Announcement 2002-55

which there is no substantial risk of forfeiture with respect to compensation
deferred under an agreement or arrangement that is not an eligible plan is on or
after the date on which there is a transfer
of property to which section 83 applies.
However, section 457(f) and paragraph
(a) of this section apply if the date on
which there is no substantial risk of forfeiture with respect to compensation
deferred under an agreement or arrangement that is not an eligible plan precedes
the date on which there is a transfer of
property to which section 83 applies. If
deferred compensation payable in property is includible in gross income under
section 457(f), then, as provided in section 72, the amount includible in gross
income when that property is later transferred or made available to the service
provider is the excess of the value of the
property at that time over the amount previously included in gross income under
section 457(f).
(2) Examples. The provisions of this
paragraph (c) are illustrated in the following examples:
Example 1. (i) Facts. As part of an arrangement
for the deferral of compensation, an eligible
employer agrees on December 1, 2002, to pay an
individual rendering services for the eligible
employer a specified dollar amount on January 15,
2005. The arrangement provides for the payment to
be made in the form of property having a fair market value equal to the specified dollar amount. The
individual’s rights to the payment are not subject to
a substantial risk of forfeiture (within the meaning
of section 457(f)(3)(B)).
(ii) Conclusion. In this example, because there is
no substantial risk of forfeiture with respect to the
agreement to transfer property in 2005, the present
value (as of December 1, 2002) of the payment is
includible in the individual’s gross income for 2002.
Under paragraph (a)(4) of this section, when the
payment is made on January 15, 2005, the amount
includible in the individual’s gross income is equal
to the excess of the fair market value of the property
when paid, over the amount that was includible in
gross income for 2002 (which is the basis allocable
to that payment).
Example 2. (i) Facts. As part of an arrangement
for the deferral of compensation, individuals A and
B rendering services for a tax-exempt entity each
receive in 2010 property that is subject to a substantial risk of forfeiture (within the meaning of section
457(f)(3)(B) and within the meaning of section
83(c)(1)). Individual A makes an election to include
the fair market value of the property in gross income
under section 83(b) and individual B does not make
this election. The substantial risk of forfeiture for
the property transferred to individual A lapses in
2012 and the substantial risk of forfeiture for the
property transferred to individual B also lapses in
2012. Thus, the property transferred to individual A
is included in A’s gross income for 2010 when A

2002– 23 I.R.B.

makes a section 83(b) election and the property
transferred to individual B is included in B’s gross
income for 2012 when the substantial risk of forfeiture for the property lapses.
(ii) Conclusion. In this example 2, in each case,
the compensation deferred is not subject to section
457(f) or this section because section 83 applies to
the transfer of property on or before the date on
which there is no substantial risk of forfeiture with
respect to compensation deferred under the arrangement.
Example 3. (i) Facts. In 2010, X, a tax-exempt
entity, agrees to pay deferred compensation to
employee C. The amount payable is $100,000 to be
paid 10 years later in 2020. The commitment to
make the $100,000 payment is not subject to a substantial risk of forfeiture. In 2010, the present value
of the $100,000 is $50,000. In 2018, X transfers to
C property having a fair market value (for purposes
of section 83) equal to $70,000. The transfer is in
partial settlement of the commitment made in 2010
and, at the time of the transfer in 2018, the present
value of the commitment is $80,000. In 2020, X
pays C the $12,500 that remains due.
(ii) Conclusion. In this example 3, C has income
of $50,000 in 2010. In 2018, C has income of
$30,000, which is the amount transferred in 2018,
minus the allocable portion of the basis that results
from the $50,000 of income in 2010. (Under section
72(e)(2)(B), income is allocated first. The income is
equal to $30,000 ($80,000 minus the $50,000 basis),
with the result that the allocable portion of the basis
is equal to $40,000 ($70,000 minus the $30,000 of
income).) In 2020, C has income of $2,500 ($12,500
minus $10,000, which is the excess of the original
$50,000 basis over the $40,000 basis allocated to
the transfer made in 2018).

Hedging Transactions;
Corrections
Announcement 2002– 55
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendment.
SUMMARY: This document contains
corrections to final regulations (T.D.
8985, 2002–14 I.R.B. 707) that were published in the Federal Register on
Wednesday, March 20, 2002 (67 FR
12863), relating to the character of gain
or loss from hedging transactions.
DATES: This correction is effective
March 20, 2002.
FOR FURTHER INFORMATION CONTACT: Elizabeth Handler (202) 622–
3930 or Viva Hammer (202) 622–0869
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the subject of these corrections are under section
1221 of the Internal Revenue Code.

§ 1.457–12 Effective dates.
Need for Correction
Sections 1.457–1 through 1.457–11
apply for taxable years beginning after
December 31, 2001, except that § 1.457–
11(c) does not apply with respect to an
option without a readily ascertainable fair
market value (within the meaning of section 83(e)(3)) that was granted on or
before May 8, 2002, and, § 1.457–10(c)
(relating to qualified domestic relations
orders) applies for transfers, distributions,
and payments made after December 31,
2001.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on May
7, 2002, 8:45 a.m., and published in the issue of the
Federal Register for May 8, 2002, 67 F.R. 30826)

1125

As published, the final regulations
contain errors that may prove to be misleading and are in need of clarification.
Correction of Publication
Accordingly, 26 CFR Part 1 is corrected by making the following correcting
amendments:
PART 1 — INCOME TAXES
1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§ 1.446–4 [Corrected]
2. Section 1.446–4, paragraph (d)(3) is
amended by removing the language
“§ 1.1221–2(a)(4)(i)” from the last sentence and adding the language “§ 1.1221–
2(a)(4)” in its place.

June 10, 2002

New Revision of Publication
1544, Reporting Cash
3. Section 1.1256(e)–1, paragraph (c)
Payments of Over $10,000
is amended by removing the language
“(f)(1)(ii)” from the second sentence and (and Publication 1544SP,
adding the language “(g)(1)(ii)” in its Informe de Pagos en
place.
Efectivo en Exceso de
$10,000)
§ 1.1256(e)–1 [Corrected]

New Revision of Publication
597, Information on the U.S.
– Canada Income Tax Treaty
Announcement 2002– 56
Publication 597, revised May 2002, is
now available from the Internal Revenue
Service. It replaces the May 1998 revision.
This publication discusses a number of
the treaty provisions that often apply to
U.S. citizens or residents who may be
liable for Canadian tax.
You can get a copy of this publication
by calling 1–800–TAX-FORM (1–800–
829–3676). You can also write to the IRS
Forms Distribution Center nearest you.
Check your income tax package for the
address. The publication is also available
on the IRS web site at www.irs.gov.

June 10, 2002

Announcement 2002– 57
Publication 1544, revised March 2002,
is now available from the Internal Revenue Service. It replaces the August 1997
revision. The publication is also available
in Spanish as Publication 1544SP.
The publication explains why, when,
and how to report large cash payments. It
also discusses the substantial penalties for
not reporting them.
You can get either version of this publication by calling 1–800–TAX-FORM
(1–800–829–3676). You can also write to
the IRS Forms Distribution Center nearest you. Check your income tax package
for the address. Both versions are also
available on the IRS web site at
www.irs.gov.

1126

2002– 23 I.R.B.