Rev. Proc. 2003-48

Part III. Administrative, Procedural, and Miscellaneous
Extension of Time to Elect
Mid-quarter Convention Relief
Under Notice 2001–70 and
Notice 2001–74.
Notice 2003–45
This notice amplifies the tax relief
granted in Notice 2001–70, 2001–2 C.B.
437 (November 5, 2001), and in Notice
2001–74, 2001–2 C.B. 551 (December
3, 2001), by permitting an automatic
extension of time to make the election provided under Notice 2001–70 and Notice
2001–74.
Section 168(d)(3) of the Internal Revenue Code generally provides that, except
as provided in regulations, if the aggregate
basis of property placed in service during
the last three months of the taxable year
exceeds 40 percent of the aggregate basis
of property (other than property described
in § 168(d)(3)(B)) placed in service during
the taxable year, the applicable depreciation convention is the mid-quarter convention for all property (other than property
described in § 168(d)(2)) subject to § 168
that is placed in service during the taxable
year.
In Notice 2001–70, the Treasury Department and the Internal Revenue Service
announced their intention to issue regulations permitting taxpayers to elect
not to apply the mid-quarter convention
rules contained in § 168(d)(3) to property placed in service in the taxable year
that included September 11, 2001, if the
third quarter of the taxpayer's taxable
year included September 11, 2001. Notice 2001–70 provided that, pending the
issuance of the regulations, an eligible
taxpayer that wished to elect not to apply
the mid-quarter convention rules could
make the election by writing “Election
Pursuant to Notice 2001–70” across the
top of the taxpayer's Form 4562, Depreciation and Amortization, for the taxpayer's
taxable year that included September 11,
2001. Notice 2001–74 expanded Notice
2001–70 by permitting taxpayers to elect
not to apply the mid-quarter convention
rules to property placed in service in the
taxable year that included September 11,
2001, if the fourth quarter of the taxpayer's
taxable year included September 11, 2001.

July 21, 2003

Notice 2001–74 also provided guidance
for taxpayers that file Form 2106, Employee Business Expenses, rather than
Form 4562, or that file their tax returns
electronically, to elect not to apply the
mid-quarter convention rules. Under both
notices, the election was required to be
made on the taxpayer's tax return for the
taxable year that included September 11,
2001. No provision was made for an eligible taxpayer wishing to amend its tax
return to make the election.
Treasury and the Service have been
made aware that certain taxpayers did not
receive notice of the availability of this
election until after the tax returns for their
taxable year that included September 11,
2001, were filed. This notice is intended
to relieve taxpayers of the burden of applying for an extension of time pursuant
to § 301.9100–3 of the Procedure and
Administration Regulations to make the
election on an amended tax return for that
year.
Accordingly, Notice 2001–70 and Notice 2001–74 are amplified to provide
that a taxpayer qualifying under either
notice who filed a timely tax return for
the taxable year that includes September
11, 2001, but failed to make the election
provided under Notice 2001–70 or Notice
2001–74, is granted an automatic extension of time until December 31, 2003, to
amend its tax return for the taxable year
that includes September 11, 2001, and any
subsequent taxable years, in order to make
the election under Notice 2001–70 or
Notice 2001–74 and reflect any necessary
adjustments resulting from the election.
For example, a sole proprietor that timely
filed its 2001 and 2002 twelve-month
calendar year tax returns and qualified
under Notice 2001–70 to elect not to apply
the mid-quarter convention rules for its
taxable year ending December 31, 2001,
would be granted an automatic extension
of time until December 31, 2003, to make
the election on an amended 2001 tax return
and reflect any necessary adjustments resulting from the election, as well as amend
its 2002 tax return to reflect any necessary
adjustments resulting from the election.
The election on the amended tax return
is made in the same manner provided in
Notice 2001–70 and in Notice 2001–74.

86

Treasury and the Service intend to
amend the regulations under § 168 to
incorporate the guidance set forth in this
notice. Until the regulations are amended,
taxpayers may rely on the guidance set
forth in this notice.
The principal author of this notice is
Bernard P. Harvey of the Office of Associate Chief Counsel, Passthroughs and
Special Industries. For further information
regarding this notice, contact Mr. Harvey
at (202) 622–3110 (not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 355, 1.355–2.)

Rev. Proc. 2003–48
SECTION 1. PURPOSE
This revenue procedure modifies and
amplifies Rev. Proc. 96–30, 1996–1 C.B.
696, which sets forth in a checklist questionnaire the information that must be included in a request for a ruling under § 355
of the Internal Revenue Code. In addition, this revenue procedure modifies Rev.
Proc. 2003–3, 2003–1 I.R.B. 113, which
sets forth the areas of the Internal Revenue
Code under the jurisdiction of the Associate Chief Counsel (Corporate), the Associate Chief Counsel (Financial Institutions
and Products), the Associate Chief Counsel (Income Tax and Accounting), the Associate Chief Counsel (Passthroughs and
Special Industries), the Associate Chief
Counsel (Procedure and Administration),
and the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government Entities) relating to issues on which the Internal Revenue Service will not issue letter
rulings or determination letters.
SECTION 2. BACKGROUND
Section 355(a) applies to distributions
of stock or securities of a corporation controlled by the distributing corporation if the
requirements of § 355 are satisfied. Rev.
Proc. 96–30 sets forth in a checklist questionnaire the information that must be included in a request for rulings under § 355.
Section 1.355–2(b) of the Income
Tax Regulations provides that to qualify as a distribution described in § 355,

2003-29 I.R.B.

a distribution must not only satisfy the
statutory requirements of § 355, but also
must satisfy certain requirements in the
regulations, including the business purpose requirement. Section 1.355–2(b)(1)
provides that a distribution must be motivated, in whole or substantial part, by
one or more corporate business purposes.
A corporate business purpose is a real
and substantial non-federal tax purpose
germane to the business of the distributing
corporation, the controlled corporation,
or the affiliated group to which the distributing corporation belongs. Section
1.355–2(b)(2). Section 4.04 and Appendix A of Rev. Proc. 96–30 provide
guidelines and request certain information
and representations regarding whether a
distribution satisfies the business purpose
requirement.
Section 355(a)(1)(B) provides that a
distribution will not qualify for nonrecognition treatment under § 355 if it is used
principally as a device for the distribution of the earnings and profits of the
distributing corporation, the controlled
corporation, or both. Generally, the determination of whether a transaction was
used principally as a device will be made
from all the facts and circumstances, including, but not limited to, the presence of
certain device and nondevice factors. Section 1.355–2(d)(1). Section 4.05 of Rev.
Proc. 96–30 requests certain information
and representations regarding whether a
distribution is used principally as a device.
Section 355(e) provides that the stock
of a controlled corporation will not be
qualified property under § 355(c)(2) or
§ 361(c)(2) if the stock is distributed
as “part of a plan (or series of related
transactions) pursuant to which 1 or
more persons acquire directly or indirectly stock representing a 50-percent or
greater interest in the distributing corporation or any controlled corporation.” See
§ 355(e)(2)(A)(ii). For this purpose, a
50-percent or greater interest means stock
possessing at least 50 percent of the total
combined voting power of all classes of
stock entitled to vote or at least 50 percent
of the total value of shares of all classes
of stock. See § 355(e)(4)(A) (referring to
§ 355(d)(4) for the definition of 50-percent
or greater interest). Section 1.355–7T generally provides that whether a distribution
and an acquisition are part of a plan (or
series of related transactions) (hereinafter,

2003-29 I.R.B.

plan) is determined based on all the facts
and circumstances. That section provides
a nonexclusive list of factors to consider
in determining whether a plan exists, as
well as a number of safe harbors that may
be relied upon in determining whether a
plan exists.
Ordinarily, the Service refrains from issuing letter rulings requesting determinations on issues that are primarily factual.
See Rev. Proc. 2003–1, 2003–1 I.R.B. 1,
section 7.01, and Rev. Proc. 2003–3, sections 2.01 and 4.02(1). Moreover, it generally is the policy of the Service not to issue
“comfort rulings” on transactions the treatment of which is clearly and adequately
addressed in published guidance. See Rev.
Proc. 2003–1, section 5.17, and Rev. Proc.
2003–3, section 4.02(9). Nonetheless, the
Service has not strictly applied its policies
of not ruling on factual issues and not issuing comfort rulings in the context of letter
ruling requests regarding transactions intended to qualify under § 355.
The Service has concluded that it is appropriate to adhere more closely to its general policies in the context of requests for
letter rulings under § 355 and that it can
better serve taxpayers by dedicating its resources to increasing the amount of published guidance regarding § 355, including the business purpose requirement, and
other legal questions. Thus, this revenue
procedure provides that the National Office will not determine whether a proposed
or completed distribution of the stock of a
controlled corporation is being carried out
for one or more corporate business purposes, whether the transaction is used principally as a device, or whether the distribution and an acquisition are part of a plan
under § 355(e). Rather, these determinations may be made upon an examination
of the taxpayer’s return. Hence, sections
4.01, 4.02, and 4.03 of this revenue procedure require taxpayers seeking a ruling
under § 355 to submit representations regarding the business purpose and device
requirements and whether there is a plan
under § 355(e)(2)(A)(ii). The request for
a letter ruling, including representations,
must be accompanied by a penalties of perjury statement signed and dated by the taxpayer indicating that the submission contains all the relevant facts relating to the request and such facts are true, correct, and
complete. See Rev. Proc. 2003–1, sections 8.01(15) and 10.07(1).

87

This is a pilot program that applies
to ruling requests postmarked or, if not
mailed, received after August 8, 2003.
This pilot program is intended to operate
for at least one year. After that time, the
Service may consider further changes,
including ruling only on significant issues
(as defined in Section 3.01(29) of Rev.
Proc. 2003–3) under § 355.
Section 4.05 of this revenue procedure
provides that the Service will decline a request for a ruling regarding a proposed or
completed transaction if the Service has
previously declined to rule on that transaction (or a similar transaction) because the
Service was not satisfied that the distribution met the corporate business purpose requirement, was not a device for the distribution of earnings and profits, or was not
part of a plan under § 355(e).
Section 4.06 of this revenue procedure
provides that the Service will decline a request for a supplemental ruling, unless the
request presents a significant issue (as defined in section 3.01(29) of Rev. Proc.
2003–3).
Section 4.01(30) of Rev. Proc. 2003–3
provides that a letter ruling ordinarily
will not be issued regarding the issue of
whether the active business requirement
of § 355(b) is met when the gross assets of
the trades or businesses relied on to satisfy
that requirement will have a fair market
value that is less than 5 percent of the total
fair market value of the gross assets of the
corporation directly conducting the trades
or businesses. Section 4.07 of this revenue
procedure modifies Rev. Proc. 2003–3 by
deleting section 4.01(30).
SECTION 3. REQUEST FOR
COMMENTS
The Service requests comments regarding issues under § 355 that should
be addressed in published guidance.
Moreover, the Service continues to study
language for, and requests comments
regarding, § 355(e) representations. Comments should refer to Rev. Proc. 2003–48,
and should be submitted to:
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Attn: CC:PA:RU
Room 5226

July 21, 2003

or electronically via the Service internet site at: [email protected] (the Service comments
e-mail address). All comments will be
available for public inspection and copying.
SECTION 4. PROCEDURE
.01 Rev. Proc. 96–30 is modified by
deleting section 4.04(1) through 4.04(7)
and Appendices A and C, and amplified by
adding new section 4.04(1) as follows:
(1) Detailed Description. Describe
in narrative form each corporate business
purpose for the distribution of the stock
of Controlled. Do not provide any documentation or substantiation in support
thereof. Submit the following REPRESENTATION: The distribution of the
stock, or stock and securities, of the controlled corporation is carried out for the
following corporate business purposes:
[list these corporate business purposes].
The distribution of the stock, or stock and
securities, of the controlled corporation is
motivated, in whole or substantial part, by
one or more of these corporate business
purposes. The Service will decline to
issue a letter ruling in all cases in which
the taxpayer fails to submit the required
representation. The National Office will
not determine whether the distribution is
being carried out for one or more corporate business purposes. This determination
may be made upon an examination of the
taxpayer’s return.
.02 Rev. Proc. 96–30 is modified by
deleting section 4.05(1) through 4.05(5)
and amplified by adding new section
4.05(1) as follows:
(1) Dispositions of stock or securities. Submit the following REPRESENTATION: The transaction is not used principally as a device for the distribution of
the earnings and profits of the distributing
corporation or the controlled corporation
or both. See § 355(a)(1)(B). The Service
will decline to issue a letter ruling in all
cases in which the taxpayer fails to submit the required representation. The National Office will not determine whether
the transaction is used principally as a device for the distribution of the earnings and
profits of the distributing corporation, the
controlled corporation, or both. This determination may be made upon an examination of the taxpayer’s return.

July 21, 2003

.03 Rev. Proc. 96–30 is amplified by
adding new section 4.08(12) as follows:
(12) Distributions in Connection with
Acquisitions. Regarding whether there is
a plan (or series of related transactions)
under § 355(e)(2)(A)(ii), submit one of
the following REPRESENTATIONS: (i)
There is no acquisition of stock of the
distributing corporation or any controlled
corporation (including any predecessor or
successor of any such corporation) that is
part of a plan or series of related transactions (within the meaning of § 1.355–7T)
that includes the distribution of the controlled corporation stock; (ii) Each of
the following acquisitions of stock of the
distributing corporation or any controlled
corporation (including any predecessor
or successor of any such corporation) is
or may be part of a plan or series of related transactions (within the meaning of
§ 1.355–7T) that includes the distribution
of controlled corporation stock: [DESCRIBE ACQUISITIONS HERE]. Taking
all of these acquisitions into account, stock
representing a 50-percent or greater interest (within the meaning of § 355(d)(4)) in
the distributing or controlled corporation
(including any predecessor or successor of any such corporation) will not be
acquired by any person or persons; or
(iii) The distribution is not part of a plan
or series of related transactions (within
the meaning of § 1.355–7T) pursuant to
which one or more persons will acquire
directly or indirectly stock representing a
50-percent or greater interest (within the
meaning of § 355(d)(4)) in Distributing
or Controlled (including any predecessor
or successor of any such corporation).
If a representation cannot be submitted
exactly as requested, an explanation must
be given. The taxpayer must submit one
of the three representations set forth above
(as set forth above or in appropriately
modified form to the satisfaction of the
Service) before the Service will issue a
letter ruling. While the National Office
will not determine whether a distribution and an acquisition are part of a plan
(or series of related transactions) under
§ 355(e)(2)(A)(ii), the Service may rule
on related significant issues (as defined in
section 3.01(29) of Rev. Proc. 2003–3,
2003–1 I.R.B. 113 at 115). The determination of whether a distribution and an
acquisition are part of a plan (or series of

88

related transactions) may be made upon
an examination of the taxpayer’s return.
.04 Rev. Proc. 96–30 is amplified by
adding new section 4.08(13) as follows:
(13) Regulatory filings.
Provide
copies of any proxy statements, information statements, or prospectuses filed or
prepared in connection with the distribution or any related transaction.
.05 Rev. Proc. 96–30 is amplified by
adding new section 4.08(14) as follows:
(14) Previously Declined Request for
Ruling. The Service will not entertain
any ruling request regarding a proposed or
completed transaction if the Service has
previously declined to rule on that transaction (or a similar transaction) because the
Service was not satisfied that the distribution met the corporate business purpose requirement, was not a device for the distribution of earnings and profits, or was not
part of a plan (or series of related transactions) under § 355(e).
.06 Rev. Proc. 96–30 is amplified by
adding new section 4.08(15) as follows:
(15) Request for Supplemental Ruling. The Service will decline a request for
a supplemental letter ruling, unless the request presents a significant issue (as defined in section 3.01(29) of Rev. Proc.
2003–3). A change in circumstances arising after the transaction ordinarily does not
present a significant issue.
.07 Rev. Proc. 2003–3, 2003–1 I.R.B.
113, is modified by deleting section
4.01(30).
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 96–30, 1996–1 C.B. 696,
is modified and amplified and Rev. Proc.
2003–3, 2003–1 I.R.B. 113, is modified.
SECTION 6. EFFECTIVE DATE
This revenue procedure applies to
all ruling requests postmarked or, if not
mailed, received after August 8, 2003.
Ruling requests postmarked or received
after June 24, 2003, and on or before
August 8, 2003, that are not in compliance
with Rev. Proc. 2003–1 and Rev. Proc.
96–30 will be, in the sole discretion of the
Service, either returned to the taxpayer
or treated as being subject to this revenue
procedure. Taxpayers, however, may use
the guidelines of this revenue procedure in

2003-29 I.R.B.

ruling requests filed after June 24, 2003,
and on or before August 8, 2003.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information in this
revenue procedure have been reviewed and
approved by the Office of Management
and Budget (OMB) in accordance with
the Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545–1846.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
revenue procedure are in section 4. This
information is required to determine
whether a taxpayer would qualify for nonrecognition treatment under this revenue
procedure. The collections of information
are required to obtain a benefit. The likely
respondents are corporations that control
another corporation, as well as the management of the corporation the stock of
which is being distributed or that controls
the corporation the stock of which is being
distributed.
The estimated total annual reporting
burden is 36,000 hours.
The estimated annual burden per respondent varies from 150 hours to 250
hours, depending on individual circumstances, with an estimated average of 200
hours. The estimated number of respondents is 180.
The estimated annual frequency of responses is on occasion.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of any internal revenue tax
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
SECTION 8. DRAFTING INFORMATION
The principal author of this revenue
procedure is Richard M. Heinecke of
the Office of Associate Chief Counsel
(Corporate). For further information regarding this revenue procedure, contact

2003-29 I.R.B.

Mr. Heinecke at (202) 622–7930 (not a
toll-free call).

26 CFR 601.201: Rulings and determination letters.
(Also Part I, sections 25, 103, 143, 1.25–4T, 1.103–1,
6A.103A–2.)

Rev. Proc. 2003–49
SECTION 1. PURPOSE
This revenue procedure provides issuers of qualified mortgage bonds, as
defined in section 143(a) of the Internal
Revenue Code, and issuers of mortgage
credit certificates, as defined in section
25(c), with a list of qualified census tracts
for each state and the District of Columbia. It modifies and supersedes Rev. Proc.
2003–15, 2003–4 I.R.B. 321.
SECTION 2. CHANGES
This revenue procedure corrects errors
found in Rev. Proc. 2003–15, 2003–4
I.R.B. 321. On page 341 of the Internal
Revenue Bulletin 2003–4 (“IRB”), census tract 000300 is now under Yellowstone County, Montana. On page 342 of
the IRB, census tract 010302 is now under Sarpy County, Nebraska. On page 352
of the IRB, census tracts 000300, 001200,
001500, 001600, 001900, and 002000 are
now under Hamilton County, Tennessee.
SECTION 3. BACKGROUND
.01 Section 103(a) of the Code provides that, except as provided in section
103(b), gross income does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a)
shall not apply to any private activity bond
that is not a “qualified bond” within the
meaning of section 141. Section 141(e)
provides that the term “qualified bond”
includes any private activity bond if that
bond: (1) is a qualified mortgage bond; (2)
meets the volume cap requirements under
section 146; and (3) meets the applicable
requirements under section 147.
.02 Section 143(a)(1) of the Code provides that the term “qualified mortgage
bond” means a bond which is issued as part
of a “qualified mortgage issue”. Section
143(a)(2)(A) provides that the term “qualified mortgage issue” means an issue by

89

a state or political subdivision thereof of
one or more bonds but only if: (i) all proceeds of the issue (exclusive of issuance
costs and a reasonably required reserve)
are to be used to finance owner occupied
residences; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g),
(h), (i), and (m)(7); (iii) the issue does
not meet the private business tests of paragraphs (1) and (2) of section 141(b); and
(iv) with respect to amounts received more
than 10 years after the date of issuance, repayments of $250,000 or more of principal
on financing provided by the issue are used
not later than the close of the first semi-annual period beginning after the date the
prepayment (or complete repayment) is received to redeem bonds that are part of the
issue.
.03 An issue of bonds meets the requirements of subsection (h) of section
143 of the Code only if at least 20 percent of the proceeds of the issue is made
available for owner financing of “targeted
area residences” for at least 1 year after the date on which owner financing is
first made available with respect to targeted area residences. Subsection (h)(2)
provides, however, that the amount made
available need not exceed 40 percent of the
average annual aggregate principal amount
of mortgages executed during the immediately preceding 3 calendar years for single-family, owner-occupied residences located in targeted areas within the jurisdiction of the issuing authority.
.04 Targeted area residences are defined in section 143(j)(1)(A) to include
residences in a qualified census tract.
A “qualified census tract”, according to
section 143(j)(2)(A), is a census tract in
which 70 percent or more of the families
have income that is 80 percent or less
of the statewide median family income.
Section 143(j)(2)(B) of the Code provides
that the determination that a census tract
is a “qualified census tract” must be based
on the most recent decennial census for
which data are available. The last list of
qualified census tracts, published in Rev.
Proc. 2003–15, 2003–4 I.R.B. 321, was
based on the 2000 Census.
.05 Section 6a.103A–2(b)(4)(ii) of the
Temporary Income Tax Regulations provides that, with respect to any particular
bond issue, the determination that a census tract is a “qualified census tract” may
be based upon the decennial census data

July 21, 2003