For taxable years beginning before January 1, 2005, section 152(e)(1) provided that a custodial parent generally was entitled to claim the dependency exemption. Thus, if (1) parents of a child were divorced, legally separated, or lived apart during the last 6 months of the calendar year, (2) the child was in the custody of one or both parents for more than one-half of the calendar year, and (3) the child received over one-half of the child’s support during the calendar year from one or both parents, the child was treated as receiving over one-half of the child’s support from the custodial parent unless an exception applied. Section 152(e)(2) provided an exception treating the child as receiving over one-half of the child’s support from the noncustodial parent if the custodial parent released the claim to the exemption.

In contrast, as amended by WFTRA (Public Law No. 108-311, 118 Stat. 1166) for taxable years beginning after December 31, 2004, section 152(e) includes no general rule allowing the custodial parent to claim an exemption for a child. It provides that a child is treated as the qualifying child or qualifying relative of the noncustodial parent if (1) the parents are divorced, legally separated, or live apart during the last 6 months of the calendar year, (2) the child receives over one-half of the child’s support during the calendar year from one or both parents, (3) the child is in the custody of one or both parents for more than one-half of the calendar year, and (4) the custodial parent releases the claim to the exemption. Thus, under current section 152(e), the custodial parent’s release of the claim is not an exception to a general rule, but is a condition precedent to the application of section 152(e). The proposed regulations include an example illustrating that section 152(e) does not apply if the custodial parent does not release the claim, in which case entitlement to the exemption is determined under section 152(c) or (d).

Commentators suggested that the final regulations should reverse the conclusion of this example. The commentators opined that the final regulations should interpret section 152(e) as if it included the pre-WFTRA general rule and provide that the custodial parent is entitled to the exemption if the custodial parent does not release the claim. The final regulations do not adopt this suggestion because it is inconsistent with the language of section 152(e) as amended by WFTRA.

Section 152(e) includes two provisions relating to the concept of “custody:” (1) section 152(e) applies only if a child is in the custody of one or both parents for over one-half of the calendar year; and (2) in the absence of a qualified pre-1985 agreement, the noncustodial parent may claim the exemption only if the custodial parent (defined as the parent having custody for the greater portion of the calendar year) releases the claim to the exemption. The proposed regulations do not define the term custody.

The lack of a definition of the term custody in the proposed regulations may create ambiguity in determining whether section 152(e) applies. For example, a commentator suggested that the final regulations clarify whether a child who has attained the age of majority and is emancipated under state law is in the custody of one or both parents. The final regulations provide that a child is in the custody of one or both parents for more than one-half of the calendar year if one or both parents have the right under state law to physical custody of the child for more than one-half of the calendar year. However, a child is not in the custody of either parent for purposes of section 152(e), for example, when the child reaches the age of majority under state law. See Boltinghouse v. Commissioner, T.C.M. 2007-324. The final regulations include an example that illustrates that a child is not in the custody of a parent after the child attains the age of majority and is emancipated under state law.

Section 152(e)(1) provides that, if specified conditions are met, section 152(e) applies notwithstanding the principal place of abode test of section 152(c)(1)(B) and the tiebreaker rule of section 152(c)(4) for a qualifying child, or the support test of section 152(d)(1)(C) for a qualifying relative. A commentator requested that the final regulations clarify whether section 152(c), rather than section 152(e), applies when a child resides with someone other than a parent for more than one-half of the year because of a parent’s lengthy absence. The final regulations include additional examples illustrating when section 152(e) applies to determine the right to claim a child as a dependent, and how the nights during which the child resides with a third party may be allocated to a parent.

The proposed regulations provide that a child who is treated as the qualifying child or qualifying relative of a noncustodial parent under section 152(e) is treated as a dependent of both parents for purposes of sections 105(b), 132(h)(2)(B), and 213(d)(5). Consistent with the statutory language of those provisions, the final regulations clarify that, if section 152(e) does not apply, then this rule treating the child as a dependent of both parents does not apply. Thus, if a custodial parent does not release the claim to the exemption, only the taxpayer who is entitled to claim the child as a dependent under section 152(c) or (d) may treat the child as a dependent for purposes of sections 105(b), 132(h)(2)(B), and 213(d)(5).

The proposed regulations define custodial parent as the parent with whom the child resides for the greater number of nights during the calendar year (the counting nights rule) and include rules for allocating nights when the child resides with neither parent.

A commentator requested that the final regulations clarify that the counting nights rule applies to determine where a child resides under the tiebreaker rule of section 152(c)(4)(B) as well as to identify the custodial parent for purposes of section 152(e). The tiebreaker rule of section 152(c)(4)(B) is outside the scope of these regulations and therefore is not addressed.

Commentators requested clarification of the term night for purposes of the counting nights rule. A commentator noted that the rule does not address how the child’s residence for a night is determined (for example, by the child’s physical location at a given time such as midnight, or by where the child sleeps) and for which year the night of December 31 to January 1 is counted.

In response to this comment, the final regulations provide that, for purposes of section 152(e), a child resides for a night with a parent if the child sleeps (1) at the parent’s residence (whether or not the parent is present), or (2) in the company of the parent when the child does not sleep at a parent’s residence (for example, if the parent and child are on vacation). Under this rule, the time that a child goes to sleep is irrelevant. The final regulations provide that a night that extends over two taxable years is allocated to the taxable year when the night begins. Thus, the night that begins on December 31, 2008, is counted for taxable year 2008.

Commentators suggested that the counting nights rule may be inequitable in certain situations, for example if a parent works nights and cares for the child during the day, and the other parent works days and cares for the child at night. Under the counting nights rule, the parent who cares for the child at night is the custodial parent although the other parent may spend more time with the child. A commentator opined that the counting nights rule should create only a rebuttable presumption regarding which parent is the custodial parent.

Defining custodial parent by means of a rebuttable presumption would add complexity and uncertainty and increase the potential for controversy. As a “bright-line” test, the counting nights rule is easy to understand and apply. The statute and regulations provide flexibility by allowing the custodial parent to release the claim to the exemption. Nonetheless, the final regulations allow an exception for cases in which a child resides for a greater number of days but not nights with a parent who works at night.

The proposed regulations provide that a child who resides with neither parent for a night is treated as residing with the parent with whom the child would have resided for the night but for the absence. However, if a child would not have resided with either parent (for example, because a court awarded custody of the child to a third party for the period of absence), the child is treated as not residing with either parent for the night of the absence.

A commentator suggested that the final regulations omit the language “for example” and provide that an award of custody to a third party is the exclusive circumstance in which a night is not allocated to either parent. The final regulations do not incorporate this suggestion, as other situations may occur in which a child would not have resided with either parent for a night. However, the final regulations omit the parenthetical and illustrate this situation in the examples. Other commentators noted additional circumstances in which it would be difficult to determine the parent with whom a child would have resided for the night. Therefore, the final regulations provide that a night is not counted for either parent if the child would not have resided with either parent for the night or it cannot be determined with which parent the child would have resided for the night.

Commentators requested that the final regulations address how nights are allocated in additional situations involving a child’s absence. The final regulations provide additional examples in response to these comments.

A commentator asked how a night is allocated in situations involving the absence of a parent, for example, if a child spends the night in a parent’s residence in the care of a third party, but the parent is absent. Another commentator requested clarification on how a night is allocated if a child is scheduled to reside with one parent but, because of unexpected circumstances (such as that parent’s unplanned absence) the child resides with the other parent for that night. These comments are addressed by the addition in the final regulations of the rule, discussed earlier in this preamble, that a child resides with a parent for a night if the child sleeps (1) at the residence of the parent (whether or not the parent is present), or (2) in the company of the parent, when the child does not sleep at a parent’s residence.

Section 152(e)(2) provides that a custodial parent may release a claim to an exemption for a child by signing a written declaration that he or she will not claim the child as a dependent. The proposed regulations provide that the written declaration may be made on Form 8332, Release of Claim to Exemption for Child of Divorced or Separted Parents, or successor form, and any declaration not on Form 8332 must conform to the substance of that form. The proposed regulations also provide that a court order or decree may not serve as the written declaration.

A commentator asserted that the final regulations should allow a noncustodial parent to claim a child as a dependent if a divorce decree allocates the exemption to that parent, whether or not the custodial parent releases the right to claim the child. Another commentator suggested that presumptions in favor of the custodial parent in the proposed regulations unfairly burden the noncustodial parent.

A state court may not allocate an exemption because sections 151 and 152, not state law, determine who may claim an exemption for a child for Federal income tax purposes. Section 152(e) provides for the unilateral release of an exemption by a custodial parent. Therefore, the final regulations do not adopt these comments.

Commentators suggested that the final regulations should specify that a written separation agreement may not serve as the written declaration. One commentator recommended that the final regulations provide that the release must be on Form 8332 or that the release may be on either Form 8332 or a document that is executed for the sole purpose of releasing the claim. Other commentators opined, however, that the final regulations should provide specifically that a separation agreement that includes an unconditional release or a divorce decree may serve as a written declaration. A commentator suggested that a divorce settlement agreed to by both parents should determine the right to claim a child as a dependent without regard to which parent is the custodial parent and without requiring a separate written declaration.

Divorce decrees, separation agreements, and similar instruments are complex documents that may be subject to differing interpretations governed by state law. Allowing these documents to serve as a written declaration creates complexity and uncertainty. Therefore, the final regulations retain the rule that a written declaration not on Form 8332 (or successor form) must conform to the substance of Form 8332, and further provide that a release not on a Form 8332 must be a document executed for the sole purpose of releasing the claim. The final regulations provide specifically that a court order or decree or a separation agreement may not serve as the written declaration. These rules will improve tax administration and reduce controversy.

The proposed regulations provide that if a release of a claim to a child is for more than one year, the noncustodial parent must attach the original written declaration to the parent’s return for the first taxable year for which the release is effective and a copy of the written declaration for later years. A commentator requested that the final regulations allow a taxpayer to attach a copy of a declaration (rather than the original) to a tax return in the first year the release is effective as well as subsequent years. The final regulations adopt this comment.

Under the proposed regulations, Form 8332 or a substitute document may be executed for multiple years. Further, to provide flexibility to parents whose circumstances change, the proposed regulations allow a custodial parent to revoke a release, but the revocation may be effective no earlier than the taxable year that begins in the first calendar year after the calendar year in which the parent revoking the release provides notice of the revocation to the other parent. Commentators objected to the custodial parent’s broad discretion to revoke a release under the proposed regulations. A commentator recommended that the final regulations provide that a taxpayer may revoke a release only if both parents agree. Section 152(e) provides for the unilateral release of an exemption by a custodial parent. The final regulations retain the rule allowing unilateral revocation by the custodial parent as consistent with the statute.

A commentator suggested that a revocation should take effect in the taxable year that the parent signs the revocation. The final regulations do not adopt this comment, which could result in insufficient notice of the revocation to the noncustodial parent and increase controversies.

The proposed regulations also provide that the taxpayer revoking the release must attach the original or a copy of the revocation to the taxpayer’s tax return for any taxable year the taxpayer claims the exemption as a result of the revocation, and keep a copy of the revocation and evidence of delivery of written notice of revocation to the noncustodial parent. A commentator recommended that the final regulations require the custodial parent to send a copy of the written revocation to the noncustodial parent at the last known address or at an address reasonably calculated to ensure receipt. The commentator opined that proof of mailing by certified mail or other tracked delivery should suffice as evidence of notification. Another commentator expressed concern that a parent whose location is unknown may not receive notice of a revocation.

To retain flexibility but increase the likelihood that a noncustodial parent will receive notice of a revocation, the final regulations require that the parent revoking the release notify, or make reasonable attempts to notify, in writing, the other parent of the revocation. What is a reasonable attempt is determined under the facts and circumstances, but mailing a copy of the written revocation to the noncustodial parent at the last known address or at an address reasonably calculated to ensure receipt satisfies this requirement.

A commentator recommended that the final regulations provide that a release may be revoked only on a Form 8332. Consistent with the requirements for a release, the final regulations provide that (1) a revocation may be made on Form 8332, or successor form designated by the IRS, (2) a revocation not on the designated form must conform to the substance of the form and be in a document executed for the sole purpose of revoking a release, and (3) a taxpayer revoking a release may attach a copy rather than an original to the taxpayer’s return for the first taxable year the revocation is effective, as well as for later years.

The proposed regulations do not address whether the rules for releasing a claim to an exemption and for revoking a release apply to a written declaration that is effective for multiple years and that was executed before the applicability date of the regulations. The final regulations apply prospectively, but clarify that a multiple year written declaration executed in a taxable year beginning on or before July 2, 2008, that satisfies the requirements for the form of a written declaration in effect at the time the written declaration is executed is treated as satisfying the requirements for the form of a release under the final regulations. However, the final regulations provide that the rules for revoking a release of a claim to an exemption apply without regard to whether a custodial parent executed the release in a taxable year beginning on or before July 2, 2008. Thus, a release executed in a taxable year beginning on or before July 2, 2008, may be revoked.

These final regulations apply to taxable years beginning after July 2, 2008.

(a) In general. A taxpayer may claim a dependency deduction for a child (as defined in section 152(f)(1)) only if the child is the qualifying child of the taxpayer under section 152(c) or the qualifying relative of the taxpayer under section 152(d). Section 152(c)(4)(B) provides that a child who is claimed as a qualifying child by parents who do not file a joint return together is treated as the qualifying child of the parent with whom the child resides for a longer period of time during the taxable year or, if the child resides with both parents for an equal period of time, of the parent with the higher adjusted gross income. However, a child is treated as the qualifying child or qualifying relative of the noncustodial parent if the custodial parent releases a claim to the exemption under section 152(e) and this section.

(b) Release of claim by custodial parent—(1) In general. Under section 152(e)(1), notwithstanding section 152(c)(1)(B), (c)(4), or (d)(1)(C), a child is treated as the qualifying child or qualifying relative of the noncustodial parent (as defined in paragraph (d) of this section) if the requirements of paragraphs (b)(2) and (b)(3) of this section are met.

(2) Support, custody, and parental status—(i) In general. The requirements of this paragraph (b)(2) are met if the parents of the child provide over one-half of the child’s support for the calendar year, the child is in the custody of one or both parents for more than one-half of the calendar year, and the parents—

(A) Are divorced or legally separated under a decree of divorce or separate maintenance;

(B) Are separated under a written separation agreement; or

(C) Live apart at all times during the last 6 months of the calendar year whether or not they are or were married.

(ii) Multiple support agreement. The requirements of this paragraph (b)(2) are not met if over one-half of the support of the child is treated as having been received from a taxpayer under section 152(d)(3).

(3) Release of claim to child. The requirements of this paragraph (b)(3) are met for a calendar year if—

(i) The custodial parent signs a written declaration that the custodial parent will not claim the child as a dependent for any taxable year beginning in that calendar year and the noncustodial parent attaches the declaration to the noncustodial parent’s return for the taxable year; or

(ii) A qualified pre-1985 instrument, as defined in section 152(e)(3)(B), applicable to the taxable year beginning in that calendar year, provides that the noncustodial parent is entitled to the dependency exemption for the child and the noncustodial parent provides at least $600 for the support of the child during the calendar year.

(c) Custody. A child is in the custody of one or both parents for more than one-half of the calendar year if one or both parents have the right under state law to physical custody of the child for more than one-half of the calendar year.

(d) Custodial parent—(1) In general. The custodial parent is the parent with whom the child resides for the greater number of nights during the calendar year, and the noncustodial parent is the parent who is not the custodial parent. A child is treated as residing with neither parent if the child is emancipated under state law. For purposes of this section, a child resides with a parent for a night if the child sleeps—

(i) At the residence of that parent (whether or not the parent is present); or

(ii) In the company of the parent, when the child does not sleep at a parent’s residence (for example, the parent and child are on vacation together).

(2) Night straddling taxable years. A night that extends over two taxable years is allocated to the taxable year in which the night begins.

(3) Absences. (i) Except as provided in paragraph (d)(3)(ii) of this section, for purposes of this paragraph (d), a child who does not reside (within the meaning of paragraph (d)(1) of this section) with a parent for a night is treated as residing with the parent with whom the child would have resided for the night but for the absence.

(ii) A child who does not reside (within the meaning of paragraph (d)(1) of this section) with a parent for a night is treated as not residing with either parent for that night if it cannot be determined with which parent the child would have resided or if the child would not have resided with either parent for the night.

(4) Special rule for equal number of nights. If a child is in the custody of one or both parents for more than one-half of the calendar year and the child resides with each parent for an equal number of nights during the calendar year, the parent with the higher adjusted gross income for the calendar year is treated as the custodial parent.

(5) Exception for a parent who works at night. If, in a calendar year, due to a parent’s nighttime work schedule, a child resides for a greater number of days but not nights with the parent who works at night, that parent is treated as the custodial parent. On a school day, the child is treated as residing at the primary residence registered with the school.

(e) Written declaration—(1) Form of declaration—(i) In general. The written declaration under paragraph (b)(3)(i) of this section must be an unconditional release of the custodial parent’s claim to the child as a dependent for the year or years for which the declaration is effective. A declaration is not unconditional if the custodial parent’s release of the right to claim the child as a dependent requires the satisfaction of any condition, including the noncustodial parent’s meeting of an obligation such as the payment of support. A written declaration must name the noncustodial parent to whom the exemption is released. A written declaration must specify the year or years for which it is effective. A written declaration that specifies all future years is treated as specifying the first taxable year after the taxable year of execution and all subsequent taxable years.

(ii) Form designated by IRS. A written declaration may be made on Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or successor form designated by the IRS. A written declaration not on the form designated by the IRS must conform to the substance of that form and must be a document executed for the sole purpose of serving as a written declaration under this section. A court order or decree or a separation agreement may not serve as a written declaration.

(2) Attachment to return. A noncustodial parent must attach a copy of the written declaration to the parent’s return for each taxable year in which the child is claimed as a dependent.

(3) Revocation of written declaration—(i) In general. A parent may revoke a written declaration described in paragraph (e)(1) of this section by providing written notice of the revocation to the other parent. The parent revoking the written declaration must make reasonable efforts to provide actual notice to the other parent. The revocation may be effective no earlier than the taxable year that begins in the first calendar year after the calendar year in which the parent revoking the written declaration provides, or makes reasonable efforts to provide, the written notice.

(ii) Form of revocation. The revocation may be made on Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or successor form designated by the IRS whether or not the written declaration was made on a form designated by the IRS. A revocation not on that form must conform to the substance of the form and must be a document executed for the sole purpose of serving as a revocation under this section. The revocation must specify the year or years for which the revocation is effective. A revocation that specifies all future years is treated as specifying the first taxable year after the taxable year the revocation is executed and all subsequent taxable years.

(iii) Attachment to return. The parent revoking the written declaration must attach a copy of the revocation to the parent’s return for each taxable year for which the parent claims a child as a dependent as a result of the revocation. The parent revoking the written declaration must keep a copy of the revocation and evidence of delivery of the notice to the other parent, or of the reasonable efforts to provide actual notice.

(4) Ineffective declaration or revocation. A written declaration or revocation that fails to satisfy the requirements of this paragraph (e) has no effect.

(5) Written declaration executed in a taxable year beginning on or before July 2, 2008. A written declaration executed in a taxable year beginning on or before July 2, 2008, that satisfies the requirements for the form of a written declaration in effect at the time the written declaration is executed, will be treated as meeting the requirements of paragraph (e)(1) of this section. Paragraph (e)(3) of this section applies without regard to whether a custodial parent executed the written declaration in a taxable year beginning on or before July 2, 2008.

(f) Coordination with other sections. If section 152(e) and this section apply, a child is treated as the dependent of both parents for purposes of sections 105(b), 132(h)(2)(B), and 213(d)(5).

(g) Examples. The provisions of this section are illustrated by the following examples that assume, unless otherwise provided, that each taxpayer’s taxable year is the calendar year, one or both of the child’s parents provide over one-half of the child’s support for the calendar year, one or both parents have the right under state law to physical custody of the child for more than one-half of the calendar year, and the child otherwise meets the requirements of a qualifying child under section 152(c) or a qualifying relative under section 152(d). In addition, in each of the examples, no qualified pre-1985 instrument or multiple support agreement is in effect. The examples are as follows:

Example 1. (i) B and C are the divorced parents of Child. In 2009, Child resides with B for 210 nights and with C for 155 nights. B executes a Form 8332 for 2009 releasing B’s right to claim Child as a dependent for that year, which C attaches to C’s 2009 return.

(ii) Under paragraph (d) of this section, B is the custodial parent of Child in 2009 because B is the parent with whom Child resides for the greater number of nights in 2009. Because the requirements of paragraphs (b)(2) and (3) of this section are met, C may claim Child as a dependent.

Example 2. The facts are the same as in Example 1 except that B does not execute a Form 8332 or similar declaration for 2009. Therefore, section 152(e) and this section do not apply. Whether Child is the qualifying child or qualifying relative of B or C is determined under section 152(c) or (d).

Example 3. (i) D and E are the divorced parents of Child. Under a custody decree, Grandmother has the right under state law to physical custody of Child from January 1 to July 31, 2009.

(ii) Because D and E do not have the right under state law to physical custody of Child for over one-half of the 2009 calendar year, under paragraph (c) of this section, Child is not in the custody of one or both parents for over one-half of the calendar year. Therefore, section 152(e) and this section do not apply, and whether Child is the qualifying child or qualifying relative of D, E, or Grandmother is determined under section 152(c) or (d).

Example 4. (i) The facts are the same as in Example 3, except that Grandmother has the right to physical custody of Child from January 1 to March 31, 2009, and, as a result, Child resides with Grandmother during this period. D and E jointly have the right to physical custody of Child from April 1 to December 31, 2009. During this period, Child resides with D for 180 nights and with E for 95 nights. D executes a Form 8332 for 2009 releasing D’s right to claim Child as a dependent for that year, which E attaches to E’s 2009 return.

(ii) Under paragraph (c) of this section, Child is in the custody of D and E for over one-half of the calendar year, because D and E have the right under state law to physical custody of Child for over one-half of the calendar year.

(iii) Under paragraph (d)(3)(ii) of this section, the nights that Child resides with Grandmother are not allocated to either parent. Child resides with D for a greater number of nights than with E during the calendar year and, under paragraph (d)(1) of this section, D is the custodial parent.

(iv) Because the requirements of paragraphs (b)(2) and (3) of this section are met, section 152(e) and this section apply, and E may claim Child as a dependent.

Example 5. (i) The facts are the same as in Example 4, except that D is away on military service from April 10 to June 15, 2009, and September 6 to October 20, 2009. During these periods Child resides with Grandmother in Grandmother’s residence. Child would have resided with D if D had not been away on military service. Grandmother claims Child as a dependent on Grandmother’s 2009 return.

(ii) Under paragraph (d)(3)(i) of this section, Child is treated as residing with D for the nights that D is away on military service. Because the requirements of paragraphs (b)(2) and (3) of this section are met, section 152(e) and this section apply, and E, not Grandmother, may claim Child as a dependent.

Example 6. F and G are the divorced parents of Child. In May of 2009, Child turns age 18 and is emancipated under the law of the state where Child resides. Therefore, in 2009 and later years, F and G do not have the right under state law to physical custody of Child for over one-half of the calendar year, and Child is not in the custody of F and G for over one-half of the calendar year. Section 152(e) and this section do not apply, and whether Child is the qualifying child or qualifying relative of F or G is determined under section 152(c) or (d).

Example 7. (i) The facts are the same as in Example 6, except that Child turns age 18 and is emancipated under state law on August 1, 2009, resides with F from January 1, 2009, through May 31, 2009, and resides with G from June 1, 2009, through December 31, 2009. F executes a Form 8332 releasing F’s right to claim Child as a dependent for 2009, which G attaches to G’s 2009 return.

(ii) Under paragraph (c) of this section, Child is in the custody of F and G for over one-half of the calendar year.

(iii) Under paragraph (d)(1) of this section, Child is treated as not residing with either parent after Child’s emancipation. Therefore, Child resides with F for 151 nights and with G for 61 nights. Because the requirements of paragraphs (b)(2) and (3) of this section are met, section 152(e) and this section apply, and G may claim Child as a dependent.

Example 8. H and J are the divorced parents of Child. Child generally resides with H during the week and with J every other weekend. Child resides with J in H’s residence for 10 consecutive nights while H is hospitalized. Under paragraph (d)(1)(i) of this section, Child resides with H for the 10 nights.

Example 9. K and L, who are separated under a written separation agreement, are the parents of Child. In August 2009, K and Child spend 10 nights together in a hotel while on vacation. Under paragraph (d)(1)(ii) of this section, Child resides with K for the 10 nights that K and Child are on vacation.

Example 10. M and N are the divorced parents of Child. On December 31, 2009, Child attends a party at M’s residence. After midnight on January 1, 2010, Child travels to N’s residence, where Child sleeps. Under paragraph (d)(1) of this section, Child resides with N for the night of December 31, 2009, to January 1, 2010, because Child sleeps at N’s residence that night. However, under paragraph (d)(2) of this section, the night of December 31, 2009, to January 1, 2010, is allocated to taxable year 2009 for purposes of determining whether Child resides with M or N for a greater number of nights in 2009.

Example 11. O and P, who never married, are the parents of Child. In 2009, Child spends alternate weeks residing with O and P. During a week that Child is residing with O, O gives Child permission to spend a night at the home of a friend. Under paragraph (d)(3)(i) of this section, the night Child spends at the friend’s home is treated as a night that Child resides with O.

Example 12. The facts are the same as in Example 11, except that Child also resides at summer camp for 6 weeks. Because Child resides with each parent for alternate weeks, Child would have resided with O for 3 weeks and with P for 3 weeks of the period that Child is at camp. Under paragraph (d)(3)(i) of this section, Child is treated as residing with O for 3 weeks and with P for 3 weeks.

Example 13. The facts are the same as in Example 12, except that Child does not spend alternate weeks residing with O and P, and it cannot be determined whether Child would have resided with O or P for the period that Child is at camp. Under paragraph (d)(3)(ii) of this section, Child is treated as residing with neither parent for the 6 weeks.

Example 14. (i) Q and R are the divorced parents of Child. Q works from 11 PM to 7 AM Sunday through Thursday nights. Because of Q’s nighttime work schedule, Child resides with R Sunday through Thursday nights and with Q Friday and Saturday nights. Therefore, in 2009, Child resides with R for 261 nights and with Q for 104 nights. Child spends all daytime hours when Child is not in school with Q and Q’s address is registered with Child’s school as Child’s primary residence. Q executes a Form 8332 for 2009 releasing Q’s right to claim Child as a dependent for that year, which R attaches to R’s 2009 return.

(ii) Under paragraph (d) of this section, Q is the custodial parent of Child in 2009. Child resides with R for a greater number of nights than with Q due to Q’s nighttime work schedule, and Child spends a greater number of days with Q. Therefore, paragraph (d)(5) of this section applies rather than paragraph (d)(1) of this section. Because the requirements of paragraphs (b)(2) and (3) of this section are met, R may claim Child as a dependent.

Example 15. (i) In 2009, S and T, the parents of Child, execute a written separation agreement. The agreement provides that Child will live with S and that T will make monthly child support payments to S. In 2009, Child resides with S for 335 nights and with T for 30 nights. S executes a letter declaring that S will not claim Child as a dependent in 2009 and in subsequent alternate years. The letter contains all the information requested on Form 8332, does not require the satisfaction of any condition such as T’s payment of support, and has no purpose other than to serve as a written declaration under section 152(e) and this section. T attaches the letter to T’s return for 2009 and 2011.

(ii) In 2010, T fails to provide support for Child, and S executes a Form 8332 revoking the release of S’s right to claim Child as a dependent for 2011. S delivers a copy of the Form 8332 to T, attaches a copy of the Form 8332 to S’s tax return for 2011, and keeps a copy of the Form 8332 and evidence of delivery of the written notice to T.

(iii) T may claim Child as a dependent for 2009 because S releases the right to claim Child as a dependent under paragraph (b)(3) of this section by executing the letter, which conforms to the requirements of paragraph (e)(1) of this section, and T attaches the letter to T’s return in accordance with paragraph (e)(2) of this section. In 2010, S revokes the release of the claim in accordance with paragraph (e)(3) of this section, and the revocation takes effect in 2011, the taxable year that begins in the first calendar year after S provides written notice of the revocation to T. Therefore, in 2011, section 152(e) and this section do not apply, and whether Child is the qualifying child or qualifying relative of S or T is determined under section 152(c) or (d).

Example 16. The facts are the same as Example 15, except that the letter expressly states that S releases the right to claim Child as a dependent only if T is current in the payment of support for Child at the end of the calendar year. The letter does not qualify as a written declaration under paragraph (b)(3) of this section because S’s agreement not to claim Child as a dependent is conditioned on T’s payment of support and, under paragraph (e)(1)(i) of this section, a written declaration must be unconditional. Therefore, section 152(e) and this section do not apply, and whether Child is the qualifying child or qualifying relative of S or T for 2009 as well as 2011 is determined under section 152(c) or (d).

Example 17. (i) U and V are the divorced parents of Child. Child resides with U for more nights than with V in 2009 through 2011. In 2009, U provides a written statement to V declaring that U will not claim Child as a dependent, but the statement does not specify the year or years it is effective. V attaches the statement to V’s returns for 2009 through 2011.

(ii) Because the written statement does not specify a year or years, under paragraph (e)(1) of this section, it is not a written declaration that conforms to the substance of Form 8332. Under paragraph (e)(4) of this section, the statement has no effect. Section 152(e) and this section do not apply, and whether Child is the qualifying child or qualifying relative of U or V is determined under section 152(c) or (d).

Example 18. (i) W and X are the divorced parents of Child. In 2009, Child resides solely with W. The divorce decree requires X to pay child support to W and requires W to execute a Form 8332 releasing W’s right to claim Child as a dependent. W fails to sign a Form 8332 for 2009, and X attaches an unsigned Form 8332 to X’s return for 2009.

(ii) The order in the divorce decree requiring W to execute a Form 8332 is ineffective to allocate the right to claim Child as a dependent to X. Furthermore, under paragraph (e)(1) of this section, the unsigned Form 8332 does not conform to the substance of Form 8332, and under paragraph (e)(4) of this section, the Form 8332 has no effect. Therefore, section 152(e) and this section do not apply, and whether Child is the qualifying child or qualifying relative of W or X is determined under section 152(c) or (d).

(iii) If, however, W executes a Form 8332 for 2009, and X attaches the Form 8332 to X’s return, then X may claim Child as a dependent in 2009.

Example 19. (i) Y and Z are the divorced parents of Child. In 2003, Y and Z enter into a separation agreement, which is incorporated into a divorce decree, under which Y, the custodial parent, releases Y’s right to claim Child as a dependent for all future years. The separation agreement satisfies the requirements for the form of a written declaration in effect at the time it is executed. Z attaches a copy of the separation agreement to Z’s returns for 2003 through 2009.

(ii) Under paragraph (e)(1)(ii) of this section, a separation agreement may not serve as a written declaration. However, under paragraph (e)(5) of this section, a written declaration executed in a taxable year beginning on or before July 2, 2008, that satisfies the requirements for the form of a written declaration in effect at the time the written declaration is executed, will be treated as meeting the requirements of paragraph (e)(1) of this section. Therefore, the separation agreement may serve as the written declaration required by paragraph (b)(3)(i) of this section for 2009, and Z may claim Child as a dependent in 2009 and later years.

Example 20. (i) The facts are the same as in Example 19, except that in 2009 Y executes a Form 8332 revoking the release of Y’s right to claim Child as a dependent for 2010. Y complies with all the requirements of paragraph (e)(3) of this section.

(ii) Although Y executes the separation agreement releasing Y’s right to claim Child as a dependent in a taxable year beginning on or before July 2, 2008, under paragraph (e)(5) of this section, Y’s execution of the Form 8332 in 2009 is effective to revoke the release. Therefore, section 152(e) and this section do not apply in 2010, and whether Child is the qualifying child or qualifying relative of Y or Z is determined under section 152(c) or (d).

(h) Effective/applicability date. This section applies to taxable years beginning after July 2, 2008.

The proposed regulations provided an automatic six-month extension to taxpayers who must file an individual income tax return if they submit a timely, completed application for extension on Form 4868 “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.” This new procedure, adopted in the final regulations, replaces the process where an individual could obtain an initial automatic four-month extension by filing Form 4868 and apply for an additional two-month discretionary extension by filing Form 2688, “Application for Additional Extension of Time To File U.S. Individual Income Tax Return.” In connection with the new procedure, the IRS eliminated Form 2688.

One commentator noted that individuals who are abroad may qualify for an extension beyond six months and previously applied for this extension using Form 2688. The commentator suggests that the elimination of this form places an added administrative burden on these individual taxpayers who are abroad. The commentator notes that without Form 2688, the alternative for requesting an additional extension beyond six months is to write a letter in accordance with Treas. Reg. §1.6081-1(b). Thus, the commentator requests that Form 2688 be retained for use by taxpayers who are abroad and require more than a six-month extension of time to file.

The primary goal for these regulatory revisions is to reduce taxpayer burden by simplifying the extension process through the elimination of unnecessary forms and required information. The elimination of Form 2688 is among those measures aimed at streamlining the extension process. Although previously used by some taxpayers who are abroad to apply for an additional extension beyond six months, the Treasury Department and the IRS have determined that retention of this form for such a limited purpose and small class of taxpayers would not be efficient. The Treasury Department and the IRS have also determined that due to the discretionary nature of any additional extension for taxpayers who are abroad, requiring a letter explaining the need for the extension is the most appropriate procedure. There is no additional administrative burden from this decision as in both situations the taxpayer must file a document containing substantially the same information and the IRS must process it. Thus, the comment is not adopted and the final regulations eliminate all references to the obsoleted Form 2688.

Individual taxpayers who are abroad seeking guidance on applying for an additional extension of time to file beyond six months should refer to IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, or the IRS Internet site at http://www.irs.gov/formspubs/ article/0,,id=154856,00.html.

The proposed regulations did not change the rules regarding filing extensions for corporations but merely changed the appearance and title of Form 7004, now titled “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.”

While not specifically addressed by the proposed regulations, one comment was received regarding extensions for affiliated groups of corporations filing a consolidated return. The commentator suggests that the requirement under §1.6081-3(a)(4) to include a statement listing the name and address of each member of the affiliated group if the affiliated group will file a consolidated return is inconsistent with §1.1502-75(a). Section 1.1502-75(a) allows a group which did not file a consolidated return for the immediately preceding taxable year to file a consolidated return, provided that each member of the group that is eligible to do so files a Form 1122, “Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return,” not later than the last day prescribed by law (including extensions of time) for the filing of the common parent’s return. The commentator contends that §1.6081-3 suggests that in order to have a valid extension all members of the affiliated group must be listed with the extension request even though the affiliated group may not have decided at the time the extension is filed if a consolidated return will be elected. Although, §1.6081-3 requires a listing of subsidiaries with the extension request, the commentator suggests that, because §1.1502-75(a) does not require the members of an affiliated group to elect to file a consolidated return until the common parent’s extended due date, the failure to include the name and address of a member of the affiliated group that will be filed as part of the consolidated return should not invalidate a request for an automatic extension of time to file.

The IRS and Treasury Department find no inconsistency between these regulations. If, at the time the extension request is due, the affiliated entities have not decided whether to file a consolidated return, the various affiliated entities must either file separate returns or individually request an extension of time to file. The failure to do either will result in a late return. Additionally, by including a list of affiliated members with the extension request, each member is deemed to be applying for an extension of time to file. In the event that a subsidiary does not file as part of a consolidated return, that entity will have a valid extension to file its own return. Therefore, the final regulations retain the requirement to list the name and address of each member of the affiliated group with the extension request. To address the commentator’s concern, the final regulations explicitly state that the attached list will grant an extension for each member’s separate return in the event that the member does not file as part of the consolidated group.

The proposed regulations provided for an automatic six-month extension of time to file returns for certain entities not taxed at the entity level (pass-through entities). Recognizing the potential that some taxpayers may not receive timely information returns from pass-through entities (for example, Schedule K-1s from partnerships) needed to complete their own income tax returns, the proposed regulations specifically requested comments on whether a shorter extension of time to file for pass-through entities might reduce overall taxpayer burden. Several comments addressing this issue were received. Four commentators suggested that the filing date for pass-through entities should be moved back to March 15^th instead of April 15^th. This would allow these entities to receive six-month extensions of time to file (until September 15^th ) but still allow individual taxpayers with ownership interests in the pass-through entities to receive information needed to file a timely and complete income tax return by the October 15^th extended due date. The filing dates for these pass-through entity returns are governed by statute. See for example, sections 6012(a), and 6072. Accordingly, without legislative action, the Treasury Department and the IRS are unable to change the filing due dates for these pass-through entities.

The remaining comments on this topic suggested that an extension period for pass-through entities of five months or less would benefit individual taxpayers with ownership interests in pass-through entities in preparation of their own individual income tax returns. Three commentators suggested that the proposed regulations would actually increase taxpayer burden by making it easier for pass-through entities to delay the filing of their returns. Two commentators also pointed out that the five-month extension period would not alleviate the burden on corporate taxpayers with ownership interests in pass-through entities. These commentators expressed a concern that even a five-month extension period for pass-through entities would, in most cases, simply align the extended due date for pass-through entities with the extended due date for corporate returns, resulting in the same delay of information to corporate owners of pass-through entities. This delay, the commentators contend, would greatly increase the need for filing amended returns. These commentators suggested shortening the automatic extension for pass-through entities to a period of less than five months, which would ultimately reduce burden on both taxpayers and the IRS.

In response to these comments, the Treasury Department and IRS have adopted temporary regulations which will provide for a five-month automatic extension period with no additional extension for certain pass-through entities. These entities are partnerships filing Form 1065, “U.S. Return of Partnership Income,” or Form 8804, “Annual Return for Partnership Withholding Tax (Section 1446),” and estates and trusts filing Form 1041, “U.S. Income Tax Return for Estates and Trusts.” While some commentators suggested adopting an extension period shorter than five months, the Treasury Department and the IRS believe a five-month automatic extension period for certain partnerships, trusts, and estates, strikes a reasonable balance and reduces the overall burden on taxpayers. The Treasury Department and IRS believe the five-month extension period allows pass-through entities, including complex and tiered entities, an adequate time for preparation of the required pass-through return and also ensures the timely and accurate dissemination of information to a large number of taxpayers who require that information for completion of their own income tax returns. It is recognized that some corporations with ownership interests in pass-through entities may continue to experience delayed receipt of information needed to complete their own corporate returns and some pass-through entities may find it difficult to complete their returns. Thus the Treasury Department and the IRS request comments on whether the five-month automatic extension of time to file for these pass-through entities increases or reduces overall taxpayer burden. Please follow the instructions in the “Comments and Public Hearing” section in the notice of proposed rulemaking accompanying these temporary regulations in this issue of the Bulletin.

The temporary regulations allowing certain pass-through entities to obtain an automatic five-month extension apply to applications by these entities for an automatic extension of time to file certain returns due on or after January 1, 2009. These entities will be allowed to obtain an automatic six-month extension of time to file the applicable returns, which are required to be filed before January 1, 2009.

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(c) * * *

(2) Extensions. An individual desiring an extension of time (in addition to the automatic extension of time granted by §1.6081-4) for filing a return until after the completion of the qualifying period described in paragraph (c)(1) of this section for claiming any exclusion or deduction under section 911 may apply for an extension. An individual whose moving expense deduction is attributable to services performed in two years may apply for an extension of time for filing a return until after the end of the second year. The individual may make such application on Form 2350, “Application for Extension of Time To File U.S. Income Tax Return” or in any other manner prescribed by the Commissioner. The application must be filed in accordance with the instructions to the form or as prescribed by the Commissioner. The application must set forth the facts relied on to justify the extension of time requested and must include a statement as to the earliest date the individual expects to become entitled to any exclusion or deduction by reason of completion of the qualifying period.

* * * * *

(e) Effective/applicability date. This section applies to applications for extension of time to file returns filed after July 1, 2008.

Par. 3. Section 1.6081-1 is amended by revising paragraph (b) and adding paragraph (c) to read as follows:

* * * * *

(b) Application for extension of time—(1) In general. Under other sections in this chapter, certain taxpayers may request an automatic extension of time to file certain returns. Except in undue hardship cases, no extension of time to file a return will be allowed under this section until an automatic extension of time to file the return has been allowed under the applicable section. No extension of time to file a return will be granted under this section for a period of time greater than that provided for by automatic extension. A taxpayer desiring an extension of the time for filing a return, statement, or other document shall submit an application for extension on or before the due date of such return, statement, or other document. If a form exists for the application for an extension, the taxpayer should use the form; however, taxpayers may apply for an extension in a letter that includes the information required by this paragraph. Except as provided in §301.6091-1(b) of this chapter (relating to hand-carried documents), the taxpayer should make the application for extension to the Internal Revenue Service office where such return, statement, or other document is required to be filed. Except for requests for automatic extensions of time to file certain returns provided for elsewhere in this chapter, the application must be in writing, signed by the taxpayer or his duly authorized agent, and must clearly set forth—

(i) The particular tax return, information return, statement, or other document, including the taxable year or period thereof, for which the taxpayer requests an extension; and

(ii) An explanation of the reasons for requesting the extension to aid the internal revenue officer in determining whether to grant the request.

(2) Taxpayer unable to sign. In any case in which a taxpayer is unable, by reason of illness, absence, or other good cause, to sign a request for an extension, any person standing in close personal or business relationship to the taxpayer may sign the request on his behalf, and shall be considered as a duly authorized agent for this purpose, provided the request sets forth the reasons for a signature other than the taxpayer’s and the relationship existing between the taxpayer and the signer.

(c) Effective/applicability dates. This section applies to requests for extension of time filed after July 1, 2008.

Par. 4. Section 1.6081-2T is revised to read as follows:

(a) In general. (1) Except as provided in paragraph (h) of this section, a partnership required to file Form 1065, “U.S. Return of Partnership Income,” or Form 8804, “Annual Return for Partnership Withholding Tax (Section 1446),” for any taxable year will be allowed an automatic 5-month extension of time to file the return after the date prescribed for filing the return if the partnership files an application under this section in accordance with paragraph (b) of this section. No additional extension will be allowed pursuant to §1.6081-1(b) beyond the automatic 5-month extension provided by this section. In the case of a partnership described in §1.6081-5(a)(1), the automatic extension of time to file allowed under this section runs concurrently with an extension of time to file granted pursuant to §1.6081-5.

(2) An electing large partnership (ELP) required to file Form 1065-B, “U.S. Return of Income for Electing Large Partnerships,” for any taxable year will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the partnership files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), the partnership must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the later of—

(i) The date prescribed for filing the return of the partnership; or

(ii) The expiration of any extension of time to file granted under §1.6081-5(a); and

(3) File the application with the Internal Revenue Service office designated in the application’s instructions.

(c) Payment of section 7519 amount. An automatic extension of time for filing a partnership return of income granted under paragraph (a) of this section does not extend the time for payment of any amount due under section 7519, relating to required payments for entities electing not to have a required taxable year.

(d) Section 444 election. An automatic extension of time for filing a partnership return of income will run concurrently with any extension of time for filing a return allowed because of section 444, relating to the election of a taxable year other than a required taxable year.

(e) Effect of extension on partner. An automatic extension of time for filing a partnership return of income under this section does not extend the time for filing a partner’s income tax return or the time for the payment of any tax due on a partner’s income tax return.

(f) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the partnership a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the partnership’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(g) Penalties. See section 6698 for failure to file a partnership return.

(h) Special rule for applications for extensions of time to file returns due on or after July 1, 2008 and before January 1, 2009. A partnership required to file Form 1065, “U.S. Return of Partnership Income,” or Form 8804, “Annual Return for Partnership Withholding Tax (Section 1446),” on or after July 1, 2008 and before January 1, 2009, will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the partnership files an application under this section in accordance with paragraph (b) of this section.

(i) Effective/applicability dates. This section applies to applications for an automatic extension of time to file the partnership returns listed in paragraph (a) of this section filed on or after July 1, 2008.

(j) Expiration date. The applicability of this section expires on or before June 30, 2011.

Par. 5. Section 1.6081-3 is amended by revising paragraphs (a)(1) and (4) and (e) to read as follows:

(a) * * *

(1) An application must be submitted on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner.

* * * * *

(4) The application must include a statement listing the name and address of each member of the affiliated group if the affiliated group will file a consolidated return. Upon the timely filing of Form 7004, the 6-month extension of time to file shall be considered as granted to the affiliated group for the filing of its consolidated return or for the filing of each member’s separate return.

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(e) Effective/applicability dates. This section applies to requests for extension of time to file corporation income tax returns filed after July 1, 2008.

(a) In general. An individual who is required to file an individual income tax return will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the individual files an application under this section in accordance with paragraph (b) of this section. In the case of an individual described in §1.6081-5(a)(5) or (6), the automatic 6-month extension will run concurrently with the extension of time to file granted pursuant to §1.6081-5.

(b) Requirements. To satisfy this paragraph (b), an individual must—

(1) Submit a complete application on Form 4868, “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the later of—

(i) The date prescribed for filing the return; or

(ii) The expiration of any extension of time to file granted pursuant to §1.6081-5;

(3) File the application with the Internal Revenue Service office designated in the application’s instructions; and

(4) Show the full amount properly estimated as tax for the taxable year.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the individual a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 4868 or to the individual’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file an individual income tax return or failure to pay the amount shown as tax on the return. In particular, see §301.6651-1(c)(3) of this chapter (relating to a presumption of reasonable cause in certain circumstances involving an automatic extension of time for filing an individual income tax return).

(f) Effective/applicability dates. This section is applicable for applications for an automatic extension of time to file an individual income tax return filed after July 1, 2008.

(a) An extension of time for filing returns of income and for paying any tax shown on the return is hereby granted to and including the fifteenth day of the sixth month following the close of the taxable year in the case of—

(1) Partnerships which are required under section 6072(a) to file returns on the fifteenth day of the fourth month following the close of the taxable year of the partnership, and which keep their records and books of account outside the United States and Puerto Rico;

(2) Domestic corporations which transact their business and keep their records and books of account outside the United States and Puerto Rico;

(3) Foreign corporations which maintain an office or place of business within the United States;

(4) Domestic corporations whose principal income is from sources within the possessions of the United States;

(5) United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico; and

(6) United States citizens and residents in military or naval service on duty, including non-permanent or short term duty, outside the United States and Puerto Rico.

(b) In order to qualify for the extension under this section—

(1) A statement must be attached to the return showing that the person for whom the return is made is a person described in paragraph (a) of this section; or

(2) If a person described in paragraph (a) of this section requests additional time to file, the person must request the extension on or before the fifteenth day of the sixth month following the close of the taxable year and check the appropriate box on Form 4868, “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return,” or Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” whichever is applicable, or in any other manner prescribed by the Commissioner.

* * * * *

(f) Effective/applicability date. This section is applicable for returns of income due after July 1, 2008.

(a) In general. (1) Except as provided in paragraph (g) of this section, an estate or trust required to file an income tax return on Form 1041, “U.S. Income Tax Return for Estates and Trusts,” will be allowed an automatic 5-month extension of time to file the return after the date prescribed for filing the return if the estate or trust files an application under this section in accordance with paragraph (b) of this section. No additional extension will be allowed pursuant to §1.6081-1(b) beyond the automatic 5-month extension provided by this section.

(2) An estate or trust required to file an income tax return on Form 1041-N, “U.S. Income Tax Return for Electing Alaska Native Settlement Trusts,” or Form 1041-QFT, “U.S. Income Tax Return for Qualified Funeral Trusts,” for any taxable year will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the estate or trust files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), an estate or trust must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Show the amount properly estimated as tax for the estate or trust for the taxable year.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Effect of extension on beneficiary. An automatic extension of time to file an estate or trust income tax return under this section will not extend the time for filing the income tax return of a beneficiary of the estate or trust or the time for the payment of any tax due on the beneficiary’s income tax return.

(e) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the estate or trust a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the estate or trust’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(f) Penalties. See section 6651 for failure to file an estate or trust income tax return or failure to pay the amount shown as tax on the return.

(g) Special rule for applications for extensions of time to file returns due on or after July 1, 2008 and before January 1, 2009. An estate or trust required to file an income tax return on Form 1041, “U.S. Income Tax Return for Estates and Trusts,” on or after July 1, 2008 and before January 1, 2009, will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the estate or trust files an application under this section in accordance with paragraph (b) of this section.

(h) Effective/applicability dates. This section applies to applications for an automatic extension of time to file an estate or trust income tax return filed on or after July 1, 2008.

(i) Expiration date. The applicability of this section expires on or before June 30, 2011.

Par. 12. Section 1.6081-7 is added to read as follows:

(a) In general. A Real Estate Mortgage Investment Conduit (REMIC) required to file an income tax return on Form 1066, “U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return,” or Form 8831, “Excise Taxes on Excess Inclusions of REMIC Residual Interests,” for any taxable year will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the REMIC files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), a REMIC must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Show the full amount properly estimated as tax for the REMIC for the taxable year.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Effect of extension on residual or regular interest holders. An automatic extension of time to file a REMIC income tax return under this section will not extend the time for filing the income tax return of a residual or regular interest holder of the REMIC or the time for the payment of any tax due on the residual or regular interest holder’s income tax return. An automatic extension will also not extend the time for payment of any excise tax on excess inclusions of REMIC residual interests.

(e) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the REMIC a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the REMIC’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(f) Penalties. See sections 6698 and 6651 for failure to file a REMIC income tax return or failure to pay an amount shown as tax on the return.

(g) Effective/applicability dates. This section applies to applications for an automatic extension of time to file REMIC income and excise tax returns listed in paragraph (a) of this section filed after July 1, 2008.

(a) In general. A withholding agent or intermediary required to file a return on Form 1042, “Annual Withholding Tax Return for U.S. Source Income of Foreign Persons,” for any taxable year will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the withholding agent or intermediary files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), a withholding agent or intermediary must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the withholding agent or intermediary a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the withholding agent or intermediary’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file a return or failure to pay an amount shown as tax on the return.

(f) Effective/applicability dates. This section is applicable for applications for an automatic extension of time to file the withholding tax return for U.S. source income of foreign persons return filed after July 1, 2008.

(a) In general. An administrator or sponsor of an employee benefit plan required to file a return under the provisions of chapter 61 or the regulations under that chapter on Form 5500 (series), “Annual Return/Report of Employee Benefit Plan,” will be allowed an automatic extension of time to file the return until the 15th day of the third month following the date prescribed for filing the return if the administrator or sponsor files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), an administrator or sponsor must—

(1) Submit a complete application on Form 5558, “Application for Extension of Time To File Certain Employee Plan Returns,” or in any other manner as may be prescribed by the Commissioner; and

(2) File the application with the Internal Revenue Service office designated in the application’s instructions on or before the date prescribed for filing the information return.

(c) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the administrator or sponsor a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 5558 or to the administrator or sponsor’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(d) Penalties. See sections 6652, 6692, and the Employee Retirement Income Security Act of 1974 for penalties for failure to file a timely and complete Form 5500.

(e) Effective/applicability dates. This section is applicable for applications for an automatic extension of time to file Forms 5500 for plan years ending after July 1, 2008.

(a) In general. Under section 6075(b)(2), an automatic six-month extension of time granted to a donor to file the donor’s return of income under §1.6081-4 of this chapter shall be deemed also to be a six-month extension of time granted to file a return on Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.” If a donor does not obtain an extension of time to file the donor’s return of income under §1.6081-4 of this chapter, the donor will be allowed an automatic 6-month extension of time to file Form 709 after the date prescribed for filing if the donor files an application under this section in accordance with paragraph (b) of this section. In the case of an individual described in §1.6081-5(a)(5) or (6) of this chapter, the automatic 6-month extension of time to file Form 709 will run concurrently with the extension of time to file granted pursuant to §1.6081-5 of this chapter.

(b) Requirements. To satisfy this paragraph (b), a donor must—

(1) Submit a complete application on Form 8892, “Application for Automatic Extension of Time To File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the later of—

(i) The date prescribed for filing the return; or

(ii) The expiration of any extension of time to file granted pursuant to §1.6081-5 of this chapter; and

(3) File the application with the Internal Revenue Service office designated in the application’s instructions.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an extension at any time by mailing to the donor a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 8892, or to the donor’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file a gift tax return or failure to pay the amount shown as tax on the return.

(f) Effective/applicability dates. This section is applicable for applications for an extension of time to file Form 709 filed after July 1, 2008.

(a) In general. A skip person distributee required to file a return on Form 706-GS(D), “Generation-Skipping Transfer Tax Return For Distributions,” or a trustee required to file a return on Form 706-GS(T), “Generation-Skipping Transfer Tax Return For Terminations,” will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing if the skip person distributee or trustee files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), a skip person distributee or trustee must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the skip person distributee or trustee a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the skip person distributee or trustee’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file a generation-skipping transfer tax return or failure to pay the amount shown as tax on the return.

(f) Effective/applicability dates. This section is applicable for applications for an automatic extension of time to file a generation-skipping transfer tax return filed after July 1, 2008.

(a) In general. A “disqualified person” for purposes of section 4951(e)(4) who engaged in self-dealing with a Nuclear Decommissioning Fund, and must report tax due under section 4951 on Form 1120-ND, “Return for Nuclear Decommissioning Funds and Certain Related Persons,” will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the disqualified person files an application under this section in accordance with paragraph (b) of this section. For guidance on requesting an extension of time to file Form 1120-ND for purposes of reporting contributions received, income earned, administrative expenses of operating the fund, and the tax on modified gross income, see §1.6081-3 of this chapter.

(b) Requirements. To satisfy this paragraph (b), a disqualified person must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the disqualified person a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the disqualified person’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file or failure to pay the amount shown as tax on the return.

(f) Effective/applicability dates. This section is applicable for applications for an automatic extension of time to file a return to report taxes due under section 4951 for self-dealing with a Nuclear Decommissioning Fund filed after July 1, 2008.

(a) In general. A Real Estate Investment Trust (REIT) required to file a return on Form 8612, “Return of Excise Tax on Undistributed Income of Real Estate Investment Trusts,” or a Regulated Investment Company (RIC) required to file a return on Form 8613, “Return of Excise Tax on Undistributed Income of Regulated Investment Companies,” will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the REIT or RIC files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), a REIT or RIC must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the REIT or RIC a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the REIT or RIC’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file or failure to pay the amount shown as tax on the return.

(f) Effective/applicable dates. This section is applicable for applications for an automatic extension of time to file a return due under chapter 44, filed after July 1, 2008.

(a) In general. A taxpayer required to file a return on Form 8725, “Excise Tax on Greenmail,” will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the taxpayer files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), a taxpayer must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the taxpayer a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the taxpayer’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file or failure to pay the amount shown as tax on the return.

(f) Effective/applicable dates. This section is applicable for applications for an automatic extension of time to file a return due under chapter 54, filed after July 1, 2008.

(a) In general. A taxpayer required to file a return on Form 8876, “Excise Tax on Structured Settlement Factoring Transactions,” will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the taxpayer files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), the taxpayer must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the taxpayer a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the taxpayer’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file or failure to pay the amount shown as tax on the return.

(f) Effective/applicability dates. This section is applicable for applications for an automatic extension of time to file a return due under chapter 55, filed after July 1, 2008.

(a) In general. A trust required to file a return on Form 3520-A, “Annual Information Return of Foreign Trust With a U.S. Owner,” will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the trust files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), a trust must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner; and

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions.

(c) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the trust a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the trust’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(d) Penalties. See section 6677 for failure to file information returns with respect to certain foreign trusts.

(e) Effective/applicability dates. This section is applicable for applications for an automatic extension of time to file an information return with respect to certain foreign trusts listed in paragraph (a) of this section filed after July 1, 2008.

Final and temporary regulations in this issue of the Bulletin amend 26 CFR part 1 relating to section 6081. The text of the temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the amendments. The temporary regulations allow certain pass-through entities (most partnerships, estates, and certain trusts) to obtain an automatic five-month extension of time to file certain returns if an application is submitted on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.”

In a previous notice of proposed rulemaking by cross-reference to temporary regulations, it was proposed that pass-through entities be allowed to obtain an automatic six-month extension of time to file. In response to comments received regarding the automatic six-month extension of time to file, and in an attempt to alleviate overall taxpayer burden, the Treasury Department and IRS have determined that the automatic extension period for certain pass-through entities should be five months. As a result, a majority of taxpayers with ownership interests in these pass-through entities will receive, in a timely manner, information returns from the entities that they need in order to complete their own income tax returns before those returns are due. For example, an individual income taxpayer with a six-month extension of time to October 15^th to file the Form 1040, “U.S. Individual Income Tax Return” will now receive a Schedule K-1, “Partner’s Share of Income, Deductions, Credits, etc.” from a partnership in which the taxpayer holds an interest shortly after the partnership files its Form 1065, “U.S. Return of Partnership Income” on its extended due date of September 15^th.

Although the Treasury Department and IRS are attempting to alleviate overall taxpayer burden, because the automatic extension period for certain pass-through entities will now be five months, comments are requested on whether a five-month extension of time to file for these pass-through entities might increase overall taxpayer burden. Please follow the instructions in the “Comments and Requests for a Public Hearing” portion of this preamble.

This notice of proposed rulemaking also proposes to amend 26 CFR part 54. This amendment would allow filers of Form 8928, “Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code,” to obtain an automatic six-month extension of time to file the return after the date prescribed for filing the return.

[The text of proposed §1.6081-2 is the same as the text of §1.6081-2T(a) through (i) published elsewhere in this issue of the Bulletin].

Par. 3. Section 1.6081-6 is added to read as follows:

[The text of proposed §1.6081-6 is the same as the text of §1.6081-6T(a) through (h) published elsewhere in this issue of the Bulletin].

(a) In general. An employer, other person or health plan that is required to file a return on Form 8928, “Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code,” will be allowed an automatic 6-month extension of time to file the return after the date prescribed for filing the return if the employer, other person or health plan files an application under this section in accordance with paragraph (b) of this section.

(b) Requirements. To satisfy this paragraph (b), an employer, other person or health plan must—

(1) Submit a complete application on Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” or in any other manner prescribed by the Commissioner;

(2) File the application on or before the date prescribed for filing the return with the Internal Revenue Service office designated in the application’s instructions; and

(3) Remit the amount of the properly estimated unpaid tax liability on or before the date prescribed for payment.

(c) No extension of time for the payment of tax. An automatic extension of time for filing a return granted under paragraph (a) of this section will not extend the time for payment of any tax due on such return.

(d) Termination of automatic extension. The Commissioner may terminate an automatic extension at any time by mailing to the estate or trust a notice of termination at least 10 days prior to the termination date designated in such notice. The Commissioner must mail the notice of termination to the address shown on the Form 7004 or to the estate or trust’s last known address. For further guidance regarding the definition of last known address, see §301.6212-2 of this chapter.

(e) Penalties. See section 6651 for failure to file a pension excise tax return or failure to pay the amount shown as tax on the return.

(f) Effective/applicability date. This section is applicable for applications for an automatic extension of time to file a return due under chapter 43, filed on or after the date final regulations are published in the Federal Register.