Rp 99-50

(b) a description of the method by
which, and the date on which, the taxpayer made the § 1278(b) election (or
deemed § 1278(b) election) that is being
revoked; and
(c) a statement that, after the revocation, the taxpayer will not make a constant interest rate election for any bond
that has been subject to the § 1278(b)
election (or deemed § 1278(b) election)
being revoked and for which a constant
interest rate election was not effective in
the year of acquisition.
(5) Audit protection. A taxpayer receives audit protection under section 7 of
this revenue procedure in connection with
this change. However, the audit protection applicable to this change does not
preclude the Commissioner from examining the method used by the taxpayer to
determine the amount of accrued market
discount under § 1276(b) for a taxable
year prior to the year of change.
.02 Reserved.
SECTION 13. SHORT-TERM
OBLIGATIONS (§ 1281)
.01 Interest income on short-term
obligations.
(1) Description of change and scope.
(a) This change applies to a taxpayer that wants to change its method of
accounting to comply with § 1281 for interest income on short-term obligations.
(b) Under § 1281, a holder of certain short-term obligations, including a
bank as defined in § 581, must include in
gross income any accrued interest income
on such obligations, regardless of the
holder’s overall method of accounting.
Section 1281 applies to all types of interest income, including acquisition discount, original issue discount (OID), and
stated interest. See S. Rep. No. 99–313,
99th Cong., 2d Sess. 903 (1986), 1986–3
(Vol. 3) C.B. 903.
(c) Section 1283(a)(1) generally
defines a short-term obligation as any
bond, debenture, note, certificate, or other
evidence of indebtedness that matures in
one year or less from its issue date. A
short-term loan, including a short-term
loan made in the ordinary course of the
taxpayer’s business, is a short-term obligation.
(d) Under §§ 1281(a) and 1283(c),
a holder of a short-term obligation subject

1999–52 I.R.B.

to § 1281 must include in gross income an
amount equal to the sum of the daily portions of the acquisition discount or OID,
whichever is applicable, on the obligation
for each day during the taxable year that
the obligation is held by the holder. See §
1283(b), as modified by § 1283(c), to determine the daily portions of acquisition
discount or OID. In addition, § 1281(a)
requires the holder to include in gross income any stated interest that is payable on
the short-term obligation (other than
stated interest taken into account to determine the amount of the acquisition discount or OID) as it accrues.
(2) Section 481(a) adjustment period. A taxpayer must take the entire §
481(a) adjustment into account in computing taxable income for the year of
change.
.02 Stated interest on short-term loans
of cash method banks in the Eighth Circuit.
(1) Description of change and scope.
(a) This change applies to a cash
method bank in the Eighth Circuit that
wants to change its method of accounting
from accruing stated interest on shortterm loans made in the ordinary course of
business to using the cash method for that
interest.
(b) In Security Bank Minnesota v.
Commissioner, 994 F.2d 432 (8th Cir.
1993), aff’g 98 T.C. 33 (1992), the U.S.
Circuit Court of Appeals for the Eighth
Circuit held that § 1281 does not require a
cash method bank to include in gross income stated interest on short-term loans
made in the ordinary course of business as
that interest accrues. The Service disagrees with the interpretation of § 1281 in
Security Bank Minnesota and intends to
pursue this issue in other circuits. In light
of Security Bank Minnesota, however,
cash method banks in the Eighth Circuit
will be granted permission to change to
the cash method of accounting for stated
interest on short-term loans made in the
ordinary course of business. If this
change was made on or before November
6, 1995, the Service will not seek to deny
cash method banks in the Eighth Circuit
the use of the cash method on the ground
that there was an unauthorized change in
method of accounting.
(2) Section 481(a) adjustment period. A taxpayer must take the entire §
481(a) adjustment into account in com-

757

puting taxable income for the year of
change.
(3) No ruling protection. If the Service is later successful in further litigation
on this issue in other circuits, or there is a
change in law, then cash method banks in
the Eighth Circuit may be required to use
an accrual method of accounting for any
taxable year not barred by the statute of
limitations.

26 CFR 601.602: Tax forms and instructions. (Also
Part I, §§ 138, 220, 408, 408A, 529, 530, 1441,
1442, 1443, 3402, 3405, 3406, 6011, 6041, 6041A,
6042, 6043, 6044, 6045, 6047, 6049, 6050A, 6050B,
6050D, 6050E, 6050H, 6050J, 6050N, 6050P,
6050Q, 6050R, 6050S; 1.408–7, 1.408A–7,
1.1461–1, 1.1461–2, 31.3402(q)–1, 31.3404(r)–1,
31.3405(c)–1, 35.3405–1, 31.3406(a)–1,
31.3406(g)–2, 35a.3406–2, 1.6011–1, 1.6011–3,
1.6041–1, 7.6041–1, 1.6041A–1, 1.6042–2,
1.6044–2, 1.6045–1, 1.6045–2, 1.6045–4, 1.6049–4,
1.6050A–1, 1.6050E–1, 1.6050H–1, 1.6050J–1T,
1.6050N–1, and 1.6050P–1.)

Rev. Proc. 99–50
SECTION 1. PURPOSE
This revenue procedure permits combined information reporting by a successor business entity (i.e., a corporation,
partnership, or sole proprietorship) in certain situations following a merger or an
acquisition and supersedes Rev. Proc.
90–57, 1990–2 C.B. 641 and Rev. Rul.
69–556, 1969–2 C.B. 242. This revenue
procedure explains both the procedure
otherwise required under the regulations
(the “standard procedure”) and an elective procedure (the “alternative procedure”) for preparing and filing certain
Forms 1042–S, all forms in the series
1098, 1099, and 5498, and Forms W-2G,
in certain situations involving a successor
business entity and a predecessor business
entity (i.e., a corporation, partnership, or
sole proprietorship) when the successor
acquires substantially all of the property
(1) used in the trade or business of the
predecessor (including certain situations
when one or more corporations are absorbed by another corporation pursuant to
a merger agreement), or (2) used in a separate unit of a trade or business of the predecessor.
SECTION 2. BACKGROUND
.01 General Requirement of Return or

December 27, 1999

Statement. Section 6011(a) of the Internal Revenue Code provides that, when
required by regulations, any person
made liable for any tax imposed by the
Code, or for the collection of the tax,
must make a return or statement according to the forms and regulations prescribed by the Secretary.
.02 Certain Payments Reported on
Forms 1042-S. Payments under the
Code sections described in this paragraph are reported on Forms 1042-S.
Section 1441(a) generally provides that
persons having the control, receipt, custody, disposal, or payment of items of
gross income specified in § 1441(b)
from sources within the United States of
any nonresident alien individual or foreign partnership must deduct and withhold a tax equal to either 30 percent or
14 percent of those amounts. Section
1442 provides that, in the case of certain foreign corporations, a tax equal to
30 percent shall be deducted and withheld in the same manner and on the
same items of income as provided in §
1441. Section 1443(a) provides that, in
the case of certain foreign tax-exempt
organizations, a tax equal to 30 percent
of the amount of the unrelated business
taxable income shall be deducted and
withheld in the same manner as provided in § 1441. Section 1443(b) provides that, in the case of certain foreign
tax-exempt organizations, a tax on gross
investment income derived from
sources within the United States equal
to 4 percent of such amount shall be deducted and withheld in the same manner
as provided in § 1441(a) or § 1442(a).
Persons required to deduct and withhold
taxes under § 1441, 1442, or 1443 generally must file Forms 1042-S reporting
aggregate amounts for the calendar
year, as provided in the Income Tax
Regulations under § 1461.
.03 Payments Reported on Forms
1098. Payments and receipts under the
following Code sections are reported on
forms in the series 1098: §§ 6050H (returns relating to mortgage interest received in trade or business from individuals); and 6050S (returns relating to
higher education tuition and related expenses).
.04 Payments Reported on Forms
1099. (1) In general. Payments under
the following Code sections are re-

December 27, 1999

ported on forms in the series 1099: §§
220(h) (medical savings accounts);
408(i) (individual retirement arrangements); 529(d) (qualified state tuition
programs); 530(h) (education individual
retirement accounts); 6041 (information
at source); 6041A (returns regarding
payments of remuneration for services
and direct sales); 6042 (returns regarding payments of dividends and corporate earnings and profits); 6043 (liquidating, etc., transactions); 6044 (returns
regarding payments of patronage dividends); 6045 (returns of brokers); 6047
(information relating to certain trusts
and annuity plans); 6049 (returns regarding payments of interest); 6050A
(reporting requirements of certain fishing boat operators); 6050B (returns relating to unemployment compensation);
6050D (returns relating to energy grants
and financing); 6050E (state and local
income tax refunds); 6050J (returns relating to foreclosures and abandonments of security); 6050N (returns regarding payments of royalties); 6050P
(returns relating to the cancellation of
indebtedness by certain entities); 6050Q
(certain long-term care benefits); and
6050R (returns relating to certain purchases of fish).
(2) Persons Made Liable for
Backup Withholding. Section 3406 provides that payors of reportable payments (as defined in § 3406(b)) must, in
certain circumstances, deduct and withhold a tax equal to 31 percent of the
payment (“backup withholding”).
Under § 3406(b), reportable payments
generally are payments required to be
shown on a return under §§ 6041 (relating to certain information at source),
6041A(a) (relating to payments of remuneration for services), 6042(a) (relating to payments of dividends), 6044 (relating to patronage dividends), 6045
(relating to returns of brokers), 6049(a)
(relating to payments of interest),
6050A (relating to reporting requirements of certain fishing boat operators),
and 6050N (relating to payments of royalties).
(3) Persons Made Liable for Withholding on Pensions, Annuities, and
Other Deferred Income. Section 3405
provides that payors of pensions, annuities and certain other deferred income
must, in certain circumstances, deduct

758

and withhold a tax: (1) on periodic payments as defined in § 3405(e)(2), an
amount that would be required to be
withheld from such payment if such
payment were a payment of wages; (2)
on nonperiodic distributions as defined
in § 3405(e)(3), 10 percent of the distribution; and (3) on eligible rollover distributions as defined in § 3405(c)(3), 20
percent of the distribution. Generally,
the persons required to deduct and withhold taxes under § 3405 must file Forms
1099 reporting payments and distributions, as provided under § 35.3405–1 of
the Temporary Employment Tax Regulations and § 31.3405(c)–1 of the Employment Tax Regulations.
.05 Contributions Reported on
Forms 5498. Contributions under the
following Code sections are reported on
forms in the series 5498: §§ 138
(medicare+choice MSA); 220 (medical
savings accounts); 408(a) (individual
retirement account); 408(b) (individual
retirement annuity); 408(k) (simplified
employee pension); 408(p) (simple retirement account); 408A (Roth IRA);
and 530 (education individual retirement account).
.06 Payments Reported on Forms W2G. (1) In general. Section 7.6041–1 of
the Temporary Income Tax Regulations
provides that payments of winnings of
$1,200 or more from a bingo game or
slot machine play, and payments of winnings of $1,500 or more from a keno
game, are reportable on Forms W-2G.
Section 31.3406(g)–2(d) generally provides that under § 3406 a reportable
gambling winning is any gambling winning subject to information reporting
under § 6041. In addition, a gambling
winning (other than a winning from
bingo, keno, or slot machines) is a reportable gambling winning only if the
amount paid with respect to the wager is
$600 or more and if the proceeds are at
least 300 times as large as the amount
wagered.
(2) Extension of Withholding to Certain Gambling Winnings. Section
3402(q) provides that every person
making a payment of winnings that are
subject to withholding (defined in §§
3402(q)(3) and 31.3402(q)–1) shall
deduct and withhold a tax in an amount
equal to 28 percent of such payment.

1999–52 I.R.B.

SECTION 3. SCOPE

occurring in the acquisition year.

This revenue procedure applies only
when all of the following conditions are
met:
(1) One business entity (i.e., a corporation, partnership, or sole proprietorship) (the “successor”) acquires from another business entity (the “predecessor”)
substantially all the property (a) used in
the trade or business of the predecessor
(including when two or more corporations
are parties to a merger agreement under
which the surviving corporation becomes
the owner of all the assets and assumes all
the liabilities of the absorbed corporation(s)), or (b) used in a separate unit of a
trade or business of the predecessor;
(2) During the pre-acquisition portion of the “acquisition year” (the calendar year in which the acquisition occurs),
the predecessor is required to file information returns as a result of making or receiving payments, or withholding or collecting taxes, as provided under the
appropriate sections of the Code and regulations set forth above;
(3) During the post-acquisition portion of the acquisition year, the predecessor (for an acquisition described in section 3(1)(a)) or the separate unit of the
predecessor (for an acquisition described
in section 3(1)(b)) does not make or receive any such payments and does not
withhold or collect any such tax;
(4) The requirements of section 5 of
this revenue procedure are met; and
(5) The Internal Revenue Service instructions or publications relating to
Forms 1042–S, a specific form in the series 1098, 1099, or 5498, or Forms W-2G
do not prohibit use of the alternative procedure described in section 5.

SECTION 5. ALTERNATIVE
PROCEDURE

SECTION 4. STANDARD
PROCEDURE
Each person that makes or receives
payments, or withholds or collects taxes,
that are reportable on Forms 1042-S,
forms in the series 1098, 1099, and 5498,
or Forms W-2G, is responsible for information reporting of those transactions.
Thus, unless the alternative procedure of
section 5 of this revenue procedure is
used, both the predecessor and the successor must file certain Forms 1042-S, forms
in the series 1098, 1099, and 5498, or
Forms W-2G for reportable transactions

1999–52 I.R.B.

.01 The predecessor and the successor
must agree that the successor assumes the
predecessor’s entire information reporting
obligations for those Forms 1042-S (as
described in section 2.02 of this revenue
procedure), forms in the series 1098,
1099, and 5498, and Forms W-2G to
which their agreement applies. The predecessor is relieved of its information reporting obligations for reportable transactions occurring in the acquisition year
only if and to the extent that their agreement meets, and the successor satisfies,
each of the requirements of section 5 of
this revenue procedure.
.02 The predecessor and successor
must agree upon the specific Forms 1042S, forms in the series 1098, 1099, and
5498, and Forms W-2G to which this alternative procedure applies. The predecessor and successor may agree to (a) use
the alternative procedure for all Forms
1042-S, forms in the series 1098, 1099, or
5498, or Forms W-2G; or (b) limit the
use of the alternative procedure to (1) specific Forms 1042-S, forms in the series
1098, 1099, or 5498, or Forms W-2G; or
(2) specific reporting entities (i.e., any
unit, branch or location within a particular
business entity that files its own separate
information returns). For example, if the
only compatible computer or record keeping systems of a predecessor and successor are their dividends paid ledgers, they
may use the alternative procedure for
Forms 1099-DIV, and use the standard
procedure for Forms 1042-S and all other
forms in the series 1098 or 1099. Similarly, if the only compatible computer or
record keeping systems of a predecessor
and successor are in their branches located in the Midwest, they may use the alternative procedure with respect to the
records maintained at those locations, and
use the standard procedure with respect to
the records maintained at all other locations. The sharing between the predecessor and successor of taxpayer identification numbers and other information
obtained under § 3406 for information reporting and backup withholding purposes,
for the sole purpose of complying with
this revenue procedure, does not violate

759

the confidentiality rules contained in §
3406(f).
.03 On each “appropriate form” (i.e.,
each form to which the agreement in section 5 of this revenue procedure applies),
the successor must combine (1) the payments made or received on account of a
person by the predecessor in the pre-acquisition portion of the acquisition year
with (2) the payments made or received
on account of that person by the successor
in that year, if any, and must report the aggregate amount(s) on account of that person for that year. In the case of amounts
that are required or permitted to be reported transactionally (for example, broker sales of stock that are required to be
reported on Forms 1099-B, Proceeds
From Broker and Barter Exchange Transactions) the successor must report each
transaction of the predecessor and each of
its transactions on each appropriate form.
The successor may include with the form
additional information explaining to the
recipient the combined reporting by the
predecessor and successor.
.04 On each appropriate form, the successor must also combine the amount of
any tax withheld under §§ 1441, 1442,
1443, 3402(q), 3402(r), 3405, and
3406(a) for a person by the predecessor in
the pre-acquisition portion of the acquisition year with the amount withheld under
such sections for that person by the successor in that year and, on the appropriate
form(s), must report the aggregate
amount for the year.
.05 The successor must file a statement with the Internal Revenue Service
indicating that the appropriate forms are
being filed on a combined basis in accordance with the provisions of this revenue procedure. This statement is
needed to assist the Service in processing the forms filed under the alternative
procedure. If tax has been withheld by
the predecessor pursuant to §§ 3402(q),
3402(r), 3405, and 3406(a) during the
acquisition year and reported by the predecessor on Form 945, Annual Return of
Withheld Federal Income Tax, the total
of the withholding amounts shown on
the successor’s Forms 1099 and W-2G
for that year will exceed the total of the
withholding amounts shown on the successor’s Form 945. Therefore, the statement that must be filed with the Service
must reflect the amount of any tax that

December 27, 1999

has been withheld by the predecessor
and by the successor for each type of
form (for example, Forms 1099-R or
Forms 1099-MISC). Likewise, if any
tax has been withheld under §§ 1441
and 1442 during the acquisition year and
reported on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, the total of the
withholding amounts shown on the successor’s Forms 1042-S for that year will
exceed the total of the withholding
amounts shown on the successor’s Form
1042. Therefore, the statement that
must be filed with the Service must reflect the amount of tax that has been
withheld by the predecessor and successor for Form 1042-S.
.06 The statement required by section
5.05 of this revenue procedure must include the name, address, telephone number, and Employer Identification Numbers of both the successor and
predecessor, and the name and telephone
number of the person responsible for
preparing this statement.
.07 The statement for Forms 1042-S
must be attached to the Form 1042 and
mailed to the address for filing the Form
1042 (appearing in the instructions to the
form) on or before the date the Form 1042
is due.
.08 The statement for forms in the series 1098, 1099 and 5498, and Forms W2G must be filed separately from such
forms and Form 945. Unless directed
otherwise by the instructions to the
forms, the statement for forms in the series 1098, 1099, and 5498, and Forms
W-2G must be mailed to the following
address on or before the date those
forms are due:
Internal Revenue Service
Martinsburg Computing Center
230 Murall Drive
Attention: Chief, Information
Returns Branch
Mail Stop 360
Kearneysville, WV 25430
SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 90–57, 1990–2 C.B. 641,
and Rev. Rul. 69–556, 1969–2 C.B. 242,
are modified and, as modified, are superseded.

December 27, 1999

SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
Forms 1042-S, forms in the series 1098,
1099, and 5498, and Forms W-2G filed
after December 31, 1999. In addition, if a
successor filed forms on or before December 31, 1999, in the circumstances described in section 3 of this revenue procedure, the predecessor’s filing obligations
are deemed to have been satisfied with respect to amounts shown on those forms if
the predecessor and successor have substantially complied with all the requirements of section 5 of this revenue procedure (except for the statement
requirement of section 5.05).
SECTION 8. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure 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
1545-1667. 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 collection of information is contained in section 5 of this revenue procedure which requires the filing of a statement that the alternative procedure has
been elected. This information is required
to aid the Service in processing Forms
1042-S, forms in the series 1098, 1099, and
5498, and Forms W-2G filed by successors
who use the alternative procedure, reconcile discrepancies between the amounts reported on Forms 945 and Forms 1099 and
W-2G filed by both predecessors and successors who use the alternative procedure,
and reconcile discrepancies between the
amounts reported on Forms 1042-S and
Forms 1042 filed by predecessors and successors who use the alternative procedure.
The likely respondents are business or
other for-profit institutions.
The estimated average annual burden
to prepare the statement is 5 minutes.
The estimated number of respondents that
will elect to use the alternate procedure is
6,000 and the estimated total annual reporting burden is 500 hours.
The estimated annual frequency of responses is on occasion.

760

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
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is A. Katharine Jacob Kiss of
the Office of Assistant Chief Counsel (Income Tax and Accounting). For further
information regarding this revenue procedure contact Ms. Kiss on (202) 622-4920
(not a toll-free call).

26 CFR 601.201: Rulings and determination letters.
(Also Part I, section 1361)

Rev. Proc. 99–51
SECTION 1. PURPOSE
This revenue procedure amplifies
Rev. Proc. 99–3, 1999–1 I.R.B. 103,
which sets forth areas of the Internal
Revenue Code under the jurisdiction of
the Associate Chief Counsel (Domestic)
in which the Internal Revenue Service
will not issue advance rulings or determination letters.
SECTION 2. BACKGROUND
Section 301.7701–3 of the Procedure
and Administrative Regulations allows an
eligible entity to elect to be classified as
an association taxable as a corporation for
federal tax purposes.
Under §
301.7701–3(a), an eligible entity is a business entity not classified as a corporation
under § 301.7701–2(b)(1), (3), (4), (5),
(6), (7), or (8). A state law partnership is
an eligible entity. Consequently, a state
law limited partnership may elect to be
classified as an association taxable as a
corporation for federal tax purposes.
Section 1362(a) of the Internal Revenue Code allows an eligible corporation
to elect to be taxable as an S corporation.
For a corporation to be eligible to elect
under § 1362(a), the corporation must be
a small business corporation. Section
1361(b)(1)(D) requires that a small business corporation have no more than a single class of stock. A general partnership

1999–52 I.R.B.