Download:
pdf |
pdfIRB 1999-4
1/20/99 1:06 PM
Page 1
Bulletin No. 1999–4
January 25, 1999
Internal Revenue
bulletin
HIGHLIGHTS
OF THIS ISSUE
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.
INCOME TAX
Rev. Rul. 99–4, page 19.
LIFO; price indexes; department stores. The November
1998 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, November 30,
1998.
T.D. 8800, page 20.
average interest rate for January 1999 and the resulting permissible range of interest rates used to calculate current liability for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.
EXEMPT ORGANIZATIONS
Announcement 99–9, page 24.
A list is given of organizations now classified as private foundations.
Final and temporary regulations under section 1502 of the
Code relate to the consolidated return regulations.
ADMINISTRATIVE
T.D. 8801, page 5.
Notice 99–9, page 23.
Final regulations under section 148 of the Code relate to the
arbitrage restrictions applicable to tax-exempt bonds issued
by State and local governments.
The Service has made available on the IRS Internet site a
draft of the Low-Income Taxpayer Clinic Grant application
package for public comment. The draft describes the new
grant program, authorized under section 7526 of the Code,
for qualified organizations that provide legal assistance to
low-income taxpayers having disputes with the Service or
operate programs to inform individuals, for whom English is
a second language, about their rights and responsibilities
under the tax laws.
T.D. 8802, page 10.
Final regulations under section 337 of the Code generally affect a taxable corporation that transfers all or substantially
all of its assets to a tax-exempt entity or converts from a taxable corporation to a tax-exempt entity in a transaction other
than a liquidation, and generally requires the taxable corporation to recognize gain or loss as if it had sold the assets
transferred at fair market value.
EMPLOYEE PLANS
T.D. 8796, page 16.
Final regulations under sections 411 and 417 of the Code
relate to qualified retirement plans.
Notice 99–7, page 23.
Weighted average interest rate update. The weighted
Finding Lists begin on page 28.
Announcement Relating to Court Decisions begins on page 4.
Department of the Treasury
Internal Revenue Service
Announcement 99–6, page 24.
The Service will allow payers to establish a system to electronically receive Forms W-4P, Withholding Certificate for
Pension or Annuity Payments, W-4S, Request for Federal Income Tax Withholding From Sick Pay, and W-4V, Voluntary
Withholding Request.
Announcement 99–8, page 24.
The 1998 Instructions for Form 1040NR are corrected.
IRB 1999-4
1/20/99 1:06 PM
Page 2
Mission of the Service
and by applying the tax law with integrity and fairness to
all.
Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities
Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
2
IRB 1999-4
1/20/99 1:06 PM
Page 3
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 and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
dures 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.
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.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, 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).
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.
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumulative Bulletins.
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 proce-
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin of the
succeeding quarterly and semiannual period, respectively.
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.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
3
IRB 1999-4
1/20/99 1:06 PM
Page 4
Announcement Relating to Court Decisions
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in certain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on unappealed issues decided adverse to the
government. Generally, an Action on Decision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirmative statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclusions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommendation of the Action on Decision to similar
cases where the facts are different. Moreover, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published acquiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be helpful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court deciding the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as acquiescence, acquiescence in result only,
or nonacquiescence. Both “acquiescence” and “acquiescence in result only”
mean that the Service accepts the holding
of the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “acquiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. Nonacquiescence signifies that, although no further review was
sought, the Service does not agree with
the holding of the court and, generally,
will not follow the decision in disposing
of cases involving other taxpayers. In reference to an opinion of a circuit court of
appeals, a nonacquiescence indicates that
the Service will not follow the holding on
a nationwide basis. However, the Service
will recognize the precedential impact of
the opinion on cases arising within the
venue of the deciding circuit.
The announcements published in the
weekly Internal Revenue Bulletins are
consolidated semiannually and annually.
The semiannual consolidation appears in
the first Bulletin for July and in the Cumulative Bulletin for the first half of the
year, and the annual consolidation appears in the first Bulletin for the following January and in the Cumulative Bulletin for the last half of the year.
The Commissioner ACQUIESCES in
the following decisions:
Eisenberg v. Commissioner,1
155 F.3d 50 (2d Cir. 1998)
Murillo v. Commissioner,2
T.C. Memo 1998–13
The Commissioner WITHDRAWS the
following decision:
Larotonda v. Commissioner,3
89 T.C. 287 (1987)
1 Acquiescence
relating to whether a discount for potential capital gains tax liabilities may be applied in valuing closely-held stock.
in result only relating to whether the forfeiture of an Individual Retirement Account (“IRA”) to the United States pursuant to a civil proceeding causes the IRA owner to be liable for the 10 percent early distribution tax under I.R.C. section 72(t).
3 Withdrawal relating to whether petitioner’s constructive receipt of a Keogh account distribution by virtue of the government’s levy on the account causes the Keogh
owner to also be liable for the 10 percent early distribution tax under I.R.C. section 72(m)(5).
2 Acquiescence
January 25, 1999
4
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 5
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 148.—Arbitrage
26 CFR 1.148–5: Yield and valuation of
investments.
T.D. 8801
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Arbitrage Restrictions on
Tax-Exempt Bonds
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations on the arbitrage restrictions applicable to tax-exempt bonds issued by State and local governments.
Changes to applicable law were made by
the Tax Reform Act of 1986. These regulations affect issuers of tax-exempt bonds
and provide guidance for complying with
the arbitrage regulations.
DATES: Effective Date: These regulations are effective on March 1, 1999.
Applicability Date: These regulations
are applicable to bonds sold on or after
March 1, 1999. Issuers may apply these
regulations to bonds sold on or after December 30, 1998. and before March 1,
1999.
FOR FURTHER INFORMATION CONTACT: David White, 202-622-3980 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations have been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number 15451490. Responses to these collections of
information are required to obtain the
benefits of a safe harbor.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
1999–4 I.R.B
lection of information displays a valid
control number.
The estimated annual burden per record
keeper varies from .75 hour to 2 hours,
depending on individual circumstances,
with an estimated average of 1 hour.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Internal Revenue Service, Attn: IRS
Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224, and to the Office
of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to this collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
These final regulations contain amendments to the income tax regulations (26
CFR Part 1) under section 148 of the Internal Revenue Code of 1986 (Code).
Section 148 provides rules addressing the
use of proceeds of tax-exempt State and
local bonds to acquire higher-yielding investments. On June 18, 1993, final regulations (T.D. 8476, 1993–2 C.B. 13) relating to the arbitrage restrictions and related
rules under sections 103, 148, 149, and
150 were published in the Federal Register (58 F.R. 33510). Corrections to these
regulations were published in the Federal
Register on August 23, 1993 (58 F.R.
44451), and May 11, 1994 (59 F.R.
24350).
On June 27, 1996, a notice of proposed
rulemaking (FI–28–96, 1996–2 C.B. 458)
relating to the arbitrage restrictions was
published in the Federal Register (61
F.R. 33405). The proposed regulations
provide a rebuttable presumption for establishing fair market value for United
States Treasury obligations that are purchased other than directly from the United
States Treasury. In addition, the proposed
regulations provide a rebuttable presumption that a solicitation that meets certain
requirements is a bona fide solicitation for
5
the guaranteed investment contract safe
harbor of §1.148–5(d)(6)(iii). A public
hearing was held on Thursday, October
24, 1996, and written comments were received. After consideration of all the
comments, the regulations proposed by
FI–28–96 are, with modifications,
adopted by revision to §1.148–5(d)(6)(iii). The changes are discussed below.
Explanation of Provisions
A. In General
Due to concerns regarding the fair market purchase price of United States Treasury obligations purchased other than directly from the United States Treasury,
the proposed regulations provide a rebuttable presumption for establishing fair
market value. The proposed regulations
generally apply the principles underlying
the existing safe harbor in the arbitrage
regulations for establishing fair market
value for guaranteed investment contracts.
The proposed regulations also provide
a rebuttable presumption that a solicitation meeting the requirements of the proposed regulations will be a bona fide solicitation for the guaranteed investment
contract safe harbor of existing §1.148–
5(d)(6)(iii).
Modifications to the proposed regulations have been made to clarify various
technical aspects in response to comments
received.
B. Safe Harbor
Commentators noted that a rebuttable
presumption in the proposed regulations
for purchases of United States Treasury
obligations provides a lower level of protection to issuers than the safe harbor applicable to guaranteed investment contracts. Commentators generally requested
that the final regulations provide a safe
harbor for the purchase of United States
Treasury obligations.
The final regulations create a safe harbor for all investments covered by the
regulations, provided that the issuer receives at least three bids as required by
the regulations. The premise of the final
regulations is that a bidding procedure
satisfying the requirements of the final
regulations will produce a price that
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 6
equals fair market value. If the requirements of the final regulations are not in
fact met, no assumption can be made
about the relationship of the price paid to
fair market value. However, all reasonable and prudent actions taken by the issuer under the circumstances may be considered in determining whether the issuer
paid fair market value.
C. Scope of Final Regulations
Generally, the proposed regulations
apply to United States Treasury obligations purchased other than directly from
the United States Treasury. Commentators requested clarification regarding the
scope of the proposed regulations and requested that the regulations only apply to
investments purchased for yield restricted
refunding and yield restricted sinking
fund escrows. In addition, commentators
asked that the proposed regulations be expanded to apply to other types of investments that may be purchased for an escrow (e.g., REFCORP strips).
The final regulations apply only to
guaranteed investment contracts and yield
restricted defeasance escrows. With respect to yield restricted defeasance escrows, the final regulations expand the
scope of investments covered by the proposed regulations to apply to all investments purchased for the escrow (e.g.,
United States Agency obligations,
REFCORP strips and corporate obligations).
D. Guaranteed Investment Contracts
Commentators requested clarification
regarding which investments are covered
by the safe harbor for guaranteed investment contracts and which would be covered by the proposed regulations.
The term guaranteed investment contract generally does not include investments purchased for a yield restricted defeasance escrow. However, the term
guaranteed investment contract does include escrow float contracts and similar
agreements purchased for a yield restricted defeasance escrow. In addition,
the term guaranteed investment contract
includes debt service fund forward agreements and debt service reserve fund
agreements (e.g., agreements to deliver
United States Treasury obligations over a
period of time).
January 25, 1999
E. No Last Look
The proposed regulations state that all
providers must have equal opportunity to
bid and that no provider is permitted to review other bids before bidding (e.g., a last
look). A small number of commentators
noted that the existence of a last look may
result in higher yields from competing
providers. The final regulations retain the
no last look requirement because permitting a last look may adversely affect the
bona fides of the bidding process.
F. Reasonably Competitive Providers
The proposed regulations provide that
all bidders are required to be reasonably
competitive providers of investments of
the type being purchased. Numerous
comments were received regarding the
meaning of the phrase “reasonably competitive provider,” and commentators expressed concern that a bid from a noncompetitive provider may prevent the
requirements of the regulations from
being satisfied.
The final regulations modify this provision. The final regulations provide that the
issuer must solicit at least three bids from
reasonably competitive providers and that
the issuer must receive at least one bid
from a reasonably competitive provider.
For purposes of the final regulations, a reasonably competitive provider is a provider
that has an established industry reputation
as a competitive provider of the type of investments being purchased. For example,
in connection with the solicitation of bids
for a guaranteed investment contract, an
entity that has an established industry reputation as a competitive provider of guaranteed investment contracts is a reasonably
competitive provider.
G. No Material Financial Interest
The proposed regulations, like the existing safe harbor for guaranteed investment contracts, provide that the issuer
must receive at least three bona fide bids
from providers that have no material financial interest in the issue. For this purpose, the proposed regulations provide
that underwriters and financial advisors
for an issue are considered to have a material financial interest. Numerous comments were received regarding the scope
of entities that are considered to have a
material financial interest under the proposed regulations.
6
The final regulations clarify that, for
purchases of any investment covered by
the safe harbor, the lead underwriter in a
negotiated underwriting transaction is
deemed to have a material financial interest in the issue until 15 days after the
issue date of the issue. Any entity acting
as a financial advisor with respect to the
purchase of the investment at the time that
the bid specification form is submitted to
potential providers is also deemed to have
a material financial interest in the issue.
In addition, the final regulations require
the provider to represent that its bid is not
based on any other formal or informal
agreement that the provider has with the
issuer or any other person. A provider
that is a related party to a provider that
has a material financial interest in the
issue is also deemed to have a material financial interest in the issue.
H. Commercially Reasonable Terms
The proposed regulations provide that
the terms of the purchase agreement must
be reasonable. The existing safe harbor
for guaranteed investment contracts provides that the terms of the guaranteed investment contract, including the collateral
security requirements, must be reasonable. A number of commentators requested clarification regarding what reasonable means in connection with a
solicitation of United States Treasury
obligations.
The final regulations provide that the
terms of the bid specification for any investment covered by the safe harbor must
be commercially reasonable. A term is
commercially reasonable if there is a legitimate business purpose for including
the term in the bid specifications other
than to lower the yield or increase the cost
of the bid. For example, in connection
with the solicitation of investments for a
yield restricted defeasance escrow, a commercially unreasonable term would be a
hold firm period that is longer than the issuer reasonably requires.
I. Comparison to State and Local
Government Series Securities
The proposed regulations provide that
the yield on any United States Treasury
obligation purchased by the issuer may
not be less than the yield then available on
State and Local Government Series Securities from the United States Department
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 7
of the Treasury, Bureau of Public Debt
(SLGs) with the same maturity. Commentators requested that the SLGs comparison be removed or that issuers be allowed to make the comparison on a
portfolio-by-portfolio basis. Commentators also requested guidance about the
time period in which the SLGs comparison is to be made.
In general, the final regulations provide
that the safe harbor does not apply to investments purchased for a yield restricted
defeasance escrow if the lowest cost bid is
greater than the cost of the most efficient
SLG portfolio. The final regulations provide that the lowest cost bid is the lowest
bid for the portfolio or, if the issuer compares bids on an investment-by-investment
basis, the aggregate cost of a portfolio
comprised of the lowest cost bid for each
investment. Any payment received by the
issuer from a provider at the time a guaranteed investment contract is purchased (e.g.,
an escrow float contract) for a yield restricted defeasance escrow under a bidding
procedure meeting the requirements of the
final regulations is taken into account in
determining the lowest cost bid.
The final regulations provide the following rules for comparing the lowest
cost bid to SLGs. First, the most efficient
SLG portfolio consists of one or more
SLG securities that will allow the issuer
to defease the refunded obligations at the
lowest overall cost. Second, the comparison of the most efficient SLG portfolio
and the lowest cost bid must be made at
the time that bids are required to be submitted pursuant to the terms of the bid
specifications. Intra-day pricing movements and closing spot prices of investments before and after the time in which
the comparison to SLGs is required to be
made are not relevant. Third, if SLGs are
not available for purchase on the day that
bids are required to be submitted pursuant
to terms of the bid specifications because
Treasury has suspended sales of those securities, the comparison of the most efficient SLG portfolio to the lowest cost bid
is not required.
No comparison to SLGs is required for
purchases of guaranteed investment contracts.
J. Forward Pricing Data
The proposed regulations provide that
the yield on United States Treasury oblig-
1999–4 I.R.B
ations purchased by the issuer may not be
significantly less than the yield then available from the provider on reasonably
comparable United States Treasury obligations offered to other persons for purchase on terms comparable to those offered to the issuer from a source of funds
other than tax-exempt bonds. If closely
comparable forward prices are not available, a reasonable basis for this comparison may be by reference to implied forward prices for Treasury obligations
based on standard financial formulas. A
certificate provided by the agent conducting the bidding process will establish that
the comparison is met. The existing safe
harbor for guaranteed investment contracts provides that the yield on the guaranteed investment contract may not be
less than the yield then available from the
provider on reasonably comparable guaranteed investment contracts, if any, offered to other persons from a source of
funds other than gross proceeds of tax-exempt bonds.
Commentators noted that, in general,
the comparison required by the proposed
regulations is either too complex or not
possible to construct. In lieu of a comparability requirement, commentators recommended that the regulations adopt certain additional safeguards to protect the
integrity of the bidding process.
The final regulations remove the comparability requirement for all investments
covered by the safe harbor. However, the
final regulations include additional requirements to ensure a competitive bidding process. For example, the final regulations require that the bid form
forwarded to potential providers include a
statement notifying providers that by submitting a bid the potential provider is representing that it did not consult with any
other providers about their bid, and that
its bid is not being submitted solely as a
courtesy to the issuer or any other person
for purposes of satisfying the requirement
that the issuer receive three bids. It is anticipated that these additional requirements will ensure that the bids reflect fair
market value, as determined without regard to the source of funds.
K. Record Keeping Requirements
The proposed regulations provide that
issuers are required to retain certain
records and information with the bond
7
documents, including a copy of the bids
received (date and time stamped). Numerous comments were received regarding the difficulty of obtaining written bids
for Treasury obligations.
The final regulations modify the record
keeping requirements and apply those requirements to guaranteed investment contracts. One modification to the record
keeping requirements is the elimination of
the requirement that the bids be received
in writing. The final regulations provide
that the requirement for recording the bid
is satisfied if the issuer or its agent makes
a contemporaneous record of the bid, including the time and date each bid was received, and the identification of the person
and entity submitting the bid, and keeps
this record with the bond documents.
The final regulations also provide that,
if the terms of the purchase agreement deviate from the terms of the bid solicitation
form or if a submitted bid is modified, the
issuer must keep a record explaining the
purpose of the deviation or modification
and, if the purchase agreement price differed from the bid, how that price was determined. If the issuer replaces investments in the winning bid portfolio with
other investments, the prices of the new
investments are not protected by the safe
harbor unless those investments are bid
under a bidding procedure meeting the requirements of the final regulations.
L. Broker Fees for Yield Restricted
Defeasance Escrows
The proposed regulations provide that a
fee paid to a bidding agent is a qualified
administrative cost only if the fee is comparable to a fee that would be charged for
a reasonably comparable investment of
obligations acquired with a source of
funds other than gross proceeds of tax-exempt bonds and the fee is reasonable.
Under the proposed regulations, the fee is
presumed to be reasonable if it does not
exceed .02 percent of the amount invested
in United States Treasury obligations.
Commentators noted that the comparability requirement was unclear and that outside the context of municipal bonds, bidding for closely comparable investments
is virtually non-existent. Commentators
also noted that the .02 percent fee may result in too much compensation in the case
of large escrows and too little compensation in the case of small escrows.
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 8
The final regulations retain the comparability and reasonableness requirements.
However, the final regulations provide
that a broker’s fee will meet the reasonableness and comparability requirements
if the fee does not exceed the lesser of
$10,000 or .1 percent of the initial principal amount of investments purchased for
the yield restricted defeasance escrow.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It is hereby certified that these
regulations do not have a significant economic impact on a substantial number of
small entities. This certification is based
upon the fact that the amount of time required to meet the record keeping requirement of these final regulations, an estimated annual average of 1 hour per
taxpayer, is small. Also, the regulations
affect a small number of taxpayers, approximately 1400 annually. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section
7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding
these regulations was submitted to the
Small Business Administration for comment on its impact on small business.
Drafting Information
The principal authors of these regulations are David White and Rebecca Harrigal of the IRS Office of Chief Counsel
and Edwin G. Oswald of the Department
of the Treasury. However, other personnel from the IRS and the Treasury Department participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.148–5 is amended as
follows:
January 25, 1999
1. Paragraph (d)(6)(iii) is revised.
2. Paragraph (e)(2)(iv) is added.
The revision and addition read as follows:
§1.148–5 Yield and valuation of
investments.
* * * * *
(d) * * *
(6) * * *
(iii) Safe harbor for establishing fair
market value for guaranteed investment
contracts and investments purchased for
a yield restricted defeasance escrow. The
purchase price of a guaranteed investment
contract and the purchase price of an investment purchased for a yield restricted
defeasance escrow will be treated as the
fair market value of the investment on the
purchase date if all of the following requirements are satisfied:
(A) The issuer makes a bona fide solicitation for the purchase of the investment.
A bona fide solicitation is a solicitation
that satisfies all of the following requirements:
(1) The bid specifications are in writing and are timely forwarded to potential
providers.
(2) The bid specifications include all
material terms of the bid. A term is material if it may directly or indirectly affect
the yield or the cost of the investment.
(3) The bid specifications include a
statement notifying potential providers
that submission of a bid is a representation that the potential provider did not
consult with any other potential provider
about its bid, that the bid was determined
without regard to any other formal or informal agreement that the potential
provider has with the issuer or any other
person (whether or not in connection with
the bond issue), and that the bid is not
being submitted solely as a courtesy to the
issuer or any other person for purposes of
satisfying the requirements of paragraph
(d)(6)(iii)(B)(1) or (2) of this section.
(4) The terms of the bid specifications
are commercially reasonable. A term is
commercially reasonable if there is a legitimate business purpose for the term
other than to increase the purchase price
or reduce the yield of the investment. For
example, for solicitations of investments
for a yield restricted defeasance escrow,
the hold firm period must be no longer
than the issuer reasonably requires.
8
(5) For purchases of guaranteed investment contracts only, the terms of the solicitation take into account the issuer’s
reasonably expected deposit and drawdown schedule for the amounts to be invested.
(6) All potential providers have an
equal opportunity to bid. For example, no
potential provider is given the opportunity
to review other bids (i.e., a last look) before providing a bid.
(7) At least three reasonably competitive providers are solicited for bids. A
reasonably competitive provider is a
provider that has an established industry
reputation as a competitive provider of
the type of investments being purchased.
(B) The bids received by the issuer
meet all of the following requirements:
(1) The issuer receives at least three
bids from providers that the issuer solicited under a bona fide solicitation meeting the requirements of paragraph (d)(6)(iii)(A) of this section and that do not
have a material financial interest in the
issue. A lead underwriter in a negotiated
underwriting transaction is deemed to
have a material financial interest in the
issue until 15 days after the issue date of
the issue. In addition, any entity acting as
a financial advisor with respect to the purchase of the investment at the time the bid
specifications are forwarded to potential
providers has a material financial interest
in the issue. A provider that is a related
party to a provider that has a material financial interest in the issue is deemed to
have a material financial interest in the
issue.
(2) At least one of the three bids described in paragraph (d)(6)(iii)(B)(1) of
this section is from a reasonably competitive provider, within the meaning of paragraph (d)(6)(iii)(A)(7) of this section.
(3) If the issuer uses an agent to conduct the bidding process, the agent did not
bid to provide the investment.
(C) The winning bid meets the following requirements:
(1) Guaranteed investment contracts.
If the investment is a guaranteed investment contract, the winning bid is the
highest yielding bona fide bid (determined net of any broker’s fees).
(2) Other investments. If the investment is not a guaranteed investment contract, the following requirements are met:
(i) The winning bid is the lowest cost
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 9
bona fide bid (including any broker’s
fees). The lowest cost bid is either the
lowest cost bid for the portfolio or, if the
issuer compares the bids on an investment-by-investment basis, the aggregate
cost of a portfolio comprised of the lowest
cost bid for each investment. Any payment received by the issuer from a
provider at the time a guaranteed investment contract is purchased (e.g., an escrow float contract) for a yield restricted
defeasance escrow under a bidding procedure meeting the requirements of this
paragraph (d)(6)(iii) is taken into account
in determining the lowest cost bid.
(ii) The lowest cost bona fide bid (including any broker’s fees) is not greater
than the cost of the most efficient portfolio comprised exclusively of State and
Local Government Series Securities from
the United States Department of the Treasury, Bureau of Public Debt. The cost of
the most efficient portfolio of State and
Local Government Series Securities is to
be determined at the time that bids are required to be submitted pursuant to the
terms of the bid specifications.
(iii) If State and Local Government Series Securities from the United States Department of the Treasury, Bureau of Public Debt are not available for purchase on
the day that bids are required to be submitted pursuant to terms of the bid specifications because sales of those securities
have been suspended, the cost comparison of paragraph (d)(6)(iii) (C)(2)(ii) of
this section is not required.
(D) The provider of the investments or
the obligor on the guaranteed investment
contract certifies the administrative costs
that it pays (or expects to pay, if any) to
third parties in connection with supplying
the investment.
(E) The issuer retains the following
records with the bond documents until
three years after the last outstanding bond
is redeemed:
(1) For purchases of guaranteed investment contracts, a copy of the contract, and
for purchases of investments other than
guaranteed investment contracts, the purchase agreement or confirmation.
(2) The receipt or other record of the
amount actually paid by the issuer for the
investments, including a record of any administrative costs paid by the issuer, and
1999–4 I.R.B
the certification under paragraph
(d)(6)(iii)(D) of this section.
(3) For each bid that is submitted, the
name of the person and entity submitting
the bid, the time and date of the bid, and
the bid results.
(4) The bid solicitation form and, if the
terms of the purchase agreement or the
guaranteed investment contract deviated
from the bid solicitation form or a submitted bid is modified, a brief statement explaining the deviation and stating the purpose for the deviation. For example, if
the issuer purchases a portfolio of investments for a yield restricted defeasance escrow and, in order to satisfy the yield restriction requirements of section 148, an
investment in the winning bid is replaced
with an investment with a lower yield, the
issuer must retain a record of the substitution and how the price of the substitute investment was determined. If the issuer
replaces an investment in the winning bid
portfolio with another investment, the
purchase price of the new investment is
not covered by the safe harbor unless the
investment is bid under a bidding procedure meeting the requirements of this
paragraph (d)(6)(iii).
(5) For purchases of investments other
than guaranteed investment contracts, the
cost of the most efficient portfolio of
State and Local Government Series Securities, determined at the time that the bids
were required to be submitted pursuant to
the terms of the bid specifications.
(e) * * *
(2) * * *
(iv) Special rule for investments purchased for a yield restricted defeasance
escrow. For investments purchased for a
yield restricted defeasance escrow, a fee
paid to a bidding agent is a qualified administrative cost only if the following requirements are satisfied:
(A) The fee is comparable to a fee that
would be charged for a reasonably comparable investment if acquired with a
source of funds other than gross proceeds
of tax-exempt bonds, and it is reasonable.
The fee is deemed to be comparable to a
fee that would be charged for a comparable investment acquired with a source of
funds other than gross proceeds of tax-exempt bonds, and to be reasonable if the
fee does not exceed the lesser of $10,000
9
or .1% of the initial principal amount of
investments deposited in the yield restricted defeasance escrow.
(B) For transactions in which a guaranteed investment contract and other investments are purchased for a yield restricted
defeasance escrow in a single investment
(e.g., an issuer bids United States Treasury obligations and an escrow float contract collectively), a broker’s fee described in paragraph (e)(2)(iv)(A) of this
section will apply to the initial principal
amount of the investment deposited in the
yield restricted defeasance escrow, and a
broker ’s fee described in paragraph
(e)(2)(iii) of this section will apply only to
the guaranteed investment contract portion of the investment.* * * * *
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In §602.101, paragraph (c) is
amended by revising the entry for
1.148–5 in the table to read as follows:
§602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section
where identified
and described
Current OMB
control No.
* * * * *
1.148–5 . . . . . . . . . . . . . . . . . 1545–1098
1545–1490
* * * * *
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved December 17, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on December 29, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 30, 1998,
63 F.R. 71748)
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 10
Section 337.—Nonrecognition
for Property Distributed to
Parent in Complete Liquidation
of Subsidiary
26 CFR 1.337(d)(4): Taxable to tax-exempt.
T.D. 8802
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Certain Asset Transfers to a
Tax-Exempt Entity
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that implement provisions of the Tax Reform Act of 1986 and
the Technical and Miscellaneous Revenue
Act of 1988. The final regulations generally affect a taxable corporation that
transfers all or substantially all of its assets to a tax-exempt entity or converts
from a taxable corporation to a tax-exempt entity in a transaction other than a
liquidation, and generally require the taxable corporation to recognize gain or loss
as if it had sold the assets transferred at
fair market value.
DATES: Effective Date: These regulations are effective January 28, 1999.
Applicability Date: For dates of applicability of these regulations, see
§1.337(d)–4(e).
FOR FURTHER INFORMATION CONTACT: Stephen R. Cleary, (202) 6227530 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information in these
final regulations has been reviewed and,
pending receipt and evaluation of public
comments, approved by the Office of
Management and Budget (OMB) under
44 U.S.C. 3507 and assigned control
number 1545–1633.
The collection of information in this
regulation is described in §1.337(d)–
4(b)(1)(i). The information is a written
January 25, 1999
representation made by a tax-exempt entity estimating the percentage it will use
assets formerly held by a taxable corporation in an activity the income from which
is subject to tax under section 511(a), as
opposed to other activities. The information may be used by the taxable corporation in computing the amount of gain or
loss that is recognized under the regulations. The information may also be used
by the IRS in determining whether the
proper amount of tax is due on the transaction. The collection of information is
not mandatory but will enable the taxable
corporation to support its reporting of the
tax consequences of the transaction. The
likely respondents are tax-exempt entities
subject to the unrelated business income
tax under section 511(a) (including most
organizations that are exempt from tax
under section 501, state colleges and universities, and certain charitable trusts).
Comments concerning the collection of
information should be sent to the Office
of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attention: IRS Reports Clearance Officer,
OP:FS:FP, Washington, DC 20224. Any
such comments should be submitted not
later than March 1, 1999.
Comments are specifically requested
concerning:
(a) Whether the collection of information is necessary for the proper performance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
(b) The accuracy of the estimated burden associated with the collection of information (see below);
(c) How the quality, utility, and clarity
of the information requested may be enhanced;
(d) How the burden of complying with
the collection of information may be minimized, including through the application
of automated collection techniques or
other forms of information technology;
and
(e) Estimates of capital or start-up
costs and costs of operation, maintenance,
and purchase of services to provide information.
Estimated total annual reporting burden:
125 hours.
10
The annual burden per respondent varies
from 1 hour to 10 hours, depending on individual circumstances, with an estimated
average of 5 hours.
Estimated number of respondents: 25.
Estimated frequency of responses: Once.
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
control number assigned by OMB.
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 law. Generally, tax returns and
return information are confidential, as required by 26 U.S.C. 6103.
Background
On January 15, 1997, proposed regulations §1.337(d)–4 were published in the
Federal Register (62 F.R. 2064, [REG–
209121–89, 1997–1 C.B. 719]). The regulations were proposed to amend 26 CFR
part 1 and were intended to carry out the
purposes of the repeal of the General
Utilities doctrine (“General Utilities repeal”) as enacted in the Tax Reform Act
of 1986 (the “1986 Act”).
The 1986 Act amended sections 336
and 337, generally requiring corporations
to recognize gain or loss when appreciated
or depreciated property is distributed in
complete liquidation or is sold in connection with a complete liquidation. Section
337(d) directs the Secretary to prescribe
regulations as may be necessary to carry
out the purposes of General Utilities repeal, including rules to “ensure that these
purposes shall not be circumvented . . .
through the use of a . . . tax-exempt entity.” The legislative history concerning a
1988 amendment to section 337(d) explains:
The bill also clarifies in connection
with the built-in gain provisions of the
Act that the Treasury Department shall
prescribe such regulations as may be
necessary or appropriate to carry out
those provisions. . . . For example, this
includes rules to require the recognition
of gain if appreciated property of a C
corporation is transferred to a . . . taxexempt entity [footnote 32] in a carryover basis transaction that would otherwise eliminate corporate level tax on
the built-in appreciation.
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 11
[footnote 32] The Act generally requires recognition of gain if a C corporation transfers appreciated assets to a
tax exempt entity in a section 332 liquidation. See Code section 337(b)(2).
S. Rep. No. 445, 100th Cong., 2d Sess. 66
(1988).
Explanation of Provision
A. The Proposed Rule
(1) A taxable corporation that transfers
all or substantially all of its assets to one
or more tax-exempt entities is required to
recognize gain or loss as if the assets
transferred were sold at their fair market
values (§1.337(d)–4(a)(1), Asset Sale
Rule);
(2) A taxable corporation that changes
its status to a tax-exempt entity generally
is treated as having transferred all of its
assets to a tax-exempt entity immediately
before the change in status becomes effective in a transaction governed by the
Asset Sale Rule (§1.337(d)–4(a)(2),
Change in Status Rule);
(3) The Change in Status Rule does not
apply (subject to application of the antiabuse rule) if the corporation formerly
was tax-exempt and the change in status
is within three years of the later of (a) the
corporation first filing a return as a taxable corporation, or (b) a final determination that the corporation had become a
taxable corporation (§1.337(d)–4(a)(3), 3Year Rule);
(4) The Asset Sale Rule does not apply
if the transferred assets are used by the
tax-exempt entity in an activity the income from which is subject to the unrelated business tax under section 511(a);
notwithstanding any other provision of
law, gain on such assets will later be included in unrelated business taxable income when the tax-exempt entity disposes of the assets or ceases to use the
assets in an activity the income from
which is subject to tax under section
511(a) (§1.337(d)–4(b)(1), UBTI Rule);
(5) The regulations apply to transfers
of assets occurring after January 28, 1999,
unless the transfer is pursuant to a written
agreement which is (subject to customary
conditions) binding on or before that date
(§1.337(d)–4(e), Effective Date Rule).
The IRS and Treasury Department received approximately 32 written comments on the proposed regulations. In addition, the IRS held a public hearing on
1999–4 I.R.B
the proposed regulations on May 6, 1997.
After consideration of all the written and
oral comments, the IRS and Treasury Department are adopting the proposed regulations as revised by this Treasury Decision. The comments and changes to the
regulations made in response to the comments are summarized below.
B. Comments and Changes in Response
to Comments
1. Asset Sale Rule
Some commentators questioned
whether section 337(d) authorizes taxation of asset transfers other than liquidations. Section 337(d) authorizes regulations to prevent circumvention of General
Utilities repeal through the “use of” any
provision of law or regulations (specifically including the corporate reorganization rules in Part III of Subchapter C).
The statutory rules in sections 336 and
337(b)(2), enacted as part of General
Utilities repeal, provide for corporatelevel gain or loss recognition when a taxable corporation liquidates into a controlling tax-exempt entity. The regulations
published in this Treasury Decision are
intended to reach transactions that are
economically similar to those liquidations
but take different forms, such as a taxable
corporation’s transfer of substantially all
of its assets to a tax-exempt entity or a
taxable corporation’s change in status resulting in its becoming a tax-exempt entity. The IRS and Treasury Department
believe that section 337(d) provides clear
authority for these regulations.
Some commentators questioned
whether section 337(d) authorizes regulations that would tax transfers of assets
without consideration, noting that making
a gift generally does not cause the recognition of gain to the donor. Other commentators claimed that the proposed regulations, to the extent they apply to
transfers of assets to charitable organizations, conflict with the policy of the charitable contribution deduction under section
170. The regulations do not affect the tax
treatment of a corporation’s gift of a portion of its assets to charity, nor do they affect the shareholders’ tax treatment when
transferring all or any part of the corporation’s assets to charity by transferring all
or any part of the corporation’s stock to
charity. The regulations apply only to
transfers of all or substantially all of the
11
assets of a taxable corporation to a tax-exempt entity or a taxable corporation’s
conversion to a tax-exempt entity. If
shareholders donate all of a corporation’s
stock to a charity and the charity then liquidates the corporation, section 337(b)(2)
taxes the liquidating corporation’s gain.
The final regulations, which remain unchanged from the proposed regulations in
this respect, tax a taxable corporation’s
gain in other transactions that have the
same economic effect.
One commentator proposed that the
final regulations allow deferral of gain
recognition on any asset transferred to a
tax-exempt entity until the entity disposes
of the asset. The commentator suggests a
rule similar to that of section 1374, which
provides generally that a C corporation
that converts to being an S corporation is
subject to tax if it disposes of assets held at
the time of conversion during the ten-year
period after the conversion. Under this
rule, the tax-exempt entity would not be
taxed on the built-in gain in assets that it
retains. For the reasons stated above, the
IRS and Treasury Department have concluded that the regulations generally
should follow the rule in section 337(b)(2)
rather than the rule contained in section
1374 to best accomplish the goal set forth
in the statute and legislative history.
One commentator suggested that the
Asset Sale Rule should not apply to a taxable corporation transferring assets to a
tax-exempt entity in a like-kind exchange
described in section 1031 or an involuntary conversion described in section 1033.
In transactions described in these sections, the taxable corporation acquires replacement property that has a basis determined by reference to the basis of the
property replaced. Because the built-in
appreciation in the transferred asset is
preserved in the replacement asset and remains in the hands of a taxable corporation, General Utilities repeal is not circumvented in these transactions.
Accordingly, the final regulations exclude
transactions from the Asset Sale Rule to
the extent the transactions qualify for
nonrecognition of gain or loss under section 1031 or 1033.
Some commentators proposed removing section 528 homeowners associations
from the list of tax-exempt entities subject
to the regulations because dispositions of
assets by a homeowners association are
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 12
subject to tax. Under section 528, homeowners associations are subject to tax on
all of their income except for exempt
function income, which is defined as fees,
dues, or assessments from homeowners.
Gains from the sale of a homeowners association’s property are taxable; therefore, General Utilities repeal is not circumvented by transfers to homeowners
associations. In addition, the properties
that become the subject of section 528
homeowners associations generally are
developed as business ventures, and the
developer has substantial incentive to realize the increase in value of its assets in
connection with their transfer to the association, thus providing additional protection with respect to General Utilities repeal. Also, a homeowners association
may alternate between taxable and tax-exempt status because its exemption is
based on a year-by-year election under
section 528(c)(1)(E). In a given year, a
homeowners association may prefer taxable status to tax-exempt status under section 528 because a section 528 organization is taxed at a 30 percent flat rate on
income other than membership fees, dues,
or assessments, while a taxable homeowners association is subject to tax on all
income but at the progressive rates of section 11 (15 to 35 percent). The tax on
non-exempt income under section 528
may exceed the tax the association would
pay as a taxable corporation. Congress
anticipated that these entities may alternate between taxable and tax-exempt status and that the assets of these entities will
remain subject to tax on transfer. Imposing a tax on appreciated property each
time such an entity converts its status
could inhibit this flexibility. For this reason, and because General Utilities repeal
will not be compromised, the IRS and
Treasury Department believe that an organization’s election to be treated under section 528 for a tax year should not trigger
gain recognition. Accordingly, the final
regulations do not treat section 528 homeowners associations as tax-exempt entities for purposes of section 337(d). For
similar reasons, the final regulations do
not define political organizations described in section 527 as tax-exempt entities for purposes of section 337(d).
Some commentators suggested that social clubs that are tax-exempt as organizations described in section 501(c)(7)
January 25, 1999
should be removed from the list of tax-exempt entities for purposes of section
337(d). Commentators also suggested
that tax-exempt social clubs be allowed to
defer gain on transactions subject to the
regulations, because social clubs may be
subject to tax on gains from asset sales.
Section 512(a)(3)(A) generally taxes the
income of a section 501(c)(7) social club
except for the social club’s “exempt function income,” as defined in section
512(a)(3)(B). Section 512(a)(3)(A) also
applies to tax-exempt organizations described in section 501(c)(9), (17), or (20).
The final regulations, however, do not
provide relief from the general rules of
the regulations for section 501(c)(7) organizations. Unlike section 528 homeowners associations, section 501(c)(7) social
clubs are permitted to avoid gain recognition on certain asset sales. For example,
if the club replaces the property sold with
other property used directly in the performance of its tax-exempt function, no tax
is owed on any gain recognized. Because
of these exceptions, the IRS and Treasury
Department believe that deferring tax on
transfers of assets to section 501(c)(7) organizations would not be consistent with
General Utilities repeal. Accordingly, the
final regulations follow the proposed regulations and apply to transfers of assets to
section 501(c)(7) organizations.
2. Change in Status Rule
A significant number of commentators
contended that the Change in Status Rule
could have a major adverse effect on mutual or cooperative electric companies that
are tax-exempt as organizations described
in section 501(c)(12). That section provides tax exemption for benevolent life insurance associations of a purely local
character, mutual ditch or irrigation companies, mutual or cooperative telephone
companies, or like organizations (including mutual or cooperative electric companies), but only if more than 85 percent of
their income is collected from members
for the sole purpose of meeting losses and
expenses. The 85 percent test is applied
annually, so that an electric cooperative
could be taxable one year and tax-exempt
the next year. The commentators requested that electric cooperatives be given
relief from the Change in Status Rule because business exigencies may cause these
cooperatives to fail the 85 percent test.
12
They also noted that the relief provided in
the proposed regulations for organizations
temporarily losing their exempt status was
insufficient because more than 3 years
may elapse before the organization once
again meets the 85 percent test.
In addition to meeting the 85 percent
test, section 501(c)(12) organizations
must operate according to cooperative
principles to be eligible for exemption.
See Rev. Rul. 72–36, 1972–1 C.B. 151;
Buckeye Countrymark, Inc. v. Commissioner, 103 T.C. 547, 554–555 (1994),
acq. on other issues, 1997–1 C.B. 1; Puget
Sound Plywood, Inc. v. Commissioner, 44
T.C. 305, 308 (1965), acq. on other issues, 1966–2 C.B. 6. An organization
may operate according to cooperative
principles yet fail the 85 percent test.
Congress anticipated that section
501(c)(12) mutual or cooperative organizations could alternate between taxable
and tax-exempt status due to the operation
of the 85 percent income requirement.
The IRS and Treasury Department do not
believe it is appropriate to treat these entities as having disposed of all their assets
when they regain tax-exempt status where
the sole reason for their becoming taxable
was the failure to meet the 85 percent test.
Therefore, the final regulations provide
that the Change in Status Rule does not
apply when an organization previously
tax-exempt as an organization described
in section 501(c)(12) loses exemption
solely because it fails the 85 percent test
and later regains tax-exempt status, provided that in each intervening taxable
year it meets all the requirements for exemption under section 501(c)(12) except
for the 85 percent test.
One commentator suggested that because social clubs alternate between taxable and tax-exempt status they should be
given relief similar to that requested by
section 501(c)(12) organizations. Social
clubs can lose their tax exemption if they
generate excessive nonmember income in
a particular year. See S. Rep. No. 1318,
94th Cong., 2d Sess. 4 (1976), 1976–2
C.B. 599. After considering this comment and the Service’s experience with
these organizations, we have concluded
that the 3-Year Rule will provide adequate
relief for social clubs from inappropriate
application of the Change in Status Rule.
A number of commentators urged exempting newly formed social clubs from
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 13
the application of the regulations if they
become tax-exempt within seven years of
their formation, rather than within the
three-year period provided for other taxexempt entities. Those commentators explained that some social clubs are organized when a real estate developer
acquires land to be used for a housing development and a social club for the homeowners. The assets of the future social
club are held by a corporation, but it cannot qualify as a tax-exempt section
501(c)(7) organization until several years
later, after the stock or membership interests in the corporation have been transferred to the homeowners. Commentators
familiar with development practices advised that it often takes up to seven years
to transfer the club to the members’ control. Furthermore, because the developer
is forming the club as a business venture,
the developer will work to realize the increase in the value of the club’s assets as
part of the transfer. For these reasons,
providing additional time for newlyformed clubs to become tax-exempt does
not conflict with General Utilities repeal.
Therefore, the final regulations incorporate the recommendation made in the
comments and provide that a social club
will not be subject to the Change in Status
Rule if it converts to tax-exempt status
within seven taxable years after the year
in which it was formed.
Two commentators suggested that the
Change in Status Rule could adversely affect a taxable property and casualty insurance company that becomes tax-exempt
as an organization described in section
501(c)(15) when it encounters financial
difficulties leading to conservation or liquidation proceedings pursuant to authority granted by a state regulatory agency.
A taxable property or casualty insurance
company whose net written premiums or
direct written premiums are $350,000 or
less for the taxable year is eligible to be
exempt from tax under section
501(c)(15). The final regulations provide
an exception from the Change in Status
Rule if in a taxable year an insurance
company becomes an organization described in section 501(c)(15), and during
that year and all subsequent years in
which it is exempt under that section, the
insurance company is the subject of a
court supervised rehabilitation, conservatorship, liquidation, or similar state pro-
1999–4 I.R.B
ceeding. In such cases, the reduction in
premium income to $350,000 or less is
likely to be involuntary and a direct result
of the state proceeding. However, the
final regulations continue to apply the
Change in Status Rule to all other insurance companies qualifying for tax exemption under section 501(c)(15).
3. UBTI Rule
Some commentators asked how the
UBTI Rule would apply when assets that
are transferred to a tax-exempt entity are
used partly in an activity of the organization the income from which is subject to
tax under section 511(a) (“section 511(a)
activity”) and partly in other activities.
The UBTI Rule in the proposed regulations defers gain recognition with respect
to those assets that will be used in a section 511(a) activity of the tax-exempt entity after the asset is transferred to the taxexempt entity or after the taxable
corporation converts to tax-exempt status.
The final regulations provide that, if an
asset will be used partly or wholly in a
section 511(a) activity of a tax-exempt
entity, the taxable corporation will recognize an amount of gain or loss that bears
the same ratio to the asset’s built-in gain
or loss as 100 percent reduced by the percentage of use in the section 511(a) activity bears to 100 percent. The taxable corporation generally may rely on a written
representation from the tax-exempt entity
as to the anticipated percentage of use of
the asset in a section 511(a) activity during the first taxable year after the transfer
or change in status. If the percentage of
an asset’s use in the section 511(a) activity later decreases from the estimate used
in computing gain or loss when the asset
was transferred, the tax-exempt entity
will recognize part of the deferred gain or
loss in an amount that is proportionate to
the decrease in use in the section 511(a)
activity, and the gain or loss recognized
will be subject to tax under section
511(a). The tax-exempt entity must use
the same reasonable method of allocation
for determining the percentage it uses assets in the section 511(a) activity for purposes of the UBTI Rule as it uses for
other tax purposes (e.g., depreciation deductions). The tax-exempt entity also
must use this same reasonable method of
allocation for each taxable year that it
holds the assets.
13
One commentator asked that gain not
be recognized when a tax-exempt entity
disposes of an asset used in a section
511(a) activity in a transaction eligible for
nonrecognition treatment under the Code.
The proposed regulations provide that
gain is recognized on such dispositions
“notwithstanding any other provision of
law,” corresponding with the rule in section 337(b)(2)(B)(ii), and overruling the
application of nonrecognition provisions
such as section 512(b)(5). In response to
these comments, the final regulations
allow continuing deferral to the extent
that the tax-exempt entity disposes of assets in a transaction that qualifies for nonrecognition of gain or loss under section
1031 or section 1033, but only to the extent that the replacement asset is used in a
section 511(a) activity. No exception is
made with respect to other nonrecognition
provisions.
Special Analyses
It has been determined that this Treasury Decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. It is hereby
certified that the collection of information
in these regulations will not have a significant economic impact on a substantial
number of small entities. This certification is based upon the Internal Revenue
Service’s estimate that only 25 entities
per year will be responding to the collection of information, and that the total annual reporting burden of this information
collection for all responding entities will
be only 125 hours. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6)
is not required. Pursuant to section
7805(f), the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of these regulations is Stephen R. Cleary of the Office of
Assistant Chief Counsel (Corporate), IRS.
However, other personnel from the IRS
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 14
and Treasury Department participated in
their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Parts 1 and are
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
26 CFR Part 1 is amended by adding an
entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.337(d)–4 also issued under
26 U.S.C. 337. * * *
Par. 2. Section 1.337(d)–4 is added to
read as follows:
§1.337(d)–4 Taxable to tax-exempt.
(a) Gain or loss recognition—(1) General rule. Except as provided in paragraph (b) of this section, if a taxable corporation transfers all or substantially all
of its assets to one or more tax-exempt entities, the taxable corporation must recognize gain or loss immediately before the
transfer as if the assets transferred were
sold at their fair market values. But see
section 267 and paragraph (d) of this section concerning limitations on the recognition of loss.
(2) Change in corporation’s tax status
treated as asset transfer. Except as provided in paragraphs (a)(3) and (b) of this
section, a taxable corporation’s change in
status to a tax-exempt entity will be treated
as if it transferred all of its assets to a taxexempt entity immediately before the
change in status becomes effective in a
transaction to which paragraph (a)(1) of
this section applies. For example, if a
state, a political subdivision thereof, or an
entity any portion of whose income is excluded from gross income under section
115, acquires the stock of a taxable corporation and thereafter any of the taxable corporation’s income is excluded from gross
income under section 115, the taxable corporation will be treated as if it transferred
all of its assets to a tax-exempt entity immediately before the stock acquisition.
(3) Exceptions for certain changes in
status— (i) To whom available. Paragraph (a)(2) of this section does not apply
to the following corporations—
January 25, 1999
(A) A corporation previously tax-exempt under section 501(a) which regains
its tax-exempt status under section 501(a)
within three years from the later of a final
adverse adjudication on the corporation’s
tax exempt status, or the filing by the corporation, or by the Secretary or his delegate under section 6020(b), of a federal
income tax return of the type filed by a
taxable corporation;
(B) A corporation previously tax-exempt under section 501(a) or that applied
for but did not receive recognition of exemption under section 501(a) before January 15, 1997, if such corporation is taxexempt under section 501(a) within three
years from January 28, 1999;
(C) A newly formed corporation that is
tax-exempt under section 501(a) (other
than an organization described in section
501(c)(7)) within three taxable years from
the end of the taxable year in which it was
formed;
(D) A newly formed corporation that is
tax-exempt under section 501(a) as an organization described in section 501(c)(7)
within seven taxable years from the end
of the taxable year in which it was
formed;
(E) A corporation previously tax-exempt under section 501(a) as an organization described in section 501(c)(12),
which, in a given taxable year or years
prior to again becoming tax-exempt, is a
taxable corporation solely because less
than 85 percent of its income consists of
amounts collected from members for the
sole purpose of meeting losses and expenses; if, in a taxable year, such a corporation would be a taxable corporation
even if 85 percent or more of its income
consists of amounts collected from members for the sole purpose of meeting
losses and expenses (a non-85 percent violation), paragraph (a)(3)(i)(A) of this
section shall apply as if the corporation
became a taxable corporation in its first
taxable year that a non-85 percent violation occurred; or
(F) A corporation previously taxable
that becomes tax-exempt under section
501(a) as an organization described in
section 501(c)(15) if during each taxable
year in which it is described in section
501(c)(15) the organization is the subject
of a court supervised rehabilitation, conservatorship, liquidation, or similar state
proceeding; if such a corporation contin-
14
ues to be described in section 501(c)(15)
in a taxable year when it is no longer the
subject of a court supervised rehabilitation, conservatorship, liquidation, or similar state proceeding, paragraph (a)(2) of
this section shall apply as if the corporation first became tax-exempt for such taxable year.
(ii) Application for recognition. An organization is deemed to have or regain
tax-exempt status within one of the
periods described in paragraph (a)(3)(i)(A), (B), (C), or (D) of this section if it
files an application for recognition of
exemption with the Commissioner within
the applicable period and the application
either results in a determination by the
Commissioner or a final adjudication that
the organization is tax-exempt under section 501(a) during any part of the applicable period. The preceding sentence does
not require the filing of an application
for recognition of exemption by any organization not otherwise required, such
as by §1.501(a)–1, §1.505(c)–1T, and
§1.508–1(a), to apply for recognition of
exemption.
(iii) Anti-abuse rule. This paragraph
(a)(3) does not apply to a corporation that,
with a principal purpose of avoiding the
application of paragraph (a)(1) or (a)(2)
of this section, acquires all or substantially all of the assets of another taxable
corporation and then changes its status to
that of a tax-exempt entity.
(4) Related transactions. This section
applies to any series of related transactions having an effect similar to any of the
transactions to which this section applies.
(b) Exceptions. Paragraph (a) of this
section does not apply to—
(1) Any assets transferred to a tax-exempt entity to the extent that the assets are
used in an activity the income from which
is subject to tax under section 511(a) (referred to hereinafter as a “section 511(a)
activity”). However, if assets used to any
extent in a section 511(a) activity are disposed of by the tax-exempt entity, then,
notwithstanding any other provision of
law (except section 1031 or section
1033), any gain (not in excess of the
amount not recognized by reason of the
preceding sentence) shall be included in
the tax-exempt entity’s unrelated business
taxable income. To the extent that the
tax-exempt entity ceases to use the assets
in a section 511(a) activity, the entity will
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 15
be treated for purposes of this paragraph
(b)(1) as having disposed of the assets on
the date of the cessation for their fair market value. For purposes of paragraph
(a)(1) of this section and paragraph
(b)(1)—
(i) If during the first taxable year following the transfer of an asset or the corporation’s change to tax-exempt status the
asset will be used by the tax-exempt entity partly or wholly in a section 511(a)
activity, the taxable corporation will recognize an amount of gain or loss that
bears the same ratio to the asset’s built-in
gain or loss as 100 percent reduced by the
percentage of use for such taxable year in
the section 511(a) activity bears to 100
percent. For purposes of determining the
gain or loss, if any, to be recognized, the
taxable corporation may rely on a written
representation from the tax-exempt entity
estimating the percentage of the asset’s
anticipated use in a section 511(a) activity
for such taxable year, using a reasonable
method of allocation, unless the taxable
corporation has reason to believe that the
tax-exempt entity’s representation is not
made in good faith;
(ii) If for any taxable year the percentage of an asset’s use in a section 511(a)
activity decreases from the estimate used
in computing gain or loss recognized
under paragraph (b)(1)(i) of this section,
adjusted for any decreases taken into account under this paragraph (b)(1)(ii) in
prior taxable years, the tax-exempt entity
shall recognize an amount of gain or loss
that bears the same ratio to the asset’s
built-in gain or loss as the percentage
point decrease in use in the section 511(a)
activity for the taxable year bears to 100
percent;
(iii) If property on which all or a portion of the gain or loss is not recognized
by reason of the first sentence of paragraph (b)(1) of this section is disposed of
in a transaction that qualifies for nonrecognition treatment under section 1031
or section 1033, the tax-exempt entity
must treat the replacement property as remaining subject to paragraph (b)(1) of
this section to the extent that the exchanged or involuntarily converted property was so subject;
(iv) The tax-exempt entity must use the
same reasonable method of allocation for
determining the percentage that it uses the
assets in a section 511(a) activity as it
1999–4 I.R.B
uses for other tax purposes, such as determining the amount of depreciation deductions. The tax-exempt entity also must
use this same reasonable method of allocation for each taxable year that it holds
the assets; and
(v) An asset’s built-in gain or loss is the
amount that would be recognized under
paragraph (a)(1) of this section except for
this paragraph (b)(1).
(2) Any transfer of assets to the extent
gain or loss otherwise is recognized by
the taxable corporation on the transfer.
See, for example, sections 336, 337(b)(2),
367, and 1001;
(3) Any transfer of assets to the extent
the transaction qualifies for nonrecognition treatment under section 1031 or section 1033; or
(4) Any forfeiture of a taxable corporation’s assets in a criminal or civil action to
the United States, the government of a
possession of the United States, a state,
the District of Columbia, the government
of a foreign country, or a political subdivision of any of the foregoing; or any expropriation of a taxable corporation’s assets by the government of a foreign
country.
(c) Definitions. For purposes of this
section:
(1) Taxable corporation. A taxable
corporation is any corporation that is not
a tax-exempt entity as defined in paragraph (c)(2) of this section.
(2) Tax-exempt entity. A tax-exempt entity is—
(i) Any entity that is exempt from tax
under section 501(a) or section 529;
(ii) A charitable remainder annuity trust
or charitable remainder unitrust as defined in section 664(d);
(iii) The United States, the government
of a possession of the United States, a
state, the District of Columbia, the government of a foreign country, or a political subdivision of any of the foregoing;
(iv) An Indian Tribal Government as
defined in section 7701(a)(40), a subdivision of an Indian Tribal Government determined in accordance with section
7871(d), or an agency or instrumentality
of an Indian Tribal Government or subdivision thereof;
(v) An Indian Tribal Corporation organized under section 17 of the Indian Reorganization Act of 1934, 25 U.S.C. 477, or
section 3 of the Oklahoma Welfare Act,
25 U.S.C. 503;
15
(vi) An international organization as
defined in section 7701(a)(18);
(vii) An entity any portion of whose income is excluded under section 115; or
(viii) An entity that would not be taxable under the Internal Revenue Code for
reasons substantially similar to those applicable to any entity listed in this paragraph (c)(2) unless otherwise explicitly
made exempt from the application of this
section by statute or by action of the
Commissioner.
(3) Substantially all. The term substantially all has the same meaning as
under section 368(a)(1)(C).
(d) Loss limitation rule. For purposes
of determining the amount of gain or loss
recognized by a taxable corporation on
the transfer of its assets to a tax-exempt
entity under paragraph (a) of this section,
if assets are acquired by the taxable corporation in a transaction to which section
351 applied or as a contribution to capital,
or assets are distributed from the taxable
corporation to a shareholder or another
member of the taxable corporation’s affiliated group, and in either case such acquisition or distribution is made as part of a
plan a principal purpose of which is to
recognize loss by the taxable corporation
on the transfer of such assets to the taxexempt entity, the losses recognized by
the taxable corporation on such assets
transferred to the tax-exempt entity will
be disallowed. For purposes of the preceding sentence, the principles of section
336(d)(2) apply.
(e) Effective date. This section is applicable to transfers of assets as described
in paragraph (a) of this section occurring
after January 28, 1999, unless the transfer
is pursuant to a written agreement which
is (subject to customary conditions) binding on or before January 28, 1999.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In §602.101, paragraph (c) is
amended by adding an entry in numerical
order to the table to read as follows:
§602.101 OMB Control numbers.
* * * * *
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 16
(c) * * *
CFR part or section
where identified
and described
Current OMB
control No.
*****
1.337(d)–4 . . . . . . . . . . . . . . 1545–1633
*****
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
consent if required, in less than 30 days
after a participant receives a notice of distribution rights if the participant affirmatively so elects to have the distributions
commence. The regulations affect employers that maintain qualified plans, and
participants and beneficiaries in those
plans.
DATES: These regulations are effective
December 18, 1998.
FOR FURTHER INFORMATION CONTACT: Robert Walsh, (202) 622-6090
(not a toll- free number).
Approved December 17, 1998.
SUPPLEMENTARY INFORMATION:
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on December 28, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 29, 1998,
63 F.R. 71591)
Section 411.—Minimum Vesting
Standards
26 CFR 1.411(a)–11: Restriction and valuation of
distributions.
T.D. 8796
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Notice, Consent and Election
Requirements of Sections
411(a)(11) and 417 for
Qualified Retirement Plans
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
regulations that provide guidance concerning the notice and consent requirements under section 411(a)(11) and the
notice and election requirements under
section 417 for qualified retirement plans.
These regulations finalize proposed regulations published in the Federal Register
on September 22, 1995. In order to avoid
delay in the commencement of distributions, the regulations generally allow distributions to commence, with spousal
January 25, 1999
Paperwork Reduction Act
The collection of information contained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under the control number
1545–1471. Responses to this collection
of information are mandatory.
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
control number.
The estimated burden per respondent is
.011 hours.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224, and to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to this collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Income Tax Regulations (26 CFR part
1) under section 411(a)(11) and section
417(e). These regulations finalize proposed regulations that were published as a
16
notice of proposed rulemaking (EE–24–
93, 1995–2 C.B. 468) (REG–209626–93,
1995–2 C.B. 468) in the Federal Register (60 F.R. 49236) on September 22,
1995. The notice of proposed rulemaking
states that the text of the proposed regulations is the same as the text of temporary
regulations which were published in the
Federal Register (60 F.R. 49218) on the
same day. A public hearing was held on
the temporary regulations on April 24,
1996.
As indicated in Announcement 98–87
(1998–40 I.R.B. 11), the temporary regulations automatically expired in September, 1998, pursuant to section 7805(e).
Announcement 98–87 provides, however,
that plan sponsors may rely upon the
identical proposed regulations until they
are amended or finalized.
Prior to the issuance of the proposed
regulations, §1.411(a)–11(c) provided
that a participant’s consent to a distribution under section 411(a)(11) was not
valid unless the participant received a notice of his or her rights under the plan no
more than 90 and no less than 30 days
prior to the annuity starting date. Section
1.417(e)–1 set forth the same 90/30-day
time period for providing the notice explaining the qualified joint and survivor
annuity and waiver rights required under
section 417(a)(3) (QJSA explanation).
Temporary regulations providing guidance on the amendment to section 402(f)
made by the Unemployment Compensation Amendments of 1992 (UCA), published in October 1992, generally prescribed this 90/30-day time period for
purposes of the notice requirement under
that section. In the preamble to the UCA
temporary regulations, the IRS and Treasury requested comments on the appropriateness of this time period for section
411(a)(11), as well as for section 402(f).
In response to comments on the 90/30day time period, the proposed regulations
modified the 30-day time period for purposes of sections 411(a)(11) and 417.
Under the proposed regulations, if, after
having received the notice of distribution
rights described in §1.411(a)–11, a participant affirmatively elects a distribution, a
plan will not fail to satisfy the consent requirement of section 411(a)(11) merely
because the distribution is made less than
30 days after the notice was provided to
the participant.
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 17
The proposed regulations under section
417 made the same change to §1.417(e)–1
and also provided a more limited modification to the 30-day time period in
§1.417(e)–1. The reception to this change
to the 30-day period for purposes of section 417 was generally favorable.
Commentators expressed concern
about the restatement in the proposed regulations of the statutory requirement that
the QJSA explanation be provided before
the annuity starting date because this requirement precluded retroactive annuity
payments for any period before the explanation was provided. Subsequently, section 1451 of the Small Business Job Protection Act of 1996, Public Law 104-188,
110 Stat. 1755 (SBJPA) added section
417(a)(7) to the Internal Revenue Code
effective for plan years beginning on or
after January 1, 1997. Section 417(a)(7)
permits the plan to provide the QJSA explanation after the annuity starting date.
After consideration of the comments,
these final regulations generally adopt the
provisions of the proposed regulations.
However, the final regulations under section 417 have been modified to provide
that, for plan years beginning after December 31, 1996, the requirement that the
QJSA explanation be provided before the
annuity starting date does not apply to the
extent provided under section 417(a)(7).
Explanation of Provisions
1. Overview of Statutory Provisions
Section 411(a)(11) provides that, if the
value of a participant’s accrued benefit
exceeds $5,000, a qualified plan generally
may not distribute the benefit to the participant without the participant’s consent.
Section 401(a)(11) requires that certain
distributions be made in the form of a
qualified joint and survivor annuity
(QJSA) unless, in accordance with section 417, the participant waives the QJSA
and elects a different form of benefit.
Profit-sharing plans and stock bonus
plans that meet the requirements of sections 401(a)(11)(B)(iii)(I) through (III)
are not subject to the survivor annuity requirements of sections 401(a)(11) and
417.
Section 417 sets forth the requirements
applicable to a waiver of the QJSA. Section 417(a) requires the participant to obtain the consent of the participant’s
spouse, if any, to any waiver of the QJSA
1999–4 I.R.B
and election of a form of benefit other
than a QJSA. Any election made by the
participant must be revocable during the
90-day period ending on the annuity starting date. Section 417(a)(3) requires that,
within a reasonable period of time before
the participant’s annuity starting date, a
plan provide the participant with a notice
explaining the participant’s right to the
QJSA and the participant’s right to waive
the QJSA (QJSA explanation).
Section 417(a)(7)(B), added by SBJPA,
codified the provision in the proposed
regulations which provides that a plan
may permit a participant to elect (with applicable spousal consent) a distribution
with an annuity starting date after the
QJSA explanation was provided but before 30 days have elapsed, as long as the
distribution commences more than seven
days after the explanation was provided.
As discussed above, section 417(a)(7)(A)
further provides that a plan is permitted to
provide the QJSA explanation after the
annuity starting date if the distribution
commences at least 30 days after such explanation was provided, subject to the
same waiver of the 30-day minimum
waiting period. This is intended to allow
retroactive payments of benefits which
are attributable to the period before the
explanation.
2. Waiver of 30-day Period for QJSA
Explanation
The proposed regulations permit a plan
administrator (where not inconsistent
with the terms of the plan) to commence
distributions before the end of the 30-day
time period after the QJSA explanation is
provided, if certain requirements are met.
Specifically, after an affirmative distribution election, with any applicable spousal
consent, the plan may permit the distribution to commence at any time more than
seven days after the QJSA explanation
was provided to the participant. Any distribution election must remain revocable
until the later of the annuity starting date
or the expiration of the seven-day period
that begins the day after the QJSA explanation is provided. For example, if a married participant receives the explanation
of the QJSA on November 28 and elects
(with spousal consent) on December 2 to
waive the QJSA and receive an immediate
single life annuity, the annuity starting
date is permitted to be December 1, pro-
17
vided that the first payment is made no
earlier than December 6 and the participant does not revoke the election before
that date.
Most commentators expressed approval of this change to the 30-day waiting period. However, one commentator
indicated that this change would create an
incentive for participants to pressure their
spouses to consent to any waiver of the
QJSA as quickly as possible. Because it
has been codified by section 417(a)(7)(B), the final regulations retain this
waiver provision.
3. Provision of QJSA Explanation After
Annuity Starting Date
The proposed regulations provide that
the annuity starting date must be a date
after the explanation of the QJSA is provided to the participant, but may precede
the date the participant affirmatively elects
a distribution or the date the distribution
commences. Commentators indicated that
this rule disadvantaged participants because it does not allow a retroactive annuity starting date to a date before the QJSA
explanation was provided. However, prior
to its amendment by SBJPA, the plain language of section 417 required the QJSA
explanation to be provided before the annuity starting date.
As discussed above, section 1451 of
the SBJPA added section 417(a)(7)(A) to
the Code. That section provides that a
plan may provide the QJSA explanation
after the annuity starting date and that the
applicable election period shall not end
before the 30th day after the date on
which the explanation is provided. Thus,
section 417(a)(7)(A) allows retroactive
payments of benefits which are attributable to the period before the QJSA explanation is provided. Accordingly, the final
regulations provide that, for plan years
beginning after December 31, 1996, the
requirement that the QJSA explanation be
provided before the annuity starting date
does not apply to the extent provided
under section 417(a)(7).
Section 417(a)(7)(A) provides that the
Secretary may by regulations limit its application except that such regulations may
not limit the period of time by which the
annuity starting date precedes the provision of the written explanation other than
by providing that the annuity starting date
may not be earlier than termination of employment.
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 18
4. Use of Electronic Media for Notices
and Consent
Comments on the proposed regulations
requested that the IRS and Treasury clarify the extent to which plans may use new
technologies, including electronic media,
for providing notices under sections
402(f), 411(a)(11) and 417, and for receiving participant and beneficiary consents and elections under sections
411(a)(11) and 417. Subsequently, section 1510 of the Taxpayer Relief Act of
1997 (TRA ’97) provided generally for
the Secretary of the Treasury to issue
guidance concerning the use of new technologies in the administration of retirement plans. Announcement 98–62
(1998–29 I.R.B. 13) requested comments
on the guidance described in section
1510.
After consideration of the comments on
the proposed regulations and Announcement 98–62, the IRS and Treasury have
decided to propose regulations regarding
the use of electronic media to provide notices under sections 402(f), 411(a)(11),
and section 3405(e)(10) and for receiving
participant consent under section 411(a)(11). Those proposed regulations are set
forth in a notice of proposed rulemaking
published elsewhere in this issue of the
Federal Register.
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and because
the notice of proposed rulemaking was issued prior to March 29, 1996, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section
7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding
these regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
5. 90-day Time Period
Comments on the proposed regulations
requested an expansion of the 90-day time
period, and the IRS and the Treasury have
decided to propose changes to the 90/30day period for providing notices under
sections 402(f) and 411(a)(11). These
changes are included in the proposed regulations on the use of new technologies,
which are set forth in a notice of proposed
rulemaking published elsewhere in this
issue of the Federal Register.
PART 1—INCOME TAXES
6. Effective Dates
The regulations apply to distributions on
or after September 22, 1995. However,
plan sponsors and plan administrators may
rely on the regulations under section
411(a)(11) as though they were included in
the final regulations under section
411(a)(11) published in 1988–2 C.B. 48.
Special Analyses
It has been determined that this Treasury decision is not a significant regula-
January 25, 1999
Drafting Information
The principal author of these regulations is Robert Walsh, Office of the Associate Chief Counsel (Employee Benefits
and Exempt Organizations), IRS. However, other personnel from the IRS and
Treasury Department participated in their
development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.411(a)–11 is amended
as follows:
1. Paragraph (c)(2)(ii) is revised.
2. Paragraphs (c)(2)(iii), (c)(2)(iv),
(c)(2)(v) and (c)(8) are added.
The revision and additions read as follows:
§1.411(a)–11 Restriction and valuation
of distributions.
* * * * *
(c) * * *
(2) * * *
(ii) Written consent of the participant
to the distribution must not be made before the participant receives the notice of
his or her rights specified in this paragraph (c)(2) and must not be made more
18
than 90 days before the date the distribution commences.
(iii) A plan must provide participants
with notice of their rights specified in this
paragraph (c)(2) no less than 30 days and
no more than 90 days before the date the
distribution commences. However, if the
participant, after having received this notice, affirmatively elects a distribution, a
plan will not fail to satisfy the consent requirement of section 411(a)(11) merely
because the distribution commences less
than 30 days after the notice was provided
to the participant, provided that the following requirement is met. The plan administrator must provide information to
the participant clearly indicating that (in
accordance with the first sentence of this
paragraph (c)(2)(iii)) the participant has a
right to at least 30 days to consider
whether to consent to the distribution.
(iv) For purposes of satisfying the requirements of this paragraph (c)(2), the
plan administrator may substitute the annuity starting date, within the meaning of
§1.401(a)–20, Q&A-10, for the date the
distribution commences.
(v) See §1.401(a)–20, Q&A–24 for a
special rule applicable to consents to plan
loans.
* * * * *
(8) Delegation to Commissioner. The
Commissioner, in revenue rulings, notices, and other guidance published in the
Internal Revenue Bulletin, may modify,
or provide additional guidance with respect to, the notice and consent requirements of this section. See §601.601(d)(2)(ii)(b) of this chapter.
* * * * *
§1.411(a)–11T [Removed]
Par. 3. Section 1.411(a)–11T is removed.
Par. 4. Section 1.417(e)–1 is amended
as follows:
1. Paragraph (b)(3) is revised.
2. Paragraph (b)(4) is added.
The revision and addition read as follows:
§1.417(e)–1 Restrictions and valuations
of distributions from plans subject to
sections 401(a)(11) and 417.
* * * * *
(b) * * *
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 19
(3) Time of consent. (i) Written consent of the participant and the participant’s spouse to the distribution must be
made not more than 90 days before the
annuity starting date.
(ii) A plan must provide participants
with the written explanation of the QJSA
required by section 417(a)(3) no less than
30 days and no more than 90 days before
the annuity starting date (except as otherwise provided by section 417(a)(7) for
plan years beginning after December 31,
1996). However, if the participant, after
having received the written explanation of
the QJSA, affirmatively elects a form of
distribution and the spouse consents to
that form of distribution (if necessary), a
plan will not fail to satisfy the requirements of section 417(a) merely because
the annuity starting date is less than 30
days after the written explanation was
provided to the participant, provided that
the following requirements are met:
(A) The plan administrator provides information to the participant clearly indicating that (in accordance with the first
sentence of this paragraph (b)(3)(ii)) the
participant has a right to at least 30 days
to consider whether to waive the QJSA
and consent to a form of distribution other
than a QJSA.
(B) The participant is permitted to revoke an affirmative distribution election
at least until the annuity starting date, or,
if later, at any time prior to the expiration
of the 7-day period that begins the day
after the explanation of the QJSA is provided to the participant.
(C) The annuity starting date is after
the date that the explanation of the QJSA
is provided to the participant (except as
otherwise provided by section 417(a)(7)
for plan years beginning after December
31, 1996). However, the plan may permit
the annuity starting date to be before the
date that any affirmative distribution election is made by the participant and before
the date that the distribution is permitted
to commence under paragraph (b)(3)(ii)(D) of this section.
(D) Distribution in accordance with
the affirmative election does not commence before the expiration of the 7-day
period that begins the day after the explanation of the QJSA is provided to the participant.
1999–4 I.R.B
(iii) The following example illustrates
the provisions of this paragraph (b)(3):
Example. Employee E, a married participant in a
defined benefit plan who has terminated employment, is provided with the explanation of the QJSA
on November 28. Employee E elects (with spousal
consent) on December 2 to waive the QJSA and receive an immediate distribution in the form of a single life annuity. The plan may permit Employee E
to receive payments with an annuity starting date of
December 1, provided that the first payment is made
no earlier than December 6 and the participant does
not revoke the election before that date. The plan
can make the remaining monthly payments on the
first day of each month thereafter in accordance with
its regular payment schedule.
(iv) The additional rules of this paragraph (b)(3) concerning the notice and
consent requirements of section 417 apply
to distributions on or after September 22,
1995. For distributions before September
22, 1995, the additional rules concerning
the notice and consent requirements of
section 417 in §1.417(e)–1(b)(3) in effect
prior to September 22, 1995 (see
§1.417(e)–1 (b)(3) in 26 CFR Part 1 revised as of April 1, 1995) apply.
(4) Delegation to Commissioner. The
Commissioner, in revenue rulings, notices, and other guidance published in the
Internal Revenue Bulletin, may modify,
or provide additional guidance with respect to, the notice and consent requirements of this section. See §601.601(d)(2)(ii)(b) of this chapter.
* * * * *
§1.417(e)–1T [Amended]
Par. 5. In §1.417(e)–1T, paragraphs
(b)(3) and (4) are removed.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 6. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 7. In §602.101, the table in paragraph (c) is amended by removing the
entry for 1.411(a)–11T and adding the
following entries in numerical order to
read as follows:
§602.101 OMB Control numbers.
* * * * *
(c) * * *
19
CFR part or section
where identified
and described
Current OMB
control No.
*****
1.411(a)–11 . . . . . . . . . . . . . . 1545-1471
*****
1.417(e)–1 . . . . . . . . . . . . . . 1545–1471
*****
John M. Dalrymple,
Acting Deputy Commissioner
of Internal Revenue.
Approved December 2, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on December 17, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 18, 1998,
63 F.R. 70009)
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores. The November 1998 Bureau of
Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or with
reference to, November 30, 1998.
Rev. Rul. 99–4
The following Department Store Inventory Price Indexes for November 1998
were issued by the Bureau of Labor Statistics. The indexes are accepted by the
Internal Revenue Service, under § 1.472–
1(k) of the Income Tax Regulations and
Rev. Proc. 86–46, 1986–2 C.B. 739, for
appropriate application to inventories of
department stores employing the retail inventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, November 30, 1998.
The Department Store Inventory Price
Indexes are prepared on a national basis
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 20
and include (a) 23 major groups of departments, (b) three special combinations of
the major groups – soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Groups
Nov.
1997
Nov.
1998
Percent Change
from Nov.1997
to Nov. 19981
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
524.6
628.2
661.7
906.9
618.2
552.9
298.8
543.7
428.4
621.2
604.0
513.1
978.9
807.7
917.8
665.8
580.1
811.7
241.0
74.2
108.3
133.2
107.9
544.5
635.9
685.8
916.9
638.3
570.4
308.4
546.5
417.0
619.5
608.4
519.0
977.1
766.3
945.3
686.8
602.2
811.3
238.9
70.1
102.2
129.6
107.9
3.8
1.2
3.6
1.1
3.3
3.2
3.2
0.5
–2.7
–0.3
0.7
1.1
–0.2
–5.1
3.0
3.2
3.8
0.0
–0.9
–5.5
–5.6
–2.7
0.0
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606.5
610.0
0.6
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462.6
460.4
– 0.5
Groups 21 – 23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.4
106.9
–4.0
Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555.9
554.9
–0.2
Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infants’ Wear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . .
Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . .
Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1Absence
of a minus sign before percentage change in this column signifies price increase.
on a January 1986=100 base.
3The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.
2Indexes
DRAFTING INFORMATION
Section 1502.—Regulations
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information regarding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a tollfree call).
26 CFR 1.1502–9T: Application of overall foreign
loss recapture rules to corporations filing consolidated returns (temporary).
January 25, 1999
T.D. 8800
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
20
Consolidated Returns—
Limitation on Recapture
of Overall Foreign Loss
Accounts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulations.
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 21
SUMMARY: This document contains
temporary amendments to the consolidated return regulations. The temporary
amendments modify the date temporary
regulations apply as published in the Federal Register on January 12, 1998, and
modified by amendments published in the
Federal Register on March 16, 1998, relating to a consolidated group’s recapture
of an overall foreign loss account arising
in a separate return limitation year. The
regulations affect consolidated groups
that claim foreign tax credits. The text of
the temporary regulations also serves as
the text of the proposed regulations set
forth in the notice of proposed rulemaking
on this subject in the Proposed Rules section of this issue of the Federal Register.
DATES: Effective dates: These amendments are effective December 29, 1998.
Applicability dates: For dates of applicability of these regulations, see
§1.1502–9T(b)(1)(v).
FOR FURTHER INFORMATION CONTACT: Trina Dang of the Office of Associate Chief Counsel (International), (202)
622-3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
As announced in Notice 98–40 (1998–
35 I.R.B. 7), these temporary regulations
permit taxpayers to elect to delay the effective date of §1.1502–9T, published in the
Federal Register on January 12, 1998
(T.D. 8751, 63 F.R. 1740 [1998–10 I.R.B.
23]), and modified by amendments published in the Federal Register on March
16, 1998 (T.D. 8766, 63 F.R. 12641 [1998–
16 I.R.B. 17]).
On January 12, 1998, Treasury and the
IRS published in the Federal Register
(T.D. 8751, 63 F.R. 1740) final, temporary and proposed regulations (the January 1998 regulations) relating to limitations on the use of certain tax credits and
related attributes by corporations filing
consolidated income tax returns. In general, the January 1998 regulations relate
to the separate return limitation year
(SRLY) provisions for general business
credits, alternative minimum tax credits,
foreign tax credits and overall foreign loss
accounts. The January 1998 regulations
were generally applicable to consolidated
1999–4 I.R.B
return years beginning on or after January
1, 1997.
On March 16, 1998, Treasury and the
IRS published in the Federal Register
(T.D. 8766, 63 F.R. 12641 [1998–16
I.R.B. 17]) final, temporary, and proposed
regulations (the March 1998 regulations)
modifying the effective date of the January 1998 regulations. The March 1998
regulations provide that the provisions of
the January 1998 regulations will apply
for consolidated return years for which
the due date (without extensions) of the
income tax return is after March 13, 1998.
In lieu of applying this effective date,
however, the March 1998 regulations permit a consolidated group to choose to
apply the effective date provisions under
the January 1998 regulations. The March
1998 regulations provide that taxpayers
making this choice must apply all those
effective date provisions for all relevant
years. Thus, under the March 1998 regulations, taxpayers are not permitted to
apply one provision of the January 1998
regulations (e.g., the general business
credit effective date) without applying all
the other provisions (e.g., the foreign tax
credit effective date).
On May 7, 1998, a public hearing was
held regarding the proposed January and
March regulations. At the hearing and in
written submissions, commentators expressed concern regarding the effective
dates contained in the January 1998 and
March 1998 regulations with respect to
the overall foreign loss account provisions of §1.1502–9T. The commentators’
principal concern was that these effective
dates resulted in adverse tax consequences not anticipated by taxpayers with
respect to business transactions that occurred prior to the issuance of the January
1998 regulations. Treasury and the IRS
now believe that certain of these consequences are inappropriate.
Accordingly, on August 14, 1998, Treasury and the Service issued Notice 98–40
(1998–35 I.R.B. 7), announcing their intent to issue regulations providing relief
from the application of §1.1502–9T (the
overall foreign loss account provisions)
for consolidated return years beginning
before January 1, 1998.
Explanation of Provisions
As announced in Notice 98–40, taxpayers are permitted to elect not to apply
21
§1.1502–9T(b)(1)(v) to consolidated return years beginning before January 1,
1998. Section 1.1502–3T(c)(4) is
amended to clarify that a taxpayer that
chooses under the March 1998 regulations to apply the effective date provisions under the January 1998 regulations
may also make the election referred to in
Notice 98–40.
To make the election, a taxpayer must
write “Election Pursuant to Notice 98–
40” across the top of page 1 of an original
or amended tax return for each consolidated return year subject to the election.
For the first consolidated return year to
which the overall foreign loss provisions
of §1.1502–9T apply (i.e., the first year
beginning on or after January 1, 1998),
such taxpayer must write “Notice 98–40
Election in Effect in Prior Years” across
the top of page 1 of the consolidated tax
return for that year. For purposes of applying §1.1502–9T with respect to such
year, any member with a balance in an
overall foreign loss account from a separate return limitation year on the first day
of such year shall be treated as joining the
group on such first day.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It is hereby certified that these
regulations do not have a significant economic impact on a substantial number of
small entities. This certification is based
on the fact that these regulations principally affect corporations filing consolidated federal income tax returns that have
overall foreign losses from separate return
limitation years. Available data indicates
that many consolidated return filers are
large companies (not small businesses).
In addition, the data indicates that an insubstantial number of consolidated return
filers that are smaller companies have
overall foreign losses. Presumably, even
fewer of these filers have overall foreign
loss accounts that are subject to the separate return limitation year rules. Therefore, a Regulatory Flexibility Analysis
under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. It has
also been determined that under section
553(d) of the Administrative Procedure
Act (5 U.S.C. chapter 5) these regulations
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 22
should be effective immediately because
they involve the applicability of regulations that modify the limitations on the use
of certain tax attributes for taxable years
for which a return is due after March 13,
1998. Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of proposed rulemaking accompanying these
regulations is being sent to the Small
Business Administration for comment on
its impact on small businesses.
The principal author of these regulations
is Trina Dang of the Office of Associate
Chief Counsel (International). However,
other personnel from the IRS and Treasury
participated in their development.
(a) * * * See §1.1502–9T(b)(1)(v) for
the rule that ends the separate return limitation year limitation for consolidated return years for which the due date of the
income tax return (without extensions) is
after March 13, 1998, and §1.1502–
9T(b)(1)(vi) for an election to continue
the separate return limitation year limitation for consolidated return years beginning before January 1, 1998. See also
§1.1502–3T(c)(4) for an optional effective date rule (generally making the rules
of paragraphs (b)(1)(iii) and (iv) of this
section inapplicable for a consolidated return year beginning after December 31,
1996, if the due date of the income tax return (without extensions) for such year is
on or before March 13, 1998).
* * * * *
* * * * *
Drafting Information
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph . The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1502–3T is amended
by removing the last sentence of paragraph (c)(4) and adding two sentences in
its place to read as follows:
§1.1502–3T Consolidated investment
credit (temporary).
* * * * *
(c) * * *
(4) * * * A consolidated group making
this choice generally must apply all such
paragraphs for all relevant years. However, a consolidated group making the
election provided in §1.1502–9T(b)(1)(vi)
(electing not to apply §1.1502–9T(b)(1)(v) to years beginning before January 1,
1998) may nevertheless choose to apply
all such paragraphs other than §1.1502–
9T(b)(1)(v) for all relevant years.
* * * * *
Par. 3. In §1.1502–9, paragraph (a) is
amended by revising the last two sentences to read as follows:
§1.1502–9 Application of overall foreign
loss recapture rules to corporations filing
consolidated returns.
January 25, 1999
Par. 4. Section 1.1502–9T is amended
by revising paragraph (b)(1)(v) and
adding paragraph (b)(1)(vi) to read as follows:
§1.1502–9T Application of overall
foreign loss recapture rules to
corporations filing consolidated returns
(temporary).
* * * * *
(b)(1)(v) Special effective date for
SRLY limitation. Except as provided in
paragraph (b)(1)(vi) of this section,
§1.1502–9(b)(1)(iii) and (iv) apply only
to consolidated return years for which the
due date of the income tax return (without
extensions) is on or before March 13,
1998. For consolidated return years for
which the due date of the income tax return (without extensions) is after March
13, 1998, the rules of §1.1502–9(b)(1)(ii)
shall apply to overall foreign losses from
separate return years that are separate return limitation years. For purposes of applying §1.1502–9(b)(1)(ii) in such years,
the group treats a member with a balance
in an overall foreign loss account from a
separate return limitation year on the first
day of the first consolidated return year
for which the due date of the income tax
return (without extensions) is after March
13, 1998, as a corporation joining the
group on such first day. An overall foreign loss that is part of a net operating
loss or net capital loss carryover from a
separate return limitation year of a member that is absorbed in a consolidated return year for which the due date of the in-
22
come tax return (without extensions) is
after March 13, 1998, shall be added to
the appropriate consolidated overall foreign loss account in the year that it is absorbed. For consolidated return years for
which the due date of the income tax return (without extensions) is after March
13, 1998, similar principles apply to overall foreign losses when there has been a
consolidated return change of ownership
(regardless of when the change of ownership occurred). See also §1.1502–3T(c)(4) for an optional effective date rule
(generally making this paragraph
(b)(1)(v) applicable to a consolidated return year beginning after December 31,
1996, if the due date of the income tax return (without extensions) for such year is
on or before March 13, 1998).
(vi) Election to defer application of
special effective date. A consolidated
group may elect not to apply paragraph
(b)(1)(v) of this section to consolidated
return years beginning before January 1,
1998. To make this election, a consolidated group must write “Election Pursuant to Notice 98–40” across the top of
page 1 of an original or amended tax return for each consolidated return year
subject to the election. For the first consolidated return year to which the overall
foreign loss provisions of paragraph
(b)(1)(v) of this section apply (i.e., the
first year beginning on or after January 1,
1998), such consolidated group must
write “Notice 98–40 Election in Effect in
Prior Years” across the top of page 1 of
the consolidated tax return for that year.
For purposes of applying §1.1502–9(b)(1)(ii) with respect to such year, any
member with a balance in an overall foreign loss account from a separate return
limitation year on the first day of such
year shall be treated as joining the group
on such first day.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on December 28, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 29, 1998,
63 F.R. 71589)
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 23
Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest Rate
Update
Notice 99–7
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current liability for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103–465
(GATT).
Month
Year
Weighted
Average
January
1999
6.24
Drafting Information
The principal author of this notice is
Todd Newman of the Employee Plans Division. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Mr. Newman’s number
is (202) 622-8458 (also not a toll-free
number).
Low-Income Taxpayer Clinics
Grant Program: Availability of
Draft Grant Application Package
Notice 99–9
SUMMARY: This document contains a
Notice that the IRS has made available,
for public comment, a draft of the Low
Income Taxpayer Clinic Grant application
package. The IRS solicits public comment in order that interested parties may
present their views to the IRS prior to implementation of the new grant program
during 1999. Consideration will be given
to these comments before a final grant application package is adopted in Spring
1999. Copies of the draft grant application package can be downloaded from the
IRS Internet site at: http://www.irs.ustreas.gov.
DATES: Submit written comments on or
before February 27, 1999.
1999–4 I.R.B
The average yield on the 30-year Treasury Constant Maturities for December
1998 is 5.06 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
90% to 105%
Permissible
Range
90% to 110%
Permissible
Range
5.62 to 6.55
5.62 to 6.87
ADDRESSES: Send submissions to: Internal Revenue Service (Attn: LITC Grant
C7-171), 5000 Ellin Road, Lanham, MD
20706. Alternatively, submit commits
and data via electronic mail (e-mail) to:
*[email protected].
irs.ustreas.gov. The IRS is soliciting
written comments on this draft grant application package on or before February
27, 1999. Consideration will be given to
these comments before a final grant application package is adopted in Spring 1999.
FOR FURTHER INFORMATION CONTACT: Concerning the grant program and
the submissions of comments, Eli McDavid, 202-283-0181 (not a toll free number).
Issues for Comment
SUPPLEMENTARY INFORMATION:
Section 3601 of the IRS Restructuring
and Reform Act of 1998, Pub. Law No.
105-206, added new section 7526 to the
Internal Revenue Code. Section 3601 authorizes the IRS, subject to the availability of appropriated funds, to make grants
to provide matching funds for the development, expansion, or continuation of
qualified low income taxpayer clinics.
Section 3601 authorizes the IRS to provide grants to qualified organizations that
provide legal assistance to low-income
taxpayers having disputes with the IRS.
The IRS also may provide grants to qualified organizations that operate programs
to inform individuals, for whom English
is a second language, about their rights
and responsibilities under the Internal
Revenue Code. Copies of the draft grant
application package can be downloaded
from the IRS Internet site at: http://www.
23
The IRS invites public comments on
the following issues (and any others)
raised by the new grant program or draft
application package:
(1) What should be considered a
“nominal fee” for purposes of section
7526(b)(1)(A)(I)?
(2) How should satisfaction of the
“90%/250%” income requirements contained in section 7526(b)(1)(B)(I) be determined?
(3) What should be considered in evaluating the “criteria for awards” set forth
in section 7526(b)(4)?
Deborah Butler,
Assistant Chief Counsel,
Office of Assistant Chief
Counsel (Field Service).
(Filed by the Office of the Federal Register on January 11, 1999, 1:41 p.m., and published in the issue of
the Federal Register for January 14, 1999, 64 F.R.
2535)
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 24
Part IV. Items of General Interest
Announcement 99-6
The IRS Will Permit Electronic
Submission of Forms W-4P,
W-4S, and W-4V
The Internal Revenue Service will
allow payers to establish a system to electronically receive Forms W-4P, Withholding Certificate for Pension or Annuity
Payments, W-4S, Request for Federal Income Tax Withholding From Sick Pay,
and W-4V, Voluntary Withholding Request. In general, the electronic system
must meet the requirements described in
paragraphs (1) through (6) below. In the
next revision of Publication 15-A, Employer’s Supplemental Tax Guide, the
IRS will reflect the provisions of this announcement.
For purposes of this announcement,
“payer” refers to a person authorized to
withhold income taxes under section 3402
of the Internal Revenue Code and file an
information return with respect to such
withholdings. “Payee” refers to the person who receives income from a payer.
Forms W-4P, W-4S, and W-4V
The Internal Revenue Service will
allow payers of pensions or annuities,
sick pay, unemployment compensation,
social security benefits, including social
security equivalent tier 1 railroad retirement benefits, Commodity Credit Corporation loans, and certain crop disaster
payments, to establish a system for payees to electronically submit Forms W-4P,
W-4S, and W-4V. In general, the electronic system must meet the requirements
described in paragraphs (1) – (6) below.
Requirements
(1) In general. The electronic system
must ensure that the information received
by the payer is the information sent by the
payee. The system must document all occasions of user access that result in a submission. In addition, the design and operation of the electronic system, including
access procedures, must make it reasonably certain that the person accessing the
system and submitting the Form W-4P,
W-4S, or W-4V is the person identified on
the form.
January 25, 1999
(2) Same information as on paper
Forms W-4P, W-4S, or W-4V. The electronic submission must provide the payer
with exactly the same information as the
paper Forms W-4P, W-4S, or W-4V.
(3) Signature requirement. The electronic submission must be signed with an
electronic signature by the payee whose
name is on the Form W-4P, W-4S, or W4V. The electronic signature must identify the payee submitting the electronic
form and must authenticate the submission. For this purpose, the term “authenticate” has the same meaning as it does
when applied to a written signature on a
paper Form W-4P, W-4S, or W-4V. An
electronic signature can be in any form
that satisfies the foregoing requirements.
The electronic signature must be the final
entry in the submission.
(4) Copies of electronic Forms W-4P,
W-4S, or W-4V. Upon request by the Internal Revenue Service, the payer must
supply a hard copy of the electronic Form
W-4P, W-4S, or W-4V and a statement
that, to the best of the payer’s knowledge,
the electronic Form W-4P, W-4S, or W4V was submitted by the named payee.
The hard copy of the electronic Form W4P, W-4S, or W-4V must provide exactly
the same information as, but need not be a
facsimile of, the respective paper form.
(5) Recordkeeping. Payers who choose
to establish a system to receive electronic
Forms W-4P, W-4S, or W-4V must comply with the applicable recordkeeping requirements. See Rev. Proc. 98–25, 1998–
11 I.R.B. 7.
(6) Effective date. This announcement
applies to Forms W-4P, W-4S, and W- 4V
submitted electronically by payees on or
after January 25, 1999.
For further information regarding this
announcement, contact Jean Casey of the
Office of the Associate Chief Counsel
(Employee Benefits and Exempt Organizations) at (202)622-6060 (not a toll-free
call).
Correction of 1998 Instructions
for Form 1040NR
Announcement 99–8
The printed version of the 1998 Instructions for Form 1040NR, U.S. Non-
24
resident Alien Income Tax Return, contains an error. Line 2 of the Itemized Deductions Worksheet (page 15 of the instructions) should read:
“Enter the total of the amount on
Schedule A, line 8, plus any casualty or
theft losses included on line 16.”
The 1998 Form 1040NR instructions
posted on the IRS Internet web site are
correct.
Foundations Status of Certain
Organizations
Announcement 99–9
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices
under section 508(b) of the Code. This
listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.
Former Public Charities. The following
organizations (which have been treated as
organizations that are not private foundations described in section 509(a) of the
Code) are now classified as private foundations:
Childlink International Inc., Chevy
Chase, MD
Children and Family First Inc., Jackson,
MS
Children at Heart Inc., East Brunswick,
NJ
Children-in-Need Center, Milwaukie, OR
Children Inc., Memphis, TN
Children Living With AIDS, Lancaster,
OH
Children of the Future, Chicago, IL
Children of Yahu, Albany, MN
Childrens Advocacy & Treatment Center
in Huntington Inc., Huntington, WV
Childrens Aid Fund Inc., Lakewood, NJ
Childrens Alternative Learning Program,
Rodeo, CA
Childrens Art Studio of Wellesley Inc.,
Wellesley, MA
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 25
Childrens Community Garden Inc.,
Raleigh, NC
Childrens Dental Care Inc., Spring, TX
Childrens Exploratory Inc., San Diego,
CA
Childrens Foundation Inc., Lafayette, LA
Childrens Heart Project International,
Birmingham, AL
Childrens Home Inc., Antioch, CA
Childrens Rescue Mission Inc., Pearland,
TX
Childrens Safety Foundation Inc.,
Goldenrod, FL
Childrens Survival Center, Atlanta, GA
Chilhowie Community Fund
Incorporated, Chilhowie, VA
Chilmark Town Affairs Council Inc.,
Chilmark, MA
Chitragupta Parivar of North America,
Cleveland, OH
Choice Scholarships, W. Warwick, RI
Chrisma Village Inn, Bronx, NY
Christ Concerned Community Inc.,
Markham, IL
Christ for Latvia Network Inc.,
Waukesha, WI
Christ Housing and Ministries Programs
Inc., Bradenton, FL
Christ in Us Ministries, Coweta, OK
Christ Ministries Incorporated, Vero
Beach, FL
Christ to Inmates Ministries Inc.,
Shelbyville, IN
Christech Inc., Lake Mary, FL
Christian Counseling Connection Inc.,
Clarkston, WA
Christian Golfers Association, Dublin, OH
Christian Mission Sponsorship Inc.,
Green Bay, WI
Christian Organization for Resource
Accountability and Licensing, New
Brighton, MN
Christian Radio Ministries of Hampton
Roads, Virginia Beach, VA
Christians Against Drugs, Brookshire, TX
Christian Youth Daycare & Learning
Center Inc., Atlanta, GA
Christmas in April-Central New Mexico
Inc., Santa Fe, NM
Christmas in April Fredericksburg Inc.,
Spotsylvania, VA
Christmas in April Greater Miami Inc.,
Miami, FL
Christmas in April Springfield
Massachusetts Inc., Longmeadow, MA
Christmas in the City Inc., Boston, MA
Christs Voice Across the Ages Society
Inc., Chicago, IL
1999–4 I.R.B
Chung Moo Doe Association of Greater
Dallas Inc., Dallas, TX
Church Based Counseling, Long Beach,
CA
Church for Humanity and Love in a
Caring Environment, Oak Brook, IL
Church of Innerology, Burbank, CA
Church of the Lord, Cedar Vale, KS
Cimarron Fair Board Inc., Lahoma, OK
Cincinnati Houses Rehabitation Inc.,
Cincinnati, OH
Cincinnati Leadership and Sunday
School Association Inc., Bellevue, KY
Circle of Friends Inc., Sedona, AZ
Circle of Life Retreat Center Inc.,
Williamsburg, VA
Cities in Schools of Colorado Inc.,
Commerce City, CO
Citizen Advocacy of Rensselaer County
Inc., Troy, NY
Citizens Council for Michigan Public
Universities, Lansing, MI
Citizens for a Better Amite, Amite, LA
Citizens for Alternatives to Animal Labs
Inc., Brooklyn, NY
Citizens for Economic Growth, Amherst,
OH
Citizens for Government Accountability
Inc., Dahlgren, VA
Citizens for Religious Freedom, San
Francisco, CA
Citizens of San Antonio Against Law Suit
Misinformation Inc., San Antonio, TX
City Hall Arts and Technology Center
Inc., Kingston, NY
City of Chicago D-Day Reenactment
World War II Commemorative, Oak
Park, IL
Cityview Community Council
Incorporated, Lorain, OH
Civil Rights Consortium, Kansas City,
MO
Civitas Initiative, Chicago, IL
Clara Tyson Rehabilitation Christian
Center, Detroit, MI
Clarence Darrow Commemorative
Committee, Chicago, IL
Clarinda Heartland of Iowa Inc.,
Clarinda, IA
Clarks Life Center Inc., College Park, GA
Clarksburg Community Betterment
Organization Inc., Clarksburg, MO
Class Act Booster Club, Londonderry,
NH
Class of 2000 Education Fund, Sultan,
WA
Classic Business Consultants, Maywood,
IL
25
Classic City Golfers Association Inc.,
Athens, GA
Clay Organized for Wellness
Incorporated, Clay, WV
Clear Bay Ecology Center Inc., Bethesda,
MD
Cleveland Animal Lifeline Inc.,
Lyndhurst, OH
Cleveland Bicentennial Commission Inc.,
Cleveland, OH
Clic International Cancer & Leukemia in
Childhood, St. Louis, MO
Clinic South, Chattanooga, TN
Clinical Electromedical Research
Academy CHTD, Las Vegas, NV
Closer Look Communications, Boulder,
CO
CMCHDC Foundation Inc., Columbia,
MO
Coalition for Back to School Supplies,
Kansas City, MO
Coalition for Black Unity, Baton Rouge,
LA
Coalition for Integration of the Disabled,
Miami, FL
Coalition for Respect Inc., Jacksonville,
FL
Coalition for Student Awareness,
Milwaukee, WI
Coalition for the Advancement or
Regional Transportation Inc.,
Louisville, KY
Coalition of Independent American
Charities, Riverside, CA
Coalition of Ministers Against Crime,
Houston, TX
Coalition on Aid in the Black
Community, Houston, TX
Coalition on Alcoholism and Other
Chemical Dependencies, St. Louis,
MO
Coastal Bend Crime Stoppers Inc.,
Beeville, TX
Coastal Conservation Foundation,
Tucson, AZ
Coastal Georgia Wildlife Rehabilitation
Center Inc., Saint Simons Island, GA
Cobb County District Attorneys AntiDrug Poster Contest Inc., Marietta,
GA
Coburg Village Inc., Brooklyn, NY
Cocke County Ambulance Service
Boosters Inc., Newport, TN
Codependency New Life Seminars Inc.,
Dublin, CA
Coedy Program, Clayton, CA
Coffinberry Playground Inc., Fairview
Park, OH
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 26
College Community Little League
Soccer, Cedar Rapids, IA
Colleges That Enable, Wyomissing, PA
Collierville Soccer Association,
Collierville, TN
Colonel Read Foundation for Courage in
the Arts, Richmond, VA
Colonial Heights Athletic Commission
Inc., Kingsport, TN
Colorado Alliance to Restore Equality,
Denver, CO
Colorado Chmis Inc., Denver, CO
Colorado Head Start Parent Association,
Sterling, CO
Colorado Mediation Foundation, Denver,
CO
Colorado Office of Space Advocacy,
Colorado Springs, CO
Colorado Riparian Association, Boulder,
CO
Colorado Theatre Market Alliance,
Westminster, CO
Colorado Trails and Open Space, Silver
Plume, CO
Columbus Quincentenniel Committee of
Middletown Inc., Middletown, CT
Comfy Critters Incorporated, Astoria,
NY
Comite de Voluntarios, Rio Bravo, TX
Commercial Music Educators,
Tuscaloosa, AL
Commission Against Senseless Killings
Inc., Memphis, TN
January 25, 1999
Committee for American Leadership Inc.,
Wilmington, DE
Committee for the Preservation of
Auburns African American History,
Auburn, AL
Committee of Friends Inc., Baton Rouge,
LA
Committee on the Employment of People
with Disabilities, Tucson, AZ
Commonwealth Healthcare Institute,
Richmond, VA
Communicating at Coney, Fort Thomas,
KY
Communication Station Inc., Memphis,
TN
Communities in Schools Port Arthur Inc.,
Beaumont, TX
Communities United Together, Laplace,
LA
Community AIDS Prevention Task Force
Inc., Cheshire, MA
Community Alliance of Manatee for
AIDS Inc., St. Petersburg, FL
Community Assistance Foundation,
Irvine, CA
Community Association for Responsible
Planning Inc., Tetonia, ID
Community Based Initiatives, Seattle,
WA
Community Center of Personal
Enrichment Inc., Griffin, GA
Community Center of the Southern
Berkshires Inc., W. Stockbridge, MA
26
Community Coalition for Media Change,
Oakland, CA
Community Corrections Inc., Salisbury,
MD
Community Development and
Improvement Institute Inc., Freeport,
NY
Community Development Coalition CDC
Inc., Wichita, KS
Community Development Coalition Inc.,
Scottsbluff, NE
Community Empowerment Organization
CEO, York, PA
Community First Inc., Washington, DC
Community Health Clinic of Joplin,
Joplin, MO
Community Housing Assistance
Corporation, Newport Beach, CA
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as a
private operating foundation, the Internal
Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as provided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 27
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 ap-
plies 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 law 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 the 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
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution 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.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral 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.
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.
1999–4 I.R.B
27
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 28
Numerical Finding List1
Bulletins 1999–1 through 3
Announcements:
99–1, 1999–2 I.R.B. 41
99–2, 1999–2 I.R.B. 44
99–3, 1999–3 I.R.B. 15
99–4, 1999–3 I.R.B. 15
99–5, 1999–3 I.R.B. 16
99–7, 1999–2 I.R.B. 45
Notices:
99–1, 1999–2 I.R.B. 8
99–2, 1999–2 I.R.B. 8
99–3, 1999–2 I.R.B. 10
99–4, 1999–3 I.R.B. 9
99–5, 1999–3 I.R.B. 10
99–6, 1999–3 I.R.B. 12
Revenue Procedures:
99–1, 1999–1 I.R.B. 6
99–2, 1999–1 I.R.B. 73
99–3, 1999–1 I.R.B. 103
99–4, 1999–1 I.R.B. 115
99–5, 1999–1 I.R.B. 158
99–6, 1999–1 I.R.B. 187
99–7, 1999–1 I.R.B. 226
99–8, 1999–1 I.R.B. 229
99–9, 1999–2 I.R.B. 17
99–10, 1999–2 I.R.B. 11
99–11, 1999–2 I.R.B. 14
99–12, 1999–3 I.R.B. 13
Revenue Rulings:
99–1, 1999–2 I.R.B. 4
99–2, 1999–2 I.R.B. 5
99–3, 1999–3 I.R.B. 4
Treasury Decisions:
8789, 1999–3 I.R.B. 5
1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–52
will be found in Internal Revenue Bulletin 1999–1,
dated January 4, 1999.
January 25, 1999
28
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:06 PM
Page 29
Finding List of Current Action on
Previously Published Items1
Bulletins 1999–1 through 3
Revenue Procedures:
78–10
Obsoleted by
99–12, 1999–3 I.R.B. 13
94–56
Superseded by
99–9, 1999–2 I.R.B. 17
97–23
Superseded by
99–3, 1999–1 I.R.B. 103
98–1
Superseded by
99–1, 1999–1 I.R.B. 6
98–2
Superseded by
99–2, 1999–1 I.R.B. 73
98–3
Superseded by
99–3, 1999–1 I.R.B. 103
98–4
Superseded by
99–4, 1999–1 I.R.B. 115
98–5
Superseded by
99–5, 1999–1 I.R.B. 158
98–6
Superseded by
99–6, 1999–1 I.R.B. 187
98–7
Superseded by
99–7, 1999–1 I.R.B. 226
98–8
Superseded by
99–8, 1999–1 I.R.B. 229
98–56
Superseded by
99–3, 1999–1 I.R.B. 103
98–63
Modified by announcement
99–7, 1999–2 I.R.B. 45
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–52 will be found in Internal
Revenue Bulletin 1999–1, dated January 4, 1999.
1999–4 I.R.B
29
January 25, 1999
IRB 1999-4
1/20/99 1:06 PM
Page 30
Notes
January 25, 1999
30
1999–4 I.R.B.
IRB 1999-4
1/20/99 1:07 PM
Page 31
IRB 1999-4
1/20/99 1:07 PM
Page 32
INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, OP:FS:FP:P:1, Room 5617, 1111 Constitution Avenue NW, Washington,
DC 20224.
| File Type | application/pdf |
| File Modified | 1999-09-30 |
| File Created | 1999-01-21 |