This announcement provides a settlement initiative under which taxpayers and the Internal Revenue Service may resolve the tax treatment of certain tax transactions. Taxpayers have until January 23, 2006, to file an election indicating their intent to participate in this initiative.

This notice announces that Treasury and the Service will amend the regulations under section 6012 of the Code to create a new exception to the filing requirement for nonresident alien individuals who are required to file a return under the present regulations solely because they earn wages that are effectively connected with a United States trade or business.

2006 covered compensation tables; permitted disparity. The covered compensation tables under section 401 of the Code for the year 2006 are provided for use in determining contributions to defined benefit plans and permitted disparity.

Minimum funding standards; disaster relief. As a result of the enactment of section 403(b) of the Katrina Emergency Tax Relief Act of 2005, the Internal Revenue Service, the Employee Benefits Security Administration of the Department of Labor, and the Pension Benefit Guaranty Corporation are providing additional disaster relief pertaining to the minimum funding standards of certain employee benefit plans. Notice 2005-60 superseded.

This notice provides new rules for determining the amount of income tax employers must withhold under section 3402 of the Code from wages paid for services performed by nonresident alien employees within the United States. The notice also provides new rules for use by nonresident alien employees in completing Form W-4, Employee's Withholding Allowance Certificate. The rules are effective with respect to wages paid on or after January 1, 2006.

2006 social security contribution and benefit base; domestic employee coverage threshold. The Commissioner of the Social Security Administration has announced (1) the OASDI contribution and benefit base for remuneration paid in 2006 and self-employment income earned in taxable years beginning in 2006, and (2) the domestic employee coverage threshold amount for 2006.

This notice supersedes Notice 2004-57, 2004-2 C.B. 376, while confirming that the Service will continue to assess and collect the tax under section 4251 of the Code on all taxable communications services, including communications services similar to those at issue in American Bankers Insurance Group v. United States, 408 F.3d 1328 (11th Cir. 2005), rev'g 308 F. Supp. 2d 1360 (S.D. Fla. 2004). Notice 2004-57 superseded.

This notice provides guidance on certain excise tax provisions that were added or affected by the Energy Policy Act of 2005 and the Safe, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA). This notice also provides additional guidance relating to mechanical dye injection of diesel fuel and kerosene. Notice 2005-4 modified.

South Asia earthquake; designation as a qualified disaster. The South Asia earthquake that struck Pakistan, India, and Afghanistan on October 8, 2005, is designated a qualified disaster for purposes of section 139 of the Code.

This revenue ruling provides tables of covered compensation under § 401(l)(5)(E) of the Internal Revenue Code (the “Code”) and the Income Tax Regulations, thereunder, for the 2006 plan year.

Section 401(l)(5)(E)(i) defines covered compensation with respect to an employee, as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act (the "Act") for each year in the 35-year period ending with the year in which the employee attains social security retirement age.

Section 401(l)(5)(E)(ii) of the Code states that the determination for any year preceding the year in which the employee attains social security retirement age shall be made by assuming that there is no increase in covered compensation after the determination year and before the employee attains social security retirement age.

Section 1.401(l)-1(c)(34) defines the taxable wage base as the contribution and benefit base under section 230 of the Act.

Section 1.401(l)-1(c)(7)(i) defines covered compensation for an employee as the average (without indexing) of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the employee attains (or will attain) social security retirement age. A 35-year period is used for all individuals regardless of the year of birth of the individual. In determining an employee’s covered compensation for a plan year, the taxable wage base for all calendar years beginning after the first day of the plan year is assumed to be the same as the taxable wage base in effect as of the beginning of the plan year. An employee’s covered compensation for a plan year beginning after the 35-year period applicable under §1.401(l)-1(c)(7)(i) is the employee’s covered compensation for a plan year during which the 35-year period ends. An employee’s covered compensation for a plan year beginning before the 35-year period applicable under §1.401(l)-1(c)(7)(i) is the taxable wage base in effect as of the beginning of the plan year.

Section 1.401(l)-1(c)(7)(ii) provides that, for purposes of determining the amount of an employee’s covered compensation under §1.401(l)-1(c)(7)(i), a plan may use tables, provided by the Commissioner, that are developed by rounding the actual amounts of covered compensation for different years of birth.

For purposes of determining covered compensation for the 2006 year, the taxable wage base is $94,200.

The following tables provide covered compensation for 2006:

The principal author of this revenue ruling is Lawrence Isaacs of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, please contact the Employee Plans taxpayer assistance telephone service at 1-877-829-5500, between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday (a toll-free number). Mr. Isaacs’s telephone number is (202) 283-9710 (not a toll-free number).

This notice provides new rules for determining the amount of income tax employers must withhold under section 3402 of the Internal Revenue Code (Code) from wages paid for services performed by nonresident alien employees within the United States. This notice also provides new rules for use by nonresident alien employees in completing Form W-4, Employee’s Withholding Allowance Certificate. The rules for employers and employees are effective with respect to wages paid on or after January 1, 2006.

Because certain nonresident alien employees were experiencing overwithholding of income tax on their wages for services performed within the United States, the Internal Revenue Service has reconsidered the requirements for determining the amount of income tax to be withheld under section 3402 from the wages of nonresident alien employees. These new rules are designed to provide for withholding on the wages of a nonresident alien employee that more closely approximates the income tax liability of the nonresident alien.

This notice is effective with respect to wages paid to nonresident alien employees on or after January 1, 2006. However, with respect to wages paid prior to January 1, 2007, the Internal Revenue Service will not assert an employer’s liability for underpayments of income tax withholding and related interest and penalties resulting solely from the failure to apply the new withholding procedure in this notice to payments of wages made to nonresident alien employees, provided the employer has made a good faith effort to implement the withholding requirements in this notice as soon as possible. The transitional relief in the previous sentence does not affect the liability of employees for federal income tax.

The principal author of this notice is Alfred G. Kelley of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this notice, contact Mr. Kelley at (202) 622-6040 (not a toll-free call).

This notice announces that Treasury and the Internal Revenue Service (the Service) will amend Treas. Reg. §1.6012-1(b)(2) by adding a new exception from the filing requirement for nonresident alien individuals. Subject to the limitation described below, the new exception will eliminate the filing requirement for nonresident alien individuals who are required to file a return under the present regulations solely because they earn wages that are effectively connected with a United States trade or business in the tax year. This new exception will only apply to those nonresident alien individuals who earn wages that are less than the amount of one personal exemption under section 151 of the Internal Revenue Code (the Code).

In general, section 6012(a)(1)(A) requires every individual having gross income in the taxable year that equals or exceeds the exemption amount to make a return with respect to income taxes under subtitle A of the Code. Flush language at the end of section 6012(a) provides that, subject to certain conditions, limitations, and exceptions and under such regulations as may be prescribed by the Secretary, nonresident alien individuals subject to the tax imposed by section 871 of the Code may be exempted from the requirement of making returns under section 6012.

Under §1.6012-1(b) of the regulations, every nonresident alien individual who is engaged in a trade or business in the United States at any time during the taxable year must make a return on Form 1040NR, U.S. Nonresident Alien Income Tax Return. For this purpose, it is immaterial that the gross income for the taxable year is less than the minimum amount specified in section 6012(a) for making a return. Thus, a nonresident alien individual who is engaged in a trade or business in the United States at any time during the taxable year is required to file a return on Form 1040NR, even though (a) he has no income that is effectively connected with the conduct of a trade or business in the United States, (b) he has no income from sources within the United States, or (c) his income is exempt by reason of an income tax convention or any section of the Code.

Section 864(b) of the Code defines the term “trade or business within the United States” to include the performance of personal services within the United States at any time during the taxable year. Section 864(b)(1) provides an exception to this definition for the performance of personal services (A) for a nonresident alien individual, foreign partnership or foreign corporation not engaged in a trade or business within the United States; or (B) for an office or place of business maintained in a foreign country or in a possession of the United States by an individual who is a citizen or resident of the United States or by a domestic partnership or corporation, by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of 90 days during the taxable year and whose compensation for such services does not exceed $3,000 in the aggregate.

Assuming the nonresident alien individual engages in a United States trade or business under section 864(b) because he performs personal services in the United States during the tax year, §1.864-4(c)(6)(ii) of the Income Tax Regulations provides that wages, salaries, compensations, or other remunerations received by the nonresident alien individual for performing those personal services in the United States constitute income that is effectively connected for the taxable year with the conduct of a trade or business in the United States by that individual.

Section 871(b) of the Code provides that a nonresident alien individual engaged in a trade or business within the United States during the taxable year is taxable as provided in sections 1 or 55 of the Code, on his taxable income that is effectively connected with the conduct of a trade or business within the United States.

Section 873(b)(3) of the Code allows a nonresident alien individual a deduction under section 151 of the Code for only one personal exemption, unless the individual is a resident of a contiguous country or a national of the United States. The personal exemption amount under section 151 for tax year 2006 is $3,300.

Treasury and the Service will amend the regulations under §1.6012-1(b)(2) to eliminate the Form 1040NR filing requirement for a nonresident alien individual who earns less than the amount of one personal exemption as United States source wages that are effectively connected with a United States trade or business (effectively connected wages) and who is required to file a United States income tax return because of those wages. All nonresident alien individuals who earn effectively connected wages are entitled to at least one personal exemption under section 151. Therefore, by amending the regulations, the new exception would treat nonresident alien individuals who earn effectively connected wages in an amount that is less than the amount of one personal exemption more similarly to United States citizens and residents who earn wages of less than the exemption amount. The exception would apply even if the nonresident alien individual also has United States source fixed or determinable annual or periodical gains, profits, or income (FDAP), provided that his United States tax liability for such income is fully satisfied by the withholding of tax at source.

The amendment to the regulations, however, will not affect the filing requirements of a nonresident alien individual who seeks a refund of an overpayment of United States tax, has a United States income tax liability with respect to FDAP that is not fully satisfied by withholding at source, or who has income exempt or partially exempt by reason of an income tax convention or any section of the Code.

Regulations incorporating the guidance set forth in this notice will apply to tax years beginning on or after January 1, 2006. Until such regulations are issued, nonresident alien individuals may rely on this notice.

The principal author of this notice is Paul J. Carlino of the Office of Chief Counsel (International). For further information regarding this notice, contact Mr. Carlino at (202) 622-3840 (not a toll-free call).

This notice designates the South Asia earthquake occurring on October 8, 2005, as a qualified disaster for purposes of § 139 of the Internal Revenue Code, and describes the affected areas.

A magnitude 7.6 earthquake struck Pakistan, India, and Afghanistan on October 8, 2005, with resulting aftershocks. The earthquake inflicted enormous damage in South Asia. Published reports currently estimate that in Pakistan and India, more than 54,000 people were killed, over 82,000 were injured, and almost 3 million were displaced from their homes. USAID Fact Sheet No. 14 (October 24, 2005). This notice provides U.S. tax relief that will facilitate assistance to certain victims of the South Asia earthquake.

Section 139(a) provides that gross income shall not include any amount received by an individual as a qualified disaster relief payment.

Section 139(b) provides that a qualified disaster relief payment includes any amount paid to or for the benefit of an individual—

(1) to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses (not otherwise compensated for by insurance or otherwise) incurred as a result of a qualified disaster, or

(2) to reimburse or pay reasonable and necessary expenses (not otherwise compensated for by insurance or otherwise) incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster.

Under § 139(c)(3) the term “qualified disaster” includes a disaster resulting from an event that is determined by the Secretary to be of a catastrophic nature.

The Commissioner of Internal Revenue, pursuant to delegation by the Secretary, has determined that the South Asia earthquake occurring on October 8, 2005, is an event of a catastrophic nature under § 139(c)(3). Therefore, the South Asia earthquake is designated as a qualified disaster under § 139 in the affected areas of these countries: Pakistan, India, and Afghanistan.

Because this notice designates the South Asia earthquake as a qualified disaster under § 139, employer-sponsored private foundations may choose to provide disaster relief to employee victims of the earthquake. Like all organizations described in § 501(c)(3), private foundations should exercise due diligence when providing disaster relief as set forth in Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations.

The principal author of this notice is Shareen S. Pflanz of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Shareen S. Pflanz at (202) 622-4920 (not a toll-free call).

The government’s recent loss in American Bankers Ins. Group v. United States, 408 F.3d 1328 (11th Cir. 2005), rev’g 308 F. Supp. 2d 1360 (S.D. Fla. 2004), has caused some to question the continued applicability of the communications excise tax imposed by § 4251 of the Internal Revenue Code.

The government did not seek review by the United States Supreme Court in American Bankers Insurance Group. Nevertheless, the government will continue to litigate this important issue. The government is prosecuting appeals in five different circuits. The appeal in Office Max v. United States, 309 F. Supp. 2d 984 (N.D. Ohio 2004), has been briefed and argued, and the parties are awaiting a decision.

This notice confirms that the Service will continue to assess and collect the tax under § 4251 on all taxable communications services, including communications services similar to those at issue in the cases. Collectors should continue to collect the tax, including from taxpayers within the jurisdiction of the United States Court of Appeals for the Eleventh Circuit.

Persons paying for taxable communications services (taxpayers) are required to pay the tax to a collecting agent (the person receiving the payment on which tax is imposed), and collecting agents are required to pay over the tax to the United States Treasury and to file the required returns. Taxpayers may preserve any claims for overpayments by filing administrative claims for refund with the Service pursuant to § 6511. Taxpayers are advised, however, that these claims, including claims for which appellate venue would lie in the United States Court of Appeals for the Eleventh Circuit, will not be processed while there are pending cases in other United States Courts of Appeals.

Notice 2004-57, 2004-2 C.B. 376, is superseded.

The principal author of this notice is Barbara B. Franklin of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Cynthia A. McGreevy at (202) 622-3130 (not a toll-free call).

This notice modifies Notice 2005-4, 2005-2 I.R.B. 289, as modified by Notice 2005-24, 2005-12 I.R.B. 757, and Notice 2005-62, 2005-35 I.R.B. 443 (Notice 2005-4), by providing guidance on certain excise tax provisions in the Internal Revenue Code (Code) that were added or affected by the Energy Policy Act of 2005 (Pub. L. 109-58) (Energy Act) and the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (Pub. L. 109-59) (SAFETEA). These provisions relate to the Leaking Underground Storage Tank Trust Fund (LUST) tax, treatment of kerosene for use in aviation, credit card sales of taxable fuel to certain exempt entities, and diesel-water fuel emulsions. This notice also provides additional guidance relating to mechanical dye injection of diesel fuel and kerosene.

Notice 2005-4 provides guidance on certain excise tax provisions in the Code that were added or affected by the American Jobs Creation Act of 2004 (Pub. L. 108-357) (AJCA).

Except as provided in sections 4 and 5, references to Code provisions in this notice are to the Code as in effect on October 1, 2005. References to regulations are to the Manufacturers and Retailers Excise Tax Regulations.

(a) In general—(1) This section describes the changes made by § 1362 of the Energy Act to the LUST tax.

(2) Except as provided in paragraph (b) of this section, tax is imposed at the LUST financing rate of $0.001 per gallon on removals, entries, and sales of gasoline, diesel fuel, and kerosene that are described as exempt transactions in §§ 48.4081-4(b) and (d) (relating to certain uses of gasoline blendstocks), 48.4082-1 (relating to dyed fuel), 48.4082-5 (relating to diesel fuel and kerosene in Alaska), 48.4082-7 (relating to kerosene used for feedstock purposes), and § 4 of Notice 2005-4 (relating to kerosene used in aircraft). Thus, for example, the LUST tax applies to removals of dyed diesel fuel for use as heating oil or use on a farm for farming purposes and to removals of kerosene for use in foreign trade or in military aircraft.

(3) Section 6430 of the Code provides that no refund, credit, or payment under §§ 6411-6430 shall be made for the LUST tax, except in the case of fuels destined for export.

(4) Under this notice, the position holder is liable for the LUST tax imposed on removals of kerosene directly into the fuel supply tank of an aircraft for a use exempt from tax under § 4041(c). See § 3(c)(1)(iii) of this notice. Thus, for example, for kerosene removed directly into the fuel tank of an aircraft for use in foreign trade or for use in military aircraft, the position holder is liable for tax of $0.001 per gallon. For kerosene removed directly into the fuel tank of an aircraft for use in commercial aviation other than foreign trade, the aircraft operator continues to be liable for tax of $0.044 per gallon (the sum of the $0.043-per-gallon rate under § 4081(a)(2)(C) and the $0.001-per-gallon LUST tax). See § 4(d) of Notice 2005-4 (relating to § 4081(a)(4)).

(b) Removals for export—(1) In general. The LUST tax is not imposed on the removal, entry, or sale of diesel fuel or kerosene for export if—

(i) The conditions of § 48.4082-1 (relating to the exemption for dyed fuel) are met; and

(ii) The person otherwise liable for tax has an unexpired export certificate (described in paragraph (b)(2) of this section) from the buyer of the fuel and has no reason to believe any information in the certificate is false.

(2) Export certificate. The export certificate is a statement that is signed under penalties of perjury by a person with authority to bind the buyer and contains—

(i) The name, address, and employer identification number of the buyer;

(ii) The name, address, and employer identification number of the person otherwise liable for tax;

(iii) The number of gallons and type of fuel; and

(iv) A statement that the fuel is for export.

(c) Effective date. This section is effective October 1, 2005.

(a) Overview. This section describes the changes made by § 11161 of SAFETEA to the tax on kerosene used in aviation. Section 4 of Notice 2005-4 is modified in accordance with these changes, as explained in this section.

(b) Kerosene for use in aviation. SAFETEA replaced the $0.219-per-gallon tax on “aviation-grade kerosene” with rules taxing all “kerosene” at a rate of $0.244 per gallon unless a reduced rate applies as described in paragraph (c) of this section. “Kerosene” has the meaning given to the term by § 48.4081-1(b).

(c) Reduced rates of tax on kerosene used in aviation—(1) In general—(i) For kerosene removed directly from a terminal into the fuel tank of an aircraft for use in noncommercial aviation, the rate of tax is $0.219 per gallon. See section 4081(a)(2)(C)(ii), as added by SAFETEA. Except as provided in paragraph (c)(1)(ii) or (iii) of this section, a tax rate of $0.219 per gallon also applies if kerosene is removed into any aircraft from a refueler truck, tanker, or tank wagon that is loaded with kerosene from a terminal that is located within an airport (without regard to whether the terminal is located within a secured area of an airport) and the other requirements of § 4081(a)(3)(A) and (B) are met. Section 4081(a)(3). The other requirements of § 4081(a)(3)(A) and (B) relate to the characteristics of the refueler trucks, tankers, and tank wagons, the fueling operations at the terminal, and the restriction against loading kerosene into vehicles registered for highway use at such terminal.

(ii) For kerosene removed directly into the fuel tank of an aircraft for use in commercial aviation, the rate of tax is $0.044 per gallon and the rules relating to refueler trucks, tankers, and tank wagons at secured airport terminals were not affected by the SAFETEA changes. Thus, in the case of kerosene removed into an aircraft from a refueler truck, tanker or tank wagon, the $0.044 rate applies only if the truck, tanker, or tank wagon is loaded at a terminal located in a secured area of the airport. See § 4(d) of Notice 2005-4.

(iii) For kerosene removed directly into the fuel tank of an aircraft for a use exempt from tax under § 4041(c) (such as use in foreign trade or in an aircraft for the exclusive use of a state or local government), including removals from a qualifying refueler truck, tanker, or tank wagon loaded at a terminal located within a secured area of an airport, the rate of tax is $0.001 per gallon.

(2) Secured airport terminals. The list of qualifying airport terminals located within secured areas of airports identified in § 4(d)(2)(ii) of Notice 2005-4 is modified by adding the following airport terminals: Los Angeles International Airport, T-95-CA-4812; and Federal Express Corporation Memphis Airport, T-62-TN-2220.

(3) Exigent circumstances—(i) Section 4081(a)(3)(A)(iv) provides that, except in the case of exigent circumstances identified by the Secretary in regulations, the rule treating refueler trucks, tankers, and tank wagons as part of a terminal located within an airport applies only if no vehicle registered for highway use is loaded with kerosene at the terminal. If, in such exigent circumstances, a highway vehicle is loaded with kerosene at a terminal located within an airport, tax is imposed on the removal at a rate of $0.244 per gallon.

(ii) This notice identifies as an exigent circumstance the refueling of the off-airport storage tanks used exclusively by the governmental public safety agencies in Oahu. Accordingly, kerosene may be removed from the terminal located within Honolulu International Airport, T-91-HI-4570, into a vehicle registered for highway use for this purpose only without affecting the treatment of refueler trucks, tankers, and tank wagons as part of the terminal.

(iii) This notice identifies as an exigent circumstance the fuel shortages caused by Hurricane Katrina and its aftermath. Accordingly, kerosene may be removed at the following terminals into vehicles registered for highway use without affecting the treatment of refueler trucks, tankers, and tank wagons as part of the terminal. Effective September 2, 2005 and remaining in effect through November 1, 2005: Louis Armstrong New Orleans International Airport, T-72-LA-2356; Memphis International Airport, T-62-TN-2212; Dallas Love Field Airport, T-75-TX-2663; Dallas Fort Worth International Airport, T-75-TX-2673; and George Bush Intercontinental Airport, Houston, T-76-TX-2818. See IR-2005-95 (September 7, 2005). Effective October 1, 2005 and remaining in effect through November 1, 2005: Federal Express Corporation Memphis Airport, T-62-TN-2220.

(d) Full rate buyers. The registration requirement for full rate buyers in sections 4(f)(3) and (4) of Notice 2005-4 is not applicable after September 30, 2005.

(e) Claims for kerosene used in commercial aviation (other than foreign trade)—(1) Before October 1, 2005, § 6427(l)(4)(B) provided that if an ultimate purchaser of aviation-grade kerosene used for a nontaxable use waived its right to an income tax credit or payment, in the form and manner prescribed by the Secretary, and assigned such right to the registered ultimate vendor, then the ultimate vendor, and not the ultimate purchaser, could claim a payment or income tax credit. Section 4(h) of Notice 2005-4 provides rules regarding the conditions to allowance of a credit or payment, the form of the claim, the content of the claim, and a model waiver. Before October 1, 2005, these rules were applicable with respect to aviation-grade kerosene used in domestic commercial aviation and aviation-grade kerosene used in foreign trade, for export, for use in certain helicopter and fixed-wing air ambulance uses, for the exclusive use of a nonprofit educational organization, for use in an aircraft owned by an aircraft museum, for use in a military aircraft, and for other nontaxable uses such as use as heating oil.

(2) Effective October 1, 2005, the rules in § 4(h) of Notice 2005-4 are applicable only with respect to kerosene used in commercial aviation (as defined in § 4083(b)) and, even in the case of commercial aviation, the rules do not apply to kerosene used as supplies for vessels or aircraft within the meaning of § 4221(d)(3). Thus, after September 30, 2005, an aircraft operator may continue to claim a credit or payment for kerosene used in domestic commercial aviation or may waive such right to the ultimate vendor, but the operator may not claim a credit or payment under § 6427(l)(4)(B) for fuel used in foreign trade or other nontaxable uses.

(3) If an aircraft operator buys kerosene partly for use in commercial aviation and partly for use in noncommercial aviation, the following rules apply:

(i) The operator may identify, either at the time of the purchase or after the kerosene has been used, the amount of kerosene that will be (or has been) used in commercial aviation and either claim or waive the right to any credit or payment under paragraph (e)(2) of this notice with respect to such kerosene. The credit or payment related to the amount that will be (or has been) used in noncommercial aviation may be claimed under paragraph (f) of this section (relating to use in noncommercial aviation).

(ii) Alternatively, if the operator does not identify the amount of kerosene that will be (or has been) used in commercial aviation, the operator may provide a certificate under paragraph (f) of this section with respect to the kerosene (including the portion of the kerosene that will (or may) be used in commercial aviation). In such a case, “for a nonexempt use in noncommercial aviation” should be checked on the certificate. To the extent the kerosene purchased under the certificate is used in commercial aviation, the certificate will be treated, in the case of kerosene taxed at a rate of $0.244 per gallon, as a waiver of the right to claim a credit or payment under paragraph (e)(2) of this section with respect to $0.025 of the tax imposed on such kerosene. The operator may claim the remainder of the income tax credit or payment ($0.175 per gallon) with respect to such kerosene but may not waive the right to the credit or payment after providing a certificate with respect to the kerosene under paragraph (f) of this section.

(f) Claims for kerosene used in noncommercial aviation and foreign trade—(1) In general. Under § 6427(l)(5)(B), as added by SAFETEA, only the registered ultimate vendor may claim a credit or payment for kerosene used in foreign trade or used (other than by a state or local government) in noncommercial aviation. For claims related to kerosene used by states and local governments in noncommercial aviation, see § 4 of this notice. Noncommercial aviation means any use of an aircraft not described in § 4083(b). An ultimate vendor is a person that sells kerosene to an ultimate purchaser for use in noncommercial aviation or foreign trade.

(2) Conditions to allowance of credit or payment. A claim for an income tax credit or payment with respect to kerosene is allowable under § 6427(l)(5)(B) if—

(i) Tax was imposed on the kerosene under § 4081;

(ii) The claimant sold the kerosene to the ultimate purchaser for use in noncommercial aviation or foreign trade;

(iii) The claimant is a registered ultimate vendor;

(iv) The ultimate purchaser has provided a Certificate of Ultimate Purchaser of Kerosene for Use in Foreign Trade or Use (Other than by State or Local Government) in Noncommercial Aviation to the ultimate vendor as provided in paragraph (f)(4) of this section; and

(v) The claimant has filed a timely claim for a credit or payment and the claim contains all the information required in paragraph (f)(3) of this section.

(3) Form of claim; content of claim. Rules similar to the rules in § 4(h)(4) and (5) of Notice 2005-4 are applicable to claims for credit or payment under § 6427(l)(5)(B), except that the claimant is not required to satisfy § 4(h)(5)(iv) of Notice 2005-4 (relating to possession of a waiver by the ultimate purchaser).

(4) Certificate—(i) In general. The certificate to be provided to the ultimate vendor for purposes of § 6427(l)(5)(B) consists of a statement that is signed under penalties of perjury by a person with authority to bind the buyer, is in substantially the same form as the model certificate in paragraph (f)(4)(ii) of this section and contains all of the information necessary to complete such model certificate. A new certificate must be given if any information in the current certificate changes. The claimant must have the certificate at the time the credit or payment is claimed under § 6427(l)(5)(B). The certificate may be included as part of any business records normally used to document a sale. The certificate expires on the earlier of the following dates:

(A) The date one year after the effective date of the certificate.

(B) The date a new certificate is provided.

(ii) Model certificate.

(iii) Transition rules. A Waiver for Use by Ultimate Purchasers of Aviation-Grade Kerosene Used in Nontaxable Uses executed before October 1, 2005, as described in § 4(h)(6) of Notice 2005-4, will be treated as a certificate described in this section, and a new certificate will not have to be given until such waiver expires. In addition, for kerosene sold for a nonexempt use in noncommercial aviation, the business records used to document sales occurring before November 1, 2005, will be treated as a certificate described in this section (unless the records clearly establish that the kerosene will be used on the highway).

(5) Registration. Claims under this paragraph (f) may be made only by a registered ultimate vendor. Registration rules similar to those in § 4(h)(7) of Notice 2005-4 are applicable to ultimate vendors of kerosene used in foreign trade or used (other than by a state or local government) in noncommercial aviation. A person that is registered under § 4101 under Activity Letter “UA” (Ultimate vendor that sells aviation-grade kerosene for a nontaxable use or any use in commercial aviation) is treated as registered for purposes of claims filed with respect to kerosene used in foreign trade or used (other than by a state or local government) in noncommercial aviation. In addition, for claims relating to sales before January 1, 2006, for a nonexempt use in noncommercial aviation, an ultimate vendor that has obtained a valid TIN will be treated as registered.

(g) Claims for kerosene used by states and local governments. For rules relating to claims by registered ultimate vendors of kerosene used in aviation by state and local governments, see § 4 of this notice and § 48.6427-9.

(h) Effective date. Except as otherwise noted, this section is effective October 1, 2005, and applies to kerosene on which tax is imposed after September 30, 2005. A person making a claim for credit or payment under paragraph (e) or (f) of this section may use any reasonable method and assumptions to establish that tax was imposed after September 30, 2005, on the kerosene to which the claim relates.

(a) Overview. This section describes the changes made by § 11163 of SAFETEA under which a person extending credit on a credit card (credit card issuer) may claim a credit, refund, or payment with respect to taxable fuel sold to a state or local government for its exclusive use or to a nonprofit educational organization for its exclusive use (exempt users). Section 7 of Notice 2005-4 is modified in accordance with these changes, as explained in this section.

(b) Identity of the claimant—(1) Gasoline—(i) Section 6416(b)(2) generally provides that the tax paid on gasoline is deemed to be an overpayment if the gasoline was sold to an exempt user. Section 6402(a) generally allows credits or refunds of overpayments to the person that made the overpayment (that is, the person that paid the tax to the government).

(ii) If gasoline is purchased with a credit card issued to an exempt user, § 6416(a)(4)(B) provides that the credit card issuer is treated as the person that paid the tax if prescribed conditions are met. Among other conditions, the credit card issuer must be registered by the Service.

(iii) If gasoline is purchased by an exempt user without the use of a credit card, § 6416(a)(4)(A) provides that the ultimate vendor of the gasoline is treated as the person (and the only person) that paid the tax, but only if the vendor is registered by the Service.

(iv) Guidance for claims made by ultimate vendors under § 6416(a)(4) and (b)(2) is set forth in § 7 of Notice 2005-4. The guidance set forth in § 7(a)(1)(ii) of Notice 2005-4 and § 2 of Notice 2005-24 (relating to oil company credit cards) does not apply to sales after December 31, 2005.

(v) If the conditions of § 6416(a)(4) are not met, a claim under § 6416 may not be made by the person that actually paid the tax to the government. Instead, the exempt user may make a claim under § 6421(c). For any particular transaction, a claim may not be made under § 6421(c) if the tax is credited or refunded under § 6416 to the credit card issuer or the ultimate vendor.

(2) Diesel fuel and kerosene—(i) If taxed diesel fuel or kerosene is purchased with a credit card issued to a state, § 6427(l)(6)(D) provides that the credit card issuer may, under prescribed conditions, claim a credit or payment related to the tax. Among other conditions, the credit card issuer must be registered by the Service.

(ii) If diesel fuel or kerosene is purchased by a state without the use of a credit card, § 6427(l)(6)(C) provides that the ultimate vendor of the diesel fuel or kerosene may claim a credit or payment related to the tax, but only if the vendor is registered by the Service and other prescribed conditions are met. Under § 6427(l)(6)(A), the state may not claim a credit or payment related to the tax paid on diesel fuel or kerosene purchased without the use of a credit card. Claims made by ultimate vendors under § 6427(l)(6)(A) are described in § 48.6427-9.

(iii) If diesel fuel or kerosene is purchased with a credit card issued to a state, but the credit card issuer is not registered by the Service (or does not meet certain other conditions), the credit card issuer must collect the amount of the tax and the state is the proper claimant under § 6427(l)(6)(D).

(c) Definitions.

State has the meaning given to the term by § 48.4081-1(b).

Nonprofit educational organization has the meaning given to the term in § 4221(d)(5).

(d) Registration—(1) In general. Application for registration is made on Form 637, Application for Registration (For Certain Excise Tax Activities), in accordance with the instructions for that form. Form 637 will be revised to include an activity letter for credit card issuers.

(2) Requirements. The Service will register an applicant as a credit card issuer only if the Service—

(i) Determines that the applicant is engaged in business as a credit card issuer and in that business extends credit to state and local governments or nonprofit educational organizations by means of a credit card used for the purchase of taxable fuel; and

(ii) Is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant and any related person (as defined in § 48.4101-1(b)(5)).

(3) Separate entity not required. Section 48.4101-1(a)(4) provides that each business unit that has, or is required to have, a separate employer identification number is treated as a separate person. The Service will not require a credit card issuer to form a separate business entity for the issuance of credit cards to qualify for registration under § 4101 or to claim a refund, credit, or payment under § 6416(a)(4)(B) or 6427(l)(6)(D).

(4) Current UV and UP registrants. A person that is registered under § 4101 under Activity Letter “UV” or “UP” is treated as registered for purposes of claims under this section related to the tax on fuels that are purchased without the use of a credit card and will not have to be reregistered unless notified to do so by the Service.

(e) Conditions to allowance of a credit, refund or payment. A claim for credit, refund, or payment is allowable under § 6416(a)(4)(B) or § 6427(l)(6)(D) if—

(1) The claimant is a registered credit card issuer;

(2) The claim relates to the tax on taxable fuel sold to a state for its exclusive use or gasoline sold to a nonprofit educational organization for its exclusive use;

(3) The fuel was purchased with a credit card issued by the claimant;

(4) Tax was imposed on the fuel under § 4041 or 4081; and

(5) The claimant has filed a timely claim for credit, refund, or payment and the claim contains all of the information required in paragraph (g) of this section.

(f) Form of claim—(1) Gasoline claims. For taxes paid on gasoline, claims for credit or refund under § 6416(a)(4) are made on Form 8849, Claim for Refund of Excise Taxes.

(2) Diesel fuel or kerosene claims. For taxes imposed on diesel fuel or kerosene, claims for payment under § 6427(l)(6) are made on Form 8849, Claim for Refund of Excise Taxes, and claims for income tax credit under §§ 34 and 6427(l)(6) are made on Form 4136, Credit for Federal Tax Paid on Fuels.

(g) Content of claim. Each claim under § 6416(a)(4)(B) or § 6427(l)(6)(D) for a credit, refund, or payment must contain the following information with respect to the gasoline, diesel fuel or kerosene covered by the claim:

(1) The total number of gallons.

(2) The claimant’s registration number.

(3) A statement that the claimant—

(i) Has not collected the amount of the tax from the person who purchased the taxable fuel; or

(ii) Has obtained written consent from the ultimate purchaser to the allowance of the credit or refund.

(4) A statement that the claimant—

(i) Has repaid or agreed to repay the amount of the tax to the ultimate vendor;

(ii) Has obtained the written consent of the ultimate vendor to the allowance of the credit or refund; or

(iii) Has otherwise made arrangements which directly or indirectly provide the ultimate vendor with reimbursement of such tax.

(5) A statement that the claimant has in its possession an unexpired certificate described in paragraph (h) of this section and has no reason to believe any information in the certificate is false.

(h) Certificate—(1) In general. The certificate to be provided to the credit card issuer consists of a statement that is signed under penalties of perjury by a person with authority to bind the state or nonprofit educational organization that purchased the fuel with the issuer’s credit card, is in substantially the same form as the model certificate in paragraph (h)(2) of this section, and contains all of the information necessary to complete such model certificate. A new certificate must be given if any information in the current certificate changes. The certificate may be included as part of any business records normally used to document a sale. The certificate expires on the earlier of the following dates:

(i) The date two years after the effective date of the certificate.

(ii) The date a new certificate is provided.

(2) Model certificate.

(3) Current certificates held by credit card issuers. A certificate also meets the conditions of this paragraph (h) if it is similar to the certificate described in paragraph (h)(2) of this section and was obtained by the credit card issuer for purposes of processing a claim under § 6416 or 6427 as in effect before January 1, 2006. These certificates expire on the earlier of January 1, 2007, or the expiration date on the certificate.

(i) Effective date. This section is effective January 1, 2006, and applies to claims relating to fuel sold to its ultimate purchaser on or after that date.

This section describes the changes made by § 1343 of the Energy Act regarding diesel-water fuel emulsion. Effective January 1, 2006, the rate of tax imposed by § 4081 is reduced for diesel-water fuel emulsion that meets the requirements described in § 4081(a)(2)(D). These requirements include the registration under § 4101 of the person liable for tax on the removal or sale of the diesel-water fuel emulsion. Section 6427(m) provides that a credit or payment is allowable if a person uses diesel fuel taxed at the full rate to produce diesel-water fuel emulsion described in § 4081(a)(2)(D) that is sold or used in such person’s trade or business. The amount of the credit is equal to the excess of the tax imposed on the diesel fuel in the diesel-water fuel emulsion over the amount of tax that would have been imposed on a taxable removal of the diesel-water fuel emulsion. Under this notice, each person that is claiming a credit or payment for a diesel-water fuel emulsion also must be registered by the Service. A person that is registered under Activity Letter “S” or “M” will be treated as being registered for purposes of applying §§ 4081(a)(2)(D) and 6427(m) to any removal, sale, or use occurring before January 1, 2007.

(a) Background. As amended by AJCA, § 4082(a) generally provides that the exemption for dyed diesel fuel and dyed kerosene will not apply unless, among other conditions, the fuel is indelibly dyed “by mechanical injection” in accordance with regulations that the Secretary shall prescribe. This requirement for mechanical injection is effective on the 180^th day after the date on which these regulations are issued. Temporary regulations implementing this requirement were issued on April 26, 2005 (T.D. 9199, 2005-19 I.R.B 1003 [70 FR 21332]). Thus, the effective date of the temporary regulations is October 24, 2005.

(b) Transition rules. Treasury and the Service are concerned that many taxpayers, particularly those in areas affected by Hurricanes Katrina and Rita, may not be able to comply with the specific requirements of the temporary regulations by October 24. In addition, some of these requirements may be modified in final regulations. Accordingly, the following transition rules will apply between October 24, 2005, and the date that is 180 days after the date of publication of final regulations in the Federal Register:

(1)(i) Any means of dyeing by mechanical injection will be deemed to meet the “mechanical injection” requirements of § 4082(a) if the dyeing system includes measures to resist tampering that are consistent with customary business security practices. Thus, mechanical injection systems at a terminal are not required to meet the specific requirements of § 48.4082-1T(d) and no penalty will be imposed under § 6715A(a)(2) for a failure to meet those specific requirements.

(ii) In the case of a malfunction of a system described in section (b)(1)(i) of this section, fuel dyed by manual dyeing will be deemed to meet the requirements of § 4082(a) if the interval between the first occurrence of manual dyeing and the last does not exceed 72 hours (excluding any Saturday, Sunday, or legal holiday that is within the interval) and the facility operator keeps adequate records describing the circumstances surrounding the malfunction. The Service may withdraw an operator’s right to dye by manual dyeing if the Service cannot verify the accuracy of such dyeing.

(2) A mixture containing diesel fuel or kerosene will be treated as being dyed by mechanical injection if—

(i) The mixture consists of at least 80 percent diesel fuel or kerosene and the remaining portion is a liquid, such as biodiesel, (“other liquid”) that is not diesel fuel or kerosene;

(ii) The diesel fuel or kerosene in the mixture was dyed by mechanical injection;

(iii) The diesel fuel or kerosene and the other liquid are combined at a facility that is not a terminal; and

(iv) The mixture meets the specifications of § 48.4082-1(b) (relating to dye type and concentration) when it is removed from the facility where the diesel fuel or kerosene and the other liquid are combined.

Notice 2005-4 is modified as described in this notice.

The Office of Management and Budget has waived application of the Paperwork Reduction Act with respect to the collections of information contained in this notice.

The principal authors of this notice are Deborah Karet, Taylor Cortright, Susan Athy, and William Blodgett of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, please contact Ms. Karet (concerning LUST and kerosene for use in aviation), Ms. Cortright (concerning credit cards), or Ms. Athy (concerning diesel water fuel emulsions) at (202) 622-3130. Mr. Blodgett (concerning dye injection) can be reached at (202) 622-3090. These are not toll-free calls.

The Internal Revenue Service, the Department of Labor’s Employee Benefits Security Administration (“EBSA”) and the Pension Benefit Guaranty Corporation (“PBGC”) are providing relief in connection with certain employee benefit plans because of damage caused by Hurricane Katrina (“Katrina”). The relief provided by this notice is in addition to the relief already provided by the Service, the EBSA and the PBGC to victims of Katrina. This relief is provided in accordance with section 403(b) of the Katrina Emergency Tax Relief Act of 2005 (“KETRA”), Pub. L. No. 109-73.

Section 412(a) of the Internal Revenue Code (“Code”) and § 302(a) of the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406 (“ERISA”) provide that, in order for a plan to meet the minimum funding standards of the Code and ERISA, the plan must not have an accumulated funding deficiency as of the end of each plan year. Section 412(c)(10) of the Code and § 302(c)(10) of ERISA provide that, for purposes of satisfying the minimum funding requirements of the Code and ERISA, any contributions for a plan year made by an employer by the end of the 8¹/₂-month period following the end of such plan year are deemed to have been made on the last day of the year.

Section 412(d) of the Code and § 303 of ERISA provide for waivers of the minimum funding requirements in the event of temporary substantial business hardship. In order for a plan other than a multiemployer plan to receive such a waiver, § 412(d)(4) of the Code and § 303(d)(1) of ERISA provide that an application for such a waiver must be submitted no later than the 15^th day of the 3rd month beginning after the close of the plan year for which the waiver is sought. Thus, for example, in order for a plan to receive a waiver of the minimum funding requirements for the plan year ending on June 30, 2005, the sponsor of the plan must have submitted an application by September 15, 2005.

Section 412(m)(1) of the Code and § 302(e)(1) of ERISA require that, with respect to certain plans with a funded current liability percentage of less than 100 percent, a higher rate of interest be charged on any unpaid required quarterly installments. Section 412(m)(5) of the Code and § 302(e)(5) of ERISA increase the required quarterly installments to the amount needed to prevent a liquidity shortfall (as defined in those sections). For a plan with a calendar-year plan year, the due dates for the required installments for the 2005 calendar year are April 15, 2005, July 15, 2005, October 15, 2005, and January 15, 2006.

Section 412(n)(1) of the Code and § 302(f)(1) of ERISA provide that, with respect to certain plans with a funded current liability percentage of less than 100 percent, if the required installments or any other payment required under those sections are not made to the plan before the due date for such installment or other payment, and if the aggregate unpaid balance of such installments or other payments exceeds $1,000,000, then there shall be a lien in favor of the plan. The lien may be perfected by the PBGC.

Section 7508A(b) of the Code provides that, in the case of a pension or other employee benefit plan, or any sponsor, administrator, participant, beneficiary, or other person with respect to such plan, affected by a Presidentially declared disaster or a terroristic or military action, the Secretary of the Treasury may prescribe a period of up to 1 year which may be disregarded in determining the date by which any action is required or permitted to be completed. No plan shall be treated as failing to be operated in accordance with its terms solely because the plan disregards any period by reason of such relief. Parallel provisions are in Titles I and IV of ERISA.

Under the PBGC’s premium regulations, contributions may be taken into account for determining a plan’s unfunded vested benefits for a premium payment year or a plan’s entitlement to the full funding limit exemption from the variable-rate premium for a premium payment year if the contributions (1) are for a plan year before the premium payment year and (2) are made on or before the earlier of (a) the due date for payment of the variable-rate premium or (b) the date the variable-rate premium is paid (29 CFR §§ 4006.4(b)(2)(iv) and 4006.5(a)(5)). In addition, there are Title IV reporting and disclosure requirements arising from certain late contributions (e.g., 29 CFR § 4043.25, 29 CFR § 4011.10(b)(6)).

Section 403(b) of KETRA provides that, in the case of any taxpayer determined to be affected by the Presidentially declared disaster relating to Hurricane Katrina, any relief provided under § 7508A of the Code is extended to a period ending not earlier than February 28, 2006. In Notice 2005-60, 2005-39 I.R.B. 606, which was issued on September 2, 2005, the date for performing certain acts was extended to October 31, 2005.

As a result of the enactment of KETRA on September 23, 2005, the October 31, 2005, date described in Notice 2005-60 for compliance with specified Code requirements was extended to February 28, 2006. This notice provides corresponding extensions to February 28, 2006, for compliance with the ERISA requirements for which extensions were provided under Notice 2005-60. Accordingly, for any plan that is affected by Katrina (an “Affected Plan”), if the date described in § 412(c)(10) or 412(m) of the Code and § 302(c)(10) or 302(e) of ERISA for making contributions falls within the period beginning on August 29, 2005, and ending on February 27, 2006, the date such contributions must be made is postponed to February 28, 2006. Additionally, if the date described in § 412(d)(4) of the Code and § 303(d)(1) of ERISA for applying for a waiver for an Affected Plan falls within the period beginning on August 29, 2005, and ending on February 27, 2006, then the date such waiver must be applied for is postponed to February 28, 2006.

The definition of an Affected Plan for purposes of this notice is the same as for purposes of Notice 2005-60. Thus, a plan is an Affected Plan only if any of the following were located at the time of Katrina in any of the parishes or counties declared by the President to be eligible for individual assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288: the principal place of business of the employer that maintains the plan (in the case of a single-employer plan, determined disregarding the rules of § 414(b) and (c) of the Code); the principal place of business of employers that employ more than 50 percent of the active participants covered by the plan (in the case of a plan covering employees of more than one employer, determined disregarding the rules of § 414(b) and (c)); the office of the plan or the plan administrator; the office of the primary recordkeeper serving the plan; or the office of the enrolled actuary or other advisor that had been retained by the plan or the employer at the time of Katrina to determine the funding requirements for which the due date falls between the period beginning on August 29, 2005, and ending on February 27, 2006. For purposes of the preceding sentence, the term “office” includes only the worksite of those individuals, and the location of any records, necessary to determine the plan’s funding requirements for the relevant period.

The following rule applies under Title IV of ERISA for purposes of determining a plan’s unfunded vested benefits for a premium payment year or entitlement to the full funding limit exemption from the variable-rate premium for a premium payment year. For any plan for which this notice extends a date described in § 412(c)(10) of the Code and § 302(c)(10) of ERISA, contributions for any plan year before the premium payment year may be taken into account if they are made on or before the earlier of (1) the extended § 412(c)(10)/§ 302(c)(10) date under this notice or (2) the date of the plan’s variable-rate premium filing (or, if applicable, amended variable-rate premium filing) for the premium payment year. In addition, for any plan for which this notice extends a date described in § 412(c)(10) of the Code and § 302(c)(10) of ERISA, contributions are treated as timely for purposes of any Title IV reporting and disclosure requirement if they are made on or before the extended § 412(c)(10)/§ 302(c)(10) date under this notice.

Notice 2005-60 is superseded.

The principal author of this notice is Michael Rubin 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, between the hours of 8:30 a.m. and 6:30 p.m. Eastern Time, Monday through Friday (a toll-free number). Mr. Rubin may be reached at (202) 283-9588 (not a toll-free number).

Under authority contained in the Social Security Act (“the Act”), the Commissioner, Social Security Administration, has determined and announced (70 F.R. 61677, dated October 25, 2005) that the contribution and benefit base for remuneration paid in 2006, and self-employment income earned in taxable years beginning in 2006 is $94,200.

Under Title 31, Code of Federal Regulations, Part 10, an attorney, certified public accountant, enrolled agent, or enrolled actuary, in order to avoid the institution or conclusion of a proceeding for his or her disbarment or suspension from practice before the Internal Revenue Service, may offer his or her consent to suspension from such practice. The Director, Office of Professional Responsibility, in his discretion, may suspend an attorney, certified public accountant, enrolled agent, or enrolled actuary in accordance with the consent offered.

The following individuals have been placed under consent suspension from practice before the Internal Revenue Service:

Under Title 31, Code of Federal Regulations, Part 10, the Director, Office of Professional Responsibility, is authorized to immediately suspend from practice before the Internal Revenue Service any practitioner who, within five years from the date the expedited proceeding is instituted (1) has had a license to practice as an attorney, certified public accountant, or actuary suspended or revoked for cause or (2) has been convicted of certain crimes.

The following individuals have been placed under suspension from practice before the Internal Revenue Service by virtue of the expedited proceeding provisions:

Under Title 31, Code of Federal Regulations, Part 10, after notice and an opportunity for a proceeding before an administrative law judge, the following individuals have been placed under suspension from practice before the Internal Revenue Service:

Under Title 31, Code of Federal Regulations, Part 10, in lieu of a proceeding being instituted or continued, an attorney, certified public accountant, enrolled agent, or enrolled actuary, may offer his or her consent to the issuance of a censure. Censure is a public reprimand.

The following individuals have consented to the issuance of a Censure:

This announcement provides a settlement initiative under which taxpayers and the Internal Revenue Service (Service) may resolve the tax treatment of certain tax transactions. Section 2 describes who is eligible to participate. Section 3 describes eligible transactions. Section 4 describes the settlement terms. Section 5 sets out the settlement procedures. Taxpayers have until January 23, 2006, to notify the Service of their intent to participate in this settlement initiative.

A person that claimed a federal tax benefit from a transaction described in section 3, including a person that filed an amended return claiming a federal tax benefit from such a transaction, may participate in this initiative unless the person is an ineligible person as determined in this section. However, a person described in paragraph 1, 2, or 3 that would like to settle under this initiative may file an Election that identifies each reason the person is an ineligible person, and request that the Service permit settlement under this initiative.

The following transactions are eligible for settlement under this initiative. Stated by each transaction is the accuracy-related penalty on the underpayment attributable to the transaction that a person will be required to pay, unless one of the exceptions listed in paragraph E of section 4 applies.

A. General Tax Adjustments.

The Service will settle with persons under this initiative by disallowing the improperly claimed tax benefits associated with the transaction in a manner consistent with relevant published guidance providing the Service’s view of the transaction, the terms set forth in this announcement, and the facts and circumstances surrounding the specific transaction. For certain transactions, that may mean that the transaction will be treated as not having occurred for tax purposes and the person must concede all claimed tax benefits of the transaction for all taxable periods not barred by the period of limitations on assessment. For other transactions, that may mean that the transaction will be recharacterized in a manner consistent with its substance, and the person must concede all claimed tax benefits inconsistent with that substance. The person may also be required to make adjustments to basis, as appropriate, may be required to unwind or dissolve entities formed for the purpose of facilitating the transaction, and may have to pay applicable excise tax, employment tax, and self-employment tax liabilities.

These settlement terms apply for resolution of these transactions only, and do not constitute an interpretation of general rules to be applied in transactions not settled under this initiative.

A person may be required to change its method(s) of accounting to resolve a transaction. In such a situation, the settlement will impose the necessary accounting method change(s) with the following terms and conditions. The year of change will be the earliest taxable year in which the existing accounting method was used by the person in connection with the transaction, or the first taxable year for which the period of limitations has not expired. The Commissioner will grant consent under § 446(e) to make the method change on a retroactive basis. Where required, a § 481(a) adjustment will be imposed and taken into account entirely in the year of change.

Additional transaction-specific provisions apply in resolving these transactions. See Questions and Answers for Announcement 2005-80 at http://www.irs.gov for those specific provisions.

B. Transaction Costs Generally Allowed as an Ordinary Loss. A person settling under this initiative will be allowed to treat as an ordinary loss those transaction costs, including promoter fees and fees paid for accounting, appraisal, and legal services, actually paid by the taxpayer. If tax benefits, including benefits attributable to transaction costs, were claimed in a year barred by the period of limitations on assessment, then transaction costs will be allowed as an ordinary loss only to the extent the transaction costs exceed the tax benefits claimed in the barred years.

C. Tax-Exempt Entities. Where a transaction includes a tax-exempt entity as a party, resolution for the taxpayer may require the tax-exempt entity to disburse any funds received as a result of the transaction. As noted in paragraph A of this section 4, excise taxes may also apply. If an eligible taxpayer created a tax-exempt entity specifically for the purpose of accommodating an abusive or tax-avoidance transaction, or if an entity created by an eligible taxpayer has engaged in abusive transactions as a substantial part of its activities, the entity may also be required to agree to revocation of its exemption.

D. Multi-Party Transactions. The Service generally expects that all parties to a transaction (e.g., an employer and employee) will elect to resolve the transaction under this initiative. The failure of all parties to the transaction to elect to resolve the transaction under this initiative will not automatically preclude settlement for the electing parties. If all parties do not elect to participate in this initiative, however, the Service reserves the right to not settle with the electing parties if it is not in the interest of sound tax administration to do so.

E. Penalties.

F. Statute Extensions. Where the period of limitations on assessment of any applicable tax (e.g., income, excise, and employment taxes) will otherwise expire within 12 months after a person files an Election, the Service will ordinarily request that the person consent to extend the applicable period of limitations. If, after a request by the Service, the person does not consent to extend the applicable period of limitations as requested, the Service will treat that person as having withdrawn from this initiative.

A. Election. A person that wants to resolve a transaction through this settlement initiative must send an Election (Form 13750, Election to Participate in Announcement 2005-80 Settlement Initiative, and all required attachments) on or before January 23, 2006, to:

Form 13750, as well as the required schedules and attachments, must be used to elect to participate in this initiative and must be submitted to the address listed above. The form will be available at http://www.irs.gov. The Service reserves the right not to accept any Election not properly addressed and timely mailed within the meaning of § 7502.

A person who is under examination (or in Appeals), or who is a partner in a TEFRA partnership that is under examination (or in Appeals), must send a copy of the Election to the IRS examiner (or IRS Appeals Officer).

B. Required Information. The Election requests information necessary to process the election and determine the proper tax liabilities. The Service may request additional information and documents relating to the transaction, such as marketing materials and tax opinion letters. All requested information must be submitted under penalties of perjury to the Service within 30 days of the date of mailing of the request for additional information by the Service. The Service may grant an extension for good cause to persons who request additional time within the 30-day period. The Service will treat a person who fails to provide the required information within the applicable time period as having withdrawn from the initiative.

C. Passthrough Entities. If the participant in the transaction was a partnership, subchapter S corporation, or some other pass-through entity, then the person that would be liable for the tax (e.g., the partner or shareholder) who wants to participate in this initiative must submit an Election on his or her own behalf.

D. Closing Agreement and Payment. After receiving all the necessary information, the Service will prepare a closing agreement under § 7121 reflecting the terms of the settlement. The Service will send the closing agreement to the person (or the person’s corporate parent or representative, if appropriate), who must sign and return it to the Service within 30 days of the date of mailing by the Service. The Service may grant an extension for good cause.

A person settling under this initiative must fully pay all taxes, interest, and penalties due under the terms of the settlement when the signed closing agreement is returned to the Service. Any person unable to make full payment at that time must submit complete financial statements and agree to financial arrangements acceptable to the Service before the Service will execute a closing agreement. The Service will not execute a closing agreement under this initiative with anyone unable to reach acceptable financial arrangements.

E. Other Dispute Resolution Procedures. This settlement initiative does not affect conventional Service resolution procedures available to eligible persons that do not settle under this initiative. For eligible persons that forgo resolving eligible transactions under this settlement initiative and take their issues to Appeals, Appeals will carefully consider both the issue merits and the penalty, but such persons should not expect to receive a better offer in Appeals than that offered under this settlement initiative and may in fact receive a less favorable outcome.

The collection of information in this announcement has been reviewed and approved by the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545-1967. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB number.

The collection of information in this announcement is in Section 5, Application Process. This information is required to apply the terms of the settlement and determine the suitable amount of any penalties. Collecting information is required to obtain the benefit described in this announcement. The likely respondents are individuals, businesses, other for-profit institutions, and tax-exempt entities.

The estimated total annual reporting burden is 2,500 hours. The estimated annual burden per respondent varies from 3 to 7 hours, depending on individual circumstances, with an estimated average of 5 hours. The estimated number of respondents is 500. The estimated frequency of responses is one time per respondent.

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

The principal author of this announcement is Joe Spires of the Office of Chief Counsel. For further information regarding this announcement, questions can be sent to Settlement.Initiative@irscounsel.treas.gov or contact (202) 622-4284 (not a toll-free call).