Bulletin No. 2025–35

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2025–35

August 25, 2025

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.

EMPLOYMENT TAX

ESTATE TAX

REG-132805-17, page 343.

Rev. Rul. 2025-16, page 342.

These proposed regulations would provide guidance regarding determining an employer’s line or lines of business for

purposes of the section 132 exclusions from gross income

for no-additional-cost services fringe benefits and qualified

employee discounts fringe benefits.

Finding Lists begin on page ii.

The 2025 interest rates to be used in computing the special use value of farm real property for which an election

is made under section 2032A of the Code are listed for

estate of decedents.

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 Unpublished rulings will not be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.

August 25, 2025 

Bulletin No. 2025–35

Part I

Section 2032A.—Valuation

of Certain Farm, Etc.,

Real Property

26 CFR 20.2032A-4: Method of valuing farm real

property.

Rev. Rul. 2025-16

This revenue ruling contains a list of

the average annual effective interest rates

on new loans under the Farm Credit System. This revenue ruling also contains a

list of the states within each Farm Credit

System Bank Territory.

Under § 2032A(e)(7)(A)(ii) of the

Internal Revenue Code, rates on new

Farm Credit System Bank loans are

used in computing the special use

value of real property used as a farm

for which an election is made under

§ 2032A. The rates in Table 1 of this

revenue ruling may be used by estates

that value farmland under § 2032A as

of a date in 2025.

Average annual effective interest

rates, calculated in accordance with

§ 2032A(e)(7)(A) and § 20.2032A-4(e)

of the Estate Tax Regulations, to be used

under § 2032A(e)(7)(A)(ii), are set forth

in the accompanying Table of Interest

Rates (Table 1). The states within each

Farm Credit System Bank Territory are

set forth in the accompanying Table of

Farm Credit System Bank Territories

(Table 2).

Rev. Rul. 81-170, 1981-1 C.B. 454,

contains an illustrative computation of

an average annual effective interest rate.

The rates applicable for valuation in 2024

are in Rev. Rul. 2024-16, 2024-35 I.R.B.

534. For rate information for years prior

to 2024, see Rev. Rul. 2023-15, 2023-34

I.R.B. 559, and other revenue rulings that

are referenced therein.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Lane Damazo of the Office of the

Associate Chief Counsel (Passthroughs,

Trusts, and Estates). For further information regarding this revenue ruling, contact

Lane Damazo at (202) 317-4628 (not a

toll-free number).

REV. RUL. 2025-16 TABLE 1

TABLE OF INTEREST RATES

(Year of Valuation 2025)

Farm Credit System Bank Servicing State in

Which Property is Located

Rate

AgFirst, FCB . . . . . . . . . . . . . . . . . . . . . . . . . 6.25

AgriBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . 5.80

CoBank, ACB . . . . . . . . . . . . . . . . . . . . . . . . . 5.78

Texas, FCB. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.21

REV. RUL. 2025-16 TABLE 2

TABLE OF FARM CREDIT SYSTEM BANK TERRITORIES

Farm Credit System Bank . . . Location of Property

AgFirst, FCB. . . . . . . . . . Delaware, District of Columbia, Florida, Georgia,

Maryland, North Carolina, Pennsylvania, South Carolina,

Virginia, West Virginia.

AgriBank, FCB . . . . . . . . Arkansas, Illinois, Indiana, Iowa, Kentucky, Michigan,

Minnesota, Missouri, Nebraska, North Dakota, Ohio,

South Dakota, Tennessee, Wisconsin, Wyoming.

CoBank, ACB . . . . . . . . . Alaska, Arizona, California, Colorado, Connecticut,

Hawaii, Idaho, Kansas, Maine, Massachusetts, Montana,

New Hampshire, New Jersey, New Mexico, New York,

Nevada, Oklahoma, Oregon, Rhode Island, Utah,

Vermont, Washington.

Texas, FCB. . . . . . . . . . . Alabama, Louisiana, Mississippi, Texas.

August 25, 2025

342

Bulletin No. 2025–35

Part IV

Notice of Proposed

Rulemaking

Determination of Line of

Business for Purposes of

No-Additional-Cost Service

and Qualified Employee

Discount Fringe Benefits.

REG-132805-17

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations that would provide guidance regarding an employer’s line or lines

of business for purposes of determining the

exclusion from gross income for no-additional-cost services or qualified employee

discounts provided to employees.

DATES: Written or electronic comments

and requests for a public hearing must be

received by November 4, 2025.

ADDRESSES: Commenters are strongly

encouraged to submit public comments

electronically via Federal eRulemaking

Portal at https://www.regulations.gov

(indicate IRS and REG-132805-17) by

following the online instructions for submitting comments. Requests for a public

hearing must be submitted as prescribed

in the “Comments and Requests for a

Public Hearing” section. Once submitted

to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The

Department of the Treasury (Treasury

Department) and the IRS will publish for

public availability any comments submitted to the IRS’s public docket. Send paper

submissions to: CC:PA:01:PR (REG132805-17), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin

Station, Washington DC, 20044.

FOR FURTHER INFORMATION

CONTACT: Concerning the proposed

Bulletin No. 2025–35

regulations, Andrew Holubeck at (202)

317-4774; concerning submissions of

comments and/or requests for a public

hearing, Publications and Regulations

Section at (202) 317-6901 (not toll-free

numbers) or by email to publichearings@

irs.gov (preferred).

SUPPLEMENTARY INFORMATION:

Authority

This notice of proposed rulemaking

contains proposed regulations that would

amend the Income Tax Regulations (26

CFR part 1) under section 132(a) of the

Internal Revenue Code (Code) related

to no-additional-cost services and qualified employee discounts. The proposed

regulations are issued under the authority conferred by Section 132(o), which

provides the Secretary or his delegate

(Secretary) with an express grant of regulatory authority to prescribe such regulations as may be necessary or appropriate to carry out the purposes of section

132. The proposed regulations are also

issued under the authority of section

7805(a) of the Code, which authorizes

the Secretary to prescribe all needful

rules and regulations for the enforcement of the Code.

These proposed regulations would

replace a business classification system

that has not been updated since 1974 with

a much more current classification system

that is updated every five years. Under

these proposed regulations, the application of the no-additional-cost benefit

and employee discount exclusions from

employee income under section 132(a)

(1) and (2) would be determined under a

classification system that more accurately

reflects current economic activity than the

system used under the existing regulations, thereby reducing burden in applying

the exclusions from income under section

132(a)(1) and (2).

Background

Section 132(a)(1) and (2) exclude from

the gross income of an individual any

fringe benefit that qualifies as a no-addi-

343

tional-cost service or a qualified employee

discount, respectively. Section 132(b)

defines the term “no-additional-cost service,” in part, as any service provided by an

employer to an employee for use by such

employee if such service is offered for sale

to customers in the ordinary course of the

line of business of the employer in which

the employee is performing services.

Section 132(c)(1) defines the term “qualified employee discount,” in part, as any

employee discount with respect to qualified property or services. Section 132(c)

(4) defines the term “qualified property or

services” as any property (other than real

property and other than personal property

of a kind held for investment) or services

that are offered for sale to customers in

the ordinary course of the line of business

of the employer in which the employee is

performing services.

Section 1.132-4(a)(1) provides that,

for purposes of determining whether the

exclusion under section 132(a)(1) or (2)

applies, an individual to whom or on

behalf of whom the fringe benefit is provided must have performed substantial

services in the employer’s line of business

that offers such services or property for

sale to customers in the ordinary course of

business.

Section 1.132-4(a)(2)(i) states that an

employer’s line of business is determined

by reference to the Enterprise Standard

Industrial Classification Manual (ESIC

Manual) prepared by the Statistical Policy Division of the U.S. Office of Management and Budget (OMB) and further

provides that an employer is considered

to have more than one line of business if

the employer offers for sale to customers property or services in more than one

two-digit code classification referred to in

the ESIC Manual. Section 1.132-4(a)(2)

(ii) lists as examples of two-digit classifications under the ESIC Manual general

retail merchandise stores; hotels and other

lodging places; auto repair, services, and

garages; and food stores.

Section 1.132-4(a)(3) provides that, if

pursuant to § 1.132-4(a)(2), an employer

has more than a single line of business,

such lines of business will be treated as

a single line of business where and to the

August 25, 2025

extent that one or more of the following

aggregation rules apply:

(i) If it is uncommon in the industry of

the employer for any of the separate

lines of business of the employer to

be operated without the others, the

separate lines of business are treated

as one line of business.

(ii) If it is common for a substantial

number of employees (other than

those employees who work at the

headquarters or main office of the

employer) to perform substantial

services for more than one line of

business of the employer, so that

determination of which employees

perform substantial services for

which line of business would be

difficult, then the separate lines of

business of the employer in which

such employees perform substantial

services are treated as one line of

business.

(iii) If the retail operations of an

employer that are located on the

same premises are in separate lines

of business but would be considered

to be within one line of business

under § 1.132-4(a)(2) if the merchandise offered for sale in such

lines of business were offered for

sale at a department store, then the

operations are treated as one line of

business.

Section 132 (including section 132(a)

(1) and (2)), was added to the Code as part

of the Deficit Reduction Act of 1984, Public Law 98-369, 98 Stat. 494. Concerning

the line of business limitation that applies

to the no-additional-cost service and qualified employee discount exclusions in

section 132(a), the House Report on this

legislation noted that “[i]n providing guidance as to the treatment of an employer as

consisting of separate lines of business

for this purpose, Treasury regulations…

may refer to the Standard Industrial Classifications used for other governmental

purposes.” H. Rept. 98-432, 1594, 1984

U.S.C.C.A.N. 697, 1218.

First used in 1938, the Standard Industrial Classification (SIC) is an industry

classification system developed by OMB

1

2

for use in the classification of establishments by type of activity in which the

establishments are primarily engaged. See

North American Industry Classification

System (NAICS), United States, 2022,

published by OMB, Executive Office of

the President (hereinafter referred to as the

“NAICS Manual”), pg. 13.1 For purposes

of the SIC, an establishment is an economic unit, generally at a single physical

location, where business is conducted or

where services or industrial operations are

performed (such as a factory, mill, store,

hotel, movie theater, mine, farm, ranch,

bank, railroad depot, airline terminal,

sales office, warehouse, or central administrative office). See Standard Industrial

Classification Manual, 1987, published

by OMB, Executive Office of the President (hereinafter referred to as the “SIC

Manual”), Introduction, pg. 12.2 The SIC

is a hierarchical classification system that

includes a two-digit major group, a threedigit industry group, or a four-digit industry code (the most specific classification).

Id. Examples of four-digit industry code

SIC classifications include metal mining,

general building contractors – non-residential buildings, and knitting mills.

The ESIC Manual was developed by

the Statistical Policy Division of OMB to

supplement the SIC by providing a standard for use with statistics about enterprises (rather than “establishments,” the

applicable unit for SIC) by kind of economic activity. See Announcement 86-6

(1986-4 IRB 52). For this purpose, the

term “enterprise” consists of all establishments under common direct or indirect

ownership. An enterprise, for this purpose, is generally defined to include all

entities, including subsidiaries, if there is

more than 50 percent common ownership.

An enterprise may vary in composition

ranging from a single legal entity (e.g.,

corporation, partnership, individual proprietorship) to a complex family of legal

entities under common ownership. Id.

Just like the SIC, the ESIC Manual uses

a four-digit code for detailed classification

(with a decimal between the second and

third digits to visually distinguish an ESIC

Manual classification from a SIC classifi-

cation). Id. “The first two digits of the

code represent the Major Group, similar

to that for the establishment SIC,” while

“the third and fourth digits represent the

enterprise subdivision.” ESIC Manual

codes are similar, and sometimes identical

to, SIC codes, but they aren’t necessarily

defined in the same way. The last update

of the ESIC Manual was in 1974.

In response to the House Report suggestion that the SIC could be used as a

reference for determining line of business,

Treasury and the IRS elected to use the

ESIC Manual, a supplement to the SIC

as described above, as a basis for defining

line of business for purposes of section

132(a)(1) and (2) when they issued final

regulations under section 132 in the Federal Register in 1989 (54 FR 28576). In

the early 1990s, “[r]apid changes in both

the U.S. and world economies brought

the SIC under increasing criticism.” See

NAICS Manual, Introduction, pg. 13. In

1992, the OMB began work on developing a new classification system to address

these criticisms and coordinated this work

with Mexico and Canada. Id. The product

of these efforts was the NAICS, which

would take the place of the existing classification systems in the United States, Canada, and Mexico. Id. The United States

implemented NAICS for the first time

in 1997. Since then, the NAICS has represented a continuing cooperative effort

among Statistics Canada, Mexico’s Instituto Nacional de Estadística y Geografía

(INEGI), and the Economic Classification

Policy Committee (ECPC) of the United

States, acting on behalf of OMB. See

NAICS Manual, Preface, pg. 3. Since its

inception, the countries have collaborated

in revising the NAICS every five years

in order to keep the classification system

current with changes in economic activities. See 2022 NAICS Manual, Preface,

pg. 3.

The NAICS is primarily a classification system for establishments, defined

for this purpose as the “smallest operating

entity for which records provide information on the cost of resources—materials,

labor, and capital—employed to produce

the units of output.” See NAICS Manual,

To access the 2022 NAICS Manual and other NAICS information, visit the U.S. Census website at https://www.census.gov/NAICS.

To access the 1987 SIC Manual and other SIC information, visit the Library of Congress website at https://guides.loc.gov/industry-research/classification-sic.

August 25, 2025

344

Bulletin No. 2025–35

Introduction, pg. 18. Similar to the SIC,

an establishment for purposes of NAICS

is typically “a single physical location

where business is conducted or where

services or industrial operations are performed (for example, a factory, mill, store,

hotel, movie theater, mine, farm, airline

terminal, sales office, warehouse, or central administrative office).” Id.

The structure of the NAICS is hierarchical. It classifies establishments into similar

industries using a six-digit coding system.

Id. The first two digits of the code designate the sector of an establishment, which

represents general categories of economic

activity (e.g., under the 2022 classification,

sector codes 44 and 45 designate “Retail

Trade”). Id. at pg. 17. The third digit des-

ignates the subsector (e.g., 449 designates

the “Furniture, Home Furnishings, Electronics, and Appliance Retailers” subsector

of “Retail Trade”); the fourth digit designates the industry group (e.g., 4491 designates the “Furniture and Home Furnishings

Retailers” industry group in the “Furniture,

Home Furnishings, Electronics, and Appliance Retailers” subsector); and the fifth

digit designates the NAICS industry (e.g.,

44912 designates the “Home Furnishings

Retailers” industry of the “Furniture and

Home Furnishings Retailers” industry

group). Id. at pg. 18.

Any particular establishment is usually

classified down to the NAICS five-digit

industry level classification, using the classification of the industry that best matches

its primary activity. Id. at pg. 19. When

applicable, the sixth digit is used to designate the national industry (e.g., 449122 designates the “Window Treatment Retailers”

industry). Id. at pg. 18. “Typically the level

at which comparable data will be available for Canada, Mexico, and the United

States is the five-digit NAICS industry,”

but where additional detail or clarifying

classification is needed for a specific nation

(Canada, Mexico, or the United States) the

national industry classification can be used.

Id. A zero as the sixth digit generally indicates that the NAICS industry and the U.S.

industry are the same. Id.

Table I below provides a breakdown

of the NAICS classification for a window

treatment retail establishment.

Table I. NAICS Classification of Window Treatment Stores

Hierarchical Classification

Sector

Subsector

Industry Group

NAICS Industry

National Industry

Description

Retail Trade

Furniture, Home Furnishings, Electronics, and Appliance Retailers

Furniture and Home Furnishings Retailers

Furniture and Home Furnishings Retailers

Window Treatment Retailers

The NAICS is used by the IRS for various purposes under the Code. See, e.g.,

Instructions for Form 1120, U.S. Corporation Income Tax Return (which asks that

a “principal business activity code” based

on the NAICS six-digit code be entered

on line 2a on Schedule K of Form 1120);

Instructions for Schedule C (Form 1040),

Profit or Loss From Business (which

requires that a six-digit Principal Business

or Professional Activity Code based on the

NAICS be entered on Line B); and section

15.10 of Rev. Proc. 2025-23 (2025 IRB

1476) (which uses the first three digits of

NAICS codes in defining which taxpayers

qualify as “specified transportation industry taxpayers” for purposes of accounting

method change rules that apply specifically to specified transportation industry

taxpayers).

Explanation of Provisions

These proposed regulations would

replace the ESIC Manual with the NAICS

Bulletin No. 2025–35

as the industry classification system

used to determine an employer’s line

of business for purposes of excluding

no-additional-cost services and qualified

employee discounts from employees’

gross income pursuant to section 132(a)

(1) and (2) of the Code, respectively. The

ESIC Manual has not been updated since

1974. Conversely, the NAICS was most

recently updated in 2022, and is the most

current classification system in the United

States, making it a more accurate and

detailed reflection of present economic

realities.

In addition, because significant

changes and advances in technology

have occurred since 1974, many current

industries are not accounted for in the

ESIC Manual because they did not exist

at the time it was last updated. Examples

include internet service providers, cell

phone manufacturers, cell phone service

providers, and smart phone application

designers. The NAICS, on the other

hand, is updated regularly to take into

345

Code

44

449

4491

44912

449122

account new and developing industries.

For instance, the 2022 NAICS specifically describes broadband internet service providers as falling under the fourdigit category of Wired and Wireless

Telecommunications (except Satellite)

(5171). Under the ESIC Manual, this

line of business could be considered

under the two-digit code “Communication” (48), but none of the sub-categories in the Communication category

include the broadband internet service

provider industry, making determination of the appropriate ESIC Manual

category for broadband internet service

providers unclear. Replacing the ESIC

Manual with the NAICS as the industry

classification system used to determine

an employer’s line of business will make

determining the line of business for new

and constantly evolving industries easier and more certain.

While the numeric NAICS and SIC

codes are not related to each other, their

organizational structures have some sim-

August 25, 2025

ilarities.3 SIC codes (as well as ESIC

Manual codes) are grouped into “divisions” that are labeled with a letter (e.g.,

Division A is “Agriculture, Forestry, and

Fishing”).4 This roughly corresponds with

the NAICS two-digit “Sector” level of

classification (e.g., the NAICS Sector 11

is Agriculture, Forestry, Fishing and Hunting”).5 Continuing down the classification

levels of both systems, the SIC two-digit

“Major Group” level roughly corresponds to the NAICS three-digit “Subsector” level, the SIC three-digit “Industry

Group” level roughly corresponds to the

NAICS four-digit “Industry Group” level,

and the four-digit SIC “Industry” level

roughly corresponds with the NAICS fivedigit “NAICS Industry” level.6

Because the ESIC Manual is structured

very similarly to the SIC codes, the comparison between ESIC Manual codes and

NAICS codes largely parallels the comparison between SIC Codes and NAICS

codes. Therefore, the NAICS three-digit

“Subsector” level would roughly correspond with the ESIC Manual two-digit

“Major Group” level used to determine line

of business under the current § 1.132-4(a)

(2)(i) regulations. However, the five-digit

NAICS industry classification is intended

to be applied to the primary activity of a

single-location establishment, making it a

more appropriate level for determining the

line of business of an employer for whom

the employee receiving the fringe benefit

is performing services, since an employee

typically performs services at a single

location or establishment. Nevertheless,

to account for the fact that some establishments may represent more than one

NAICS industry, making determination of

the most accurate NAICS industry classification challenging in certain situations,

these proposed regulations would use the

NAICS four-digit “Industry Group” classification in determining an employer’s

line of business for purposes of section

132(a)(1) and (2).

An employer is considered to have

more than one line of business if the

employer offers for sale to customers

property or services in more than one

four-digit NAICS industry group classification, according to the most recent

version of the NAICS available on the

first day of the taxable year in which the

no-additional-cost service or qualified

employee discount exclusion is being

applied. Examples of four-digit NAICS

industry groups are: General Merchandise

Stores, including Warehouse Clubs and

Supercenters; Traveler Accommodation;

Automotive Repair and Maintenance; and

Grocery Stores.

In situations where an employer has

multiple primary activities corresponding to multiple four-digit NAICS industry

group classifications causing it to have

more than one line of business, the aggregation rules under § 1.132-4(a)(3) continue to apply under these proposed regulations. Minor modifications to the text

of the aggregation rules under § 1.1324(a)(3)(i) and (ii) have been proposed to

accommodate the change from the ESIC

Manual to the NAICS.

In addition, the proposed regulations

would amend the aggregation rule under

§ 1.132-4(a)(3)(iii). Currently, this section

provides that if the retail operations of

an employer that are located on the same

premises are in separate lines of business

but would be considered to be within

one line of business if the merchandise

offered for sale in such lines of business

were offered for sale at a department store,

then the operations are treated as one line

of business. The proposed regulations

would amend this rule to replace “department store” with “general merchandise

store, including warehouse clubs and

super centers.” This update of the regulations reflects the pervasiveness of bigbox stores, hypermarkets, super centers,

and warehouse clubs in the current retail

economy, especially in comparison to the

traditional department store. These types

of establishments sell an ever-increasing

variety of merchandise but are still classified under one NAICS industry group

(4552, Warehouse Clubs, Supercenters,

and Other General Merchandise Retail-

ers, under the 2022 NAICS). Therefore,

under the proposed regulations, employees working for these types of employers

would be considered to be working in one

line of business. The proposed amendment to this section provides equal treatment for employees working for other

types of employers that similarly sell a

variety of kinds of merchandise on their

business premises, but the variety is more

narrowly tailored to cater to a specific

segment of the retail market (e.g., a store

that primarily sells coffee and tea, but

that also sells electric coffeemakers, electric tea kettles, and similar related small

home appliances). Under the proposed

amendment, employees working for such

employers would still be considered to be

working in one line of business, even if

the sale of the various merchandise sold

by the employer is classified under two or

more NAICS industry groups (e.g., specialty food retailers and electronics and

appliance retailers), as long as the sale of

the merchandise would be considered to

be one line of business if the merchandise

was being sold at a general merchandise

store, warehouse club, or super center.

Finally, the proposed regulations provide updated examples of the application

of the aggregation rules reflecting the use

of NAICS classifications.

The Treasury Department and the IRS

request comments on all aspects of the

proposed rules, including on the use of the

NAICS four-digit industry group code,

whether additional changes are necessary

to the aggregation rules under § 1.132‑4(a)

(3), whether the proposed applicability date could pose any challenges, and

whether transition or other rules are necessary to accommodate the change in the

standard for determining lines of business.

Proposed Effective/Applicability Dates

These regulations are proposed to be

effective on the date these rules are published in the Federal Register as final

regulations and would apply to taxable

years beginning on or after that date.

U.S. Bureau of Labor Statistics website titled “Industrial Classification Overview” accessed at https://www.bls.gov/ces/naics/#2 on March 20, 2024.

Id.

5

Id.

6

Id.

3

4

August 25, 2025

346

Bulletin No. 2025–35

Statement of Availability of IRS

Documents

IRS guidance cited in this preamble is

published in the Internal Revenue Bulletin

and is available from the Superintendent

of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by

visiting the IRS website at https://www.

irs.gov.

Special Analyses

I. Regulatory Planning and Review—

Economic Analysis

The Office of Management and Budget’s Office of Information and Regulatory

Analysis has determined that these regulations are not significant and not subject

to review under section 6(b) of Executive

Order 12866, as amended.

II. Paperwork Reduction Act

These proposed regulations do not

create new collection requirements, as

defined under the Paperwork Reduction

Act (44 USC 35), and do not alter any previously approved OMB information collection requirements and their associated

burden.

III. Regulatory Flexibility Act

It is hereby certified that these proposed

regulations will not have a significant economic impact on a substantial number of

small entities pursuant to the Regulatory

Flexibility Act (5 U.S.C. chapter 6). This

certification is based on the fact that these

proposed regulations do not impose any

new requirements on small entities. The

proposed regulations would apply only to

employers that provide no-additional-cost

services and/or qualified employee discount fringe benefits to their employees

and, therefore, would affect a relatively

small number of taxpayers. In addition, these proposed regulations are very

unlikely to affect employment tax reporting or require any additional substantiation. Rather, the proposed regulations

affect the industry classification system

used to determine an employer’s line of

business for purposes of the exclusions

from gross income under section 132(a)

Bulletin No. 2025–35

(1) and (2) and for this reason do not add

any economic burden to affected entities.

Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5

U.S.C. chapter 6) is not required.

Notwithstanding this certification that

the proposed regulations would not have a

significant economic impact on a substantial number of small entities, the Treasury

Department and the IRS invite comments

on the impacts these proposed regulations

may have on small entities.

IV. Section 7805(f)

Pursuant to section 7805(f) of the

Code, these proposed regulations will be

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

for comment on its impact on small business.

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. These

proposed 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.

VI. Executive Order 13132: Federalism

Executive Order 13132 (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. These proposed 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.

347

Comments and Requests for Public

Hearing

Before these proposed regulations are

adopted as final regulations, consideration

will be given to any comments that are submitted timely to the IRS as prescribed in this

preamble under the ADDRESSES heading. The Treasury Department and the IRS

request comments on all aspects of the proposed regulations. Any comments submitted

will be available at https://www.regulations.

gov or upon request. A public hearing will be

scheduled if requested in writing by any person who timely submits electronic or written

comments. Requests for a public hearing are

also encouraged to be made electronically. If

a public hearing is scheduled, notice of the

date and time for the public hearing will be

published in the Federal Register.

Drafting Information

The principal author of these regulations

is Andrew Holubeck of the Office of the

Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel

from the IRS and the Treasury Department

participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the

Regulations

Accordingly, the Treasury Department

and IRS propose to amend 26 CFR part 1

as follows:

PART 1-INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by revising an entry for

§§ 1.132–0 through 1.132–8T in numerical order to read in part as follows:

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

*****

Sections 1.132-0 through 1.132-8T also

issued under 26 U.S.C. 132(o).

*****

Par 2. Section 1.132-4 is amended by

revising paragraphs (a)(2) and (3) and

adding paragraph (a)(4) to read as follows:

August 25, 2025

§ 1.132-4 Line of business limitation.

(a) * * *

(2) Definition of line of business—(i)

In general. An employer’s line of business

is determined by reference to the most

recent version of the North American

Industry Classification System (NAICS),

as prepared by Statistics Canada, Mexico’s Instituto Nacional de Estadística y

Geografía, and the Economic Classification Policy Committee of the United

States, acting on behalf of the Office of

Management and Budget (OMB) (or

successor organizations), that is available on the first day of the taxable year

in which the no-additional-cost service or

qualified employee discount exclusion is

being applied. An employer is considered

to have more than one line of business if

the employer offers for sale to customers

goods or services in more than one fourdigit code classification referred to in the

NAICS (i.e., NAICS industry group).

(ii) Examples. Examples of the fourdigit industry group classifications are:

General Merchandise Stores, including

Warehouse Clubs and Supercenters; Traveler Accommodation; Automotive Repair

and Maintenance; and Grocery Stores.

(3) Aggregation of four-digit classifications. If, pursuant to paragraph (a)(2)

of this section, an employer has more

August 25, 2025

than one line of business, such lines of

business will be treated as a single line

of business where and to the extent that

one or more of the following aggregation

rules apply:

(i) If it is uncommon in the industry of

the employer for any of the separate lines

of business of the employer to be operated

without the others, the separate lines of

business are treated as one line of business.

(ii) If it is common for a substantial

number of employees (other than those

employees who work at the headquarters

or main office of the employer) to perform

substantial services for more than one

line of business of the employer, so that

determination of which employees perform substantial services for which line

of business would be difficult, then the

separate lines of business of the employer

in which such employees perform substantial services are treated as one line

of business. For example, assume that an

employer operates a delicatessen (i.e., a

specialty food store) with an attached service counter at which food is sold for consumption on the premises (i.e., a restaurant or eating place). Assume further that

most but not all employees work both at

the delicatessen and at the service counter.

Under the aggregation rule of this paragraph (a)(3)(ii), the delicatessen and the

348

service counter are treated as one line of

business.

(iii) If the retail operations of an

employer that are located on the same

premises are in separate lines of business

but would be considered to be within one

line of business under paragraph (a)(2) of

this section if the merchandise offered for

sale in such lines of business were offered

for sale at a general merchandise store,

including a warehouse club or super center, then the operations are treated as one

line of business. For example, assume that

on the same premises an employer sells

both specialty foods (i.e., specialty food

retailers) and small kitchen appliances

(i.e., electronics and appliance retailers).

Because, if sold together at a general merchandise store, the operations would be

part of the same line of business, the operations are treated as one line of business.

(4) Applicability date. Paragraphs (a)

(2) and (3) of this section apply to taxable

years beginning on or after [DATE OF

PUBLICATION OF THE FINAL RULE

IN THE FEDERAL REGISTER].

Edward T. Killlen,

Acting Chief Tax Compliance Officer.

(Filed by the Office of the Federal Register August

5, 2025, 8:45 a.m., and published in the issue of the

Federal Register for August 6, 2025, 90 FR 37824)

Bulletin No. 2025–35

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

­effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus,

if an earlier ruling held that a principle

applied to A, and the new ruling holds that

the same principle also applies to B, the

earlier ruling is amplified. (Compare with

modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

has caused, or may cause, some confusion. It is not used where a position in a

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously published ruling and points out an essential

difference between them.

Modified is used where the substance

of a previously published position is being

changed. Thus, if a prior ruling held that a

principle applied to A but not to B, and the

new ruling holds that it applies to both A

and B, the prior ruling is modified because

it corrects a published position. (Compare

with amplified and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions.

This term is most commonly used in a ruling

that lists previously published rulings that

are obsoleted because of changes in laws or

regulations. A ruling may also be obsoleted

because the substance has been included in

regulations subsequently adopted.

Revoked describes situations where the

position in the previously published ruling

is not correct and the correct position is

being stated in a new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a

period of time in separate rulings. If the

new ruling does more than restate the substance of a prior ruling, a combination of

terms is used. For example, modified and

superseded describes a situation where the

substance of a previously published ruling

is being changed in part and is continued

without change in part and it is desired to

restate the valid portion of the previously

published ruling in a new ruling that is

self contained. In this case, the previously

published ruling is first modified and then,

as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and that

list is expanded by adding further names

in subsequent rulings. After the original

ruling has been supplemented several

times, a new ruling may be published that

includes the list in the original ruling and

the additions, and supersedes all prior rulings in the series.

Suspended is used in rare situations

to show that the previous published rulings will not be applied pending some

future action such as the issuance of new

or amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

Abbreviations

The following abbreviations in current

use and formerly used will appear in

material published in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

Bulletin No. 2025–35

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

i

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statement of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

August 25, 2025

Numerical Finding List1

Bulletin 2025–35

Announcements:

2025-19, 2025-29 I.R.B. 191

2025-20, 2025-31 I.R.B. 271

2025-21, 2025-32 I.R.B. 312

Notices:

2025-32, 2025-27 I.R.B. 1

2025-33, 2025-27 I.R.B. 4

2025-34, 2025-27 I.R.B. 6

2025-35, 2025-27 I.R.B. 8

2025-31, 2025-28 I.R.B. 14

2025-36, 2025-30 I.R.B. 192

2025-37, 2025-30 I.R.B. 198

2025-40, 2025-31 I.R.B. 266

2025-39, 2025-32 I.R.B. 308

2025-28, 2025-34 I.R.B. 316

2025-41, 2025-34 I.R.B. 325

Proposed Regulations:

REG-125710-18, 2025-30 I.R.B. 263

REG-107459-24, 2025-32 I.R.B. 313

REG-132805-17, 2025-35 I.R.B. 342

Revenue Procedures:

2025-22, 2025-30 I.R.B. 200

2025-24, 2025-31 I.R.B. 273

2025-25, 2025-32 I.R.B. 311

2025-26, 2025-33 I.R.B. 315

Revenue Rulings:

2025-13, 2025-28 I.R.B. 11

2025-14, 2025-32 I.R.B. 300

2025-15, 2025-32 I.R.B. 302

2025-16, 2025-35 I.R.B. 342

Treasury Decisions:

10021, 2025-31 I.R.B. 264

10031, 2025-32 I.R.B. 304

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin

2025–52, dated December 22, 2025.

1

August 25, 2025

ii

Bulletin No. 2025–35

Finding List of Current Actions on

Previously Published Items1

Bulletin 2025–35

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin

2025–52, dated December 22, 2025.

1

Bulletin No. 2025–35

iii

August 25, 2025

Internal Revenue Service

Washington, DC 20224

Official Business

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INTERNAL REVENUE BULLETIN

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