David McDonnell of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Mr. McDonnell at (202) 622-3040 (not a toll-free call).

Internal Revenue Service (IRS), Treasury.

Final regulations.

This document contains final regulations providing guidance regarding the treatment of payments made on account of sickness or accident disability under a workers’ compensation law for purposes of the Federal Insurance Contributions Act (FICA).

Effective Date: These regulations are effective December 15, 2005.

Applicability Date: These regulations apply to payments on account of sickness or accident disability payments made on or after December 15, 2005.

David Ford (202) 622-6040 (not a toll-free number).

Accordingly, 26 CFR parts 31 and 32 are amended as follows:

The principal author of these regulations is David Ford of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt/Government Entities). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27, 117 Stat. 752) (the “2003 Act”) was enacted on May 28, 2003. Subject to certain limitations, the 2003 Act generally provides that a dividend paid to an individual shareholder from either a domestic corporation or a “qualified foreign corporation” is subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States which the Secretary determines is satisfactory for purposes of this provision and which includes an exchange of information program. In addition, a foreign corporation not otherwise treated as a qualified foreign corporation is so treated with respect to any dividend it pays if the stock with respect to which it pays such dividend is readily tradable on an established securities market in the United States. The 2003 Act excluded from the definition of qualified foreign corporation any foreign corporation which for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, was a foreign personal holding company (as defined in section 552), a foreign investment company (as defined in section 1246(b)), or a passive foreign investment company (as defined in section 1297). Effective for taxable years of foreign corporations beginning after December 31, 2004, the American Jobs Creation Act (P.L.108-357) (the “AJCA”) repealed the rules applicable to foreign personal holding companies and foreign investment companies from the Code. The AJCA made conforming amendments to section 1(h)(11)(C)(iii).

This notice provides guidance for persons required to make returns and provide statements under section 6042 of the Internal Revenue Code with respect to securities issued by a foreign corporation, and for individuals receiving such statements. This notice provides generally that the simplified procedures regarding information reporting of distributions with respect to securities issued by foreign corporations and other rules contained in Notice 2003-79 and Notice 2004-71 for tax years 2003 and 2004, respectively, are extended to apply for 2005 and future years.

In November of 2003, the Treasury Department and the IRS issued Notice 2003-79, 2003-2 C.B. 1206, which provided guidance for persons required to make returns and provide statements under section 6042 of the Internal Revenue Code (e.g., Form 1099-DIV) regarding distributions made in 2003 with respect to securities issued by a foreign corporation, and for individuals receiving such statements. Notice 2003-79 identified a series of separate determinations that must be made in order to determine whether a distribution with respect to a security issued by a foreign corporation is eligible for the reduced rates of tax under the 2003 Act. Notice 2003-79 provided simplified procedures to be used for 2003 information reporting of a distribution with respect to such a security. Notice 2003-79 also provided guidance regarding the determination as to whether a security (or an American depositary receipt in respect of such security) issued by a foreign corporation other than ordinary or common stock (such as preferred stock) is considered readily tradable on an established securities market in the United States for purposes of the 2003 Act.

In November of 2004, Treasury and the IRS issued Notice 2004-71, 2004-2 C.B. 793, which provided guidance for persons required to make returns and provide statements under section 6042 of the Internal Revenue Code regarding distributions made in 2004 with respect to securities issued by a foreign corporation, and for individuals receiving such statements. Notice 2004-71 generally provided that the simplified procedures and other rules contained in Notice 2003-79 were extended to apply for 2004 information reporting of distributions with respect to securities issued by foreign corporations.

This notice is effective for taxable years beginning on or after January 1, 2005.

Treasury and the IRS continue to invite interested persons to comment on the information reporting procedures contained in this notice and the certification procedures outlined in Section 5 of Notice 2003-79. Written comments may be submitted to CC:PA:LPD:PR (Notice 2006-3), room 5207, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 am and 5 pm to: CC:PA:LPD:PR (Notice 2006-3), Courier’s desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224. Alternatively, taxpayers may submit comments electronically via the following e-mail address: Notice.Comments@irscounsel.treas.gov. Please include “Notice 2006-3” in the subject line of any electronic communications.

The information collection referenced in this notice has been previously reviewed and approved by the Office of Management and Budget as part of the promulgation of Form 1099-DIV. See OMB Control Number 1545-0110. This notice merely provides additional guidance regarding the proper filing of such returns and furnishing of such statements.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. § 6103.

The principal author of this notice is Karen A. Rennie of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact David Lundy at (202) 622-3880 (not a toll-free call).

Section 409A was added to the Internal Revenue Code as part of the American Jobs Creation Act of 2004, Pub. Law No. 108-357, 118 Stat. 1418. Section 409A generally provides that all amounts deferred under a nonqualified deferred compensation plan for all taxable years are currently includible in gross income to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. The IRS issued Notice 2005-1, 2005-2 I.R.B. 274, on December 20, 2004 (published as modified on January 6, 2005) and issued proposed regulations (REG-158080-04, 2005-43 I.R.B. 786) under section 409A on September 29, 2005 (70 Fed. Reg. 57930 (Oct. 4, 2005)). The proposed regulations are proposed to be effective on January 1, 2007, and do not limit the application of the guidance provided in Notice 2005-1.

The principal author of this guidance is Stephen Tackney of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the Treasury Department and the IRS participated in its development. For further information regarding this notice, contact Stephen Tackney at (202) 927-9639 (not a toll-free call).

This revenue procedure provides procedures by which a taxpayer changing its method of accounting to comply with § 1.263A-1T or 1.263A-2T of the Income Tax Regulations as set forth in T.D. 9217, 2005-37 I.R.B. 498 (70 FR 44467) for its first taxable year ending on or after August 2, 2005, may request the consent of the Commissioner utilizing either the advance consent procedures of Rev. Proc. 97-27, 1997-1 C.B. 680 (as modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, and amplified and clarified by Rev. Proc. 2002-54, 2002-2 C.B. 432) or the automatic consent procedures of Rev. Proc. 2002-9, 2002-1 C.B. 327 (as modified and clarified by Announcement 2002-17, 2002-1 C.B. 561, modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, and amplified, clarified and modified by Rev. Proc. 2002-54, 2002-2 C.B. 432).

.01 Under §§ 446(e) and 1.446-1(e), a taxpayer generally must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. To obtain the Commissioner’s consent to a change in method, § 1.446-1(e)(3)(i) generally requires a taxpayer to file Form 3115, Application for Change in Accounting Method, during the taxable year in which the taxpayer desires to make the proposed change. Section 1.446-1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures that provide the terms and conditions necessary for a taxpayer to obtain consent to change a method of accounting. The terms and conditions the Commissioner may prescribe include whether the change is to be made with a § 481(a) adjustment, and if so, the § 481(a) adjustment period, or on a cut-off basis.

.02 Section 481(c) and §§ 1.446-1(e)(3)(ii) and 1.481-4 provide that the adjustment required by § 481(a) may be taken into account in determining taxable income in the manner and subject to the conditions agreed to by the Commissioner and the taxpayer.

.03 This revenue procedure applies only for a taxpayer’s first taxable year ending on or after August 2, 2005, for a change in method of accounting to comply with § 1.263A-1T or 1.263A-2T. A change in method of accounting under this revenue procedure requires a § 481(a) adjustment, and the § 481(a) adjustment period is two taxable years for a net positive adjustment. It is expected that this two-year adjustment period for a net positive § 481(a) adjustment will apply to changes in methods of accounting made in future years to comply with the rules in §§ 1.263A-1T and 1.263A-2T, and the successor final regulations.

.04 Rev. Proc. 97-27 provides the general procedures under §§ 446(e) and 1.446-1(e) for obtaining the consent of the Commissioner to change a method of accounting for federal income tax purposes. Except as specifically provided in section 4.02 of Rev. Proc. 97-27 or other published guidance, Rev. Proc. 97-27 applies to all taxpayers requesting the Commissioner’s consent to change a method of accounting for federal income tax purposes. See Rev. Proc. 97-27, sections 1.01 and 4.01.

.05 Section 4.02(1) of Rev. Proc. 97-27 provides that Rev. Proc. 97-27 does not apply if the change in method of accounting is required to be made pursuant to a published automatic change procedure.

.06 Rev. Proc. 2002-9 provides procedures under §§ 446(e) and 1.446-1(e) for obtaining the automatic consent of the Commissioner to change certain methods of accounting for federal income tax purposes. Specifically, Rev. Proc. 2002-9 applies to a taxpayer requesting the Commissioner’s consent to change to a method of accounting described in the APPENDIX of such revenue procedure. Rev. Proc. 2002-9 is the exclusive procedure for a taxpayer within its scope to obtain the Commissioner’s consent. See Rev. Proc. 2002-9, sections 1 and 4.01.

.07 T.D. 9217 contains final and temporary regulations relating to the capitalization of costs under the simplified service cost method provided by § 1.263A-1(h) and the simplified production method provided by § 1.263A-2(b). Specifically, the regulations under § 1.263A-1T and § 1.263A-2T clarify what property qualifies as self-constructed assets produced on a routine and repetitive basis for purposes of the simplified service cost method or the simplified production method, respectively.

.08 Section 1.263A-1T(k)(1) provides that a change in a taxpayer’s treatment of mixed service costs to comply with § 1.263A-1T is a change in method of accounting to which the provisions of §§ 446 and 481 and the regulations thereunder apply. Section 1.263A-1T(k)(1) further provides that for a taxpayer’s first taxable year ending on or after August 2, 2005, the taxpayer is granted the consent of the Commissioner to change its method of accounting to comply with § 1.263A-1T, provided the taxpayer follows the administrative procedures issued under § 1.446-1(e)(3)(ii), as modified by § 1.263A-1T(k)(2) through (4), for obtaining the Commissioner’s automatic consent to a change in accounting method.

.09 Section 1.263A-2T(e)(1) provides that a change in a taxpayer’s treatment of additional § 263A costs to comply with § 1.263A-2T is a change in method of accounting to which the provisions of §§ 446 and 481 and the regulations thereunder apply. Section 1.263A-2T(e)(1) further provides that for a taxpayer’s first taxable year ending on or after August 2, 2005, the taxpayer is granted the consent of the Commissioner to change its method of accounting to comply with § 1.263A-2T, provided the taxpayer follows the administrative procedures issued under § 1.446-1(e)(3)(ii), as modified by § 1.263A-2T(e)(2) through (4), for obtaining the Commissioner’s automatic consent to a change in accounting method.

.10 Pursuant to the foregoing provisions, a taxpayer changing its method of accounting to comply with § 1.263A-1T or 1.263A-2T as set forth in T.D. 9217 for its first taxable year ending on or after August 2, 2005, is required to use the automatic consent procedures of Rev. Proc. 2002-9 (as modified by § 1.263A-1T(k) or 1.263A-2T(e), whichever is applicable) to obtain the consent of the Commissioner to change its method of accounting. Some taxpayers contemplating such accounting method changes are uncertain whether their proposed methods of accounting will comply with the regulations under § 263A, and have requested that the Internal Revenue Service allow for advance review of their requested accounting methods.

.11 The Service has determined that it is in the best interest of sound tax administration to allow taxpayers changing their methods of accounting to comply with § 1.263A-1T or 1.263A-2T for their first taxable years ending on or after August 2, 2005, to utilize either the advance consent procedures of Rev. Proc. 97-27 or the automatic consent procedures of Rev. Proc. 2002-9. Therefore, when §§ 1.263A-1T and 1.263A-2T are issued as final regulations, the final regulations will allow taxpayers to use the advance consent procedures for their first taxable year ending on or after August 2, 2005. This revenue procedure is being issued in advance of the final regulations and the rules provided herein are consistent with the rules that will be provided in the final regulations.

This revenue procedure applies to any taxpayer seeking to change its method of accounting for mixed service costs to comply with § 1.263A-1T for its first taxable year ending on or after August 2, 2005, and to any taxpayer seeking to change its method of accounting for additional § 263A costs to comply with § 1.263A-2T for its first taxable year ending on or after August 2, 2005.

.01 The provisions of section 4.02(1) of Rev. Proc. 97-27 and section 4.01 of Rev. Proc. 2002-9 that preclude a taxpayer from requesting the Commissioner’s advance consent to change a method of accounting that is required to be made pursuant to a published automatic change procedure shall not apply to changes in method of accounting to comply with § 1.263A-1T or 1.263A-2T for a taxpayer’s first taxable year ending on or after August 2, 2005. Accordingly, a taxpayer within the scope of this revenue procedure may utilize either the advance consent procedures of Rev. Proc. 97-27 or the automatic consent procedures of Rev. Proc. 2002-9 to obtain the consent of the Commissioner to make such changes.

.02 The following provisions shall apply to a taxpayer within the scope of this revenue procedure that requests the consent of the Commissioner under Rev. Proc. 97-27 to change its method of accounting to comply with § 1.263A-1T or 1.263A-2T for its first taxable year ending on or after August 2, 2005:

(1) Notwithstanding the provisions of § 1.446-1(e)(3)(i) and section 5.01(1)(a) of Rev. Proc. 97-27, a taxpayer may submit a Form 3115 on or before January 31, 2006, or the date that is 30 days after the end of the taxpayer’s taxable year for which the change is requested, whichever is later;

(2) The provisions of section 4.02 of Rev. Proc. 97-27 that otherwise would prevent certain taxpayers under examination, before appeals or before a federal court from requesting the Commissioner’s advance consent to change a method of accounting shall not apply;

(3) A taxpayer that changes its method of accounting for mixed service costs to comply with § 1.263A-1T will not receive audit protection under section 9 of Rev. Proc. 97-27 if its method of accounting for mixed service costs is an issue under consideration (as defined in section 3.08 of Rev. Proc. 97-27) at the time the Form 3115 is filed with the National Office;

(4) A taxpayer that changes its method of accounting for additional § 263A costs to comply with § 1.263A-2T will not receive audit protection under section 9 of Rev. Proc. 97-27 if its method of accounting for additional § 263A costs is an issue under consideration (as defined in section 3.08 of Rev. Proc. 97-27) at the time the Form 3115 is filed with the National Office; and

(5) The change in method of accounting requires a § 481(a) adjustment. The § 481(a) adjustment period is two taxable years for a net positive adjustment.

Rev. Proc. 97-27 and Rev. Proc. 2002-9 are modified.

The principal author of this revenue procedure is Grant D. Anderson of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Scott Rabinowitz at (202) 622-4970 (not a toll-free call).

This revenue procedure provides the exclusive administrative procedures under which a taxpayer described in section 3 of this revenue procedure may obtain automatic consent for a taxable year ending on or after December 31, 2005, and for any earlier taxable year that is after the taxpayer’s second taxable year ending on or after December 31, 2003, to change to a method of accounting provided in §§ 1.263(a)-4, 1.263(a)-5, or 1.167(a)-3(b) of the Income Tax Regulations (the “final regulations”).

.01 On January 5, 2004, the Internal Revenue Service and Treasury Department published final regulations in the Federal Register (T.D. 9107, 2004-1 C.B. 447 [69 FR 436]). Section 1.263(a)-4 prescribes the extent to which taxpayers must capitalize amounts paid or incurred to acquire or create (or to facilitate the acquisition or creation of) intangibles. Section 1.263(a)-5 prescribes the extent to which taxpayers must capitalize amounts paid or incurred to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Section 1.167(a)-3(b) provides a safe harbor useful life for certain intangible assets. The final regulations under §§ 1.263(a)-4 and 1.263(a)-5 are effective for amounts paid or incurred on or after December 31, 2003. The final regulations under § 1.167(a)-3(b) are effective for intangible assets created on or after December 31, 2003.

.02 Sections 1.263(a)-4(p) and 1.263(a)-5(n) provide that a taxpayer seeking to change to a method of accounting provided in the final regulations must secure the consent of the Commissioner in accordance with the requirements of § 1.446-1(e). In addition, §§ 1.263(a)-4(p) and 1.263(a)-5(n) provide that, for the taxpayer’s first taxable year ending on or after December 31, 2003, the taxpayer is granted the consent of the Commissioner to change to a method of accounting provided in the final regulations, provided the taxpayer follows the administrative procedures issued under § 1.446-1(e)(3)(ii) for obtaining the Commissioner’s automatic consent to a change in accounting method (for further guidance, for example, see Rev. Proc. 2002-9, 2002-1 C.B. 327, as modified and clarified by Announcement 2002-17, 2002-1 C.B. 561, modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, and amplified, clarified, and modified by Rev. Proc. 2002-54, 2002-2 C.B. 432). The final regulations further provide that any applicable § 481(a) adjustment for a change to a method of accounting provided in the final regulations for a taxpayer’s first taxable year ending on or after December 31, 2003, is determined by taking into account only amounts paid or incurred in taxable years ending on or after January 24, 2002. The preamble to the final regulations states that the Service may issue additional guidance for utilizing the automatic consent procedures to change to a method of accounting provided in the regulations.

.03 Section 1.446-1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms, and conditions deemed necessary to permit a taxpayer to obtain consent to change a method of accounting.

.04 Rev. Proc. 2002-9 provides procedures by which a taxpayer may obtain automatic consent to change to a method of accounting described in the Appendix of Rev. Proc. 2002-9.

.05 Rev. Rul. 90-38, 1990-1 C.B. 57, provides that, if a taxpayer uses an erroneous method of accounting for two or more consecutive taxable years, the taxpayer has adopted a method of accounting. The ruling further provides that a taxpayer may not, without the Commissioner’s consent, retroactively change from an erroneous to a permissible method of accounting by filing an amended return.

.06 Rev. Proc. 2004-23, 2004-1 C.B. 785, and Rev. Proc. 2005-9, 2005-2 I.R.B. 303, as modified by Rev. Proc. 2005-17, 2005-13 I.R.B. 797, provide the exclusive administrative procedures under which a taxpayer may obtain automatic consent for the taxpayer’s first and second taxable years, respectively, ending on or after December 31, 2003, to change to a method of accounting provided in the final regulations and, if desired, to change to a method of utilizing the 3¹/₂ month rule authorized by § 1.461-4(d)(6)(ii) or the recurring item exception authorized by § 1.461-5 in conjunction with a change to a method of accounting provided in the final regulations. Rev. Proc. 2004-23 and Rev. Proc. 2005-9 provide, as a term and condition of obtaining the Commissioner’s consent, that any applicable § 481(a) adjustment take into account only amounts paid or incurred in taxable years ending on or after January 24, 2002.

.07 This revenue procedure constitutes the exclusive guidance for utilizing the automatic consent procedures to change to a method of accounting provided in the final regulations for taxable years subsequent to those covered by Rev. Proc. 2004-23 and Rev. Proc. 2005-9 — specifically, a taxable year ending on or after December 31, 2005, and any earlier taxable year that is after the taxpayer’s second taxable year ending on or after December 31, 2003. As in Rev. Proc. 2004-23 and Rev. Proc. 2005-9, a term and condition of obtaining the Commissioner’s consent is that any applicable § 481(a) adjustment take into account only amounts paid or incurred in taxable years ending on or after January 24, 2002. For any change in method of accounting to which this revenue procedure applies, a taxpayer may not file an application for a change in method of accounting under Rev. Proc. 97-27, 1997-1 C.B. 680, as modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, as amplified and clarified by Rev. Proc. 2002-54, 2002-2 C.B. 432. See section 4.02(1) of Rev. Proc. 97-27.

This revenue procedure applies to a taxpayer that seeks, for a taxable year ending on or after December 31, 2005, and for any earlier taxable year that is after the taxpayer’s second taxable year ending on or after December 31, 2003, to change to a method of accounting provided in the final regulations.

.01 In general. A taxpayer within the scope of this revenue procedure and Rev. Proc. 2002-9, as modified by this revenue procedure, is, in accordance with section 6.01 of Rev. Proc. 2002-9, granted the consent of the Commissioner to change to a method of accounting provided in the final regulations provided the taxpayer follows the automatic change in method of accounting provisions in Rev. Proc. 2002-9, with the following modifications:

(1) The taxpayer must prepare and file Form 3115, Application for Change in Accounting Method, in accordance with section 4.02 of this revenue procedure;

(2) The taxpayer must compute any applicable § 481(a) adjustment and take such adjustment into account in accordance with section 5 of this revenue procedure; and

(3) A taxpayer described in section 4.03(2) of this revenue procedure must file one or more amended federal income tax returns (amended returns) in accordance with section 4.03(3), (4), or (5), as applicable, and section 4.03(6), if applicable, of this revenue procedure.

.02 Form 3115. In preparing the Form 3115 referred to in section 4.01 of this revenue procedure, a taxpayer must comply with the following procedures:

(1) The taxpayer may use one Form 3115 for all changes in method of accounting made pursuant to the final regulations;

(2) The taxpayer is required to complete only the following information on Form 3115:

(a) The identification section of Page 1 (above Part I);

(b) The signature section at the bottom of Page 1;

(c) Part I, Line 1(a). The designated automatic accounting method change number for changes in method of accounting made pursuant to this revenue procedure is No. “78”;

(d) Part II, all lines except lines 11, 13, 14, 15, and 17 (for purposes of completing line 12, see section 5.02(2) of this revenue procedure if the taxpayer is making more than one change in method of accounting);

(e) Part IV, in accordance with section 5 of this revenue procedure; and

(f) Schedule E, if applicable;

(3) In addition to the other information required on line 12 of Form 3115, the taxpayer must include the citation to the paragraph of the final regulations that provides for the proposed method of accounting for each item (e.g., § 1.263(a)-4(d)(6) or § 1.263(a)-4(f));

(4) In addition to the other information required on Schedule E of Form 3115 (if applicable), the taxpayer must include a statement as to whether the useful life is the safe harbor useful life prescribed by § 1.167(a)-3(b)(1) or § 1.167(a)-3(b)(1)(iv) and, if the useful life is the safe harbor useful life prescribed by § 1.167(a)-3(b)(1), a statement explaining why the intangible asset does not have a useful life the length of which can be estimated with reasonable accuracy; and

(5) A taxpayer that must file one or more amended returns as provided in section 4.03 of this revenue procedure to be eligible to use the automatic consent procedures of this revenue procedure must attach to the Form 3115 a written statement signed under penalties of perjury confirming that the taxpayer has filed the amended returns pursuant to section 4.03 of this revenue procedure.

.03 Unauthorized change in a preceding year.

(1) A taxpayer may change a method of accounting only with the consent of the Commissioner. § 1.446-1(e)(2). A taxpayer that changes a method of accounting without the consent of the Commissioner has made an unauthorized change in method of accounting. If a taxpayer makes an unauthorized change in method of accounting, the Service may adjust the taxpayer’s taxable income during the examination of the taxpayer’s income tax return for the taxable year the unauthorized change was made and for all affected subsequent taxable years. In the notice of proposed rulemaking that preceded the publication of the final regulations (REG-125638-01, 2003-1 C.B. 373 [67 FR 77701]), the Service and Treasury Department advised taxpayers not to seek to change a method of accounting in reliance on rules contained in the notice of proposed rulemaking until the rules were published as final regulations. The Service and Treasury Department are aware that some taxpayers have made an unauthorized change in method of accounting for an item the treatment of which is provided for in the final regulations. The Service and Treasury Department have determined that it is not appropriate for taxpayers that have made an unauthorized change in method of accounting for an item the treatment of which is provided for in the final regulations to obtain automatic consent under this revenue procedure without correcting such unauthorized change. Therefore, a taxpayer that made an unauthorized change in method of accounting for an item the treatment of which is provided for in the final regulations is eligible to use the automatic consent procedures provided in this revenue procedure only if the taxpayer amends prior federal income tax returns to correct the unauthorized change in method of accounting. However, as a matter of administrative grace, the Service and Treasury Department have limited the application of this section 4.03 to certain taxpayers described in section 4.03(2) of this revenue procedure.

(2) This section 4.03 applies to a taxpayer that —

(a) in a taxable year for which the due date of the federal income tax return (including extensions, regardless of whether such extension is automatic and whether or not actually requested) is after January 24, 2002 —

(i) made any unauthorized change in method of accounting for an item the treatment of which is provided for in the final regulations; or

(ii) impermissibly changed the treatment of an item that is provided for in the final regulations for the taxable year preceding the taxable year for which the taxpayer is requesting to change to a method of accounting provided in the final regulations under this revenue procedure and used such treatment on only one federal income tax return; or

(b) made an unauthorized change in method of accounting to a method of accounting that is provided in the final regulations in a taxable year for which the due date of the federal income tax return (including extensions, regardless of whether such extension is automatic and whether or not actually requested) is on or before January 24, 2002, if the taxpayer wishes to use the automatic consent procedures to obtain the Commissioner’s consent to change to the same method of accounting to which the taxpayer previously made the unauthorized change.

(3) A taxpayer described in section 4.03(2)(a)(i) of this revenue procedure is eligible to use the automatic consent procedures to obtain the Commissioner’s consent to change to a method of accounting provided in the final regulations only if the taxpayer changes back to its prior method of accounting (i.e., the method of accounting used for an item prior to making the unauthorized change for the item) for each item referred to in section 4.03(2)(a)(i) of this revenue procedure by amending its federal income tax returns for all of the preceding taxable years in which the unauthorized method (or methods) was used. See section 4.03(6) of this revenue procedure if the period of limitations has expired for the taxable year in which the taxpayer made the unauthorized change in method of accounting or for any subsequent taxable year.

(4) A taxpayer described in section 4.03(2)(a)(ii) of this revenue procedure is eligible to use the automatic consent procedures to obtain the Commissioner’s consent to change to a method of accounting provided in the final regulations only if the taxpayer amends its federal income tax return for the preceding taxable year in which the unauthorized treatment was used to change the treatment of each item referred to in section 4.03(2)(a)(ii) of this revenue procedure to a treatment consistent with the taxpayer’s historic method of accounting (i.e., the method of accounting used for an item prior to changing the treatment of the item).

(5) A taxpayer described in section 4.03(2)(b) of this revenue procedure is eligible to use the automatic consent procedures to obtain the Commissioner’s consent to change to the same method of accounting provided in the final regulations to which the taxpayer previously made the unauthorized change only if the taxpayer changes back to its prior method of accounting for the item (i.e., the method of accounting used for the item prior to making the unauthorized change for the item) by amending its federal income tax returns for all of the preceding taxable years in which the unauthorized method was used. See section 4.03(6) of this revenue procedure if the period of limitations has expired for the taxable year in which the taxpayer made the unauthorized change in method of accounting or for any subsequent taxable year.

(6) For purposes of section 4.03(3) or (5) of this revenue procedure, if the period of limitations has expired for the taxable year in which a taxpayer made the unauthorized change in method of accounting or for any subsequent taxable year, the taxpayer is eligible to use the automatic consent procedures to change to a method of accounting provided in the final regulations only if the taxpayer changes back to the prior method of accounting for the earliest taxable year for which the statute of limitation has not expired and that does not precede a taxable year for which the statute of limitations has expired (retroactive year of change) by amending its federal income tax returns for the retroactive year of change and all subsequent taxable years in which the unauthorized method (or methods) was used. The taxpayer must take the entire amount of the § 481(a) adjustment attributable to the change back to the prior method of accounting into account in the retroactive year of change. The taxpayer must identify that § 481(a) adjustment on its federal income tax return for the retroactive year of change as resulting from a retroactive change in method of accounting under section 4.03(6) of Rev. Proc. 2006-12.

Example. X, a calendar year taxpayer, made an unauthorized change to a method of accounting provided in the final regulations in 2001. X continued to use its new method in all subsequent taxable years. In February 2009, X decides to properly change to that method under this revenue procedure for 2008. At that time, the statute of limitations has expired for X’s 2001, 2002, and 2004 federal income tax returns. However, the statute of limitations on X’s 2003 tax federal income tax return has not expired. Because 2005 is the earliest taxable year that does not precede a taxable year for which the statute of limitations has expired, pursuant to section 4.03(6) of this revenue procedure, 2005 is the retroactive year of change. X must file amended federal income tax returns for taxable years 2005, 2006 and 2007 to change back to the method of accounting X used before its unauthorized change in method of accounting in 2001. Further, X must take the entire amount of the section 481(a) adjustment attributable to the change in method of accounting back to X’s prior method into account in 2005.

(7) A taxpayer filing one or more amended returns pursuant to section 4.03 of this revenue procedure must file the amended returns on or before the date the taxpayer files a Form 3115 under this revenue procedure (including the copy of Form 3115 filed with the national office). For this purpose, a taxpayer under examination will be considered to have filed an amended return by providing the amended return to the examining agent.

(8) In accordance with § 1.446-1(e)(3)(ii) and Rev. Rul. 90-38, consent is hereby granted for a taxpayer changing to a method of accounting provided in the final regulations under this revenue procedure that is described in section 4.03(2)(a)(i) or (b) of this revenue procedure to file the amended returns referred to in section 4.03(3) or (5), and section 4.03(6) of this revenue procedure, as applicable, to retroactively change its method of accounting. This consent is granted for the taxable year for which the taxpayer made the unauthorized change or, if applicable, the retroactive year of change pursuant to section 4.03(6) of this revenue procedure, and for all subsequent taxable years affected by the unauthorized change.

.04 Prior change. For purposes of this revenue procedure, the 5-year prior change scope limitation contained in section 4.02(6) of Rev. Proc. 2002-9 is modified. In applying the 5-year prior change scope limitation contained in section 4.02(6) of Rev. Proc. 2002-9, the taxpayer does not take into account a change in method of accounting provided in the final regulations requested or made for a taxable year ending on or before December 31, 2005. For example, a taxpayer that applied for a change in method of accounting provided in the final regulations for its taxable year ended December 31, 2002, and withdrew its request or had its request denied is not prohibited under section 4.02(6) of Rev. Proc. 2002-9 from obtaining automatic consent to change to a method of accounting provided in the final regulations under this revenue procedure for its taxable year ended December 31, 2005.

.01 In general. A taxpayer changing to a method of accounting provided in the final regulations under this revenue procedure is required to take into account any applicable § 481(a) adjustment as provided in §§ 1.263(a)-4(p)(3) and 1.263(a)-5(n)(3). The § 481(a) adjustment is computed as of the first day of the taxpayer’s taxable year of change and, as provided in the final regulations, takes into account only amounts paid or incurred in taxable years ending on or after January 24, 2002. Thus, the § 481(a) adjustment is computed by taking into account only amounts paid or incurred in the period beginning with the first day of the taxable year that includes January 24, 2002, and ending with the last day of the last taxable year prior to the year of change. The amount of the § 481(a) adjustment must include (i) as a reduction of taxable income, any amounts paid or incurred in the period beginning with the first day of the taxable year that includes January 24, 2002, and ending with the last day of the taxable year prior to the taxable year of change, that were capitalized under the taxpayer’s present method of accounting and are currently deductible under the taxpayer’s proposed method of accounting, reduced by the amount of such capitalized costs recovered through amortization or depreciation under the taxpayer’s present method of accounting, (ii) as an increase to taxable income, any amounts paid or incurred in the period beginning with the first day of the taxable year that includes January 24, 2002, and ending with the last day of the taxable year prior to the taxable year of change, that were currently deducted under the taxpayer’s present method of accounting and are capitalized under the taxpayer’s proposed method of accounting, reduced by the amount of capitalized costs that would have been recovered through amortization or depreciation if the taxpayer’s proposed method of accounting had been applied in taxable years ending on or after January 24, 2002, and (iii) as an increase or a reduction to taxable income, as appropriate, any other adjustments required as a result of the change in method of accounting. If under its present method of accounting a taxpayer capitalized costs incurred prior to the first taxable year that includes January 24, 2002, the taxpayer must continue to treat amortization or depreciation deductions attributable to those costs in accordance with the taxpayer’s present method of accounting. Thus, for example, a taxpayer that files its federal income tax return on a calendar year basis continues to amortize or depreciate in 2005 an intangible created in 2001, even though the taxpayer has changed to a method of accounting provided in the final regulations under which the entire cost of the intangible would be currently deductible if incurred in 2005. For taxpayers who correct an unauthorized change in a preceding year under section 4.03 of this revenue procedure, the taxpayer’s present method of accounting is the method used by the taxpayer prior to making the unauthorized change.

.02 Reporting the section 481(a) adjustment on Form 3115.

(1) Netting. For purposes of determining the adjustment period under section 2.05(2) of Rev. Proc. 2002-9, the § 481(a) adjustment is determined separately for each change in method of accounting being made under this revenue procedure. Thus, a positive adjustment attributable to a change in one method may not be netted against a negative adjustment attributable to a change in another method. However, in determining the adjustment attributable to a change in method, a taxpayer must net positive § 481(a) adjustments and negative § 481(a) adjustments resulting from that change in method (e.g., if a taxpayer changes to a method of applying the 12-month rule to prepaid amounts, the taxpayer must net the resulting negative § 481(a) adjustment with the positive § 481(a) adjustment that results from including those amounts in inventory pursuant to the taxpayer’s existing § 263A method of accounting for inventory).

(2) Itemized listing on Form 3115. The taxpayer must include on Form 3115, Part IV, line 25, the total § 481(a) adjustment for all changes in methods of accounting being made. If the taxpayer is making more than one change in method of accounting under the final regulations, the taxpayer must include on an attachment to Form 3115 —

(a) the information required by Part IV, line 25 for each change in method of accounting (including the amount of the § 481(a) adjustment for each change in method of accounting);

(b) the information required by Part II, line 12 of Form 3115 that is associated with each change; and

(c) the citation to the paragraph of the final regulations that provides for each proposed method of accounting (e.g., § 1.263(a)-4(d)(6) or § 1.263(a)-4(f)).

.03

Example: Y, a calendar year taxpayer that uses an accrual method of accounting, is a service provider not required to maintain inventories. Y wishes to change to a method of accounting provided in the final regulations for taxable year 2005. Y incurred and capitalized $100x in taxable year 2001, $200x in taxable year 2002, $250x in taxable year 2003, and $300x in taxable year 2004. In addition, Y incurred $330x in taxable year 2005. The $100x, $200x, $250x, and $300x capitalized and depreciated by Y in 2001, 2002, 2003, and 2004 all relate to the same method of accounting and would be currently deductible under the final regulations if the amounts had been incurred on or after December 31, 2003. Y claimed a depreciation deduction of $10x in each of the taxable years 2001, 2002, 2003, and 2004 with respect to the $100x incurred and capitalized in 2001, a depreciation deduction of $20x in each of the taxable years 2002, 2003, and 2004 with respect to the $200x incurred and capitalized in 2002, a depreciation deduction of $25x in each of the taxable years 2003 and 2004 with respect to the $250x incurred and capitalized in 2003, and a depreciation deduction of $30x in taxable year 2004 with respect to the $300x incurred and capitalized in 2004. For taxable year 2005, Y may apply for an automatic change in method of accounting with respect to the method under which the amounts had been capitalized. Y’s section 481(a) adjustment is a decrease in income of $610x ($140x relating to amounts capitalized in 2002 ($200x - $60 ($20 for each of 2002, 2003, and 2004)) + $200x relating to amounts capitalized in 2003 ($250x - $50x ($25 for each of 2003 and 2004)) + 270x relating to amounts capitalized in 2004 ($300x - $30x)). Y must continue to use its present method of accounting for the amount capitalized in 2001. Y uses its new method of accounting for the amount incurred in 2005.

.01 Rev. Proc. 2005-9 applies to a taxpayer’s second taxable year ending on or after December 31, 2003. This revenue procedure applies to a taxable year ending on or after December 31, 2005, and any earlier taxable year that is after the taxpayer’s second taxable year ending on or after December 31, 2003.

.02 Rev. Proc. 2005-9 grants taxpayers the Commissioner’s consent to change to a method of accounting utilizing the 3¹/₂ month rule authorized by § 1.461-4(d)(6)(ii) or to utilize the recurring item exception authorized by § 1.461-5 for the item for which the taxpayer is simultaneously changing to a method of accounting provided in the final regulations. This revenue procedure provides consent only for a change to a method of accounting provided in the final regulations. This revenue procedure does not provide consent for a change in method utilizing the 3¹/₂ month rule or the recurring item exception in conjunction with a change to a method provided by the final regulations. Thus, for a change in method of accounting utilizing the 3¹/₂ month rule or the recurring item exception in conjunction with a change to a method provided by the final regulations, a taxpayer must file two separate applications for a change in method of accounting — an application for a change in method of accounting under this revenue procedure to change to the method of accounting provided in the final regulations, and a separate application for a change in method of accounting under Rev. Proc. 97-27 for a change in method of accounting utilizing the 3¹/₂ month rule or the recurring item exception.

.03 Rev. Proc. 2005-9, as modified by Rev. Proc. 2005-17, waives the 5-year prior change scope limitation contained in section 4.02(6) of Rev. Proc. 2002-9. This revenue procedure modifies the waiver of the 5-year prior change scope limitation to restrict such waiver to prior requests for, or changes in, methods of accounting provided in the final regulations for a taxable year ending on or before December 31, 2005. See section 4.04 of this revenue procedure.

.04 Unlike Rev. Proc. 2005-9, this revenue procedure provides procedures to change back to the taxpayer’s method of accounting used for an item prior to making an unauthorized change when the period of limitations has expired for one or more affected taxable years. See section 4.03(6) of this revenue procedure.

.05. This revenue procedure eliminates the requirement to submit the copy of Form 3115 to a special address. Taxpayers must submit the copy of Form 3115 to the address for taxpayers filing under automatic change request procedures. See the current Instructions for Form 3115 for the address.

.01 Rev. Proc. 2002-9 is modified and amplified to include these automatic changes in method of accounting to methods provided in the final regulations in section 3 of the APPENDIX.

.02 Rev. Proc. 2004-23 and Rev. Proc. 2005-9 are superseded for taxable years ending on or after December 31, 2005, and for any earlier taxable year that is after the taxpayer’s second taxable year ending on or after December 31, 2003.

.03 Rev. Proc. 97-27 is modified and amplified to state that, for changes to methods of accounting provided in the final regulations, any applicable § 481(a) adjustment takes into account only amounts paid or incurred in taxable years ending on or after January 24, 2002.

This revenue procedure is effective for a taxable year ending on or after December 31, 2005, and for any earlier taxable year that is after the taxpayer’s second taxable year ending on or after December 31, 2003.

The principal author of this revenue procedure is Grace Matuszeski of the Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, call Ms. Matuszeski at (202) 622-7900 (not a toll-free call).

This revenue procedure provides safe harbor methods that are permitted to be used in determining the fair market value of an annuity contract for purposes of determining the amount includible in gross income as a result of the conversion of a traditional IRA to a Roth IRA, as described in Q&A-14 of § 1.408A-4T of the temporary regulations. The safe harbor method provided in Section 3 of this revenue procedure is available to determine the fair market value of an annuity contract that has not yet been annuitized with respect to any Roth IRA conversion described in A-14 of § 1.408A-4T until further guidance is issued. The simplified safe harbor method provided in Section 4 of this revenue procedure is available where such a conversion occurs before January 1, 2006.

Under § 408(d) of the Code and A-7 of § 1.408A-4 of the regulations, any amount that is converted from a traditional IRA to a Roth IRA is includible in gross income as a distribution for the taxable year in which the amount is distributed or transferred from the traditional IRA. In the case of a conversion involving property, the conversion amount generally is the fair market value of the property on the date of distribution or the date the property is treated as distributed from the traditional IRA. Under A-1 of § 1.408A-7, any amount converted from a traditional IRA to a Roth IRA is treated as a distribution for which a Form 1099-R must be filed by the trustee maintaining the traditional IRA.

Temporary regulations under § 408A regarding the valuation of annuity contracts upon conversion of a traditional IRA were published in the Federal Register on August 22, 2005 (T.D. 9220, 2005-39 I.R.B. 596 [70 FR 48868]). Section 1.408A-4T, A-14 of the temporary regulations states that, when a traditional individual retirement annuity is converted to a Roth IRA, the amount that is treated as distributed is the fair market value of the annuity contract on the date the annuity contract is converted. Similarly, when a traditional individual retirement account holds an annuity contract as an account asset and the account is converted to a Roth IRA, the amount that is treated as distributed with respect to the annuity contract is the fair market value of the annuity contract on the date the annuity contract is distributed or treated as distributed from the traditional IRA.

A-14 of § 1.408A-4T does not apply to a conversion of a traditional IRA where the conversion is accomplished by the complete surrender of an annuity contract for its cash value and the reinvestment of the cash proceeds in a Roth IRA, but only if the surrender extinguishes all benefits and other characteristics of the contract. A-14 of § 1.408A-4T does not apply in that circumstance because the contract is not being converted. Instead, the cash from the surrendered contract is reinvested in the Roth IRA.

A-14 of § 1.408A-4T also provides rules for determining the fair market value of an annuity contract in the case of a conversion. These rules vary depending on certain factors, including whether the conversion occurs soon after the contract was sold, whether there has been a material change in market conditions, and whether future premiums are to be paid. A-14 of § 1.408A-4T applies to any conversion where an annuity contract is distributed or treated as distributed from a traditional IRA on or after August 19, 2005. As indicated in the preamble to the temporary regulations, no implication is intended concerning whether or not a rule adopted in the regulations is applicable law for earlier conversions.

The temporary regulations also provide authority for the Commissioner to issue additional guidance regarding the fair market value of an annuity contract, including formulas to be used in determining fair market value. The Service and Treasury requested and received comments regarding this anticipated guidance. Commentators indicated that a more specific methodology for valuing the annuity contracts is needed and noted that they are currently implementing the method under A-12 of § 1.401(a)(9)-6 of the regulations for valuing annuity contracts that have not yet been annuitized.

Under A-12 of § 1.401(a)(9)-6, an employee’s entire interest under an annuity contract that has not yet been annuitized (which is used to determine the employee’s required minimum distribution) is the sum of the following: (1) the dollar amount credited to the employee or beneficiary under the contract (which may not be reduced to reflect any surrender charges under the contract) and (2) the actuarial present value of any additional benefits (such as survivor benefits in excess of the account balance, any guaranteed minimum benefits, and any charges that are expected to be refunded, rebated or otherwise reversed at a later date) that will be provided under the contract.

For this purpose, the actuarial present value of any additional benefits is to be determined using reasonable actuarial assumptions, including reasonable assumptions as to future distributions, and without regard to an individual’s health. However, paragraph (c)(1) of A-12 of § 1.401(a)(9)-6 provides that the actuarial present value of the additional benefits may be disregarded if: (1) the sum of the dollar amount credited to the employee or beneficiary under the contract and the actuarial present value of the additional benefits is no more than 120 percent of the dollar amount credited to the employee or beneficiary under the contract and (2) the additional benefits satisfy certain other requirements. Also, paragraph (c)(2) of A-12 of § 1.401(a)(9)-6 provides that the actuarial value of the right to receive a final payment upon death that does not exceed the excess of the premiums paid less the amount of prior distributions may also be disregarded if it is the only additional benefit under the contract. Because some benefits may be disregarded, the methodology of A-12 of § 1.401(a)(9)-6 does not always reflect the full value of all of the benefits under the contract.

The Service and Treasury recognize that it may be difficult to determine the fair market value of an annuity contract under the temporary regulations. Moreover, the Service and Treasury believe it is appropriate to permit the use of a modified version of the methodology applied under A-12 of § 1.401(a)(9)-6 as a safe harbor method to be used in determining the fair market value of such an annuity contract. Accordingly, this revenue procedure provides that, until further guidance is issued, for purposes of determining the amount includible in gross income as a result of the conversion of a traditional IRA to a Roth IRA as described in A-14 of § 1.408A-4T, the fair market value of an annuity contract that has not yet been annuitized is permitted to be determined using the methodology provided in A-12 of § 1.401(a)(9)-6 with the following modifications:

The Service and Treasury recognize that Forms 1099-R must soon be issued for Roth IRA conversions occurring in 2005. Accordingly, this section 4 provides that, in the case of a Roth IRA conversion where an annuity contract that has not yet been annuitized is distributed or treated as distributed before January 1, 2006, for purposes of determining the amount includible in gross income as a result of the conversion of a traditional IRA to a Roth IRA as described in A-14 of § 1.408A-4T, the fair market value of the contract is permitted to be determined using the methodology provided in A-12 of § 1.401(a)(9)-6 except that all front-end loads and other non-recurring charges assessed in the twelve months immediately preceding the conversion must be added to the account value.

The principal authors of this revenue procedure are Larry Isaacs and Robert Walsh of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue procedure, please contact the Service’s taxpayer assistance telephone service between the hours of 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday, by calling 800-829-1040 (a toll-free number). Mr. Isaacs and Mr. Walsh may be reached at (202) 283-9888 (not a toll-free number).

Internal Revenue Service (IRS), Treasury.

Notice of proposed rulemaking.

This document contains proposed regulations to update the rules regarding the disclosure and use of tax return information by tax return preparers. The proposed regulations announce new and additional rules for taxpayers to consent electronically to the disclosure or use of their tax return information by tax return preparers. The proposed rules provide guidelines for tax return preparers using or disclosing information obtained in the process of preparing income tax returns.

Written or electronically generated comments must be received by March 8, 2006.

Outlines of topics to be discussed at the public hearing scheduled for April 4, 2006, in the Auditorium of the Internal Revenue Building at 1111 Constitution Avenue, NW, Washington, DC 20224, must be received by March 14, 2006.

Send submissions to: CC:PA:LPD:PR (REG-137243-02), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-137243-02), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via the IRS Internet site at http://www.irs.gov/regs or via the Federal eRulemaking Portal at http://www.regulations.gov (IRS and REG-137243-02). The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

Concerning the proposed regulations, Dillon Taylor, at (202) 622-4940; concerning submissions of comments, LaNita Van Dyke of the Publications and Regulations Branch at (202) 622-7180 (not toll-free numbers).

Accordingly, 26 CFR part 301 is proposed to be amended as follows:

The principal authors of the regulations are Brinton T. Warren, Bridget E. Tombul, and Dillon Taylor of the Office of the Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division.

* * * * *

The names of organizations that no longer qualify as organizations described in section 170(c)(2) of the Internal Revenue Code of 1986 are listed below.

Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on January 17, 2006, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

Internal Revenue Service (IRS), Treasury

Notice of public hearing on proposed rulemaking.

This document contains a notice of public hearing on proposed regulations (REG-138647-04, 2005-41 I.R.B. 697) providing guidance on employer comparable contributions to Health Savings Accounts (HSAs) under section 4980G.

The public hearing is being held on February 23, 2006, at 10 a.m. The IRS must receive outlines of the topics to be discussed at the hearing by February 2, 2006.

The public hearing is being held in the IRS Auditorium, Internal Revenue Service Building, 1111 Constitution Avenue, NW, Washington, DC. Send submissions to: CC:PA:LPD:PR (REG-138647-04), Room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-138647-04), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit electronic outlines of oral comments directly to the IRS Internet site http://www.irs.gov/regs.

Concerning submission of comments, the hearing, and/or to be placed on the building access to attend the hearing, Kelly Banks at (202) 622-7180 (not a toll-free number).

The subject of the public hearing is the notice of proposed rulemaking (REG-138647-04) that was published in the Federal Register on August 26, 2005 (70 FR 50233).

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

A period of 10 minutes is allotted to each person for presenting oral comments. The IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available, free of charge, at the hearing.

Because of access restrictions, the IRS will not admit visitors beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this document.