Final regulations under section 6011 of the Code eliminate regulatory obstacles to the electronic filing of certain business income tax returns and other forms. Requiring signatures on attachments to a tax return, for example, can impede a taxpayer’s ability to file the return electronically. The regulations provide that in a number of situations, the signature on a taxpayer’s return covers attachments to that return.

Temporary and proposed regulations under section 63 of the Code provide rules relating to the reduction in taxable income under section 302 of the Katrina Emergency Tax Relief Act of 2005. The regulations affect taxpayers who provide housing in their principal residences to individuals displaced by Hurricane Katrina.

Temporary and proposed regulations under section 63 of the Code provide rules relating to the reduction in taxable income under section 302 of the Katrina Emergency Tax Relief Act of 2005. The regulations affect taxpayers who provide housing in their principal residences to individuals displaced by Hurricane Katrina.

This notice permits foreign corporations engaged, or treated as engaged, in a trade or business within the United States whose tax year end is on or after September 30, 2005, and whose original tax return due date (including extensions) was on or after June 15, 2006, and on or before August 17, 2006, to elect to apply the provisions of T.D. 9281, 2006-39 I.R.B. 517, for such tax return filing period. Such taxpayers may adopt the rules provided in T.D. 9281 only if the rules are adopted in their entirety on an amended return filed within 180 days of December 18, 2006.

This notice provides transition relief for the use of debit cards for medical expense reimbursements at certain merchants with non-health care related merchant category codes (MCC) and addresses the use of debit cards for medical expense reimbursements at stores with the Drug Stores and Pharmacies MCC. Rev. Rul. 2003-43 modified.

Extension of transition relief for certain partnerships and other pass-thru entities under section 470. This notice extends to taxable years that begin before January 1, 2007, the transition relief under section 470 of the Code provided under Notice 2005-29, 2005-1 C.B. 796, and Notice 2006-2, 2006-2 I.R.B. 278, to partnerships and certain other pass-thru entities that are treated as holding tax-exempt use property because of the application of section 168(h)(6). Notices 2005-29 and 2006-2 modified and superseded.

Retirement plans; qualification, list of changes. This notice sets forth a list of changes referred to in Rev. Proc. 2005-66, 2005-2 C.B. 509, pertaining to the statutory, regulatory, and guidance changes needed for certain requests to the Service.

Final regulations under section 6011 of the Code eliminate regulatory obstacles to the electronic filing of certain business income tax returns and other forms. Requiring signatures on attachments to a tax return, for example, can impede a taxpayer’s ability to file the return electronically. The regulations provide that in a number of situations, the signature on a taxpayer’s return covers attachments to that return.

This procedure provides the maximum vehicle values using the special valuation rules under sections 1.61-21(d) and (e) of the regulations. These values are indexed for inflation and must be adjusted annually by referring to the Consumer Price Index (CPI).

This document cancels a public hearing on proposed regulations (REG-142270-05, 2006-43 I.R.B. 791) relating to the railroad track maintenance credit determined for qualified railroad track maintenance expenditures paid or incurred by a Class II or Class III railroad and other eligible taxpayers during the taxable year.

Internal Revenue Service (IRS), Treasury.

Temporary regulations.

This document contains temporary regulations relating to the reduction in taxable income under section 302 of the Katrina Emergency Tax Relief Act of 2005. The regulations affect taxpayers who provide housing in their principal residences to individuals displaced by Hurricane Katrina. The text of the temporary regulations also serves as the text of the proposed regulations (REG-152043-05) set forth in the notice of proposed rulemaking on this subject in this issue of the Bulletin.

Effective Date: These regulations are effective December 11, 2006.

Applicability Date: For date of applicability, see §1.9300-1T(g).

Marnette M. Myers, 202-622-4920 (not a toll-free number).

Accordingly, 26 CFR part 1 is amended as follows:

The principal author of these regulations is Marnette M. Myers of the Office of the Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Internal Revenue Service (IRS), Treasury.

Final regulations and removal of temporary regulations.

This document contains final regulations designed to eliminate regulatory impediments to the electronic filing of certain income tax returns and other forms. These regulations affect business taxpayers who file income tax returns electronically. This document also makes conforming changes to certain current regulations.

Effective Date: These regulations are effective on December 8, 2006.

Applicability Date: These regulations apply with respect to taxable years beginning after December 31, 2002. The applicability of §§1.170A-11T, 1.556-2T, 1.565-1T, 1.936-7T, 1.1017-1T, 1.1368-1T, 1.1377-1T, 1.1502-21T(b)(3)(i) and (b)(3)(ii)(B), 1.1502-75T, 1.1503-2T, 1.6038B-1T(b)(1)(ii) and 301.7701-3T will expire on December 8, 2006.

Nathan Rosen, (202) 622-4910 (not a toll-free number).

Accordingly, 26 CFR parts 1, 301 and 602 is amended as follows:

The principal author of these regulations is Nathan Rosen, Office of Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division.

* * * * *

On August 17, 2006, the Treasury Department and the IRS published temporary and proposed income tax regulations T.D. 9281, 2006-39 I.R.B. 517 [71 FR 47443] under §1.882-5 regarding the determination of the interest expense allocable to effectively connected income of foreign corporations engaged, or treated as engaged in a trade or business within the United States, and under §1.884-1(e)(3) regarding the determination of branch profits tax under a liability reduction election. The temporary and proposed regulations revised final regulations under §1.882-5 issued in T.D. 8658, 1996-1 C.B. 161 [61 FR 15891] and under §1.884-1 issued in T.D. 8432, 1992-2 C.B. 157 [57 FR 41644].

The temporary regulations provided in T.D. 9281 are effective for the first tax year end for which a foreign corporate taxpayer’s original tax return due date (including extensions) is after August 17, 2006. Accordingly, for calendar-year taxpayers, the applicability date for T.D. 9281 is the tax year ended December 31, 2005, for which an original tax return due date (including extensions) was September 15, 2006. The temporary regulations provide a one-time, additional period for taxpayers whose original tax return due date (including extensions) is after August 17, 2006, and not later than December 31, 2006, to adopt the tax return elections covered by the temporary regulations on an amended income tax return within 180 days after the original allowable extended due date (whether or not the taxpayer timely filed its tax return by the original due date (without regard to extensions)).

This notice permits foreign corporations engaged, or treated as engaged in a trade or business within the United States whose tax year end is on or after September 30, 2005, and whose original tax return due date (including extensions) was on or after June 15, 2006, and on or before August 17, 2006, to elect to apply the provisions of T.D. 9281 for such earlier tax return filing period. Such taxpayers may adopt the rules provided in T.D. 9281, including the one-time amended return elections of §§1.882-5T(a)(7)(iii), 1.882-5T(d)(5)(ii)(B) and 1.884-1T(e)(3)(iv), and the mandatory conforming election in §1.882-5(b)(2)(ii)(A)(2) for such year only if the rules are adopted in their entirety on an amended return filed within 180 days of December 18, 2006. Accordingly, a taxpayer may not file an amended return for the tax period provided in this notice to adopt the annual published LIBOR rate election of §1.882-5T(d)(5)(ii)(B) and also remain on the 93-percent fixed ratio election and branch profits tax rules that were amended by the temporary rules in T.D. 9281. This notice does not change any of the temporary and proposed rules provided in T.D. 9281 other than allowing eligible taxpayers to elect to apply such rules to the earlier tax return filing period provided in this notice within 180 days of December 18, 2006.

The principal author of this notice is Gregory A. Spring of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Gregory A. Spring or Paul S. Epstein at (202) 622-3870 (not a toll-free call).

This notice provides transition relief with respect to the use of debit cards for medical expense reimbursements at certain merchants with non-health care related merchant category codes. It also addresses the use of debit cards for medical expense reimbursements at stores with the Drug Stores and Pharmacies merchant category code.

Rev. Rul. 2003-43, 2003-1 C.B. 935, sets forth rules for determining whether employer-provided medical expense reimbursements made through debit cards and other electronic media (debit cards) are excludable from gross income under §105(b) of the Internal Revenue Code. Situation 1 of the ruling describes an employer who sponsors both a health flexible spending arrangement (health FSA) and a health reimbursement arrangement (HRA). In conjunction with the health FSA and HRA, the employer permits electronic reimbursement of medical expenses through the use of debit cards. Under the arrangement, the cardholder’s use of the card is limited to merchants and service providers with specific merchant category codes related to health care. The ruling states that, “the card’s use is limited to physicians, pharmacies, dentists, vision care offices, hospitals, and other medical care providers.” Thus, the use of the card at other than these merchants or service providers would be rejected.

Situation 1 of Rev. Rul. 2003-43 also sets forth rules for substantiation of medical expenses and provides that debit card charges other than matched copayments, recurring expenses and real-time substantiation are treated as conditional pending confirmation of the charges through additional third-party information. If the debit card charges are subsequently identified as not qualifying for medical reimbursement, the employer must follow certain correction procedures with respect to the improper payments. The after-the-fact substantiation and correction procedures described in Situation 1 of Rev. Rul. 2003-43 are sometimes referred to as “pay and chase.” The ruling holds that employer-provided medical expense reimbursements made through the cards, as described in Situation 1, are excludable from gross income under § 105(b).

Notice 2006-69, 2006-31 I.R.B. 107, describes an inventory information approval system that may be used by merchants with non-health care related merchant category codes for substantiating employees’ claimed medical expenses. It has been determined that transition relief is warranted for a limited period, in order for these non-health care merchants to implement the inventory information approval system.

All supermarkets, grocery stores, discount stores, and wholesale clubs that do not have a merchant category code related to health care will nevertheless be deemed to be an “other medical care provider” within the meaning of Situation 1 of Rev. Rul. 2003-43 with respect to debit card transactions occurring on or before December 31, 2007. In addition, mail order vendors and web-based vendors that sell prescription drugs will also be deemed to be an “other medical care provider” with respect to debit card transactions occurring on or before December 31, 2007. As required in Rev. Rul. 2003-43, employers must substantiate all debit card charges incurred during the relief period and follow the correction procedures in Rev. Rul. 2003-43 with respect to any unsubstantiated payment. After December 31, 2007, health FSA or HRA debit cards may not be used at any store, vendor or merchant that does not have health care related merchant category codes unless the store, vendor or merchant has implemented an inventory information approval system as described in Notice 2006-69.

Under Rev. Rul. 2003-43, health FSA and HRA debit cards may be used at stores with the merchant category code for Drug Stores and Pharmacies. However, many stores with this code also sell a significant number of items which do not qualify as medical expenses under § 213(d). In order to curtail the ability to purchase non-medical items with such debit cards, as well as to provide a level playing field, the IRS and Treasury have determined that it is appropriate to require similar substantiation rules for all stores that sell a significant number of items which do not qualify as medical expenses under § 213(d).

Accordingly, after December 31, 2008, health FSA and HRA debit cards may not be used at stores with the Drug Stores and Pharmacies merchant category code unless (1) the store participates in the inventory information approval system as described in Notice 2006-69, or (2) on a store location by store location basis, 90 percent of the store’s gross receipts during the prior taxable year consisted of items which qualify as expenses for medical care under § 213(d) (including nonprescription medications as described in Rev. Rul. 2003-102, 2003-2 C.B. 559).

Rev. Rul. 2003-43, 2003-1 C.B. 935, is modified.

The principal author of this notice is Stephanie L. Caden of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Ms. Caden at (202) 622-6080 (not a toll-free call).

This notice contains the 2006 Cumulative List of Changes in Plan Qualification Requirements (2006 Cumulative List) described in section 4 of Rev. Proc. 2005-66, 2005-2 C.B. 509. The 2006 Cumulative List is to be used primarily by (1) plan sponsors of individually designed plans (that is, single employer individually designed defined contribution plans, including employee stock ownership plans (ESOPs), and single employer individually designed defined benefit plans) and plan sponsors of multiple employer plans that fall in Cycle B and (2) plan sponsors and practitioners in drafting defined benefit pre-approved plans (that is, defined benefit plans that are master and prototype (M&P) or volume submitter (VS) plans) for their first submission under the initial remedial amendment cycle under Rev. Proc. 2005-66. An individually designed plan is in Cycle B if the last digit of the employer identification number is 2 or 7. Multiple employer plans are also in Cycle B, pursuant to section 10.03 of Rev. Proc. 2005-66.

The list of changes in section V of this notice does not extend the deadline by which a plan must be amended to comply with any statutory, regulatory, or guidance changes. The general deadline for timely adoption of an interim or discretionary amendment can be found in section 5.05 of Rev. Proc. 2005-66. Section III of Notice 2005-95, 2005-2 C.B. 1172, provides that the general timing rules to adopt a plan amendment described in section 5.05 of Rev. Proc. 2005-66 do not apply if a statutory provision or guidance issued by the Service provides an earlier or later date than the deadline set forth in Rev. Proc. 2005-66.

Rev. Proc. 2005-66 sets forth procedures for issuing opinion, advisory, and determination letters and establishes the five-year remedial amendment cycle for individually designed plans and the six-year remedial amendment cycle for pre-approved plans. In addition, section 5.05 of Rev. Proc. 2005-66 provides the deadline for timely adoption of an interim amendment or discretionary amendment. Notice 2005-95 clarifies the interaction of the Rev. Proc. 2005-66 amendment timing deadlines for qualified plans with the deadlines set forth in statutory provisions or guidance issued by the Service.

Under section 4 of Rev. Proc. 2005-66, the Internal Revenue Service intends to annually publish a Cumulative List to identify statutory, regulatory and guidance changes that must be taken into account in submissions by plan sponsors to the Service for opinion, advisory and determination letters whose remedial amendment period begins on February 1st following issuance of the Cumulative List.

In Notice 2005-101, 2005-2 C.B. 1219, the Service published the 2005 Cumulative List of Changes in Plan Qualification Requirements (2005 Cumulative List). The 2005 Cumulative List is used primarily by plan sponsors of individually designed plans that fall in Cycle A that must be submitted to the Service for review by January 31, 2007. Thus, the 2005 Cumulative List set forth those plan qualification requirements that applied to individually designed defined contribution plans, including ESOPs, and individually designed defined benefit plans. Plan qualification requirements included statutory changes and guidance that became effective after December 31, 2001. The Service stated that plan language for guidance issued after December 13, 2005 would not be reviewed, unless it was on the 2005 Cumulative List.

In Notice 2004-84, 2004-2 C.B. 1030, the Service published the 2004 Cumulative List of Changes in Plan Qualification Requirements (2004 Cumulative List). The 2004 Cumulative List was used primarily by plan sponsors and practitioners in drafting defined contribution pre-approved plans (that is, defined contribution plans that are master and prototype or volume submitter plans) that were required to be submitted to the Service for review by January 31, 2006. Thus, the 2004 Cumulative List set forth only those plan qualification requirements that applied to defined contribution pre-approved plans. Plan qualification requirements included statutory changes and guidance that became effective after December 31, 2001 and any relevant qualification requirements not contained in the 2004 Cumulative List. The Service also stated that plan language for guidance issued after December 14, 2004 would not be reviewed, unless it was on the 2004 Cumulative List.

This notice is being issued in conjunction with the determination letter program for individually designed plans and multiple employer plans eligible for Cycle B and the opinion and advisory letter programs for M&P and VS defined benefit pre-approved plans. In Rev. Proc. 2005-66, the Service announced the opening of the initial five-year remedial amendment cycle. In accordance with Rev. Proc. 2005-66, the Service will start accepting determination letter applications for Cycle B individually designed plans (i.e., the last digit of the plan sponsor’s employer identification number is 2 or 7) and multiple employer plans beginning on February 1, 2007. The 12-month submission period for Cycle B individually designed plans and multiple employer plans will end January 31, 2008. In addition, the Service will start accepting opinion and advisory letter applications for defined benefit pre-approved plans beginning on February 1, 2007. The 12-month submission period for non-mass submitter sponsors and practitioners, word-for-word identical adopters, and M&P minor modifier placeholder applications will end January 31, 2008. The 9-month submission period for mass-submitters and national sponsors will end October 31, 2007, as provided in section 18.02 of Rev. Proc. 2005-66.

The 2006 Cumulative List, set forth in sections V and VI of this notice, informs plan sponsors of issues the Service has specifically identified for review in determining whether an individually designed plan, multiple employer plan or defined benefit pre-approved plan has been properly updated. Specifically, the 2006 Cumulative List reflects law changes under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Pub. L. 107-16 (with technical corrections made by the Job Creation and Worker Assistance Act of 2002 (JCWAA), Pub. L. 104-147), the Pension Funding Equity Act of 2004 (PFEA), Pub. L. 108-218, the American Jobs Creation Act of 2004 (AJCA), Pub. L. 108-357, the Gulf Opportunity Zone Act of 2005 (GOZA), Pub. L. 109-135, and certain law changes under the Pension Protection Act of 2006 (PPA ’06), Pub. L. 109-280, described below. In order to be qualified, a plan must comply with all relevant qualification requirements, not just those on the 2006 Cumulative List. The following items on the 2006 Cumulative List include guidance that has not yet been published: 2, 8, 11, 18, 25, 28, 29, 30, 31, 32, and 33.

Except for the items listed in section V and the items listed in section VI (to the extent provided in section IV) of this notice, the Service will not consider in its review of any opinion, advisory or determination letter application, for the submission period that begins February 1, 2007, any:

Terminating plans must include all law changes in effect at the time of termination. See section 8 of Rev. Proc. 2005-66 regarding plan termination.

Under section 1107 of PPA ’06, a plan amendment made pursuant to any amendment made by PPA ’06 generally may be retroactively effective, if, in addition to meeting the other applicable requirements, the amendment is made on or before the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011 in the case of a governmental plan). Section VI of the notice includes certain PPA ’06 law changes effective in 2006 and 2007.

Master and prototype plan sponsors and VS practitioners are required to include applicable PPA ’06 provisions listed in section VI of this notice in plan documents submitted with their opinion and advisory letter applications for pre-approved defined benefit plans. The Service will consider PPA ’06 in issuing opinion and advisory letters, and such letters may be relied on with respect to PPA ’06, but only for the PPA ’06 provisions listed in section VI of this notice under items 27, 28, 31, 32, and 33.

Individually designed plans and multiple employer plans can be amended, at the option of plan sponsors, to include the applicable PPA ’06 provisions listed in section VI of this notice. Individually designed plans and multiple employer plans must identify which PPA ’06 provisions the plan has been amended to include and the plan provision that reflects the PPA ’06 provision when submitting the determination letter application. However, the Service will not consider PPA ‘06 in issuing determination letters for individually designed plans and multiple employer plans, and such letters cannot be relied on with respect to any plan provision identified as reflecting PPA ’06, regardless of whether the plan has been amended to reflect PPA ’06 provisions.

Terminating plans must include the applicable PPA ’06 provisions that are in effect at the time of termination.

The following list consists of statutory provisions and associated guidance which reflect changes to plan qualification requirements. Miscellaneous guidance is also provided. The Service has identified below plan qualification requirements which were not on the 2005 Cumulative List as “(New)”. Thus, the 2006 Cumulative List contains those plan qualification requirements listed in the 2004 and 2005 Cumulative Lists as well as additional 2006 plan qualification requirements.

The following guidance contains sample or model amendments: Notice 2001-57, 2001-1 C.B. 279 (miscellaneous EGTRRA amendments); Rev. Rul. 2001-62, 2001-2 C.B. 632 (applicable mortality table); Rev. Proc. 2002-29, 2002-2 C.B. 1176 (required minimum distribution amendments); Rev. Proc. 2003-13, 2003-1 C.B. 317 (required language for deemed IRAs); Notice 2005-5 (automatic rollover); and Notice 2006-44, 2006-20 I.R.B. 889 (Roth section 401(k) plans).

The following is a list of PPA ’06 provisions effective in 2007 or earlier. See section IV of this notice for rules that apply to the PPA ’06 provisions identified below:

The principal author of this notice is Angelique V. Carrington of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1-877-829-5500 (a toll-free number) between the hours of 8:30 a.m. and 4:30 p.m. Eastern Time, Monday through Friday. Ms. Carrington may be reached at (202) 283-9888 (not a toll-free number).

This notice extends by one year the transition relief in Notice 2006-2, 2006-2 I.R.B. 278, and Notice 2005-29, 2005-1 C.B. 796, provided previously to partnerships and other pass-thru entities that are treated under § 470 of the Internal Revenue Code as holding tax-exempt use property solely as a result of the application of § 168(h)(6).

Section 848 of the American Jobs Creation Act of 2004, Pub. L. No. 108-357, 118 Stat. 1418, 1602 (AJCA), enacted on October 22, 2004, added § 470, which imposes new limitations on the deductibility of losses relating to tax-exempt use property. Under § 470(c)(2), “tax-exempt use property” has the meaning provided under § 168(h) (with certain modifications). Under § 168(h)(6), if any property that is not otherwise “tax-exempt use property” under § 168(h) is owned by a partnership that has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, and any allocation to the tax-exempt entity of partnership items is not a qualified allocation, an amount equal to the tax-exempt entity’s proportionate share of the property generally is treated as tax-exempt use property. Section 168(h)(6)(E) provides that, for purposes of determining whether property is tax-exempt use property, rules similar to those applicable to partnerships apply to other pass-thru entities. Section 849(a) of the AJCA provides that § 470 generally applies to leases entered into after March 12, 2004. Section 403(ff) of the Gulf Opportunity Zone Act of 2005, Pub. L. No. 109-135, 119 Stat. 2632, amended § 849(a) of the AJCA to provide that, in the case of property treated as tax-exempt use property solely by reason of § 168(h)(6), § 470 applies to property acquired after March 12, 2004.

Notice 2006-2 and Notice 2005-29 provide transition relief to partnerships and other pass-thru entities that are treated by § 470 as holding tax-exempt use property as a result of the application of § 168(h)(6). Specifically, Notice 2006-2 and Notice 2005-29 provide that, in the case of partnerships and pass-thru entities described in § 168(h)(6)(E), for taxable years that begin before January 1, 2006, and January 1, 2005, respectively, the Internal Revenue Service will not apply § 470 to disallow losses associated with property that is treated as tax-exempt use property solely as a result of the application of § 168(h)(6). Notice 2006-2 was issued subsequent to the receipt by the Treasury Department of a letter from the Chairmen and Ranking Members of both the Senate Finance Committee and House Ways and Means Committee requesting that the Treasury Department consider extending the transition relief provided in Notice 2005-29 for taxable years beginning before January 1, 2006.

On September 29, 2006, the Tax Technical Corrections Act of 2006 was introduced in Congress. This legislation addresses, among other things, the application of § 470 to partnerships and other pass-thru entities with tax-exempt use property as a result of § 168(h)(6). See H.R. 6264, 109th Cong. 2nd Sess. § 6(e) (2006) and S. 4026, 109th Cong. 2nd Sess. § 6(e) (2006). The Chairmen of the Senate Finance Committee and House Ways and Means Committee solicited comments regarding the legislation. As of the date of this notice, no congressional action has been taken on the legislation.

If enacted in its current form, the legislation will be effective retroactively, in the case of property treated as tax-exempt use property solely by reason of § 168(h)(6), to property acquired after March 12, 2004. However, the DESCRIPTION OF THE TAX TECHNICAL CORRECTIONS ACT OF 2006, as prepared by the Staff of the Joint Committee on Taxation (October 2, 2006, JCX-48-06), provides that it is not intended that the effective date of the legislation supersede the rules set forth in Notice 2006-2 and Notice 2005-29, with respect to the application of § 470 in the case of partnerships and other pass-thru entities, for taxable years of these entities beginning in 2005 and 2004, respectively. The Service will continue to apply the rules set forth in Notice 2005-29 and Notice 2006-2. Additionally, in the case of partnerships and pass-thru entities described in § 168(h)(6)(E), for taxable years beginning before January 1, 2007, the Service will not apply § 470 to disallow losses associated with property that is treated as tax-exempt use property solely as a result of the application of § 168(h)(6).

In the case of partnerships and other pass-thru entities described in § 168(h)(6)(E), for taxable years that begin before January 1, 2007, the Service will not apply § 470 to disallow losses associated with property that is treated as tax-exempt use property solely as a result of the application of § 168(h)(6). Abusive transactions involving partnerships and other pass-thru entities remain subject to challenge by the Service under other provisions of the tax law.

Notice 2006-2 and Notice 2005-29 are modified and superseded.

For further information regarding this notice, contact John Aramburu of the Office of the Associate Chief Counsel (Income Tax & Accounting) at (202) 622-4960 (not a toll-free call).

.01 This revenue procedure provides: (1) the maximum value of employer-provided vehicles first made available to employees for personal use in calendar year 2007 for which the vehicle cents-per-mile valuation rule provided under section 1.61-21(e) of the Income Tax Regulations may be applicable is $15,100 for a passenger automobile and $16,100 for a truck or van; (2) the maximum value of employer-provided vehicles first made available to employees for personal use in calendar year 2007 for which the fleet-average valuation rule provided under section 1.61-21(d) of the regulations may be applicable is $20,100 for a passenger automobile and $21,100 for a truck or van.

.01 If an employer provides an employee with a vehicle that is available to the employee for personal use, the value of the personal use must generally be included in the employee’s income and wages. Internal Revenue Code § 61; Treas. Reg. § 1.61-21.

.02 For employer-provided passenger automobiles (including trucks and vans) made available to employees for personal use that meet the requirements of section 1.61-21(e)(1) of the regulations, generally the value of the personal use may be determined under the vehicle cents-per-mile valuation rule of section 1.61-21(e). However, regulations section 1.61-21(e)(1)(iii)(A) provides that for a passenger automobile first made available after 1988 to any employee of the employer for personal use, the value of the personal use may not be determined under the vehicle cents-per-mile valuation rule for a calendar year if the fair market value of the passenger automobile (determined pursuant to regulations section 1.61-21(d)(5)(i) through (iv)) on the first date the passenger automobile is made available to the employee exceeds a specified dollar limit.

.03 For employer-provided vehicles available to employees for personal use for an entire year, generally the value of the personal use may be determined under the automobile lease valuation rule of section 1.61-21(d) of the regulations. Under this valuation rule, the value of the personal use is the Annual Lease Value. Provided the requirements of regulations section 1.61-21(d)(5)(v) are met, an employer with a fleet of 20 or more automobiles may use a fleet-average value for purposes of calculating the Annual Lease Values of the automobiles in the employer’s fleet. The fleet-average value is the average of the fair market values of all the automobiles in the fleet. However, section 1.61-21(d)(5)(v)(D) of the regulations provides that for an automobile first made available after 1988 to an employee of the employer for personal use, the value of the personal use may not be determined under the fleet-average valuation rule for a calendar year if the fair market value of the automobile (determined pursuant to regulations section 1.61-21(d)(5)(i) through (v)) on the first date the passenger automobile is made available to the employee exceeds a specified dollar limit.

.04 The maximum passenger automobile values for applying the vehicle cents-per-mile and the fleet-average value rules reflect the automobile price inflation adjustment of Code section 280F(d)(7). The method of calculating this price inflation amount for automobiles other than trucks and vans uses the “new car” component of the Consumer Price Index (CPI) “automobile component”. When calculating this price inflation adjustment for trucks and vans, the “new trucks” component of the CPI is used. This results in somewhat higher maximum values for trucks and vans. This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988, and is consistent with the change announced in Rev. Proc. 2003-75, 2003-2 C.B. 1018, for purposes of calculating depreciation deductions. See also Rev. Proc. 2004-20, 2004-1 C.B. 642, Rev. Proc. 2005-13, 2005-1 C.B. 759, and Rev. Proc. 2006-18, 2006-12 I.R.B. 645. For purposes of this revenue procedure, the term “trucks and vans” refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis.

.01 Maximum Automobile Value for Using the Cents-per-mile Valuation Rule. An employer providing a passenger automobile for the first time in calendar year 2007 for the personal use of any employee may determine the value of the personal use by using the vehicle cents-per-mile valuation rule in section 1.61-21(e) of the regulations if its fair market value on the date it is first made available does not exceed $15,100 for a passenger automobile other than a tuck or van, or $16,100 for a truck or van. If the fair market value of the passenger automobile exceeds this amount, the employer may determine the value of the personal use under the general valuation rules of regulations section 1.61-21(b) or under the special valuation rules of section 1.61-21(d) (Automobile lease valuation) or section 1.61-21(f) (Commuting valuation) if the applicable requirements are met. See Rev. Proc. 2005-48, 2005-2 C.B. 271, for guidance on determining the maximum value of passenger automobiles first made available during calendar year 2005, and Rev. Proc. 2006-15, 2006-5 I.R.B. 387, for guidance on determining the maximum value of passenger automobiles first made available during calendar year 2006.

.02 Maximum Automobile Value for Using the Fleet-Average Valuation Rule. An employer with a fleet of 20 or more automobiles providing an automobile for the first time in calendar year 2007 for the personal use of any employee for an entire year may determine the value of the personal use by using the fleet-average valuation rule in regulations section 1.61-21(d)(5)(v) to calculate the Annual Lease Values of the automobiles in the fleet. The fleet-average valuation rule may not be used to determine the Annual Lease Value of any automobile if its fair market value on the date it is first made available exceeds $20,100 for a passenger automobile other than a truck or van, or $21,100 for a truck or van. If all other applicable requirements are met, an employer with a fleet of 20 or more vehicles consisting of passenger automobiles other than trucks or vans as well as trucks and vans may use the fleet-average valuation rule as long as none of the vehicles exceed their respective maximum allowable values. If the fair market value of any passenger automobile in the fleet exceeds these amounts, the employer may determine the value of the personal use under regulations section 1.61-21(f) (Commuting valuation) or the general valuation rules of section 1.61-21(b) or may determine the Annual Lease Value of such automobile separately under the automobile lease valuation rule of section 1.61-21(d)(2) if the applicable requirements are met.

This revenue procedure applies to employer-provided passenger automobiles first made available to employees for personal use in calendar year 2007.

The principal author of this revenue procedure is Don M. Parkinson of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding the maximum automobile value for applying the valuation rules of regulations section 1.61-21(e)(1)(iii)(A) (the vehicle cents-per-mile valuation rule), and section 1.61-21(d)(5)(v)(D) (the fleet average valuation rule), contact Don M. Parkinson at (202) 622-6040 (not a toll-free call).

Internal Revenue Service (IRS), Treasury.

Notice of proposed rulemaking by cross-reference to temporary regulations.

In this issue of the Bulletin, the IRS is issuing temporary regulations (T.D. 9301) relating to the reduction in taxable income under section 302 of the Katrina Emergency Tax Relief Act of 2005. The regulations affect taxpayers that provide housing in their principal residences to individuals displaced by Hurricane Katrina. The text of those regulations also serves as the text of these proposed regulations.

Written or electronic comments must be received by March 12, 2007.

Send submissions to: CC:PA:LPD:RU (REG-152043-05), Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-152043-05), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically via the IRS Internet site at www.irs.gov/regs or the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-152043-05).

Concerning the proposed regulations, Marnette M. Myers, (202) 622-4920 (not a toll-free number); concerning submission of comments and/or to request a public hearing, Richard Hurst at Richard.A.Hurst@irscounsel.treas.gov.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

The principal author of these regulations is Marnette M. Myers of the Office of Associate Chief Counsel (Income Tax & Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Internal Revenue Service (IRS), Treasury.

Cancellation of notice of public hearing on proposed rulemaking by cross-reference to temporary regulations.

This document cancels a public hearing on proposed regulations (REG-142270-05, 2006-43 I.R.B. 791) by cross-reference to temporary regulations relating to the railroad track maintenance credit determined for qualified railroad track maintenance expenditures paid or incurred by a Class II or Class III railroad and other eligible taxpayers during the taxable year.

The public hearing, originally scheduled for January 9, 2007 at 10 a.m. is cancelled.

Kelly Banks of the Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration) at (202) 622-0392 (not a toll-free number).

A notice of proposed rulemaking by cross-reference to temporary regulations and notice of public hearing that appeared in the Federal Register on Friday, September 8, 2006 (71 FR 53053), announced that a public hearing was scheduled for January 9, 2006, at 10 a.m. in the IRS Auditorium, New Carrollton Federal Building, 5000 Ellin Road, Lanham, MD 20706. The subject of the public hearing is under section 45G of the Internal Revenue Code.

The public comment period expired on December 7, 2006. The notice of proposed rulemaking by cross-reference to temporary regulations and notice of public hearing instructed those interested in testifying at the public hearing to submit an outline of the topics to be addressed. As of Monday, December 11, 2006, no one has requested to speak. Therefore, the public hearing scheduled for January 9, 2007, is cancelled.