This notice alerts taxpayers to an amendment made to section 833 of the Code by the Patient Protection and Affordable Care Act (H.R. 3590, P.L. 111-148). In addition, this notice provides transitional relief and interim guidance on the interpretation and application of the amendment and requests comments on what further guidance, if any, is needed.

2010 base period T-bill rate. The “base period T-bill rate” for the period ending September 30, 2010, is published as required by section 995(f) of the Code.

This notice alerts taxpayers to an amendment made to section 833 of the Code by the Patient Protection and Affordable Care Act (H.R. 3590, P.L. 111-148). In addition, this notice provides transitional relief and interim guidance on the interpretation and application of the amendment and requests comments on what further guidance, if any, is needed.

This procedure provides two safe harbor methods of accounting for certain motor vehicle dealerships to (1) treat certain sales facilities as retail sales facilities for purposes of section 263A of the Code, and (2) be treated as resellers without production activities for purposes of section 263A. This procedure also provides procedures for obtaining automatic consent to change to the safe harbor methods. Rev. Proc. 2008-52 modified.

2011 cost-of-living adjustments; retirements plans, etc. This notice sets forth certain cost-of-living adjustments effective January 1, 2011, applicable to the dollar limitations on benefits and contributions under qualified retirement plans. The limitations that are adjusted by reference to § 415(d) generally will remain unchanged for 2011. Other limitations applicable to deferred compensation plans are also unchanged for 2011. This notice also contains cost-of-living adjustments for several pension-related amounts in restating the data in IR-2010-108 issued October 28, 2010.

A list is provided of organizations now classified as private foundations.

This notice alerts taxpayers to an amendment made to section 833 of the Code by the Patient Protection and Affordable Care Act (H.R. 3590, P.L. 111-148). In addition, this notice provides transitional relief and interim guidance on the interpretation and application of the amendment and requests comments on what further guidance, if any, is needed.

Nonshareholder contribution to capital under section 118(a). This procedure provides a safe harbor under section 118(a) of the Code for the treatment of certain grants to corporations from the National Energy Technology Laboratory of the Department of Energy under the Electric Drive Vehicle Battery and Component Manufacturing Initiative as authorized by the American Recovery and Reinvestment Act of 2009 (ARRA).

Nonshareholder contribution to capital under section 118(a). This procedure provides a safe harbor under section 118(a) of the Code for certain amounts received by corporate taxpayers under certain Department of Transportation programs.

It is the policy of the Internal Revenue Service to announce at an early date whether it will follow the holdings in certain cases. An Action on Decision is the document making such an announcement. An Action on Decision will be issued at the discretion of the Service only on unappealed issues decided adverse to the government. Generally, an Action on Decision is issued where its guidance would be helpful to Service personnel working with the same or similar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action on Decision is not an affirmative statement of Service position. It is not intended to serve as public guidance and may not be cited as precedent.

Actions on Decisions shall be relied upon within the Service only as conclusions applying the law to the facts in the particular case at the time the Action on Decision was issued. Caution should be exercised in extending the recommendation of the Action on Decision to similar cases where the facts are different. Moreover, the recommendation in the Action on Decision may be superseded by new legislation, regulations, rulings, cases, or Actions on Decisions.

Prior to 1991, the Service published acquiescence or nonacquiescence only in certain regular Tax Court opinions. The Service has expanded its acquiescence program to include other civil tax cases where guidance is determined to be helpful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings of memorandum Tax Court opinions, as well as those of the United States District Courts, Claims Court, and Circuit Courts of Appeal. Regardless of the court deciding the case, the recommendation of any Action on Decision will be published in the Internal Revenue Bulletin.

The recommendation in every Action on Decision will be summarized as acquiescence, acquiescence in result only, or nonacquiescence. Both “acquiescence” and “acquiescence in result only” mean that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. However, “acquiescence” indicates neither approval nor disapproval of the reasons assigned by the court for its conclusions; whereas, “acquiescence in result only” indicates disagreement or concern with some or all of those reasons. “Nonacquiescence” signifies that, although no further review was sought, the Service does not agree with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit court of appeals, a “nonacquiescence” indicates that the Service will not follow the holding on a nationwide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the venue of the deciding circuit.

The Actions on Decisions published in the weekly Internal Revenue Bulletin are consolidated semiannually and appear in the first Bulletin for July and the Cumulative Bulletin for the first half of the year. A semiannual consolidation also appears in the first Bulletin for the following January and in the Cumulative Bulletin for the last half of the year.

The Commissioner does not acquiesce in result or the reasoning in the following decision:

VERITAS Software Corp.
v. Commissioner^[1]

133 T.C. No. 14 (December 10, 2009).

Section 995(f)(1) of the Internal Revenue Code provides that a shareholder of a DISC shall pay interest each taxable year in an amount equal to the product of the shareholder’s DISC-related deferred tax liability for the year and the “base period T-bill rate.” Under section 995(f)(4), the base period T-bill rate is the annual rate of interest determined by the Secretary to be equivalent to the average of the 1-year constant maturity Treasury yields, as published by the Board of Governors of the Federal Reserve System, for the 1-year period ending on September 30 of the calendar year ending with (or of the most recent calendar year ending before) the close of the taxable year of the shareholder. The base period T-bill rate for the period ending September 30, 2010, is 0.34 percent.

Pursuant to section 6222 of the Code, interest must be compounded daily. The table below provides factors for compounding the base period T-bill rate daily for any number of days in the shareholder’s taxable year (including a 52-53 week accounting period) for the 2010 base period T-bill rate. To compute the amount of the interest charge for the shareholder’s taxable year, multiply the amount of the shareholder’s DISC-related deferred tax liability (as defined in section 995(f)(2)) for that year by the base period T-bill rate factor corresponding to the number of days in the shareholder’s taxable year for which the interest charge is being computed. Generally, one would use the factor for 365 days. One would use a different factor only if the shareholder’s taxable year for which the interest charge being determined is a short taxable year, if the shareholder uses the 52-53 week taxable year, or if the shareholder’s taxable year is a leap year.

For the base period T-bill rates for the periods ending in prior years, see Rev. Rul. 2009-36, 2009-47 I.R.B. 650; Rev. Rul. 2008-51, 2008-2 C.B. 1171; Rev. Rul. 2007-64, 2007-2 C.B. 953; Rev. Rul. 2006-54, 2006-2 C.B. 834; Rev. Rul. 2005-70, 2005-2 C.B. 919; Rev. Rul. 2004-99, 2004-2 C.B. 720; Rev. Rul. 2003-2, 2003-1 C.B. 251; and Rev. Rul. 2002-68, 2002-2 C.B. 808.

The principal author of this revenue ruling is Teresa Burridge Hughes of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling, contact Ms. Hughes at (202) 622-3850 (not a toll-free call).

Section 415 of the Internal Revenue Code (the Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Commissioner annually adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under § 415. Under § 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under § 215(i)(2)(A) of the Social Security Act.

The limitations that are adjusted by reference to § 415(d) generally will remain unchanged for 2011. This is because the cost-of-living index for the quarter ended September 30, 2010, while greater than the cost-of-living index for the quarter ended September 30, 2009, is less than the cost-of-living index for the quarter ended September 30, 2008, and, following the procedures under the Social Security Act for adjusting benefit amounts, any decline in the applicable index cannot result in a reduced limitation. For example, the limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) will be $16,500 for 2011, which is the same amount as for 2009 and 2010. This limitation affects elective deferrals to § 401(k) plans, § 403(b) plans, and to the Federal Government’s Thrift Savings Plan, among other plans.

Effective January 1, 2011, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) remains unchanged at $195,000. Pursuant to § 1.415(d)-1(a)(2)(ii) of the Income Tax Regulations, the adjustment to the limitation under a defined benefit plan under § 415(b)(1)(B) is determined using a special rule that takes into account that the cost-of-living indexes for the quarter ended Sept. 30, 2009, and for the quarter ended Sept. 30, 2010, were both less than the cost-of-living index for the quarter ended Sept. 30, 2008, and that the cost-of-living index for the quarter ended Sept. 30, 2010, is greater than the cost-of-living index for the quarter ended Sept. 30, 2009. For a participant who separated from service before Jan. 1, 2010, the participant’s limitation under a defined benefit plan under § 415(b)(1)(B) is unchanged (i.e., the adjustment factor is 1.0000). For a participant who separated from service during 2010, the limitation under a defined benefit plan under § 415(b)(1)(B) for 2011 is computed by multiplying the participant’s 2010 compensation limitation by 1.0118 in order to reflect changes in the cost-of-living index from the quarter ended Sept. 30, 2009, to the quarter ended Sept. 30, 2010.

The limitation for defined contribution plans under § 415(c)(1)(A) remains unchanged for 2011 at $49,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of § 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2011 are as follows:

The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains unchanged at $16,500.

The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $245,000.

The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $160,000.

The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period remains unchanged at $985,000, while the dollar amount used to determine the lengthening of the 5-year distribution period remains unchanged at $195,000.

The limitation used in the definition of highly compensated employee under § 414(q)(1)(B) remains unchanged at $110,000.

The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $5,500. The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under § 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under § 401(a)(17) to be taken into account, remains unchanged at $360,000.

The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550.

The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $11,500.

The limitation on deferrals under § 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $16,500.

The compensation amounts under § 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $95,000. The compensation amount under § 1.61-21(f)(5)(iii) remains unchanged at $195,000.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under § 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2011 are as follows:

The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing a joint return is increased from $33,500 to $34,000; the limitation under § 25B(b)(1)(B) is increased from $36,000 to $36, 500; and the limitation under § 25B(b)(1)(C) and (D) is increased from $55,500 to $56,500.

The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $25,125 to $25,500; the limitation under § 25B(b)(1)(B) is increased from $27,000 to $27,375; and the limitation under § 25B(b)(1)(C) and (D) is increased from $41,625 to $42,375.

The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $16,750 to $17,000; the limitation under § 25B(b)(1)(B) is increased from $18,000 to $18,250; and the limitation under § 25B(b)(1)(C) and (D) is increased from $27,750 to $28,250.

The deductible amount under § 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,000.

The applicable dollar amount under § 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $89,000 to $90,000. The applicable dollar amount under § 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) remains unchanged at $56,000. The applicable dollar amount under § 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $167,000 to $169,000.

The adjusted gross income limitation under § 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for taxpayers filing a joint return or as a qualifying widow(er) is increased from $167,000 to $169,000. The adjusted gross income limitation under § 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $105,000 to $107,000.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under section 430(c)(2)(D) has been made is increased from $1,000,000 to $1,014,000.

The principal author of this notice is John Heil of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding the data in this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1-877-829-5500 (a toll-free call) between the hours of 8:30 a.m. and 4:30 p.m. Eastern time Monday through Friday. For information regarding the methodology used in arriving at the data in this notice, please e-mail Mr. Heil at RetirementPlanQuestions@irs.gov.

.01 This notice alerts taxpayers to an amendment made to § 833 of the Internal Revenue Code (Code) by the Patient Protection and Affordable Care Act (H.R. 3590, P.L. 111-148) (the “Affordable Care Act”). Section 833 provides special rules for certain Blue Cross and Blue Shield organizations, and certain other organizations. Effective for taxable years beginning after December 31, 2009, the amendment adds new § 833(c)(5), which limits the application of § 833 to otherwise-qualifying taxpayers with a medical loss ratio that is not less than 85 percent.

.02 This notice also provides interim guidance to taxpayers on the interpretation and application of § 833(c)(5). The Affordable Care Act was enacted on March 23, 2010, adding § 833(c)(5) with retroactive effect for taxable years beginning after December 31, 2009. The Treasury Department and the Internal Revenue Service (Service) are engaged in developing detailed guidance for this provision. That guidance must also take into account other closely related guidance that the Department of Health and Human Services (HHS) has just published. To allow affected taxpayers to comply with the mid-year change in law while detailed guidance is under development, the Treasury Department and the Service are providing interim guidance on the operation of § 833(c)(5) for the first taxable year beginning after December 1, 2009.

.01 An insurance company other than a life insurance company is subject to tax under § 831.

.02 Section 831(c) provides that for purposes of § 831, the term “insurance company” has the meaning given to such term by § 816(a). Section 816(a) provides the term “insurance company” means any company more than half of the business of which during the taxable year is the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies.

.03 Section 832(a) provides that, for an insurance company subject to the tax imposed by § 831, the term “taxable income” means the company’s gross income as defined in § 832(b)(1) less the deductions authorized in § 832(c). Under § 832(b)(1), gross income includes underwriting income.

.04 Section 832(b)(3) defines underwriting income as the premiums earned on insurance contracts during the taxable year less losses incurred and expenses incurred.

.05 Section 832(b)(4) defines the term “premiums earned on insurance contracts during the taxable year” as the gross premiums written on insurance contracts during the taxable year, less return premiums and premiums paid for reinsurance. The result so obtained is further adjusted by adding 80 percent of the unearned premiums on outstanding business at the end of the preceding taxable year and deducting 80 percent of the unearned premiums on outstanding business at the end of the taxable year.

.06 Section 833 provides special rules for existing Blue Cross or Blue Shield organizations and other organizations that meet the requirements of § 833(c)(3)—

(a) Section 833(a)(1) states that such an organization is subject to tax in the same manner as if it were a stock insurance company;

(b) Section 833(a)(2) allows a special deduction for such an organization, determined under § 833(b), which is the excess (if any) of (i) 25 percent of the sum of the claims incurred during the taxable year, liabilities incurred during the taxable year under cost-plus contracts, and expenses incurred during the taxable year in connection with the administration, adjustment, or settlement of claims or in connection with the administration of cost-plus contracts, over (ii) the adjusted surplus as of the beginning of the taxable year; and

(c) Section 833(a)(3) provides that the 20 percent reduction of unearned premiums set forth in § 832(b)(4) does not apply to such an organization.

.07 Section 9016 of the Affordable Care Act added § 833(c)(5) to the Code, effective for taxable years beginning after December 31, 2009. Section 833(c)(5) provides that § 833 does not apply to an otherwise-eligible organization unless the organization’s medical loss ratio, as defined, during the taxable year is not less than 85 percent. For this purpose, an organization’s medical loss ratio is equal to the amount expended on reimbursement for clinical services provided to enrollees under its policies during the taxable year (as reported under § 2718 of the Public Health Service Act) (“Section 833 MLR Numerator”) divided by the organization’s total premium revenue (“Section 833 MLR Denominator”).

.08 Section 2718 of the Public Health Service Act (the “PHS Act”) was added by § 1001 and amended by § 10101 of the Affordable Care Act, and was incorporated into the Code by § 9815(a)(1). Section 2718(a) of the PHS Act requires a health insurance issuer to submit an annual report to the Secretary of HHS concerning the ratio of the incurred loss (or incurred claims) plus the loss adjustment expenses (or change in contract reserves) to earned premiums. The report must include the percentage of total premium revenue, after accounting for collections or receipts for risk adjustment and risk corridors and payments of reinsurance, that the issuer expends (a) on reimbursement for clinical services provided to enrollees; (b) for activities that improve health care quality; and (c) on all other non-claims costs.

.09 Section 2718(b) of the PHS Act requires that a health insurance issuer, beginning not later than January 1, 2011, provide a rebate to each enrollee, on a pro rata basis, if the ratio of (a) the amount of premium revenue expended on reimbursement for clinical services and for activities that improve health care quality to (b) the total amount of premium revenue (excluding Federal and State taxes and licensing or regulatory fees and after accounting for payments or receipts for risk adjustment, risk corridors and reinsurance) is less than a prescribed percentage.

.10 Section 2718(c) of the PHS Act directs the National Association of Insurance Commissioners (NAIC) to establish uniform definitions of the activities required to be reported to the Department of HHS under § 2718(a), and standardized methodologies for calculating measures of these activities, not later than December 31, 2010, and subject to the certification of the Secretary of HHS. On November 22, 2010, the Department of HHS filed with the Federal Register, for publication December 1, 2010, interim final regulations implementing § 2718. See http://www.ofr.gov/OFRUpload/OFRData/2010-29596_PI.pdf.

.01 The Treasury Department and the Service are aware that because § 833(c)(5) applies to taxable years beginning after December 31, 2009 (including the period in 2010 before enactment of the Affordable Care Act), the implementation of § 833(c)(5) presents issues for the first taxable year beginning after December 31, 2009. Moreover, because § 833(c)(5) references § 2718 of the PHS Act, the Treasury Department and the Service, and taxpayers, will need to consider the effect, if any, of the recently-published guidance under § 2718 on issues that arise under § 833(c)(5). Finally, the Treasury Department and the Service anticipate issuing further guidance on § 833(c)(5). Accordingly, this Section 3 provides interim guidance that taxpayers may rely on solely for the first taxable year beginning after December 31, 2009.

This notice serves as an “administrative pronouncement” as that term is used in § 1.6662-4(d)(3)(iii) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure. If, and to the extent, future published guidance differs from the interim guidance in this notice, the different provisions of that future guidance will be applied without adverse retroactive effect.

.01 The Treasury Department and the Service request comments on the following:

(a) What guidance, if any, will taxpayers need under § 833(c)(5) for years after the transition year that is addressed in Section 3 of this notice?

(b) Is more specific guidance needed on accounting method issues that arise when a taxpayer loses its status as an insurance company?

(c) Will guidance be needed in the future on the appropriate Subchapter L treatment of rebates that are paid under § 2718 of the PHS Act?

(d) The Treasury Department and the Service recognize that medical loss ratios are computed under § 2718 of the PHS Act, as well as under § 833(c)(5). Comments are requested on how guidance could coordinate the medical loss ratio computation under § 2718 of the PHS Act with the medical loss ratio computation under § 833(c)(5).

.02 Comments should be submitted in writing on or before March 7, 2011 and should contain reference to this Notice 2010-79. Comments may be submitted to CC:PA:LPD:PR (Notice 2010-79), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Alternatively, taxpayers may submit comments electronically to Notice.Comments@irscounsel.treas.gov. Please include “Notice 2010-79” in the subject line of any electronic communications.

.03 Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2010-79), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW, Washington, DC 20224. All comments will be available for public inspection and copying.

The principal author of this notice is Rebecca L. Baxter of the Office of Associate Chief Counsel (Financial Institutions & Products (CC:FIP:B04)). For further information regarding this notice, contact Ms. Baxter at (202) 622-7117 (not a toll-free call).

This revenue procedure provides that certain motor vehicle dealerships may use either or both of the safe harbor methods of accounting provided by this revenue procedure to (1) treat certain sales facilities as retail sales facilities for purposes of § 263A of the Internal Revenue Code, and (2) be treated as resellers without production activities for purposes of § 263A. This revenue procedure also provides procedures for obtaining automatic consent to make accounting method changes to use the safe harbor methods.

.01 Sections 263A(a) and 1.263A-1(a)(3)(i) of the Income Tax Regulations require a taxpayer subject to § 263A to include in inventory costs direct costs and indirect costs properly allocable to the taxpayer’s produced and acquired inventory property.

.02 Section 1.263A-3(c)(1) requires a taxpayer that acquires property for resale (reseller) to capitalize the acquisition cost of, and the indirect costs that are properly allocable to, property acquired for resale. The indirect costs most often incurred by resellers are purchasing, handling, and storage costs. However, a reseller is not required to capitalize handling and storage costs incurred at a retail sales facility. §§ 1.263A-3(c)(4)(i) and (c)(5).

.03 Handling costs include the costs of processing, assembling, repackaging, transporting, and other similar activities that do not come within the meaning of the term produce as defined in § 1.263A-2(a)(1). § 1.263A-3(c)(4).

.04 Section 1.263A-3(c)(5)(ii)(B) defines a retail sales facility as a facility where a taxpayer sells merchandise exclusively to retail customers in on-site sales. For purposes of § 1.263A-3(c)(5)(ii)(B), a retail sales facility includes those portions of any specific retail site (i) that are customarily associated with and are an integral part of the operations of that retail site; (ii) that are generally open each business day exclusively to retail customers; (iii) on or in which retail customers normally and routinely shop to select specific items of merchandise; and (iv) that are adjacent to or in immediate proximity to other portions of the specific retail site.

.05 As explained in the example in § 1.263A-3(c)(5)(ii)(B)(2), two lots of an automobile dealership physically separated by an alley or an access road are generally considered one retail sales facility, provided customers routinely shop on both of the lots to select the specific automobiles that they wish to acquire.

.06 Section 1.263A-3(c)(5)(ii)(E) defines a retail customer as the final purchaser of the merchandise.

.07 Section 263A(i) provides that the Treasury Department will prescribe regulations as may be necessary or appropriate to carry out the purposes of § 263A, including providing for simplified procedures for the application of § 263A to property acquired for resale.

.08 Section 1.263A-3(d) provides a simplified resale method for determining the additional § 263A costs (within the meaning of § 1.263A-1(d)(3)) properly allocable to property acquired for resale and other eligible property on hand at the end of the taxable year.

.09 In the Conference Report accompanying the Tax Reform Act of 1986, Public Law No. 99-514 (100 Stat. 2085 (1986)), the conferees directed the Treasury Department to create a simplified method for applying the uniform capitalization rules of § 263A to resellers (resulting in the simplified resale method in § 1.263A-3(d)) and authorized the Treasury Department to modify the simplified method or permit the use of other methods by rules or regulations for property acquired for resale. H.R. Rep. No. 99-841 (Conf. Rep.), 99th Cong., 2d Sess. II-308 (1986).

.10 Sections 446(e) and 1.446-1(e)(2) state that, except as otherwise provided, a taxpayer must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes.

.11 Rev. Proc. 2008-52, 2008-2 C.B. 587 (as amplified, clarified, and modified by Rev. Proc. 2009-39, 2009-2 C.B. 371), provides procedures for a taxpayer to obtain automatic consent of the Commissioner to change to a method of accounting described in the APPENDIX of Rev. Proc. 2008-52. Rev. Proc. 97-27, 1997-1 C.B. 680 (as modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, as amplified and clarified by Rev. Proc. 2002-54, 2002-2 C.B. 432, as modified by Rev. Proc. 2007-67, 2007-2 C.B. 1072, and as clarified and modified by Rev. Proc. 2009-39), provides procedures for a taxpayer to request non-automatic consent to change a method of accounting.

.01 Except as provided in section 3.02, any motor vehicle dealership, as defined in section 4 of this revenue procedure, may use either or both of the safe harbor methods described in section 5 of this revenue procedure.

.02 A motor vehicle dealership that removes § 471 costs from ending inventory by treating them as negative amounts in the numerator of either the simplified resale method formula or the simplified production method formula, may not use either safe harbor method of accounting described in section 5 of this revenue procedure. If a motor vehicle dealership currently removes § 471 costs from ending inventory in that manner, it must change from that method of accounting in accordance with section 7 of this revenue procedure in order to use the safe harbor methods.

.01 For purposes of this revenue procedure, a motor vehicle dealership is a dealership that primarily purchases and resells to retail customers, one or more of the following categories of new or used motor vehicles:

(a) automobiles;

(b) light-duty trucks;

(c) medium-duty trucks;

(d) heavy-duty trucks;

(e) recreational vehicles;

(f) motorcycles;

(g) boats;

(h) farm machinery and equipment; or

(i) construction machinery and equipment.

.01 Retail sales facility safe harbor method. A motor vehicle dealership may treat its entire sales facility from which it normally and routinely conducts on-site sales to retail customers, including any vehicle lot that is an integral part of its sales facility and that is routinely visited by retail customers, as a retail sales facility under § 1.263A-3(c)(5)(ii)(B). A motor vehicle dealership using this retail sales facility safe harbor method is not required to capitalize handling and storage costs incurred at its retail sales facility.

.02 Reseller without production activities safe harbor method. A motor vehicle dealership may treat itself as a reseller without production activities for purposes of § 1.263A-3. For purposes of this revenue procedure, activities that a motor vehicle dealership, or a contractor, perform on dealership-owned vehicles and customer-owned vehicles are handling activities under §1.263A-3(c)(4), but the costs of these handling activities, other than the cost of vehicle parts, are not required to be capitalized to the extent incurred at the motor vehicle dealership’s retail sales facility. A motor vehicle dealership must capitalize the cost of vehicle parts used on dealership-owned vehicles as an acquisition cost of its vehicles, whether the vehicle parts are acquired directly by the dealership or indirectly through a contractor. See §§ 1.471-3 and 1.263A-3(c)(1). A motor vehicle dealership using the reseller without production activities safe harbor method may use the simplified resale method under § 1.263A-3(d) for its vehicles and other eligible property.

A motor vehicle dealership that wants to change its method of accounting under § 263A to either or both of the safe harbor methods described in section 5 of this revenue procedure must use the automatic change in method of accounting provisions in Rev. Proc. 2008-52, as further modified by this revenue procedure, if the dealership is within the scope of Rev. Proc. 2008-52. Otherwise, a motor vehicle dealership may request to change its method of accounting using the non-automatic provisions of Rev. Proc. 97-27, if the dealership is within the scope of Rev. Proc. 97-27.

Rev. Proc. 2008-52 is modified to add new section 11.07 to the APPENDIX, to read as follows:

.07 Safe harbor methods under § 263A for certain dealerships of motor vehicles.

(1) Description of change. This change applies to a motor vehicle dealership, as defined in section 4 of Rev. Proc. 2010-44 that is within the scope of section 3 of Rev. Proc. 2010-44 and wants to change its method of accounting to (1) treat its sales facility as a retail sales facility or (2) be treated as a reseller without production activities, as described in section 5 of Rev. Proc. 2010-44. A motor vehicle dealership that wants to make an automatic change in method of accounting to use one or both safe harbor methods described in section 5 of Rev. Proc. 2010-44 may make any corresponding changes in the identification of costs subject to § 263A that will be accounted for using the new method (for example, to remove internal profit from inventory costs) or to no longer include negative amounts as additional § 263A costs in the numerator of the simplified resale method formula or the simplified production method formula. However, except as provided in the preceding sentence, a change under this section does not include a change for purposes of recharacterizing “§ 471 costs” as “additional § 263A costs” (or vice versa) under the simplified resale method or the simplified production method.

(2) Certain scope limitations temporarily inapplicable. The scope limitations in sections 4.02(1) through (4) and (7) of Rev. Proc. 2008-52, as modified and clarified by Rev. Proc. 2009-39, do not apply to a motor vehicle dealership that changes to one or both of the safe harbor methods in section 5 of Rev. Proc. 2010-44 for its first or second taxable year ending after November 9, 2010.

(3) Concurrent automatic changes. A motor vehicle dealership making an automatic change in method of accounting to one or both safe harbor methods described in section 5 of Rev. Proc. 2010-44 and another automatic change in method of accounting under § 263A for the same taxable year may file one Form 3115 to make both changes, provided the dealership enters the designated automatic change numbers for all such changes in Part I on that Form 3115, and complies with the ordering rules of § 1.263A-7(b)(2).

(4) Multiple adjustments. In the event that a motor vehicle dealership is taking into account a § 481(a) adjustment from another accounting method change in addition to the § 481(a) adjustment required by a change to a safe harbor method described in section 5 of Rev. Proc. 2010-44, the § 481(a) adjustments must be taken into account separately. For example, a motor vehicle dealership that changed to comply with § 263A in 2009 and was required to take its § 481(a) adjustment into account over four years must continue to take into account that adjustment over the remainder of that four year § 481(a) adjustment period even though the dealership changed to a safe harbor method described in section 5 of Rev. Proc. 2010-44 in 2010 and has an additional § 481(a) adjustment required by that change.

(5) Designated automatic accounting method change numbers. The designated automatic accounting method change number for a change to treat certain sales facilities as retail sales facilities as described in section 5.01 of Rev. Proc. 2010-44 is “150.” The designated automatic accounting method change number for a change to be treated as a reseller without production activities as described in section 5.02 of Rev. Proc. 2010-44 is “151.”

(6) Contact information. For further information regarding a change under this section, contact Kari Fisher at (202) 622-4970 (not a toll-free call).

A motor vehicle dealership that changes its method of accounting under either the automatic provisions of Rev. Proc. 2008-52 or the non-automatic provisions of Rev. Proc. 97-27 to use a method of accounting consistent with the safe harbor methods described in section 5 of this revenue procedure receives the audit protection described in section 7 of Rev. Proc. 2008-52 or section 9 of Rev. Proc. 97-27, as applicable.

Alternatively, if a motor vehicle dealership uses a method of accounting consistent with the safe harbor methods described in section 5 of this revenue procedure on a federal income tax return filed before November 10, 2010, the Service will not assert that these methods are not proper methods of accounting for such taxable year(s).

This revenue procedure is effective November 9, 2010.

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

This revenue procedure provides a safe harbor under section 118(a) of the Internal Revenue Code for the treatment of certain grants to corporations from the National Energy Technology Laboratory of the Department of Energy (DOE) under the Electric Drive Vehicle Battery and Component Manufacturing Initiative (the Initiative) as authorized by Division A, Title IV of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) (ARRA).

Section 118(a) of the Code provides that in the case of a corporation, gross income does not include a contribution to the capital of the taxpayer.

Section 1.118-1 of the Income Tax Regulations provides that section 118 applies to contributions to capital made by a person other than a shareholder, for example, property contributed to a corporation by a governmental unit for the purpose of enabling the corporation to expand its operating facilities.

Section 362(c)(2) of the Code requires a basis reduction in a corporation’s property when the corporation receives money from a nonshareholder as a contribution to its capital.

Division A, Title IV of ARRA requires the Secretary of Energy to provide facility funding awards to manufacturers of advanced battery systems and vehicle batteries that are produced in the United States, including advanced lithium ion batteries, hybrid electrical systems, component manufacturers, and software designers. $2 billion was made available for grants for the manufacturing of advanced batteries and components.

The Initiative provides grants for seven Areas of Interest: (1) Cell and Battery Manufacturing Facilities; (2) Advanced Battery Supplier Manufacturing Facilities; (3) Combined Applications for Areas of Interest 1 and 2; (4) Advanced Lithium ion Battery Recycling Facilities; (5) Electric Drive Component Manufacturing Facilities; (6) Electric Drive Subcomponent Manufacturing Facilities; and (7) Combined Applications for Areas of Interest 5 and 6. See Funding Opportunity Number DE-FOA-0000026 (March 19, 2009). This guidance may be accessed electronically at: http://www.netl.doe.gov/business/solicitations/archive/main-FY09.html#00026

This revenue procedure applies to corporate taxpayers that receive a grant from DOE under the Initiative for Areas of Interest 1 through 7. This revenue procedure does not apply to the portion of any grant paid or incurred for travel or training expenses or paid to reimburse pre-application expenses. For this purpose, pre-application expenses only include those costs incurred in preparing and submitting an application to receive a grant. This revenue procedure does not apply to noncorporate taxpayers.

The Internal Revenue Service will not challenge a corporation’s treatment of a grant to the corporation from DOE under the Initiative for Areas of Interest 1 through 7 within the scope of section 3 of this revenue procedure as a nonshareholder contribution to the capital of the corporation under section 118(a) of the Code if the corporation properly reduces the basis of its property under section 362(c)(2) and the regulations thereunder.

This revenue procedure is effective November 12, 2010.

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

This revenue procedure provides a safe harbor under section 118(a) of the Internal Revenue Code for certain grant amounts received by corporate taxpayers engaged in a transportation trade or business for capital projects under 49 U.S.C. 24105, 24401 et seq., and 26106, as enacted by sections 301, 302, and 501, Division B of the Passenger Rail Investment and Improvement Act of 2008 (Pub. L. 110-432), and as amended by Title XII, Division A of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) (ARRA).

Also, this revenue procedure provides a safe harbor under section 118(a) of the Code for certain grant amounts received by corporate taxpayers engaged in a transportation trade or business for capital investments in surface transportation infrastructure under (1) the Supplemental Discretionary Grants for Capital Investments in Surface Transportation Infrastructure (TIGER Discretionary Grants) program as authorized by Title XII, Division A of ARRA; or (2) the National Infrastructure Investments (TIGER II Discretionary Grants) program as authorized by the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act for 2010 (Title I, Division A of the Consolidated Appropriations Act, 2010 (Pub. L. 111-117)).

Section 118(a) of the Code provides that in the case of a corporation, gross income does not include a contribution to the capital of the taxpayer.

Section 1.118-1 of the Income Tax Regulations provides that section 118 applies to contributions to capital made by a person other than a shareholder, for example, property contributed to a corporation by a governmental unit for the purpose of enabling the corporation to expand its operating facilities.

Section 362(c)(2) of the Code requires a basis reduction in a corporation’s property when the corporation receives money from a nonshareholder as a contribution to its capital.

The Congestion Grant program under 49 U.S.C. 24105(a) provides that the Secretary of Transportation (the Secretary) may make grants for financing the capital costs of facilities, infrastructure, and equipment for high priority rail corridor projects necessary to reduce congestion or facilitate ridership growth in intercity rail passenger transportation.

The Intercity Passenger Rail Service Corridor Capital Assistance program under 49 U.S.C. 24402(a)(1) provides that the Secretary may make grants to assist in financing the capital costs of facilities, infrastructure, and equipment necessary to provide or improve intercity passenger rail transportation.

The High-Speed Rail Corridor Development program under 49 U.S.C. 26106(a) provides that the Secretary shall establish and implement a high-speed rail corridor development program. 49 U.S.C. 26106(c) provides that the Secretary may make grants to finance capital projects in high-speed rail corridors.

The Federal Rairoad Administration of the Department of Transportation (DOT) issued a Notice of Funding Availability (NOFA), 74 FR 29900, that provides guidance on the High-Speed Intercity Passenger Rail Program, which includes the Congestion Grant program, the Intercity Passenger Rail Service Corridor Capital Assistance program, and the High-Speed Rail Corridor Development program. If Congress makes additional appropriations for these programs, the DOT may issue future NOFAs.

The Office of the Secretary of the DOT issued a NOFA, 74 FR 28755, that provides guidance on TIGER Discretionary Grants. The grants must be for capital investments in surface transportation infrastructure. If Congress makes additional appropriations for this program, the DOT may issue future NOFAs.

The Office of the Secretary of the DOT issued a NOFA, 75 FR 30460, that provides guidance on TIGER II Discretionary Grants. The grants must be for capital investments in surface transportation infrastructure. The NOFA contemplates that some funds may be used to fund the planning, preparation, or design of projects (Tiger II Planning Grants). If Congress makes additional appropriations for this program, the DOT may issue future NOFAs.

This revenue procedure applies to corporate taxpayers engaged in a transportation trade or business that receive grant amounts for capital projects under 49 U.S.C. 24105, 24401 et seq., and 26106. However, in no case will this revenue procedure apply to amounts received for the following: (1) the cost of National Environmental Policy Act Documentation, Preliminary Engineering costs that are not capitalized for tax purposes, or the cost of a Service Development Plan as described in 74 FR 29906, section 2.2; (2) the cost of developing a State Rail Plan under 49 U.S.C. 24402(b)(1); or (3) the first-dollar liability cost for insurance related to the provision of intercity passenger rail service under 49 U.S.C. 24404.

Also, this revenue procedure applies to corporate taxpayers engaged in a transportation trade or business that receive grant amounts for the costs of capital investments in surface transportation infrastructure under TIGER Discretionary Grants or under TIGER II Discretionary Grants. In no case will this revenue procedure apply to amounts received to pay the subsidy and administrative costs of the Transportation Infrastructure Finance and Innovation Act of 1998 or to amounts received for TIGER II Planning Grants.

Further, this revenue procedure does not apply to noncorporate taxpayers.

The Internal Revenue Service will not challenge a corporate taxpayer’s treatment of grant amounts received by the corporation for capital projects under 49 U.S.C. 24105, 24401 et seq., or 26106 as a nonshareholder contribution to the capital of the corporation under section 118(a) of the Code if the corporation properly reduces the basis of its property under section 362(c)(2) and the regulations thereunder.

Also, the Service will not challenge a corporate taxpayer’s treatment of grant amounts received by the corporation under TIGER Discretionary Grants for capital investments in surface transportation infrastructure or under TIGER II Discretionary Grants for capital investments in surface transportation infrastructure as a nonshareholder contribution to the capital of the corporation under section 118(a) of the Code if the corporation properly reduces the basis of its property under section 362(c)(2) and the regulations thereunder.

This revenue procedure is effective November 12, 2010.

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

If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Internal Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)-7 of the Income Tax Regulations. It is not the practice of the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.