Bulletin No. 2024–21

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2024–21

May 20, 2024

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

Announcement 2024-18, page 1234.

The Office of Professional Responsibility (OPR) announces

recent disciplinary sanctions involving attorneys, certified

public accountants, enrolled agents, enrolled actuaries,

enrolled retirement plan agents, and appraisers. These individuals are subject to the regulations governing practice

before the Internal Revenue Service (IRS), which are set out in

Title 31, Code of Federal Regulations, Part 10, and which are

published in pamphlet form as Treasury Department Circular

No. 230. The regulations prescribe the duties and restrictions relating to such practice and prescribe the disciplinary

sanctions for violating the regulations.

EXCISE TAX, INCOME TAX

Notice 2024-37, page 1191.

Notice 2024-37 discusses the new 40BSAF-GREET 2024

model as a qualifying method under section 40B(e)(2) and

provides a safe harbor for calculating emissions reduction

using the 40BSAF-GREET 2024 model and a safe harbor for

the related certification requirements. Notice 2024-37 also

provides a safe harbor for using the United States Department of Agriculture Climate Smart Agriculture Pilot Program

to further reduce the emissions reduction calculated using

40BSAF-GREET 2024 for domestic soybean and domestic

corn feedstocks, as well as a safe harbor for the related

certification requirements for that program.

EXEMPT ORGANIZATIONS

Announcement 2024-21, page 1236.

Revocation of IRC 501(c)(3) Organizations for failure to meet

the code section requirements. Contributions made to the

Finding Lists begin on page ii.

organizations by individual donors are no longer deductible

under IRC 170(b)(1)(A).

INCOME TAX

Notice 2024-38, page 1211.

This notice accompanies Rev. Proc. 2024-24, which provides procedures for requesting private letter rulings from

the IRS regarding certain matters pertaining to section 355

transactions. Specifically, this notice requests public feedback on the provisions set forth in Rev. Proc. 2024-24 and

describes the Treasury Department’s and IRS’s views and

concerns relating to certain matters addressed in the revenue procedure.

REG-117631-23, page 1237.

This document supplements the notice of proposed rulemaking issued by the Treasury Department and the IRS on

December 26, 2023, relating to the Section 45V credit

for the production of clean hydrogen and the Section 48(a)

(15) election to treat clean hydrogen production facilities as

energy property. This document contains supplemental information for taxpayers to request an emissions value from the

Department of Energy to petition the Secretary of the Treasury for a provisional emissions rate as described in Section

45V(c)(2)(C) and proposed § 1.45V-4.

Rev. Proc. 2024-24, page 1214.

This revenue procedure provides updated procedures for taxpayers requesting private letter rulings from the IRS regarding certain matters pertaining to section 355 transactions,

including representations, information, and analysis to be

submitted with those requests. This revenue procedure modifies Rev. Proc. 2017-52, 2017-41 I.R.B. 283, and supersedes Rev. Proc. 2018-53, 2018-43 I.R.B. 667.

T.D. 9992, page 1175.

This document contains final regulations that address the

determination of whether a qualified investment entity is

domestically controlled, including the treatment of qualified

foreign pension funds for this purpose. In particular, these

final regulations provide guidance as to when foreign per-

sons are considered to hold directly or indirectly stock in

a qualified investment entity. The final regulations primarily

affect foreign persons that own stock in a qualified investment entity that would be a United States real property interest if the qualified investment entity were not domestically

controlled.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

May 20, 2024 

Bulletin No. 2024–21

Part I

T.D. 9992

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Guidance on the Definition

of Domestically Controlled

Qualified Investment

Entities

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations that address the determination of whether a qualified investment

entity is domestically controlled, including the treatment of qualified foreign pension funds for this purpose. In particular,

these final regulations provide guidance as

to when foreign persons are considered to

hold directly or indirectly stock in a qualified investment entity. The final regulations primarily affect foreign persons that

own stock in a qualified investment entity

that would be a United States real property

interest if the qualified investment entity

were not domestically controlled.

DATES: Effective date: These regulations

are effective on April 25, 2024.

Applicability date: For the date of

applicability, see §§1.897-1(a)(2) and

1.1445- 2(e).

FOR FURTHER INFORMATION

CONTACT: Milton Cahn at (202) 3174934 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On December 29, 2022, the Treasury

Department and the IRS published proposed regulations (REG-100442-22),

relating to the treatment of certain enti-

Bulletin No. 2024–21

ties, including qualified foreign pension

funds (“QFPFs”), for purposes of the

exemption from taxation afforded to foreign governments under section 892 of

the Internal Revenue Code (the “Code”),

and the determination of whether a qualified investment entity (“QIE”) is domestically controlled under section 897(h)(4)

(B) of the Code, in the Federal Register

(87 FR 80097) (the “proposed regulations”). This Treasury decision finalizes

the proposed regulations, other than

those portions addressing the section

892 exemption (which will be addressed

in a separate rulemaking), after taking

into account and addressing comments

with respect to the proposed regulations.

Terms used but not defined in this preamble have the meaning provided in the

final regulations.

Comments outside the scope of this

rulemaking are generally not addressed

but may be considered in connection

with future regulations. All written comments received in response to the proposed regulations are available at www.

regulations.gov or upon request. A public

hearing on the proposed regulations was

not held because there were no requests

to speak.

Summary of Comments and

Explanation of Revisions

The final regulations retain the general

approach and structure of the proposed

regulations, with certain revisions. This

section of the preamble discusses the

comments received in response to the proposed regulations and explains the revisions reflected in the final regulations.

I. Domestic Corporation Look-Through

Rule

A. Background

The proposed regulations set forth proposed rules for determining whether stock

of a QIE is considered “held directly or

indirectly” by foreign persons for purposes of defining a domestically controlled QIE under section 897(h)(4)(B).

The proposed regulations defined stock in

1175

a QIE that is held “indirectly” by taking

into account stock of the QIE held through

certain entities under a limited “lookthrough” approach. As described in the

preamble to the proposed regulations, this

approach gives effect to both the policy of

the exception for domestically controlled

QIEs in section 897(h)(2) (“DC-QIE

exception”), which is limited to QIEs controlled by United States persons, and the

requirement in section 897(h)(4)(B) to

take into account “indirect” ownership of

QIE stock by foreign persons in determining whether a QIE is domestically controlled. 87 FR 80100. The preamble to the

proposed regulations also explained that

this approach prevents the use of intermediary entities to achieve results contrary to

the purposes of the DC-QIE exception. Id.

at 80100-01.

The proposed regulations addressed the

meaning of direct or indirect ownership

by setting forth two categories of potential QIE owners, “look-through persons”

and “non-look-through persons.” Proposed §1.897-1(c)(3)(ii). The proposed

regulations generally treated a “domestic

C corporation,” defined as any domestic

corporation other than a regulated investment company (“RIC”) under section 851,

a real estate investment trust (“REIT”)

under section 856, or an S corporation under section 1361, as a non-lookthrough person. Proposed §1.897-1(c)(3)

(v)(A) and (D). However, the proposed

regulations treated non-publicly traded

domestic C corporations as look-through

persons if foreign persons hold a 25 percent or greater interest (by value) in the

stock of the corporation (the “domestic

corporation look-through rule”). Proposed

§1.897-1(c)(3)(iii)(B) and (c)(3)(v)(B).

Comments generally did not raise

concerns with the general look-through

approach for determining domestic control

of a QIE as it applied to most entities (for

example, the treatment of partnerships)

but asserted that the domestic corporation

look-through rule raises significant issues

and should be withdrawn or, if retained,

modified to reduce its scope. These comments are addressed in turn in parts I.B.

and I.C. of this Summary of Comments

and Explanation of Revisions.

May 20, 2024

B. Comments recommending withdrawal

of the domestic corporation look-through

rule

Comments generally recommended

that the domestic corporation lookthrough rule be withdrawn on three related

grounds: first, that the rule is based on an

incorrect reading of the Code, which for

this purpose does not permit look-through

treatment for domestic C corporations,

including because there are no explicit

rules providing for constructive ownership (such as those in section 318) under

section 897(h)(4)(B); second, that the

enactment of other related legislation (or

consideration of legislation) demonstrates

the rule is inconsistent with congressional

intent; and third, that the rule is not necessary because domestic C corporations are

subject to U.S. tax. Certain comments also

based their recommendation to withdraw

the domestic corporation look-through

rule on the contention that the rule would

negatively impact the U.S. real estate market or otherwise harm the broader U.S.

economy.

The Treasury Department and the IRS

have determined that it is necessary and

appropriate to provide guidance regarding

the meaning of “indirect” for determining whether foreign persons are considered to hold less than 50 percent of the

value of the stock of a QIE. Every word

in a statute must be given effect, and both

the proposed and final regulations give

effect to the term “indirectly” as used in

section 897(h)(4)(B) by adopting a limited look-through approach that includes

the domestic corporation look-through

rule (as modified in the final regulations).

The domestic corporation look-through

rule does not apply specific constructive ownership rules like those in section

318. Rather, the guidance gives meaning to indirect ownership under section

897(h)(4)(B) in light of the purpose of the

DC-QIE exception. Because the final regulations carry out the statute’s mandate to

determine indirect ownership rather than

constructive ownership, the fact that other

parts of section 897 refer to section 318 is

irrelevant to the determination of whether

a QIE is domestically controlled.

The Treasury Department and the IRS

do not agree that the enactment of section

897(h)(4)(E) in section 322(b)(1)(A) of

the Protecting Americans from Tax Hikes

Act of 2015, Public Law 114-113, div. Q

(the “PATH Act”), informs whether the

domestic corporation look-through rule

should be applied under section 897(h)(4)

(B). The rules added in section 897(h)(4)

(E) do not prescribe how to interpret the

meaning of “indirectly” in section 897(h)

(4)(B), nor do they suggest that Congress

intended for that provision to set out the

only rules for QIE stock held by domestic corporations. Although section 897(h)

(4)(E) provides certain rules for looking

through QIE stock held by another QIE

for purposes of the DC-QIE exception,

the absence of other specific rules in the

statute on whether domestic C corporations (or any other type of entity) should

be looked through does not mean that all

other entities should be non-look-through

persons.

The Treasury Department and the

IRS also disagree with the observation in

comments that Congress sanctioned the

approach taken by a 2009 private letter

ruling (the “2009 PLR”) that treated QIE

stock held by a domestic C corporation as

owned by a domestic person.1 The brief

citation to that ruling in a report by the

Joint Committee on Taxation is neutral

and merely restates the holding in the ruling in its description of the then current

law. See STAFF OF THE JOINT COMM.

ON TAX’N, General Explanation of Tax

Legislation Enacted in 2015 (JCS–1–16)

279 (2016) (the “JCT Report”).2 The JCT

Report did not express any view regarding

the effect of the 2009 PLR or indicate that

Congress endorsed a rule that precludes

looking through domestic C corporations

in all cases, and it caveated that a private

letter ruling may only be relied on by the

specific taxpayer to which it was issued and

only provided “some indication of administrative practice.” See section 6110(k)

(3). This is in contrast to other instances

where Congress has explicitly endorsed

an approach taken by the IRS. See, for

example, H.R. Rep. No. 103-111, at 72729 (1993) (in enacting section 7701(l),

citing Rev. Rul. 84-152, 1984-2 C.B. 381,

Rev. Rul. 84-153 1984-2 C.B. 1, and Rev.

Rul. 87-89, 1987-2 C.B. 195, in stating the

“committee believes that the above-cited

IRS rulings appropriately ignore conduit

entities and properly recharacterize the

transactions described therein.”); S. Rep.

No. 95-762, at 8 (1978) (stating that the

IRS’s “ruling position is correct” in enacting rules consistent with private letter rulings indicating that certain income earned

by exempt organizations was not taxable

as debt-financed income). Accordingly,

the Treasury Department and the IRS have

concluded that the JCT Report’s reference

to the 2009 PLR does not affect the application of the domestic corporation lookthrough rule.

Likewise, the Treasury Department

and the IRS disagree with comments that

emphasized the discussion draft released

by the Senate Committee on Finance in

2013 (the “2013 Discussion Draft”) and

the absence of any related changes to section 897 in the PATH Act. The relevant

provision in the 2013 Discussion Draft

would have replaced the “held directly or

indirectly” language in section 897(h)(4)

(B) with specific constructive ownership

rules in section 318 (not just those applicable to corporations) to address uncertainty in the determination of indirect

ownership. See STAFF OF THE JOINT

COMM. ON TAX’N, Technical Explanation of the Senate Committee on Finance

Chairman’s Staff Discussion Draft of

Provisions to Reform International Business Taxation (JCX-15-13) 84 (2013).

The 2013 Discussion Draft, however, is

not authoritative and has no relevance

because it was neither introduced as a bill

nor enacted into law. Moreover, Congress

did not provide any explanation as to why

constructive ownership rules under section 318, as proposed in the 2013 Discussion Draft, were not adopted in the PATH

Act nor did it provide any indication as

to its interpretation of “indirectly” under

the statute, and nothing in the legislative

PLR 200923001 (February 26, 2009).

See also STAFF OF THE JOINT COMM. ON TAX’N, Technical Explanation of the Revenue Provisions of the Protecting Americans from Tax Hikes Act of 2015, House Amendment #2 to

the Senate Amendment to H.R. 2029 (JCX-144-15) 186-87 (2015). As noted in the JCT Report, a Senate Committee on Finance report on an earlier, separate bill referenced the 2009 PLR in

the same manner in describing provisions similar to those in section 322 of the PATH Act. See JCT Report at 277, note 943; S. Rep. No. 114-25, 6 (2015).

1

2

May 20, 2024

1176

Bulletin No. 2024–21

history of the PATH Act or otherwise suggests draft legislation from more than two

years earlier during a different Congress

informed what was ultimately enacted in

the PATH Act. See United States v. Wise,

370 U.S. 405, 411 (1962) (“[S]tatutes are

construed by the courts with reference

to the circumstances existing at the time

of the passage. The interpretation placed

upon an existing statute by a subsequent

group of Congressmen who are promoting

legislation and who are unsuccessful has

no persuasive significance here.”).

The Treasury Department and the IRS

also disagree with one comment’s assertion that the legislative re-enactment

doctrine bears on whether to issue the

domestic corporation look-through rule.

See Helvering v. Reynolds, 313 U.S. 428,

432 (1941) (“[The doctrine of legislative

reenactment] does not mean that the prior

construction has become so imbedded

in the law that only Congress can effect

a change.”).3 Accordingly, the Treasury

Department and the IRS have determined

that no changes to section 897 made in,

or contemplated in connection with, the

PATH Act, or any explanation of those

changes, preclude, or otherwise affect,

adoption of the domestic corporation

look-through rule.

Finally, the Treasury Department and

the IRS have determined that the domestic

corporation look-through rule is the appropriate interpretation of the term “indirectly” in section 897(h)(4)(B) irrespective of whether the domestic C corporation

is subject to U.S. tax on income derived

from its QIE stock. As expressed through

the statutory text, the policy underlying

the DC-QIE exception looks to whether

control of the QIE is held directly or indirectly by United States or foreign persons,

which does not depend on whether United

States persons are subject to U.S. tax with

respect to income derived from their QIE

stock. The determination of domestic control is likewise not affected by whether

a foreign shareholder of the domestic C

corporation is subject to tax on a disposition of its stock in the corporation under

section 897. The purpose of the inquiry is

to determine control, and the status of an

entity as taxable is not determinative for

this purpose.

Accordingly, the Treasury Department

and the IRS do not adopt the recommendation to withdraw the domestic corporation look-through rule. However, the final

regulations modify the domestic corporation look-through rule as discussed in part

I.C of this Summary of Comments and

Explanation of Revisions.

C. Comments recommending

modifications to the domestic corporation

look-through rule; explanation of revision

Comments recommended that, if the

final regulations retain a rule similar to the

domestic corporation look-through rule,

then the approach should be narrowed

from what was proposed so that the final

rule more directly addresses potentially

inappropriate planning and is easier to

comply with and administer.

One comment suggested a variety

of potential approaches to narrow the

domestic corporation look-through rule.

Under one such approach, a non-public domestic C corporation that owns

10 percent or less of a QIE (determined

after applying constructive ownership

rules under section 318, so as to prevent

circumvention of the threshold) would

be treated as a non-look-through person.

The comment asserted that this approach

would be less burdensome on taxpayers

and the IRS than the proposed regulations

and is premised on the view that a foreign

person would not structure an investment

through a taxable domestic C corporation

so that an unrelated foreign person may

apply the DC-QIE exception. The comment described an alternative approach,

also intended to reduce compliance and

administrative burdens, that would treat

a non-public domestic C corporation as

a look-through person only if there is at

least one foreign person that is a non-lookthrough person that holds, directly or indirectly (using constructive ownership rules

under section 318), 25 percent or more of

the value of the corporation’s stock. Under

this alternative, look-through treatment

would also apply only as to those foreign

non-look-through persons. As another

alternative, the comment suggested a

look-through rule that would apply only if

a foreign person or a foreign related party

holds both a direct interest in the QIE and

a substantial indirect interest in the QIE

through a non-public domestic C corporation.

A different comment also recommended

an approach that focused on commonality

of substantial ownership by a foreign person of the QIE and the domestic C corporation. Specifically, a domestic C corporation would be treated as a foreign person

for purposes of section 897(h)(4)(B) (but

not for section 897(h)(4)(C)), if more than

50 percent of its stock is owned, by voting power or value, by foreign persons

that also hold stock of the QIE directly,

or indirectly through one or more partnerships, grantor trusts, or QIEs. Under this

comment’s recommended approach, a foreign person would be included in the more

than 50 percent control test if the domestic

C corporation had actual knowledge that

the foreign person has cross-ownership

of the QIE after inquiry with any person

that is at least a 5-percent shareholder of

the domestic C corporation (after applying

the rules of section 318(a)). The comment

reasoned that foreign investors should be

considered incidental and thus should not

be counted when measuring direct or indirect foreign control of the QIE when they

invest through a domestic C corporation

and do not have cross-ownership of the

QIE directly or through related parties,

or do hold interests in both entities but do

not individually or collectively control the

domestic C corporation.

Finally, one comment advocated that

a look-through approach to a domestic C

corporation should not apply when that

corporation has material business activities unrelated to its investment in a QIE’s

stock with potential safe harbors such as

where the corporation is registered as an

investment adviser under the Investment

Company Act of 1940 or the foreign owner

of the domestic C corporation is actively

3

See also Helvering v. Wilshire Oil Co., 308 U.S. 90, 100 (1939) (holding that the legislative reenactment doctrine applies where “it does not appear that the rule or practice has been changed

by the administrative agency through exercise of its continuing rule-making power”); McCoy v. United States, 802 F.2d 762 (4th Cir. 1986); Interstate Drop Forge Co. v. Comm’r, 326 F2d

743 (7th Cir. 1964).

Bulletin No. 2024–21

1177

May 20, 2024

traded on an established securities market

outside of the United States. The comment reasoned that such cases are unlikely

to be structured transactions of the type

identified by the proposed regulations.

Similarly, another comment also proposed

that the look-through approach should not

apply if a domestic C corporation would

be treated as engaged in a U.S. trade or

business if it had been a foreign corporation (such that the corporation is not a

mere shell), and this exception could be

further limited by ensuring that the value

of the QIE stock held by the domestic C

corporation is less than a certain threshold

of the affiliated group’s total assets.

The final regulations do not adopt any

of the recommended modifications to the

domestic corporation look-through rule.

Several suggested modifications would

limit the application of the rule to situations that indicate that foreign persons are

using a domestic C corporation to establish domestic control of a QIE so that

their direct investments in the QIE benefit

from the DC-QIE exception. However,

as discussed in part I.A of this Summary

of Comments and Explanation of Revisions, the proposed and final regulations

serve a broader purpose by interpreting the meaning of “indirect” ownership

under section 897(h)(4)(B) to effectuate

the policy of the DC-QIE exception by

ensuring that the exception is available

only when a QIE is controlled by United

States persons. The comments also proposed various modifications intended to

limit or alter the application of the rule;

the Treasury Department and the IRS are

of the view that these would introduce

additional complexity, such as requiring

an examination of the business activities

of a domestic C corporation. Furthermore,

a modification that would treat domestic

C corporations that own less than 10 percent of a QIE as a non-look-through person would not alleviate concerns regarding the ability to identify shareholders

through multiple tiers of ownership, and

could result in disparate and inconsistent

results as to which foreign owners are

taken into account in measuring domestic control of a QIE (for example, a foreign non-look-through person that wholly

owns a domestic C corporation that owns

9 percent of a QIE would not be taken into

account, while a foreign non-look-through

May 20, 2024

person that owns 50 percent of a domestic C corporation that owns 10 percent of

the QIE would be taken into account). The

Treasury Department and the IRS also do

not agree that the domestic corporation

look-through rule should only apply if

25 percent or more of the corporation’s

stock is owned by a single foreign nonlook-through person (taking into account

section 318 constructive ownership rules),

as the DC-QIE exception looks to any

measure of foreign ownership of a QIE

and such a high threshold would inappropriately exempt foreign persons owning

significant indirect interests in QIEs from

look-through treatment.

Although the final regulations do not

adopt any of the specific recommendations to the domestic corporation lookthrough rule, the Treasury Department

and the IRS agree that the scope of the rule

should be narrowed to address compliance

concerns and to ensure the rule is more

appropriately limited to situations where

significant indirect ownership by foreign

persons indicative of foreign control is

present. After considering the various suggestions raised in comments, the Treasury

Department and the IRS have determined

that this is best achieved by increasing the

amount of foreign ownership required to

look through a non-public domestic C corporation from 25 percent or more to more

than 50 percent. Increasing the threshold

to more than 50 percent significantly narrows the scope of look-through treatment

to non-public domestic C corporations

that are controlled by foreign persons,

and is consistent with the measurement of

control for purposes of the domestically

controlled QIE test. This change is also

consistent with the policy of the DC-QIE

exception and other provisions in section

897 that are based on a 50-percent threshold. See, for example, section 897(c)(2)

(providing that a corporation is a United

States real property holding corporation if

the fair market value of its United States

real property interests (“USRPIs”) meets

a 50 percent or greater threshold). Thus,

rather than a “foreign-owned domestic

corporation,” the final regulations apply

look-through treatment with respect to

a “foreign-controlled domestic corporation,” which is defined as any non-public

domestic C corporation if foreign persons

hold directly or indirectly more than 50

1178

percent of the fair market value of that

corporation’s outstanding stock (the “final

domestic corporation look-through rule”).

§1.897-1(c)(3)(v)(B). In addition, the

final regulations adopt a transition rule

for existing QIE structures, as discussed

in part IV of this Summary of Comments

and Explanation of Revisions.

II. Effect of Section 897(l) on the DC-QIE

Exception

A. Background on section 897(l) and

interaction with the DC-QIE exception

Section 897(l) provides an exception

to the application of section 897(a) for

certain foreign pension funds and their

wholly owned subsidiaries. As originally

enacted in the PATH Act, section 897(l)(1)

provided that section 897 does not apply

to any USRPI held directly (or indirectly

through one or more partnerships) by, or

to any distribution received from a REIT

by, a QFPF or any entity all of the interests of which are held by a QFPF. Congress later made several technical amendments to section 897(l) in section 101(q)

of the Tax Technical Corrections Act of

2018, Public Law 115-141, div. U (the

“2018 technical correction”). As amended

by the 2018 technical correction, section

897(l) provides that neither a QFPF nor an

entity all the interests of which are held by

a QFPF is treated as a nonresident alien

individual or foreign corporation for purposes of section 897.

The proposed regulations addressed

uncertainty as to whether QFPFs and entities wholly owned by one or more QFPFs

(“QCEs”), which are treated as not “nonresident alien individuals or foreign corporations” for purposes of section 897, are

treated as foreign persons for purposes of

the DC-QIE exception. Specifically, proposed §1.897-1(c)(3)(iv)(A) provided that

a QFPF, including any part of a QFPF, or

a QCE is a foreign person for purposes

of the DC-QIE exception (the “QFPF

DC-QIE rule”).

B. Comments regarding authority to issue

the QFPF DC-QIE rule

Although one comment stated that

it was generally in agreement with the

QFPF DC-QIE rule, other comments rec-

Bulletin No. 2024–21

ommended that the rule be withdrawn

because it is an incorrect reading of the

statute and contrary to congressional

intent. One comment contended that the

preamble to the proposed regulations

failed to consider the existing definition of

“foreign person” in §1.897-9T(c) (which

includes a foreign corporation, a foreign

partnership, a foreign trust, or a nonresident alien individual) and noted that Congress is presumed to have knowledge of

that regulatory definition. The comment

also contended that the text of section

897(l) is clear and that, without any textual ambiguity, the Treasury Department

and the IRS lack the authority to issue the

QPFF DC-QIE rule.

Another comment submitted that the

legislative history and policy of section

897, including the DC-QIE exception and

the section 897(l) exception for QFPFs,

indicate that 50 percent or more ownership of a QIE by a QFPF results in the

DC-QIE exception being available to

other foreign investors. The comment’s

overall recommendation was to clarify

the definition of foreign person in section

897(h)(4)(B) and (C) to have the same

meaning as “a nonresident alien individual or a foreign corporation” in section

897(a). The comment included several

reasons for its recommendation. First,

section 897(l) refers generally to section

897, rather than solely to section 897(a),

which the comment argued indicates that

section 897(l) is intended to be given

effect for all purposes under section 897.

According to the comment, the effect of

section 897(l) on the DC-QIE exception

can be analogized to a special election in

section 897(i) for a foreign corporation to

be treated as a domestic corporation for

purposes of section 897 because, when

that election applies, it has effect for

all of section 897 and can benefit other

investors in QIEs even though they are

not party to the election. The comment

also noted that the 2018 technical correction should be presumed to be a more

accurate reflection of the original intent

of Congress, which was to align QFPFs

with exempt U.S. pension funds. Finally,

the comment noted that because a QFPF

is not taxed under section 897(h)(1), there

is no policy reason to treat it as a foreign

person for other rules such as the DC-QIE

exception, the foreign ownership percent-

Bulletin No. 2024–21

age rule in section 897(h)(3) or the wash

sale rule in section 897(h)(5).

The Treasury Department and the IRS

have determined that the QFPF DC-QIE

rule reflects the proper interpretation of

the statute and congressional intent. The

term “nonresident alien individuals or

foreign corporations” in section 897(l)

(introduced only in the 2018 technical

correction) differs from “foreign persons”

in section 897(h)(4)(B), and the purposes

of the two provisions also differ. Congress

provided no indication that it intended for

the definition of foreign person in §1.8979T(c) to apply to confer non-foreign person status on QFPFs for purposes of the

DC-QIE exception. Instead, the term

“nonresident alien individuals or foreign

corporations” appears in section 897(a)

and similar provisions to refer to the persons that are directly subject to tax under

FIRPTA. The Treasury Department and

the IRS also do not agree that a QFPF is

analogous to a foreign corporation that

has elected to be treated as a domestic

corporation under section 897(i) because

that election explicitly treats a foreign

corporation as a domestic corporation and

therefore not a foreign person. In contrast,

section 897(l) treats a QFPF as not a nonresident alien individual or a foreign corporation but does not address whether a

QFPF is also not a foreign person.

The Treasury Department and the IRS

agree that it is reasonable to presume that

the changes made in the 2018 technical

correction are a more accurate reflection

of original congressional intent, which

the preamble to the proposed regulations

described (allowing a QFPF and QCE

to jointly own a USRPI and qualify for

section 897(l) with respect to their partial USRPI interests, as well as clarifying

that the section 897(l) exception applies

to distributions from all QIEs and not

just REITs). 87 FR 80100. However, the

Treasury Department and the IRS disagree

with the assertion that the 2018 technical

correction should be interpreted to bestow

the benefit of the DC-QIE exception on

foreign investors that cannot claim the

section 897(l) exception. Such an interpretation would be inconsistent with

the intent of section 897(l) as originally

enacted in the PATH Act, which was to

provide an exception from section 897 to

QFPFs (and QCEs). Where possible, as in

1179

this case, the technical correction should

be viewed in a manner consistent with a

core principle of the original legislation.

See Fed. Nat’l Mortgage Assoc. v. United

States, 56 Fed. Cl. 228, 234, 237 (2003),

rev’d and remanded on other grounds,

379 F.3d 1303 (Fed. Cir. 2004) (‘‘Congress turns to technical corrections when

it wishes to clarify existing law or repair a

scrivener’s error, rather than to change the

substantive meaning of the statute. . . . [A]

technical correction that merely restores

the rule Congress intended to enact cannot

be construed as a fundamental change in

the operation of the statute.’’); STAFF OF

THE JOINT COMM. ON TAX’N, Overview of Revenue Estimating Procedures

and Methodologies Used by the Staff of

the Joint Committee on Taxation (JCX–

1–05) 33 (2005) (describing a technical

correction as ‘‘legislation that is designed

to correct errors in existing law in order

to fully implement the intended policies

of previously enacted legislation’’ and a

change that ‘‘conforms to and does not

alter the intent’’ of the underlying legislation).

The comment discussed above asserts

that there is no policy reason to treat a

QFPF as a foreign person for other provisions in section 897(h) such as the

DC-QIE exception, given that the QFPF

is not taxed under section 897(h)(1). The

Treasury Department and the IRS disagree based on the statute and its policy.

As described earlier in this preamble, the

policy of the DC-QIE exception looks to

foreign control, not control by taxable persons. The presence or absence of taxation

of the controlling persons is not determinative. Additionally, Congress expressed

in section 897(l) an intent to provide a tax

benefit specifically for QFPFs, and not for

other owners of a DC-QIE that would benefit from the QFPF’s treatment. Therefore,

the Treasury Department and the IRS have

determined that the appropriate interpretation of the statute is one that only gives

effect to the purpose of section 897(l) to

provide an exception from section 897

for QFPFs, rather than a construction

that would give non-QFPF investors the

ability to rely on section 897(l) to benefit under the DC-QIE exception. The

DC-QIE exception is a separate provision with underlying policies that focus

on foreign control rather than taxability

May 20, 2024

of controlling persons, and these policies

are inconsistent with treating a QFPF as

a United States person for purposes of the

DC-QIE exception. Accordingly, the final

regulations do not adopt the comments’

recommendations.

III. Other Comments and Revisions

A. Certain registered investment vehicles

One comment noted that there are a

large number of investment vehicles that

are publicly registered with the Securities

and Exchange Commission (“SEC”) that

own QIEs but are not regularly traded and

asserted that the final regulations should

treat these investment vehicles offered to

retail investors (for example, non-traded

publicly registered REITs, non-traded

publicly registered RICs, or publicly registered open-ended funds) as non-lookthrough persons. The comment noted that

the same reasoning for applying non-lookthrough treatment to public domestic C

corporations and publicly traded partnerships – that is, difficulty in looking through

to the entity’s owners and the unlikelihood

for use as an intermediary entity to establish domestic control – applied equally to

those investment vehicles.

The final regulations do not adopt

this comment with respect to registered

investment vehicles that are QIEs because

section 897(h)(4)(E) already provides specific rules with respect to QIE ownership

by other QIEs that are incorporated in the

final regulations. In particular, under section 897(h)(4)(E)(ii), stock in a QIE held

by certain public QIEs is treated as held

by a foreign or United States person based

on whether the public QIE is itself domestically controlled. §1.897-1(c)(3)(iii)(C).

Section 897(h)(4)(E)(iii) provides that

stock of a QIE held by a QIE that is not

a public QIE is only treated as held by a

United States person in proportion to the

stock of the non-public QIE that is held

by a United States person. Section 897(h)

(4)(E)(iii) thus contemplates look-through

treatment for non-public QIEs, even if

such QIEs are publicly registered with the

SEC, and this treatment is reflected in the

final regulations. §1.897-1(c)(3)(v)(C).

However, the Treasury Department and

the IRS are of the view that the treatment

of certain RICs that are not QIEs should

May 20, 2024

be aligned with the treatment of other publicly held entities that are not QIEs. The

proposed regulations provided that any

RIC that is not a QIE, and thus not subject to the rules that apply to public QIEs,

is treated as a look-through person. With

respect to RICs whose shares are publicly

traded or otherwise widely held, this treatment may be viewed as inconsistent with

the treatment of publicly traded partnerships and public domestic C corporations,

neither of which is subject to look-through

treatment under the proposed regulations

primarily due to compliance and administrability concerns. The final regulations

therefore provide that a public RIC, generally defined as a RIC that is not a QIE

and whose shares are (i) regularly traded

on an established securities market or

(ii) common stock that is continuously

offered pursuant to a public offering and

held by at least 500 shareholders, is generally treated as a non-look-through person.

§1.897-1(c)(3)(v)(D) and (I). However,

for reasons similar to those discussed in

part I.C of this Summary of Comments

and Explanation of Revisions (regarding

foreign-controlled domestic corporations,

which are treated as look-through persons), a RIC will not be a public RIC,

and thus will be a look-through person,

if the QIE being tested for domestically

controlled status under §1.897-1(c)(3) has

actual knowledge that the RIC is foreign

controlled, which is determined by treating the RIC as a non-public domestic C

corporation and applying §1.897-1(c)(3)

(v)(B). §1.897-1(c)(3)(v)(I).

B. Public entities

The proposed regulations provided that

a person holding less than five percent

of U.S. publicly traded stock of a QIE at

all times during the testing period, determined without regard to proposed §1.8971(c)(3)(ii)(A), is treated as a United States

person that is a non-look-through person

with respect to that stock, unless the QIE

has actual knowledge that such person is

not a United States person. Section 897(h)

(4)(E)(i); proposed §1.897-1(c)(3)(iii)(A).

To prevent the avoidance of the actual

knowledge exception to this rule, the final

regulations modify the rule to provide that

it will also not apply if the QIE has actual

knowledge that such person is foreign

1180

controlled (treating any person that is not

a non-public domestic C corporation as

a non-public domestic C corporation for

this purpose). §1.897-1(c)(3)(iii)(A).

The proposed regulations also provided

non-look-through treatment for public

domestic C corporations and publicly

traded partnerships, which were generally

defined to include entities with a class of

stock or interests regularly traded on an

established securities market. Proposed

§1.897-1(c)(3)(v)(D), (G) and (I). In the

final regulations, these definitions exclude

domestic entities that are known to be foreign controlled. Thus, consistent with the

treatment of public RICs and for reasons

similar to those discussed in part I.C of this

Summary of Comments and Explanation

of Revisions (regarding foreign-controlled

domestic corporations, which are treated

as look-through persons), a domestic C

corporation or a domestic partnership will

not be a public domestic C corporation or

a publicly traded partnership, respectively,

if the QIE being tested for domestically

controlled status under §1.897-1(c)(3) has

actual knowledge that the corporation or

partnership is foreign controlled (treating

the entity as a non-public domestic C corporation for this purpose). §1.897-1(c)(3)

(v)(G) and (J). In such case, the domestic C corporation or domestic partnership

will therefore be a look-through person.

§1.897-1(c)(3)(v)(B) through (E).

C. Certification by domestic C

corporation

One comment recommended that the

final regulations provide guidance on how

a domestic C corporation may certify to a

QIE that it is not a foreign-owned domestic corporation. The comment suggested

that the regulations provide a model certification to confirm that a domestic C corporation is not foreign owned, such as a

revised Form W-9.

The final regulations do not provide

guidance regarding the procedures for

determining whether a domestic C corporation is a foreign-controlled domestic corporation, nor do they provide any

procedures generally for a QIE to identify its non-look-through person owners

for purposes of determining whether the

QIE is domestically controlled. A QIE

must take appropriate measures to deter-

Bulletin No. 2024–21

mine the identity of its direct and indirect

shareholders in determining whether it is

domestically controlled, and the final regulations do not prescribe a specific form

or method as to how it solicits or receives

information from its shareholders. Guidance with respect to the manner in which a

QIE determines the identity of its relevant

shareholders for purposes of establishing

domestic control is beyond the scope of

this rulemaking but may be considered in

a separate guidance project.

D. Section 1445 withholding on

dispositions of USRPI

Current regulations under section

1445 (imposing withholding of tax on

dispositions of USRPI) provide the circumstances under which a transferee of

property can ascertain that there is no

duty to withhold under section 1445(a)

because the transferor is not a foreign person, the property acquired is not a USRPI,

or an exception to withholding applies.

§1.1445-2. Section 1.1445-2(c)(3) provides that no withholding is required with

respect to an acquisition of an interest in

a domestic corporation if the transferor

provides the transferee with a copy of a

statement, issued by the corporation pursuant to §1.897-2(h), certifying that the

interest in the corporation is not a USRPI.

The transferor must request the statement

before the transfer, which may be relied

on if the statement is dated not more than

30 days before the date of the transfer. A

transferee may also rely on a corporation’s

statement that is voluntarily provided by

the domestic corporation in response to a

request from the transferee, if that statement otherwise complies with the requirements of §§1.1445-2(c)(3) and 1.897-2(h).

Under §1.897-2(h)(1), a foreign person holding an interest in a domestic

corporation may request that the corporation inform the person whether the

interest constitutes a USRPI, which the

corporation is required to provide within

a reasonable period after receipt of such

a request. A statement must be provided

by the domestic corporation to the foreign

person indicating the corporation’s determination, and notice must be provided to

the IRS in accordance with §1.897-2(h)

(2). Section 1.897-2(h)(3), however, provides that the requirements of §1.897-2(h)

Bulletin No. 2024–21

do not apply to “domestically-controlled

REITs, as defined in section 897(h)(4)

(B),” although a corporation not otherwise required to comply with the requirements of §1.897-2(h) may voluntarily

choose to comply with the requirements

of §1.897-2(h)(4) and attach a statement

to its income tax return informing the IRS

that it is not a United States real property

holding corporation.

The availability of the procedures in

§1.1445-2(c)(3) to holders of stock in a

domestically controlled QIE is unclear

given its reference to a statement provided

under §1.897-2(h), which is explicitly

inapplicable to domestically controlled

QIEs under §1.897-2(h)(3). Although

§1.897-2(h) generally does not apply to

domestically controlled QIEs pursuant to

§1.897-2(h)(3) (and, therefore, the corporation is not required, upon request, to

provide a statement to a person holding

an interest in the corporation), this should

not preclude the availability of the rules in

§1.1445-2(c)(3) to transferors of interests

seeking to avoid withholding under section 1445 when the corporation voluntarily

provides a statement to an interest holder

that otherwise complies with §1.897-2(h).

Absent the availability of these procedures, the transferor would not be able to

establish that it is transferring an interest

in a domestically controlled QIE and is

thus not subject to withholding under section 1445(a). The final regulations thus

revise the rules in §§1.897-2(h)(3) and

1.1445-2(c)(3) to clarify the procedures

available to a transferor to certify to a

transferee that no withholding is required

because the DC-QIE exception applies.

As revised, the final regulations confirm

that a domestic corporation may voluntarily provide a statement in response to a

request from a transferor certifying that an

interest in the corporation is not a USRPI

because the corporation is a domestically

controlled QIE, which the transferor may

furnish to the transferee, provided the

statement issued by the corporation otherwise complies with the requirements of

§1.897-2(h).

E. Revisions to examples

A comment observed that proposed

§1.897-1(c)(3)(vi)(D) (Example 4) contained a mathematical error. The final ver-

1181

sion of this example corrects that error,

which does not otherwise affect the overall conclusion that the entity at issue does

not qualify as a domestically controlled

QIE. §1.897-1(c)(3)(vii)(D) (Example 4).

The final regulations make other revisions

to the examples in proposed §1.897-1(c)

(3)(vi) to clarify the operation of certain

rules, but which are not intended to alter

the conclusions or substance of those

examples.

IV. Applicability Date and Transition

Rules

The proposed regulations generally

were proposed to apply to transactions

occurring on or after the date that those

regulations are published as final regulations in the Federal Register (“the finalization date”). The preamble to the proposed regulations noted, however, that the

rules applicable for determining whether

a QIE is domestically controlled may be

relevant for determining QIE ownership

during periods before the finalization date

to the extent the testing period related to

a transaction that occurs on or after the

finalization date includes periods before

that date.

Comments raised concerns with the

proposed applicability date; in particular,

they noted that it would have a retroactive

effect because of the testing period element of the DC-QIE exception and argued

that, if adopted, the domestic corporation

look-through rule should apply on a fully

prospective basis with no application to

any portion of a testing period before the

finalization date. Further, these comments

characterized the proposed regulations as

a change from existing law and asserted

that applying the rules to existing structures would be inappropriate because

restructuring to comply with the rules

would be difficult and costly, and buyers

may be less inclined to invest in a structure that may be “tainted” as failing to

qualify for the DC-QIE exception.

Comments generally advocated for

the following types of transition relief:

(i) for QIEs in existence on the date the

proposed regulations were issued, provide

an exception (subject to termination rules

like those in §301.7701-2(d)) such that

a foreign-owned domestic corporation

is not treated as a look-through person;

May 20, 2024

(ii) exempt foreign investors in existing

QIEs from the domestic corporation lookthrough rule to the extent of existing ownership and capital commitments as of the

date the proposed regulations were issued;

(iii) only apply the domestic corporation

look-through rule to QIE stock acquired

by a foreign-owned domestic corporation

after the finalization date; or (iv) delay

application of the domestic corporation

look-through rule to existing QIEs for

some period ranging from at least 120

days after the finalization date to tax years

beginning on or after January 1, 2028

(drawing from the general five-year testing period standard).

The final regulations do not adopt the

suggestion to delay application of the final

domestic corporation look-through rule,

which would exempt both existing and

new QIE structures from the rule. However, the Treasury Department and the

IRS have determined that, although the

final domestic corporation look-through

rule represents the appropriate application

of section 897(h)(4)(B), its effect should

be limited with respect to investors that

may have entered into structures with

the expectation that domestic control of a

QIE would be determined without regard

to that rule. Thus, consistent with the first

three types of comments noted above, the

final regulations include a transition rule

that, for a ten-year period, exempts existing structures from the final domestic corporation look-through rule, provided they

meet certain requirements. §1.897-1(c)(3)

(vi). These requirements are intended to

ensure that the final domestic corporation

look-through rule does not apply to preexisting business arrangements, but only

to the extent the QIE does not acquire a

significant amount of new USRPIs and

does not undergo a significant change in

its ownership (subject to an exception for

acquisitions of a USRPI or QIE interest

pursuant to a previous binding commitment). §1.897-1(c)(3)(vi)(A) and (E). If

either of these two thresholds is exceeded,

the QIE at that time becomes subject to the

final domestic corporation look-through

rule like any other QIE. §1.897-1(c)(3)

(vi)(B).

A QIE is considered to have acquired

a significant amount of new USRPIs if

the total fair market value of the USRPIs

it acquires directly and indirectly exceeds

May 20, 2024

20 percent of the fair market value of the

USRPIs held directly and indirectly by the

QIE as of April 24, 2024. §1.897-1(c)(3)

(vi)(A)(2). The final regulations provide

that the value of the USRPIs held directly

and indirectly by a QIE on April 24, 2024

is determined as of that date and that, for

this purpose, taxpayers may use the most

recently calculated amounts under the

quarterly tests described in section 851(b)

(3) or 856(c)(4), as applicable. §1.8971(c)(3)(vi)(D). By using these existing

rules the final regulations minimize the

need to make additional or complex valuations.

In determining whether there has been

a significant change in the ownership of a

QIE, the final regulations consider whether

the direct or indirect ownership of the QIE

by non-look-through persons (determined

by applying the final domestic corporation

look-through rule) has increased by more

than 50 percentage points in the aggregate

relative to the QIE stock owned by such

non-look-through persons on April 24,

2024. §1.897-1(c)(3)(vi)(A)(3). Because

this rule applies on a percentage basis, a

non-pro-rata issuance or redemption of

stock is counted towards the 50 percentage point amount. To simplify the determination of changes in ownership of stock

of a QIE that is publicly traded, the final

regulations disregard transfers by any person (regardless of whether they are a nonlook-through person) that owns a less than

five-percent interest in the stock of the

QIE, unless the QIE has actual knowledge

of that person’s ownership. §1.897-1(c)(3)

(vi)(G).

The transition rule applies until April

24, 2034, or, if earlier, until the requirements precluding significant acquisitions of USRPIs and changes in ownership are not met, at which time the final

domestic corporation look-through rule

applies in determining whether a QIE is

domestically controlled. §1.897-1(c)(3)

(vi)(B). The ten-year period is intended

to provide sufficient time to mitigate the

impact of the final domestic corporation

look-through rule on existing QIEs and

their investors, but ensures that all QIEs

are eventually subject to the same rules.

However, even after the transition rule no

longer applies, the final domestic corporation look-through rule is prospective only

and thus does not apply to any portion of

1182

a testing period during which the transition rule applied to a QIE. §1.897-1(c)

(3)(vi)(C). Thus, for example, if the transition rule ceases to apply to a QIE due

to a change in its ownership but, at such

time, the QIE is a domestically controlled

QIE notwithstanding the final domestic

corporation look-through rule, the determination of domestic control for the testing period of a subsequent disposition of

QIE stock may disregard the final domestic corporation look-through rule to the

extent the transition rule applied.

Special Analyses

I. Regulatory Planning and Review —

Economic Analysis

Pursuant to the Memorandum of

Agreement, Review of Treasury Regulations under Executive Order 12866 (June

9, 2023), tax regulatory actions issued by

the IRS are not subject to the requirements

of section 6 of Executive Order 12866, as

amended. Therefore, a regulatory impact

assessment is not required.

II. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(44 U.S.C. 3501–3520) (PRA) generally

requires that a Federal agency obtain the

approval of the OMB before collecting

information from the public, whether such

collection of information is mandatory,

voluntary, or required to obtain or retain

a benefit. The collection of information in

§1.1445-2(c)(3) is a statement provided

by a domestic corporation that certifies

that an interest in such corporation is

not a U.S. real property interest. Section

1.1445-2(c)(3) clarifies that the existing

procedure may also be used by a domestic

corporation to certify that it is a domestically controlled QIE (as determined under

§1.897-1(c)(3)), as long as the certification is voluntarily issued and otherwise

complies with the existing requirements

in §1.897-2(h).

This modification to §1.1445-2(c)(3)

clarifies the existing scope of the collection of information. For purposes of the

PRA, the reporting burden associated with

the collections of information in §1.14452(c)(3) will be reflected in the Paperwork

Reduction Act Submissions associated

Bulletin No. 2024–21

with the section 1445 regulations (OMB

control number 1545–0902).

III. Regulatory Flexibility Act

A. Succinct Statement of the Need for,

and Objectives of, the Final Regulations

As discussed in the preamble to the

proposed regulations, there may be some

uncertainty as to whether QFPFs and

QCEs, which are treated as not “nonresident alien individuals or foreign corporations” for purposes of section 897, are

treated as foreign persons for purposes of

the DC-QIE exception. Treating QFPFs

and QCEs as non-foreign investors for

purposes of the DC-QIE exception has the

potential to expand the effect of section

897(l) to foreign investors who are neither QFPFs nor QCEs (by exempting such

investors from tax under section 897(a)).

These regulations eliminate any uncertainty that taxpayers may have as to the

proper classification of QFPFs and QCEs

for purposes of the DC-QIE exception

by providing that QFPFs and QCEs are

treated as foreign persons for purposes of

the DC-QIE exception.

Also as discussed in the preamble to

the proposed regulations, there is uncertainty regarding the determination of

whether stock of a QIE is held “directly

or indirectly” by foreign persons for purposes of the DC-QIE exception. These

regulations provide rules to clarify this

determination.

Because there was a possibility of significant economic impact on a substantial

number of small entities as a result of the

rules relating to the treatment of QFPFs

and QCEs for purposes of the DC-QIE

exception and the definition of a domestically controlled QIE, the proposed regulations provided an initial regulatory

flexibility analysis and requested comments from the public on the number of

small entities that may be impacted and

whether that impact will be economically

significant. No comments were received.

B. Small Entities to Which These

Regulations Will Apply

The regulation relating to the treatment of QFPFs and QCEs for purposes

of the DC-QIE exception affects other

Bulletin No. 2024–21

foreign investors in QIEs. The regulation

defining a domestically controlled QIE

also affects foreign investors in QIEs.

Because an estimate of the number of

small businesses affected is not currently

feasible, this final regulatory flexibility

analysis assumes that a substantial number of small businesses will be affected.

The Treasury Department and the IRS

do not expect that these regulations will

affect a substantial number of small nonprofit organizations or small governmental jurisdictions.

C. Projected Reporting, Recordkeeping,

and Other Compliance Requirements

These regulations do not impose additional reporting or recordkeeping obligations. However, see Part II of this Special

Analysis describing certain voluntary

reporting that these regulations clarify is

available in §1.1445-2(c)(3) by a domestic

corporation to certify that it is a domestically controlled QIE.

D. Steps Taken to Minimize Significant

Economic Impact, Legal Reasons, and

Alternatives Considered

The final regulations address potential uncertainty under current law and do

not impose an additional economic burden. Consequently, the rules represent the

approach with the least economic impact.

These regulations clarify the treatment of QFPFs and QCEs for purposes

of the DC-QIE exception. The rules are

intended to ensure that the exemption

under section 897(l) does not inappropriately inure to non-QFPFs or non-QCEs

by treating QFPFs and QCEs as domestic investors for purposes of the DC-QIE

exception. These regulations also clarify

whether stock of a QIE is held “directly

or indirectly” by foreign persons in determining whether the DC-QIE exception

applies. The legal basis for these regulations is contained in sections 897(l) and

7805.

Section 897(a) applies to nonresident

alien individuals and foreign corporations, and neither the statute nor prior regulations establish different rules for small

entities. Moreover, the DC-QIE exception

is measured based on the ownership interests in a QIE, regardless of the size of the

1183

investor. Because the DC-QIE exception

takes into account all investors, regardless of size, the Treasury Department and

the IRS have concluded that the DC-QIE

exception should apply uniformly to large

and small business entities. The Treasury

Department and the IRS did not consider

any significant alternative to the rule that

provides for the treatment of QFPFs and

QCEs under the DC-QIE exception.

The Treasury Department and the IRS

did consider alternatives for the rule that

defines a domestically controlled QIE,

including one alternative that generally

would treat all domestic C corporations

as non-look-through persons (that is,

without the special rule for foreign-controlled domestic corporations discussed in

part I of the Summary of Comments and

Explanation of Revisions section of this

preamble). However, the Treasury Department and the IRS concluded that the lookthrough approach in the final regulations

best serves the purposes of the DC-QIE

exception while also taking into account

“indirect” ownership of QIE stock by

foreign persons in determining whether a

QIE is domestically controlled under section 897(h)(4)(B).

IV. Section 7805(f)

Pursuant to section 7805(f) of the Code,

the proposed regulations (REG-10044222) preceding these final regulations were

submitted to the Chief Counsel for Advocacy of the Small Business Administration

for comment on the impact on small businesses and no comments were received.

V. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates

Reform Act of 1995 requires that agencies

assess anticipated costs and benefits and

take certain other actions before issuing a

final rule that includes any Federal mandate that may result in expenditures in

any one year by a State, local, or Tribal

government, in the aggregate, or by the

private sector, of $100 million in 1995

dollars, updated annually for inflation.

The final regulations do not include any

Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of

that threshold.

May 20, 2024

VI. Executive Order 13132: Federalism

Executive Order 13132 (entitled

“Federalism”) prohibits an agency from

publishing any rule that has federalism

implications if the rule either imposes

substantial, direct compliance costs on

State and local governments, and is not

required by statute, or preempts State law,

unless the agency meets the consultation

and funding requirements of section 6 of

the Executive order. The final regulations

do not have federalism implications, do

not impose substantial direct compliance

costs on State and local governments, and

do not preempt State law within the meaning of the Executive order.

Statement of Availability of IRS

Documents

IRS Revenue Procedures, Revenue

Rulings, Notices, and other guidance

cited in this document are published in the

Internal Revenue Bulletin or Cumulative

Bulletin and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC

20402, or by visiting the IRS website at

www.irs.gov.

Drafting Information

The principal author of these final regulations is Arielle Borsos, Office of Associate Chief Counsel (International). However, other personnel from the Treasury

Department and the IRS participated in

their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is amended

as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding entries in

numerical order for §§1.897-1, 1.897-2,

and 1.1445-2 to read in part as follows:

May 20, 2024

Authority: 26 U.S.C. 7805 * * *

*****

Section 1.897-1 also issued under 26

U.S.C. 897 and 897(l)(3).

Section 1.897-2 also issued under 26

U.S.C. 897.

*****

Section 1.1445-2 also issued under 26

U.S.C. 1445.

*****

Par. 2. Section 1.897-1 is amended by:

1. Revising paragraph (a)(2);

2. Removing and reserving paragraph

(c)(2)(i);

3. Adding paragraphs (c)(3) and (4) and

(k);

4. Revising and republishing paragraph

(l); and

5. Adding paragraph (n).

The revisions and additions read as follows:

§1.897-1 Taxation of foreign investment

in United States real property interests,

definition of terms.

(a) * * *

(2) Applicability date. Except as otherwise provided in this paragraph (a)(2),

the regulations set forth in this section

and §§1.897-2 through 1.897-4 apply to

transactions occurring after June 18, 1980.

Except as otherwise provided in paragraph

(c)(3)(vi) of this section, paragraphs (c)(3)

and (4), (k), and (l) of this section apply to

transactions occurring on or after April 25,

2024, and transactions occurring before

April 25, 2024, resulting from an entity

classification election under §301.7701-3

of this chapter that was effective on or

before April 25, 2024, but was filed on

or after April 25, 2024. For transactions

occurring before April 25, 2024, see paragraphs (c)(2)(i) and (l) of this section and

§1.897-9T(c) contained in 26 CFR part 1,

as revised April 1, 2024.

*****

(c) * * *

(3) Domestically controlled QIE—(i)

In general. An interest in a domestically

controlled qualified investment entity

(QIE) is not a United States real property interest. A QIE is domestically controlled if foreign persons hold directly or

indirectly less than 50 percent of the fair

market value of the QIE’s outstanding

stock at all times during the testing period.

1184

For rules that apply to distributions by a

QIE (including a domestically controlled

QIE) attributable to gain from the sale or

exchange of a United States real property

interest, see section 897(h)(1).

(ii) Look-through approach for determining QIE stock held directly or indirectly. The following rules apply for purposes of determining whether a QIE is

domestically controlled:

(A) Non-look-through persons considered holders. Only a non-look-through

person is considered to hold directly or

indirectly stock of the QIE.

(B) Attribution from look-through

persons. Stock of a QIE that, but for the

application of paragraph (c)(3)(ii)(A) of

this section, would be considered directly

or indirectly held by a look-through person, is instead considered held directly or

indirectly by the look-through person’s

shareholders, partners, or beneficiaries,

as applicable, that are non-look-through

persons based on the non-look-through

person’s proportionate interest in the

look-through person. To the extent the

shareholders, partners, or beneficiaries, as

applicable, of the look-through person are

also look-through persons, this paragraph

(c)(3)(ii)(B) applies to such shareholders,

partners, or beneficiaries as if they directly

or indirectly held, but for the application

of paragraph (c)(3)(ii)(A) of this section,

their proportionate share of the stock of

the QIE.

(C) No attribution from non-lookthrough persons. Stock of a QIE considered held directly or indirectly by a nonlook-through person is not considered

held directly or indirectly by any other

person.

(iii) Special rules for applying lookthrough approach. The following additional special rules apply for purposes of

determining whether a QIE is domestically controlled:

(A) Certain holders of U.S. publicly

traded QIE stock. Notwithstanding any

other provision of this paragraph (c)(3),

a person holding less than five percent

of U.S. publicly traded stock of a QIE at

all times during the testing period, determined without regard to paragraph (c)

(3)(ii)(A) of this section, is treated as a

United States person that is a non-lookthrough person with respect to that stock,

unless the QIE has actual knowledge that

Bulletin No. 2024–21

such person is not a United States person

or has actual knowledge that such person

is foreign controlled as determined under

paragraph (c)(3)(v)(B) of this section

(treating any person that is not a non-public domestic C corporation as if it were

a non-public domestic C corporation for

this purpose). For an example illustrating

the application of this paragraph (c)(3)(iii)

(A), see paragraph (c)(3)(vii)(C) of this

section (Example 3).

(B) Certain foreign-controlled domestic C corporations. A non-public domestic

C corporation is treated as a look-throughperson if it is a foreign-controlled domestic corporation. For an example illustrating the application of this paragraph (c)

(3)(iii)(B), see paragraph (c)(3)(vii)(B) of

this section (Example 2).

(C) Public QIEs. A public QIE is

treated as a foreign person that is a nonlook-through person. The preceding sentence does not apply, however, if the public QIE is a domestically controlled QIE

as defined in this paragraph (c)(3), determined after the application of this paragraph (c)(3)(iii), in which case the public

QIE is treated as a United States person

that is a non-look-through person. For an

example illustrating the application of this

paragraph (c)(3)(iii)(C), see paragraph (c)

(3)(vii)(C) of this section (Example 3).

(iv) Treatment of certain persons as

foreign persons—(A) Qualified foreign

pension fund or qualified controlled entity.

For purposes of this paragraph (c)(3), a

qualified foreign pension fund (including

any part of a qualified foreign pension

fund) or a qualified controlled entity is

treated as a foreign person, irrespective

of whether the fund or entity qualifies for

the exception from section 897 provided

in §1.897(l)-1(b)(1). For an example illustrating the application of this paragraph

(c)(3)(iv)(A), see paragraph (c)(3)(vii)(A)

of this section (Example 1). See also paragraph (k) of this section for a definition of

foreign person that applies for purposes of

sections 897, 1445, and 6039C.

(B) International organization. For

purposes of this paragraph (c)(3), an international organization (as defined in section

7701(a)(18)) is treated as a foreign person.

See §1.897-9T(e) (regarding the treatment

of international organizations under sections 897, 1445, and 6039C), which provides that an international organization is

Bulletin No. 2024–21

not a foreign person with respect to United

States real property interests, and is not

subject to sections 897, 1445, and 6039C

on the disposition of a United States real

property interest.

(v) Definitions. The following definitions apply for purposes of this paragraph

(c)(3):

(A) A domestic C corporation is any

domestic corporation other than a regulated investment company (RIC) as

defined in section 851, a real estate investment trust (REIT) as defined in section

856, or an S corporation as defined in section 1361.

(B) A foreign-controlled domestic

corporation is any non-public domestic C corporation if foreign persons hold

directly or indirectly more than 50 percent

of the fair market value of the non-public domestic C corporation’s outstanding stock. For purposes of determining

whether a non-public domestic C corporation is a foreign-controlled domestic corporation, the rules of paragraphs (c)(3)(ii)

(A) through (C) and (c)(3)(iii)(C) of this

section apply with the following modifications—

(1) In paragraphs (c)(3)(ii)(A) through

(C) of this section, treating references to

QIE as references to non-public domestic

C corporation; and

(2) A non-public domestic C corporation that is a foreign-controlled domestic

corporation under this paragraph (c)(3)

(v)(B) is treated as a look-through person

for purposes of determining whether any

other non-public domestic C corporation

is a foreign-controlled domestic corporation.

(C) A look-through person is any person other than a non-look-through person.

Thus, for example, a look-through person

includes a REIT that is not a public QIE,

an S corporation, a partnership (domestic

or foreign) that is not a publicly traded

partnership, a RIC that is not a public RIC,

and a trust (domestic or foreign, whether

or not the trust is described in sections 671

through 679). For a special rule that treats

certain non-public domestic C corporations as look-through persons, see paragraph (c)(3)(iii)(B) of this section.

(D) A non-look-through person is an

individual, a domestic C corporation

(other than a foreign-controlled domestic

corporation), a nontaxable holder, a for-

1185

eign corporation (including a foreign government pursuant to section 892(a)(3)), a

publicly traded partnership (domestic or

foreign), a public RIC, an estate (domestic

or foreign), an international organization

(as defined in section 7701(a)(18)), a qualified foreign pension fund (including any

part of a qualified foreign pension fund),

or a qualified controlled entity. For special rules that treat certain holders of QIE

stock as non-look-through persons, see

paragraphs (c)(3)(iii)(A) and (C) of this

section.

(E) A non-public domestic C corporation is any domestic C corporation that is

not a public domestic C corporation.

(F) A nontaxable holder is—

(1) Any organization that is exempt

from taxation by reason of section 501(a);

(2) The United States, any State (as

defined in section 7701(a)(10)), any territory of the United States, or a political

subdivision of any State or any territory of

the United States; or

(3) Any Indian Tribal government (as

defined in section 7701(a)(40)) or its subdivision (determined in accordance with

section 7871(d)).

(G) A public domestic C corporation

is a domestic C corporation any class of

stock of which is regularly traded on an

established securities market within the

meaning of §§1.897-1(m) and 1.8979T(d). A domestic C corporation is not a

public domestic C corporation, however,

if the QIE whose status as domestically

controlled is being determined under this

paragraph (c)(3) has actual knowledge

that the domestic C corporation is foreign

controlled as determined under paragraph

(c)(3)(v)(B) of this section (treating the

domestic C corporation for this purpose as

if it were a non-public domestic C corporation).

(H) A public QIE is a QIE any class

of stock of which is regularly traded on

an established securities market within

the meaning of §§1.897-1(m) and 1.8979T(d), or that is a RIC that issues redeemable securities within the meaning of section 2 of the Investment Company Act of

1940.

(I) A public RIC is a RIC that is not

a QIE and any class of stock of which is

either regularly traded on an established

securities market within the meaning of

§§1.897-1(m) and 1.897-9T(d), or com-

May 20, 2024

mon stock that is continuously offered

pursuant to a public offering (within the

meaning of section 4 of the Securities Act

of 1933, as amended (15 U.S.C. 77a to

77aa)) and held by or for no fewer than 500

persons. A RIC is not a public RIC, however, if the QIE whose status as domestically controlled is being determined under

this paragraph (c)(3) has actual knowledge that the RIC is foreign controlled as

determined under paragraph (c)(3)(v)(B)

of this section (treating the RIC for this

purpose as if it were a non-public domestic C corporation).

(J) A publicly traded partnership is a

partnership any class of interest of which

is regularly traded on an established

securities market within the meaning of

§§1.897-1(m) and 1.897-9T(d). A domestic partnership is not a publicly traded

partnership, however, if the QIE whose

status as domestically controlled is being

determined under this paragraph (c)(3)

has actual knowledge that the domestic

partnership is foreign controlled as determined under paragraph (c)(3)(v)(B) of

this section (treating the partnership for

this purpose as if it were a non-public

domestic C corporation).

(K) A qualified controlled entity has the

meaning set forth in §1.897(l)-1(e)(9).

(L) A qualified foreign pension fund has

the meaning set forth in §1.897(l)-1(c).

(M) A QIE is a qualified investment

entity, as defined in section 897(h)(4)(A).

(N) Testing period has the meaning set

forth in section 897(h)(4)(D).

(O) U.S. publicly traded QIE stock is

any class of stock of a QIE that is regularly

traded on an established securities market

within the meaning of §§1.897-1(m) and

1.897-9T(d), but only if the established

securities market is in the United States.

(vi) Transition rule for certain QIEs

owned by foreign-controlled domestic

corporations—(A) General rule. Except

as provided in paragraph (c)(3)(vi)(B) of

this section, paragraph (c)(3)(iii)(B) of

this section does not apply with respect to

a QIE that is in existence as of April 24,

2024, and satisfies the following requirements at all times on and after April 24,

2024—

(1) The QIE is domestically controlled

(as determined under this paragraph (c)

(3), but without regard to paragraph (c)(3)

(iii)(B) of this section);

May 20, 2024

(2) The aggregate fair market value of

any United States real property interests

acquired by the QIE directly and indirectly

after April 24, 2024, is no more than 20

percent of the aggregate fair market value

of the United States real property interests

held directly and indirectly by the QIE as

of April 24, 2024 (determined in accordance with paragraph (c)(3)(vi)(D) of this

section); and

(3) The percentage of the stock of the

QIE held directly or indirectly by one or

more non-look-through persons (determined based on fair market value and

under the rules of paragraphs (c)(3)(ii)

through (v) of this section and this paragraph (c)(3)(vi), including paragraph (c)

(3)(iii)(B) of this section) does not increase

by more than 50 percentage points in the

aggregate over the percentage of stock of

the QIE owned directly or indirectly by

such non-look-through persons on April

24, 2024.

(B) Termination of transition rule. The

transition rule described in paragraph (c)

(3)(vi)(A) of this section will cease to

apply, and the rule in paragraph (c)(3)(iii)

(B) of this section will apply for purposes

of determining whether a QIE is domestically controlled, with respect to transactions occurring on or after the earlier of:

(1) The date immediately following the

date on which the QIE fails to meet any of

the requirements described in paragraph

(c)(3)(vi)(A) of this section; and

(2) April 24, 2034. For an example

illustrating the application of paragraph

(c)(3)(vi)(A) of this section and this paragraph (c)(3)(vi)(B), see paragraph (c)(3)

(vii)(E) of this section (Example 5).

(C) Effect of transition rule on testing

period. If the transition rule described in

paragraph (c)(3)(vi)(A) of this section

ceases to apply to a QIE under paragraph

(c)(3)(vi)(B) of this section, the rule in

paragraph (c)(3)(iii)(B) of this section will

not apply to the QIE with respect to the

portion of any testing period during which

the transition rule in this paragraph (c)(3)

(vi) applied.

(D) Determination of fair market value

of United States real property interests.

For purposes of paragraph (c)(3)(vi)(A)

(2) of this section, the fair market value

of the United States real property interests

held directly and indirectly by a QIE on

April 24, 2024, is the value of such prop-

1186

erty interests as calculated under section

851(b)(3) or 856(c)(4) as of the close

of the most recent quarter of the QIE’s

taxable year before April 24, 2024. For

purposes of paragraph (c)(3)(vi)(A)(2)

of this section, the fair market value of

any property acquired after the close of

the most recent quarter of the QIE’s taxable year before April 24, 2024, whether

acquired before or after April 24, 2024, is

determined on the date of such acquisition

using a reasonable method, provided the

QIE consistently uses the same method

with respect to all of its United States

real property interests when applying this

paragraph (c)(3)(vi).

(E) Binding commitments. For purposes

of paragraphs (c)(3)(vi)(A)(2) and (3) of

this section, a direct or indirect acquisition

of a United States real property interest

or of stock of a QIE pursuant to a written

agreement that was (subject to customary

conditions) binding before April 24, 2024,

and all times thereafter, or pursuant to a

tender offer announced before April 24,

2024, that is subject to section 14(e) of

the Securities and Exchange Act of 1934

(15 U.S.C. 78n(e)) and 17 CFR 240.14e–1

through 240.14e–8 (Regulation 14E), is

treated as occurring on April 24, 2024.

(F) Ownership by certain successors

under section 368(a)(1)(F). For purposes of paragraph (c)(3)(vi)(A)(3) of

this section, the transferor corporation

and the resulting corporation (as defined

in §1.368‑2(m)(1)) in a reorganization

described under section 368(a)(1)(F)

(whether engaged in by the QIE or by

another corporation) are treated as the

same corporation.

(G) Ownership by less than five-percent public shareholders. For purposes of

paragraph (c)(3)(vi)(A)(3) of this section,

in the case of any class of stock of a QIE

that is regularly traded on an established

securities market within the meaning of

§§1.897-1(m) and 1.897-9T(d), all such

stock owned by persons holding less than

5 percent of that class of stock, determined without regard to paragraph (c)(3)

(ii)(A) of this section, is treated as stock

owned by a single non-look-through person except to the extent that the QIE has

actual knowledge regarding the ownership

of any person.

(vii) Examples. The rules of this paragraph (c)(3) are illustrated by the fol-

Bulletin No. 2024–21

lowing examples. It is assumed that each

entity has a single class of stock or other

ownership interests, that the ownership

described existed throughout the relevant testing period and that, unless otherwise stated, a QIE is not a public QIE as

defined under paragraph (c)(3)(v)(H) of

this section.

(A) Example 1: QIE stock held by public domestic C corporation—(1) Facts. USR is a REIT, 51

percent of the stock of which is held by X, a public

domestic C corporation as defined in paragraph (c)

(3)(v)(G) of this section, and 49 percent of the stock

of which is held by nonresident alien individuals,

which are foreign persons as defined in paragraph

(k) of this section.

(2) Analysis. Under paragraph (c)(3)(v)(M) of

this section, USR is a QIE. Because X is a public

domestic C corporation, it cannot be a foreign-controlled domestic corporation and, therefore, is a nonlook-through person as defined under paragraph (c)

(3)(v)(D) of this section. Thus, under paragraph (c)

(3)(ii)(A) of this section X is considered as holding

directly or indirectly stock of USR for purposes of

determining whether USR is a domestically controlled QIE. Under paragraph (c)(3)(ii)(C) of this

section, the USR stock held directly or indirectly

by X is not considered held directly or indirectly

by any other person, including the shareholders of

X. Because X is not a foreign person as defined in

paragraph (k) of this section and holds directly or

indirectly 51 percent of the single class of outstanding stock of USR, foreign persons hold directly or

indirectly less than 50 percent of the fair market

value of the stock of USR, and USR therefore is a

domestically controlled QIE under paragraph (c)(3)

(i) of this section.

(3) Alternative facts: QIE stock held by domestic

partnership. The facts are the same as in paragraph

(c)(3)(vii)(A)(1) of this section (Example 1), except

that, instead of being a public domestic C corporation, X is a domestic partnership that is not a publicly traded partnership as defined in paragraph (c)

(3)(v)(J) of this section. In addition, FC1, a foreign

corporation, holds a 50 percent interest in X, and the

remaining interests in X are held by U.S. citizens. X

is not a non-look-through person as defined in paragraph (c)(3)(v)(D) of this section and, therefore, is a

look-through person as defined in paragraph (c)(3)

(v)(C) of this section. Accordingly, under paragraph

(c)(3)(ii)(A) of this section, X is not considered as

holding directly or indirectly stock of USR for purposes of determining whether USR is a domestically

controlled QIE. Under paragraph (c)(3)(ii)(B) of this

section, the stock of USR that, but for paragraph (c)

(3)(ii)(A) of this section, is considered held by X,

a look-through person, is instead considered held

proportionately by X’s partners that are non-lookthrough persons. Accordingly, because FC1 and

the U.S. citizen partners in X are non-look-through

persons as defined in paragraph (c)(3)(v)(D) of this

section, 25.5 percent of the stock of USR is considered as held directly or indirectly by FC1 (50% x

51%), a foreign person as defined in paragraph (k)

of this section, and 25.5 percent (in the aggregate)

of the stock of USR is considered as held directly

or indirectly by the U.S. citizen partners in X (50%

Bulletin No. 2024–21

x 51%), who are not foreign persons as defined in

paragraph (k) of this section. Foreign persons therefore hold directly or indirectly 74.5 percent of the

stock of USR (49 percent of the stock of USR held

directly or indirectly by nonresident alien individuals, who are non-look-through persons as defined in

paragraph (c)(3)(v)(D) of this section, plus the 25.5

percent held directly or indirectly by FC1), and USR

is not a domestically controlled QIE under paragraph

(c)(3)(i) of this section. The result described in this

paragraph (c)(3)(vii)(A)(3) would be the same if,

instead of being a domestic partnership, X were a

foreign partnership.

(4) Alternative facts: QIE stock held by a qualified foreign pension fund. The facts are the same as in

paragraph (c)(3)(vii)(A)(3) of this section (Example

1), except that, instead of being a foreign corporation, FC1 is a qualified foreign pension fund. The

analysis is the same as in paragraph (c)(3)(vii)(A)

(3) (Example 1) regarding the treatment of X as a

look-through person as defined in paragraph (c)(3)

(v)(C) of this section. In addition, FC1, a foreign person under paragraph (c)(3)(iv)(A) of this section, is a

non-look-through person as defined in paragraph (c)

(3)(v)(D) of this section. Because FC1 and the U.S.

citizen partners in X are non-look-through persons,

25.5 percent of the stock of USR is considered as

held directly or indirectly by FC1 (50% x 51%), and

25.5 percent (in the aggregate) of the stock of USR

is considered as held directly or indirectly by the

U.S. citizen partners in X (50% x 51%). Thus, for

the same reasons described in paragraph (c)(3)(vii)

(A)(3) (Example 1), foreign persons hold directly or

indirectly 74.5 percent of the stock of USR, and USR

is not a domestically controlled QIE under paragraph

(c)(3)(i) of this section.

(B) Example 2: QIE stock held by non-public

domestic C corporation that is a foreign-controlled

domestic corporation—(1) Facts. USR is a REIT,

51 percent of the stock of which is held by X, a

non-public domestic C corporation as defined in

paragraph (c)(3)(v)(E) of this section, and 49 percent

of the stock of which is held by nonresident alien

individuals, which are foreign persons as defined in

paragraph (k) of this section. FC1, a foreign corporation, holds 40 percent of the stock of X, and Y, a

nonresident alien individual, holds 15 percent of the

stock of X. The remaining 45 percent of the stock of

X is held by U.S. citizens.

(2) Analysis. Under paragraph (c)(3)(v)(M) of

this section, USR is a QIE. X, a non-public domestic C corporation, is a non-look-through person as

defined under paragraph (c)(3)(v)(D) of this section, unless paragraph (c)(3)(iii)(B) of this section

applies to treat X as a look-through person because

X is a foreign-controlled domestic corporation. FC1,

Y, and the U.S. citizen shareholders of X are nonlook-through persons as defined under paragraph (c)

(3)(v)(D). Under paragraph (c)(3)(v)(B)(1) of this

section, FC1, Y, and the U.S. citizen shareholders

are all considered as holding directly or indirectly

stock of X for purposes of determining whether X

is a foreign-controlled domestic corporation. Under

paragraph (c)(3)(v)(B)(1) of this section, the stock

held directly or indirectly by FC1, Y, and the U.S.

citizen shareholders is not considered held directly

or indirectly by any other person. Because FC1 and

Y, both foreign persons as defined in paragraph (k)

1187

of this section, hold directly or indirectly 40 percent

and 15 percent of the stock of X, respectively, foreign persons hold directly or indirectly more than 50

percent of the fair market value of the stock of X, and

X is a foreign-controlled domestic corporation under

paragraph (c)(3)(v)(B) of this section. Accordingly,

under paragraph (c)(3)(iii)(B) of this section, X is a

look-through person as defined in paragraph (c)(3)

(v)(C) of this section and, therefore, under paragraph

(c)(3)(ii)(A) of this section is not considered as holding directly or indirectly stock of USR for purposes

of determining whether USR is a domestically controlled QIE. Under paragraph (c)(3)(ii)(B) of this

section, the stock of USR that, but for paragraph (c)

(3)(ii)(A), is considered held by X, a look-through

person, is instead considered held proportionately by

X’s shareholders that are non-look-through persons.

Accordingly, because FC1, Y, and the U.S. citizen

shareholders of X are non-look-through persons,

20.4 percent of the stock of USR is considered as

held directly or indirectly by FC1 (40% x 51%), 7.65

percent of the stock of USR is considered as held

directly or indirectly by Y (15% x 51%), and 22.95

percent (in the aggregate) of the stock of USR is

considered as held directly or indirectly by the U.S.

citizen shareholders (45% x 51%). Foreign persons

therefore hold directly or indirectly 77.05 percent of

the stock of USR (49 percent of the stock of USR

held directly by nonresident alien individuals, who

are foreign persons and non-look-through persons

as defined in paragraph (c)(3)(v)(D), plus the 20.4

percent and 7.65 percent held indirectly by FC1 and

Y, respectively), and USR is not a domestically controlled QIE under paragraph (c)(3)(i) of this section.

The result described in this paragraph (c)(3)(vii)(B)

(2) would be different if Y were a U.S. citizen instead

of a nonresident alien individual, in which case X

would be a non-look-through person because it is

not a foreign-controlled domestic corporation under

paragraph (c)(3)(v)(B) (the only foreign non-lookthrough person to hold directly or indirectly stock in

X is FC1, which holds a 40-percent interest). Consequently, USR would be a domestically controlled

QIE under paragraph (c)(3)(i) of this section because

foreign persons hold directly or indirectly less than

50 percent of the stock of USR.

(C) Example 3: QIE stock held by public QIE

that is a domestically controlled QIE—(1) Facts.

USR2 is a REIT, 51 percent of the stock of which

is held by USR1, a REIT that is a public QIE as

defined in paragraph (c)(3)(v)(H) of this section,

and 49 percent of the stock of which is held by nonresident alien individuals, which are foreign persons as defined in paragraph (k) of this section. The

stock of USR1 is U.S. publicly traded QIE stock

as defined in paragraph (c)(3)(v)(O) of this section.

FC1 and FC2, both foreign corporations, each hold

20 percent of the stock of USR1. The remaining 60

percent of the stock of USR1 is held by persons that

each hold less than 5 percent of the stock of USR1

and with respect to which USR1 has no actual

knowledge that such person is not a United States

person or is foreign controlled (as determined under

paragraph (c)(3)(v)(B) of this section by treating

any person that is not a non-public domestic C corporation as if it were a non-public domestic C corporation for this purpose) (USR1 less than five-percent public shareholders).

May 20, 2024

(2) Analysis. Under paragraph (c)(3)(v)(M) of

this section, USR2 and USR1 are QIEs. Under paragraph (c)(3)(iii)(A) of this section, each of the USR1

less than five-percent public shareholders is treated

as a United States person that is a non-look-through

person. Consequently, under paragraph (c)(3)(i) of

this section USR1 is a domestically controlled QIE

because FC1 and FC2, each a foreign person as

defined in paragraph (k) of this section that is a nonlook-through person under paragraph (c)(3)(v)(D) of

this section, together hold directly or indirectly only

40 percent of the stock of USR1 and, thus, foreign

persons hold directly or indirectly less than 50 percent of the fair market value of the stock of USR1.

In addition, the USR2 stock held by USR1 is treated

as held directly or indirectly by a United States person that is a non-look-through person under paragraph (c)(3)(iii)(C) of this section. Because USR1

holds directly or indirectly 51 percent of the stock

of USR2, foreign persons hold directly or indirectly

less than 50 percent of the fair market value of the

stock of USR2, and USR2 is a domestically controlled QIE under paragraph (c)(3)(i) of this section.

(3) Alternative facts: QIE stock held by public

QIE that is not a domestically controlled QIE. The

facts are the same as in paragraph (c)(3)(vii)(C)(1)

of this section (Example 3), except that 25 percent

of the stock of USR1 is held by each of FC1 and

FC2, with the remaining 50 percent of the stock of

USR1 held by the USR1 less than five-percent public shareholders. Regardless of the treatment of the

USR1 less than five-percent public shareholders,

USR1 is not a domestically controlled QIE under

paragraph (c)(3)(i) of this section because FC1 and

FC2, each a foreign person as defined in paragraph

(k) of this section that is a non-look-through person

under paragraph (c)(3)(v)(D) of this section, together

hold directly or indirectly 50 percent of the stock of

USR1 and, thus, foreign persons do not hold directly

or indirectly less than 50 percent of the fair market

value of the stock of USR1. In addition, the USR2

stock held by USR1 is treated as held by a foreign

person that is a non-look-through person under paragraph (c)(3)(iii)(C) of this section. Because USR1

holds directly or indirectly 51 percent of the stock of

USR2, foreign persons do not hold directly or indirectly less than 50 percent of the fair market value of

the stock of USR2, and USR2 is not a domestically

controlled QIE under paragraph (c)(3)(i) of this section.

(D) Example 4: QIE stock held by non-public

QIE—(1) Facts. USR2 is a REIT, 49 percent of the

stock of which is held by nonresident alien individuals, and 51 percent of the stock of which is held by

USR1, a REIT. USR1 is not a public QIE as defined

in paragraph (c)(3)(v)(H) of this section. U.S. citizens hold 50 percent of the stock of USR1. The

remaining 50 percent of the stock of USR1 is held

by PRS, a domestic partnership, 50 percent of the

interests in which are held by DC, a public domestic

C corporation as defined in paragraph (c)(3)(v)(G) of

this section, and 50 percent of the interests in which

are held by nonresident alien individuals.

(2) Analysis. Under paragraph (c)(3)(v)(M) of

this section, USR2 and USR1 are QIEs. USR1 is

not treated as a non-look-through person under

paragraph (c)(3)(iii)(C) of this section because

USR1 is not a public QIE as defined in paragraph

May 20, 2024

(c)(3)(v)(H) of this section. Each of USR1 and

PRS is a look-through person as defined in paragraph (c)(3)(v)(C) of this section that is not treated

as holding directly or indirectly stock in USR2

for purposes of determining whether USR2 is a

domestically controlled QIE under paragraph (c)

(3)(ii)(A) of this section. Because the U.S. citizens who hold USR1 stock are non-look-through

persons as defined in paragraph (c)(3)(v)(D) of

this section, those U.S. citizens are treated under

paragraph (c)(3)(ii)(B) of this section as holding

directly or indirectly 25.5 percent of the stock of

USR2 through their USR1 stock interest (50% x

51%) in accordance with paragraph (c)(3)(ii)(A) of

this section. Similarly, because DC and the nonresident alien partners in PRS are non-look-through

persons, each is treated under paragraph (c)(3)(ii)

(B) of this section as holding directly or indirectly

the stock of USR2 through its interest in PRS

and PRS’s interest in USR1. Thus, DC is treated

as holding directly or indirectly 12.75 percent of

the stock of USR2 (50% x 50% x 51%) and the

nonresident alien individual partners, which are

foreign persons as defined in paragraph (k) of this

section, are treated as directly or indirectly holding

a 12.75 percent aggregate interest in the stock of

USR2 (50% x 50% x 51%). Foreign persons therefore hold directly or indirectly 61.75 percent of

the stock of USR2 (the 49 percent stock in USR2

directly held by nonresident alien individuals, who

are foreign persons and non-look-through persons

as defined in paragraph (c)(3)(v)(D), plus the 12.75

percent in stock indirectly held by the nonresident

alien individual partners in PRS), and USR2 is not

a domestically controlled QIE under paragraph (c)

(3)(i) of this section.

(E) Example 5: Transition rule asset requirement—(1) Facts. USR is a REIT formed on January

1, 2018. From formation, 51 percent of the stock of

USR is held by X, a non-public domestic C corporation as defined in paragraph (c)(3)(v)(E) of this section, 25 percent of the stock of USR is held by FC1,

a foreign corporation, and 24 percent of the stock of

USR is held by nonresident alien individuals. FC2, a

foreign corporation, and FC3, also a foreign corporation, each hold 50 percent of the stock of X. On April

24, 2024, USR’s only property is Asset 1, a United

States real property interest. The value of Asset 1,

calculated under section 856(c)(4) as of the most

recent quarter of USR’s taxable year before April 24,

2024, is $100x. On January 1, 2026, USR borrows

$30x and acquires Asset 2, a United States real property interest, for $30x.

(2) Analysis. As of April 24, 2024, USR is a

domestically controlled QIE under paragraph (c)(3)

(i) of this section, because, as determined without

regard to paragraph (c)(3)(iii)(B) of this section, X

is a non-look-through person and, consequently, foreign persons hold directly or indirectly less than 50

percent of the stock of USR. Accordingly, USR satisfies the requirement under paragraph (c)(3)(vi)(A)(1)

of this section. USR also satisfies the requirements

under paragraphs (c)(3)(vi)(A)(2) and (3) of this

section, respectively, as of such date, because USR

has not acquired directly or indirectly any United

States real property interests, and the ownership of

stock of USR has not changed. Thus, as of April 24,

2024, USR qualifies for the transition relief under

1188

paragraph (c)(3)(vi)(A) of this section. However, on

January 1, 2026, USR no longer meets the requirement for transition relief in paragraph (c)(3)(vi)(A)

(2) of this section because the fair market value of

Asset 2, $30x, is 30 percent (which is more than 20

percent) of $100x, which (as calculated in accordance with paragraphs (c)(3)(vi)(A)(2) and (c)(3)(vi)

(D) of this section) is the fair market value of USR’s

United States real property interests, namely Asset 1,

as of April 24, 2024. Therefore, under paragraph (c)

(3)(vi)(B)(1) of this section the transition rule ceases

to apply to USR and, thus, paragraph (c)(3)(iii)(B)

applies for purposes of determining whether USR is

domestically controlled with respect to transactions

occurring after January 1, 2026. Because FC2 and

FC3 are non-look-through persons that hold more

than 50 percent of the stock of X, X is a foreign-controlled domestic corporation under paragraph (c)(3)

(iii)(B), and USR will not be a domestically controlled QIE under paragraph (c)(3)(i) of this section

as of January 2, 2026, because foreign non-lookthrough persons (FC1, 25 percent, FC2, 25.5 percent, FC3, 25.5 percent, and the nonresident alien

individuals, 24 percent) directly or indirectly hold

more than 50 percent of the stock of USR.

(3) Alternative facts: transition rule ownership

requirement. The facts are the same as in paragraph

(c)(3)(vii)(E)(1) of this section (Example 5), except

that instead of USR borrowing funds and acquiring

Asset 2, FC3 sells its 50-percent stock interest in X

to FC2 on June 1, 2024, and, on January 1, 2026,

FC1 sells its 25-percent stock interest in USR to

FC4, a foreign corporation. Following FC3’s sale

of its X stock to FC2 on June 1, 2024, FC2’s stock

interest in USR has increased by 25.5 percentage

points, from 25.5 percent on April 24, 2024 (which

is 50 percent of 51 percent), to 51 percent. Following FC1’s sale of its USR stock to FC4 on January

1, 2026, FC4’s stock interest in USR has increased

by 25 percentage points, from zero percent on April

24, 2024, to 25 percent. Accordingly, in the aggregate, non-look-through persons have increased their

ownership in USR by 50.5 percentage points (25.5

percent and 25 percent for FC2 and FC4, respectively), and USR no longer meets the requirement

for transition relief in paragraph (c)(3)(vi)(A)(3) of

this section as of January 1, 2026. Therefore, under

paragraph (c)(3)(vi)(B)(1) of this section the transition rule ceases to apply to USR and, thus, paragraph

(c)(3)(iii)(B) of this section applies for purposes of

determining whether USR is domestically controlled

with respect to transactions occurring after January

1, 2026. Because FC2, a non-look-through person,

holds more than 50 percent of the stock of X, X is a

foreign-controlled domestic corporation under paragraph (c)(3)(iii)(B) of this section, and USR will not

be a domestically controlled QIE under paragraph

(c)(3)(i) of this section because foreign non-lookthrough persons (FC2, 51 percent, FC4, 25 percent,

and the nonresident alien individuals, 24 percent)

directly or indirectly hold more than 50 percent of

the stock of USR.

(4) Foreign ownership percentage. For

purposes of calculating the foreign ownership percentage under section 897(h)(4)

(C), the determination of the QIE stock

that was held directly or indirectly by for-

Bulletin No. 2024–21

eign persons is made under the rules of

paragraphs (c)(3)(ii) through (vii) of this

section.

*****

(k) Foreign person. The term foreign

person means a nonresident alien individual (including an individual subject to

the provisions of section 877), a foreign

corporation as defined in paragraph (l)

of this section, a foreign partnership, a

foreign trust or a foreign estate, as such

persons are defined by section 7701 and

the regulations in this chapter under section 7701. A resident alien individual,

including a nonresident alien individual

with respect to whom there is in effect an

election under section 6013(g) or (h) to be

treated as United States resident, is not a

foreign person. With respect to the status

of foreign governments and international

organizations, see §1.897-9T(e). See paragraph (c)(3)(iv)(A) of this section regarding the treatment of qualified foreign pension funds and qualified controlled entities

as foreign persons for purposes of section

897(h)(4)(B).

(l) Foreign corporation. The term foreign corporation has the meaning ascribed

to such term in section 7701(a)(3) and (5)

and § 301.7701-5. For purposes of sections 897 and 6039C, however, the term

does not include a foreign corporation

with respect to which there is in effect an

election under section 897(i) and §1.897-3

to be treated as a domestic corporation.

For purposes of section 897, the term does

not include a qualified holder described in

§1.897(l)-1(d); see paragraph (c)(3)(iv)

(A) of this section regarding the treatment

of qualified foreign pension funds and

qualified controlled entities as foreign persons for purposes of section 897(h)(4)(B).

*****

(n) Regularly traded cross-reference.

See §1.897-9T(d) for a definition of regularly traded for purposes of sections 897,

1445, and 6039C.

*****

Par. 3. Section 1.897-2 is amended by

revising paragraph (h)(3) to read as follows:

§1.897-2 United States real property

holding corporations.

*****

(h) * * *

Bulletin No. 2024–21

(3) Requirements not applicable. The

requirements of this paragraph (h) do not

apply to domestically-controlled qualified

investment entities, as defined in section

897(h)(4)(B). But see §1.1445-2(c)(3)

for rules providing that no withholding

is required under section 1445(a) in certain cases when a statement is voluntarily

issued by the corporation and otherwise

complies with the requirements of this

paragraph (h). The requirements of this

paragraph (h) also do not apply to a corporation any class of stock in which is

regularly traded on an established securities market at any time during the calendar year. However, such a corporation

may voluntarily choose to comply with

the requirements of paragraph (h)(4) of

this section.

*****

Par. 4. Section 1.897-9T is amended

by:

1. Removing and reserving paragraph

(c); and

2. Revising and republishing paragraph

(e).

The revision reads as follows:

§1.897-9T Treatment of certain interest

in publicly traded corporations,

definition of foreign person, and

foreign governments and international

organizations (temporary).

*****

(e) Foreign governments and international organizations. A foreign government shall be treated as a foreign person

with respect to U.S. real property interests, and shall be subject to sections 897,

1445, and 6039C on the disposition of a

U.S. real property interest except to the

extent specifically otherwise provided

in the regulations in this chapter issued

under section 892. An international organization (as defined in section 7701(a)

(18)) is not a foreign person with respect

to U.S. real property interests, and is not

subject to sections 897, 1445, and 6039C

on the disposition of a U.S. real property

interest. See §1.897-1(c)(3)(iv)(B) regarding the treatment of international organizations as foreign persons for purposes of

section 897(h)(4)(B). Buildings or parts

of buildings and the land ancillary thereto

(including the residence of the head of the

diplomatic mission) used by the foreign

1189

government for a diplomatic mission shall

not be a U.S. real property interest in the

hands of the respective foreign government.

*****

Par. 5. Section 1.1445-2 is amended

by:

1. Revising paragraph (c)(3)(i); and

2. Adding two sentences at the end of

paragraph (e).

The revision and additions read as follows:

§1.1445-2 Situations in which

withholding is not required under

section 1445(a).

*****

(c) * * *

(3) * * *

(i) In general. No withholding is

required under section 1445(a) upon the

acquisition of an interest in a domestic

corporation, if the transferor provides

the transferee with a copy of a statement,

issued by the corporation pursuant to

§1.897–2(h), certifying that the interest

is not a U.S. real property interest, or if

the transferor provides the transferee with

a statement certifying that the corporation is a domestically controlled qualified

investment entity (as determined under

§1.897-1(c)(3)) that is voluntarily issued

by the corporation but otherwise complies with the requirements of §1.8972(h). In general, a corporation may issue

such a statement only if the corporation

was not a U.S. real property holding corporation at any time during the previous

five years (or the period in which the

interest was held by its present holder, if

shorter), the corporation is a domestically

controlled qualified investment entity (as

determined under §1.897–1(c)(3)), or if

interests in the corporation ceased to be

United States real property interests under

section 897(c)(1)(B). (A corporation may

not provide such a statement based on its

determination that the interest in question

is an interest solely as a creditor.) See

§1.897–2(f) and (h). The corporation may

provide such a statement directly to the

transferee at the transferor’s request. The

transferor must request such a statement

before the transfer, and shall, to the extent

possible, specify the anticipated date of

the transfer. A corporation’s statement

May 20, 2024

may be relied upon for purposes of this

paragraph (c)(3) only if the statement is

dated not more than 30 days before the

date of the transfer. A transferee may also

rely upon a corporation’s statement that is

voluntarily provided by the corporation in

response to a request from the transferee,

if that statement otherwise complies with

the requirements of this paragraph (c)(3)

and §1.897-2(h).

*****

May 20, 2024

(e) * * * Paragraph (c)(3)(i) of this

section applies with respect to dispositions of U.S. real property interests, and

distributions described in section 897(h),

occurring on or after April 25, 2024. For

dispositions of U.S. real property interests, and distributions described in section 897(h), occurring before April 25,

2024, see §1.1445-2(c)(3)(i), as contained in 26 CFR part 1, revised as of

April 1, 2024.

1190

Douglas W. O’Donnell,

Deputy Commissioner.

Approved: April 2, 2024.

Aviva Aron-Dine,

Acting Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register April 24,

2024, 8:45 a.m., and published in the issue of the

Federal Register for April 25, 2024, 89 FR 31618)

Bulletin No. 2024–21

Part III

Sustainable Aviation

Fuel Credit; Lifecycle

Greenhouse Gas Emissions

Reduction Percentage

and Certification of

Requirements Related to

the Clean Air Act; Climate

Smart Agriculture; Safe

Harbors

Notice 2024-37

SECTION 1. PURPOSE

This notice provides additional guidance and safe harbors regarding the sustainable aviation fuel (SAF) credits under

§§ 40B and 6426(k) of the Internal Revenue Code (collectively, SAF credit or SAF

credits).1 The Department of the Treasury

(Treasury Department) and the Internal

Revenue Service (IRS) issued prior guidance regarding SAF credits in Notice

2023-6, 2023-2 I.R.B. 328, and Notice

2024-6, 2024-2 I.R.B. 34. The Treasury

Department and the IRS developed the

guidance in this notice in consultation with

the Environmental Protection Agency

(EPA), the Department of Energy (DOE),

the Department of Agriculture (USDA),

and the Federal Aviation Administration

(FAA) of the Department of Transportation (DOT).

SECTION 2. BACKGROUND

.01 Overview. This section provides

an overview of this notice and relevant

background. Section 3 of this notice

provides a safe harbor for calculating

the lifecycle greenhouse gas emissions

reduction percentage under § 40B(e)(2)

using the modified version of the Argonne

National Laboratory’s Greenhouse gases,

Regulated Emissions, and Energy use in

Technologies (R&D GREET)2 model that

satisfies the requirements of § 40B(e)(2)

(40BSAF-GREET 2024). Section 3 of

this notice also provides a safe harbor for

certifying the related requirements under

§ 40B(f)(2)(A)(ii) for purposes of the

40BSAF-GREET 2024 model by using

the California Air Resources Board’s

(CARB) Low Carbon Fuel Standard program (LCFS) accredited verifiers (CARB

LCFS verifiers).

Section 4 of this notice provides a

safe harbor for an additional reduction in

calculating the lifecycle greenhouse gas

emissions reduction percentage under

§ 40B(e)(2) using the 40BSAF-GREET

2024 model in conjunction with the

USDA Climate Smart Agriculture Pilot

Program (USDA CSA Pilot Program).

The USDA CSA Pilot Program establishes

climate smart agriculture (CSA) practices

for cultivating domestic corn (CSA corn)

and domestic soybeans (CSA soybean)

(collectively, CSA crops) for use as SAF

feedstocks. Section 4 of this notice also

provides a safe harbor for certifying the

related requirements under § 40B(f)(2)(A)

(ii) for purposes of the USDA CSA Pilot

Program by using an unrelated party certifier that meets the USDA CSA Pilot Program requirements for Eligible Unrelated

Party Certification Bodies (CSA certifier).

Section 5 of this notice provides information about registration. Section 5 of

this notice also provides guidance regarding claims for SAF credits that rely on

the 40BSAF-GREET 2024 model and the

USDA CSA Pilot Program to calculate the

lifecycle greenhouse gas emissions reduction percentage.

.02 Applicable law. Section 13203

of Public Law 117-169, 136 Stat. 1818

(August 16, 2022), commonly known as

the Inflation Reduction Act of 2022, added

§ 40B and amended §§ 38(b), 40A, 87,

4101(a), 6426, and 6427(e)(1), to establish the SAF credits, effective for certain

fuel mixtures containing SAF sold or used

after December 31, 2022, and before January 1, 2025. The SAF credit is equal to

the product of (1) the number of gallons

of SAF in a qualified mixture and (2) the

sum of (A) $1.25 and (B) the “applicable

supplementary amount” with respect to

such SAF. In general, the applicable supplementary amount increases the $1.25

base credit by $0.01 for each percentage

point by which the lifecycle greenhouse

gas emissions reduction percentage of the

SAF exceeds 50 percent, for a maximum

increase of $0.50.3 See §§ 40B(b) and

6426(k).

In addition to other requirements, under

§ 40B(d)(1)(D), SAF must be certified to

have a lifecycle greenhouse gas emissions

reduction percentage of at least 50 percent.

Section 40B(e) defines the term “lifecycle

greenhouse gas emissions reduction percentage” (emissions reduction percentage)

to mean, with respect to any SAF, the percentage reduction in lifecycle greenhouse

gas emissions achieved by such fuel, as

compared with petroleum-based jet fuel,

as defined in accordance with (1) the most

recent Carbon Offsetting and Reduction

Scheme for International Aviation (CORSIA) that has been adopted by the International Civil Aviation Organization (ICAO)

with the agreement of the United States or

(2) any similar methodology that satisfies

the criteria under § 211(o)(1)(H) of the

Clean Air Act (42 U.S.C. 7545(o)(1)(H)),

as in effect on August 16, 2022 (CAA).

Section 40B(f)(2)(A) requires a producer or importer of SAF to provide

certification (in the form and manner

prescribed by the Secretary of the Treasury or her delegate (Secretary)) from an

unrelated party demonstrating compliance

with (i) any general requirements, sup-

Unless otherwise specified, all references to “section” or “§” are references to sections of the Internal Revenue Code.

As of the date of publication of this notice in the Internal Revenue Bulletin, the term “R&D GREET model” refers to the following lifecycle analysis model: Wang, Michael, et al. (2023).

Greenhouse gases, Regulated Emissions, and Energy use in Technologies Model ® (2023 Excel). Computer Software. USDOE Office of Energy Efficiency and Renewable Energy (EERE).

09 Oct. 2023. Web. https://www.osti.gov/doecode/biblio/113174. Notice 2024-6 uses the term “ANL-GREET” and defines it in footnote 2. DOE has since renamed ANL-GREET as R&D

GREET. Argonne National Laboratory made this change on its website beginning in December 2023, to better distinguish between the different models and to draw a clear distinction between

R&D GREET and the versions used for tax credit purposes. All references to R&D GREET in this notice are referring to the same model, including any subsequent updates, as references to

ANL-GREET in Notice 2024-6.

3

See sections 4.05 and 4.06 of Notice 2023-6 for instructions and an example of how to calculate the applicable supplementary amount for purposes of §§ 40B(b) and 6426(k).

1

2

Bulletin No. 2024–21

1191

May 20, 2024

ply chain traceability requirements, and

information transmission requirements

established under CORSIA as described

in § 40B(e)(1), or (ii) in the case of any

similar methodology established under

§ 40B(e)(2), requirements similar to the

requirements described in § 40B(f)(2)(A)

(i). Section 40B(f)(2)(B) requires SAF

producers or importers to provide such

other information with respect to such fuel

as the Secretary may require for purposes

of carrying out § 40B.

.03 Notice 2023-6. Notice 2023-6 provides guidance on the SAF credits and

related credit and payment rules under

§§ 34(a)(3), 38, 87, 6426(k), and 6427(e)

(1), and procedures for claiming the SAF

credit. Notice 2023-6 also provides guidance related to the registration requirements under § 4101 for persons producing or importing SAF synthetic blending

component, a type of SAF. See section

3.01 of Notice 2023-6 for the definition of

SAF synthetic blending component, and

see Notice 2023-6 generally for definitions of other terms used in this notice and

Notice 2024-6. Sections 4.04 and 5.01(4)

of Notice 2023-6 include CORSIA-based

safe harbors for determining the emissions

reduction percentage under § 40B(e)(1)

and for providing an unrelated party certification for demonstrating compliance

with the requirements under § 40B(f)(2)

(A)(i).

.04 Notice 2024-6. Section 3 of Notice

2024-6 provides safe harbors for using the

EPA’s Renewable Fuel Standard (RFS)

program to calculate the emissions reduction percentage under § 40B(e)(2), and

for using RFS guidance to certify the corresponding unrelated party certification

requirements under § 40B(f)(2)(A)(ii).

Section 4 of Notice 2024-6 provides an

updated Model Certificate for SAF Synthetic Blending Component to be used

when submitting a claim for a SAF credit.

Section 5 of Notice 2024-6 informs the

public that the existing R&D GREET4

model and any other existing versions

of GREET (for example, CA-GREET,

ICAO-GREET) are methodologies that do

not satisfy the requirements to calculate

the emissions reduction percentage under

§ 40B(e)(2).

Section 6 of Notice 2024-6 announced

that the DOE was collaborating with other

Federal agencies to develop the 40BSAFGREET 2024 model, and that it would

be expected in early 2024. Section 6 of

Notice 2024-6 also announced that subject to any further guidance from the Treasury Department and the IRS, it is anticipated that after the 40BSAF-GREET 2024

model is released, taxpayers will be able

to use it to calculate the emissions reduction percentage for SAF sold or used after

December 31, 2022, and prior to January

1, 2025.

SECTION 3. 40BSAF-GREET 2024

MODEL; CARB LCFS PROGRAM;

SAFE HARBORS

.01 Calculating emissions reduction

percentage under § 40B(e)(2); safe harbor.

(1) In general. Section 40B(e)(2) provides that the emissions reduction percentage may be calculated in accordance

with any methodology that is similar to

the most recent CORSIA and satisfies the

criteria under § 211(o)(1)(H) of the CAA.

Section 211(o)(1)(H) of the CAA defines

the term “lifecycle greenhouse gas emissions” to mean “the aggregate quantity

of greenhouse gas emissions (including

direct emissions and significant indirect

emissions such as significant emissions

from land use changes), as determined by

the [EPA] Administrator, related to the full

fuel lifecycle, including all stages of fuel

and feedstock production and distribution,

from feedstock generation or extraction

through the distribution and delivery and

use of the finished fuel to the ultimate

consumer, where the mass values for all

greenhouse gases are adjusted to account

for their relative global warming potential.” See also 42 U.S.C. 7602(a).

(2) 40BSAF-GREET 2024 model.

DOE released the 40BSAF-GREET

2024 model on April 30, 2024, and it is

available at https://www.energy.gov/

media/322677. DOE worked with the

Treasury Department and other Federal

agencies to develop the 40BSAF-GREET

2024 model, including specifications for

and limitations on taxpayer inputs and

background inputs to the model, to satisfy

the statutory requirements of § 40B(e)(2);

DOE and EPA have described the parameters of the model that were included to

satisfy the statutory requirements, including to address the issues EPA identified

in its December 2023 letter to Treasury.5

The EPA has concluded that the 40BSAFGREET 2024 model addresses the issues

it previously identified that made the

R&D GREET model insufficient for calculating lifecycle greenhouse gas emissions for purposes of § 211(o)(1)(H) of the

CAA.6 The 40BSAF-GREET 2024 model

is a “similar methodology” to the CORSIA methodology as both evaluate the

full fuel lifecycle, including all stages of

fuel and feedstock production through to

the end use of the finished fuel. For those

reasons, including the analysis provided

by DOE and EPA in their respective letters, the Treasury Department and the IRS

have determined that it is appropriate to

provide the safe harbor described in section 3.01(3) of this notice for using the

40BSAF-GREET 2024 model to calculate

the emissions reduction percentage under

§ 40B(e)(2).

(3) Safe harbor for the 40BSAFGREET 2024 model. With respect to any

claim for a SAF credit for a SAF qualified mixture, as defined in section 3.02(2)

of Notice 2023-6, that meets the require-

See footnote 2 of this notice for an explanation of the name change from “ANL-GREET” to “R&D GREET.”

Letter from Carla Frisch, Acting Executive Director, Principal Deputy Director, Department of Energy Office of Policy, and Jeffrey M. Marootian, Acting Assistant Secretary, Principal

Deputy Assistant Secretary, Department of Energy, Efficiency & Renewal Energy, to Aviva Aron-Dine, Acting Assistant Secretary for Tax Policy, U.S. Department of Treasury (April 30,

2024), (DOE Letter), available at : https://home.treasury.gov/system/files/136/April-2024-DOE-letter-to-UST-on-SAF-signed.pdf. U.S. Department of Energy, Guidelines to Determine Life

Cycle Greenhouse Gas Emissions of Sustainable Aviation Fuel Production Pathways using 40BSAF-GREET 2024 (40BSAF-GREET 2024 User Manual), available at https://www.energy.

gov/media/322899. Letter from Joseph Goffman, Assistant Administrator for the Office of Air and Radiation, U.S. Environmental Protection Agency, to Aviva Aron-Dine, Acting Assistant

Secretary for Tax Policy, U.S. Department of Treasury (April 25, 2024), (EPA Letter), available at https://home.treasury.gov/system/files/136/April-2024-EPA-letter-to-UST-on-SAF-signed.

pdf. See also Letter from Joseph Goffman, Principal Deputy Assistant Administrator for the Office of Air and Radiation, U.S. Environmental Protection Agency, to Lily Batchelder, Assistant

Secretary for Tax Policy, U.S. Department of Treasury (December 13, 2023), (EPA December 2023 Letter) available at https://home.treasury.gov/system/files/136/Final-EPA-letter-to-USTon-SAF-signed.pdf.

6

See EPA April 2024 Letter.

4

5

May 20, 2024

1192

Bulletin No. 2024–21

ments of ASTM International (ASTM)

D7566,7 the IRS will accept an emissions

reduction percentage for the SAF synthetic

blending component in the qualified SAF

mixture that is calculated in accordance

with the 40BSAF-GREET 2024 model,

provided the certification requirements

under § 40B(f)(2)(A)(ii) are satisfied. See

section 3.02 of this notice for guidance

regarding certification requirements under

§ 40B(f)(2)(A)(ii).

The 40BSAF-GREET 2024 model calculates lifecycle greenhouse gas emissions

associated with SAF from two production

pathways: (1) hydroprocessed esters and

fatty acids (HEFA production pathway) and

(2) alcohol-to-jet (ATJ-Ethanol production

pathway). The HEFA production pathway

corresponds to the ASTM-approved HEFA

production pathway: HEFA-SPK, ASTM

D7566, Annex A2 (approved in 2011 at a

50 percent blend limit with petroleum-derived jet fuel). The ATJ-Ethanol production

pathway corresponds to the ASTM-approved alcohol-to-jet fuel pathway: ATJSPK, ASTM D7566, Annex A5 (approved

in 2016 at a 30 percent blend limit). See

40BSAF-GREET 2024 User Manual for

further information on eligible SAF pathways available at https://www.energy.gov/

media/322899.

.02 Unrelated party certification

requirements under § 40B(f)(2)(A)(ii);

safe harbor under CARB LCFS program.

(1) In general. Under § 40B(f)(2)(A)

(ii), a producer or importer of a SAF synthetic blending component calculating

the emissions reduction percentage under

§ 40B(e)(2), must provide certification

from an unrelated party demonstrating

compliance with requirements similar to

those that apply with respect to the CORSIA methodology. See also § 6426(k)(3).

(2) CARB LCFS. The CARB LCFS

program is part of a comprehensive set of

programs used by California to cut greenhouse gas emissions and other smog-forming and toxic air pollutants by improving

vehicle technology, reducing fuel consumption, and increasing transportation

mobility options. The CARB LCFS program is designed to encourage the use of

cleaner transportation fuels, encourage

the production of those fuels, and as a

result, reduce greenhouse gas emissions

and decrease petroleum dependence in

the transportation sector. Additional information about the CARB LCFS program

is available at https://ww2.arb.ca.gov/

our-work/programs/low-carbon-fuel-standard/about.

The CARB LCFS program relies on

accurate data monitoring, reporting, and

verification using CARB LCFS verifiers.

Only CARB LCFS verifiers may provide

verification for the CARB LCFS program. Additional information about the

CARB LCFS program verification rules

and CARB LCFS verifiers is available at

https://ww2.arb.ca.gov/lcfs-verification.

(3) Safe harbor for certifications by

CARB LCFS verifiers. With respect to

any SAF qualified mixture that meets the

requirements of ASTM D7566 and for

which the 40BSAF-GREET 2024 model

is used to calculate the emissions reduction percentage, the IRS will consider a

registered producer or importer of a SAF

synthetic blending component (registered

SAF producer) as having met the certification requirements of § 40B(f)(2)(A)(ii) for

the SAF synthetic blending component if

such registered SAF producer obtains the

requisite certification from a CARB LCFS

verifier and such certification is provided

in a format that is substantially similar to

an LCFS Verification Statement (CARB

certification). See section 5.01 of this

notice for guidance on registration.

The registered SAF producer must

record the CARB LCFS Verifier Executive Order number of the CARB LCFS

verifier who provides the CARB certification on the Certificate for SAF Synthetic

Blending Component Using the 40BSAFGREET 2024 Model required under section 3.03 of this notice. The registered

SAF producer also must provide a copy to

the CARB LCFS verifier of the 40BSAFGREET 2024 model Excel workbook

used to calculate the emissions reduction

percentage the registered SAF producer

enters on the Certificate for SAF Synthetic

Blending Component Using the 40BSAFGREET 2024 Model. See Appendix C of

this notice for the model certificate.

(4) Verification standards. CARB

LCFS verifiers must certify the foreground

data of the 40BSAF-GREET 2024 model

Excel workbook and other requirements

as provided in the 40BSAF-GREET 2024

User Manual (including all updates to the

user manual made by DOE) in accordance

with CARB LCFS verifier practices and

standards.8

(5) Additional verification guidelines.

The registered SAF producer must make

available certain information to assist the

CARB LCFS verifier in certifying compliance pursuant to § 40B(f)(2)(A)(ii).

The registered SAF producer may provide

the CARB LCFS verifier with information

consistent with that required in the proposed LCFS Tier 1 calculator Excel workbooks located at https://ww2.arb.ca.gov/

resources/documents/lcfs-life-cycle-analysis-public-comment. For the HEFA

production pathway, a registered SAF

producer should use the Hydroprocessed

Ester and Fatty Acid Fuels workbook. For

the ATJ-Ethanol production pathway, a

registered SAF producer should use either

the Starch and Fiber Ethanol or Sugarcane

Ethanol workbook. Alternatively, a registered SAF producer may, where applicable, provide a certified or CARB-approved Tier 2 pathway application to the

CARB LCFS verifier.

.03 Certificate for SAF Synthetic

Blending Component. For claims filed for

SAF produced using the 40BSAF-GREET

2024 model, claimants must submit with

their claim a Certificate for SAF Synthetic

Blending Component Using the 40BSAFGREET 2024 Model in. Such certificate

must be in substantially the same form as

the Model Certificate in Appendix C of

this notice.

SECTION 4. CLIMATE SMART

AGRICULTURE; USDA CSA PILOT

PROGRAM USED WITH 40BSAFGREET 2024; SAFE HARBORS

.01 Calculating emissions reduction

percentage under § 40B(e)(2); safe harbor.

(1) USDA CSA Pilot Program. The

USDA has determined that CSA practices

7

This notice primarily addresses the SAF credit requirements applicable to a qualified mixture produced under ASTM D7566. The Treasury Department and the IRS, in consultation with the

DOT and the FAA, understand that no jet fuel is currently produced in the United States under ASTM D1655 Annex A1 that would qualify for the SAF credit.

8

See Cal. Code Regs. tit. 17, §§ 95480-95503; however, the requirement for CARB LCFS verifiers submit Conflict of Interest statements is waived for purposes of section 3.02 of this notice.

Bulletin No. 2024–21

1193

May 20, 2024

can result in lower emissions and greater

carbon sequestration than conventional

farming practices, but such practices are

not incorporated into existing lifecycle

greenhouse gas emissions models. The

USDA CSA Pilot Program incorporates

CSA practices for CSA crops that are used

as feedstocks for SAF synthetic blending

components, which results in estimated

greenhouse gas reduction and carbon

sequestration benefits. In recognition of

the potential emissions reduction benefits of CSA but also of the limitations of

currently available verification mechanisms, empirical data, and modeling, and

to advance the development of such verification mechanisms, section 4.02 of this

notice establishes a safe harbor for using

CSA crops cultivated pursuant to the

USDA CSA Pilot Program, as described

in Appendix A, as feedstocks for SAF synthetic blending component.

For the ATJ-Ethanol production pathway using CSA corn, the USDA CSA

Pilot Program requires that CSA farmers

who qualify under the USDA CSA Pilot

Program (USDA CSA Pilot Program

farmers) and grow the CSA corn engage

in three CSA practices on the same acreage: no-till farming, planting cover crops,

and applying enhanced efficiency nitrogen fertilizer. For the HEFA production

pathway using CSA soybean, the USDA

CSA Pilot Program requires that USDA

CSA Pilot Program farmers engage in

two CSA practices on the same acreage:

no-till farming and planting cover crops.

In accordance with the USDA CSA Pilot

Program, USDA CSA Pilot Program farmers must apply these practices to the entire

acreage on which each CSA crop is grown

and adhere to the definitions and practice

requirements provided in the USDA CSA

Pilot Program. See Appendix A of this

notice. The USDA CSA Pilot Program

may only be used in conjunction with the

40BSAF-GREET 2024 model for claims

under §§ 40B and 6426(k).

(2) Safe harbor. The Treasury Department, in consultation with the USDA, has

determined that for purposes of the USDA

CSA Pilot Program, in lieu of a full lifecycle analysis incorporated into the relevant

model, a SAF synthetic blending component produced from CSA corn or CSA

soybean is eligible for an additional proxy

reduction (CSA reduction) in the calculation of the emissions reduction percentage. The emissions reduction percentage

is calculated for the SAF credit by multiplying a fraction, the numerator of which

is the baseline for the lifecycle greenhouse gas emissions of petroleum-based

jet fuel (LC) minus the lifecycle emissions value (LSf), and the denominator of

which is the baseline (LC), by 100 percent

([(LC - LSf) / LC] × 100% = emissions

reduction percentage).9 The emissions

reduction percentage must be rounded

down to the nearest whole percent. See

section 4 of Notice 2023-6.

The IRS will accept a CSA reduction

for an LSf determined under the 40BSAFGREET 2024 model, provided the requirements of the USDA CSA Pilot Program

and this notice are met. Specifically, the

CSA reduction for CSA corn is an additional 10 gCO2e/MJ reduction in the LSf,

as calculated using the 40BSAF-GREET

2024 model. The CSA reduction for CSA

soybean is an additional 5 gCO2e/MJ

reduction in the LSf, as calculated using

the 40BSAF-GREET 2024 model. The

emissions reduction percentage formula

accounting for CSA reduction is {[LC –

(LSf - CSA reduction)] / LC} × 100%.

(3) Example. A registered SAF producer produces a SAF synthetic blending component via the ATJ-Ethanol production pathway using 100% CSA corn.

Using the 40BSAF-GREET 2024 model,

the SAF synthetic blending component

produced via the ATJ-Ethanol production pathway has a calculated LSf of 51.8

gCO2e/MJ. This LSf can be reduced by

the CSA reduction of 10 gCO2e/MJ. To

calculate the emissions reduction percentage (rounding down to the nearest whole

percent): [(89 gCO2e/MJ – (51.8 gCO2e/

MJ – 10 gCO2e/MJ)) / 89 gCO2e/MJ] ×

100% = 53.03%, rounded down to 53%.

.02 Certification of compliance with

the USDA CSA Pilot Program.

(1) In general. The CSA practices

incorporated into the USDA CSA Pilot

Program are not a part of either the

40BSAF-GREET 2024 model or any

CARB program including the LCFS program. Therefore, the Treasury Department

and the USDA have developed additional

unrelated party certification requirements

for the USDA CSA Pilot Program.

(2) Safe harbor. To qualify for the CSA

reduction, registered SAF producers using

the ATJ-Ethanol or HEFA production

pathways must obtain unrelated party certification of compliance with the USDA

CSA Pilot Program practice requirements

(CSA certification) in addition to the

CARB certification required under section

3.02 of this notice. The IRS will consider

a registered SAF producer as having met

the unrelated party certification requirements of § 40B(f)(2)(A)(ii) if it satisfies

all the requirements of this section and the

USDA CSA Pilot Program. See Appendix

A of this notice.

(3) CSA certifier audit requirements. A

CSA certifier must audit records from the

USDA CSA Pilot Program farmers to verify compliance with the USDA CSA Pilot

Program. The CSA certifier must also

audit supply chain records and complete

a mass balance to verify traceability of the

contracted quantity of CSA crops to the

registered SAF producer.

(4) CSA certifier accreditation and

other requirements. The CSA certifier

must meet the requirements for Eligible

Unrelated Party Certification Bodies in

the USDA CSA Pilot Program. Generally,

the CSA certifier must be accredited by

the ANSI National Accreditation Board

(ANAB) for ISO 14065. ISO 14065 specifies general principles and requirements

for bodies performing validation and verification of environmental information,

which is directly relevant to verifying

reduced carbon intensity. In the United

States, the ANAB Accreditation Program

for Greenhouse Gas Validation and Verification Bodies operates according to ISO

14065.

In addition to being ISO 14065

accredited, the USDA CSA Pilot Program requires that the CSA certifier must

demonstrate agricultural expertise by

either assigning at least one individual to

the CSA certification team who is a USDA

9

Until further notice, for purposes of calculating the emissions reduction percentage, the IRS will treat the lifecycle greenhouse gas emissions of petroleum-based jet fuel as equal to 89 grams

of carbon dioxide equivalent per megajoule of energy or 89 gCO2e/MJ as the baseline. This is the standard adopted by the ICAO. See section 4.03 of Notice 2023-6.

May 20, 2024

1194

Bulletin No. 2024–21

Technical Service Provider, or by assigning at least one individual to the CSA

certification team who is a Certified Crop

Advisor. For more information concerning these requirements, see USDA CSA

Pilot Program, Appendix A of this notice.

(5) Registered SAF producer requirements. Registered SAF producers who

want to use the CSA reduction for producing SAF from CSA crops must: (i)

contract directly with USDA CSA Pilot

Program farmers for CSA corn or CSA

soybean in accordance with the requirements of the USDA CSA Pilot Program

described in Appendix A of this notice;

(ii) collect and maintain from the USDA

CSA Pilot Program farmer a Certificate

for Climate Smart Agriculture Crops

with respect to each CSA crop; (iii) maintain all records described in the Practice

Recordkeeping Requirements and Supply Chain Traceability Requirements and

Recordkeeping sections of the description of the USDA CSA Pilot Program in

Appendix A of this notice; (iv) make all

such records available to the CSA certifier; and (v) maintain and make available

for IRS inspection the CSA certification

required by section 4.02(2) of this notice

and the Certificate for Climate Smart

Agriculture Crops. See section 4.03 of

this notice for guidance regarding the

Certificate for Climate Smart Agriculture

Crops and Appendix B of this notice for

the model certificate.

.03 Certificate for Climate Smart Agriculture Crops. The Certificate for Climate

Smart Agriculture Crops required by section 4.02 of this notice (i) contains a statement acknowledging that the USDA CSA

Pilot Program farmer understands that

fraudulent use of the certificate may subject the USDA CSA Pilot Program farmer

and all parties making such fraudulent use

to a fine or imprisonment, or both, together

with the costs of prosecution, (ii) is in substantially the same form as the model certificate in Appendix B of this notice, and

(iii) contains all the information necessary

to complete the certificate. The certificate

identification number is determined by

the USDA CSA Pilot Program farmer and

must be unique to each certificate.

A USDA CSA Pilot Program farmer

may, with respect to a particular sale of

CSA corn or CSA soybean, provide multiple separate certificates, each applicable

Bulletin No. 2024–21

to a portion of the total volume of the

CSA corn or CSA soybean sold. Thus,

for example, a USDA CSA Pilot Program

farmer that sells 5,000 bushels of CSA

corn or CSA soybean in one transaction

may provide its buyer with five certificates for 1,000 bushels each.

.04 Certificate for SAF Synthetic

Blending Component. For claims that use

the 40BSAF-GREET 2024 model and

the USDA CSA Pilot Program safe harbors to calculate the emissions reduction

percentage, claimants must submit with

their claim a Certificate for SAF Synthetic

Blending Component Using the 40BSAFGREET 2024 Model and the USDA CSA

Pilot Program for Corn and Soybean.

Such certificate must be in substantially

the same form as the model certificate in

Appendix D of this notice.

SECTION 5. REGISTRATION;

CLAIMS FOR THE SAF CREDITS

USING 40BSAF-GREET 2024

MODEL AND CSA REDUCTION

.01 Registration. For a claimant to

qualify for the SAF credit, the producer

or importer of the SAF synthetic blending component must be registered with

the IRS under § 4101. See §§ 40B(f)(1)

and 6426(k)(3). Application for registration is made on Form 637, Application

for Registration (For Certain Excise Tax

Activities), under Activity Letter “SA,” in

accordance with instructions for that form.

See also section 5 of Notice 2023-6 for

additional information about registration.

Pursuant to § 48.4101-1(h)(1)(v) of the

Manufacturers and Retailers Excise Tax

Regulations (26 CFR part 48), each registrant must notify the IRS of any change

in the information the registrant submitted

in connection with its application for registration within 10 days after the change

occurs. For registrations issued prior to

the issuance of this notice and applications for registration that are pending as of

the date of this notice:

(1) If a registrant has an Activity Letter

“SA” issued prior to the issuance of this

notice, before making a claim for the SAF

credits or amending a prior claim for the

SAF credits using the 40BSAF-GREET

2024 model or the 40BSAF-GREET 2024

model with the USDA CSA Pilot Program,

the registrant must first inform the IRS of

1195

this change of methodology and update its

registration by contacting the IRS office

with which the registrant is registered.

(2) If an applicant has a pending application for registration as of the date of this

notice and wishes to make claims for the

SAF credits using the 40BSAF-GREET

2024 model or the 40BSAF-GREET 2024

model with the USDA CSA Pilot Program,

the applicant must inform the IRS of this

change of methodology by contacting the

IRS office with which the applicant submitted its Form 637.

.02 Eligibility. A registered SAF producer that uses the safe harbors provided

in this notice to calculate the emissions

reduction percentage must meet all statutory requirements under § 40B, including

registration, traceability, and unrelated

party certification. The safe harbors for

the 40BSAF-GREET 2024 model and the

USDA CSA Pilot Program may be used

in connection with §§ 40B, 6426(k), and

6427(e)(1) claims that relate to the sale

or use of a SAF qualified mixture after

December 31, 2022, and before January

1, 2025.

In cases where the registered SAF

producer used the 40BSAF-GREET 2024

model to calculate the emissions reduction percentage, claimants must submit

the Certificate for SAF Synthetic Blending Component Using the 40BSAFGREET 2024 Model with their claim.

See Appendix C of this notice for the

model certificate. In cases where the registered SAF producer used the 40BSAFGREET 2024 model in conjunction with

the USDA CSA Pilot Program to calculate the emissions reduction percentage,

the claimant must submit the Certificate

for SAF Synthetic Blending Component

Using the 40BSAF-GREET 2024 Model

and the USDA CSA Pilot Program for

Corn and Soybean with their claim. See

Appendix D of this notice for the model

certificate. See sections 3.02, 3.03, 4.01,

and 4.02 of this notice, section 6 of

Notice 2023-6, and section 4 of Notice

2024-6 for information about making

claims for the SAF credits.

SECTION 6. PAPERWORK

REDUCTION ACT

The Paperwork Reduction Act of 1995

(44 U.S.C. 3501-3520) (PRA) generally

May 20, 2024

requires that a Federal agency obtain the

approval of the Office of Management

and Budget (OMB) before collecting

information from the public, whether such

collection of information is mandatory,

voluntary, or required to obtain or retain a

benefit. A Federal agency may not conduct

or sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information displays a valid control number.

Section 3 of this notice sets forth collections of information to be provided to

the IRS with Form 637, and to determine

whether a claimant qualifies for a SAF

credit. The collections of information will

be reflected in the submission to the OMB

for review in accordance with the PRA

that is associated with Form 637 (OMB

control number 1545-1835). This sub-

May 20, 2024

mission will be updated in the ordinary

course.

The collections of information proposed in section 4 of this notice would

include reporting, third-party disclosure,

and recordkeeping requirements. These

collections are necessary in order for registered SAF producers to use the safe harbors provided in section 4 of this notice

to calculate the emissions reduction percentage with respect to SAF synthetic

blending component, for the IRS to validate that registered SAF producers have

met the requirements of the safe harbors in

section 4 of this notice, and for the IRS to

verify that claimants are entitled to claim

the SAF credit.

For the purposes of the collections of

information proposed in section 4 of this

notice, the IRS’s PRA submission to the

1196

OMB for review in accordance with the

PRA that is associated with Form 637

(OMB control number 1545-1835) and

is pending with OMB. Once the IRS’s

PRA submission is approved by OMB,

the burden for these requirements will be

included in the instructions for Form 637.

SECTION 7. DRAFTING

INFORMATION

The principal authors of this notice

are Danielle Mayfield and Camille

Edwards Bennehoff of the Office of the

Associate Chief Counsel (Passthroughs

& Special Industries). For further information regarding this notice, please

contact Ms. Mayfield or Ms. Edwards

Bennehoff at (202) 317-6855 (not a tollfree number).

Bulletin No. 2024–21

Appendix A – United States Department of Agriculture Climate Smart Agriculture

Pilot Program (USDA CSA Pilot Program)

Pilot Program for Certain Climate-Smart Agriculture Practices

Practice Requirements, Definitions, Quantification of Greenhouse Gas Benefits, and Unrelated Party Certification Solely for

Sustainable Aviation Fuel (SAF) Production

This document outlines the requirements to participate in the Climate Smart Agriculture (CSA) pilot for sustainable aviation fuel

(SAF) production, as it applies to SAF producers registering and producing SAF under section 40B of the Internal Revenue Code

(IRC) and SAF produced directly from domestic corn or domestic soybeans that meets the requirements of ASTM D7566 Annex 5 or

ASTM D7566 Annex 2, respectively.

The CSA Pilot Program (CSA pilot) incorporates the greenhouse gas (GHG) and carbon sequestration benefits of climate-smart

feedstock production into the carbon intensity calculation for the purpose of the IRC 40B SAF tax credit (40B credit) in certain feedstocks. Incorporating CSA practices into the production of SAF provides multiple benefits. These include lower overall GHG emissions associated with SAF production, improved accuracy of overall carbon intensity estimation, sustainable production of domestically-produced aviation fuel, and increased adoption of farming practices that are associated with other environmental benefits, such

as improved water quality and soil health. The CSA pilot is specific to the calculation of GHG emissions using the safe harbor for the

40BSAF-GREET 2024 model for purposes of the 40B credit and should not be used for the calculation of GHG emissions for any

other purpose.

Practice Requirements

The CSA pilot for sustainable aviation fuel production is limited to two feedstocks: domestic corn and domestic soybeans. For cornbased alcohol-to-jet using ethanol (ATJ-Ethanol), the CSA pilot requires that growers engage in three CSA practices: no-till, cover

crops, and enhanced efficiency nitrogen fertilizer on the same acreage. For soybean HEFA (hydro-processed esters and fatty acids),

there are only two relevant practices that must be applied on the same acreage to receive the full values of the CSA reduction: no-till

and cover crops. The practices must be applied at the field scale (that is, the entirety of the field(s) on which domestic corn or domestic soy feedstocks are produced) and adhere to the definitions and practice requirements provided below starting no later than the

relevant growing season. The practice definitions and requirements in this document are in alignment with United States Department

of Agriculture (USDA) Natural Resources Conservation Service (NRCS) practice standards and enhancements. The NRCS standards

corresponding to each practice are cited for reference only, except where otherwise noted. The requirements of the CSA pilot are

specified in this document.

Domestic corn and domestic soybean feedstocks produced using the combined CSA practices that will be used to produce SAF must

be traced through the supply chain and verified by an unrelated party according to the requirements of the CSA pilot. A participating

farmer must contract directly with a registered SAF producer to provide the domestic corn and/or domestic soybeans which the SAF

producer will use as a feedstock to produce SAF (see specific contract and traceability requirements in the section Supply Chain

Traceability Requirements and Recordkeeping of this document). The contract must also include recordkeeping requirements as outlined in the sections Practice Recordkeeping Requirements and Supply Chain Traceability Requirements and Recordkeeping of this

document, in addition to a farmer attestation, in substantially the same form as the model certificate in Appendix B of Notice 2024-37,

declaring that the farmer implemented the practice(s) according to the CSA pilot implementation guidelines. If all requirements of

the CSA pilot are met, registered SAF producers that produce SAF under ASTM D7566 Annex 5 or ASTM D7566 Annex 2 directly

from domestic corn or domestic soybeans may be eligible to reduce the carbon intensity estimates for their fuel by pre-determined

values for purposes of the 40B credit.

No-Till10 (domestic corn and domestic soybean feedstocks)

Definition: Limiting soil disturbance to manage the amount, orientation and distribution of crop and plant residue on the soil surface

year-round.

Portions are extracted and slightly modified from: Conservation Practice Standard Residue and Tillage Management No Till (Code 329) (https://www.nrcs.usda.gov/sites/default/files/202209/Residue_And_Tillage_Management_No_Till_329_CPS_0.pdf).

10

Bulletin No. 2024–21

1197

May 20, 2024

Annual Criteria (must be applied to the entire field):

• Residue must not be burned.

• Distribute all residues uniformly over the entire field. Removing residue from directly within the seeding or transplanting area

prior to or as part of the planting operation is acceptable.

• This practice only allows an in-row soil disturbance operation during strip tillage, the planting operation, and a seed row/furrow

closing device. Full-width soil disturbance is disallowed from the time immediately following harvest or termination of one cash

crop through harvest or termination of the next cash crop in the rotation regardless of the depth of the tillage operation. The soil

tillage intensity rating (STIR)11 value must include all field operations that are performed during the crop interval between harvest

and termination of the previous cash crop and harvest or termination of the current cash crop (includes fallow periods). The crop

interval STIR value must be no greater than 20.

Cover Crop12 (domestic corn and domestic soybean feedstocks)

Definition: Grasses, legumes, and forbs planted for seasonal vegetative cover.

Annual Criteria (must be applied to the entire field):

• Plant species, seedbed preparation, seeding rates, seeding dates, seeding depths, fertility requirements, and planting methods must

be consistent with applicable local criteria and soil/site conditions.13

• Select species that are compatible with other components of the cropping system.

• Ensure herbicides used with crops are compatible with cover crop selections and purpose(s).

• Cover crops may be established during the fallow season prior to planting the feedstock crop, or companion planted or relayplanted into production crops.

• Must not burn cover crop residue.

• Determine the method and timing of termination to meet the grower’s objective and the current NRCS Cover Crop Termination

Guidelines.

• When a cover crop will be grazed or hayed, ensure the planned management will not compromise the soil health and organic

matter content.

• Do not harvest cover crops for seed.

• If the specific rhizobium bacteria for the selected legume are not present in the soil, treat the seed with the appropriate inoculum

at the time of planting.

Enhanced Efficiency Nitrogen Fertilizer (EENF) Practice Requirements14 (domestic corn feedstocks)

Definition: Enhanced nutrient use efficiency technologies are utilized to improve nutrient use efficiency, reduce risk of nutrient losses

to surface and groundwater, and reduce GHG emissions.

This CSA pilot applies to Land Grant University (LGU)15 and Association of American Plant Food Control Officials (AAPFCO)

definitions of Enhanced Efficiency Fertilizers (EEFs). EEFs are defined by AAPFCO as “fertilizer products with characteristics that

allow increased plant uptake and reduce the potential of nutrient losses to the environment (for example, gaseous losses, leaching, or

runoff) when compared to an appropriate reference product.”16 For the purposes of this pilot, qualified EEFs include only Enhanced

Efficiency Nitrogen Fertilizers (EENF), as nitrogen is the primary carbon intensity-relevant nutrient. The three following strategies

are extracted and slightly modified from the NRCS Conservation Enhancement Activity 590A. These three strategies are acceptable

for the EENF practice in the CSA pilot. The farmer must implement at least one of these three strategies to fulfill EENF requirements.

11

Natural Resources Conservation Service. (n.d.) Soil Tillage Intensity Rating STIR. Soil Tillage Intensity Rating STIR (https://www.nrcs.usda.gov/sites/default/files/2023-01/Soil-Tillage-Intensity-Rating-Fact-Sheet3-27-2020.pdf).

12

Portions are extracted and slightly modified from: Conservation Practice Standard Cover Crop (Code 340) (https://www.nrcs.usda.gov/sites/default/files/2023-01/Soil-Tillage-Intensity-Rating-Fact-Sheet3-27-2020.pdf).

13

Refer to USDA NRCS's Field Office Technical Guide documents by state for additional cover crop information relevant to practice code 340: Cover Crops (https://efotg.sc.egov.usda.

gov/#/).

14

Portions are extracted and slightly modified from: Conservation Enhancement Activity 590A (https://www.nrcs.usda.gov/sites/default/files/2023-10/E590A-May-2023-fy24.pdf).

15

Participants should refer to the Land Grant University within their state on appropriate EENF use.

16

Association of American Plant Food Control Officials. (2019, August 1). Relationship Between Enhanced Efficiency Fertilizer Terms. (https://www.aapfco.org/presentations/2019/2019_

SA_slow_relationship.pdf).

May 20, 2024

1198

Bulletin No. 2024–21

Annual Criteria (must be applied to the entire field):

• Select at least one of the following EENF strategies for nutrient use efficiency. For all strategies, the EENF must serve as at

least 50% of the nitrogen source for the production of the feedstock:

• Strategy 1: EENF that contain nitrification inhibitor products resulting in delayed nitrification processes, by eliminating the bacteria Nitrosomonas in the area where ammonium is to be present.

o Materials must be defined by the AAPFCO and be accepted for use by the State fertilizer control official, or similar authority,

with responsibility for verification of product guarantees, ingredients (by AAPFCO definition) and label claims.

o Application timing, method, nitrogen source, soil texture, and tillage regime are all factors that should be evaluated to determine where nitrification inhibitors should be used. Before buying an inhibitor make sure scientific evidence backs up all claims.

Producers and/or consultants should be wary of any product that does not have solid scientific data demonstrating that the

inhibitor activity matches the advertised benefit.

o EENF products must be recommended by LGU and concurred with by NRCS on all treatment acres to supply at least 50% of

the pre-emergent and early post emergent LGU recommended nitrogen budget requirements for the crop(s) grown. Common

chemical products used to interrupt the nitrification process include dicyandiamide (DCD) and 2-chloro-6 (trichloromethyl)

pyridine.

• Strategy 2: EENF products that contain urease inhibitor products to temporarily reduce the activity of the urease enzyme and slow

the rate at which urea is hydrolyzed.

o Materials must be defined by AAPFCO and be accepted for use by the State fertilizer control official, or similar authority, with

responsibility for verification of product guarantees, ingredients (by AAPFCO definition) and label claims.

o Application timing, method, nitrogen source, soil texture, and tillage regime are all factors that must be evaluated to determine

where urease inhibitors should be used. Before buying an inhibitor make sure scientific evidence backs up all claims. Producers

and/or consultants should be wary of any product that does not have solid scientific data demonstrating that the inhibitor activity matches the advertised benefit.

o EENF products must be recommended by LGU on all treatment acres to supply at least 50% of the pre-emergent and early post

emergent LGU recommended nitrogen requirements for the crop(s) grown.

o Common chemical products that are known to affect urease formation are N-(n-butyl) thiophosphoric triamide (NBPT) and

ammonium thiosulfate (ATS).

• Strategy 3: Slow-release or controlled release formulations of nitrogen fertilizer/EENF for at least 50% of the pre-plant and/or

post emergent applications.

o Use of slow-release or controlled-release nitrogen fertilizer products to improve nutrient use efficiency.

o Uncoated Nitrogen Fertilizers include: ureaformaldehyde (UF) reaction products, ureaform and methylene ureas.

o Coated Nitrogen Fertilizers include: sulfur-coated fertilizers, polymer-coated fertilizers and polymer/sulfur coated fertilizers.

Practice Recordkeeping Requirements

Farmers must maintain an attestation of intent and records specific to each CSA practice to demonstrate implementation of the CSA

pilot practices. Farmers must provide all listed documentation and records to the entity registering with the Internal Revenue Service

under section 40B(f) of the Internal Revenue Code.

The required records must include a farmer attestation, in substantially the same form as the model certificate in Appendix B of

IRS Notice 2024-37, declaring the farmer implemented the CSA practice(s) according to these implementation guidelines. Specific

recordkeeping requirements are outlined below.

General Requirements

Farmers must provide an attestation of implementation, in substantially the same form as the model certificate in Appendix B of IRS

Notice 2024-37, to the SAF producer. This attestation must include:

• Agricultural/farm company name, address, and contact

This text is long and has been trimmed here. Open the source document for the complete record.