Tax treatment of losses. This ruling addresses the tax treatment of losses from criminally fraudulent investment arrangements that take the form of “Ponzi” schemes. Rev. Rul. 71-381 obsoleted in part.

Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for April 2009.

This procedure provides guidance to taxpayers on electing the 3, 4, or 5-year carryback of net operating losses of small businesses under section 1211 of the American Recovery and Reinvestment Tax Act of 2009.

This procedure provides an optional safe harbor method for eligible taxpayers to deduct theft losses from criminally fraudulent investment arrangements that take the form of “Ponzi” schemes.

Asset valuation under section 430(g)(3)(B) as amended by WRERA. This notice provides interim rules regarding asset valuation methods that are permitted to be used by single employer defined benefit pension plans for minimum funding purposes pursuant to changes made by the Worker, Retiree, and Employer Recovery Act of 2008, Public Law 110-458 (WRERA). This notice also provides automatic approval for a change in asset valuation method for plan years beginning during 2009 to adopt any permissible asset valuation method.

This announcement invites public comments on how to improve the Internal Revenue Service's Exempt Organizations website (www.irs.gov/eo).

This announcement invites public comments on the implementation and content of the Exempt Organization Academic Institution Initiative.

The IRS has revoked it determination that Rocky Mountain Big Horn Sheep Foundation of Red River, MN; Skippers Learning Center of Lake City, SC; Reliable Cash Management Association of Buffalo Grove, IL; Pecan Park Learning Center of Jackson, MS; Brucker Charitable Foundation of Mountain Home, TX; N. U. Yoga Ashrama in America of Winter, WI; Housing Development Group of Denver, CO; National Business Fellowship Foundation of Raeford, NC; GIK Foundation of Bellevue, WA; Debt Free Foundation, Inc., of Provo, UT; Urban Light Community Development of Houston, TX; Sweet Life Program of Las Vegas, NV; Ladoras Family Services, Inc., of Compton, CA; Robert and Donna Herbolich Charitable Supporting of Hudson, OH; Three Point Volunteer Fire Department, Inc., of Williamsburg, KY; Advance Practice Foundation, Inc., of Basking Ridge, NJ; Goodwill Industries of Greater Cleveland, Inc., of Cleveland, OH; World Project, Inc., of Temecula, CA; Sandton Lifestyles of Los Angeles, CA; Dunn-Mason Foundation of Farmington Hills, MI; and Walter E & Romell A King Foundation of Gary, IN; qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Code.

This announcement provides notice of a public hearing on proposed regulations (REG-158747-06, 2009-4 I.R.B. 362) relating to withholding under section 3402(t) of the Code. The regulations reflect changes in the law made by the Tax Increase Prevention and Reconciliation Act of 2005 that require Federal, State, and local government entities to withhold income tax when making payments to persons providing property or services. The regulations provide guidance to assist the government entities in complying with section 3402(t). The regulations also provide certain guidance to persons receiving payments for property or services from government entities. The public hearing is scheduled for April 16, 2009.

(1) Is a loss from criminal fraud or embezzlement in a transaction entered into for profit a theft loss or a capital loss under § 165 of the Internal Revenue Code?

(2) Is such a loss subject to either the personal loss limits in § 165(h) or the limits on itemized deductions in §§ 67 and 68?

(3) In what year is such a loss deductible?

(4) How is the amount of such a loss determined?

(5) Can such a loss create or increase a net operating loss under § 172?

(6) Does such a loss qualify for the computation of tax provided by § 1341 for the restoration of an amount held under a claim of right?

(7) Does such a loss qualify for the application of §§ 1311-1314 to adjust tax liability in years that are otherwise barred by the period of limitations on filing a claim for refund under § 6511?

A is an individual who uses the cash receipts and disbursements method of accounting and files federal income tax returns on a calendar year basis. B holds himself out to the public as an investment advisor and securities broker.

In Year 1, A, in a transaction entered into for profit, opened an investment account with B, contributed $100x to the account, and provided B with power of attorney to use the $100x to purchase and sell securities on A’s behalf. A instructed B to reinvest any income and gains earned on the investments. In Year 3, A contributed an additional $20x to the account.

B periodically issued account statements to A that reported the securities purchases and sales that B purportedly made in A’s investment account and the balance of the account. B also issued tax reporting statements to A and to the Internal Revenue Service that reflected purported gains and losses on A’s investment account. B also reported to A that no income was earned in Year 1 and that for each of the Years 2 through 7 the investments earned $10x of income (interest, dividends, and capital gains), which A included in gross income on A’s federal income tax returns.

At all times prior to Year 8 and part way through Year 8, B was able to make distributions to investors who requested them. A took a single distribution of $30x from the account in Year 7.

In Year 8, it was discovered that B’s purported investment advisory and brokerage activity was in fact a fraudulent investment arrangement known as a “Ponzi” scheme. Under this scheme, B purported to invest cash or property on behalf of each investor, including A, in an account in the investor’s name. For each investor’s account, B reported investment activities and resulting income amounts that were partially or wholly fictitious. In some cases, in response to requests for withdrawal, B made payments of purported income or principal to investors. These payments were made, at least in part, from amounts that other investors had invested in the fraudulent arrangement.

When B’s fraud was discovered in Year 8, B had only a small fraction of the funds that B reported on the account statements that B issued to A and other investors. A did not receive any reimbursement or other recovery for the loss in Year 8. The period of limitation on filing a claim for refund under § 6511 has not yet expired for Years 5 through 7, but has expired for Years 1 through 4.

B’s actions constituted criminal fraud or embezzlement under the law of the jurisdiction in which the transactions occurred. At no time prior to the discovery did A know that B’s activities were a fraudulent scheme. The fraudulent investment arrangement was not a tax shelter as defined in § 6662(d)(2)(C)(ii) with respect to A.

(1) A loss from criminal fraud or embezzlement in a transaction entered into for profit is a theft loss, not a capital loss, under § 165.

(2) A theft loss in a transaction entered into for profit is deductible under § 165(c)(2), not § 165(c)(3), as an itemized deduction that is not subject to the personal loss limits in § 165(h), or the limits on itemized deductions in §§ 67 and 68.

(3) A theft loss in a transaction entered into for profit is deductible in the year the loss is discovered, provided that the loss is not covered by a claim for reimbursement or recovery with respect to which there is a reasonable prospect of recovery.

(4) The amount of a theft loss in a transaction entered into for profit is generally the amount invested in the arrangement, less amounts withdrawn, if any, reduced by reimbursements or recoveries, and reduced by claims as to which there is a reasonable prospect of recovery. Where an amount is reported to the investor as income prior to discovery of the arrangement and the investor includes that amount in gross income and reinvests this amount in the arrangement, the amount of the theft loss is increased by the purportedly reinvested amount.

(5) A theft loss in a transaction entered into for profit may create or increase a net operating loss under § 172 that can be carried back up to 3 years and forward up to 20 years. An eligible small business may elect either a 3, 4, or 5-year net operating loss carryback for an applicable 2008 net operating loss.

(6) A theft loss in a transaction entered into for profit does not qualify for the computation of tax provided by § 1341.

(7) A theft loss in a transaction entered into for profit does not qualify for the application of §§ 1311-1314 to adjust tax liability in years that are otherwise barred by the period of limitations on filing a claim for refund under § 6511.

A theft loss in a transaction entered into for profit that is deductible under § 165(c)(2) is not taken into account in determining whether a transaction is a loss transaction under § 1.6011-4(b)(5). See § 4.03(1) of Rev. Proc. 2004-66, 2004-2 C.B. 966.

Rev. Rul. 71-381 is obsoleted to the extent that it holds that a theft loss incurred in a transaction entered into for profit is deductible under § 165(c)(3) rather than § 165(c)(2).

The principal author of this revenue ruling is Andrew M. Irving of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue ruling, contact Mr. Irving at (202) 622-5020 (not a toll-free call.)

This revenue ruling provides various prescribed rates for federal income tax purposes for April 2009 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, and before December 31, 2013, shall not be less than 9%. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

This notice provides interim rules regarding asset valuation methods that are permitted to be used by single employer defined benefit pension plans for minimum funding purposes pursuant to changes made by the Worker, Retiree, and Employer Recovery Act of 2008, Public Law 110-458 (WRERA). This notice also provides automatic approval for a change in asset valuation method for plan years beginning during 2009 to adopt any permissible asset valuation method.

Section 412 of the Internal Revenue Code (the Code) provides minimum funding requirements that generally apply for defined benefit pension plans. Section 412(d)(1) provides that any change in funding method is permitted to take effect only if it is approved by the Secretary. A change in the plan’s funding method includes a change in the method for determining the value of the plan’s assets, a change in the method for determining the plan’s liabilities, or a change in the plan’s valuation date.

Section 430, which was added by the Pension Protection Act of 2006, Public Law 109-280 (PPA ’06), provides rules for the determination of the minimum required contribution applicable to single employer pension plans (including multiple employer plans) pursuant to § 412. Section 430 is generally effective for plan years beginning on or after January 1, 2008.

Section 430(g)(1) provides that all determinations made under § 430 for a plan year must be made as of the plan’s valuation date. Section 430(g)(2) provides that the valuation date for a plan year must be the first day of the plan year, except in the case of a plan with 100 or fewer participants (determined as provided in § 430(g)(2)(B) and (C)).

Section 430(g)(3) provides rules regarding the determination of the value of plan assets for purposes of § 430. Under § 430(g)(3)(A), except as provided in § 430(g)(3)(B), the fair market value of plan assets must be used for this purpose. As an alternative to the use of fair market value, § 430(g)(3)(B) permits the use of an actuarial value of assets based on the average of fair market values, but only if such method is permitted under regulations prescribed by the Secretary, does not provide for averaging of such values over more than the period beginning on the last day of the 25th month preceding the month in which the valuation date occurs and ending on the valuation date (or a similar period in the case of a valuation date that is not the 1st day of a month), and does not result in a determination of the actuarial value of plan assets that, at any time, is lower than 90 percent or greater than 110 percent of the fair market value of plan assets as of the valuation date.

Section 436 provides certain limitations on a defined benefit plan that are based on the funded status of the plan. For this purpose, the funding status of the plan is based on the adjusted funding target attainment percentage, which in turn is based in part on the value of plan assets as determined under § 430.

Prior to amendment by WRERA, the last sentence of § 430(g)(3)(B) provided that any averaging under § 430(g)(3)(B) must be adjusted for contributions and distributions (as provided by the Secretary). Section 121(b) of WRERA amended the last sentence of § 430(g)(3)(B) to provide that any averaging under § 430(g)(3)(B) must be adjusted for contributions, distributions, and expected earnings (as determined by the plan’s actuary on the basis of an assumed earnings rate specified by the actuary, but not in excess of the third segment rate applicable under § 430(h)(2)(C)(iii)), as specified by the Secretary. This WRERA change is effective for the same periods as the PPA ’06 provision that it amends.

On December 31, 2007, proposed regulations under §§ 430(d), 430(g), 430(h), and 430(i) were published in the Federal Register (REG-139236-07, 2008-9 I.R.B. 491 [72 FR 74215]) (the proposed regulations). Section 1.430(g)-1(c)(2) of the proposed regulations provides rules for a permissible asset valuation method based on the average of fair market values of plan assets, in accordance with § 430(g)(3)(B), prior to amendment by WRERA. Under this asset valuation method, the actuarial value of assets is the average of the fair market value of assets on the valuation date and the adjusted fair market value of assets determined as of one or more earlier determination dates. The adjusted fair market value of assets as of a determination date is the fair market value of plan assets on that date, increased for contributions included in the plan’s asset balance on the valuation date that were not included in the plan’s asset balance on the determination date, and decreased for benefits and administrative expenses paid from plan assets between that determination date and the valuation date. Because the proposed regulations were issued prior to the enactment of WRERA, the proposed regulations do not provide for an adjustment for expected earnings in determining the adjusted fair market value as of an earlier determination date. Section 1.430(g)-1(f)(4) of the proposed regulations provides that any change in a plan’s valuation date or asset valuation method that is made for the first plan year for which § 430 applies to the plan and that is not inconsistent with the requirements of § 430 is treated as having been approved by the Commissioner and does not require the Commissioner’s specific prior approval.

The proposed regulations are proposed to be effective for plan years beginning on or after January 1, 2009. The preamble of the proposed regulations provides that plans may rely on the proposed regulations for plan years beginning during 2008. Notice 2008-21, 2008-7 I.R.B. 431, states generally that the Service will not challenge a reasonable interpretation of an applicable statutory provision under § 430 or § 436 for plan years beginning during 2008, but noted that the use of averaging methods in determining the value of plan assets under § 430(g)(3)(B) is permitted only in accordance with a method prescribed in regulations.

Part III of this notice describes the rules expected to be incorporated in future regulations for adjusting asset values for expected earnings, pursuant to § 430(g)(3)(B), as amended by WRERA, using an assumed rate of return. Taxpayers may rely on the rules described in Part III of this notice for plan years beginning during 2008 and 2009.

The rules in Part III of this notice modify the determination of the adjusted fair market value of plan assets for a prior determination date that is used in determining the average of fair market values under § 430(g)(3)(B) as provided in the proposed regulations. The other rules for the asset valuation method under § 430(g)(3)(B) set forth in the proposed regulations continue to apply. For example, the period of time between each of the determination dates (treating the valuation date as a determination date) must be equal and the method of determining the value of plan assets (including the selection of the determination dates) is part of the plan’s funding method.

The guidance provided in this notice with respect to § 430(g)(3)(B) of the Code also applies for purposes of the parallel provision in section 303(g)(3)(B) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). (Under section 101 of the Reorganization Plan No. 4 of 1978 (43 FR 47713), the Secretary of the Treasury has interpretive authority over the subject matter addressed in this notice for purposes of ERISA, as well as the Code.)

This notice provides approval by the Commissioner for a change in a plan’s asset valuation method to adopt an asset valuation method that is permitted under § 430(g)(3), as amended by WRERA, that is made for a plan year that begins during 2009. In addition, the approval that would apply under the proposed regulations for a change in funding method for a plan year that begins during 2008 will apply to a change in a plan’s asset valuation method made to adopt the asset valuation method permitted by § 430(g)(3)(B), as amended by WRERA, that is made for such a plan year.

The principal authors of this notice are Carolyn Zimmerman of the Employee Plans, Tax Exempt and Government Entities Division, and Michael P. Brewer and Linda S. F. Marshall of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, please contact the Employee Plans taxpayer assistance answering service at 1-877-829-5500 (a toll-free number), Mr. Brewer or Ms. Marshall at (202) 622-6090 (not a toll-free number), or e-mail Ms. Zimmerman, at RetirementPlanQuestions@irs.gov.

.01 This revenue procedure provides guidance under § 1211 of the American Recovery and Reinvestment Tax Act of 2009, Div. B of Pub. L. No. 111-5, 123 Stat. 115 (February 17, 2009) (the Act). Section 1211 of the Act amends § 172(b)(1)(H) of the Internal Revenue Code to allow any taxpayer that is an eligible small business (ESB) to elect a 3, 4, or 5-year net operating loss (NOL) carryback for a taxable year ending after 2007.

.02 Specifically, this revenue procedure provides guidance to taxpayers as to the time and manner for making an election under § 172(b)(1)(H), including the election of a 3, 4, or 5-year carryback period and an election to apply § 172(b)(1)(H) to an NOL for a taxable year beginning in 2008, instead of an NOL for a taxable year ending in 2008. This revenue procedure provides guidance on when and how to elect § 172(b)(1)(H) if the taxpayer previously filed an election under § 172(b)(3) to forgo the NOL carryback period.

.03 This revenue procedure also provides guidance on how a taxpayer makes the election if the taxpayer is a partner of an ESB that is a partnership, a shareholder of an ESB that is an S corporation, or a sole proprietor.

.01 Section 172(a) allows a deduction equal to the aggregate of the NOL carryovers and carrybacks to the taxable year. Section 172(b)(1)(A)(i) provides that an NOL for any taxable year generally must be carried back to each of the 2 years preceding the taxable year of the NOL. Section 172(b)(3) provides that any taxpayer entitled to a carryback period under § 172(b)(1) may make an irrevocable election to relinquish the carryback period with respect to an NOL for any taxable year.

.02 Section 6411(a) provides that a taxpayer may file an application for a tentative carryback adjustment of the tax for the prior taxable year affected by an NOL carryback from any taxable year. Section 6411(a) also provides that the application must be filed on or after the date of filing for the return for the taxable year of the NOL from which the carryback results and within a period of 12 months after that taxable year or, with respect to any portion of a business credit carryback attributable to an NOL from a subsequent taxable year, within a period of 12 months from the end of the subsequent taxable year. Section 6411(b) provides a 90-day period during which the Internal Revenue Service will make a limited examination of the application to discover omissions and errors of computation and determine the amount of the decrease in tax attributable to the carryback. The Service may disallow, without further action, any application that contains errors of computation that cannot be corrected within the 90-day period or that contains material omissions. The decrease in tax attributable to the carryback will be applied against unpaid amounts of tax. Any remainder of the decrease will, within the 90-day period, be credited or refunded.

.03 Section 172(b)(1)(H) permits an ESB to carry back its applicable 2008 NOL to 3, 4, or 5 years preceding the taxable year of the NOL, as the ESB elects.

.04 Section 172(b)(1)(H)(iv) provides that the term “eligible small business” has the meaning given by § 172(b)(1)(F)(iii), except that § 448(c) is applied by substituting “$15 million” for “$5 million” each place it appears. Section 172(b)(1)(F)(iii) provides that a small business is a corporation or partnership that meets the gross receipts test of § 448(c) for the taxable year in which the loss arose (or in the case of a sole proprietorship, that would meet such test if the proprietorship were a corporation).

.05 Section 448 generally prohibits certain taxpayers from using the cash receipts and disbursements method of accounting. Section 448(b)(3) provides an exception to this requirement in the case of any corporation or partnership if, for all prior taxable years beginning after December 31, 1985, the entity (or any predecessor) met the $5 million gross receipts test of § 448(c). Section 448(c)(1) provides that a corporation or partnership meets the $5 million gross receipts test for any prior taxable year if the average annual gross receipts of the entity for the 3-taxable-year period ending with that prior taxable year does not exceed $5 million. Section 448(c)(2) (aggregation rules) generally provides that all persons treated as a single employer under subsection (a) or (b) of § 52 or subsection (m) or (o) of § 414 are treated as one person for purposes of § 448(c)(1).

.06 The $5 million gross receipts test of § 448(c) is applied to a taxpayer’s prior taxable year by determining the average annual gross receipts for the 3-year period that ends with that prior taxable year. Under §172(b)(1)(F)(iii), in order to be a small business, a taxpayer must meet the gross receipts test of § 448(c) for the taxable year in which the NOL arose. Consequently, to determine if a taxpayer is a small business for purposes of § 172(b)(1)(F)(iii), the taxable year in which the NOL arose is the last taxable year of the 3-year period to which the test is applied.

.07 Section 172(b)(1)(H)(ii)(I) provides that the term “applicable 2008 net operating loss” means the taxpayer’s NOL for any taxable year ending in 2008. However, under § 172(b)(1)(H)(ii)(II), the taxpayer may elect instead to have the term mean the taxpayer’s NOL for any taxable year beginning in 2008.

.08 Section 172(b)(1)(H)(iii) provides that any election under § 172(b)(1)(H) is required to be made in such a manner as may be prescribed by the Secretary, and must be made by the due date (including extension of time) for filing the taxpayer’s return for the taxable year of the NOL. The election is irrevocable and may be made only for one taxable year.

.09 Section 1211(d)(2) of the Act provides that in the case of an applicable 2008 NOL for a taxable year ending before the date of enactment of the Act (February 17, 2009), (A) a previous election made under § 172(b)(3) for the NOL may be revoked on or before April 17, 2009; (B) the § 172(b)(1)(H) election for the NOL is treated as timely if made on or before April 17, 2009; and (C) an application under § 6411(a) with respect to the NOL is treated as timely if filed on or before April 17, 2009.

This revenue procedure applies to any taxpayer that is an ESB, a partner of a partnership that is an ESB, a shareholder in an S corporation that is an ESB, or a sole proprietor of a business that is an ESB, and that incurred an NOL for any taxable year ending in 2008 or beginning in 2008.

.01 Eligible small businesses that have not filed a return for the applicable 2008 NOL taxable year.

(1) A taxpayer within the scope of this revenue procedure that has not filed a return for the taxable year in which the applicable 2008 NOL arises makes the election under § 172(b)(1)(H) by attaching a statement to the taxpayer’s federal income tax return for the taxable year in which the applicable 2008 NOL arises. The statement must—

(a) Clearly state that the taxpayer is electing to apply §172(b)(1)(H);

(b) Describe the length of the NOL carryback period elected by the taxpayer (3, 4, or 5 years); and

(c) If applicable, state that the taxpayer is electing to apply § 172(b)(1)(H) to the taxpayer’s taxable year that begins in 2008.

(2) The taxpayer’s return must be filed by the due date (including extensions of time) for filing the taxpayer’s return for the taxable year of the applicable 2008 NOL. In the case of a late election, relief may be available under § 301.9100-2(b) of the Procedure and Administration Regulations. Notwithstanding this due date, an election to apply § 172(b)(1)(H) to an applicable 2008 NOL for a taxable year ending before February 17, 2009, will be treated as timely if the election is filed on or before April 17, 2009.

.02 Eligible small businesses that have filed a return for the applicable 2008 NOL taxable year and did not elect to forgo the NOL carryback period.

(1) A taxpayer within the scope of this revenue procedure that previously filed a return for the applicable 2008 NOL taxable year and did not elect to forgo the NOL carryback period under § 172(b)(3) makes the election under § 172(b)(1)(H) as follows:

(a) What to file .

(i) The taxpayer must file the appropriate form including a statement of the carryback period the taxpayer elects (3, 4, or 5 years). The appropriate form is—

(A) For corporations, Form 1139, Corporation Application for Tentative Refund, or Form 1120X, Amended U.S. Corporation Income Tax Return;

(B) For individuals, Form 1045, Application for Tentative Refund, or Form 1040X, Amended U.S. Individual Income Tax Return; and

(C) For estates or trusts, Form 1045, or amended Form 1041, U.S. Income Tax Return for Estates and Trusts.

(ii) A taxpayer that makes the election by filing an amended return must file the return for the earliest taxable year to which the taxpayer is carrying back the applicable 2008 NOL. The taxpayer should not file an amended return for the applicable 2008 NOL taxable year.

(b) Labels. The taxpayer should type or print across the top of the appropriate form “2008 NOL Carryback Election Pursuant to Rev. Proc. 2009-19.” If the taxpayer previously filed an application for a tentative carryback adjustment or an amended return applying an NOL carryback period that did not qualify for the election under § 172(b)(1)(H), the taxpayer also should type or print across the top of the appropriate form “Amended NOL Carryback Election Pursuant to Rev. Proc. 2009-19.” In addition to the labels listed above, a taxpayer that elects pursuant to § 172(b)(1)(H)(ii)(II) to treat its NOL arising in a taxable year beginning in 2008 as the applicable 2008 NOL, must include a statement that the taxpayer is electing to apply § 172(b)(1)(H) to a taxable year that begins in 2008.

(c) When to file. The taxpayer must file the appropriate form by the later of the date that is 6 months after the due date (excluding extensions) for filing the taxpayer’s return for the taxable year of the applicable 2008 NOL, or on or before April 17, 2009.

(2) If a taxpayer makes the election under § 172(b)(1)(H) by filing an applicable form that amends a prior refund claim, the amendment also will apply to a carryback of any alternative tax NOL for the same taxable year. In the case of an amended application for a tentative carryback adjustment, the 90-day period described in § 6411(b) will begin on the date the amended application is filed.

.03 Eligible small businesses that elected to forgo the NOL carryback period under § 172(b)(3). A taxpayer within the scope of this revenue procedure that previously elected under § 172(b)(3) to forgo the carryback period for an applicable 2008 NOL for a taxable year ending before February 17, 2009, may revoke that election and make the election under § 172(b)(1)(H). Any revocation of the election to forgo the NOL carryback period also will apply to a carryback of any alternative tax NOL for the same taxable year. The taxpayer makes the revocation and election by following the procedures of section 4.02 of this revenue procedure. However, instead of the label required in section 4.02(1)(b) of this revenue procedure, the taxpayer should type or print across the top of the appropriate form “2008 NOL Carryback Election and Revocation of NOL Carryback Waiver Pursuant to Rev. Proc. 2009-19.” The taxpayer must file the revocation and new election under § 172(b)(1)(H) on or before April 17, 2009.

.04 Partnerships, S corporations, and sole proprietorships.

(1) If the taxpayer is a partner in a partnership that qualifies as an ESB, the taxpayer may make the § 172(b)(1)(H) election for its distributive share of the qualifying ESB partnership income, gain, loss, and deduction that is both allocable to the taxpayer under § 704 and allowed in calculating the taxpayer’s applicable 2008 NOL.

(2) If the taxpayer is a shareholder in an S corporation that qualifies as an ESB, the taxpayer may make the § 172(b)(1)(H) election for its pro rata share of the qualifying ESB S corporation income, gain, loss, and deduction under § 1366 that is allowed in calculating the shareholder’s applicable 2008 NOL.

(3) If the taxpayer is an owner of a sole proprietorship that qualifies as an ESB, the taxpayer may make the § 172(b)(1)(H) election for the qualifying ESB sole proprietorship income, gain, loss, and deduction that is allowed in calculating the taxpayer’s applicable 2008 NOL.

(4) In determining whether a partnership, S corporation, or sole proprietorship qualifies as an ESB, the gross receipts test applies at the partnership, corporate, or sole proprietorship level. The aggregation rules of § 448(c)(2) apply to determine whether the partnership, S corporation, or sole proprietorship meets the gross receipts test of § 448(c).

(5) The amount of the taxpayer’s applicable 2008 NOL that the taxpayer may carry back under §172(b)(1)(H) is limited to the lesser of:

(a) The taxpayer’s items of income, gain, loss or deduction that are allowed in calculating the taxpayer’s applicable 2008 NOL and are from one or more partnerships, S corporations or sole proprietorships that qualify as ESBs, or

(b) The taxpayer’s applicable 2008 NOL.

(6) Examples.

(a) Example 1. Partnerships A, B, and C have average annual gross receipts of $10 million, $12 million, and $14 million, respectively. Partner T owns a 40% interest in each partnership. None of the partnerships is required to be aggregated with any other entity for purposes of the aggregation rules of § 448(c)(2). Subject to the limitations in section 4.04(5) of this revenue procedure, Partner T may apply its election under § 172(b)(1)(H) to the portion of its applicable 2008 NOL attributable to its distributive share of the income, gain, loss, and deduction of each of Partnerships A, B, and C.

(b) Example 2. The facts are the same as in Example 1, except that Partnerships A and B are under common control within the meaning of § 52(b)(1). Accordingly, Partnerships A and B are treated as one person under the aggregation rules of § 448(c)(2). Because the aggregated average annual gross receipts of Partnerships A and B exceed $15 million, Partnerships A and B do not qualify as ESBs. Partner T may not apply its election under § 172(b)(1)(H) to the portion of its applicable 2008 NOL attributable to its distributive share of the income, gain, loss, and deduction of Partnerships A and B. However, subject to the limitations in section 4.04(5) of this revenue procedure, Partner T may apply its election under § 172(b)(1)(H) to the portion of its applicable 2008 NOL attributable to its distributive share of income, gain, loss, and deduction of Partnership C.

This revenue procedure is effective for NOLs arising in taxable years ending after December 31, 2007.

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under the following control numbers: 1545-0074 Form 1040 (U.S. Individual Income Tax Return) and Form 1040X (Amended U.S. Individual Income Tax Return); 1545-0123 Form 1120 (U.S. Corporation Income Tax Return); 1545-0132 Form 1120X (Amended U.S. Corporation Income Tax Return); 1545-0092 Form 1041 (U.S. Income Tax Return for Estates and Trusts); 1545-0098 Form 1045 (Application for Tentative Refund); 1545-0582 Form 1139 (Corporation Application for Tentative Refund). For further information, please refer to the Paperwork Reduction Act statements accompanying these forms.

The principal author of this revenue procedure is Seoyeon Park of the Office of the Associate Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Ms. Park at (202) 622-4960 (not a toll-free call).

This revenue procedure provides an optional safe harbor treatment for taxpayers that experienced losses in certain investment arrangements discovered to be criminally fraudulent. This revenue procedure also describes how the Internal Revenue Service will treat a return that claims a deduction for such a loss and does not use the safe harbor treatment described in this revenue procedure.

.01 The Service and Treasury Department are aware of investment arrangements that have been discovered to be fraudulent, resulting in significant losses to taxpayers. These arrangements often take the form of so-called “Ponzi” schemes, in which the party perpetrating the fraud receives cash or property from investors, purports to earn income for the investors, and reports to the investors income amounts that are wholly or partially fictitious. Payments, if any, of purported income or principal to investors are made from cash or property that other investors invested in the fraudulent arrangement. The party perpetrating the fraud criminally appropriates some or all of the investors’ cash or property.

.02 Rev. Rul. 2009-9, 2009-14 I.R.B. 735 (April 6, 2009), describes the proper income tax treatment for losses resulting from these Ponzi schemes.

.03 The Service and Treasury Department recognize that whether and when investors meet the requirements for claiming a theft loss for an investment in a Ponzi scheme are highly factual determinations that often cannot be made by taxpayers with certainty in the year the loss is discovered.

.04 In view of the number of investment arrangements recently discovered to be fraudulent and the extent of the potential losses, this revenue procedure provides an optional safe harbor under which qualified investors (as defined in § 4.03 of this revenue procedure) may treat a loss as a theft loss deduction when certain conditions are met. This treatment provides qualified investors with a uniform manner for determining their theft losses. In addition, this treatment avoids potentially difficult problems of proof in determining how much income reported in prior years was fictitious or a return of capital, and alleviates compliance and administrative burdens on both taxpayers and the Service.

The safe harbor procedures of this revenue procedure apply to taxpayers that are qualified investors within the meaning of section 4.03 of this revenue procedure.

The following definitions apply solely for purposes of this revenue procedure.

.01 Specified fraudulent arrangement. A specified fraudulent arrangement is an arrangement in which a party (the lead figure) receives cash or property from investors; purports to earn income for the investors; reports income amounts to the investors that are partially or wholly fictitious; makes payments, if any, of purported income or principal to some investors from amounts that other investors invested in the fraudulent arrangement; and appropriates some or all of the investors’ cash or property. For example, the fraudulent investment arrangement described in Rev. Rul. 2009-9 is a specified fraudulent arrangement.

.02 Qualified loss. A qualified loss is a loss resulting from a specified fraudulent arrangement in which, as a result of the conduct that caused the loss—

(1) The lead figure (or one of the lead figures, if more than one) was charged by indictment or information (not withdrawn or dismissed) under state or federal law with the commission of fraud, embezzlement or a similar crime that, if proven, would meet the definition of theft for purposes of § 165 of the Internal Revenue Code and § 1.165-8(d) of the Income Tax Regulations, under the law of the jurisdiction in which the theft occurred; or

(2) The lead figure was the subject of a state or federal criminal complaint (not withdrawn or dismissed) alleging the commission of a crime described in section 4.02(1) of this revenue procedure, and either—

(a) The complaint alleged an admission by the lead figure, or the execution of an affidavit by that person admitting the crime; or

(b) A receiver or trustee was appointed with respect to the arrangement or assets of the arrangement were frozen.

.03 Qualified investor. A qualified investor means a United States person, as defined in § 7701(a)(30) —

(1) That generally qualifies to deduct theft losses under § 165 and § 1.165-8;

(2) That did not have actual knowledge of the fraudulent nature of the investment arrangement prior to it becoming known to the general public;

(3) With respect to which the specified fraudulent arrangement is not a tax shelter, as defined in § 6662(d)(2)(C)(ii); and

(4) That transferred cash or property to a specified fraudulent arrangement. A qualified investor does not include a person that invested solely in a fund or other entity (separate from the investor for federal income tax purposes) that invested in the specified fraudulent arrangement. However, the fund or entity itself may be a qualified investor within the scope of this revenue procedure.

.04 Discovery year. A qualified investor’s discovery year is the taxable year of the investor in which the indictment, information, or complaint described in section 4.02 of this revenue procedure is filed.

.05 Responsible group. Responsible group means, for any specified fraudulent arrangement, one or more of the following:

(1) The individual or individuals (including the lead figure) who conducted the specified fraudulent arrangement;

(2) Any investment vehicle or other entity that conducted the specified fraudulent arrangement, and employees, officers, or directors of that entity or entities;

(3) A liquidation, receivership, bankruptcy or similar estate established with respect to individuals or entities who conducted the specified fraudulent arrangement, in order to recover assets for the benefit of investors and creditors; or

(4) Parties that are subject to claims brought by a trustee, receiver, or other fiduciary on behalf of the liquidation, receivership, bankruptcy or similar estate described in section 4.05(3) of this revenue procedure.

.06 Qualified investment.

(1) Qualified investment means the excess, if any, of —

(a) The sum of —

(i) The total amount of cash, or the basis of property, that the qualified investor invested in the arrangement in all years; plus

(ii) The total amount of net income with respect to the specified fraudulent arrangement that, consistent with information received from the specified fraudulent arrangement, the qualified investor included in income for federal tax purposes for all taxable years prior to the discovery year, including taxable years for which a refund is barred by the statute of limitations; over

(b) The total amount of cash or property that the qualified investor withdrew in all years from the specified fraudulent arrangement (whether designated as income or principal).

(2) Qualified investment does not include any of the following—

(a) Amounts borrowed from the responsible group and invested in the specified fraudulent arrangement, to the extent the borrowed amounts were not repaid at the time the theft was discovered;

(b) Amounts such as fees that were paid to the responsible group and deducted for federal income tax purposes;

(c) Amounts reported to the qualified investor as taxable income that were not included in gross income on the investor’s federal income tax returns; or

(d) Cash or property that the qualified investor invested in a fund or other entity (separate from the qualified investor for federal income tax purposes) that invested in a specified fraudulent arrangement.

.07 Actual recovery. Actual recovery means any amount a qualified investor actually receives in the discovery year from any source as reimbursement or recovery for the qualified loss.

.08 Potential insurance/SIPC recovery. Potential insurance/SIPC recovery means the sum of the amounts of all actual or potential claims for reimbursement for a qualified loss that, as of the last day of the discovery year, are attributable to—

(1) Insurance policies in the name of the qualified investor;

(2) Contractual arrangements other than insurance that guaranteed or otherwise protected against loss of the qualified investment; or

(3) Amounts payable from the Securities Investor Protection Corporation (SIPC), as advances for customer claims under 15 U.S.C. § 78fff-3(a) (the Securities Investor Protection Act of 1970), or by a similar entity under a similar provision.

.09 Potential direct recovery. Potential direct recovery means the amount of all actual or potential claims for recovery for a qualified loss, as of the last day of the discovery year, against the responsible group.

.10 Potential third-party recovery. Potential third-party recovery means the amount of all actual or potential claims for recovery for a qualified loss, as of the last day of the discovery year, that are not described in section 4.08 or 4.09 of this revenue procedure.

.01 In general. If a qualified investor follows the procedures described in section 6 of this revenue procedure, the Service will not challenge the following treatment by the qualified investor of a qualified loss—

(1) The loss is deducted as a theft loss;

(2) The taxable year in which the theft was discovered within the meaning of § 165(e) is the discovery year described in section 4.04 of this revenue procedure; and

(3) The amount of the deduction is the amount specified in section 5.02 of this revenue procedure.

.02 Amount to be deducted. The amount specified in this section 5.02 is calculated as follows—

(1) Multiply the amount of the qualified investment by—

(a) 95 percent, for a qualified investor that does not pursue any potential third-party recovery; or

(b) 75 percent, for a qualified investor that is pursuing or intends to pursue any potential third-party recovery; and

(2) Subtract from this product the sum of any actual recovery and any potential insurance/SIPC recovery.

The amount of the deduction calculated under this section 5.02 is not further reduced by potential direct recovery or potential third-party recovery.

.03 Future recoveries. The qualified investor may have income or an additional deduction in a year subsequent to the discovery year depending on the actual amount of the loss that is eventually recovered. See § 1.165-1(d); Rev. Rul. 2009-9.

.01 A qualified investor that uses the safe harbor treatment described in section 5 of this revenue procedure must—

(1) Mark “Revenue Procedure 2009-20” at the top of the Form 4684, Casualties and Thefts, for the federal income tax return for the discovery year. The taxpayer must enter the “deductible theft loss” amount from line 10 in Part II of Appendix A of this revenue procedure on line 34, section B, Part I, of the Form 4684 and should not complete the remainder of section B, Part I, of the Form 4684;

(2) Complete and sign the statement provided in Appendix A of this revenue procedure; and

(3) Attach the executed statement provided in Appendix A of this revenue procedure to the qualified investor’s timely filed (including extensions) federal income tax return for the discovery year. Notwithstanding the preceding sentence, if, before April 17, 2009, the taxpayer has filed a return for the discovery year or an amended return for a prior year that is inconsistent with the safe harbor treatment provided by this revenue procedure, the taxpayer must indicate this fact on the executed statement and must attach the statement to the return (or amended return) for the discovery year that is consistent with the safe harbor treatment provided by this revenue procedure and that is filed on or before May 15, 2009.

.02 By executing the statement provided in Appendix A of this revenue procedure, the taxpayer agrees—

(1) Not to deduct in the discovery year any amount of the theft loss in excess of the deduction permitted by section 5 of this revenue procedure;

(2) Not to file returns or amended returns to exclude or recharacterize income reported with respect to the investment arrangement in taxable years preceding the discovery year;

(3) Not to apply the alternative computation in § 1341 with respect to the theft loss deduction allowed by this revenue procedure; and

(4) Not to apply the doctrine of equitable recoupment or the mitigation provisions in §§ 1311-1314 with respect to income from the investment arrangement that was reported in taxable years that are otherwise barred by the period of limitations on filing a claim for refund under § 6511.

This revenue procedure applies to losses for which the discovery year is a taxable year beginning after December 31, 2007.

.01 A taxpayer that chooses not to apply the safe harbor treatment provided by this revenue procedure to a claimed theft loss is subject to all of the generally applicable provisions governing the deductibility of losses under § 165. For example, a taxpayer seeking a theft loss deduction must establish that the loss was from theft and that the theft was discovered in the year the taxpayer claims the deduction. The taxpayer must also establish, through sufficient documentation, the amount of the claimed loss and must establish that no claim for reimbursement of any portion of the loss exists with respect to which there is a reasonable prospect of recovery in the taxable year in which the taxpayer claims the loss.

.02 A taxpayer that chooses not to apply the safe harbor treatment of this revenue procedure to a claimed theft loss and that files or amends federal income tax returns for years prior to the discovery year to exclude amounts reported as income to the taxpayer from the investment arrangement must establish that the amounts sought to be excluded in fact were not income that was actually or constructively received by the taxpayer (or accrued by the taxpayer, in the case of a taxpayer using an accrual method of accounting). However, provided a taxpayer can establish the amount of net income from the investment arrangement that was reported and included in the taxpayer’s gross income consistent with information received from the specified fraudulent arrangement in taxable years for which the period of limitation on filing a claim for refund under § 6511 has expired, the Service will not challenge the taxpayer’s inclusion of that amount in basis for determining the amount of any allowable theft loss, whether or not the income was genuine.

.03 Returns claiming theft loss deductions from fraudulent investment arrangements are subject to examination by the Service.

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under the following control numbers: 1545-0074 Form 1040 (Individual Income Tax Return) and Form 1040X (Amended U.S. Individual Income Tax Return); 1545-0123 Form 1120 (U.S. Corporation Income Tax Return); 1545-0132 Form 1120X (Amended U.S. Corporation Income Tax Return); 1545-0092 Form 1041 (U.S. Income Tax Return for Estates and Trusts); 1545-0099 Form 1065 (U.S. Return of Partnership Income); 1545-0130 Form 1120S (U.S. Income Tax Return for an S Corporation). Please refer to the Paperwork Reduction Act statements accompanying these forms for further information.

The principal author of this revenue procedure is Norma Rotunno of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Ms. Rotunno at (202) 622-7900.

This Announcement invites public comments on how to improve the Internal Revenue Service’s Exempt Organizations Division Web site (www.irs.gov/eo).

The Customer Education and Outreach (CE&O) function of the Exempt Organizations Division (EO), Internal Revenue Service (IRS), is responsible for managing the EO Web site (www.irs.gov/eo). CE&O has found that, as the site has grown, displaying information in a logical and easy-to-use format has become challenging.

In an effort to improve the Web site, the IRS is seeking comments from the public in two specific areas:

The public should consider the following questions when making comments:

Members of the public may submit comments by electronic message, by mail, or by hand delivery. All comments should refer to Announcement 2009-25, and may be mailed to:

Hand-delivered items may be delivered Monday through Friday between the hours of 8:00 a.m. and 5:00 p.m. to:

Comments may be submitted electronically to:

EO.Web.Comments@irs.gov. Please include Announcement 2009-25 in the subject line of any electronic communications.

All comments will be available for public inspection and copying in their entirety. Consideration will be given to any written public comments that are received by May 25, 2009. EO regrets that it will be unable to respond individually to comments or drafts.

The principal author of this announcement is Amelia Henchey of Exempt Organizations. For further information regarding this announcement, contact Amelia Henchey at 202-283-8856 (not a toll-free call).

The Customer Education and Outreach (CE&O) function of the Exempt Organization division of the Internal Revenue Service (IRS) was established in 2000 to develop the strategic direction of the nationwide education and outreach programs for exempt organizations. Specifically, this office develops and delivers programs and products designed to assist exempt organizations to better understand their tax responsibilities that are required by the Internal Revenue Code.

Many academic institutions offer degree programs that develop, cultivate, and promote professionals who shape the exempt organization sector. The student populations of these academic institutions may one day be the leaders and managers of the exempt organizations that makeup the nonprofit sector. Hence, CE&O believes that the students of these academic institutions are an important audience to reach with education and outreach programs.

Therefore, CE&O is in the process of developing a new academic program initiative that will reach out directly to academic institutions that offer degrees related to the non-profit sector. Through the use of our existing tools and the possible development of additional resources, CE&O proposes to collaborate with these institutions to promote the education of exempt organization tax law.

The IRS invites comments and suggestions for the implementation and content of the proposed initiative. First, the IRS is requesting general responses to this initiative. Second, the IRS is seeking individuals and/or institution volunteers willing to provide more extensive input into and feedback on the proposed initiative. While the IRS might not be able to accommodate all volunteers, it will take steps to ensure that a diverse range of viewpoints are represented.

The IRS invites interested members of the public to submit written suggestions to help shape this initiative. All submissions will be available for public inspection and copying in their entirety. Members of the public may submit suggestions or drafts by email, mail, or hand-delivery. All comments should refer to Announcement 2009-26, and may be mailed to:

Hand delivered items may be delivered Monday through Friday between the hours of 8:00 a.m. and 5:00 p.m., to:

Comments may be submitted electronically to: academic.initiative@irs.gov. Please include Announcement 2009-26 in the subject line of any electronic communications.

Exempt Organizations regrets that it will be unable to respond individually to suggestions or drafts. All comments should be received by June 6, 2009.

The principal author of this announcement is Pilar Oberwetter of Exempt Organizations. For further information regarding this announcement, contact Pilar Oberwetter at (202) 283-8946 (not a toll-free call).

The Internal Revenue Service has revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986.

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

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on April 6, 2009, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

Internal Revenue Service (IRS), Treasury.

Notice of public hearing on proposed rulemaking.

This document provides notice of public hearing on a notice of proposed rulemaking (REG-158747-06, 2009-4 I.R.B. 362) relating to withholding under section 3402(t) of the Internal Revenue Code. The proposed regulations reflect changes in the law made by the Tax Increase Prevention and Reconciliation Act of 2005 that require Federal, State, and local government entities to withhold income tax when making payments to persons providing property or services. These proposed regulations provide guidance to assist the government entities in complying with section 3402(t). The regulations also provide certain guidance to persons receiving payments for property or services from government entities.

The public hearing is being held on April 16, 2009, at 10 a.m. The IRS must receive outlines of the topics to be discussed at the hearing by March 25, 2009.

The public hearing is being held in the auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Send submissions to: CC:PA:LPD:PR (REG-158747-06), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-158747-06), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit electronic outlines of oral comments via the Federal eRulemaking Portal at http://www.regulations.gov.

Concerning these proposed regulations, Jean Casey, (202) 622-6040; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Richard A. Hurst at Richard.A.Hurst@irscounsel.treas.gov or (202) 622-7180 (not toll-free numbers).

The subject of the public hearing is the notice of proposed rulemaking (REG-158747-06) that was published in the Federal Register on Friday, December 5, 2008 (73 FR 74082).

Persons, who wish to present oral comments at the hearing that submitted written comments, must submit an outline of the topics to be discussed and the amount of time to be devoted to each topic (signed original and eight (8) copies) by March 25, 2009.

A period of 10 minutes is allotted to each person for presenting oral comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available, free of charge, at the hearing or in the Freedom of Information Reading Room (FOIA RR) (Room 1621) which is located at the 11^th and Pennsylvania Avenue NW entrance, 1111 Constitution Avenue, NW, Washington, DC.

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