US Internal Revenue Service: Irb96-03

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REVISED 28MAY96 AT 09:48 BY LR DEPTH: 66.04 PICAS WIDTH 46 PICAS

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Bulletin No. 1996–3

January 16, 1996
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 Announcement 96–4, page 50.

An announcement discusses the publication of mortality
Rev. Rul. 96–4, page 16. tables for use under section 412(1) for individuals
Section 1274A inflation-adjusted numbers for 1996. This entitled to benefits on account of disability. The
ruling provides the dollar amounts, increased by the announcement requests comments on the tables pub-
1996 inflation-adjustment, for section 1274A of the lished in Rev. Rul. 96–7.
Code. Rev. Rul. 95–10 supplemented and superseded.
Rev. Rul. 96–5, page 29. EMPLOYMENT TAX

CPI adjustment for below-market loans–1996. The
amount that section 7872(g) of the Code permits a T.D. 8634, page 17.
taxpayer to lend to a qualified continuing care facility Final regulations relating to the income tax withholding
without incurring imputed interest is published and requirement on distribution of profits from certain
adjusted for inflation for years 1987–1996. Rev. Rul. gaming activities made to members of Indian tribes
95–11 supplemented and superseded. under section 3402(r) of the Code.
T.D. 8631, page 7.

EE–34–95, page 49. ADMINISTRATIVE
Temporary and proposed regulations under section 411
of the Code relating to the requirements of section Notice 96–1, page 30.
204(h) of the Employee Retirement Income Security Notice of intention to issue regulations under section
Act of 1974, as amended, relating to defined benefit 1396 of the Code. The Service will clarify the relevant
plans and to individual account plans that are subject period under section 1396(d)(1)(A) during which sub-
to the funding standards of section 302 of ERISA. stantially all of the services performed by an employee
for his or her employer must be performed within an
T.D. 8635, page 5. empowerment zone in a trade or business of the
employer.
Final and temporary regulations under sections 401
and 408 that provide guidance to nonbank trustees
with respect to the adequacy of net worth requirements Rev. Proc. 96–12, page 30.
that must be satisfied in order to be or remain an Life insurance partnerships. The Service will not rule on
approved nonbank trustee. certain issues raised in connection with the transfer of a
life insurance policy to an unincorporated organization.
Rev. Proc. 96–3 amplified.
EMPLOYEE PLANS
Rev. Proc. 96–13, page 31.
Rev. Rul. 96–7, page 12. Updated competent authority procedure. This procedure
Disability mortality tables. This ruling provides mortality sets forth the procedures concerning requests by
tables for use under section 412(1) for plan years after taxpayers for assistance of the U.S. competent authority
1995 to calculate current liability for individuals entitled
to benefits on account of disability. (Continued on page 4)
Finding Lists begin on page 52.
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Mission of the Service

The purpose of the Internal Revenue Service is to quality of our products and services; and perform in a
collect the proper amount of tax revenue at the least manner warranting the highest degree of public
cost; serve the public by continually improving the confidence in our integrity, efficiency and fairness.
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to The Service also has the responsibility of applying
administer the Internal Revenue Code. Tax policy and administering the law in a reasonable,
for raising revenue is determined by Congress. practical manner. Issues should only be raised by
examining officers when they have merit, never
With this in mind, it is the duty of the Service to
arbitrarily or for trading purposes. At the same
carry out that policy by correctly applying the laws
time, the examining officer should never hesitate
enacted by Congress; to determine the reasonable
to raise a meritorious issue. It is also important
meaning of various Code provisions in light of the
that care be exercised not to raise an issue or to
Congressional purpose in enacting them; and to
ask a court to adopt a position inconsistent with
perform this work in a fair and impartial manner,
an established Service position.
with neither a government nor a taxpayer point of
view.
Administration should be both reasonable and
At the heart of administration is interpretation of the vigorous. It should be conducted with as little
Code. It is the responsibility of each person in the delay as possible and with great courtesy and
Service, charged with the duty of interpreting the considerateness. It should never try to overreach,
law, to try to find the true meaning of the statutory and should be reasonable within the bounds of law
provision and not to adopt a strained construction in and sound administration. It should, however, be
the belief that he or she is ‘‘protecting the revenue.’’ vigorous in requiring compliance with law and it
The revenue is properly protected only when we as- should be relentless in its attack on unreal tax
certain and apply the true meaning of the statute. devices and fraud.
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Introduction
The Internal Revenue Bulletin is the authoritative The Bulletin is divided into four parts as follows:
instrument of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the Part I.—1986 Code.
Internal Revenue Service and for publishing Treasury This part includes rulings and decisions based on
Decisions, Executive Orders, Tax Conventions, legisla- provisions of the Internal Revenue Code of 1986.
tion, court decisions, and other items of general
interest. It is published weekly and may be obtained Part II.—Treaties and Tax Legislation.
from the Superintendent of Documents on a subscrip- This part is divided into two subparts as follows:
tion basis. Bulletin contents of a permanent nature are Subpart A, Tax Conventions, and Subpart B, Legislation
consolidated semiannually into Cumulative Bulletins, and Related Committee Reports.
which are sold on a single-copy basis.
Part III.—Administrative, Procedural, and Miscellanous.
It is the policy of the Service to publish in the Bulletin To the extent practicable, pertinent cross references to
all substantive rulings necessary to promote a uniform these subjects are contained in the other Parts and
application of the tax laws, including all rulings that Subparts. Also included in this part are Bank Secrecy
supersede, revoke, modify, or amend any of those Act Administrative Rulings. Bank Secrecy Act Admin-
previously published in the Bulletin. All published istrative Rulings are issued by the Department of the
rulings apply retroactively unless otherwise indicated. Treasury’s Office of the Assistant Secretary
Procedures relating solely to matters of internal (Enforcement).
management are not published; however, statements of
Part IV.—Items of General Interest.
internal practices and procedures that affect the rights
and duties of taxpayers are published. With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
Revenue rulings represent the conclusions of the this part, none of these announcements are consoli-
Service on the application of the law to the pivotal facts dated in the Cumulative Bulletins.
stated in the revenue ruling. In those based on
The first Bulletin for each month includes an index for
positions taken in rulings to taxpayers or technical
the matters published during the preceding month.
advice to Service field offices, identifying details and
These monthly indexes are cumulated on a quarterly
information of a confidential nature are deleted to
and semiannual basis, and are published in the first
prevent unwarranted invasions of privacy and to comply
Bulletin of the succeeding quarterly and semi-annual
with statutory requirements. period, respectively.
Rulings and procedures reported in the Bulletin do not The Bulletin Index-Digest System, a research and
have the force and effect of Treasury Department reference service supplementing the Bulletin, may be
Regulations, but they may be used as precedents. obtained from the Superintendent of Documents on a
Unpublished rulings will not be relied on, used, or cited subscription basis. It consists of four Services: Service
as precedents by Service personnel in the disposition of No. 1, Income Tax; Service No. 2, Estate and Gift
other cases. In applying published rulings and proce- Taxes; Service No. 3, Employment Taxes; Service No.
dures, the effect of subsequent legislation, regulations, 4, Excise Taxes. Each Service consists of a basic
court decisions, rulings, and procedures must be volume and a cumulative supplement that provides (1)
considered, and Service personnel and others con- finding lists of items published in the Bulletin, (2)
cerned are cautioned against reaching the same digests of revenue rulings, revenue procedures, and
conclusions in other cases unless the facts and other published items, and (3) indexes of Public Laws,
circumstances are substantially the same. Treasury Decisions, and Tax Conventions.
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, D.C. 20402.
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HIGHLIGHTS
OF THIS ISSUE—Continued
Rev. Proc. 96–15, page 41.
ADMINISTRATIVE—Continued Advance valuation of art. Donors of art appraised at
$50,000 or more and executors or administrators of
under the provisions of an income, estate or gift tax estates including art appraised at $50,000 or more
treaty to which the United States is a party. Rev. Procs. may request that the Service issue a statement of value
91–23 and 91–26 superseded; Rev. Proc. 91–22 for the art. Rev. Proc. 66–49 modified.
amplified; Rev. Rul. 72–437 modified; Rev. Rul 92–75
clarified. Rev. Proc. 96–16, page 45.
Letter rulings; tax-exempt obligations. Revised procedures
are provided for obtaining a letter ruling under sections
Rev. Proc. 96–14, page 41. 103, 141–150, 1394, and 7871(c) of the Code. Rev.
Obtaining relief. This procedure prescribes additional Procs. 88–32 and 88–33 obsoleted.
conditions associated with obtaining relief otherwise
available under Rev. Proc. 65–17, 1965–1 C.B. 833. T.D. 8630, page 19.
Rev. Rul. 82–80 and Rev. Proc. 65–17 modified; Rev. Final income, estate, and gift regulations relating to
Proc. 91–24 superseded. actuarial tables exceptions.
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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 101.—Certain Death Benefits EFFECTIVE DATE: These regulations of solvency commensurate with their
are effective December 20, 1995. financial and fiduciary responsibilities.
The Service will not rule on certain issues Under the general net worth require-
raised in connection with the transfer of a life FOR FURTHER INFORMATION
insurance policy to an unincorporated organiza-
ment, nonbank trustees and custodians
tion. See Rev. Proc. 96–12, page 30. CONTACT: Marjorie Hoffman, (202) may not accept new accounts unless
622-6030 (not a toll-free number). their net worth exceeds the greater of
$100,000 or four percent of the value
Section 103.—Interest on State and SUPPLEMENTARY INFORMATION: of all assets held in fiduciary accounts.
Local Bonds Additionally, nonbank trustees and
Background custodians must take whatever steps are
A revenue procedure sets forth procedures for necessary (including the relinquishment
requesting a ruling under §§ 103, 141–150, 1395, of fiduciary accounts) to ensure that
and 7871(c) of the Code. See Rev. Proc. 96–16, On December 6, 1994, temporary
page 45. regulations (TD 8570 [1994–2 C.B. their net worth exceeds the greater of
49]) under section 401 were published $50,000 or two percent of the value of
in the Federal Register (59 FR 62570). all assets held by them in fiduciary
Section 170.—Charitable, etc., A notice of proposed rulemaking (EE– accounts.
Contributions and Gifts 38–94 [1994–2 C.B. 49]), cross- For passive nonbank trustees and
referencing the temporary regulations, custodians (qualified nonbank entities
26 CFR 1.170A–13: Recordkeeping and return was published in the Federal Register that have no discretion to direct the
requirements for deductions for charitable
contributions.
(59 FR 62644) on the same day. The investment of assets), the percentage
temporary regulations provide guidance requirements are lower. Specifically,
The contributor of art appraised at $50,000 or on the adequacy of net worth require- passive nonbank trustees and custo-
more may request that the Service issue a ments for nonbank trustees and custodians may not accept new accounts
Statement of Value for the art. See Rev. Proc. dians of individual retirement plans, unless their net worth exceeds the
96–15, page 41. and for nonbank custodians of custodial greater of $100,000 or two percent of
accounts of qualified plans and tax- the value of all assets held in fiduciary
Section 401.—Qualified Pension, sheltered annuities. accounts. Additionally, they must take
Profit-sharing, and Stock Bonus After consideration of all of the appropriate action (including the relin-
Plans comments, the temporary regulations quishment of fiduciary accounts) to
are replaced and the proposed regula- ensure that their net worth exceeds the
26 CFR 1.401(f)–1: Certain custodial accounts tions are adopted as revised by this greater of $50,000 or one percent of
on annuity contracts. Treasury decision. Because section the value of assets held in their
401(d)(1), under which § 1.401–12 was fiduciary accounts.
T.D. 8635 originally issued, was repealed by The proposed and temporary regula-
section 237(a) of the Tax Equity and tions provide a special rule for passive
DEPARTMENT OF THE TREASURY Fiscal Responsibility Act of 1982, nonbank trustees and custodians that
Internal Revenue Service Public Law 97–248 (1982), these final are broker-dealers and members of the
regulations also move all the rules for Securities Investor Protection Corpora-
26 CFR Part 1 nonbank trustees and custodians that tion (SIPC). The proposed and tempo-
were previously in § 1.401–12(n) to rary regulations provide that, to the
Nonbank Trustee Net Worth § 1.408–2. extent that assets held in any fiduciary
Requirements accounts are insured by SIPC in the
Explanation of Provisions event of the member’s liquidation
AGENCY: Internal Revenue Service ($500,000 per account, $100,000 of
(IRS), Treasury. The fiduciary conduct rules for non- which may be cash), the assets will be
bank trustees and custodians under disregarded in determining the value of
ACTION: Final and temporary longstanding Treasury regulations re- assets held in fiduciary accounts by the
regulations. quire nonbank trustees and custodians trustee or custodian for purposes of the
to maintain a minimum amount of net percentage part of the net worth
SUMMARY: This document contains worth in order to qualify as an requirement.
regulations that provide guidance to approved nonbank trustee or custodian. The final regulations adopt the provi-
nonbank trustees with respect to the Under this requirement, the nonbank sions of the proposed and temporary
adequacy of net worth requirements trustee or custodian’s net worth must regulations. In addition, in response to
that must be satisfied in order to be or exceed the greater of a specified dollar comments, the final regulations extend
remain an approved nonbank trustee. amount or a percentage of the value of the SIPC-related relief to all nonbank
These regulations affect nonbank all assets held in fiduciary accounts of trustees and custodians that are broker-
trustees and custodians of individual retirement plans. A primary objective dealers and members of SIPC rather
retirement accounts, and nonbank of this adequacy-of-net-worth require- than limiting the relief to passive
custodians of qualified plans and tax- ment has been to ensure that nonbank nonbank trustees and custodians. The
sheltered annuities. trustees and custodians maintain a level final regulations provide that the
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amount of the minimum net worth nel from the IRS and Treasury Depart- 7. Removing the language ‘‘For the
requirement for nonbank trustees and ment participated in their development. plan years to which this paragraph
custodians that are SIPC members is applies, the’’ and adding ‘‘The’’ in its
reduced by either two percent of assets * * * * * * place, and removing the language ‘‘(c)-
insured by SIPC (in the case of the Adoption of Amendments to the (1)(i)’’ and adding ‘‘(b)’’ in its place,
minimum net worth requirement that Regulations in the first sentence of newly desig-
applies to a trustee or custodian accept- nated paragraph (e)(1).
ing additional accounts) or one percent Accordingly, 26 CFR part 1 is 8. Removing the language ‘‘401’’
of assets insured by SIPC (in the case amended as follows: and adding ‘‘408’’ in its place, and
of the minimum net worth requirement removing the language ‘‘(n)(3) to
that must be satisfied to avoid a PART 1—INCOME TAXES (n)(7)’’ and adding ‘‘(e)(2) to (e)(6)’’
mandatory relinquishment of accounts). in its place, in the second sentence of
An example in the regulations illus- Paragraph 1. The authority citation newly designated paragraph (e)(1).
trates this rule. for part 1 is amended by adding an 9. Removing the language ‘‘Com-
The final regulations also retain the entry in numerical order to read as missioner of Internal Revenue, Atten-
rule in the proposed and temporary follows: tion: E:EP, Internal Revenue Service,
regulations that increased the initial net Authority: 26 U.S.C. 7805. * * * Washington, D.C. 20224’’ and adding
worth requirement for all nonbank ‘‘the address prescribed by the Com-
§ 1.401–12 also issued under 26
trustees and custodians. The purpose of missioner in revenue rulings, notices,
U.S.C. 401(d)(1). * * *
the rule is to better assure that the and other guidance published in the
enterprises are sound and well-funded Internal Revenue Bulletin (see
during their start-up period. This initial §§ 1.401–12 and 1.408–2 [Amended]
§ 601.601(d)(2)(ii)(b) of this chapter)’’
net worth requirement requires all new in its place in the third sentence of
entities applying for nonbank trustee or Par. 2. Paragraph (n) of § 1.401–12 newly designated paragraph (e)(1), in
custodian status to have a net worth of is redesignated as paragraph (e) of the last sentence of newly designated
not less than $250,000 for the most § 1.408–2 and the authority citation (e)(6)(9)(iv), and in the first sentence
recent taxable year preceding the appli- immediately following § 1.401–12 is of newly designated (e)(6)(v)(B).
cant’s initial application. removed.
10. Removing the language ‘‘(n)(8)’’
This new initial net worth require- and adding ‘‘(e)(7)’’ in its place in the
ment applies only to applications re- § 1.401–12T [Removed]
last sentence of newly designated para-
ceived after January 5, 1995. Pre- graph (e)(1).
viously approved nonbank trustees and Par. 3. Section 1.401–12T is
removed. 11. Removing the language ‘‘(n)(6)’’
custodians need only satisfy the ongo- and adding ‘‘(e)(5)’’ in its place in
ing net worth requirement. newly designated paragraph (e)(2)(iv).
§ 1.401(f)–1 [Amended]
12. Redesignating newly designated
Special Analyses paragraph (e)(5)(ii)(A) as paragraph
Par. 4. Section 1.401(f)–1 is
amended by: (e)(5)(ii)(E).
It has been determined that this 13. Removing the language ‘‘(n)(7)-
Treasury decision is not a significant 1. Removing the language ‘‘section
401(d)(1) and the regulations there- (i)(A)’’ and adding ‘‘(e)(6)(i)(A)’’ in
regulatory action as defined in EO its place in newly designated paragraph
12866. Therefore, a regulatory assess- under’’ and adding ‘‘§ 1.408–2(e)’’ in
its place in the last sentence of (e)(5)(ii)(B)(2) and in newly designated
ment is not required. It also has been paragraph (e)(5)(ii)(C)(2).
determined that section 553(b) of the paragraph (b)(1)(ii).
Administrative Procedure Act (5 U.S.C. 2. Removing the language ‘‘401(d)- 14. Removing the language ‘‘(n)(6)-
chapter 5) and the Regulatory Flex- (1) and adding ‘‘408(n)’’ in its place in (iii)(A)’’ and adding ‘‘(e)(5)(iii)(A)’’ in
ibility Act (5 U.S.C. chapter 6) do not paragraph (d)(1). its place in newly designated paragraph
apply to these regulations, and, there- (e)(5)(iii)(B).
Par. 5. Section 1.408–2 is amended
fore, a Regulatory Flexibility Analysis by: 15. Removing the language ‘‘(n)(6)-
is not required. Pursuant to section (vi)’’ and adding ‘‘(e)(5)(vi)’’ in its
1. Removing the language ‘‘401(d)- place in newly designated paragraph
7805(f) of the Internal Revenue Code, (1)’’ and adding ‘‘408(n)’’ in its place
the notice of proposed rulemaking (e)(5)(v)(A).
in paragraph (b)(2)(i).
preceding these regulations was submit- 16. Removing the language ‘‘(n)(6)-
2. Removing the language ‘‘(b)(2)- (viii)(C)’’ and adding ‘‘(e)(5)(viii)(C)’’
ted to the Small Business Administra-
(ii)’’ and adding ‘‘(e)’’ in its place in in its place in newly designated para-
tion for comment on its impact on
paragraph (b)(2)(i). graph (e)(5)(vi).
small business.
3. Removing paragraph (b)(2)(ii). 17. Removing the language ‘‘(n)(3)-
Drafting Information 4. Redesignating (b)(2)(iii) as (b)(2)- (v)’’ and adding ‘‘(e)(2)(v)’’ in its
(ii) place, and removing the language
The principal author of these regula- 5. Removing newly redesignated ‘‘(n)(8)’’ and adding ‘‘(e)(7)’’ in its
tions is Marjorie Hoffman, Office of paragraphs (e)(1) and (e)(9). place, in newly designated paragraph
the Associate Chief Counsel, 6. Further redesignating paragraphs (e)(5)(viii).
(Employee Benefits and Exempt Orga- (e)(2) through (e)(8) as paragraphs 18. Removing the language ‘‘(n)(6)-
nizations) IRS. However, other person- (e)(1) through (e)(7), respectively. (i)(A)(3)’’ and adding ‘‘(e)(5)(i)(A)-
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(3)’’ in its place, and removing the account in the event of a liquidation Approved December 12, 1995.
language ‘‘(n)(5)(ii)(E)’’ and adding proceeding under the SIPA.
‘‘(e)(4)(ii)(E)’’ in its place, in the third (2) The provisions of this special Leslie Samuels,
sentence of newly designated paragraph rule for assets held in fiduciary ac- Assistant Secretary of
(e)(6)(i)(A). counts by members of SIPC are illus- the Treasury.
19. Removing the language ‘‘(n)(7)- trated in the following example. (Filed by the Office of the Federal Register on
(iii)(A)(3)’’ and adding ‘‘(e)(6)(iii)(A)- December 19, 1995, 8:45 a.m., and published
(3)’’ in its place in newly designated in the issue of the Federal Register for
paragraph (e)(6)(iii)(C). December 20, 1995, 60 F.R. 65547)
Example—(a) Trustee X is a broker-dealer and
20. Revising newly redesignated is a member of the Securities Investment
paragraphs (e)(5)(ii)(A) and adding Protection Corporation. Trustee X also has been
approved as a nonbank trustee for individual
Section 411.—Minimum Vesting
(e)(5)(ii)(D). retirement accounts (IRAs) by the Commissioner Standards
21. The revisions and addition read but not as a passive nonbank trustee. Trustee X
as follows: is the trustee for four IRAs. The total assets of 26 CFR 1.411(d)–6T: Section 204(h) notice.
each IRA (for which Trustee X is the trustee) as
of the most recent valuation date before the last
§ 1.408–2 Individual retirement day of Trustee X’s taxable year ending in 1995 T.D. 8631
accounts are as follows: the total assets for IRA–1 is
$3,000,000 (all of which is invested in se- DEPARTMENT OF THE TREASURY
* * * * * * curities); the value of the total assets for IRA–2
is $500,000 ($200,000 of which is cash and Internal Revenue Service
(e) * * * $300,000 of which is invested in securities), the 26 CFR Parts 1 and 602
value of the total assets for IRA–3 is $400,000
* * * * * * (all of which is invested in securities); and the
value of the total assets of IRA–4 is $200,000 Notice of Significant Reduction in
(5) * * * (all of which is cash). The value of all assets the Rate of Future Benefit Accrual
held in fiduciary accounts, as defined in § 1.408–
(ii) Adequacy of net worth—(A) Ini- 2(e)(6)(viii)(A), is $4,100,000.
tial net worth requirement. In the case AGENCY: Internal Revenue Service
of applications received after January
(b) The dollar limit on advances described in (IRS), Treasury.
15 U.S.C. § 78fff–3(a) that would apply to the
5, 1995, no initial application will be assets in each account in the event of a
accepted by the Commissioner unless liquidation proceeding under the Securities In- ACTION: Temporary regulations.
the applicant has a net worth of not vestor Protection Act of 1970 in effect as of the
last day of Trustee X’s taxable year ending in SUMMARY: This document contains
less than $250,000 (determined as of 1995 is $500,000 per account (no more that
the end of the most recent taxable $100,000 of which is permitted to be cash).
temporary regulations that provide
year). Thereafter, the applicant must Thus, the dollar limit that would apply to IRA–1 guidance concerning the requirements
satisfy the adequacy of net worth is $500,000; the dollar limit for IRA–2 is of section 204(h) of the Employee
requirements of paragraph (e)(6)(ii)(B) $400,000 ($100,000 of the cash and the $300,000 Retirement Income Security Act of
of the value of the securities); the dollar limit for 1974, as amended (ERISA), relating to
and (C) of this section. IRA–3 is $400,000 (the full value of the account
because the value of the account is less than defined benefit plans and to individual
* * * * * * $500,000 and no portion of the account is cash); account plans that are subject to the
(D) Assets held by members of and the dollar limit for IRA–4 is $100,000 (the funding standards of section 302 of
entire account is cash and the dollar limit per ERISA. It requires the plan administra-
SIPC—1) For purposes of satisfying account for cash is $100,000). The aggregate
the adequacy-of-net worth requirement dollar limits of the four IRAs is $1,400,000.
tor to give notice of certain plan
of this paragraph, a special rule is amendments to participants in the plan
(c) For 1996, the amount determined under
provided for nonbank trustees that are § 1.408–2(e)(6)(ii)(B) is determined as follows
and certain other parties. The text of
members of the Securities Investor for Trustee X: (1) four percent of $4,100,000 these temporary regulations also serves
Protection Corporation (SIPC) created equals $164,000; (2) two percent of $1,400,000 as the text of the proposed regulations
under the Securities Investor Protection
equals $28,000; and (3) $164,000 minus $28,000 set forth in the notice of proposed
equals $136,000. Thus, because $136,000 ex- rulemaking on this subject published in
Act of 1970 (SIPA)(15 U.S.C. § 78aaa ceeds $100,000, the minimum net worth neces-
et seq, as amended). The amount that sary for Trustee X to accept new accounts for * * * [EE–34–95, page 49, this
the net worth of a nonbank trustee that 1996 is $136,000. Bulletin.]
is a member of SIPC must exceed is (d) For 1996, the amount determined under
reduced by two percent for purposes of § 1.408–2(e)(6)(ii)(C) for Trustee X is deter- EFFECTIVE DATE: December 15,
paragraph (e)(5)(ii)(B)(2), and one per- mined as follows: (1) two percent of $4,100,000 1995.
equals $82,000; (2) one percent of $1,400,000
cent for purposes of paragraph (e)(5)- equals $14,000; and (3) $82,000 minus $14,000
(ii)(C)(2), of the value of assets (deter- equals $68,000. Thus, because $68,000 exceeds FOR FURTHER INFORMATION
mined on an account-by-account basis) $50,000, the minimum net worth necessary for CONTACT: Betty J. Clary, (202)
held for the benefit of customers (as Trustee X to avoid a mandatory relinquishment 622-6070 (not a toll-free number).
of accounts for 1996 is $68,000.
defined in 15 U.S.C. § 78fff–2(e)(4)) in
fiduciary accounts by the nonbank SUPPLEMENTARY INFORMATION:
trustee to the extent of the portion of * * * * * *
each account that does not exceed the Paperwork Reduction Act
dollar limit on advances described in Margaret Milner Richardson,
15 U.S.C. § 78fff–3(a), as amended, Commissioner of These regulations are being issued
that would apply to the assets in that Internal Revenue. without prior notice and public proce-
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dure pursuant to the Administrative 1 C.B. 566), and under Notice 87–21 Section 204(h) of ERISA does not
Procedure Act (5 U.S.C. 553). For this (1987–1 C.B. 458), Notice 88–131 apply to an amendment that does not
reason, the collection of information (1988–2 C.B. 546), Notice 89–92 affect the rate of future benefit accrual.
contained in these regulations has been (1989–2 C.B. 410), and Notice 90–73 These regulations clarify that an
reviewed and, pending receipt and (1990–2 C.B. 353). These temporary amendment to a defined benefit plan
evaluation of public comments, ap- regulations provide further guidance, in that does not affect the annual benefit
proved by the Office of Management the form of Questions and Answers. commencing at normal retirement age
and Budget under control number The provisions in this Treasury does not affect the rate of future
1545–1477. Responses to this collec- Decision are needed immediately to benefit accrual for purposes of section
tion of information are required under provide guidance to the public with 204(h). Accordingly, the regulations
section 204(h) of ERISA upon the respect to the notice requirements of provide that the plan administrator of a
adoption of certain amendments to section 204(h) of ERISA. Issues related defined benefit plan is not required to
pension plans. to section 204(h) arise in connection provide section 204(h) notice with
An agency may not conduct or with a broad range of plan amend- respect to an amendment that does not
sponsor, and a person is not required to ments, including amendments prompted affect the future annual benefit payable
respond to, a collection of information by recent changes in the law. There- at normal retirement age, even if the
unless the collection of information fore, it is found impracticable and amendment affects other forms of pay-
displays a valid control number. contrary to the public interest to issue ment (such as a single sum distribu-
For further information concerning this Treasury decision with prior notice tion) or benefits commencing at a date
this collection of information, and under 5 U.S.C. 553(b). other than normal retirement age (such
where to submit comments on the as an early retirement benefit).
collection of information and the ac- Explanation of Provisions The regulations also clarify that an
curacy of the estimated burden and amendment to an individual account
suggestions for reducing this burden, Section 204(h) of ERISA applies if a plan that does not change the amount
please refer to the preamble to the defined benefit plan or an individual of future allocations to participants’
cross-referencing notice of proposed account plan that is subject to the accounts does not affect the rate of
rulemaking published in * * * [EE– funding standards of section 302 of future benefit accrual for purposes of
34–95, page 00, this Bulletin]. ERISA is amended to provide for a section 204(h) of ERISA. Accordingly,
The regulations do not involve any significant reduction in the rate of section 204(h) notice is not required
issue of confidentiality. future benefit accrual. It requires the with respect to any such amendment.
plan administrator to give written Even if an amendment affects the
Background notice of the amendment to participants rate of future benefit accrual, section
in the plan, alternate payees, and 204(h) notice is required only if the
This document contains temporary employee organizations representing amendment significantly reduces the
regulations that provide guidance on participants in the plan (or to a person rate of future benefit accrual. Under the
section 204(h) of the Employee Retire- designated, in writing, to receive the regulations, whether an amendment
ment Income Security Act of 1974, as notice on behalf of a participant, significantly reduces the rate of future
amended (ERISA), 29 U.S.C. 1054(h). alternate payee, or employee organiza- benefit accrual is to be determined
Section 204(h) of ERISA was added by tion). The notice must set forth the plan based on reasonable expectations taking
section 11006(a) of the Single- amendment and its effective date and into account all relevant facts and
Employer Pension Plan Amendments must be provided after adoption of the circumstances.
Act of 1986 (Title XI of Public Law amendment and not less than 15 days The regulations delegate to the Com-
99–272), and was amended by section before the effective date of the missioner of Internal Revenue the
1879(u)(1) of the Tax Reform Act of amendment. authority to provide that section 204(h)
1986, Public Law 99–514. Pursuant to A plan amendment that is subject to notice need not be provided with
section 101(a) of the Reorganization the notice requirements of section respect to plan amendments that the
Plan No. 4 of 1978, 29 U.S.C. 1001nt, 204(h) of ERISA may also be subject Commissioner determines are necessary
the Secretary of the Treasury has to additional reporting and disclosure or appropriate, as a result of a change
authority to issue regulations under requirements under title I of ERISA, in federal law, to maintain compliance
parts 2 and 3 of subtitle B of title I of such as the requirement to provide a with the law. The Commissioner may
ERISA (including section 204 of summary of material modifications. See exercise this authority only through the
ERISA). Under section 104 of Re- sections 102(a) and 104(a) of ERISA, publication of revenue rulings, notices,
organization Plan No. 4, the Secretary 29 U.S.C. 1022 and 1024, and the and other guidance in the Internal
of Labor retains enforcement authority regulations thereunder for guidance on Revenue Bulletin.
with respect to parts 2 and 3 of subtitle when a summary of material modifica- In situations in which section 204(h)
B of title I of ERISA, but, in tions must be provided. Section 204(h) notice is required with respect to an
exercising such authority, is bound by notice must be provided at least 15 amendment, the regulations provide
the regulations issued by the Secretary days in advance of the effective date of guidance on the participants, alternate
of the Treasury. an amendment significantly reducing payees, and employee organizations to
Prior guidance relating to the re- the future rate of benefit accrual, even whom the notice must be provided.
quirements of section 204(h) has been though a summary of material modi- Specifically, the regulations provide
provided in Rev. Proc. 89–65 (1989–2 fications describing the amendment is that the plan administrator is not
C.B. 786) and Rev. Proc. 94–13 (1994– provided at a later date. required to provide notice to a partici-
8
COMPOSITE COLOR
778/20049/28MAY96/A02-004
pant or alternate payee whose rate of notice was required. In such a situation, Advocacy of the Small Business Ad-
future benefit accrual is reasonably the amendment becomes effective in ministration for comment on their
expected not to be reduced by the accordance with its terms with respect impact on small business.
amendment. For example, notice need to a participant to whom notice was
not be provided to participants (such as required if the participant was provided Drafting Information
former employees with a vested benefit with timely notice and any employee
under the plan) who, prior to the organization representing the partici- The principal author of these regula-
amendment, were not entitled to accrue pant was also provided with timely tions is Betty J. Clary, Office of the
future benefits under the plan. More- notice. The amendment also becomes Associate Chief Counsel (Employee
over, under the regulations, section effective in accordance with its terms Benefits and Exempt Organizations),
204(h) notice is not required to be with respect to an alternate payee to IRS. However, other personnel from
provided to an employee organization whom notice was required if the the IRS and Treasury Department
unless it represents one or more partici- alternate payee was provided with participated in their development.
pants to whom section 204(h) notice is timely notice.
required to be provided. Finally, the The second rule applies in a situation * * * * * *
regulations clarify that employees who in which the plan administrator made a Adoption of Amendments to the
have not yet become participants in the good faith effort to comply with Regulations
plan are not taken into account for any section 204(h) of ERISA with respect
purpose under section 204(h) of to an amendment, failed to provide Accordingly, 26 CFR parts 1 and
ERISA.1 Thus, the plan administrator is timely section 204(h) notice to no more 602 are amended as follows:
not required to provide section 204(h) than a de minimis percentage of the
notice to such employees. parties to whom notice was required, PART 1—INCOME TAXES
The regulations provide that a plan and provided timely notice to all
that is terminated in accordance with employee organizations with respect to
Paragraph 1. The authority citation
title IV of ERISA is deemed to satisfy whom section 204(h) notice was re-
for part 1 is amended by adding an
section 204(h) not later than the date of quired. In such a situation, if the plan
entry for section 1.411(d)–6T to read as
termination established under section administrator, promptly upon discovery
follows:
4048 of ERISA. Accordingly, section of the omission, provides section
204(h) does not require that any further 204(h) notice to all parties who were Authority: 26 U.S.C. 7805. * * *
benefits accrue under the plan after that required to be provided such notice but Section 1.411(d)–6T also issued under
date. However, if that date of termina- were omitted, the plan amendment Reorganization Plan No. 4 of 1978, 29
tion is deferred, benefits continue to becomes effective in accordance with U.S.C. 1001nt. * * *
accrue until the deferred date of its terms with respect to all parties to Par. 2. 1.411(d)–6T is added to read
termination absent an effective cessa- whom section 204(h) notice was re- as follows:
tion of accruals as of an earlier quired, including those who did not
specified date. receive notice prior to discovery of the 1.411(d)–6T Section 204(h) notice.
If the plan is not amended to omission.
significantly reduce the rate of future Q–1: What are the requirements of
benefit accrual prior to the termination, Effective Dates section 204(h) of the Employee Retire-
section 204(h) notice is not required. ment Income Security Act of 1974, as
However, the regulations also affirm These temporary regulations are amended (ERISA)?
that section 204(h) applies to an effective for amendments adopted on or A–1: (a) Requirements of section
amendment that is effective prior to the after December 15, 1995, and amend- 204(h). Section 204(h) of ERISA gen-
termination date and clarify that, if ments effective by their terms on or erally requires written notice of an
section 204(h) notice is required, it can after December 30, 1995. amendment to certain plans that prov-
be provided either with or as part of ides for a significant reduction in the
the notice of intent to terminate or Special Analyses rate of future benefit accrual. Section
separately. 204(h) generally requires the notice to
The regulations also provide two It has been determined that this be provided to plan participants, alter-
rules applicable in situations in which a Treasury decision is not a significant nate payees, and employee organiza-
plan administrator was required to regulatory action as defined in EO tions. The plan administrator must
provide section 204(h) notice with 12866. Therefore, a regulatory assess- provide the notice after adoption of the
respect to an amendment but failed to ment is not required. It also has been plan amendment and not less than 15
provide timely notice to some of the determined that section 553(b) of the days before the effective date of the
parties to whom notice was required to Administrative Procedure Act (5 U.S.C. plan amendment.
be provided. The first rule applies chapter 5) and the Regulatory Flex- (b) Other notice requirements. Other
when the plan administrator fails to ibility Act (5 U.S.C. chapter 6) do not provisions of law may require that cer-
provide timely notice with respect to apply to these regulations, and, there- tain parties be notified of a plan amend-
more than a de minimis percentage of fore, a Regulatory Flexibility Analysis ment. See, for example, sections 102
the parties to whom section 204(h) is not required. Pursuant to section and 104 of ERISA, and the regulations
7805(f) of the Internal Revenue Code, thereunder, for the requirements relating
1This is not intended to affect the rights of these temporary regulations will be to summary plan descriptions and sum-
employees under other provisions of ERISA. submitted to the Chief Counsel for maries of material modifications.
9
COMPOSITE COLOR
778/20049/28MAY96/A02-004
Q–2: To which plans does section Changes in the investments or invest- crual; the method of determining aver-
204(h) of ERISA apply? ment options under an individual ac- age compensation for calculating bene-
A–2: Section 204(h) of ERISA ap- count plan are not taken into account fit accruals; the definition of normal
plies to defined benefit plans subject to for this purpose. retirement age in a defined benefit
part 2 of subtitle B of title I of ERISA (b) Determination of rate of future plan; the exclusion of current partici-
and to individual account plans subject benefit accrual. In accordance with pants from future participation; benefit
to such part 2 and to the funding paragraph (a) of this Q&A–5, the rate offset provisions; minimum benefit
standards of section 302 of ERISA. of future benefit accrual is determined provisions; the formula for determining
Accordingly, individual account plans without regard to optional forms of the amount of contributions and forfei-
that are not subject to the funding benefit (other than the annual benefit tures allocated to participants’ accounts
standards of section 302, such as described in paragraph (a) of this in an individual account plan; and the
profit-sharing and stock bonus plans, Q&A–5), early retirement benefits, or actuarial assumptions used to determine
are not subject to section 204(h). retirement-type subsidies, within the contributions under a target benefit
Q–3: What is section 204(h) notice? meaning of such terms as used in plan (as defined in 1.401(a)(4)–
section 411(d)(6) of the Code (section 8(b)(3)(i)).
A–3: Section 204(h) notice is notice
that complies with section 204(h) of 204(g) of ERISA). The rate of future (b) Plan provisions not taken into
ERISA and the rules in this section. benefit accrual is also determined with- account. Plan provisions that do not
out regard to ancillary benefits and affect the rate of future benefit accrual
Q–4: For which amendments is other rights or features as defined in of participants or alternate payees are
section 204(h) notice required? 1.401(a)(4)–4(e). not taken into account in determining
A–4: (a) In general. Section 204(h) (c) Examples. These examples illus- whether there has been a reduction in
notice is required for an amendment to trate the rules in this Q&A–5: the rate of future benefit accrual. For
a plan described in Q&A–2 of this example, provisions such as vesting
section that provides for a significant Example 1. A plan is amended with respect to schedules or optional forms of benefit
reduction in the rate of future benefit future benefit accruals to eliminate a right to (other than the annual benefit described
accrual. commencement of a benefit prior to normal in Q&A–5(a) of this section) are not
retirement age. Because the amendment does not
(b) Delegation of authority to Com- affect the annual benefit commencing at normal taken into account.
missioner. The Commissioner of Inter- retirement age, it does not reduce the rate of (c) Examples. The following exam-
nal Revenue may provide through future benefit accrual for purposes of section ple illustrates the rules in this Q&A–6:
publication in the Internal Revenue 204(h).
Bulletin of revenue rulings, notices, or Example 2. A plan is amended to modify the Example. A defined benefit plan provides a
assumptions used in converting an annuity form normal retirement benefit equal to 50% of final
other documents (see 601.601(d)(2) of of distribution to a single sum form of distribu- average compensation times a fraction (not in
this chapter) that section 204(h) notice tion. The use of these modified assumptions excess of one), the numerator of which equals
need not be provided for plan amend- results in a lower single sum. Because the the number of years of participation in the plan
ments otherwise described in paragraph amendment does not affect the annual benefit and the denominator of which equals 20. A plan
(a) of this Q&A–4 that the Commis- commencing at normal retirement age, it does amendment that changes the numerator or
not reduce the rate of future benefit accrual for denominator of that fraction must be taken into
sioner determines to be necessary or purposes of section 204(h). account in determining whether there has been a
appropriate, as a result of changes in reduction in the rate of future benefit accrual.
the law, to maintain compliance with Q–6: What plan provisions are taken
the requirements of the Internal Reve- into account in determining whether Q–7: What is the basic principle
nue Code of 1986, as amended (Code) there has been a reduction in the rate used in determining whether an amend-
(including requirements for tax of future benefit accrual? ment provides for a significant reduc-
qualification), ERISA, or other application in the rate of future benefit accrual
A–6: (a) Plan provisions taken into
ble federal law. for purposes of section 204(h) of
account. All plan provisions that may
Q–5: What is an amendment that affect the rate of future benefit accrual ERISA?
affects the rate of future benefit accrual of participants or alternate payees must A–7: Whether an amendment pro-
for purposes of section 204(h) of be taken into account in determining vides for a significant reduction in the
ERISA? whether an amendment provides for a rate of future benefit accrual for
A–5: (a) In general—(1) Defined significant reduction in the rate of purposes of section 204(h) of ERISA is
benefit plans. For purposes of section future benefit accrual. Such provisions determined based on reasonable expec-
204(h) of ERISA, an amendment to a include, for example, the dollar amount tations taking into account the relevant
defined benefit plan affects the rate of or percentage of compensation on facts and circumstances at the time the
future benefit accrual only if it is which benefit accruals are based; in the amendment is adopted.
reasonably expected to change the case of a plan using the permitted Q–8: Are employees who have not
amount of the future annual benefit disparity under section 401(l) of the yet become participants in a plan at the
commencing at normal retirement age. Code, the amount of disparity between time an amendment to the plan is
(2) Individual account plans. For the excess benefit percentage or excess adopted taken into account for any
purposes of section 204(h), an amend- contribution percentage and the base purpose in applying section 204(h) of
ment to an individual account plan benefit percentage or base contribution ERISA with respect to the amendment?
affects the rate of future benefit accrual percentage (all as defined in section A–8: No. Employees who have not
only if it is reasonably expected to 401(l)); the definition of service or yet become participants in a plan at the
change the amounts allocated in the compensation taken into account in time an amendment to the plan is
future to participants’ accounts. determining an employee’s benefit ac- adopted are not taken into account for
10
COMPOSITE COLOR
778/20049/28MAY96/A02-005
adopted taken into account for any was determined at the time the qualified acceptable delivery method. Likewise,
purpose in applying section 204(h) of domestic relations order was issued by the court.
It is reasonable to expect that the benefits to be
hand delivery is acceptable. Section
ERISA with respect to the amendment? received by the second group of alternate payees 204(h) notice may be enclosed along
A–8: No. Employees who have not will not be affected by any reduction in a former with other notice provided by the
yet become participants in a plan at the spouse’s rate of future benefit accrual. Accord- employer or plan administrator.
ingly, the plan administrator is not required to
time an amendment to the plan is provide section 204(h) notice to the alternate Q–12: If a plan administrator fails to
adopted are not taken into account for payees in the second group. provide section 204(h) notice to more
any purpose in applying section 204(h) Example 3. Plan B covers hourly employees than a de minimis percentage of partici-
of ERISA with respect to the amend- and salaried employees. Plan B provides the pants and alternate payees to whom
ment. Thus, if section 204(h) notice is same rate of benefit accrual for both groups. The
employer amends Plan B to reduce significantly
section 204(h) notice is required to be
required with respect to an amendment, provided, will the plan administrator be
the rate of future benefit accrual of the salaried
the plan administrator need not provide employees only. At that time, it is reasonable to considered to have complied with
section 204(h) notice to such expect that only a small percentage of hourly section 204(h) of ERISA with respect
employees. employees will become salaried in the future.
to participants and alternate payees
Q–9: If section 204(h) notice is Accordingly, the plan administrator is not re-
quired to provide section 204(h) notice to the who were provided with timely section
required with respect to an amendment, participants who are currently hourly employees. 204(h) notice?
must such notice be provided to partici- Example 4. Plan C covers employees in A–12: The plan administrator will be
pants or alternate payees whose rate of Division M and employees in Division N. Plan C
considered to have complied with
future benefit accrual is not reduced by provides the same rate of benefit accrual for both
the amendment? groups. The employer amends Plan C to reduce section 204(h) of ERISA with respect
significantly the rate of future benefit accrual of to a participant to whom section 204(h)
A–9: (a) In general. A plan admin- employees in Division M. At that time, it is notice is required to be provided if the
istrator need not provide section 204(h) reasonable to expect that in the future only a
participant and any employee organiza-
notice to any participant whose rate of small percentage of employees in Division N
will be transferred to Division M. Accordingly, tion representing the participant were
future benefit accrual is reasonably
expected not to be reduced by the
the plan administrator is not required to provide provided with timely section 204(h)
section 204(h) notice to the participants who are notice. The plan administrator will be
amendment, nor to any alternate payee employees in Division N.
under an applicable qualified domestic considered to have complied with
Example 5. Assume the same facts as in
relations order whose rate of future Example 4, except that at the time the amend- section 204(h) with respect to an
benefit accrual is reasonably expected ment is adopted, it is expected that soon alternate payee to whom section 204(h)
not to be reduced by the amendment. A thereafter Division N will be merged into notice is required to be provided if the
Division M in connection with a corporate alternate payee was provided with
plan administrator need not provide reorganization (and the employees in Division N
section 204(h) notice to an employee will become subject to the plan’s amended timely section 204(h) notice. Accord-
organization unless the employee orga- benefit formula applicable to the employees in ingly, the amendment will become
nization represents a participant to Division M). In this instance, the plan admin- effective in accordance with its terms
istrator must provide section 204(h) notice to the with respect to those participants and
whom section 204(h) notice is required participants who are employees in Division M
to be provided. and to the participants who are employees in alternate payees.
(b) Facts and circumstances test. Division N. Q–13: Will a plan be considered to
Whether a participant or alternate have complied with section 204(h) of
payee is described in paragraph (a) of Q–10: Does a notice fail to comply ERISA if the plan administrator
this Q&A–9 is determined based on all with section 204(h) of ERISA if it provides section 204(h) notice to all
relevant facts and circumstances at the contains a summary of the amendment but a de minimis percentage of partici-
time the amendment is adopted. and the effective date, without the text pants and alternate payees to whom
(c) Examples. The following exam- of the amendment itself? section 204(h) notice must be
ples illustrate the rules in this Q&A–9: A–10: No, the notice does not fail to provided?
comply with section 204(h) of ERISA A–13: The plan will be considered to
Example 1. Plan A is amended to reduce
significantly the rate of future benefit accrual of merely because the notice contains a have complied with section 204(h) of
all current employees who are participants in the summary of the amendment, rather than ERISA and the amendment will be-
plan. It is reasonable to expect based on the facts the text of the amendment, if the come effective in accordance with its
and circumstances that the amendment will not
reduce the rate of future benefit accrual of
summary is written in a manner calcu- terms with respect to all parties to
former employees who are currently receiving lated to be understood by the average whom section 204(h) notice was re-
benefits or that of former employees who are plan participant and contains the effec- quired to be provided (including those
entitled to vested benefits. Accordingly, the plan tive date. The summary need not who did not receive notice prior to
administrator is not required to provide section
204(h) notice to such former employees.
explain how the individual benefit of discovery of the omission), if the plan
Example 2. Assume in Example 1 that Plan A each participant or alternate payee will administrator—
also covers two groups of alternate payees. The be affected by the amendment. (a) Has made a good faith effort to
alternate payees in the first group are entitled to Q–11: How may section 204(h) comply with the requirements of sec-
a certain percentage or portion of the former
spouse’s accrued benefit, and for this purpose the
notice be provided? tion 204(h);
accrued benefit is determined at the time the A–11: A plan administrator may use (b) Has provided section 204(h)
former spouse begins receiving retirement bene- any method reasonably calculated to notice to each employee organization
fits under the plan. The alternate payees in the
second group are entitled to a certain percentage
ensure actual receipt of the section that represents any participant to whom
or portion of the former spouse’s accrued 204(h) notice. First class mail to the section 204(h) notice is required to be
benefit, and for this purpose the accrued benefit last known address of the party is an provided;
11
COMPOSITE COLOR
778/20049/28MAY96/A02-005
(c) Has failed to provide section PART 602—OMB CONTROL provides that, for purposes of determin-
204(h) notice to no more than a de NUMBERS UNDER THE ing current liability, the mortality table
minimis percentage of participants and PAPERWORK REDUCTION ACT used shall be the table prescribed by
alternate payees to whom section the Secretary, and sets forth the basis
204(h) notice is required to be Par. 6. The authority citation for part for establishing a table. For plan years
provided; and 602 continues to read as follows: beginning before the effective date of
(d) Provides section 204(h) notice to Authority: 26 U.S.C. 7805. the first tables prescribed under
§ 412(l)(7)(C)(ii)(II), the table must be
those participants and alternate payees Par. 7. In 602.101, paragraph (c) is based on the prevailing commissioners’
promptly upon discovering the amended by adding to the table in standard table (described in § 807(d)-
oversight. numerical order the entry ‘‘1.411(d)– (5)(A)) used to determine reserves for
Q–14: How does section 204(h) of 6T . . . 1545–1477’’. group annuity contracts issued on Janu-
ERISA apply to a plan that is termi- ary 1, 1993. Rev. Rul. 95–28, 1995–1
nated in accordance with title IV of Margaret Milner Richardson, C.B. 74, sets forth this mortality table.
ERISA? Commissioner of
Section 412(l)(7)(C)(iii)(I) provides
A–14: (a) On and after termination Internal Revenue.
that, for plan years beginning after
date. Notwithstanding paragraph (b) of December 31, 1995, the Secretary shall
Approved December 5, 1995.
this Q&A–14 or any other provisions establish mortality tables that may be
of this section, a plan that is terminated used, in lieu of the tables under
Leslie Samuels,
in accordance with title IV of ERISA is § 412(l)(7)(C)(ii), to determine current
Assistant Secretary
deemed to have satisfied section 204(h) liability under § 412(l) for individuals
of the Treasury. who are entitled to benefits under the
of ERISA not later than the termination
date (or date of termination, as applica- (Filed by the Office of the Federal Register on plan on account of disability. The
ble) established under section 4048 of December 12, 1995, 1:23 p.m., and published Secretary must establish separate tables
ERISA. Accordingly, section 204(h) in the issue of the Federal Register for for individuals whose disabilities oc-
December 15, 1995, 60 F.R. 64401) curred in plan years beginning before
would not require that any additional
benefits accrue after such date. January 1, 1995, and for individuals
Section 412.—Minimum Funding whose disabilities occur in plan years
(b) Amendment effective before ter- Standards beginning after December 31, 1994.
mination date. An amendment that is Under § 412(l)(7)(C)(iii)(II), the mor-
effective before the termination date (or tality table for individuals whose dis-
Disability mortality tables. This rul-
date of termination, as applicable) ing provides mortality tables for use abilities occur in plan years beginning
established under section 4048 of under section 412(1) for plan years after December 31, 1994, applies only
ERISA is subject to section 204(h). after 1995 to calculate current liability with respect to individuals who are
Accordingly, if such amendment pro- for individuals entitled to benefits on disabled within the meaning of title II
vides for a significant reduction in the account of disability. of the Social Security Act and the
rate of future benefit accrual, the plan regulations thereunder.
administrator must provide section Rev. Rul. 96–7 The alternative mortality tables
204(h) notice (either separately or with provided for under § 412(l)(7)(C)(iii)
or as part of the notice of intent to are permitted to be used in the
ISSUE
terminate) with respect to the amend- specified circumstances, but are not
ment. However, if a plan is not required to be used. For any individual
What alternative mortality tables
amended to reduce significantly the for whom these alternative mortality
may be used to calculate a plan’s
rate of future benefit accrual before the tables are not used, the mortality table
current liability under § 412(l) of the
termination date (for example, the plan prescribed under § 412(l)(7)(C)(ii) must
Internal Revenue Code for individuals
continues existing benefit accruals until be used.
who are entitled to benefits under the
the termination date), section 204(h) plan on account of disability? The alternative mortality tables
notice is not required. provided under § 412(l)(7)(C)(iii) may
Q–15: When does section 204(h) of LAW AND ANALYSIS be used only for individuals who are
ERISA become effective? entitled to benefits under the plan on
A–15: (a) Statutory effective date. account of disability. For this purpose,
Section 412(l) provides additional an individual is entitled to benefits
With respect to defined benefit plans, funding requirements for certain under-
section 204(h) of ERISA generally under a plan on account of disability if,
funded defined benefit pension plans because of the occurrence of a dis-
applies to plan amendments adopted on that have more than 100 participants ability, the individual is entitled to
or after January 1, 1986. With respect and that are not multiemployer plans. receive a benefit to which the individ-
to individual account plans, section In general, the additional funding re- ual would not be entitled in the
204(h) applies to plan amendments quirements are determined based on a absence of the disability. For example,
adopted on or after October 22, 1986. plan’s unfunded current liability. an individual is entitled to benefits
(b) Regulatory effective date. This Section 751(a) of the Retirement under a plan on account of disability if,
section applies to amendments adopted Protection Act of 1994 added § 412(l)- upon the occurrence of a disability at a
on or after December 15, 1995, and (7)(C)(ii) to the Code, effective for time before the individual would have
amendments effective by their terms on plan years beginning after December been entitled to receive an unreduced
or after December 30, 1995. 31, 1994. Section 412(l)(7)(C)(ii) normal retirement benefit upon retire-
12
REVISED 28MAY96 AT 09:49 BY LR DEPTH: 65.01 PICAS WIDTH 44.10 PICAS
COMPOSITE COLOR
778/20049/28MAY96/A02-005
ment, the individual is entitled to plan years beginning after December Age lx male qx male
receive the same annuity that would 31, 1994. This second mortality table
have been payable to the individual may be used only for individuals who 44 721,264.47 0.018521
upon retirement at normal retirement are disabled within the meaning of title 45 707,905.93 0.019251
age. As a further example, an individ- II of the Social Security Act and the 46 694,278.03 0.020025
ual is entitled to benefits under a plan regulations thereunder. The mortality 47 680,375.11 0.020846
on account of disability if the individ- table required to be used under 48 666,192.01 0.021716
ual, who would not otherwise be § 412(l)(7)(C)(ii) must be used for 49 651,724.99 0.022639
earning service credits, is credited with individuals whose disabilities occur in 50 636,970.59 0.023624
years of service for the period of plan years beginning after December 51 621,922.79 0.024617
disability. On the other hand, an 31, 1994, but who are not disabled 52 606,612.92 0.025865
individual is not entitled to benefits on within the meaning of title II of the 53 590,922.88 0.027076
account of disability if the individual Social Security Act and the regulations 54 574,923.05 0.028263
separates from the service of the thereunder. 55 558,674.00 0.029451
employer because of a disability, but 56 542,220.49 0.030667
merely receives the same benefit that 57 525,592.21 0.031937
MORTALITY TABLE FOR 58 508,806.38 0.033281
would have been payable if the individ- DISABILITIES OCCURRING IN
ual had separated from service without 59 491,872.79 0.034700
PLAN YEARS BEGINNING 60 474,804.81 0.036185
the occurrence of the disability. BEFORE JANUARY 1, 1995 61 457,623.99 0.037729
For purposes of § 412(l)(7)(C)(iii),
62 440,358.30 0.039325
any individual who has become entitled
The following mortality table is the 63 423,041.21 0.040976
to benefits under a plan on account of
mortality table that is permitted to be 64 405,706.67 0.042720
disability continues to be considered
used for individuals entitled to benefits 65 388,374.88 0.044607
entitled to benefits under the plan on
under the plan on account of disability, 66 371,050.64 0.046684
account of disability until the individ-
whose disabilities occurred in plan 67 353,728.52 0.049000
ual recovers from disability and be-
years beginning before January 1, 68 336,395.82 0.051594
comes entitled to different benefits
1995. The table sets forth the number 69 319,039.81 0.054468
under the plan than the individual
living based upon a starting population 70 301,662.35 0.057612
would have been entitled to if the
of one million lives at age 15 (lx), and 71 284,282.98 0.061019
individual had not recovered.
the annual rate of mortality (qx), to be 72 266,936.32 0.064679
Under § 412(l), nothing prohibits the used for each age and each gender. 73 249,671.14 0.068604
use of an additional actuarial assump- 74 232,542.70 0.072881
tion that meets the requirements of 75 215,594.76 0.076965
§ 412(c) regarding the probability of Age lx male qx male
76 199,001.51 0.081027
recovery from disability. 15 1,000,000.00 0.006245 77 182,877.01 0.085222
16 993,755.00 0.006493 78 167,291.87 0.089592
HOLDING 17 987,302.55 0.006749 79 152,303.86 0.094182
18 980,639.24 0.007018 80 137,959.57 0.099034
The mortality tables provided below, 19 973,757.12 0.007297 81 124,296.89 0.104194
as applicable, may be used for plan 20 966,651.61 0.007586 82 111,345.90 0.109705
years beginning after December 31, 21 959,318.59 0.007887 83 99,130.69 0.115609
1995, in lieu of the mortality table 22 951,752.45 0.008201 84 87,670.29 0.121952
required to be used under § 412(l)(7)- 23 943,947.13 0.008526 85 76,978.73 0.128777
(C)(ii), for purposes of determining 24 935,899.03 0.008864 86 67,065.64 0.136128
current liability. The first mortality 25 927,603.22 0.009216 87 57,936.13 0.144048
table provided below may be used for 26 919,054.43 0.009581 88 49,590.54 0.152581
plan years beginning after December 27 910,248.97 0.009964 89 42,023.97 0.161771
31, 1995, in lieu of the mortality table 28 901,179.25 0.010358 90 35,225.71 0.171662
current liability for individuals entitled 31 872,369.17 0.011624 93 19,237.51 0.205975
to benefits under the plan on account 32 862,228.75 0.012071 94 15,275.06 0.219106
of disability, whose disabilities oc- 33 851,820.79 0.012531 95 11,928.20 0.234086
curred in plan years beginning before 34 841,146.62 0.013022 96 9,135.98 0.248436
January 1, 1995. The second mortality 35 830,193.21 0.013421 97 6,866.27 0.263954
table provided below may be used for 36 819,051.19 0.013892 98 5,053.89 0.280803
plan years beginning after December 37 807,672.93 0.014380 99 3,634.74 0.299154
31, 1995, in lieu of the mortality table 38 796,058.59 0.014889 100 2,547.40 0.319185
current liability for individuals entitled 41 759,778.33 0.016562 103 725.59 0.393102
to benefits under the plan on account 42 747,194.88 0.017179 104 440.36 0.427255
of disability, whose disabilities occur in 43 734,358.82 0.017831 105 252.21 0.469531
13
COMPOSITE COLOR
778/20049/28MAY96/A02-005
Age lx male qx male Age lx female qx female Age lx male qx male

106 133.79 0.521945 69 458,649.12 0.031848 15 1,000,000.00 0.022010
107 63.96 0.586518 70 444,042.06 0.033123 16 977,990.00 0.022502
108 26.45 0.665268 71 429,334.06 0.034916 17 955,983.27 0.023001
109 8.85 0.760215 72 414,343.43 0.036986 18 933,994.70 0.023519
110 2.12 1.000000 73 399,018.52 0.039352 19 912,028.08 0.024045
74 383,316.35 0.042033 20 890,098.36 0.024583
75 367,204.41 0.044540 21 868,217.07 0.025133
Age lx female qx female 76 350,849.13 0.047104 22 846,396.17 0.025697
15 1,000,000.00 0.004667 77 334,322.73 0.049840 23 824,646.33 0.026269
16 995,333.00 0.004873 78 317,660.08 0.052794 24 802,983.70 0.026857
17 990,482.74 0.005086 79 300,889.54 0.056017 25 781,417.96 0.027457
18 985,445.15 0.005312 80 284,034.61 0.059556 26 759,962.57 0.028071
19 980,210.46 0.005546 81 267,118.64 0.063460 27 738,629.66 0.028704
20 974,774.22 0.005790 82 250,167.29 0.067777 28 717,428.04 0.029345
21 969,130.27 0.006046 83 233,211.70 0.072556 29 696,375.11 0.029999
22 963,270.91 0.006313 84 216,290.80 0.077845 30 675,484.55 0.030661
23 957,189.78 0.006591 85 199,453.64 0.083693 31 654,773.52 0.031331
24 950,880.94 0.006881 86 182,760.77 0.090148 32 634,258.81 0.032006
25 944,337.93 0.007185 87 166,285.25 0.097260 33 613,958.72 0.032689
26 937,552.86 0.007502 88 150,112.35 0.105075 34 593,889.03 0.033405
27 930,519.34 0.007834 89 134,339.29 0.113643 35 574,050.16 0.034184
28 923,229.65 0.008179 90 119,072.57 0.123012 36 554,426.83 0.034981
29 915,678.56 0.008537 91 104,425.22 0.133216 37 535,032.43 0.035796
30 907,861.41 0.008905 92 90,514.11 0.143634 38 515,880.41 0.036634
31 899,776.90 0.009282 93 77,513.20 0.155581 39 496,981.64 0.037493
32 891,425.18 0.009666 94 65,453.62 0.169181 40 478,348.31 0.038373
33 882,808.66 0.010061 95 54,380.11 0.184537 41 459,992.65 0.039272
34 873,926.72 0.010489 96 44,344.97 0.201757 42 441,927.82 0.040189
35 864,760.10 0.010885 97 35,398.06 0.222043 43 424,167.18 0.041122
36 855,347.19 0.011246 98 27,538.17 0.243899 44 406,724.58 0.042071
37 845,727.96 0.011599 99 20,821.64 0.268185 45 389,613.27 0.043033
38 835,918.36 0.011947 100 15,237.59 0.295187 46 372,847.04 0.044007
39 825,931.64 0.012292 101 10,739.65 0.325225 47 356,439.16 0.044993
40 815,779.29 0.012636 102 7,246.85 0.358897 48 340,401.90 0.045989
41 805,471.10 0.012981 103 4,645.98 0.395842 49 324,747.15 0.046993
42 795,015.28 0.013330 104 2,806.90 0.438360 50 309,486.31 0.048004
43 784,417.73 0.013684 105 1,576.47 0.487816 51 294,629.73 0.049021
44 773,683.76 0.014045 106 807.44 0.545886 52 280,186.69 0.050042
45 762,817.37 0.014417 107 366.67 0.614309 53 266,165.58 0.051067
46 751,819.83 0.014800 108 141.42 0.694884 54 252,573.31 0.052093
47 740,692.90 0.015197 109 43.15 0.789474 55 239,416.00 0.053120
48 729,436.59 0.015611 110 9.08 1.000000 56 226,698.23 0.054144
49 718,049.35 0.016043 MORTALITY TABLE FOR 57 214,423.88 0.055089
50 706,529.69 0.016495 DISABILITIES OCCURRING IN 58 202,611.48 0.056068
51 694,875.48 0.016970 PLAN YEARS BEGINNING AFTER 59 191,251.46 0.057080
52 683,083.44 0.017470 DECEMBER 31, 1994 60 180,334.83 0.058118
53 671,149.97 0.017997 61 169,854.13 0.059172
54 659,071.29 0.018553 The following mortality table is the 62 159,803.52 0.060232
55 646,843.54 0.019140 mortality table that is permitted to be 63 150,178.23 0.061303
56 634,462.95 0.019761 used for individuals entitled to benefits 64 140,971.86 0.062429
57 621,925.33 0.020417 under the plan on account of disability, 65 132,171.12 0.063669
58 609,227.48 0.021111 whose disabilities occur in plan years 66 123,755.92 0.065082
59 596,366.08 0.021845 beginning after December 31, 1994. 67 115,701.64 0.066724
60 583,338.46 0.022621 This mortality table may be used only 68 107,981.56 0.068642
61 570,142.76 0.023441 for individuals who are disabled within 69 100,569.49 0.070834
62 556,778.05 0.024307 the meaning of title II of the Social 70 93,445.75 0.073284
63 543,244.44 0.025222 Security Act and the regulations there- 71 86,597.67 0.075979
64 529,542.73 0.026187 under. The table sets forth the number 72 80,018.07 0.078903
65 515,675.60 0.027205 living based upon a starting population 73 73,704.40 0.082070
66 501,646.64 0.028278 of one million lives at age 15 (lx), and 74 67,655.48 0.085606
67 487,461.08 0.029408 the annual rate of mortality (qx), to be 75 61,863.77 0.088918
68 473,125.82 0.030598 used for each age and each gender. 76 56,362.97 0.092208
14
COMPOSITE COLOR
778/20049/28MAY96/A02-006
Age lx male qx male Age lx female qx female Age lx female qx female

77 51,165.85 0.095625 35 784,858.55 0.017654 92 30,512.99 0.176332
78 46,273.11 0.099216 36 771,002.66 0.018204 93 25,132.57 0.189011
79 41,682.08 0.103030 37 756,967.32 0.018770 94 20,382.24 0.202571
80 37,387.58 0.107113 38 742,759.05 0.019355 95 16,253.39 0.217045
81 33,382.88 0.111515 39 728,382.95 0.019957 96 12,725.67 0.232467
82 29,660.19 0.116283 40 713,846.61 0.020579 97 9,767.37 0.248870
83 26,211.21 0.121464 41 699,156.36 0.021219 98 7,336.57 0.266289
84 23,027.49 0.127108 42 684,320.96 0.021880 99 5,382.92 0.284758
85 20,100.52 0.133262 43 669,348.02 0.022561 100 3,850.09 0.303433
86 17,421.88 0.139974 44 654,246.86 0.023263 101 2,681.85 0.327385
87 14,983.27 0.147292 45 639,027.11 0.023988 102 1,803.85 0.359020
88 12,776.35 0.155265 46 623,698.13 0.024734 103 1,156.23 0.395842
89 10,792.63 0.163939 47 608,271.58 0.025504 104 698.55 0.438360
90 9,023.30 0.173363 48 592,758.22 0.026298 105 392.33 0.487816
91 7,458.99 0.183585 49 577,169.87 0.027117 106 200.95 0.545886
92 6,089.63 0.194653 50 561,518.75 0.027961 107 91.25 0.614309
93 4,904.27 0.206615 51 545,818.12 0.028832 108 35.20 0.694884
94 3,890.97 0.219519 52 530,081.10 0.029730 109 10.74 0.789474
95 3,036.83 0.234086 53 514,321.79 0.030655 110 2.26 1.000000
96 2,325.95 0.248436 54 498,555.25 0.031609
97 1,748.10 0.263954 55 482,796.42 0.032594 EFFECTIVE DATE
98 1,286.68 0.280803 56 467,060.15 0.033608
99 925.38 0.299154 57 451,363.19 0.034655 This revenue ruling is effective for
100 648.55 0.319185 58 435,721.20 0.035733 plan years beginning after December
101 441.54 0.341086 59 420,151.58 0.036846 31, 1995.
102 290.94 0.365052 60 404,670.67 0.037993
103 184.73 0.393102 61 389,296.02 0.039176 DRAFTING INFORMATION
104 112.11 0.427255 62 374,044.96 0.040395
105 64.21 0.469531 63 358,935.41 0.041653 The principal author of this revenue
106 34.06 0.521945 64 343,984.68 0.042950 ruling is Edward Sypher of the
107 16.28 0.586518 65 329,210.53 0.044287 Employee Plans Division. For further
108 6.73 0.665268 66 314,630.79 0.045666 information regarding this revenue rul-
109 2.25 0.760215 67 300,262.86 0.046828 ing, please contact the Employee Plans
110 0.54 1.000000 68 286,202.15 0.048070 Division’s taxpayer assistance tele-
69 272,444.41 0.049584 phone service at (202) 622-6076 be-
Age lx female qx female 70 258,935.53 0.051331 tween 2:30 and 4:00 Eastern time (not
71 245,644.11 0.053268 a toll-free number) Monday through
15 1,000,000.00 0.007777 72 232,559.14 0.055356 Thursday. Mr. Sypher’s number is
16 992,223.00 0.008120 73 219,685.59 0.057573 (202) 622-6245 (also not a toll-free
17 984,166.15 0.008476 74 207,037.63 0.059979 number).
18 975,824.36 0.008852 75 194,619.72 0.062574
19 967,186.36 0.009243 76 182,441.59 0.065480
Section 483. Interest on Certain
20 958,246.66 0.009650 77 170,495.31 0.068690
Deferred Payments
21 948,999.58 0.010076 78 158,783.99 0.072237
22 939,437.46 0.010521 79 147,313.91 0.076156 26 CFR 1.483–1: Computation of interest on
23 929,553.63 0.010984 80 136,095.07 0.080480 certain deferred payments.
24 919,343.42 0.011468 81 125,142.14 0.085243
25 908,800.39 0.011974 82 114,474.65 0.090480 As defined by section 1274A, the definitions
for both ‘‘qualified debt instruments’’ and ‘‘cash
26 897,918.41 0.012502 83 104,116.98 0.096224 method debt instruments’’ have dollar ceilings on
27 886,692.64 0.013057 84 94,098.43 0.102508 the stated principal amount. The limits to the
28 875,115.09 0.013632 85 84,452.59 0.109368 stated principal amount are adjusted for inflation
for sales or exchanges occurring in the 1996
29 863,185.52 0.014229 86 75,216.18 0.116837 calendar year. See Rev. Rul. 96–4, page 16.
30 850,903.25 0.014843 87 66,428.15 0.124948
31 838,273.30 0.015473 88 58,128.08 0.133736
Section 761.—Definitions
32 825,302.69 0.016103 89 50,354.26 0.143234
33 812,012.85 0.016604 90 43,141.82 0.153477 The Service will not rule on certain issues
34 798,530.18 0.017121 91 36,520.54 0.164498 raised in connection with the transfer of a life
15
COMPOSITE COLOR
778/20049/28MAY96/A02-006
insurance policy to an unincorporated organiza- a debt instrument given in considera- 1990, the stated principal amount does
tion. See Rev. Proc. 96–12, page 30. not exceed $2,000,000, (B) The lender
tion for the sale or exchange of
nonpublicly traded property. In addi- does not use an accrual method of
Section 1274. Determination of Issue tion, any interest on a debt instrument accounting and is not a dealer with
Price in the Case of Certain Debt subject to § 1274 is taken into account respect to the property sold or ex-
Instruments Issued for Property under the original issue discount provi- changed, (C) Section 1274 would have
sions of the Code. Section 1274A, applied to the debt instrument but for
26 CFR 1.1274A–1: Special rules for certain however, modifies the rules under an election under § 1274A(c); and (D)
transactions where stated principal amount does §§ 483 and 1274 for certain types of An election under § 1274A(c) is jointly
not exceed $2,800,000. debt instruments. made with respect to the debt instru-
In the case of a ‘‘qualified debt ment by the borrower and lender.
As defined by section 1274A, the definitions
instrument,’’ the discount rate used for Section 1.1274A–1(c)(1) of the Income
for both ‘‘qualified debt instruments’’ and ‘‘cash Tax Regulations provides rules con-
method debt instruments’’ have dollar ceilings on purposes of §§ 483 and 1274 of the
the stated principal amount. The limits to the Code may not exceed 9 percent, cerning the time for, and manner of,
stated principal amount are adjusted for inflation compounded semiannually. Section making this election.
for sales or exchanges occurring in the 1996 1274A(b) defines a qualified debt Section 1274A(d)(2) of the Code
calendar year. See Rev. Rul. 96–4, this page.
instrument as any debt instrument provides that, for any debt instrument
given in consideration for the sale or arising out of a sale or exchange during
exchange of property (other than new any calendar year after 1989, the dollar
Section 1274A.—Special Rules for amounts stated in § 1274A(b) and
Certain Transactions Where Stated § 38 property within the meaning of
§ 48(b), as in effect on the day before § 1274A(c)(2)(A) are increased by the
Principal Amount Does Not Exceed inflation adjustment for the calendar
$2,800,000 the date of enactment of the Revenue
Reconciliation Act of 1990) if the year. Any increase due to the inflation
stated principal amount of the instru- adjustment is rounded to the nearest
(Also §§ 1274, 483; 1.483–1, 1.1274A–1.) multiple of $100 (or, if the increase is
ment does not exceed the amount
specified in § 1274A(b). For debt in- a multiple of $50 and not of $100, the
Section 1274A inflation-adjusted num- increase is increased to the nearest
bers for 1996. This ruling provides the struments arising out of sales or
exchanges before January 1, 1990, this multiple of $100). The inflation adjust-
dollar amounts, increased by the 1996 ment for any calendar year is the
inflation-adjustment, for section 1274A amount is $2,800,000.
percentage (if any) by which the CPI
of the Code. Rev. Rul. 95–10 supple- In the case of a ‘‘cash method debt for the preceding calendar year exceeds
mented and superseded. instrument,’’ as defined in § 1274A(c) the CPI for calendar year 1988. Section
of the Code, the borrower and lender 1274A(d)(2)(B) defines the CPI for any
Rev. Rul. 96–4 may elect to use the cash receipts and calendar year as the average of the
disbursements method of accounting. In Consumer Price Index as of the close
particular, for any cash method debt of the 12-month period ending on
This revenue ruling provides the instrument, § 1274 does not apply, and
dollar amounts, increased by the 1996 September 30 of that calendar year.
interest on the instrument is accounted
inflation adjustment, for § 1274A of for by both the borrower and the lender
the Internal Revenue Code. INFLATION-ADJUSTED
under the cash method of accounting. AMOUNTS
A cash method debt instrument is a
BACKGROUND qualified debt instrument that meets the For debt instruments arising out of
following additional requirements: (A) sales or exchanges after December 31,
In general, §§ 483 and 1274 of the In the case of instruments arising out 1989, the inflation-adjusted amounts
Code determine the principal amount of of sales or exchanges before January 1, under § 1274A are shown in Table 1.
16
COMPOSITE COLOR
778/20049/28MAY96/A02-008
TABLE 1
REV. RUL. 96–4

Inflation-Adjusted Amounts Under § 1274A
Calendar Year 1274A(b) Amount 1274A(c) (2) (A) Amount

of Sale (qualified debt (cash method debt
or Exchange instrument instrument)
1990 $2,933,200 $2,095,100
1991 $3,079,600 $2,199,700
1992 $3,234,900 $2,310,600
1993 $3,332,400 $2,380,300
1994 $3,433,500 $2,452,500
1995 $3,523,600 $2,516,900
1996 $3,622,500 $2,587,500
Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982-1984 base,
published by the Bureau of Labor Statistics.
EFFECT ON OTHER DOCUMENTS Section 3402.—Income Tax Collected FOR FURTHER INFORMATION
at Source CONTACT: Rebecca Wilson (202)
622-6040 (not a toll-free number).
Rev. Rul. 95–10, 1995–1 C.B. 168, 26 CFR 31.3402(r)–1: Withholding on
is supplemented and superseded. distributions of Indian gaming profits to tribal SUPPLEMENTARY INFORMATION:
members.
DRAFTING INFORMATION Background

T.D. 8634
This document contains amendments
The principal author of this revenue DEPARTMENT OF THE TREASURY to the Employment Tax Regulations
ruling is David B. Silber of the Office Internal Revenue Service (26 CFR part 31) under section
of the Assistant Chief Counsel (Finan- 26 CFR Part 31 3402(r). Section 3402(r) was added by
cial Institutions and Products). For section 701 of the Uruguay Round
further information regarding this reve- Withholding on Distributions of Indian Agreements Act, which approved the
nue ruling contact Mr. Silber on (202) Gaming Profits to Tribal Members trade agreements resulting from the
622-3930 (not a toll-free call). Uruguay Round of multilateral trade
AGENCY: Internal Revenue Service negotiations under the auspices of the
(IRS), Treasury. General Agreement on Tariffs and
Trade (GATT) and the Statement of
Section 2031.—Definition of Gross
ACTION: Final regulations. Administrative Action to implement the
Estate
Agreements.
SUMMARY: This document contains On December 22, 1994, temporary
26 CFR 20.2031–6: Valuation of household
and personal effects. final regulations relating to the income regulations (TD 8574 [1995–1 C.B.
tax withholding requirement on dis- 194]) relating to withholding on dis-
tributions of profits from certain gam- tributions of Indian gaming profits to
Executors and administrators of estates includ-
ing art appraised at $50,000 or more may request ing activities made to members of tribal members under section 3402(r)
that the Service issue a Statement of Value for Indian tribes under section 3402(r) of were published in the Federal Register
the art. See Rev. Proc. 96–15, page 41. the Internal Revenue Code of 1986. (59 FR 65939). A notice of proposed
Those affected by the regulations are rulemaking (EE–60–94 [1995–1 C.B.
persons, including Indian tribes, mak- 857]) cross-referencing the temporary
Section 2512.—Valuation of Gifts ing payments to members of Indian regulations was published in the Fed-
tribes from net revenues of certain eral Register for the same day (59 FR
26 CFR 25.2512–1: Valuation of property, in gaming activities conducted or licensed 65982). No public hearing was re-
general. by the tribes. Also affected are mem- quested or held.
bers of Indian tribes who receive the Also on December 22, 1994, the IRS
The donor of a gift of art appraised at $50,000 payments. mailed a copy of Notice 1026, provid-
or more may request that the Service issue a ing withholding tables for use in 1995,
Statement of Value for the art. See Rev. Proc. DATES: These regulations are effective to Indian tribes and gaming establish-
96–15, page 41.
December 19, 1995. For the date of ments listed with the National Indian
applicability, see § 31.3402(r)–1(b). Gaming Commission. For 1996 and
17
COMPOSITE COLOR
778/20049/28MAY96/A02-008
subsequent years, tables will be printed 5. Proposed regulations. The pro- Authority: 26 U.S.C. 7805 * * *
in a supplement to Circular E. posed regulations implement the with- Section 31.3402(r)–1 also issued under
The IRS received written comments holding method prescribed by section 26 U.S.C. 3402(p) and (r),* * *
responding to the notice of proposed 3402(r). They also permit additional Par. 2. Section 31.3402(r)–1 is added
rulemaking. After consideration of the withholding by agreement between the to read as follows:
comments, the regulations proposed by tribal member and the tribe.
EE–60–94 are adopted as revised by 6. Comments and final regulations. § 31.3402(r)–1 Withholding on
this Treasury decision, and the corre- The IRS received only two written distributions of Indian gaming profits
sponding temporary regulations are comments on the proposed regulations. to tribal members.
withdrawn. The regulations contain no After consideration of both comments,
substantive changes. (a)(1) General rule. Section
the proposed regulations are adopted
3402(r)(1) requires every person, in-
with no substantive changes.
Explanation of Provisions cluding an Indian tribe, making a
No comments were received from payment to a member of an Indian tribe
1. Indian Gaming Regulatory Act. the Chief Counsel for Advocacy of the from the net revenues of any class II or
Net revenue from certain gaming ac- Small Business Administration. class III gaming activity, as defined in
tivities conducted or licensed by an 25 U.S.C. 2703, conducted or licensed
Indian tribe may be used to make Special Analyses by such tribe to deduct and withhold
taxable distributions to members of the from such payment a tax in an amount
Indian tribe. The tribe must notify its It has been determined that this equal to such payment’s proportionate
members of the tax liability at the time Treasury decision is not a significant share of the annualized tax, as that
the payments are made. 25 U.S.C. regulatory action as defined in EO term is defined in section 3402(r)(3).
2710(b)(3) and (d)(1). 12866. Therefore, a regulatory assess- (2) Withholding tables. Except as
2. Prior law. Prior to the addition of ment is not required. It also has been provided in paragraph (a)(4) of this
section 3402(r) in 1994, a tribe was not determined that section 553(b) of the section, the amount of a payment’s
required to withhold on these distribu- Administrative Procedure Act (5 U.S.C. proportionate share of the annualized
tions to tribal members except to the chapter 5) and the Regulatory Flex- tax shall be determined under the
extent backup withholding rules applied ibility Act (5 U.S.C. chapter 6) do not applicable table provided by the
under section 3406. apply to these regulations, and, there- Commissioner.
3. Code section 3402(r). Section fore, a Regulatory Flexibility Analysis (3) Annualized amount of payment.
3402(r) generally requires that, for is not required. Pursuant to section Section 3402(r)(5) provides that pay-
payments made after December 31, 7805(f) of the Internal Revenue Code, ments shall be placed on an annualized
1994, persons, including Indian tribes, the notice of proposed rulemaking basis under regulations prescribed by
making payments to members of Indian preceding these regulations was submit- the Secretary. A payment may be
tribes from the net revenues of certain ted to the Small Business Administra- placed on an annualized basis by
gaming activities conducted or licensed tion for comment on its impact on multiplying the amount of the payment
by the tribes deduct and withhold small business. by the total number of payments to be
income taxes from those payments. made in a calendar year. For example,
Section 3402(r) provides that the with- Drafting Information a monthly payment may be annualized
holding amount be calculated assuming by multiplying the amount of the
that the taxpayer is single and has one The principal author of the regula- payment by 12. Similarly, a quarterly
exemption. tions is Rebecca Wilson, Office of the payment may be annualized by multi-
4. Legislative history. The legislative Associate Chief Counsel (Employee plying the amount of the payment by 4.
history of section 3402(r) indicates that Benefits and Exempt Organizations), (4) Alternate withholding pro-
the goal of the new withholding re- IRS. However, other personnel from cedures—(i) In general. Any procedure
quirement was to make it easier for the IRS and Treasury Department for determining the amount to be
tribal members who receive gaming participated in their development. deducted and withheld under section
distributions to meet their tax 3402(r) may be used, provided that the
* * * * * *
responsibilities: amount of tax deducted and withheld is
Distributions of net revenues from Adoption of Amendments to the substantially the same as it would be
gaming activity by an Indian tribe may Regulations using the tables provided by the
result in significant tax liability to the Commissioner under paragraph (a)(2)
tribe’s members. Establishing withhold- Accordingly, 26 CFR part 31 is of this section. At the election of an
ing on such payments will more closely amended as follows: Indian tribe, the amount to be deducted
match estimated tax payments to ulti- and withheld under section 3402(r)
mate tax liability. For some tribal PART 31—EMPLOYMENT TAXES shall be determined in accordance with
members, this change may eliminate AND COLLECTION OF INCOME this alternate procedure.
the need to make quarterly estimated TAX AT SOURCE (ii) Method of election. It is suffi-
tax payments. For others, it will reduce cient for purposes of making an elec-
the likelihood that they will face Paragraph 1. The authority citation tion under this paragraph (a)(4) that an
penalties for underpayment of tax at for part 31 is amended by removing the Indian tribe evidence the election in
the time of tax filing. entry for section 31.3402(r)–1T and any reasonable way, including use of a
H.R. Rep. No. 826, 103d Cong., 2d adding an entry in numerical order to particular method. Thus, no written
Sess., pt.1, at 170–171 (1994). read as follows: election is required.
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COMPOSITE COLOR
778/20049/28MAY96/A02-009
5. Additional withholding permitted. ACTION: Final regulations. provides that the value of annuities,
Consistent with the provisions of sec- interests for life or a term of years, and
tion 3402(p), a tribal member and a SUMMARY: This document contains remainder or reversionary interests is to
tribe may enter into an agreement to final income, estate, and gift tax be determined under tables published
provide for the deduction and withhold- regulations relating to exceptions to the by the IRS. Section 7520(e) provides
use of the valuation tables in the that, for purposes of section 7520, the
ing of additional amounts from pay-
regulations for valuing annuities, inter- term tables includes formulas. Section
ments in order to satisfy the anticipated 7520(b) provides that section 7520
ests for life or a term of years, and
tax liability of the tribal member. The shall not apply for purposes of any
remainder or reversionary interests, the
agreement may be made in a manner valuation of which was the subject of provision specified in regulations. The
similar to that described in final regulations published on June 10, Conference Report accompanying the
§ 31.3402(p)–1 (with respect to volun- 1994. These regulations are necessary Technical and Miscellaneous Revenue
tary withholding agreements between in order to provide guidance consistent Act of 1988, H.R. Conf. Rep. No.
employees and employers). with court decisions concluding that the 1104, 100th Cong., 2d Sess. 113 (1988)
(b) Effective date. This section ap- valuation tables are not to be used in (1988–3 C.B. 603), states that section
certain situations. 7520 does not apply in ‘‘situations
plies to payments made after December
specified in Treasury regulations.’’ A
31, 1994. summary of the principal comments
EFFECTIVE DATE: These regulations
are effective December 13, 1995. received and revisions made in the
§ 31.3402(r)–1T [Removed] final regulations in response to those
comments is provided below.
Par. 3. Section 31.3402(r)–1T is FOR FURTHER INFORMATION
CONTACT: William L. Blodgett, tele-
removed. 1. Valuation of Annuities, Income
phone (202) 622-3090 (not a toll-free
number). Interests, etc.
Margaret Milner Richardson,
Commissioner of SUPPLEMENTARY INFORMATION: Under the proposed regulations, the
Internal Revenue. tables cannot be used if the instrument
of transfer does not provide the bene-
Background ficiary of the annuity, income interest,
Approved November 28, 1995.
or remainder interest with the degree of
On June 10, 1994, the IRS published beneficial enjoyment that is consistent
Leslie Samuels,
in the Federal Register (59 FR 30100) with the traditional character of that
Assistant Secretary final income tax regulations under property interest under applicable local
of the Treasury. sections 170, 642, 664 and 7520 of the law. One comment letter suggested
(Filed by the Office of the Federal Register on Internal Revenue Code (Code), and that, as a result of enactment of section
December 18, 1995, 8:45 a.m., and published final estate and gift tax regulations 2702, it may no longer be necessary to
in the issue of the Federal Register for under sections 2031, 2512 and 7520 of prescribe special rules in the case of a
December 19, 1995, 60 F.R. 65237) the Code providing actuarial tables to trust corpus consisting of nonproduc-
be used in valuing annuities, interests tive property. It was decided to retain
Section 7478.—Declaratory for life or a term of years, and these rules because this issue will
Judgements Relating to Status of remainder or reversionary interests un- continue to arise in certain situations
Certain Governmental Obligations der section 7520. On June 10, 1994, where section 2702 does not apply;
the IRS also published in the Federal e.g., the valuation of a gift of an
A revenue procedure sets forth procedures for Register (59 FR 30180) proposed income interest for purposes of deter-
requesting a ruling under §§ 103, 141–150, 1395, amendments to the income, estate, and mining the section 2503(b) gift tax
and 7871(c) of the Code. See Rev. Proc. 96–16, gift tax regulations prescribing circum-
page 45.
exclusion; the valuation of the bequest
stances when the published actuarial of an income interest for purposes of
tables cannot be used to value interests. the section 2013 estate tax credit.
Section 7520.—Valuation Tables This regulation finalizes those In response to comments, the final
amendments. regulations provide additional guidance
26 CFR 1.7520–3: Limitation on the Written comments responding to the for determining under what circum-
application of section 7520. notice of proposed rulemaking were stances a life tenant or term certain
received. Requests for a public hearing beneficiary of tangible property pos-
T.D. 8630 were also received but were subse- sesses adequate beneficial use such that
quently withdrawn. After consideration the tables would be used to value the
DEPARTMENT OF THE TREASURY of all the comments received, those interest.
Internal Revenue Service amendments are revised and adopted by A number of comments were re-
26 CFR Parts 1, 20, and 25 this Treasury decision. ceived on the valuation of an annuity
that is payable from a trust corpus that
Actuarial Tables Exceptions Explanation of Provisions will exhaust prior to the annuitant
reaching the presumed terminal age
AGENCY: Internal Revenue Service Section 7520(a), which is effective prescribed by the tables (age 110).
(IRS), Treasury. for transfers after April 30, 1989, Under the proposed regulations, the
19
COMPOSITE COLOR
778/20049/28MAY96/A02-009
interest would be valued, not as a right This commentator also questioned nally ill under the test. Consequently, if
to receive the annuity for the life of the whether a percentage probability stand- an elderly person has one or more
annuitant, but rather as the right to ard, such as the one used in the illnesses, none of which, standing alone
receive the annuity for the shorter of proposed regulations, would be feasible or considered together, is life-
the life of the annuitant or the date on to administer. threatening, that person would not be
which the corpus will exhaust. One The IRS continues to believe that considered to be terminally ill.
commentator agreed that the possibility mortality tables such as Table The same commentator suggested
of exhaustion of corpus should be 80CNSMT should not be used to that ‘‘knowledge’’ of the terminal
taken into account in cases of relatively predict the survival probabilities of an illness should be limited to actual
severe underfunding of the trust. How- individual whose time of death is knowledge by the taxpayer or the
ever, it was suggested that, if the reasonably predictable based on the decedent, rather than to ‘‘knowledge’’
underfunding was relatively less severe, facts presented. To determine whether by any of the parties involved. How-
it should be disregarded. After further the proposed test for classifying an ever, limitation of the requisite
consideration of this issue, the IRS has individual as terminally ill would be ‘‘knowledge’’ to the taxpayer or dece-
concluded that the method described in feasible, the IRS consulted with a dent would present a significant burden
the proposed regulations for determin- number of medical specialists. Medical to the IRS regarding proof and would
ing the value of the annuity is consis- experts called upon to assess the present opportunities for easy circum-
tent with fundamental principles for probability of survival of a terminally vention. Thus, the IRS believes that the
determining present value and long- ill individual base their assessment on requirement that the condition of the
standing IRS position. See, Rev. Rul. statistical compilations of the percent- individual be ‘‘known,’’ although not
77–454 (1977–2 C.B. 351); Rev. Rul. age of individuals who survive for a necessarily by the taxpayer or dece-
70–452 (1970–2 C.B. 199); Moffett v. specified period of time when suffering dent, is reasonable.
Commissioner, 269 F.2d 738 (4th Cir. with a particular disease. Thus, the IRS
Commentators suggested that the
1959); United States v. Dean, 224 F.2d believes that a test for classifying an
regulations should make it clear that a
26 (1st Cir. 1955). However, in re- individual as terminally ill can reason-
special actuarial factor taking into
sponse to requests, the explanation of ably be based upon the probability of
account a transferor’s terminal illness
the methodology and computation has survival for a specified period of time.
may be used in valuing a transfer to a
been amplified. One commentator suggested that the pooled income fund. The final regula-
mortality test should take into account tions incorporate that suggestion.
2. Terminal Illness the actual period of survival after the
Comments were received that the
transfer. For example, if the individual
Under the proposed regulations, the language in § 20.7520–3(b)(3)(ii) of
actually survived for one year, that
tables cannot be used if the individual, individual should not be deemed to the proposed regulations regarding the
who is the measuring life with respect have been terminally ill. Although valuation of a property interest that is
to the property interest, is terminally post-transaction events are not or- based upon a terminally ill measuring
ill. Under the proposed regulations, the dinarily determinative for valuation life, for purposes of determining the
individual is terminally ill if that purposes, such events may provide applicable credit for tax on prior
individual was known to have an evidence of value as of the valuation transfers under section 2013, was am-
incurable illness or deteriorating physi- date. Accordingly, the final regulations biguous. Generally, if the final deter-
cal condition such that there is at least provide a presumption that if the mination of the estate tax liability in
a 50 percent probability that the individual who is the measuring life the transferor’s estate was dependent
individual will die within one year. survives for eighteen months or longer on the valuation of the life interest
One commentator suggested that the after the transfer, that individual shall received by the transferee, then the
value of a property interest that is be presumed to have not been termi- value of the property transferred, for
dependent upon a measuring life should nally ill on the date of the transfer purposes of determining the credit
be determined in all events based on unless the contrary is established by allowable for the transferee’s estate, is
the mortality component contained in clear and convincing evidence. the value determined previously for the
Table 80CNSMT (which is based on The commentator also questioned transferor’s estate. Section 20.7520–
the life experience of the general whether the proposed test for classify- 3(b)(3)(ii) of the final regulations clar-
population), rather than a mortality ing an individual as terminally ill ifies this rule. The IRS invites com-
component that reflects the actual would result in the classification of ments on whether the value of a
terminally ill condition of the individ- elderly people suffering from the gen- reversionary interest under section 673
ual. The commentator also suggested eral infirmities of old age as ‘‘termi- should be determined without regard to
that if departure from the actuarial nally ill.’’ The IRS continues to believe the physical condition of the decedent
tables is deemed appropriate in the case that the test should be consistently immediately before death, a related
of terminally ill individuals, then the applied to people of all ages. Under the issue that was raised by commentators.
standard in Rev. Rul. 80–80 (1980–1 regulations, the individual must be
C.B. 194), which is not explicitly inflicted with an incurable illness or 3. Application of Actuarial Tables
expressed in the form of a percentage other deteriorating physical condition
probability of survival (as is the that is life threatening. Thus, elderly One commentator suggested that the
standard in the proposed regulations), people suffering from the general infir- tables prescribed by the regulations
adequately differentiates between indi- mities of old age, but not from a must be used for valuing all interests
viduals that should not be considered specific incurable life-threatening ill- transferred between April 30, 1989 (the
terminally ill and those that should. ness, would not be considered termi- effective date of section 7520) and
20
COMPOSITE COLOR
778/20049/28MAY96/A02-009
December December 13, 1995 (the ef- Part 1—INCOME TAXES reversionary interest that is subject to a
fective date of the regulations). How- contingency, power, or other restric-
ever, these regulations generally adopt Paragraph 1. The authority citation tion, whether the restriction is provided
principles established in case law and for part 1 continues to read in part as for by the terms of the trust, will, or
published IRS positions. See, e.g., follows: other governing instrument or is caused
O’Reilly v. Commissioner, 973 F.2d Authority: 26 U.S.C. 7805 * * * by other circumstances. In general, a
1403 (8th Cir. 1992), rem’d, T.C.M. standard section 7520 annuity, income,
Par. 2. Section 1.7520–3 is amended or remainder factor may not be used to
1994–61 (underproductive income in-
by revising paragraph (b) and adding a value a restricted beneficial interest.
terest); Estate of McLendon v. Commis-
sentence at the end of paragraph (c) to However, a special section 7520 an-
sioner, T.C.M. 1993–459; Rev. Rul.
read as follows: nuity, income, or remainder factor may
80–80 (1980–1 C.B. 194) (terminal
illness of measuring life); Moffett v. be used to value a restricted beneficial
Commissioner, 269 F.2d 738 (4th Cir. § 1.7520–3 Limitation on the interest under some circumstances. See
1959); Rev. Rul. 77–454 (1977–2 C.B. application of section 7520. paragraph (b)(4) Example 2 of this
351) (exhausting corpus). There is no section, which illustrates a situation
* * * * * *
indication that Congress intended to where a special section 7520 actuarial
supersede this well-established case law (b) Other limitations on the applica- factor is needed to take into account
and administrative ruling position when tion of section 7520—(1) In general— the shorter life expectancy of the
it enacted section 7520. Consequently, (i) Ordinary beneficial interests. For terminally ill measuring life. See
in the case of transfers prior to the purposes of this section: § 1.7520–1(c) for requesting a special
effective date of these regulations, the (A) An ordinary annuity interest is factor from the Internal Revenue
question of whether a particular interest the right to receive a fixed dollar Service.
must be valued based on the tables will amount at the end of each year during (iii) Other beneficial interests. If,
be resolved based on applicable case one or more measuring lives or for under the provisions of this paragraph
law and revenue rulings. some other defined period. A standard (b), the interest rate and mortality
section 7520 annuity factor for an components prescribed under section
Special Analyses ordinary annuity interest represents the 7520 are not applicable in determining
present worth of the right to receive the value of any annuity, income,
$1.00 per year for a defined period, remainder, or reversionary interest, the
It has been determined that this actual fair market value of the interest
Treasury decision is not a significant using the interest rate prescribed under
section 7520 for the appropriate month. (determined without regard to section
regulatory action as defined in EO 7520) is based on all of the facts and
12866. Therefore, a regulatory assess- If an annuity interest is payable more
often than annually or is payable at the circumstances if and to the extent
ment is not required. It also has been permitted by the Internal Revenue
determined that section 553(b) of the beginning of each period, a special
adjustment must be made in any com- Code provision applicable to the prop-
Administrative Procedure Act (5 U.S.C. erty interest.
chapter 5) and the Regulatory Flex- putation with a standard section 7520
annuity factor. (2) Provisions of governing instru-
ibility Act (5 U.S.C. chapter 6) do not ment and other limitations on source of
apply to these regulations, and, there- (B) An ordinary income interest is
the right to receive the income from, or payment—(i) Annuities. A standard
fore, a Regulatory Flexibility Analysis section 7520 annuity factor may not be
is not required. Pursuant to section the use of, property during one or more
measuring lives or for some other used to determine the present value of
7805(f) of the Internal Revenue Code, an annuity for a specified term of years
the notice of proposed rulemaking defined period. A standard section 7520
income factor for an ordinary income or the life of one or more individuals
preceding these regulations was submit- unless the effect of the trust, will, or
ted to the Small Business Administra- interest represents the present worth of
other governing instrument is to ensure
tion for comment on its impact on the right to receive the use of $1.00 for
that the annuity will be paid for the
small business. a defined period, using the interest rate
entire defined period. In the case of an
prescribed under section 7520 for the
annuity payable from a trust or other
appropriate month.
Drafting Information limited fund, the annuity is not consid-
(C) An ordinary remainder or rever- ered payable for the entire defined
sionary interest is the right to receive period if, considering the applicable
The principal author of these regula- an interest in property at the end of one
tions is William L. Blodgett, Office of section 7520 interest rate at the valua-
or more measuring lives or some other tion date of the transfer, the annuity is
Assistant Chief Counsel (Passthroughs defined period. A standard section 7520
and Special Industries), IRS. However, expected to exhaust the fund before the
remainder factor for an ordinary re- last possible annuity payment is made
other personnel from the IRS and mainder or reversionary interest repre- in full. For this purpose, it must be
Treasury Department participated in sents the present worth of the right to assumed that it is possible for each
their development. receive $1.00 at the end of a defined measuring life to survive until age 110.
period, using the interest rate pre- For example, for a fixed annuity
Adoption of Amendments to the scribed under section 7520 for the payable annually at the end of each
Regulations appropriate month. year, if the amount of the annuity
(ii) Certain restricted beneficial in- payment (expressed as a percentage of
Accordingly, 26 CFR parts 1, 20 and terests. A restricted beneficial interest the initial corpus) is less than or equal
25 are amended as follows: is an annuity, income, remainder, or to the applicable section 7520 interest
21
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778/20049/28MAY96/A02-009
rate at the date of the transfer, the property (whether or not in trust) for surrounding circumstances, that the
corpus is assumed to be sufficient to one or more measuring lives or for entire disposition provide the remainder
make all payments. If the percentage some other specified period of time, the or reversionary beneficiary with an
exceeds the applicable section 7520 interest rate component prescribed un- undiminished interest in the property
interest rate and the annuity is for a der section 7520 and § 1.7520–1 may transferred at the time of the termina-
definite term of years, multiply the not be used unless, during the specified tion of the prior interest.
annual annuity amount by the Table B period, the effect of the trust, will or (iv) Pooled income fund interests. In
term certain annuity factor, as de- other governing instrument is to general, pooled income funds are cre-
scribed in § 1.7520–1(c)(1), for the provide the beneficiary with that degree ated and administered to achieve a
number of years of the defined period. of use, possession, and enjoyment of special rate of return. A beneficial
If the percentage exceeds the applicable the property during the term of interest interest in a pooled income fund is not
section 7520 interest rate and the that applicable state law accords to a ordinarily valued using a standard
annuity is payable for the life of one or person who is unqualifiedly designated section 7520 income or remainder
more individuals, multiply the annual as a life tenant or term holder for a interest factor. The present value of a
annuity amount by the Table B annuity similar period of time. beneficial interest in a pooled income
factor for 110 years minus the age of (B) Diversions of income and fund is determined according to rules
the youngest individual. If the result corpus. A standard section 7520 in- and special remainder factors pre-
exceeds the limited fund, the annuity come factor for an ordinary income scribed in § 1.642(c)–6 and, when
may exhaust the fund, and it will be interest may not be used to value an applicable, the rules set forth in para-
necessary to calculate a special section income interest or similar interest in graph (b)(3) of this section, if the
7520 annuity factor that takes into property for a term of years or for one individual who is the measuring life is
account the exhaustion of the trust or or more measuring lives if— terminally ill at the time of the transfer.
fund. This computation would be modi- (3) Mortality component. The mor-
(1) The trust, will, or other govern-
fied, if appropriate, to take into account tality component prescribed under sec-
ing instrument requires or permits the
annuities with different payment terms. tion 7520 may not be used to determine
See § 25.7520–3(b)(2)(v) Example 5 of beneficiary’s income or other enjoy-
ment to be withheld, diverted, or the present value of an annuity, income
this chapter, which provides an illustra-
accumulated for another person’s bene- interest, remainder interest, or rever-
tion involving an annuity trust that is
fit without the consent of the income sionary interest if an individual who is
subject to exhaustion.
beneficiary; or a measuring life is terminally ill at the
(ii) Income and similar interests— time of the transaction. For purposes of
(A) Beneficial enjoyment. A standard (2) The governing instrument re-
quires or permits trust corpus to be this paragraph (b)(3), an individual
section 7520 income factor for an who is known to have an incurable
ordinary income interest may not be withdrawn from the trust for another
person’s benefit during the income illness or other deteriorating physical
used to determine the present value of condition is considered terminally ill if
an income or similar interest in trust beneficiary’s term of enjoyment with-
out the consent of and accountability to there is at least a 50 percent probability
for a term of years or for the life of that the individual will die within 1
one or more individuals unless the the income beneficiary for such
diversion. year. However, if the individual sur-
effect of the trust, will, or other vives for eighteen months or longer
governing instrument is to provide the (iii) Remainder and reversionary
interests. A standard section 7520 after the date of the transaction, that
income beneficiary with that degree of individual shall be presumed to have
beneficial enjoyment of the property remainder interest factor for an ordi-
nary remainder or reversionary interest not been terminally ill at the time of
during the term of the income interest the transaction unless the contrary is
that the principles of the law of trusts may not be used to determine the
present value of a remainder or rever- established by clear and convincing
accord to a person who is unqualifiedly evidence.
designated as the income beneficiary of sionary interest (whether in trust or
a trust for a similar period of time. otherwise) unless, consistent with the (4) Examples. The provisions of this
This degree of beneficial enjoyment is preservation and protection that the law paragraph (b) are illustrated by the
provided only if it was the transferor’s of trusts would provide for a person following examples:
intent, as manifested by the provisions who is unqualifiedly designated as the Example 1. Annuity funded with unproductive
of the governing instrument and the remainder beneficiary of a trust for a property. The taxpayer transfers corporation
surrounding circumstances, that the similar duration, the effect of the stock worth $1,000,000 to a trust. The trust
administrative and dispositive provi- provides for a 6 percent ($60,000 per year)
trust provide an income interest for the annuity in cash or other property to be paid to a
income beneficiary during the specified sions for the interest or interests that charitable organization for 25 years and for the
period of time that is consistent with precede the remainder or reversionary remainder to be distributed to the donor’s child.
the value of the trust corpus and with interest is to assure that the property The trust specifically authorizes, but does not
its preservation. In determining whether will be adequately preserved and pro- require, the trustee to retain the shares of stock.
The section 7520 interest rate for the month of
a trust arrangement evidences that tected (e.g., from erosion, invasion, the transfer is 8.2 percent. The corporation has
intention, the treatment required or depletion, or damage) until the re- paid no dividends on this stock during the past 5
permitted with respect to individual mainder or reversionary interest takes years, and there is no indication that this policy
items must be considered in relation to effect in possession and enjoyment. will change in the near future. Under applicable
the entire system provided for in the This degree of preservation and protec- state law, the corporation is considered to be a
sound investment that satisfies fiduciary stand-
administration of the subject trust. tion is provided only if it was the ards. Therefore, the trust’s sole investment in
Similarly, in determining the present transferor’s intent, as manifested by the this corporation is not expected to adversely
value of the right to use tangible provisions of the arrangement and the affect the interest of either the annuitant or the
22
COMPOSITE COLOR
778/20049/28MAY96/A02-009
remainder beneficiary. Considering the 6 percent (A) An ordinary annuity interest is (iii) Other beneficial interests. If,
annuity payout rate and the 8.2 percent section the right to receive a fixed dollar under the provisions of this paragraph
7520 interest rate, the trust corpus is considered
sufficient to pay this annuity for the entire 25- amount at the end of each year during (b), the interest rate and mortality
year term of the trust, or even indefinitely. one or more measuring lives or for components prescribed under section
Although it appears that neither beneficiary some other defined period. A standard 7520 are not applicable in determining
would be able to compel the trustee to make the section 7520 annuity factor for an the value of any annuity, income,
trust corpus produce investment income, the ordinary annuity interest represents the
annuity interest in this case is considered to be
remainder, or reversionary interest, the
an ordinary annuity interest, and the standard
present worth of the right to receive actual fair market value of the interest
section 7520 annuity factor may be used to $1.00 per year for a defined period, (determined without regard to section
determine the present value of the annuity. In using the interest rate prescribed under 7520) is based on all of the facts and
this case, the section 7520 annuity factor would section 7520 for the appropriate month. circumstances if and to the extent
represent the right to receive $1.00 per year for a If an annuity interest is payable more
term of 25 years.
permitted by the Internal Revenue
often than annually or is payable at the Code provision applicable to the prop-
Example 2. Terminal illness. The taxpayer
transfers property worth $1,000,000 to a chari-
beginning of each period, a special erty interest.
table remainder unitrust described in section adjustment must be made in any
(2) Provisions of governing instru-
664(d)(2) and § 1.664–3. The trust provides for a computation with a standard section
ment and other limitations on source of
fixed-percentage 7 percent unitrust benefit (each 7520 annuity factor.
annual payment is equal to 7 percent of the trust payment—(i) Annuities. A standard
(B) An ordinary income interest is section 7520 annuity factor may not be
assets as valued at the beginning of each year) to
be paid quarterly to an individual beneficiary for the right to receive the income from or used to determine the present value of
life and for the remainder to be distributed to a the use of property during one or more an annuity for a specified term of years
charitable organization. At the time the trust is measuring lives or for some other or the life of one or more individuals
created, the individual beneficiary is age 60 and defined period. A standard section 7520
has been diagnosed with an incurable illness and unless the effect of the trust, will, or
income factor for an ordinary income
there is at least a 50 percent probability of the other governing instrument is to ensure
individual dying within 1 year. Assuming the
interest represents the present worth of
that the annuity will be paid for the
presumption in paragraph (b)(3) of this section the right to receive the use of $1.00 for
a defined period, using the interest rate entire defined period. In the case of an
does not apply, because there is at least a 50
percent probability that this beneficiary will die prescribed under section 7520 for the annuity payable from a trust or other
within 1 year, the standard section 7520 unitrust appropriate month. limited fund, the annuity is not consid-
remainder factor for a person age 60 from the ered payable for the entire defined
valuation tables may not be used to determine (C) An ordinary remainder or rever-
period if, considering the applicable
the present value of the charitable remainder sionary interest is the right to receive
section 7520 interest rate at the valua-
interest. Instead, a special unitrust remainder an interest in property at the end of one
factor must be computed that is based on the tion date of the transfer, the annuity is
or more measuring lives or some other
section 7520 interest rate and that takes into defined period. A standard section 7520 expected to exhaust the fund before the
account the projection of the individual benefici-
remainder factor for an ordinary re- last possible annuity payment is made
ary’s actual life expectancy. in full. For this purpose, it must be
mainder or reversionary interest repre-
sents the present worth of the right to assumed that it is possible for each
(5) Additional limitations. Section measuring life to survive until age 110.
7520 does not apply to the extent as receive $1.00 at the end of a defined
period, using the interest rate pre- For example, for a fixed annuity
may otherwise be provided by the payable annually at the end of each
Commissioner. scribed under section 7520 for the
appropriate month. year, if the amount of the annuity
(c) * * * The provisions of para- payment (expressed as a percentage of
graph (b) of this section are effective (ii) Certain restricted beneficial in-
terests. A restricted beneficial interest the initial corpus) is less than or equal
with respect to transactions after De- to the applicable section 7520 interest
is an annuity, income, remainder, or
cember 13, 1995. rate at the date of the transfer, the
reversionary interest that is subject to
any contingency, power, or other corpus is assumed to be sufficient to
PART 20—ESTATE TAX; ESTATES make all payments. If the percentage
restriction, whether the restriction is
OF DECEDENTS DYING AFTER exceeds the applicable section 7520
provided for by the terms of the trust,
AUGUST 16, 1954 interest rate and the annuity is for a
will, or other governing instrument or
is caused by other circumstances. In definite term of years, multiply the
Par. 3. The authority citation for part annual annuity amount by the Table B
general, a standard section 7520 an-
20 continues to read in part as follows: term certain annuity factor, as de-
nuity, income, or remainder factor may
Authority: 26 U.S.C. 7805 * * * not be used to value a restricted scribed in § 20.7520–1(c)(1), for the
Par. 4. Section 20.7520–3 is beneficial interest. However, a special number of years of the defined period.
amended by revising paragraph (b) and section 7520 annuity, income, or re- If the percentage exceeds the applicable
adding a sentence at the end of mainder factor may be used to value a section 7520 interest rate and the
paragraph (c) to read as follows: restricted beneficial interest under some annuity is payable for the life of one or
circumstances. See paragraphs (b)(2)(v) more individuals, multiply the annual
§ 20.7520–3 Limitation on the Example 4 and (b)(4) Example 1 of this annuity amount by the Table B annuity
application of section 7520. section, which illustrate situations factor for 110 years minus the age of
where special section 7520 actuarial the youngest individual. If the result
* * * * * * exceeds the limited fund, the annuity
factors are needed to take into account
(b) Other limitations on the applica- limitations on beneficial interests. See may exhaust the fund, and it will be
tion of section 7520—(1) In general— § 20.7520–1(c) for requesting a special necessary to calculate a special section
(i) Ordinary beneficial interests. For factor from the Internal Revenue 7520 annuity factor that takes into
purposes of this section: Service. account the exhaustion of the trust or
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778/20049/28MAY96/A02-009
fund. This computation would be modi- (1) The trust, will, or other govern- (v) Examples. The provisions of this
fied, if appropriate, to take into account ing instrument requires or permits the paragraph (b)(2) are illustrated by the
annuities with different payment terms. beneficiary’s income or other enjoy- following examples:
See § 25.7520–3(b)(2)(v) Example 5 of ment to be withheld, diverted, or
this chapter, which provides an illustra- accumulated for another person’s bene- Example 1. Unproductive property. A died,
tion involving an annuity trust that is fit without the consent of the income survived by B and C. B died two years after A.
subject to exhaustion. beneficiary; or A’s will provided for a bequest of corporation
stock in trust under the terms of which all of the
(ii) Income and similar interests— (2) The governing instrument re- trust income was paid to B for life. After the
(A) Beneficial enjoyment. A standard quires or permits trust corpus to be death of B, the trust terminated and the trust
section 7520 income factor for an withdrawn from the trust for another property was distributed to C. The trust specifi-
ordinary income interest may not be person’s benefit without the consent of cally authorized, but did not require, the trustee
used to determine the present value of to retain the shares of stock. The corporation
the income beneficiary during the paid no dividends on this stock during the 5
an income or similar interest in trust income beneficiary’s term of enjoyment years before A’s death and the 2 years before
for a term of years, or for the life of and without accountability to the in- B’s death. There was no indication that this
one or more individuals, unless the come beneficiary for such diversion. policy would change after A’s death. Under
effect of the trust, will, or other applicable state law, the corporation is consid-
(iii) Remainder and reversionary ered to be a sound investment that satisfies
governing instrument is to provide the
interests. A standard section 7520 fiduciary standards. The facts and circumstances,
income beneficiary with that degree of
remainder interest factor for an ordi- including applicable state law, indicate that B did
beneficial enjoyment of the property not have the legal right to compel the trustee to
nary remainder or reversionary interest
during the term of the income interest make the trust corpus productive in conformity
may not be used to determine the
that the principles of the law of trusts with the requirements for a lifetime trust income
present value of a remainder or rever- interest under applicable local law. Therefore,
accord to a person who is unqualifiedly
designated as the income beneficiary of sionary interest (whether in trust or B’s life income interest in this case is considered
a trust for a similar period of time. otherwise) unless, consistent with the nonproductive. Consequently, B’s income interest
preservation and protection that the law may not be valued actuarially under this section.
This degree of beneficial enjoyment is Example 2. Beneficiary’s right to make trust
provided only if it was the transferor’s of trusts would provide for a person
productive. The facts are the same as in Example
intent, as manifested by the provisions who is unqualifiedly designated as the 1, except that the trustee is not specifically
of the governing instrument and the remainder beneficiary of a trust for a authorized to retain the shares of stock. Further,
surrounding circumstances, that the similar duration, the effect of the the terms of the trust specifically provide that B,
trust provide an income interest for the administrative and dispositive provi- the life income beneficiary, may require the
sions for the interest or interests that trustee to make the trust corpus productive
income beneficiary during the specified consistent with income yield standards for trusts
period of time that is consistent with precede the remainder or reversionary under applicable state law. Under that law, the
the value of the trust corpus and with interest is to assure that the property minimum rate of income that a productive trust
its preservation. In determining whether will be adequately preserved and pro- may produce is substantially below the section
a trust arrangement evidences that tected (e.g., from erosion, invasion, 7520 interest rate for the month of A’s death. In
depletion, or damage) until the re- this case, because B has the right to compel the
intention, the treatment required or trustee to make the trust productive for purposes
permitted with respect to individual mainder or reversionary interest takes of applicable local law during the beneficiary’s
items must be considered in relation to effect in possession and enjoyment. lifetime, the income interest is considered an
the entire system provided for in the This degree of preservation and protec- ordinary income interest for purposes of this
administration of the subject trust. tion is provided only if it was the paragraph, and the standard section 7520 life
transferor’s intent, as manifested by the income interest factor may be used to determine
Similarly, in determining the present the present value of B’s income interest.
value of the right to use tangible provisions of the arrangement and the
Example 3. Discretionary invasion of corpus.
property (whether or not in trust) for surrounding circumstances, that the The decedent, A, transferred property to a trust
one or more measuring lives or for entire disposition provide the remainder under the terms of which all of the trust income
some other specified period of time, the or reversionary beneficiary with an is to be paid to A’s child for life and the
interest rate component prescribed un- undiminished interest in the property remainder of the trust is to be distributed to a
transferred at the time of the termina- grandchild. The trust authorizes the trustee
der section 7520 and § 1.7520–1 of this without restriction to distribute corpus to A’s
chapter may not be used unless, during tion of the prior interest. surviving spouse for the spouse’s comfort and
the specified period, the effect of the (iv) Pooled income fund interests. In happiness. In this case, because the trustee’s
trust, will or other governing instru- general, pooled income funds are cre- power to invade trust corpus is unrestricted, the
ment is to provide the beneficiary with ated and administered to achieve a exercise of the power could result in the
termination of the income interest at any time.
that degree of use, possession, and special rate of return. A beneficial Consequently, the income interest is not consid-
enjoyment of the property during the interest in a pooled income fund is not ered an ordinary income interest for purposes of
term of interest that applicable state ordinarily valued using a standard this paragraph, and may not be valued actuarially
law accords to a person who is section 7520 income or remainder under this section.
unqualifiedly designated as a life tenant interest factor. The present value of a Example 4. Limited invasion of corpus. The
or term holder for a similar period of beneficial interest in a pooled income decedent, A, bequeathed property to a trust under
time. the terms of which all of the trust income is to
fund is determined according to rules be paid to A’s child for life and the remainder is
(B) Diversions of income and and special remainder factors pre- to be distributed to A’s grandchild. The trust
corpus. A standard section 7520 in- scribed in § 1.642(c)–6 of this chapter authorizes the child to withdraw up to $5,000 per
come factor for an ordinary income and, when applicable, the rules set year from the trust corpus. In this case, the
interest may not be used to value an forth under paragraph (b)(3) of this child’s power to invade trust corpus is limited to
an ascertainable amount each year. Annual
income interest or similar interest in section if the individual who is the invasions of any amount would be expected to
property for a term of years, or for one measuring life is terminally ill at the progressively diminish the property from which
or more measuring lives, if— time of the transfer. the child’s income is paid. Consequently, the
24
SEQ 0115 JOB A02-010-007 PAGE-0025 PT 1 PGS 25-
COMPOSITE COLOR
778/20049/28MAY96/A02-010
income interest is not considered an ordinary individual will die within 1 year. there is at least a 50 percent probability of the
income interest for purposes of this paragraph, However, if the individual survives for child dying within 1 year. Assuming the
and the standard section 7520 income interest presumption provided for in paragraph (b)(3)(i)
factor may not be used to determine the present
eighteen months or longer after the of this section does not apply, the standard life
value of the income interest. Nevertheless, the date of the decedent’s death, that annuity factor for a person age 60 may not be
present value of the child’s income interest is individual shall be presumed to have used to determine the present value of the
ascertainable by making a special actuarial not been terminally ill at the date of charitable organization’s annuity interest because
calculation that would take into account not only there is at least a 50 percent probability that the
death unless the contrary is established child, who is the measuring life, will die within
the initial value of the trust corpus, the section
by clear and convincing evidence. 1 year. Instead, a special section 7520 annuity
7520 interest rate for the month of the transfer,
and the mortality component for the child’s age, (ii) Terminal illness exceptions. In factor must be computed that takes into account
the projection of the child’s actual life
but also the assumption that the trust corpus will the case of the allowance of the credit
decline at the rate of $5,000 each year during the expectancy.
for tax on a prior transfer under section
child’s lifetime. The child’s right to receive an Example 2. Deaths resulting from common
2013, if a final determination of the accidents, etc. The decedent’s will establishes a
amount not in excess of $5,000 per year may be
separately valued in this instance and, assuming federal estate tax liability of the trans- trust to pay income to the decedent’s surviving
the trust corpus would not exhaust before the feror’s estate has been made under spouse for life. The will provides that, upon the
child would attain age 110, would be considered circumstances that required valuation of spouse’s death or, if the spouse fails to survive
the decedent, upon the decedent’s death the trust
an ordinary annuity interest. the life interest received by the trans- property is to pass to the decedent’s children.
Example 5. Power to consume. The decedent, feree, the value of the property trans- The decedent and the decedent’s spouse die
A, devised a life estate in 3 parcels of real estate ferred, for purposes of the credit simultaneously in an accident under circum-
to A’s surviving spouse with the remainder to a stances in which it was impossible to determine
child, or, if the child doesn’t survive, to the
allowable to the transferee’s estate,
who survived the other. Even if the terms of the
child’s estate. A also conferred upon the spouse shall be the value determined pre- will and applicable state law presume that the
an unrestricted power to consume the property, viously in the transferor’s estate. Other- decedent died first with the result that the
which includes the right to sell part or all of the wise, for purposes of section 2013, the property interest is considered to have passed in
property and to use the proceeds for the spouse’s provisions of paragraph (b)(3)(i) of this trust for the benefit of the spouse for life, after
support, comfort, happiness, and other purposes. section shall govern in valuing the which the remainder is to be distributed to the
Any portion of the property or its sale proceeds decedent’s children, the spouse’s life income
remaining at the death of the surviving spouse is
property transferred. The value of a interest may not be valued by use of the
to vest by operation of law in the child at that decedent’s reversionary interest under mortality component described under section
time. The child predeceased the surviving sections 2037(b) and 2042(2) shall be 7520. The result would be the same even if it
spouse. In this case, the surviving spouse’s determined without regard to the physi- was established that the spouse survived the
power to consume the corpus is unrestricted, and decedent.
cal condition, immediately before the
the exercise of the power could entirely exhaust
the remainder interest during the life of the
decedent’s death, of the individual who
is the measuring life. (5) Additional limitations. Section
spouse. Consequently, the remainder interest that
7520 does not apply to the extent as
is includible in the child’s estate is not (iii) Death resulting from common
considered an ordinary remainder interest for may otherwise be provided by the
accidents. The mortality component
purposes of this paragraph and may not be Commissioner.
prescribed under section 7520 may not
valued actuarially under this section. (c) * * * The provisions of para-
be used to determine the present value
of an annuity, income interest, re- graph (b) of this section are effective
(3) Mortality component—(i) Termi- with respect to estates of decedents
mainder interest, or reversionary inter-
nal illness. Except as provided in dying after December 13, 1995.
est if the decedent, and the individual
paragraph (b)(3)(ii) of this section, the
who is the measuring life, die as a
mortality component prescribed under PART 25—GIFT TAX; GIFTS
result of a common accident or other
section 7520 may not be used to MADE AFTER DECEMBER 31,
occurrence.
determine the present value of an 1954
(4) Examples. The provisions of
annuity, income interest, remainder
paragraph (b)(3) of this section are
interest, or reversionary interest if an
illustrated by the following examples: Par. 5. The authority citation for part
individual who is a measuring life is
terminally ill at the time of the 25 continues to read in part as follows:
Example 1. Terminal illness. The decedent
decedent’s death. For purposes of this bequeaths $1,000,000 to a trust under the terms Authority: 26 U.S.C. 7805 * * *
paragraph (b)(3), an individual who is of which the trustee is to pay $103,000 per year Par. 6. In the list below, for each
known to have an incurable illness or to a charitable organization during the life of the section indicated in the left column,
decedent’s child. Upon the death of the child, the
other deteriorating physical condition is remainder in the trust is to be distributed to the remove the language in the middle
considered terminally ill if there is at decedent’s grandchild. The child, who is age 60, column and add the language in the
least a 50 percent probability that the has been diagnosed with an incurable illness, and right column:
25
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778/20049/28MAY96/A02-010
Section Remove Add

25.2522(c)–3(c)(2)(i) (e)(2)(ii), (iii), and (iv) (c)(2)(ii), (iii), and (iv)
6th sentence
25.2522 (c)–3(c)(2)(vi)(a) 2nd subdivision (v) paragraph (c)(2)(vi)
sentence
25.2522 (c)–3(c)(2)(vii)(a) sentence subdivision (vi) paragraph (c)(2)(vii)
25.2522 (c)–3(d)(2) introductory text subdivision (iv), (V), or (vi) of paragraph (c)(2)(v), (vi), or (vii)
paragraph (c)(2)
25.2522 (c)–3(d)(2)(iv) 1st sentence paragraph (c)(2)(v) paragraph (c)(2)(vi)
25.2522 (c)–3(d)(2)(iv), Example (1) paragraph (c)(2)(v) paragraph (c)(2)(vi)
1st sentence
1st sentence
1st sentence (in each place it
appears)
25.2522 (c)–3(d)(2)(iv), Example (4) paragraph (c)(2)(V)(e) paragraph (c)(2)(vi)(e)
last sentence
25.2522(c)–3(d)(2)(v) paragraph (c)(2)(vi) paragraph (c)(2)(vii)
Par. 7. Section 25.7520–3 is interest represents the present worth of not be used to value a restricted
amended by revising paragraph (b) and the right to receive the use of $1.00 for beneficial interest. However, a special
adding a sentence at the end of a defined period, using the interest rate section 7520 annuity, income, or re-
paragraph (c) to read as follows: prescribed under section 7520 for the mainder factor may be used to value a
appropriate month. However, in the restricted beneficial interest under some
§ 25.7520–3 Limitation on the case of certain gifts made after October circumstances. See paragraphs (b)(2)(v)
application of section 7520. 8, 1990, if the donor does not retain a Example 5 and (b)(4) of this section,
qualified annuity, unitrust, or reversion- which illustrate situations in which
ary interest, the value of any interest special section 7520 actuarial factors
(b) Other limitations on the applica- retained by the donor is considered to are needed to take into account limita-
tion of section 7520— (1) In general— be zero if the remainder beneficiary is tions on beneficial interests. See
(i) Ordinary beneficial interests. For a member of the donor’s family. See § 25.7520–1(c) for requesting a special
purposes of this section: § 25.2702–2. factor from the Internal Revenue
(A) An ordinary annuity interest is (C) An ordinary remainder or rever- Service.
the right to receive a fixed dollar sionary interest is the right to receive (iii) Other beneficial interests. If,
amount at the end of each year during an interest in property at the end of one under the provisions of this paragraph
one or more measuring lives or for or more measuring lives or some other (b), the interest rate and mortality
some other defined period. A standard defined period. A standard section 7520 components prescribed under section
section 7520 annuity factor for an remainder factor for an ordinary re- 7520 are not applicable in determining
ordinary annuity interest represents the mainder or reversionary interest repre- the value of any annuity, income,
present worth of the right to receive sents the present worth of the right to remainder, or reversionary interest, the
$1.00 per year for a defined period, receive $1.00 at the end of a defined actual fair market value of the interest
using the interest rate prescribed under period, using the interest rate pre- (determined without regard to section
section 7520 for the appropriate month. scribed under section 7520 for the 7520) is based on all of the facts and
If an annuity interest is payable more appropriate month. circumstances if and to the extent
often than annually or is payable at the (ii) Certain restricted beneficial in- permitted by the Internal Revenue
beginning of each period, a special terests. A restricted beneficial interest Code provision applicable to the prop-
adjustment must be made in any is an annuity, income, remainder, or erty interest.
computation with a standard section reversionary interest that is subject to (2) Provisions of governing instru-
7520 annuity factor. any contingency, power, or other ment and other limitations on source of
(B) An ordinary income interest is restriction, whether the restriction is payment—(i) Annuities. A standard
the right to receive the income from or provided for by the terms of the trust, section 7520 annuity factor may not be
the use of property during one or more will, or other governing instrument or used to determine the present value of
measuring lives or for some other is caused by other circumstances. In an annuity for a specified term of years
defined period. A standard section 7520 general, a standard section 7520 an- or the life of one or more individuals
income factor for an ordinary income nuity, income, or remainder factor may unless the effect of the trust, will, or
26
COMPOSITE COLOR
778/20049/28MAY96/A02-010
other governing instrument is to ensure intent, as manifested by the provisions of trusts would provide for a person
that the annuity will be paid for the of the governing instrument and the who is unqualifiedly designated as the
entire defined period. In the case of an surrounding circumstances, that the remainder beneficiary of a trust for a
annuity payable from a trust or other trust provide an income interest for the similar duration, the effect of the
limited fund, the annuity is not consid- income beneficiary during the specified administrative and dispositive provi-
ered payable for the entire defined period of time that is consistent with sions for the interest or interests that
period if, considering the applicable the value of the trust corpus and with precede the remainder or reversionary
section 7520 interest rate on the its preservation. In determining whether interest is to assure that the property
valuation date of the transfer, the a trust arrangement evidences that will be adequately preserved and pro-
annuity is expected to exhaust the fund intention, the treatment required or tected (e.g., from erosion, invasion,
before the last possible annuity pay- permitted with respect to individual depletion, or damage) until the re-
ment is made in full. For this purpose, items must be considered in relation to mainder or reversionary interest takes
it must be assumed that it is possible the entire system provided for in the effect in possession and enjoyment.
for each measuring life to survive until administration of the subject trust. This degree of preservation and protec-
age 110. For example, for a fixed Similarly, in determining the present tion is provided only if it was the
annuity payable annually at the end of value of the right to use tangible transferor’s intent, as manifested by the
each year, if the amount of the annuity property (whether or not in trust) for provisions of the arrangement and the
payment (expressed as a percentage of one or more measuring lives or for surrounding circumstances, that the
the initial corpus) is less than or equal some other specified period of time, the entire disposition provide the remainder
to the applicable section 7520 interest interest rate component prescribed un- or reversionary beneficiary with an
rate at the date of the transfer, the der section 7520 and § 1.7520–1 of this undiminished interest in the property
corpus is assumed to be sufficient to chapter may not be used unless, during transferred at the time of the termina-
make all payments. If the percentage the specified period, the effect of the tion of the prior interest.
exceeds the applicable section 7520 trust, will or other governing instru- (iv) Pooled income fund interests. In
interest rate and the annuity is for a ment is to provide the beneficiary with general, pooled income funds are cre-
definite term of years, multiply the that degree of use, possession, and ated and administered to achieve a
annual annuity amount by the Table B enjoyment of the property during the special rate of return. A beneficial
term certain annuity factor, as de- term of interest that applicable state interest in a pooled income fund is not
scribed in § 25.7520–1(c)(1), for the law accords to a person who is un- ordinarily valued using a standard
number of years of the defined period. qualifiedly designated as a life tenant section 7520 income or remainder
If the percentage exceeds the applicable or term holder for a similar period of interest factor. The present value of a
section 7520 interest rate and the time. beneficial interest in a pooled income
annuity is payable for the life of one or (B) Diversions of income and fund is determined according to rules
more individuals, multiply the annual and special remainder factors pre-
corpus. A standard section 7520 in-
annuity amount by the Table B annuity scribed in § 1.642(c)–6 of this chapter
come factor for an ordinary income
factor for 110 years minus the age of and, when applicable, the rules set
interest may not be used to value an
the youngest individual. If the result
income interest or similar interest in forth under paragraph (b)(3) of this
exceeds the limited fund, the annuity
property for a term of years, or for one section if the individual who is the
may exhaust the fund, and it will be
or more measuring lives, if— measuring life is terminally ill at the
necessary to calculate a special section
(1) The trust, will, or other govern- time of the transfer.
7520 annuity factor that takes into
account the exhaustion of the trust or ing instrument requires or permits the (v) Examples. The provisions of this
fund. This computation would be modi- beneficiary’s income or other enjoy- paragraph (b)(2) are illustrated by the
fied, if appropriate, to take into account ment to be withheld, diverted, or following examples:
annuities with different payment terms. accumulated for another person’s bene-
Example 1. Unproductive property. The donor
fit without the consent of the income transfers corporation stock to a trust under the
(ii) Income and similar interests—
beneficiary; or terms of which all of the trust income is payable
(A) Beneficial enjoyment. A standard
(2) The governing instrument re- to A for life. Considering the applicable federal
section 7520 income factor for an rate under section 7520 and the appropriate life
ordinary income interest is not to be quires or permits trust corpus to be estate factor for a person A’s age, the value of
used to determine the present value of withdrawn from the trust for another A’s income interest, if valued under this section,
an income or similar interest in trust person’s benefit without the consent of would be $10,000. After A’s death, the trust is to
for a term of years or for the life of the income beneficiary during the terminate and the trust property is to be
income beneficiary’s term of enjoyment distributed to B. The trust specifically authorizes,
one or more individuals unless the but does not require, the trustee to retain the
effect of the trust, will, or other and without accountability to the in- shares of stock. The corporation has paid no
governing instrument is to provide the come beneficiary for such diversion. dividends on this stock during the past 5 years,
income beneficiary with that degree of (iii) Remainder and reversionary and there is no indication that this policy will
change in the near future. Under applicable state
beneficial enjoyment of the property interests. A standard section 7520 law, the corporation is considered to be a sound
during the term of the income interest remainder interest factor for an ordi- investment that satisfies fiduciary standards. The
that the principles of the law of trusts nary remainder or reversionary interest facts and circumstances, including applicable
accord to a person who is unqualifiedly may not be used to determine the state law, indicate that the income beneficiary
designated as the income beneficiary of present value of a remainder or rever- would not have the legal right to compel the
trustee to make the trust corpus productive in
a trust for a similar period of time. sionary interest (whether in trust or conformity with the requirements for a lifetime
This degree of beneficial enjoyment is otherwise) unless, consistent with the trust income interest under applicable local law.
provided only if it was the transferor’s preservation and protection that the law Therefore, the life income interest in this case is
27
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778/20049/28MAY96/A02-010
considered nonproductive. Consequently, A’s trust. The trust will pay a 10 percent ($100,000 probability that the individual will die
income interest may not be valued actuarially per year) annuity to a charitable organization for within 1 year. However, if the individ-
under this section. the life of the donor, payable annually, and the
Example 2. Beneficiary’s right to make trust remainder will be distributed to the donor’s ual survives for eighteen months or
productive. The facts are the same as in Example child. The section 7520 rate for the month of the longer after the date the gift is
1, except that the trustee is not specifically transfer is 6.8 percent. First, it is necessary to completed, that individual shall be
authorized to retain the shares of corporation determine whether the annuity may exhaust the presumed to have not been terminally
stock. Further, the terms of the trust specifically corpus before all annuity payments are made.
Because it is assumed that any measuring life
ill at the date the gift was completed
provide that the life income beneficiary may
require the trustee to make the trust corpus may survive until age 110, any life annuity could unless the contrary is established by
productive consistent with income yield stand- require payments until the measuring life reaches clear and convincing evidence.
ards for trusts under applicable state law. Under age 110. Based on a section 7520 interest rate of
6.8 percent, the determination of whether the
(4) Example. The provisions of para-
that law, the minimum rate of income that a
productive trust may produce is substantially annuity may exhaust the corpus before the graph (b)(3) of this section are illus-
below the section 7520 interest rate on the annuity payments are made is computed as trated by the following example:
valuation date. In this case, because A, the follows:
income beneficiary, has the right to compel the Age to which life annuity may continue 110 Example. Terminal illness. The donor transfers
trustee to make the trust productive for purposes less: Age of measuring life at date property worth $1,000,000 to a child in exchange
of applicable local law during A’s lifetime, the of transfer . . . . . . . . . . . . . . . . . . . . . . . . .60 for the child’s promise to pay the donor
income interest is considered an ordinary income Number of years annuity may $103,000 per year for the donor’s life. The donor
interest for purposes of this paragraph, and the continue . . . . . . . . . . . . . . . . . . . . . . . . .50 is age 60 but has been diagnosed with an
standard section 7520 life income factor may be incurable illness and has at least a 50 percent
used to determine the value of A’s income probability of dying within 1 year. The section
Annual annuity payment . . . . . . . .$100,000.00
interest. However, in the case of gifts made after 7520 interest rate for the month of the transfer is
October 8, 1990, if the donor was the life income times: Table B annuity factor for 50
years . . . . . . . . . . . . . . . . . . . . . . . . . . .14.1577 10.6 percent, and the standard annuity factor at
beneficiary, the value of the income interest that interest rate for a person age 60 in normal
would be considered to be zero in this situation. Present value of term certain
health is 7.4230. Thus, if the donor were not
See § 25.2702–2. annuity . . . . . . . . . . . . . . . . . .$1,415,770.00
terminally ill, the present value of the annuity
Example 3. Annuity trust funded with unpro- would be $764,569 ($103,000 3 7.4230). As-
ductive property. The donor, who is age 60, (ii) Since the present value of an annuity for a suming the presumption provided in paragraph
transfers corporation stock worth $1,000,000 to a term of 50 years exceeds the corpus, the annuity (b)(3) of this section does not apply, because
trust. The trust will pay a 6 percent ($60,000 per may exhaust the trust before all payments are there is at least a 50 percent probability that the
year) annuity in cash or other property to the made. Consequently, the annuity must be valued donor will die within 1 year, the standard section
donor for 10 years or until the donor’s prior as an annuity payable for a term of years or until 7520 annuity factor may not be used to
death. Upon the termination of the trust, the trust the prior death of the annuitant, with the term of determine the present value of the donor’s
property is to be distributed to the donor’s child. years determined by when the fund will be annuity interest. Instead, a special section 7520
The section 7520 rate for the month of the exhausted by the annuity payments. annuity factor must be computed that takes into
transfer is 8.2 percent. The corporation has paid (iii) Using factors based on Table 80CNSMT account the projection of the donor’s actual life
no dividends on the stock during the past 5 at 6.8 percent, it is determined that the fund will expectancy.
years, and there is no indication that this policy be sufficient to make 17 annual payments, but
will change in the near future. Under applicable not to make the entire 18th payment. Specifi-
state law, the corporation is considered to be a cally, the initial corpus will be able to make (5) Additional limitations. Section
sound investment that satisfies fiduciary stand- payments of $67,287.26 per year for 17 years 7520 does not apply to the extent as
ards. Therefore, the trust’s sole investment in plus payments of $32,712.74 per year for 18
this corporation is not expected to adversely may otherwise be provided by the
years. The annuity is valued by adding the value
affect the interest of either the annuity benefici- of the two separate temporary annuities. Commissioner.
ary or the remainder beneficiary. Considering the (iv) Based on Table H of Publication 1457 (a (c) * * * The provisions of para-
6 percent annuity payout rate and the 8.2 percent copy of this publication may be purchased from
section 7520 interest rate, the trust corpus is
graph (b) of this section are effective
the Superintendent of Documents, United States with respect to gifts made after Decem-
considered sufficient to pay this annuity for the Government Printing Office, Washington, DC
entire 10-year term of the trust, or even 20402), the present value of an annuity of ber 13, 1995.
indefinitely. The trust specifically authorizes, but $67,287.26 per year payable for 17 years or until
does not require, the trustee to retain the shares the prior death of a person aged 60 is
of stock. Although it appears that neither Michael P. Dolan,
$579,484.61 ($67,287.26 3 8.6121). The present
beneficiary would be able to compel the trustee value of an annuity of $32,712.74 per year Acting Commissioner of
to make the trust corpus produce investment payable for 18 years or until the prior death of a Internal Revenue.
income, the annuity interest in this case is person aged 60 is $287,731.45 ($32,712.74 3
considered to be an ordinary annuity interest, and 8.7957). Thus, the present value of the charitable
a section 7520 annuity factor may be used to Approved October 29, 1995.
annuity interest is $867,216.06 ($579,484.61 +
determine the present value of the annuity. In $287,731.45).
this case, the section 7520 annuity factor would Leslie Samuels,
represent the right to receive $1.00 per year for a
term of 10 years or the prior death of a person (3) Mortality component. The mor- Assistant Secretary of
age 60. tality component prescribed under sec- the Treasury.
Example 4. Unitrust funded with unproductive tion 7520 may not be used to determine
property. The facts are the same as in Example the present value of an annuity, income (Filed by the Office of the Federal Register on
3, except that the donor has retained a unitrust December 12, 1995, 8:45 a.m., and published
interest, remainder interest, or rever- in the issue of the Federal Register for
interest equal to 7 percent of the value of the
trust property, valued as of the beginning of each sionary interest if an individual who is December 13, 1995, 60 F.R. 63913)
year. Although the trust corpus is nonincome- a measuring life dies or is terminally ill
producing, the present value of the donor’s at the time the gift is completed. For
retained unitrust interest may be determined by purposes of this paragraph (b)(3), an
using the section 7520 unitrust factor for a term
of years or a prior death.
individual who is known to have an Section 7701.—Definitions
Example 5. Eroding corpus in an annuity trust.
incurable illness or other deteriorating
(i) The donor, who is age 60 and in normal physical condition is considered termi- The Service will not rule on certain issues
health, transfers property worth $1,000,000 to a nally ill if there is at least a 50 percent raised in connection with the transfer of a life
28
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778/20049/28MAY96/A02-010
insurance policy to an unincorporated organiza- Section 7872(g)(2) of the Code

tion. See Rev. Proc. 96–12, page 30.
provides that, in the case of loans made TABLE 1
after October 11, 1985, and before REV. RUL. 96–5
1987, § 7872(g)(1) applies only to the
Section 7872.—Treatment of Loans extent that the aggregate outstanding Limit under 7872(g)(2) 3
with Below-Market Interest Rates amount of any loan to which § 7872(g)
Year Amount
applies (determined without regard to
CPI adjustment for below-market § 7872(g)(2)), when added to the ag- Before 1987 $ 90,000
loans—1996. The amount that section gregate outstanding amount of all other 1987 $ 92,200
7872(g) of the Code permits a taxpayer previous loans between the lender (or 1988 $ 94,800
to lend to a qualified continuing care the lender’s spouse) and any qualified 1989 $ 98,800
facility without incurring imputed inter- continuing care facility to which 1990 $103,500
est is published and adjusted for § 7872(g)(1) applies, does not exceed 1991 $108,600
inflation for years 1987–1996. Rev. $90,000. 1992 $114,100
Rul. 95–11 supplemented and Section 7872(g)(5) of the Code 1993 $117,500
superseded. provides that, for loans made during 1994 $121,100
any calendar year after 1986 to which 1995 $124,300
Rev. Rul. 96–5 § 7872(g)(1) applies, the $90,000 limit 1996 $127,800
specified in § 7872(g)(2) is increased Note: These inflation adjustments
This revenue ruling publishes the by an inflation adjustment. The infla- were computed using the All-
amount that § 7872(g) of the Internal tion adjustment for any calendar year is Urban, Consumer Price Index
Revenue Code permits a taxpayer to the percentage (if any) by which the 1982-1984 base, published by the
lend to a qualifying continuing care Consumer Price Index (CPI) for the Bureau of Labor Statistics.
facility without incurring imputed inter- preceding calendar year exceeds the
est. The amount is adjusted for infla- CPI for calendar year 1985. Section
tion for the years after 1986. 7872(g)(5) states that the CPI for any EFFECT ON OTHER DOCUMENTS
Section 7872 of the Code generally calendar year is the average of the CPI
treats loans bearing a below-market as of the close of the 12-month period Rev. Rul. 95–11, 1995–1 C.B. 224,
interest rate as if they bore interest at ending on September 30 of that calen- is supplemented and superseded.
the market rate. dar year.
Section 7872(g)(1) of the Code Rev. Rul. 95–11, 1995–1 C.B. 224, DRAFTING INFORMATION
provides that, in general, § 7872 does publishes the amount specified in
not apply for any calendar year to any § 7872(g)(2) of the Code, increased by The author of this revenue ruling is
below-market loan made by a lender to the inflation adjustment, for the years David B. Silber of the Office of
a qualified continuing care facility 1987–95. Assistant Chief Counsel (Financial In-
pursuant to a continuing care contract Table 1 sets forth the amount spec- stitutions and Products). For further
if the lender (or the lender’s spouse) ified in § 7872(g)(2) of the Code. The information regarding this revenue rul-
attains age 65 before the close of the amount is increased by the inflation ing, contact Mr. Silber on (202)
year. adjustment for the years 1987–96. 622-3930 (not a toll-free call).
29
SEQ 0120 JOB A02-011-008 PAGE-0030 PART III PAGE 30
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778/20049/28MAY96/A02-011
Part III. Administrative, Procedural, and Miscellaneous

Empowerment Zone Employment that employee under this alternative. The Service requests comments re-
Credit The credit may be claimed with respect garding these alternative approaches, as
to qualified zone wages (within the well as comments on other issues
Notice 96–1 meaning of section 1396(c)) for serv- relating to the empowerment zone
ices provided during each pay period in employment credit with respect to
which substantially all of the services which guidance may be helpful to
The Omnibus Budget Reconciliation
performed by the employee for the
Act of 1993, Pub. L. No. 103–66 employers. These comments should be
employer are performed within an
(OBRA’93) added sections 1391 empowerment zone in a trade or submitted in writing by March 29,
through 1397D (relating to empower- business of the employer. 1996, to Internal Revenue Service,
ment zones and enterprise commu- Office of the Associate Chief Counsel
nities) to the Internal Revenue Code. Under the second alternative, the
relevant period for an employee is the (Employee Benefits and Exempt Orga-
See sections 13301 through 13303 of nizations), CC:EBEO:4, Room 5203,
entire calendar year with respect to
OBRA’93. Section 1397D of the Code 1111 Constitution Avenue, N.W.,
which the credit is being claimed by
authorizes the Secretary of the Treasury that employer (or, for any employee Washington, DC 20224, Attn: Robert
to prescribe such regulations as may be who is employed by the employer for G. Wheeler.
necessary or appropriate to carry out less than the entire calendar year, the
the purposes of sections 1394 through The principal author of this notice is
portion of that calendar year during Robert Wheeler of the Office of the
1397C. which the employee is employed by the Associate Chief Counsel (Employee
The empowerment zone employment employer). Under this alternative, an Benefits and Exempt Organizations).
credit is set forth in section 1396 of the employee is not a qualified zone
Code. The amount of the credit is equal For further information regarding this
employee within the meaning of sec-
to a specified percentage of qualified tion 1396(d)(1) unless substantially all notice contact Mr. Wheeler on (202)
zone wages, which are certain wages of the services performed by the 622-6060 (not a toll-free call).
paid or incurred by an employer for employee for the employer during the
services performed by a qualified zone calendar year are performed within an
employee. Certain questions have empowerment zone in a trade or
arisen about the definition of a business of the employer. If the 26 CFR 601.201: Rulings and determination
employee is a qualified zone employee, letters.
‘qualified zone employee‘ in section (Also Part I, §§ 101, 761, 7701.)
1396(d). In particular, questions have the credit may be claimed with respect
been raised about the appropriate to qualified zone wages (within the
period under section 1396(d)(1)(A) dur- meaning of section 1396(c)) for all Rev. Proc. 96–12
ing which substantially all of the services performed by the employee for
services performed by an employee for the employer during the calendar year. SECTION 1. BACKGROUND
his or her employer must be performed While the Service does not anticipate
within an empowerment zone in a trade imposing specific record-keeping re- Rev. Proc. 96–3, 1996–1 I.R.B. 82,
or business of the employer. quirements in the regulations, under sets forth areas of the Internal Revenue
The Internal Revenue Service intends either alternative an employer would be Code under the jurisdiction of the
to issue a notice of proposed rulemak- expected to have and maintain records Associate Chief Counsel (Domestic) in
ing, pursuant to the authority provided sufficient to establish, for each which the Internal Revenue Service
by sections 1397D and 7805(a), clarify- employee with respect to whom the will not issue advance rulings or
empowerment zone employment credit determination letters.
ing the relevant period for this purpose.
is claimed, where the employee actu-
The proposed regulations will provide
ally worked during the relevant period.
that an employer may elect either of SECTION 2. PROCEDURE
The nine empowerment zones are lo-
the following two approaches with cated in portions of Atlanta, Baltimore,
respect to each calendar year. The Chicago, Detroit, New York, Rev. Proc. 96–3 is amplified by
employer must use the same approach Philadelphia/Camden, and the Kentucky adding to section 5 the following:
with respect to all of its employees in Highlands (Clinton, Jackson, and Sections 101, 761 and 7701.—
computing the credit for the year. Wayne Counties, Kentucky), Mid-Delta Definitions.—Whether, in connection
Under the first alternative, the rele- (Bolivar, Sunflower, Leflore, Wash- with the transfer of a life insurance
vant period for an employee is each ington, Humphreys, and Holmes policy to an unincorporated organiza-
pay period in which the employee Counties, Mississippi), and Rio Grande tion, (i) the organization will be treated
provides services to the employer. If an Valley (Starr, Cameron, Hidalgo, and as a partnership under §§ 761 and 7701
employer has one pay period for Willacy Counties, Texas) regions. of the Internal Revenue Code, or (ii)
certain employees and a different pay These regulations will be proposed to the transfer of the life insurance policy
period for other employees (e.g., a be effective December 21, 1994, the to the organization will be exempt from
weekly pay period for hourly wage date on which the nine empowerment the transfer for value rules of § 101,
employees and a bi-weekly pay period zones authorized by OBRA’93 were when substantially all of the organiza-
for salaried employees), the pay period designated by the Secretaries of Hous- tion’s assets consist or will consist of
actually applicable to a particular ing and Urban Development and life insurance policies on the lives of
employee is the relevant pay period for Agriculture. the members.
30
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SECTION 3. EFFECTIVE DATE SECTION 4. EFFECT ON OTHER ruling is Brian M. Blum of the Office
REVENUE PROCEDURES of Assistant Chief Counsel (Pass-
This revenue procedure applies to all throughs and Special Industries). For
Rev. Proc. 96–3 is amplified. further information regarding this reve-
ruling requests pending in the National
Office as of January 16, 1996, and nue ruling, contact Mr. Blum on (202)
DRAFTING INFORMATION 622-3050 (not a toll-free call).
ruling requests received after that
date. The principal author of this revenue
26 CFR 601.201: Rulings and determination letters.
Rev. Proc. 96–13
OUTLINE
SECTION 1. PURPOSE OF MUTUAL AGREEMENT PROCESS
SEC. 2. SCOPE
.01 General
Suspension .02 Requests for Assistance
.03 U.S. Competent Authority
.04 General Process
.05 Failure to Request Assistance
SEC. 3. GENERAL CONDITIONS UNDER WHICH THIS PROCEDURE APPLIES

.01 General
.02 Requirements of a Treaty
.03 Applicable Standards in Allocation Cases
.04 Who Can File Requests for Assistance
.05 Closed Cases
.06 Foreign Initiated Competent Authority Request
.07 Requests Relating to Residence Issues
.08 Determinations Regarding Limitation on Benefits
SEC. 4. PROCEDURES FOR REQUESTING COMPETENT AUTHORITY ASSISTANCE

.01 Time for Filing
.02 Place of Filing
.03 Additional Filing
.04 Form of Request
.05 Information Required
.06 APAs
.07 Other Documentation
.08 Updates
.09 Conferences
SEC. 5. SMALL CASE PROCEDURE FOR REQUESTING COMPETENT AUTHORITY ASSISTANCE

.01 General
.02 Small Case Standards
.03 Small Case Filing Procedure
SEC. 6. RELIEF REQUESTED FOR FOREIGN INITIATED ADJUSTMENT WITHOUT COMPETENT AUTHORITY
INVOLVEMENT
SEC. 7. COORDINATION WITH OTHER ADMINISTRATIVE OR JUDICIAL PROCEEDINGS

.01 Suspension of Administrative Action with Respect to U.S. Adjustments
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778/20049/28MAY96/A02-011
.02 Coordination with Appeals

.03 Coordination with Litigation
.04 Coordination with the APA Procedure
.05 Effect of Agreements or Judicial Determinations on Competent Authority Proceedings
.06 Accelerated Competent Authority Procedure
SEC. 8. SIMULTANEOUS APPEALS PROCEDURE

.01 General
.02 Time for Requesting the Simultaneous Appeals Procedure
(a) When Filing For Competent Authority Assistance
(b) After Filing For Competent Authority Assistance
.03 Cases Pending in Court
.04 Request for Simultaneous Appeals Procedure
.05 Role of Appeals in the Competent Authority Process
(a) Appeals Process
(b) Assistance to U.S. Competent Authority
.06 Denial or Termination of Simultaneous Appeals Procedure
(a) Taxpayer’s Termination
(b) Service’s Denial or Termination
.07 Returning to Appeals
.08 Appeals Consideration of Non-Competent Authority Issues
SEC. 9. PROTECTIVE MEASURES

.01 General
.02 Filing of Amended Tax Return in the United States
.03 Filing a Protective Claim in the United States
(a) In General
(b) Filing of Protective Claim
(c) Notification Requirement
(d) No Consultation between Competent Authorities until Formal Request is Filed
.04 Effect of an Amended Tax Return
.05 Treaty Provisions Waiving Procedural Barriers
SEC. 10. APPLICATION OF REV. PROC. 65–17
SEC. 11. DETERMINATION OF CREDITABLE FOREIGN TAXES
SEC. 12. ACTION BY U.S. COMPETENT AUTHORITY

.01 Notification of Taxpayer
.02 Denial of Assistance
.03 Extending Period of Limitations for Assessment
.04 No Review of Denial of Request for Assistance
.05 Notification
.06 Closing Agreement
.07 Unilateral Withdrawal or Reduction of U.S. Initiated Adjustments
SEC. 13. REQUESTS FOR RULINGS

.01 General
.02 Foreign Tax Rulings
SEC. 14. FEES
SEC. 15. EFFECT ON OTHER DOCUMENTS
SEC. 16. EFFECTIVE DATE
DRAFTING INFORMATION
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778/20049/28MAY96/A02-011
SECTION 1. PURPOSE OF MUTUAL thority assistance must be submitted in rate, and other benefits and safeguards
AGREEMENT PROCESS accordance with this revenue proce- provided by treaties are subject to
dure. However, where a treaty provides conditions and restrictions that may
This revenue procedure sets forth the specific procedures for requests for vary in different treaties. Taxpayers
procedures concerning requests by tax- competent authority assistance, those should examine carefully the specific
payers for assistance of the U.S. procedures shall apply, and the provi- treaty provisions applicable in their
competent authority under the provisions of this revenue procedure shall cases to determine the nature and
sions of an income, estate or gift tax not apply to the extent inconsistent extent of treaty benefits or safeguards
treaty to which the United States is a with such treaty procedures. See also they are entitled to and the conditions
party. Rev. Proc. 91–23, 1991–1 C.B. Rev. Proc. 91–22, 1991–1 C.B. 526, under which such benefits or safe-
534, and Rev. Proc. 91–26, 1991–1 concerning requests for competent au- guards are available. In particular,
C.B. 543, are superseded by this thority assistance with respect to an taxpayers should be aware of statutes
revenue procedure. Advance Pricing Agreement (‘‘APA’’). of limitations and other procedural
.03 U.S. Competent Authority. The barriers under U.S. or foreign law that
SEC. 2. SCOPE Assistant Commissioner (International) may preclude or limit the extent of the
acts as the U.S. competent authority in assistance under this revenue proce-
.01 General. The U.S. competent administering the operating provisions dure. See section 9 of this revenue
authority assists taxpayers with respect of tax treaties (including entering into a procedure which prescribes protective
to matters covered in the mutual competent authority settlement in a measures to be taken by the taxpayer
agreement procedure provisions of tax specific case) and in interpreting and and any concerned related person with
treaties in the manner specified in those applying these treaties. The Tax Treaty respect to U.S. and foreign tax au-
provisions. A tax treaty generally per- Division assists the Assistant Commis- thorities. See also section 12.02 of this
mits taxpayers to request competent sioner (International) in these matters. revenue procedure for circumstances in
authority assistance when they consider In interpreting or applying tax treaties, which competent authority assistance
that actions of the United States, the the Assistant Commissioner (Interna- may be denied.
treaty country, or both, result or will tional) acts only with the concurrence .02 Requirements of a Treaty. There
result in taxation that is contrary to the of the Associate Chief Counsel (Inter- is no authority for the U.S. competent
provisions of a treaty. For example, tax national). See Delegation Order No. authority to provide relief from U.S.
treaties generally permit taxpayers to 114 (Rev. 10). tax or to provide other assistance due
request assistance in order to relieve .04 General Process. If a taxpayer’s to taxation arising under the tax laws
economic double taxation arising from request for competent authority assist- of the foreign country or the United
an allocation under § 482 of the ance is accepted, the U.S. competent States, unless such authority is granted
Internal Revenue Code or an equivalent authority generally will consult with by a treaty. See Rev. Proc. 89–8, 1989–
provision under the laws of a treaty the appropriate foreign competent au- 1 C.B. 778, for procedures for request-
country. Competent authority assistance thority and attempt to reach a mutual ing the assistance of the Internal
may also be available with respect to agreement that is acceptable to all Revenue Service (‘‘the Service’’) when
issues specifically dealt with in other parties. The U.S. competent authority a taxpayer is or may be subject to
provisions of a treaty. For example, also may initiate competent authority inconsistent tax treatment by the Serv-
Article XIII(8) of the U.S.-Canada negotiations in any situation deemed ice and a U.S. possession tax agency.
income tax treaty permits taxpayers to necessary to protect U.S. interests. .03 Applicable Standards in Alloca-
request the competent authority to defer Such a situation may arise, for exam- tion Cases. With respect to requests for
the recognition of profit, gain or ple, when a taxpayer fails to request competent authority assistance involv-
income with respect to property alien- competent authority assistance after ing the allocation of income and
ated in the course of a corporate agreeing to a U.S. or foreign tax deductions between a U.S. taxpayer
organization, reorganization or similar assessment that is contrary to the and a related person, the U.S. compe-
transaction. In addition, many tax provisions of an applicable tax treaty or tent authority, in seeking to arrive at an
treaties contain provisions concerning for which correlative relief may be agreement with a treaty country, will
fiscal residence or concerning whether available. be guided by the arm’s length standard,
a taxpayer is entitled to the benefits of .05 Failure to Request Assistance. as reflected in the regulations under
a treaty under specific limitation on Failure to request competent authority § 482 of the Code. When negotiating
benefits provisions. See section 3.07 assistance or to take appropriate steps mutual agreements on the allocation of
and 3.08 of this revenue procedure. to maintain availability of the remedy income and deductions, the U.S. com-
Taxpayers are urged to examine the may cause a denial of part or all of petent authority will take into account
specific mutual agreement procedure any foreign tax credits claimed. See all of the facts and circumstances of
provisions or other specific provisions § 1.901–2(e)(5)(i) of the Income Tax the particular case and the purpose of
of the treaty under which they seek Regulations. See also section 11 of this the treaty to avoid double taxation.
relief, in order to determine whether revenue procedure concerning the de- .04 Who Can File Requests for
relief is available in their particular termination of creditable foreign taxes. Assistance. Unless otherwise permitted
case. This revenue procedure is not under an applicable tax treaty, the U.S.
SEC. 3. GENERAL CONDITIONS
intended to limit or expand any specific competent authority will only consider
UNDER WHICH THIS PROCEDURE
treaty provisions relating to competent APPLIES requests for assistance from U.S. per-
authority matters. sons, as defined in § 7701(a)(30) of the
.02 Requests for Assistance. In gen- .01 General. The exclusions, exemp- Code. For purposes of this revenue
eral, all requests for competent au- tions, deductions, credits, reductions in procedure, a U.S. person is referred to
33
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778/20049/28MAY96/A02-011
as ‘‘the taxpayer.’’ Thus, non-U.S. that must be met to qualify as a request; however, delays in filing may
persons generally must present their resident eligible for benefits under the preclude effective relief. See section 9
initial request for assistance to the treaty. The U.S. competent authority of this revenue procedure concerning
relevant foreign competent authority. will not issue determinations regarding protective measures for taxpayers that
.05 Closed Cases. A case previously a taxpayer’s status under one of the need or wish to delay the filing of a
closed after examination shall not be prescribed requirements in a limitation request for assistance. See also section
reopened in order to make an adjust- on benefits provision. However, certain 7.06 of this revenue procedure for rules
ment unfavorable to the taxpayer unless treaties provide that the competent relating to accelerated issue resolution
the exceptional circumstances described authority may, as a matter of discre- and competent authority assistance.
in Rev. Proc. 94–68, 1994–2 C.B. 803, tion, determine the availability of treaty .02 Place of Filing. The taxpayer
are present. The U.S. competent au- benefits where the prescribed require- must send all written requests for, or
thority may, but is not required to, ments are not met. See, e.g., Article any inquiries regarding, competent au-
accept a taxpayer’s request for compe- 26(7) of the U.S.-Netherlands income thority assistance to the Assistant Com-
tent authority consideration that will tax treaty. Requests for assistance in missioner (International), Attn: Tax
require the reopening of a case closed such cases should comply with this Treaty Division, Internal Revenue
after examination. revenue procedure and any other spe- Service, P.O. Box 23598, Washington
.06 Foreign Initiated Competent Au- cific procedures that may be issued D.C. 20026–3598.
thority Request. When a foreign com- from time to time. .03 Additional Filing. In the case of
petent authority refers a request from a U.S. initiated adjustments, the taxpayer
SEC. 4. PROCEDURES FOR also must file a copy of the request
foreign taxpayer to the U.S. competent
REQUESTING COMPETENT with the office of the Service where the
authority for consultation under the
AUTHORITY ASSISTANCE taxpayer’s case is pending. If the
mutual agreement procedure, the U.S.
competent authority generally will re- .01 Time for Filing. A request for request is filed after the matter has
quire the U.S. related taxpayer (in the competent authority assistance gener- been designated for litigation or while
case of an allocation of income or ally may be filed at any time after an a suit contesting the relevant tax
deductions between related persons) or action occurs which would give rise to liability of the taxpayer is pending in a
may require the foreign taxpayer (in a claim for competent authority assist- U.S. court, a copy of the request also
other cases) to file a request for ance. In a case involving a U.S. must be filed with the Chief Counsel,
competent authority assistance under initiated adjustment of tax or income Attention: Associate Chief Counsel (In-
this revenue procedure. resulting from a tax examination, a ternational), Internal Revenue Service,
.07 Requests Relating to Residence request for competent authority assist- Washington, D.C. 20224, with a sepa-
Issues. U.S. competent authority assistance may be submitted as soon as rate statement attached identifying the
ance may be available to taxpayers practicable after the amount of the court where the suit is pending and the
seeking to establish their residency proposed adjustment is communicated docket number of the action.
status in the United States. Examples in writing to the taxpayer. Where a .04 Form of Request. A request for
include cases in which taxpayers be- U.S. initiated adjustment has not yet competent authority assistance must be
lieve that they are erroneously treated been communicated in writing (e.g., a in the form of a letter addressed to the
as non-U.S. residents by treaty coun- notice of proposed adjustment) to the Assistant Commissioner (International).
tries or cases where taxpayers are taxpayer, the U.S. competent authority It must be dated and signed by a
treated as dual residents despite the generally will deny the request as person having the authority to sign the
objective tie-breaker provisions con- premature. In the case of a foreign taxpayer’s federal tax returns. The
tained in the applicable treaties. Gener- examination, a request may be submit- request must contain a statement that
ally, competent authority assistance is ted as soon as the taxpayer believes competent authority assistance is being
limited to situations where resolution of such filing is warranted based on the requested and must include the infor-
a residency issue is necessary in order actions of the country proposing the mation described in section 4.05 of this
to avoid double taxation or to deter- adjustment. In a case involving the re- revenue procedure. See section 5 of this
mine the applicability of a benefit allocation of income or deductions revenue procedure for requests involv-
under the treaty. Further, a request for between related entities, the request ing small cases.
assistance regarding a residency issue should not be filed until such time that .05 Information Required. The fol-
will be accepted only if it is established the taxpayer can establish that there is lowing information shall be included in
that the issue requires consultation with the probability of double taxation. In the request for competent authority
the foreign competent authority in cases not involving an examination, a assistance:
order to ensure consistent treatment by request can be made when the taxpayer (a) a reference to the specific treaty
the United States and the applicable believes that an action or potential and the provisions therein pursuant to
treaty country. The U.S. competent action warrants the assistance of the which the request is made;
authority does not issue unilateral U.S. competent authority. Examples of (b) the names, addresses, U.S. tax-
determinations with respect to whether such action include a ruling or pro- payer identification number and foreign
an individual is a resident of the United mulgation by a foreign tax authority taxpayer identification number (if any)
States or of a treaty country. concerning a taxation matter, or the of the taxpayer and, if applicable, all
.08 Determinations Regarding Lim- withholding of tax by a withholding related persons involved in the matter;
itation on Benefits. Many treaties con- agent. Except where otherwise provided (c) if applicable, a description of the
tain a limitation on benefits article that in an applicable treaty, taxpayers have control and business relationships be-
enumerates prescribed requirements discretion over the time for filing a tween the taxpayer and any relevant
34
COMPOSITE COLOR
778/20049/28MAY96/A02-011
related person for the years in issue, stated) and the competent authority’s assistance. The taxpayer also must
including any changes in such relation- staff of any or all of the items of provide any updated information or
ship to the date of filing the request; information set forth or enclosed in the new documentation that becomes
(d) a brief description of the issues request for U.S. competent authority known or is created after the request is
for which competent authority assist- assistance within the limits contained in filed and which is relevant to the
ance is requested, including a brief the tax treaty under which the taxpayer resolution of the issues under
description of the relevant transactions, is seeking relief. This statement must consideration.
activities or other circumstances in- be dated and signed by a person having .09 Conferences. The taxpayer may,
volved in the issues raised and the authority to sign the taxpayer’s federal at any time, request a pre-filing con-
basis for the adjustment, if any; tax returns and is required to facilitate ference with the U.S. competent au-
(e) the years and amounts involved the administrative handling of the thority to discuss the mutual agreement
with respect to the issues in both U.S. request by the U.S. competent authority process with respect to matters covered
dollars and foreign currency; for purposes of the record-keeping under a treaty, including discussion of
requirements of § 6103(p) of the Code. the proper time for filing, the practical
(f) if applicable, the district office
Failure to provide such a statement will aspects of obtaining relief and actions
which has made or is proposing to
not prevent the U.S. competent au- necessary to facilitate the proceedings.
make the adjustment;
thority from disclosing information un- Similarly, after a matter is resolved by
(g) an explanation of the nature of der the terms of a treaty. See the competent authorities, a taxpayer
the relief sought or the action requested § 6103(k)(4) of the Code; and may also request a conference with the
in the United States or in the treaty
(n) a penalties of perjury statement U.S. competent authority to discuss the
country with respect to the issues
in the following form: ‘‘Under penal- resolution.
raised, including a statement as to
ties of perjury, I declare that I have
whether the taxpayer wishes to avail
examined this request, including ac- SEC. 5. SMALL CASE
itself of the relief provided under Rev.
companying documents, and, to the PROCEDURE FOR REQUESTING
Proc. 65–17, 1965–1 C.B. 833, as
best of my knowledge and belief, the COMPETENT AUTHORITY
amplified, amended, clarified and mod-
facts presented in support of the ASSISTANCE
ified by Rev. Proc. 65–31, 1965–2 C.B.
request for competent authority assist-
1024, Rev. Proc. 65–17 Amendment I,
ance are true, correct and complete.’’ .01 General. To facilitate requests for
1966–2 C.B. 1211, Rev. Proc. 65–17
The declaration must be signed by the assistance involving small cases, this
Amendment II, 1974–1 C.B. 411, Rev.
person or persons on whose behalf the section provides a special procedure
Proc. 70–23, 1970–2 C.B. 505, Rev.
request is being made and not by the simplifying the form of a request for
Proc. 71–35, 1971–2 C.B. 573, Rev.
taxpayer’s representative. The person assistance and, in particular, the
Proc. 72–48, 1972–2 C.B. 829, Rev.
signing for a corporate taxpayer must amount of information that initially
Proc. 72–53, 1972–2 C.B. 833, and
be an authorized officer of the taxpayer must be submitted. All other require-
Rev. Proc. 91–24, 1991–1 C.B. 542,
who has personal knowledge of the ments of this revenue procedure con-
(hereinafter referred to as ‘‘Rev. Proc.
facts. The person signing for a trust, an tinue to apply to requests for assistance
65–17’’), as indicated in section 10 of
estate or a partnership must be respec- made pursuant to this section.
this revenue procedure;
tively, a trustee, an executor or a
(h) a statement whether the period of partner who has personal knowledge of .02 Small Case Standards. Eligible
limitations for the years for which the facts. taxpayers may file an abbreviated
relief is sought has expired in the request for competent authority assist-
.06 APAs. Requests for competent ance in accordance with this section if
United States or in the treaty country;
authority assistance that involve an the total proposed adjustment involved
(i) a statement whether the request APA request must include the informa-
for competent authority assistance in- in the matter is not greater than the
tion required under Rev. Proc. 91–22, following:
volves issues that are currently, or were 1991–1 C.B. 526, as well as the
previously, considered as part of an applicable information under section
APA proceeding in the United States or 4.05 of this revenue procedure. Proposed
in a similar proceeding in the foreign Taxpayer Adjustment
.07 Other Documentation. In addi-
country;
tion, the taxpayer shall, on request, Individual $100,000
(j) if applicable, powers of attorney submit any other information or docu- Corporation $200,000
with respect to the taxpayer; mentation deemed necessary by the Other $200,000
(k) a statement whether the taxpayer U.S. or foreign competent authority for
is requesting the Simultaneous Appeals purposes of reaching an agreement. .03 Small Case Filing Procedure.
procedure as provided in section 8 of This includes English translations of The abbreviated request for competent
this revenue procedure; any documentation required in connec- authority assistance under the small
(l) an amended return, if required tion with the competent authority case procedure must be dated and
under section 9.02 of this revenue request. signed by a person having the authority
procedure; .08 Updates. The taxpayer must keep to sign the taxpayer’s federal tax
(m) on a separate document, a the U.S. competent authority informed returns. Although other information and
statement that the taxpayer consents to of all material changes in the informa- documentation may be requested at a
the disclosure to the competent au- tion or documentation previously sub- later date, the initial request for assist-
thority of the treaty country (with the mitted as part of, or in connection with, ance should include the following
name of the treaty country specifically the request for competent authority information and materials:
35
COMPOSITE COLOR
778/20049/28MAY96/A02-011
(a) a statement indicating that this is When a request for competent authority pending in any other court, the Chief
a matter subject to the small case assistance is accepted with respect to a Counsel will consult with the Depart-
procedure; U.S. initiated adjustment, the Service ment of Justice about appropriate ac-
(b) the name, address, U.S. taxpayer will postpone further administrative tion, and the taxpayer may, in appropri-
identification number and foreign tax- action with respect to the issues under ate cases, be asked to join the U.S.
payer identification number (if any) of competent authority consideration, ex- Government in a motion to sever issues
the taxpayer and if applicable, all cept (a) in situations in which the or delay trial pending completion of the
related persons involved; Service may be requested otherwise by competent authority proceedings. Final
(c) a description of the issue and the the U.S. competent authority, or (b) in decision on severing issues or delaying
nature of the relief sought; situations involving cases pending in trial rests with the court. The filing of
court and in other instances in which a competent authority request does not,
(d) the taxable years and amounts action must be taken to avoid prejudic- however, relieve the taxpayer from
involved with respect to the issues in ing the U.S. Government’s interest. The taking any action that may be neces-
both U.S. and foreign currency; normal administrative procedures con- sary or required with respect to litiga-
(e) the name of the treaty country; tinue to apply, however, to all other tion.
(f) an amended return, if required issues not under U.S. competent au- .04 Coordination with the APA Pro-
under section 9.02 of this revenue thority consideration. For example, if cedure. Rev. Proc. 91–22, 1991–1 C.B.
procedure; and there are other issues raised during the 526, informs taxpayers how to request
(g) the statements described in sec- examination and the taxpayer is not in an APA from the office of the Associ-
tion 4.05(m) and (n) of this revenue agreement with these issues, the usual ate Chief Counsel (International). If an
procedure. procedures for completing the examina- APA request involves a treaty country,
tion with respect to these issues apply. taxpayers are encouraged to seek a
SEC. 6. RELIEF REQUESTED FOR If the taxpayer is issued a thirty day competent authority agreement with
FOREIGN INITIATED letter with respect to these issues and respect to the matters that are the
ADJUSTMENT WITHOUT prepares a protest of the unagreed subject of the APA. The purpose of a
COMPETENT AUTHORITY issues, the taxpayer need not include competent authority agreement in this
INVOLVEMENT any unagreed issue under consideration case is to avoid double taxation that
by the competent authority. Following otherwise may occur. Further, where
the receipt of a taxpayer’s protest, the taxpayer requests that, as part of
Taxpayers seeking correlative relief normal Appeals procedures shall be the APA process, consideration be
with respect to a foreign initiated initiated with respect to those issues given to resolving an issue raised by
adjustment involving a treaty matter not subject to competent authority the Service for earlier taxable periods,
should present their request to the U.S. consideration. the taxpayer is encouraged to seek
competent authority. However, when
.02 Coordination with Appeals. Tax- competent authority consideration of
the adjustment involves years under the payers that disagree with a proposed the issue for these periods.
jurisdiction of the District Director or U.S. adjustment may either pursue their .05 Effect of Agreements or Judicial
Appeals, taxpayers sometimes try to right of administrative review with Determinations on Competent Authority
obtain relief from these offices. This Appeals before requesting competent Proceedings. If a taxpayer either ex-
may occur, for example, if the adjust- authority assistance or may request ecutes a closing agreement with the
ment involves a re-allocation of income competent authority assistance imme- District (whether or not contingent
or deductions involving a related per- diately. See, however, section 8 of this upon competent authority relief) with
son in a country with which the United revenue procedure for Simultaneous respect to a potential competent au-
States has an income tax treaty. In Appeals procedures. Appeals’ consid- thority issue or reaches a settlement on
these cases, taxpayers will be advised eration of potential competent authority the issue with Appeals or Counsel
to contact the U.S. competent authority matters will be made without regard to pursuant to a closing agreement or
office. In appropriate cases, the U.S. other issues or considerations that do other written agreement, the U.S. com-
competent authority will advise the not involve potential competent au- petent authority will endeavor only to
District or Appeals office on appropri- thority matters. obtain a correlative adjustment from
ate action. The U.S. competent au- .03 Coordination with Litigation. the treaty country and will not under-
thority may request the taxpayer to The U.S. competent authority will not, take any actions that would otherwise
provide the information described un- without the consent of the Chief change such agreements. However, the
der sections 4.05 and 4.07 of this Counsel, accept (or continue to con- U.S. competent authority will, in appro-
revenue procedure. Failure to request sider) a taxpayer’s request for assist- priate cases, consider actions necessary
competent authority assistance may ance if the request involves a taxable for the purpose of providing relief
result in denial of correlative relief period pending in a U.S. court or pursuant to Rev. Proc. 65–17. Once a
with respect to the issue, including involves a matter pending in a U.S. taxpayer’s tax liability for the taxable
applicable foreign tax credits. court or designated for litigation for periods in issue has been determined
any taxable period. If the case is by a U.S. court (including settlement of
SEC. 7. COORDINATION WITH pending in the United States Tax Court, the proceedings before or during trial),
OTHER ADMINISTRATIVE OR the taxpayer may, in appropriate cases, the U.S. competent authority similarly
JUDICIAL PROCEEDINGS be asked to join the Service in a will endeavor only to obtain correlative
motion to sever issues or delay trial relief from the treaty country and will
.01 Suspension of Administrative Ac- pending completion of the competent not undertake any action that would
tion with Respect to U.S. Adjustments. authority proceedings. If the case is otherwise reduce the taxpayer’s federal
36
COMPOSITE COLOR
778/20049/28MAY96/A02-011
tax liability for the taxable periods in not preclude or impede (under § issue. The taxpayer may sever the
issue as determined by a U.S. court. 7605(b) or any administrative provision competent authority issue for referral to
Taxpayers therefore should be aware adopted by the Service) a later ex- the U.S. competent authority and in-
that in these situations, as well as in amination of a return or inspection of voke the Simultaneous Appeals proce-
situations where a treaty country takes books of account or records for any dure at any time when the case is in
a similar position with respect to issues taxable period covered in the acceler- Appeals but before settlement of the
resolved under its domestic laws, relief ated competent authority assistance issue. Taxpayers, however, are en-
from double taxation may be jeopard- request and (2) the Service need not couraged to invoke the Simultaneous
ized. comply with any applicable procedural Appeals procedure as soon as possible,
.06 Accelerated Competent Authority restrictions (for example, providing preferably as soon as practicable after
Procedure. A taxpayer requesting com- notice under § 7605(b)) before begin- the first Appeals conference.
petent authority assistance with respect ning such examination or inspection. (b) After Filing For Competent Au-
to an issue raised by the Service also For competent authority assistance with thority Assistance. The taxpayer may
may request that the competent au- respect to prospective periods, see Rev. request the Simultaneous Appeals pro-
thorities attempt to resolve the issue for Proc. 91–22, 1991–1 C.B. 526. The cedure at any time after requesting
subsequent taxable periods ending prior accelerated competent authority proce- competent authority assistance. How-
to the date of the request for assistance dure is not subject to the AIR process ever, a taxpayer’s request for the
if the same issue continues in those limitations. Simultaneous Appeals procedure gener-
periods. See also Rev. Proc. 94–67, ally will be denied if made after the
1994–2 C.B. 800, concerning the Ac- SEC. 8. SIMULTANEOUS APPEALS date the U.S. position paper is commu-
celerated Issue Resolution (‘‘AIR’’) PROCEDURE nicated to the foreign competent au-
process. The U.S. competent authority thority, unless the U.S. competent
will consider the request and will .01 General. A taxpayer filing a authority determines that the procedure
contact the appropriate District to con- request for competent authority assist- would facilitate an early resolution of
sult on whether the issue should be ance under this revenue procedure may, the competent authority issue or other-
resolved for subsequent taxable peri- at the same time or at a later date, wise is in the best interest of the
ods. If the District consents to this request Appeals’ consideration of the Service.
procedure, the U.S. competent authority competent authority issue under the .03 Cases Pending in Court. If the
will present to the foreign competent procedures and conditions provided in matter is pending before a U.S. court
authority the request to consider such this section. The U.S. competent au- or has been designated for litigation
taxable periods. For purposes of resolv- thority also may request Appeals’ and jurisdiction has been released to
ing the issue, the taxpayer must furnish involvement if it is determined that the U.S. competent authority, a request
all relevant information and statements such involvement would facilitate the for the Simultaneous Appeals proce-
that may be requested by the U.S. negotiation of a mutual agreement in dure may be granted only with the
competent authority pursuant to this the case or otherwise would serve the consent of the Chief Counsel.
revenue procedure. In addition, if the interest of the Service. The taxpayer .04 Request for Simultaneous Ap-
case involves a Coordinated Examina- may, at any time, request a pre-filing peals Procedure. The taxpayer’s re-
tion Program (‘‘CEP’’) taxpayer, the conference with the offices of the quest for the Simultaneous Appeals
taxpayer must furnish all relevant infor- National Director of Appeals and the procedure should be addressed to the
mation and statements requested by the U.S. competent authority to discuss the U.S. competent authority either as part
District Director, as described in Rev. Simultaneous Appeals procedure. of the initial competent authority assist-
Proc. 94–67, 1994–2 C.B. 800. If the .02 Time for Requesting the Simul- ance request or, if made later, as a
case involves a non-CEP taxpayer, the taneous Appeals Procedure. separate letter to the U.S. competent
taxpayer must furnish all relevant infor- (a) When Filing For Competent authority. The request should state
mation and statements that may be Authority Assistance. whether the issue was previously pro-
requested by the District Director. A tested to Appeals for the periods in
The Simultaneous Appeals procedure
request for the accelerated competent competent authority or for prior periods
may be invoked at any of the following
authority procedure may be made at the (in which case a copy of the relevant
times:
time of filing a request for competent portions of the protest and an explana-
authority assistance or at any time (1) When the taxpayer applies for tion of the outcome, if any, should be
thereafter, but generally before conclu- competent authority assistance with provided). The U.S. competent au-
sion of the mutual agreement in the respect to an issue for which the thority will send a copy of the request
case; however, taxpayers are en- District has proposed an adjustment to the National Director of Appeals,
couraged to request the procedure as and before the protest is filed; who, in turn, will forward a copy to the
early as practicable. The application of (2) When the taxpayer files a protest appropriate Regional Director of Ap-
the accelerated procedure may require with Appeals and decides to sever the peals. When the U.S. competent au-
the prior consent of the Chief Counsel. competent authority issue and seek thority invokes the Simultaneous Ap-
See section 7.03 of this revenue proce- competent authority assistance while peals procedure, the taxpayer will be
dure. A request for the accelerated other issues are referred to Appeals; notified. The U.S. competent authority
competent authority procedure must and has jurisdiction of the issue when the
contain a statement that the taxpayer (3) When the case is in Appeals and Simultaneous Appeals procedure is
agrees that: (1) the inspection of books the taxpayer later decides to request invoked.
of account or records under the acceler- competent authority assistance with .05 Role of Appeals in the Competent
ated competent authority procedure will respect to the competent authority Authority Process.
37
COMPOSITE COLOR
778/20049/28MAY96/A02-011
(a) Appeals Process. The Appeals appropriate Regional Director of Ap- ing an adjustment or seeking an appro-
representative assigned to the case will peals may decide to deny or terminate priate correlative adjustment with re-
consult with the taxpayer and the U.S. the Simultaneous Appeals procedure if spect to the U.S. or treaty country tax.
competent authority for the purpose of the procedure is determined to be A taxpayer should take protective
reaching a resolution of the unagreed prejudicial to the mutual agreement measures in a timely manner, that is, in
issue under competent authority juris- procedure or to the administrative a manner that allows sufficient time for
diction before the issue is presented to appeals process. For example, a tax- appropriate procedures to be completed
the foreign competent authority. For payer that received Appeals considera- and effective before barriers arise.
this purpose, established Appeals pro- tion before requesting competent au- Generally, a taxpayer should consider,
cedures apply. The Appeals representa- thority assistance, but was unable to at the time an adjustment is first
tive will consult with the U.S. compe- reach a settlement in Appeals, may be proposed, which protective measures
tent authority during this process to denied the Simultaneous Appeals pro- may be necessary and when such
ensure appropriate coordination of the cedure. A taxpayer may request a measures should be taken. However,
Appeals process with the competent conference with the offices of the U.S. earlier consideration of appropriate ac-
authority procedure, so that the terms competent authority and the National tions may be desirable, for example, in
of a tentative resolution and the princi- Director of Appeals to discuss the the case of a recurring adjustment or
ples and facts upon which it is based denial or termination of the procedure. where the taxpayer otherwise is on
are compatible with the position that notice that an adjustment is likely to be
.07 Returning to Appeals. If the
the U.S. competent authority intends to proposed. See section 9.05 of this
competent authorities fail to agree or if
present to the foreign competent au- revenue procedure regarding treaty
the taxpayer does not accept the mutual
thority with respect to the issue. Any provisions waiving procedural and
resolution reached with the Service agreement reached by the competent other barriers. Taxpayers may consult
under this procedure is subject to the authorities, the taxpayer will be permit- with the U.S. competent authority to
competent authority process and, there- ted to refer the issue to Appeals for determine the need for and timing of
fore, is tentative and not binding on the further consideration. protective measures in their particular
Service or the taxpayer. The Service .08 Appeals Consideration of Non- case.
will not request the taxpayer to con- Competent Authority Issues. The Simul- .02 Filing of Amended Tax Return in
clude the Appeals process with a taneous Appeals procedure does not the United States. At the time the
written agreement. The conclusions of affect the taxpayer’s rights to Appeals’ request for competent authority assist-
the tentative resolution, however, gen- consideration of other unresolved is- ance is filed, the taxpayer also must
erally will be reflected in the U.S. sues. The taxpayer may pursue settle- file, in cases involving an adjustment
position paper used for negotiating a ment discussions with respect to the proposed by a treaty country, an
mutual agreement with the foreign other issues without waiting for resolu- amended federal tax return (for exam-
competent authority. The procedures tion of the issues under competent ple, a Form 1120X, Amended U.S.
under this section do not give taxpayers authority jurisdiction. Corporation Income Tax Return, if a
the right to receive a fresh considera- Form 1120 was originally filed) in the
tion of the issue by Appeals where the SEC. 9. PROTECTIVE MEASURES manner provided in the regulations
taxpayer applied for competent au- under § 6402 of the Code. The
thority assistance after having received .01 General. In any matter subject to amended tax return shall be limited to
substantial Appeals consideration. this revenue procedure, the taxpayer a claim for credit or refund of the taxes
Rather, the Service shall rely upon such must take (or, if necessary, advise a attributable to the matters under com-
previous consideration by Appeals related person to take) such protective petent authority consideration. The
when considering the case under the measures as may be necessary with the amended tax return shall be filed by
Simultaneous Appeals procedure. U.S. and foreign tax authorities so that attaching it to the request for compe-
(b) Assistance to U.S. Competent the implementation of any agreement tent authority assistance. An amended
Authority. The U.S. competent au- reached by the competent authorities is return filed in accordance with this
thority is responsible for developing a not barred by administrative, legal or section should not be filed with any
U.S. position paper with respect to the procedural barriers. Such barriers may other office of the Service, notwith-
issue and for conducting the mutual arise either before or after a competent standing any instructions concerning
agreement procedure. Generally, re- authority request is filed. Protective the place for filing on such forms or in
questing Appeals’ consideration of an measures include, but are not limited such regulations. Final disposition of
issue under competent authority juris- to: (a) filing amended returns or the amended return will be deferred by
diction will not affect the manner in protective claims for refund or credit; the Service until the U.S. competent
which taxpayers normally are involved (b) staying the expiration of any period authority disposes of the issues under
in the competent authority process. of limitations on the making of a consideration.
.06 Denial or Termination of Simul- refund or other tax adjustment; (c) .03 Filing a Protective Claim in the
taneous Appeals Procedure. (a) Tax- avoiding the lapse or termination of the United States.
payer’s Termination. The taxpayer taxpayer’s right to appeal any tax (a) In General. There may be situa-
may, at any time, withdraw its request determination; (d) complying with all tions where a taxpayer is unable to file
for the Simultaneous Appeals proce- applicable procedures for invoking a formal competent authority assistance
dure. competent authority consideration, in- request before the statute of limitations
(b) Service’s Denial or Termination. cluding applicable treaty provisions expires with respect to the affected
The U.S. competent authority, the dealing with time limits within which U.S. return. In this situation, before the
National Director of Appeals, or the to invoke such remedy; and (e) contest- statute of limitations expires, the tax-
38
COMPOSITE COLOR
778/20049/28MAY96/A02-011
payer should file a protective claim for protective claim. The U.S. competent 17 relief in conjunction with its request
refund or credit of the taxes attributable authority shall place the protective for competent authority assistance. See
to the potential competent authority claim in suspense until either a formal Rev. Proc. 96–14, page 00, this Bul-
issue to ensure that assistance will not request for competent authority assist- letin, which also sets forth the proce-
be barred. Situations for which a ance is filed or the taxpayer notifies the dures for securing relief under Rev.
protective filing may be appropriate U.S. competent authority that compe- Proc. 65–17 when a taxpayer does not
include: (i) the treaty country is consid- tent authority consideration is no longer intend to request competent authority
ering but has not yet proposed an needed. assistance.
adjustment; (ii) the treaty country has .04 Effect of an Amended Tax
proposed an adjustment but the related Return. An amended tax return filed SEC. 11. DETERMINATION OF
taxpayer in the treaty country decides under either sections 9.02 and 9.03 of CREDITABLE FOREIGN TAXES
to pursue administrative or judicial this revenue procedure only allows a
remedies in the foreign country; or (iii) credit or a refund to the extent agreed For purposes of determining the
the terms of the applicable treaty to by the U.S. and foreign competent amount of foreign tax creditable under
require notification to be made to the authorities or to the extent unilaterally §§ 901 and 902 of the Code, any
competent authority within a certain allowed by the U.S. competent au- amounts paid to foreign tax authorities
time period. In considering whether to that would not have been due if the
thority. This revenue procedure does
accept a taxpayer’s request for compe- treaty country had made a correlative
not grant a taxpayer the right to invoke
tent authority assistance, the U.S. com- adjustment may not constitute a credi-
§ 482 of the Code in its favor or
petent authority will consider whether table foreign tax. See § 1.901–2(e)(5)(i)
compel the Service to allocate income
the taxpayer has filed a protective of the regulations and Rev. Rul. 92–75,
claim in accordance with this or deductions or grant a tax credit or
refund. 1992–2 C.B. 197. Acts or omissions by
subsection. the taxpayer that preclude effective
.05 Treaty Provisions Waiving Pro- competent authority assistance, includ-
(b) Filing of Protective Claim. A
cedural Barriers. In those cases where ing failure to take protective measures
protective claim is made by filing an
the mutual agreement procedure provi- as described in section 9 of this
appropriate amended federal tax return,
as provided in section 9.02 of this sion of a tax treaty waives or removes revenue procedure or failure to seek
revenue procedure. The amended tax procedural barriers to the credit or competent authority assistance, may
return is filed with the U.S. competent refund of tax, taxpayers may be al- constitute failure to exhaust all effec-
authority at the address indicated in lowed a credit or refund of U.S. or tive and practical remedies for purposes
section 4.02 of this revenue procedure foreign tax even though the otherwise of § 1.901–2(e)(5)(i). Further, the fact
and before the expiration of any applicable period of limitations has that the taxpayer has sought competent
applicable time limitations. The expired, prior closing agreements have authority assistance but obtained no
amended return shall indicate that the been entered into, or other actions have relief, either because the competent
taxpayer is filing a protective claim and been taken or omitted that ordinarily authorities failed to reach an agreement
shall set forth, to the extent available, would foreclose relief in the form of a or because the taxpayer rejected an
the information required under section credit or refund of tax. However, agreement reached by the competent
4.05 (a) through (j) or under section because of differences in interpreting authorities, generally will not, in and
5.03 (a) through (e) of this revenue these waiver provisions or other diffi- of itself, demonstrate for purposes of
procedure. An amended tax return filed culties that may arise in their applica- § 1.901–2(e)(5)(i) that the taxpayer has
in this manner will be considered a tion, taxpayers nonetheless should take exhausted all effective and practical
properly filed amended tax return, appropriate protective measures as de- remedies to reduce the taxpayer’s lia-
notwithstanding any other instruction scribed under this revenue procedure or bility for foreign tax (including liability
on the form or in regulations concern- under applicable foreign procedures. In pursuant to a foreign tax audit adjust-
ing the place for filing. considering whether to accept a tax- ment). Any determination within the
(c) Notification Requirement. After payer’s request for competent authority Service of whether a taxpayer has
filing a protective claim, the taxpayer assistance, the U.S. competent authority exhausted the competent authority rem-
periodically must notify the U.S. com- will consider whether the taxpayer took edy must be made in consultation with
petent authority whether the taxpayer protective measures in accordance with the U.S. competent authority.
still is considering filing for competent this section.
authority assistance. The notification SEC. 12. ACTION BY U.S.
must be filed every six months until SEC. 10. APPLICATION OF REV. COMPETENT AUTHORITY
the formal request for competent au- PROC. 65–17
thority assistance is filed. The U.S. .01 Notification of Taxpayer. Upon
competent authority may deny compe- Rev. Proc. 65–17 generally provides receiving a request for assistance pur-
tent authority assistance if the taxpayer for the tax-free repatriation of certain suant to this revenue procedure, the
fails to file this semi-annual notifica- amounts following an allocation of U.S. competent authority will notify the
tion. income between related U.S. and for- taxpayer whether the facts provide a
(d) No Consultation between Compe- eign corporations under § 482 of the basis for assistance.
tent Authorities until Formal Request is Code. If a taxpayer intends to request .02 Denial of Assistance. The U.S.
Filed. The U.S. competent authority competent authority assistance to re- competent authority generally will not
generally will not undertake any con- solve the underlying double taxation accept a request for competent au-
sultation with the treaty country’s matter with the treaty country, the thority assistance or will cease provid-
competent authority with respect to a taxpayer should file for Rev. Proc. 65– ing assistance to the taxpayer if:
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778/20049/28MAY96/A02-011
(a) the taxpayer is not entitled to the quest for assistance or dismissal of a authority has declined to grant any
treaty benefit or safeguard in question matter previously accepted for consid- relief. If the period provided by the
or to the assistance requested; eration pursuant to this revenue proce- foreign statute of limitations has ex-
(b) the taxpayer is willing only to dure is final and not subject to pired, the U.S. competent authority
accept a competent authority agreement administrative review. may take into account other relevant
under conditions that are unreasonable .05 Notification. The U.S. competent facts to determine whether such with-
or prejudicial to the interests of the authority will notify a taxpayer request- drawal or reduction is appropriate and
U.S. Government; ing assistance under this revenue proce- may, in extraordinary circumstances
(c) the taxpayer rejected the compe- dure of any agreement that the U.S. and as a matter of discretion, provide
tent authority resolution of the same or and the foreign competent authorities such relief with respect to the adjust-
similar issue in a prior case; reach with respect to the request. If the ment to avoid actual or economic
(d) the taxpayer does not agree that taxpayer accepts the resolution reached double taxation. In no event, however,
competent authority negotiations are a by the competent authorities, the agree- will relief be granted where there is
government-to-government activity that ment shall provide that it is final and is fraud or negligence with respect to the
does not include the taxpayer’s par- not subject to further administrative or relevant transactions. In keeping with
ticipation in the negotiation pro- judicial review. If the competent au- the U.S. Government’s view that tax
ceedings; thorities fail to agree, or if the agree- treaties should be applied in a balanced
ment reached is not acceptable to the and reciprocal manner, the United
(e) the taxpayer does not furnish
taxpayer, the taxpayer may withdraw States normally will not withdraw or
upon request sufficient information to
the request for competent authority reduce an adjustment where the treaty
determine whether the treaty applies to
assistance and may then pursue all country does not grant similar relief in
the taxpayer’s facts and circumstances;
rights to review otherwise available equivalent cases.
(f) the taxpayer was found to have under the laws of the United States and
acquiesced in a foreign initiated adjust- the treaty country. Where the compe- SEC. 13. REQUESTS FOR RULINGS
ment that involved significant legal or tent authorities fail to agree, no further
factual issues that otherwise would be competent authority remedies generally .01 General. Requests for advance
properly handled through the competent are available, except with respect to rulings regarding the interpretation or
authority process and then unilaterally treaties that provide for arbitration of application of a tax treaty, as dis-
made a corresponding correlative ad- the dispute. See, e.g., Article 25(5) of
justment or claimed an increased for- tinguished from requests for assistance
the U.S.- German income tax treaty. A from the U.S. competent authority
eign tax credit, without initially seeking request for arbitration shall be made in
U.S. competent authority assistance; or pursuant to this revenue procedure,
accordance with the procedures pre-
(g) the taxpayer: (i) fails to comply must be submitted to the Associate
scribed under the applicable treaty and
with this revenue procedure; (ii) fails to related documents, including proce- Chief Counsel (International) in accord-
cooperate with the U.S. competent dures which the Service may promul- ance with Rev. Proc. 96–1, 1996–1
authority (including failing to provide gate from time to time. I.R.B. 8.
sufficient facts and documentation to .06 Closing Agreement. When appro- .02 Foreign Tax Rulings. The Serv-
support its claim of double taxation or priate, the taxpayer will be requested to ice does not issue advance rulings on
taxation contrary to the treaty); or (iii) reflect the terms of the mutual agree- the effect of a tax treaty on the tax
failed to cooperate with the Service ment and of the competent authority laws of a treaty country for purposes of
during the examination of the periods assistance provided in a closing agree- determining the tax of the treaty
in issue and such failure significantly ment, in accordance with section 6.07 country.
impedes the ability of the U.S compe- and 6.17 of Rev. Proc. 68–16, 1968–1
tent authority to negotiate and conclude C.B. 770. SEC. 14. FEES
an agreement (e.g., the period of
.07 Unilateral Withdrawal or Reduc-
limitations for assessment in the for- Rev. Proc. 96–1, 1996–1 I.R.B. 8, sec.
tion of U.S. Initiated Adjustments. With
eign country has expired or significant 14, requires the payment of user fees
respect to U.S. initiated adjustments
factual development is required that under § 482 of the Code, the primary for requests to the Service for rulings,
cannot effectively be completed outside goal of the mutual agreement procedure opinion letters, determination letters
the examination process). is to obtain a correlative adjustment and similar requests. No user fees are
.03 Extending Period of Limitations from the treaty country. For other types required for requests for competent
for Assessment. If the U.S. competent of U.S. initiated adjustments, the pri- authority assistance pursuant to this
authority accepts a request for assist- mary goal of the U.S. competent revenue procedure.
ance, the taxpayer may be requested to authority is the avoidance of taxation in
execute a consent extending the period contravention of an applicable treaty.
of limitations for assessment of tax for SEC. 15. EFFECT ON OTHER
Unilateral withdrawal or reduction of
the taxable periods in issue. Failure to DOCUMENTS
U.S. initiated adjustments, therefore,
comply with the provisions of this generally will not be considered. For
subsection can result in denial of example, the U.S. competent authority Rev. Proc. 91–23 and Rev. Proc. 91–
assistance by the U.S. competent au- will not withdraw or reduce an adjust- 26 are superseded by this revenue
thority with respect to the request. ment to income, deductions, credits or procedure. Rev. Proc. 91–22 is ampli-
.04 No Review of Denial of Request other items solely because the period of fied. Rev. Rul. 72–437, 1972–2 C.B.
for Assistance. The U.S. competent limitations has expired in the foreign 660, is modified. Rev. Rul. 92–75 is
authority’s denial of a taxpayer’s re- country and the foreign competent clarified.
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COMPOSITE COLOR
778/20049/28MAY96/A02-012
SEC. 16. EFFECTIVE DATE 24 provides that the relief provided for requests for Rev. Proc. 65–17 relief
under Rev. Proc. 65–17 is available filed after January 16, 1996.
This revenue procedure is effective only in conjunction with a request for
for requests for competent authority assistance from the U.S. competent DRAFTING INFORMATION
assistance filed after January 16, 1996. authority. This revenue procedure su-
persedes Rev. Proc. 91–24. The principal authors of this revenue
DRAFTING INFORMATION procedure are Edward G. Turco of the
SEC. 3. PROCEDURES FOR Office of International Programs, Tax
The principal authors of this revenue OBTAINING REV. PROC. 65–17 Treaty Division and Judith Cavell
procedure are Edward G. Turco of the RELIEF IN TREATY CASES Cohen of the Office of the Associate
Office of International Programs, Tax Chief Counsel (International). For fur-
Treaty Division and Judith Cavell If a taxpayer intends to request ther information regarding this revenue
Cohen of the Office of the Associate competent authority assistance pursuant procedure, contact either Mr. Turco on
Chief Counsel (International). For fur- to Rev. Proc. 96–13, page 31, this (202) 874-1570 or Ms. Cohen on (202)
ther information regarding this revenue Bulletin, to resolve a double taxation 622-3880 (not toll-free calls).
procedure, contact either Mr. Turco on matter in a treaty case, the taxpayer
(202) 874-1570 or Ms. Cohen on (202) should request relief under Rev. Proc. 26 CFR 601.201: Rulings and determination
622-3880 (not toll-free calls). 65–17 in conjunction with its request letters.
for competent authority assistance un- (Also Part I, §§ 170, 2031, 2512; 1.170A–13;
der the provisions of Rev. Proc. 96–13, 20.2031–6; 25.2512–1.)
26 CFR 601.201: Rulings and determination
letters. sec. 4 and sec. 10. In addition, where a
request for relief under Rev. Proc. 65– Rev. Proc. 96–15
Rev. Proc. 96–14 17 is already pending before the
Service at the time a request for SECTION 1. PURPOSE
competent authority assistance is made,
SECTION 1. PURPOSE the taxpayer must forward a copy of This revenue procedure informs tax-
the pending Rev. Proc. 6–17 request to payers how to request from the Internal
This revenue procedure prescribes the U.S. competent authority. The U.S. Revenue Service a Statement of Value
additional conditions associated with competent authority will consider relief that can be used to substantiate the
obtaining relief otherwise available un- under Rev. Proc. 65–17 in conjunction value of art for income, estate, or gift
der Rev. Proc. 65–17, 1965–1 C.B. with consideration of the competent tax purposes. A taxpayer that complies
833. authority matter. If a taxpayer does not with the provisions of this revenue
intend to request competent authority procedure may rely on the Statement of
SEC. 2. BACKGROUND assistance in a treaty case, the taxpayer Value in completing the taxpayer’s
must follow the procedures under Rev. federal income tax, estate tax, or gift
Rev. Rul. 82–80, 1982–1 C.B. 89, Proc. 65–17 to request relief provided tax return that reports the transfer of
and Rev. Proc. 65–17, 1965–1 C.B. thereunder; however, the closing agree- art.
833, as amplified, amended, clarified ment required in that revenue proce-
and modified by Rev. Proc. 65–31, dure cannot be entered into except with SECTION 2. BACKGROUND
1965–2 C.B. 1024, Rev. Proc. 65–17 the concurrence of the Assistant Com-
Amendment I, 1966–2 C.B. 1211, Rev. missioner (International).
.01 Income Tax Charitable De-
Proc. 65–17 Amendment II, 1974–1
duction.
C.B. 411, Rev. Proc. 70–23, 1970–2 SEC. 4. EFFECT ON OTHER
C.B. 505, Rev. Proc. 71–35, 1971–2 (1) Section 170(a) of the Internal
DOCUMENTS
C.B. 573, Rev. Proc. 72–48, 1972–2 Revenue Code allows as a deduction
C.B. 829, Rev. Proc. 72–53, 1972–2 any charitable contribution (as defined
Rev. Rul. 82–80, 1982–1 C.B. 89, in § 170(c)) payment of which is made
C.B. 833, and Rev. Proc. 91–24, 1991–
and Rev. Proc. 65–17, 1965–1 C.B. during the taxable year.
1 C.B. 542, (hereinafter referred to as
833, as amplified, amended, clarified (2) Section 1.170A–1(c)(1) of the
‘‘Rev. Proc. 65–17’’) provide for the
and modified by Rev. Proc. 65–31, Income Tax Regulations provides that
tax-free repatriation of certain amounts
1965–2 C.B. 1024, Rev. Proc. 65–17 if a charitable contribution is made in
following an allocation of income
Amendment I, 1966–2 C.B. 1211, Rev. property other than money, the amount
between related U.S. and foreign cor-
Proc. 65–17 Amendment II, 1974–1 of the contribution is generally the fair
porations under section 482 of the
C.B. 411, Rev. Proc. 70–23, 1970–2 market value of the property at the
Code. Generally, in order to obtain the
C.B. 505, Rev. Proc. 71–35, 1971–2 time of the contribution.
treatment provided by Rev. Proc. 65–
C.B. 573, Rev. Proc. 72–48, 1972–2
17, the taxpayer must file a written (3) Section 1.170A–1(c)(2) provides
C.B. 829, and Rev. Proc. 72–53, 1972–
statement requesting such relief with that the fair market value is the price at
2 C.B. 833, are modified. Rev. Proc.
the appropriate District Director. How- which the property would change hands
91–24, 1991–1 C.B. 542, is superseded.
ever, in situations involving a country between a willing buyer and a willing
with which the United States has an seller, neither being under any compul-
income tax convention in force which SEC. 5. EFFECTIVE DATE sion to buy or sell and both having
contains a mutual agreement procedure reasonable knowledge of the relevant
article (‘‘treaty cases’’), Rev. Proc. 91– This revenue procedure is effective facts.
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778/20049/28MAY96/A02-012
(4) Section 1.170A–13 sets forth the property involved. In listing paintings in the interest of efficient tax admin-
recordkeeping and return requirements having artistic value, the size, subject, istration. If the Service declines to
for deductions for charitable contribu- and artist’s name must be stated. issue a Statement of Value under this
tions. For a deduction for a charitable .03 Gift Tax. section 3.03, the Service will refund
contribution of property in excess of (1) Section 2512(a) provides that if a the user fee.
$5,000, § 1.170A–13(c) requires a gift is made in property, the value
qualified appraisal and an appraisal thereof at the date of the gift is the SECTION 4. DEFINITIONS
summary. amount of the gift.
(5) Rev. Proc. 66–49, 1966–2 C.B. (2) Section 25.2512–1 of the Gift .01 The term ‘‘art’’ includes paint-
1257, provides guidelines for review of Tax Regulations provides that the value ings, sculpture, watercolors, prints,
appraisals of contributed property for of property is the price at which the drawings, ceramics, antique furniture,
purposes of § 170. Section 4.01 of Rev. property would change hands between decorative arts, textiles, carpets, silver,
Proc. 66–49 states that the Service will a willing buyer and a willing seller, rare manuscripts, historical memo-
not approve valuations or appraisals neither being under any compulsion to rabilia, and other similar objects.
prior to the actual filing of the tax buy or to sell and both having reason- .02 The term ‘‘taxpayer’’ includes an
return to which the appraisal pertains, able knowledge of the relevant facts. executor or administrator acting on
and will not issue advance rulings .04 Legislation Authorizing User behalf of an estate, and a donor of a
approving or disapproving appraisals. Fees. Section 10511 of the Revenue gift.
.02 Estate Tax. Act of 1987, 1987–3 C.B. 1, 166, as .03 The term ‘‘valuation date’’ refers
(1) Section 2031 provides that the amended by § 11319 of the Omnibus to the date of death, the alternate
value of the gross estate of a decedent Budget Reconciliation Act of 1990, valuation date (as established under
is determined by including the value at 1991–2 C.B. 481, 511, and by § 743 of § 2032(a)), or the date of the gift.
the time of death of all property the Uruguay Round Agreements Act,
wherever situated. 1995–11 I.R.B. 5, 14, requires the SECTION 5. REQUESTING A
(2) Section 20.2031–1(b) of the Secretary of the Treasury or delegate to STATEMENT OF VALUE FOR
Estate Tax Regulations provides that establish a program requiring the pay- INCOME TAX CHARITABLE
the value of property includible in a ment of user fees for requests to the DEDUCTION PURPOSES
decedent’s gross estate is its fair Service for letter rulings, opinion let-
market value at the time of the ters, determination letters, and similar .01 To request a Statement of Value
decedent’s death. requests. The fees apply to requests from the Service for an item of art
made on or after February 1, 1988, and transferred as a charitable contribution
(3) Section 2032(a) provides that the
before October 1, 2000. The fees within the meaning of § 170(c), a
executor may elect to determine the
charged under the program (1) vary taxpayer must submit to the Service a
value of all the property included in the
according to categories or subcategories request for a Statement of Value for
gross estate as of 6 months after the
established by the Secretary; (2) are the item prior to filing the income tax
decedent’s death. However, property
determined after taking into account the return that first reports the charitable
distributed, sold, exchanged, or other-
average time for, and difficulty of, contribution. The request must include
wise disposed of within 6 months after
complying with requests in each cate- the following:
death must be valued as of the date of
gory and subcategory; and (3) are (1) a copy of an appraisal (as
distribution, sale, exchange, or other
payable in advance. described in section 6 of this revenue
disposition.
(4) Section 20.2031–6(a) provides procedure) of the item of art;
SECTION 3. SCOPE
that the fair market value of a dece- (2) a check or money order payable
dent’s household and personal effects is .01 Except as provided in section to the Internal Revenue Service (user
the price that a willing buyer would 3.02, this revenue procedure applies to fee) in the amount of $2,500 for a
pay to a willing seller, neither being an item of art that has been appraised request for a Statement of Value for
under any compulsion to buy or to sell at $50,000 or more, and has been trans- one, two, or three items of art, plus
and both having reasonable knowledge ferred (1) as a ‘‘charitable contribu- $250 for each additional item of art for
of the relevant facts. tion’’ within the meaning of § 170(c), which a Statement of Value is re-
(5) Section 20.2031–6(b) provides (2) by reason of a decedent’s death, or quested;
that if there are included among the (3) by intervivos gift. (3) a completed appraisal summary
household and personal effects articles .02 The Service may issue a State- (Section B of Form 8283, Noncash
having marked artistic or intrinsic value ment of Value for items appraised at Charitable Contributions) that meets the
of a total in excess of $3,000, the less than $50,000 if (1) the request for requirements of § 1.170A–13(c)(4); and
appraisal of an expert or experts, under the Statement of Value includes a (4) the location of the District Office
oath, must be filed with the estate tax request for appraisal review for at least that has or will have examination
return. one item appraised at $50,000 or more, jurisdiction over the return (not the
(6) Section 20.2031–6(d) provides and (2) the Service determines that Service Center where the return is
that if, pursuant to § 20.2031–6 (a) and issuance of such a Statement would be filed).
(b), expert appraisers are employed, in the best interest of efficient tax .02 A taxpayer may withdraw the
care must be taken to see that they are administration. request for a Statement of Value at any
reputable and of recognized compe- .03 The Service may decline to issue time before it is issued by the Service.
tency to appraise the particular class of a Statement of Value when appropriate The user fee will not be refunded for a
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778/20049/28MAY96/A02-012
request that is withdrawn. When a they would otherwise be exempt under of this revenue procedure must include
request is withdrawn, the appropriate § 1.170A–13(c)(2)(ii)(B)(3) from the the following:
District Director will be notified. appraisal requirements. (1) a complete description of the
.03 If a request for a Statement of item of art, including:
Value lacks information essential to the SECTION 7. REQUESTING A (a) the name of the artist or culture,
issuance of a Statement of Value for an STATEMENT OF VALUE FOR
ESTATE TAX OR GIFT TAX (b) the title or subject matter,
item of art, the Service will notify the (c) the medium, such as oil on
taxpayer that the request will not be PURPOSES
canvas, or watercolor on paper,
processed for that item unless the
Service receives the missing informa- .01 To request a Statement of Value (d) the date created,
tion within 30 calendar days after the from the Service for an item of art (e) the size,
date of such notification. transferred as part of an estate or as an (f) any marks, signatures, or labels
intervivos gift, a taxpayer must submit on the item of art, on the back of the
to the Service a request for a Statement item of art, or affixed to the frame,
SECTION 6. APPRAISAL FOR
of Value for the item prior to filing the
INCOME TAX CHARITABLE (g) the history (provenance) of the
federal estate tax return or the federal
DEDUCTION PURPOSES item, including proof of authenticity, if
gift tax return that first reports the
such information is available,
transfer of the item. The request must
.01 An appraisal submitted to the (h) a record of any exhibitions at
include the following:
Service by a taxpayer under section 5 which the item was displayed,
of this revenue procedure must meet (1) a copy of an appraisal (as
described in section 8 of this revenue (i) any reference source citing the
the requirements for a qualified ap- item, and
praisal under § 1.170A–13(c)(3)(i)– procedure) of the item of art;
(2) a check or money order payable (j) the physical condition of the item;
(iii), and must also include the
following: to the Internal Revenue Service (user (2) a professional quality photograph
fee) in the amount of $2,500 for a re- of a size and quality fully showing the
(1) a complete description of the item, preferably an 8 x 10 inch color
item of art, including: quest for a Statement of Value for one,
two, or three items of art, plus $250 for photograph or a color transparency not
(a) the name of the artist or culture, each additional item of art for which a smaller than 4 x 5 inches;
(b) the title or subject matter, Statement of Value is requested; (3) a statement that the appraisal was
(c) the medium, such as oil on (3) a description of the item of art; prepared for estate tax purposes or gift
canvas, or watercolor on paper, tax purposes;
(4) the appraised fair market value;
(d) the date created, (4) the date (or dates) on which the
(5) the cost, date, and manner of
(e) the size, acquisition; item of art was appraised;
(f) any marks, signatures, or labels (6) the date of death (or the alternate (5) the appraised fair market value
on the item of art, on the back of the valuation date, if applicable) or the (within the meaning of § 20.2031–6(a)
item of art, or affixed to the frame, date of the gift; and or 25.2512–1); and
(g) the history (provenance) of the (7) the location of the District Office (6) the specific basis for the valua-
item, including proof of authenticity, if that has or will have examination juris- tion.
that information is available, diction over the return (not the Service .02 The appraisal must be made no
(h) a record of any exhibitions at Center where the return is filed). earlier than 60 days prior to the
which the item was displayed, .02 A taxpayer may withdraw the valuation date.
(i) any reference source citing the request for a Statement of Value at any .03 Taxpayers are encouraged to
item, and time before it is issued by the Service. include in the request any additional
(j) the physical condition of the item; The user fee will not be refunded for a information that may affect the deter-
(2) a professional quality photograph request that is withdrawn. When a mination of the fair market value of the
of a size and quality fully showing the request is withdrawn, the appropriate item of art.
item, preferably an 8 3 10 inch color District Director will be notified. .04 An appraisal must:
photograph or a color transparency not .03 If a request for a Statement of (1) be prepared, signed, and dated by
smaller than 4 3 5 inches; and Value lacks information essential to the an appraiser, and contain a statement
(3) the specific basis for the issuance of a Statement of Value for an by the appraiser that:
valuation. item of art, the Service will notify the (a) the appraiser either holds himself
.02 The appraisal must be made no taxpayer that the request will not be or herself out to the public as an
earlier than 60 days prior to the date of processed for that item unless the appraiser or performs appraisals on a
the contribution of the item of art. Service receives the missing informa- regular basis;
tion within 30 calendar days after the (b) the appraiser is qualified to make
.03 Taxpayers are encouraged to date of such notification.
include in the request any additional appraisals of the item of art;
information that may affect the deter- SECTION 8. APPRAISAL FOR (c) the appraiser is not the taxpayer;
mination of the fair market value of the ESTATE TAX OR GIFT TAX (d) the appraiser was not a party to
item of art. PURPOSES the transaction in which the decedent
.04 The requirements of section 6 of or donor of the gift acquired the item
this revenue procedure must be met by .01 An appraisal submitted to the of art being appraised, unless the
Subchapter C corporations, even though Service by a taxpayer under section 7 valuation date is within 2 months of
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778/20049/28MAY96/A02-012
the date of acquisition and the ap- documents, and to the best of my SECTION 12. ATTACHMENT OF
praised value is not less than the knowledge and belief, the facts pre- STATEMENT OF VALUE TO
acquisition price; sented in support of this request are RETURN
(e) the appraiser is not the benefici- true, correct, and complete.’’
ary or donee receiving the item of art; .02 The declaration must be signed .01 A copy of the Statement of
(f) the appraiser is not a person who by the taxpayer, and not the taxpayer’s Value, regardless of whether the tax-
was employed by the decedent or is representative. The person signing for payer agrees with it, must be attached
employed by the taxpayer; an estate must be the executor or to and filed with the taxpayer’s income,
administrator of the estate. The person estate, or gift tax return that reports the
(g) the appraiser is not related to any
signing for a trust or partnership must transfer of the item of art valued in the
of the foregoing persons under § 267-
be a trustee or general partner who has Statement of Value. However, if, prior
(b) or married to a person who is in a
personal knowledge of the facts. The to receiving a Statement of Value, the
relationship described in § 267(b) with
person signing for a corporate taxpayer taxpayer files an income, estate, or gift
any of the foregoing persons;
must be an officer of the corporate tax return reporting the transfer of an
(h) the appraiser is not an appraiser item of art for which a Statement of
taxpayer who has personal knowledge
who was regularly used by the dece- Value was requested, the taxpayer must
of the facts. If a corporate taxpayer is a
dent or who is regularly used by the indicate on the return that a Statement
member of an affiliated group filing
taxpayer or the beneficiary or donee; of Value has been requested and attach
consolidated returns, a penalties-of-
and a copy of the request to the return.
perjury statement must also be signed
(i) the appraisal fee is not based on and submitted by an officer of the Upon receipt of the Statement of
the appraised value of the item of art; common parent of the group. Value, the taxpayer must file an
(2) include the name, address, and .03 A taxpayer that submits addi- amended income or gift tax return, or a
taxpayer identification number (if a tional factual information on several supplemental estate tax return, with the
taxpayer identification number is other- occasions may provide one declaration Statement of Value attached.
wise required by § 6109 and the that refers to all submissions. .02 If a taxpayer disagrees with a
regulations thereunder) of the appraiser. Statement of Value issued by the
If the appraiser is acting in his or her SECTION 10. WHERE TO SUBMIT Service, the taxpayer may submit with
capacity as a partner in a partnership, REQUESTS the tax return additional information in
an employee of any person (whether an support of a different value.
individual, corporation, or partnership), Requests for a Statement of Value
or an independent contractor engaged should be sent to the Internal Revenue SECTION 13. EFFECT OF
by a person other than the taxpayer, the Service, POB 120, Ben Franklin Sta- STATEMENT OF VALUE
appraiser must include the name, ad- tion, Washington, DC 20044, Attn:
dress, and taxpayer identification num- C:AP:AS:ART. .01 A taxpayer may rely on a
ber (if a taxpayer identification number Statement of Value received from the
is otherwise required by § 6109 and the SECTION 11. NATIONAL OFFICE Service for an item of art, except as
regulations thereunder) of the part- CONSIDERATION OF REQUESTS provided in sections 13.02 and 13.03 of
nership or the person who employs or this revenue procedure.
engages the appraiser; and .01 For a completed request for a .02 A taxpayer may not rely on a
(3) include the qualifications of the Statement of Value received after July Statement of Value issued to another
appraiser who signs the appraisal, 15, but on or before January 15, the taxpayer.
including the appraiser’s background, Service will ordinarily issue a State- .03 A taxpayer may not rely on a
experience, education, and membership, ment of Value by the following June Statement of Value if the representa-
if any, in professional appraisal asso- 30. For a completed request for a tions upon which the Statement of
ciations. Statement of Value received after Janu- Value was based are not accurate
.05 The appraisal will not satisfy the ary 15, but on or before July 15, the statements of the material facts.
requirements of this section if the Service will ordinarily issue a State-
taxpayer has knowledge of facts that ment of Value by the following De- SECTION 14. EFFECT ON OTHER
would cause a reasonable person to cember 31. It is the responsibility of DOCUMENTS
expect the appraiser to overstate or taxpayers to obtain extensions, as nec-
understate the value of the item of art. essary, to file the appropriate tax Rev. Proc. 66–49 is modified.
returns.
SECTION 9. TAXPAYER’S .02 If the Service agrees with the SECTION 15. EFFECTIVE DATE
DECLARATION value reported on the taxpayer’s ap-
praisal, the Service will issue a State- This revenue procedure applies to a
.01 A request to obtain a Statement ment of Value approving the appraisal. request for a Statement of Value for an
of Value, any factual representations .03 If the Service disagrees with the item of art if the request is submitted
associated with the request, and any value reported on the taxpayer’s ap- after January 15, 1996.
amendments to the request must be praisal, the Service will issue a State-
accompanied by the following declara- ment of Value with the Service’s DRAFTING INFORMATION
tion: ‘‘Under penalties of perjury, I determination of value, and the basis
declare that I have examined this for its disagreement with the taxpayer’s The principal authors of this revenue
request, including the accompanying appraisal. procedure are Jefferson K. Fox of the
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COMPOSITE COLOR
778/20049/28MAY96/A02-012
Office of Chief Counsel (Income Tax requests and procedures for each. The ruling must address a specific, prospec-
and Accounting) and Deborah Ryan of procedures are designed to make it tive issuance of obligations. A resolu-
the Office of Chief Counsel (Pass- clear to both the requesting party and tion must have been adopted before the
throughs and Special Industries). For the Service whether a ruling request is request is submitted, in accordance
further information regarding this reve- reviewable under § 7478. For a request with state or local law authorizing the
nue procedure, contact Karen Carolan that is reviewable, the procedures are issuance of a specific issue of obliga-
of the Office of Art Appraisal Services designed to ensure that the administra- tions. The resolution may state that the
at (202) 401-4128 (not a toll-free call). tive record is fully developed with issuance of obligations is contingent
respect to each requirement for exclu- upon a favorable ruling by the Service
26 CFR 601.105: Rulings and determination sion of interest under § 103(a). In or a favorable decision by the Tax
letters. addition, for a request that is review- Court.
(Also Part I, §§ 103, 7478.) able, the procedures are designed to .03 Statement of Facts. The state-
ensure that all necessary information ment of facts in a request for a
Rev. Proc. 96–16 with respect to the proposed issue of reviewable ruling must be complete,
bonds is provided in a timely manner accurate, and detailed. Each request
SECTION 1. BACKGROUND AND
that will allow the Service to make its must contain all relevant facts. These
PURPOSE
determination within 180 days from the facts include but are not limited to the
A prospective issuer of bonds, the date the request for a ruling is filed. following:
interest on which is intended to be (1) the name, address, and taxpayer
excludable from gross income under SECTION 2. SCOPE identification number of the issuer,
§ 103(a) of the Internal Revenue Code, each underwriter, and each conduit
can request a ruling that is subject to This revenue procedure applies to borrower (except conduit borrowers of
the declaratory judgment procedures of any request for a letter ruling under §§ the proceeds of bonds such as qualified
§ 7478. Section 7478 provides the 103, 141 through 150, 1394, and mortgage bonds, qualified veterans’
United States Tax Court with jurisdic- 7871(c) of the Code. This revenue mortgage bonds, and qualified student
tion to issue declaratory judgments procedure does not apply to a request loan bonds);
with respect to certain governmental for a determination that an organization (2) a description of all uses and users
obligations. A prospective issuer can meets the requirements of § 501(c)(3) of proceeds of the obligations;
file a petition under § 7478 if the as a condition to the issuance of (3) a description of the accounting
Service determines that the interest on qualified 501(c)(3) bonds under § 145. method or methods that will be used to
bonds will not be excludable from account for investments and expendi-
SECTION 3. COORDINATION
gross income under § 103(a) or if the tures of gross proceeds of the
WITH REV. PROC. 96–1
Service fails to make a determination obligations;
with respect to the excludability of the Unless otherwise specifically stated (4) an estimate of all fees that will
interest within 180 days from the time in this revenue procedure, the defini- be paid in connection with the issuance
the request for a determination is made. tions and requirements set forth in Rev. of the obligations;
In a declaratory judgment case, the Tax Proc. 96–1, 1996–1 I.R.B. 8, apply. (5) a description of any elections
Court determines whether the interest Any reference to Rev. Proc. 96–1 is made pursuant to the regulations under
on the bonds will be excludable under also a reference to any successor of § 148 including elections on the ap-
§ 103 and thus must consider all of the Rev. Proc. 96–1. plication of the various versions of the
requirements for the exclusion. those regulations;
A prospective issuer or holder of SECTION 4. PROCEDURE FOR (6) the expected principal amount,
bonds may also request a ruling that is REVIEWABLE RULINGS expected yield, expected issue price,
not subject to the declaratory judgment and expected issue date of the prospec-
provisions of § 7478. For example, the .01 Issuer Must Submit Request. A tive obligations and of the expected
request may ask for a ruling about one request for a reviewable ruling must be investments to be acquired with bond
or more of the various requirements for submitted by the prospective issuer. proceeds;
excludability under § 103(a) rather than The term ‘‘issuer’’ includes any state, (7) a statement whether proceeds are
excludability in general under § 103(a). any political subdivision of a state, and expected to be invested at a yield that
Alternatively, the request may relate to any corporation described in § 150(d). exceeds the yield on the issue of
the effect of a proposed transaction on It also includes any ‘‘on-behalf-of’’ obligations by more than the amount
an outstanding issue of bonds. issuer described in Rev. Rul. 63–20, permitted in § 1.148–2(d)(2) of the
This revenue procedure updates ex- 1963–1 C.B. 24, and any constituted Income Tax Regulations (definition of
isting procedures with respect to both authority described in Rev. Rul. 57– materially higher yield) and a statement
reviewable and nonreviewable rulings. 187, 1957–1 C.B. 65, if the on-behalf- indicating which definition the issuer
Thus, Rev. Proc. 88–32, 1988–1 C.B. of issuer or constituted authority has expects will apply;
833, relating to reviewable rulings, and been designated by a state or political (8) descriptions of any obligations
Rev. Proc. 88–33, 1988–1 C.B. 835, subdivision to issue the prospective that are to be refunded by the prospec-
relating to nonreviewable rulings, are obligations. It does not include a tive obligations and representations
obsolete as provided in section 7 of conduit borrower of the proceeds of the whether the interest on each obligation
this revenue procedure. prospective obligations. that is to be refunded has been treated
This revenue procedure provides def- .02 Specific Prospective Issuance of by the issuer as excludable from gross
initions of the two types of ruling Obligations. A request for a reviewable income under § 103; and
45
COMPOSITE COLOR
778/20049/28MAY96/A02-012
(9) a representation whether the (1) Whether the obligations will be substantially comply with section 4 of
issuer has received an appropriate issued by or on behalf of a state or this revenue procedure, the Service will
allocation of volume cap under § 146 political subdivision of a state; immediately close the request. The
for the prospective obligations. (2) Whether the obligations will be Service will also send written notice to
.04 Supporting Documentation. Rul- private activity bonds under § 141; the issuer, or its authorized representa-
ings are based on the documents that (3) Whether the obligations will tive, stating that the request has been
are submitted. The initial request for a satisfy each of the provisions of §§ 142 closed and stating the specific nature of
reviewable ruling, and any additional through 147; the defects. If a request for a review-
submission at a later date, must be (4) Whether the obligations will be able ruling is closed because it is does
accompanied by copies of all documen- arbitrage bonds under § 148; not substantially comply with section 4
tation that is relevant to the determina- of this revenue procedure, the issuer
(5) Whether the obligations will
tion whether interest on the prospective has failed to have timely taken all
satisfy the requirements of § 149;
obligations will be excludable from reasonable steps to secure a ruling
(6) Whether the obligations will subject to review by the Tax Court.
gross income under § 103. If the satisfy the requirements of § 150;
prospective obligations are refunding .11 Additional information. If addi-
(7) Whether the obligations satisfy tional information is not received
obligations, the documentation must
any other requirements for the exclu- within 14 days of the date the Service
also include the relevant documents
sion of interest under § 103. requests it, the request will be closed,
underlying the refunded obligations.
The request must include a representa- .07 Acknowledgement. The request and the issuer will have failed to have
tion that each document accompanying for a ruling must be accompanied by a timely taken all reasonable steps to
the request is a complete and accurate statement, signed by the issuer, ac- secure a ruling subject to review by the
copy of the original document. The knowledging that the issuer is aware Tax Court. Once a request is closed,
documents to be submitted include— that it cannot exhaust its administrative the issuer must submit a new request,
remedies unless it complies with sec- and pay an additional fee, if it wishes
(1) the resolution for the issuance of
tion 4 of this revenue procedure. to request a reviewable or nonreview-
the obligations;
Appendix A sets forth a form for this able ruling. If the new request is
(2) management and service con- acknowledgement. submitted not later than 30 days after
tracts, leases, output contracts, and .08 Number of Copies. Three copies the request is closed, the new request
agreements that affect any facility must be submitted of the initial submis- may incorporate the information and
financed with the proceeds from the sion and of each additional submission, documents already submitted. To do so,
obligations; including the statement of facts, legal the issuer must clearly state in writing
(3) the official statement and trust analysis, supporting documents, cross- that it is submitting a new request and
indenture; referenced documents, and acknowl- incorporating by reference previously
(4) the arbitrage certificate and other edgement. submitted materials.
documents containing covenants about .09 Time Periods. The 180-day .12 Taxpayer conferences.
arbitrage rebate and about subsequent period specified in § 7478 begins as of (1) Taxpayer conference is a step in
intentional acts to earn arbitrage; and the date the Service receives the initial securing a ruling. Taxpayer con-
(5) any relevant provision of state or request for a ruling. To ensure a ferences ensure that the requester fully
local law. sufficient amount of time to properly participates in the processing of a
.05 Cross-references. Relevant provi- process a ruling request within this request for a ruling and that the Service
sions in submitted documents must be 180-day period, all time periods spec- fully understands the requester’s posi-
appropriately described, analyzed, and ified by Rev. Proc. 96–1 for processing tion. Thus, if an issuer has been
cross-referenced in the request for a a ruling request are 14 days for notified of a tentative adverse position
reviewable ruling. purposes of processing a ruling request by the Service and does not participate
.06 Legal Analysis. A request for a under this procedure. The Service may in the conference, the issuer has failed
reviewable ruling must set forth a grant extensions of these 14-day peri- to have timely taken all reasonable
complete and detailed analysis of the ods in accordance with the procedures steps to secure a ruling subject to
rationale on which the requester relies set forth in Rev. Proc. 96–1 for review by the Tax Court. After the first
to support its request for a determina- extending the time period for additional conference, the issuer need not partici-
tion that each condition for exclusion information. pate in any additional conference of-
of interest on the prospective obliga- .10 Substantial compliance of initial fered by the Service under Rev. Proc.
tions under § 103 will be satisfied. The request. If the initial request for a 96–1.
analysis submitted must include cita- reviewable ruling substantially com- (2) Location of conference. The
tions to the Code, regulations, revenue plies with section 4 of this revenue conference generally will be held at the
rulings, revenue procedures, judicial procedure, the Service will send a National Office. The issuer, however,
authority, and any other authority rele- written notice of initial compliance. If may request in writing that the con-
vant to the issues raised by the request. a request for a reviewable ruling has ference be held by telephone.
A simple statement that a provision of only minor deficiencies, the deficien- (3) Conference report. If the Service
the Code is satisfied is insufficient. The cies may be corrected in the same prepares a conference report, a copy
request must also describe in detail any manner that additional information is will be sent to the issuer. The issuer
relevant provision of state or local law. provided under section 4.11 of this will have 14 calendar days to correct
The following is a recommended for- revenue procedure. If the initial request any factual errors made in the report. If
mat for the legal analysis: for a reviewable ruling does not the Service does not receive corrections
46
COMPOSITE COLOR
778/20049/28MAY96/A02-012
within the 14-day period, it may base Other parties may join an issuer or .05 Status Rulings. The Service will
its ruling on the facts stated in the holder in requesting a ruling. For not issue a nonreviewable ruling under
report. The Service may grant exten- example, an underwriter that is not a this procedure on the status or classi-
sions of the 14-day period in accord- holder may join an issuer in requesting fication of an issuer of obligations
ance with the procedures set forth in a nonreviewable ruling but may not by unless the status or classification of the
Rev. Proc. 96–1 for extending the itself request a ruling. However, the issuer affects the exclusion of interest
scheduling of conferences. The con- Service may rule in accordance with under § 103 on a specific, prospective
ference report may be included in the the methodology and procedure indi-
issue of obligations.
administrative record filed with the Tax cated in § 9(f) of the Pacific Northwest
Court. Electric Power Planning and Conserva- .06 Statement of Facts. Although a
.13 Withdrawal of Requests. Any tion Act (16 U.S.C. 839). request for a nonreviewable ruling may
withdrawal of a request for a review- .02 Specific Transaction. The Service address only one or a few of the
able ruling must be made in a written generally rules only on specific transac- conditions for exclusion under § 103,
statement signed by the issuer. The tions. Thus, a request for a nonreview- the requester should describe the entire
statement must contain an acknowledg- able ruling must address a specific transaction in the request. The reques-
ment that the issuer has not taken all proposal to issue obligations or a ter should consider submitting the
reasonable steps to secure a reviewable specific proposed transaction that may following information in complying
ruling. If a request is not withdrawn in affect the application of §§ 103, 141 with the procedures set forth in Rev.
the manner described in this paragraph, through 150, 1394, or 7871(c) to Proc. 96–1 for submitting requests:
the Service will continue to process the obligations already issued.
request and may issue a ruling. (1) the name, address, and taxpayer
.03 Prospective Obligations. The
identification number of the issuer,
.14 Exhaustion of Administrative Service may issue a nonreviewable
Remedies. ruling on whether a proposed obliga- each underwriter, each conduit bor-
(1) Compliance With Procedures tion meets one or more conditions for rower (except conduit borrowers of the
Required. The issuer must comply with the exclusion of interest on the obliga- proceeds of bonds such as qualified
the procedures described in Rev. Proc. tion from gross income under § 103. mortgage bonds, qualified veterans’
96–1 and in section 4 of this revenue Before the request is submitted, a mortgage bonds, and qualified student
procedure in order to have reasonably resolution must have been adopted in loan bonds);
taken all steps necessary to obtain a accordance with state or local law (2) a description of all uses and users
ruling that is subject to review by the authorizing the issuance of the obliga- of proceeds of the obligations;
Tax Court. tion that is the subject of the ruling (3) a description of the accounting
(2) Each Issuer Must Exhaust Its request. Among other things, the reso-
method or methods that have been or
Remedies. An issuer that petitions the lution may state that the issuance of
Tax Court must itself have exhausted obligations is contingent upon a favor- will be used to account for investments
administrative remedies for each re- able ruling by the Service. and expenditures of gross proceeds of
quest for a ruling. It may not base its .04 Outstanding Obligations. the obligations, including refunding
petition on the response to any other (1) Whether an outstanding obliga- obligations;
request for a letter ruling that it tion meets conditions under § 103. The (4) an accounting of all fees that will
submits or that is submitted by another Service will not issue a nonreviewable be paid in connection with the issuance
issuer or other person. ruling on whether an issued and out- of the obligations;
standing obligation that is part of an (5) for outstanding obligations, in-
SECTION 5. PROCEDURE FOR issue of obligations meets one or more cluding refunded obligations, the actual
NONREVIEWABLE RULINGS conditions for the exclusion of interest
principal amount, actual issue price,
on the obligation from gross income
.01 Issuer or Holder Must Submit under § 103 unless the request is actual issue date, and actual yield of
Request. A request for a nonreviewable received by the Service before interest the obligations and investments;
ruling must be submitted by an issuer on any obligation in that issue is (6) for prospective obligations, the
or holder. The term ‘‘issuer’’ includes required to be reported by a holder. expected principal amount, expected
any state, any political subdivision of a (2) Transactions affecting outstand- yield, expected issue price, and ex-
state, and any corporation described in ing obligations. The Service may issue pected issue date of the prospective
§ 150(d). It also includes any ‘‘on- a nonreviewable ruling on the effect of obligations and of the expected invest-
behalf-of’’ issuer described in Rev. a proposed act or transaction on one or ments to be acquired with bond
Rul. 63–20, 1963–1 C.B. 24, and any more conditions for the exclusion from proceeds;
constituted authority described in Rev. gross income under § 103 of interest on
(7) descriptions of any obligations
Rul. 57–187, 1957–1 C.B. 65, if the an issued and outstanding obligation.
on-behalf-of issuer or constituted au- The request, however, must contain a that have been or will be refunded and
thority has been designated by a state statement by the issuer that the out- representations whether the interest on
or political subdivision to issue the standing obligation has met the condi- each obligation that has been or will be
prospective obligations. It does not tions for the exclusion of interest under refunded has been treated by the issuer
include a conduit borrower of the § 103 from the issue date to the date as excludable from gross income under
proceeds of the prospective obligations. the request is submitted. § 103;
47
COMPOSITE COLOR
778/20049/28MAY96/A02-013
(8) a statement whether the issuer the Tax Court under § 7478. The {insert name of issuer} to the Internal
has received an appropriate allocation acknowledgement must be in the form Revenue Service on {insert date of the
of volume cap under § 146; and set forth in Appendix B. request for a ruling} is governed by
(9) a description of any elections section 4 of Rev. Proc. 96–16 . Section
made pursuant to the regulations under SECTION 6. EFFECTIVE DATE 4 of Rev. Proc. 96–16 sets forth
§ 148, including elections on the ap- procedures that must be followed to
plication of the various versions of This revenue procedure applies to obtain a ruling that may be reviewed
those regulations. requests for rulings received on or after by the United States Tax Court under
.07 Supporting Documentation. The February 1, 1996. A requester of a § 7478 of the Internal Revenue Code.
requester should consider submitting letter ruling submitted prior to this
copies of the following documents in effective date may also submit its Name of the Issuer Date
complying with the procedures set forth request under this revenue procedure.
in Rev. Proc. 96–1 for submitting Appendix B
requests: SECTION 7. EFFECT ON OTHER
(1) the resolution, official statement, DOCUMENTS ACKNOWLEDGEMENT OF A
and trust indenture; REQUEST FOR A
(2) management and service con- Rev. Procs. 88–32 and 88–33 are NONREVIEWABLE RULING
tracts, leases, output contracts, and obsolete after January 31, 1996.
agreements that affect any facility The undersigned acknowledges that
financed with the proceeds from the DRAFTING INFORMATION the request for a ruling submitted by
obligations; {insert name of holder or issuer} to
The principal author of this revenue the Internal Revenue Service on
(3) the arbitrage certificate and other {insert date of the request for a
documents containing covenants about procedure is Timothy L. Jones of the
Office of Assistant Chief Counsel ruling} is governed by section 5 of
arbitrage rebate and about subsequent Rev. Proc. 96–16. Section 5 of Rev.
intentional acts to earn arbitrage; and (Financial Institutions & Products). For
further information regarding this reve- Proc. 96–16 sets forth procedures that
(4) copies of relevant provisions of must be followed to obtain a non-
local law. nue procedure contact Mr. Jones on
(202) 622-3980 (not a toll-free call). reviewable ruling. Therefore, the re-
.08 Acknowledgement. The request quest for a ruling does not comply with
for a nonreviewable ruling must be Appendix A the requirements of section 4 of Rev.
accompanied by a written statement Proc. 96–16 which sets forth the
acknowledging that the request does ACKNOWLEDGEMENT OF A procedures that must be satisfied to
not comply with the requirements of REQUEST FOR A REVIEWABLE obtain a ruling that is reviewable by
section 4 of this procedure and that RULING the United States Tax Court under
compliance with the provisions of § 7478 of the Internal Revenue Code.
section 4 of this procedure is manda- The undersigned acknowledges that
tory for a ruling subject to review by the request for a ruling submitted by Name of issuer or holder Date
48
SEQ 0140 JOB A02-014-008 PAGE-0049 PAGE IV PAGE 48
COMPOSITE COLOR
778/20049/28MAY96/A02-014
Part IV. Items of General Interest

Notice of Proposed Rulemaking review in accordance with the Paper- serves as the text of these proposed
work Reduction Act of 1995 (44 regulations. The preamble to the tem-
Notice of Significant Reduction in the U.S.C. 3507). porary regulations explains the tempo-
Rate of Future Benefit Accrual Comments on the collection of infor- rary regulations.
mation should be sent to the Office of
EE–34–95 Management and Budget, Attn: Desk Special Analyses
Officer for the Department of Treasury,
AGENCY: Internal Revenue Service Office of Information and Regulatory It has been determined that this
(IRS), Treasury. Affairs, Washington DC 20503, with notice of proposed rulemaking is not a
copies to the Internal Revenue Service, significant regulatory action as defined
ACTION: Notice of proposed rulemak- Attn: IRS Reports Clearance Officer, in EO 12866. Therefore, a regulatory
ing by cross-reference to temporary T:FP, Washington, DC 20224. Com- assessment is not required. It also has
regulations. ments on the collection of information been determined that section 553(b) of
should be received by February 13, the Administrative Procedure Act (5
1996.
SUMMARY: In *** [T.D. 8631, page U.S.C. chapter 5) and the Regulatory
7, this Bulletin], the Federal Register, An agency may not conduct or Flexibility Act (5 U.S.C. chapter 6) do
the IRS is issuing temporary regula- sponsor, and a person is not required to not apply to these regulations, and,
tions relating to the requirements of respond to, a collection of information therefore, a Regulatory Flexibility
section 204(h) of the Employee Retire- unless the collection of information
Analysis is not required. Pursuant to
ment Income Security Act of 1974, as displays a valid control number.
section 7805(f) of the Internal Revenue
amended (ERISA). Section 204(h) of The collection of information is in Code, the notice of proposed rulemak-
ERISA applies to defined benefit plans § 1.411(d)–6T which implements the ing will be submitted to the Chief
and to individual account plans that are statutory requirement of section 204(h)
Counsel for Advocacy of the Small
subject to the funding standards of of ERISA that a plan administrator
Business Administration for comment
section 302 of ERISA. It requires the provide notice to participants and cer-
tain other parties if certain pension on their impact on small business.
plan administrator to give notice of
certain plan amendments to participants plans are amended to provide for a
significant reduction in the rate of Comments and Requests for a Public
in the plan and certain other parties.
future benefit accrual. This collection Hearing
The text of those temporary regulations
also serves as the text of these of information is required to assure that
proposed regulations. the rights of participants in plans Before these proposed regulations
subject to section 204(h) of ERISA are are adopted as final regulations, consid-
protected. The likely respondents are eration will be given to any written
DATES: Written comments must be
small businesses. Responses to this comments (a signed original and eight
received by March 14, 1996.
collection of information are required (8) copies) that are submitted timely to
under section 204(h) of ERISA in order the IRS. All comments will be avail-
ADDRESSES: Send submissions to
for certain amendments to qualified able for public inspection and copying.
CC:DOM:CORP:R (EE–34–95), Room
plans to become effective. A public hearing may be scheduled if
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Wash- These regulations do not involve any requested in writing by a person that
ington, DC 20044. In the alternative, issues of confidentiality. timely submits written comments. If a
submissions may be hand delivered Estimated total annual reporting bur- public hearing is scheduled, notice of
between the hours of 8 a.m. and 5 p.m. den: 15,000 hours. the date, time, and place for the
to CC:DOM:CORP:R (EE–34–95), The estimated annual burden per re- hearing will be published in the Federal
Courier’s Desk, Internal Revenue Serv- spondent varies from 1 hour to 40 Register.
ice, 1111 Constitution Avenue NW., hours, depending on individual circum-
Washington DC. stances, with an estimated average of 5 Drafting Information
hours.
FOR FURTHER INFORMATION Estimated number of respondents: The principal author of these regula-
CONTACT: Betty J. Clary, (202) 3,000. tions is Betty J. Clary, Office of the
622-6070 (not a toll-free number). Estimated annual frequency of re- Associate Chief Counsel (Employee
sponses: Once. Benefits and Exempt Organizations),
SUPPLEMENTARY INFORMATION: IRS. However, other personnel from
Background the IRS and Treasury Department
Paperwork Reduction Act participated in their development.
Temporary regulations in *** [T.D.
The collection of information con- 8631, page 7, this Bulletin] amend the List of Subjects in 26 CFR Part 1
tained in this notice of proposed Income Tax Regulations (26 CFR part
rulemaking has been submitted to the 1) (relating to section 411(d)). The text Income taxes, Reporting and record-
Office of Management and Budget for of those temporary regulations also keeping requirements.
49 1996– 24 I.R.B.
SEQ 0141 JOB A02-014-008 PAGE-0050 PAGE IV PAGE 48
COMPOSITE COLOR
778/20049/28MAY96/A02-014
Proposed Amendments to the to benefits under the plan on account to benefits under the plan on account
Regulations of disability. Section 412(l) provides of disability, whose disabilities occur in
additional funding requirements for plan years beginning after December
Accordingly, 26 CFR part 1 is certain underfunded defined benefit 31, 1994. This mortality table may be
proposed to be amended as follows: pension plans that have more than 100 used only for individuals who are
participants and that are not multi- disabled within the meaning of title II
PART 1—INCOME TAXES employer plans. In general, the addi- of the Social Security Act and the
tional funding requirements are deter- regulations thereunder. The mortality
Paragraph 1. The authority citation mined based on a plan’s unfunded table takes into account the Social
for part 1 continues to read, in part, as current liability. Rev. Rul. 95–28, Security Administration’s experience
follows: 1995–1 C.B. 74, sets forth the mortality for individuals who are receiving dis-
Authority: 26 U.S.C. 7805. * * * table that generally must be used to ability benefits under its program.
Section 1.411(d)–6 also issued under determine current liability under Rev. Rul. 96–7 is effective for plan
Reorganization Plan No. 4 of 1978, 29 § 412(l). Section 412(l)(7)(C)(iii)(I) years beginning after December 31,
U.S.C. 1001nt. * * * provides that the Secretary shall 1995. The Service plans to review the
establish mortality tables that may be mortality tables set forth in Rev. Rul.
Par. 2. Section 1.411(d)–6 is added
used, in lieu of the generally applicable 96–7 and, if appropriate, to issue new
to read as follows:
mortality tables, to determine current guidance for plan years beginning after
liability under § 412(l) for individuals December 31, 1996. Accordingly, the
§ 1.411(d)–6 Section 204(h) notice.
who are entitled to benefits under the Service is soliciting public comment
plan on account of disability. regarding the mortality tables in Rev.
[The text of this proposed section is the
same as the text of § 1.411(d)–6T Rev. Rul. 96–7 provides two mor- Rul. 96–7, as well as other aspects of
published elsewhere in *** [T.D. 8631, tality tables that may be used in Rev. Rul. 96–7, including the desir-
page 7, this Bulletin].] calculating current liability for individ- ability of any adjustment to these
uals who are entitled to benefits under aggregate mortality tables to reflect a
Margaret Milner Richardson, the plan on account of disability. Rev. select and ultimate pattern of mortality.
Commissioner of Rul. 96–7 provides a mortality table Public comments should be submitted
Internal Revenue. that may be used for plan years in writing on or before July 1, 1996.
beginning after December 31, 1995, in Comments should be sent to the
(Filed by the Office of the Federal Register on lieu of the mortality table required to following address:
December 12, 1995, 1:23 p.m., and published be used under § 412(l)(7)(C)(ii), for
in the issue of the Federal Register for
December 15, 1995, 60 F.R. 64401)
purposes of determining current lia- Internal Revenue Service
bility for individuals entitled to benefits 1111 Constitution Ave., NW
under the plan on account of disability,
whose disabilities occurred in plan Washington, DC 20224
Mortality Assumptions Used to years beginning before January 1, Attn: Edward Sypher
Calculate an Underfunded Defined 1995. The mortality table takes into CP:E:EP:A:1, Room 2548
Benefit Pension Plan’s Current account the experience for individuals
Liability for Individuals Entitled to who are entitled to benefits on account DRAFTING INFORMATION
Benefits on Account of Disability of disability under the Railroad Retire-
ment System and the Civil Service The principal author of this an-
Announcement 96–4 Retirement System. This experience nouncement is Edward Sypher of the
covers a large workforce over a broad Employee Plans Division. For further
The Internal Revenue Service has range of occupational categories and is information regarding this announce-
issued Rev. Rul. 96–7, page 12, this the best available information. ment, please contact the Employee
Bulletin, to provide guidance regarding Rev. Rul. 96–7 also provides a Plans Division’s taxpayer assistance
the mortality assumptions used under mortality table that may be used for telephone service at (202) 622-6076
§ 412(l)(7)(C)(iii) of the Internal Reve- plan years beginning after December between 2:30 and 4:00 Eastern time
nue Code for plans that are subject to 31, 1995, in lieu of the mortality table (not a toll-free number) Monday
the additional funding requirements of required to be used under § 412(l)(7)- through Thursday. Mr. Sypher’s num-
§ 412(l), to calculate a plan’s current (C)(ii), for purposes of determining ber is (202) 622-6245 (also not a toll-
liability for individuals who are entitled current liability for individuals entitled free number).
1996– 24 I.R.B. 50
SEQ 0142 JOB A02-051-003 PAGE-0051 TERMS
COMPOSITE COLOR
778/20049/28MAY96/A02-051
Definition of Terms
Revenue rulings and revenue proce- ruling is modified because it corrects a If the new ruling does more than
dures (hereinafter referred to as ‘‘rul- published position. (Compare with am- restate the substance of a prior ruling, a
ings’’) that have an effect on previous plified and clarified, above). combination of terms is used. For
rulings use the following defined terms Obsoleted describes a previously example, modified and superseded de-
to describe the effect: published ruling that is not considered scribes a situation where the substance
Amplified describes a situation where determinative with respect to future of a previously published ruling is
no change is being made in a prior transactions. This term is most com- being changed in part and is continued
published position, but the prior posi- monly used in a ruling that lists without change in part and it is desired
tion is being extended to apply to a previously published rulings that are to restate the valid portion of the
variation of the fact situation set forth obsoleted because of changes in law or previously published ruling in a new
therein. Thus, if an earlier ruling held regulations. A ruling may also be ruling that is self contained. In this
that a principle applied to A, and the obsoleted because the substance has case the previously published ruling is
new ruling holds that the same princi- been included in regulations subse- first modified and then, as modified, is
ple also applies to B, the earlier ruling quently adopted. superseded.
is amplified. (Compare with modified, Revoked describes situations where Supplemented is used in situations in
below). the position in the previously published which a list, such as a list of the names
Clarified is used in those instances ruling is not correct and the correct of countries, is published in a ruling
where the language in a prior ruling is position is being stated in the new and that list is expanded by adding
being made clear because the language ruling. further names in subsequent rulings.
has caused, or may cause, some confu- Superseded describes a situation After the original ruling has been
sion. It is not used where a position in where the new ruling does nothing supplemented several times, a new
a prior ruling is being changed. more than restate the substance and ruling may be published that includes
Distinguished describes a situation situation of a previously published the list in the original ruling and the
where a ruling mentions a previously ruling (or rulings). Thus, the term is additions, and supersedes all prior
published ruling and points out an used to republish under the 1986 Code rulings in the series.
essential difference between them. and regulations the same position pub- Suspended is used in rare situations
Modified is used where the substance lished under the 1939 Code and regula- to show that the previous published
of a previously published position is tions. The term is also used when it is rulings will not be applied pending
being changed. Thus, if a prior ruling desired to republish in a single ruling a some future action such as the issuance
held that a principle applied to A but series of situations, names, etc., that of new or amended regulations, the
not to B, and the new ruling holds that were previously published over a outcome of cases in litigation, or the
it applies to both A and B, the prior period of time in separate rulings. If outcome of a Service study.
Abbreviations E.O.—Executive Order.

ER—Employer.
PHC—Personal Holding Company.
PO—Possession of the U.S.
The following abbreviations in current use and
ERISA—Employee Retirement Income Security Act. PR—Partner.
formerly used will appear in material published
in the Bulletin. EX—Executor. PRS—Partnership.
F—Fiduciary. PTE—Prohibited Transaction Exemption.
A—Individual.
FC—Foreign Country. Pub. L.—Public Law.
Acq.—Acquiescence.
FICA—Federal Insurance Contribution Act. REIT—Real Estate Investment Trust.
B—Individual.
FISC—Foreign International Sales Company. Rev. Proc.—Revenue Procedure.
BE—Beneficiary.
FPH—Foreign Personal Holding Company. Rev. Rul.—Revenue Ruling.
BK—Bank.
F.R.—Federal Register. S—Subsidiary.
B.T.A.—Board of Tax Appeals.
C.—Individual. FUTA—Federal Unemployment Tax Act. S.P.R.—Statements of Procedural Rules.
C.B.—Cumulative Bulletin. FX—Foreign Corporation. Stat.—Statutes at Large.
CFR—Code of Federal Regulations. G.C.M.—Chief Counsel’s Memorandum. T—Target Corporation.
CI—City. GE—Grantee. T.C.—Tax Court.
COOP—Cooperative. GP—General Partner. T.D.—Treasury Decision.
Ct.D.—Court Decision. GR—Grantor TFE—Transferee.
CY—County. IC—Insurance Company. TFR—Transferor.
D—Decedent. I.R.B.—Internal Revenue Bulletin. T.I.R.—Technical Information Release.
DC—Dummy Corporation. LE—Lessee. TP—Taxpayer.
DE—Donee. LP—Limited Partner. TR—Trust.
Del. Order—Delegation Order. LR—Lessor. TT—Trustee.
DISC—Domestic International Sales Corporation. M—Minor. U.S.C.—United States Code.
DR—Donor. Nonacq.—Nonacquiescence. X—Corporation.
E—Estate. O—Organization. Y—Corporation.
EE—Employee. P—Parent Corporation. Z—Corporation.
51
SEQ 0143 JOB A02-052-006 PAGE-0052 FINDING LIST
COMPOSITE COLOR
778/20049/28MAY96/A02-052
Numerical Finding List1

Bulletins 1996–1 through 1996–2
Announcements:
96–1, 1996–2 I.R.B. 57
96–2, 1996–2 I.R.B. 57
96–3, 1996–2 I.R.B. 57
Notices:
96–2, 1996–2 I.R.B. 15
Revenue Procedures:
96–1, 1996–1 I.R.B. 8
96–2, 1996–1 I.R.B. 60
96–3, 1996–1 I.R.B. 82
96–4, 1996–1 I.R.B. 94
96–5, 1996–1 I.R.B. 129
96–6, 1996–1 I.R.B. 151
96–7, 1996–1 I.R.B. 185
96–8, 1996–1 I.R.B. 187
96–9, 1996–2 I.R.B. 15
96–10, 1996–2 I.R.B. 17
96–11, 1996–2 I.R.B. 18
Revenue Rulings:
96–1, 1996–1 I.R.B. 7
96–2, 1996–2 I.R.B. 5
96–3, 1996–2 I.R.B. 14
96–6, 1996–2 I.R.B. 8
Treasury Decisions:
8640, 1962–2 I.R.B. 10
1A cumulative list of all Revenue Rulings,

Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1995–27
through 1995–52 will be found in Internal
Revenue Bulletin 1996–1, dated January 2, 1996.
52
COMPOSITE COLOR
778/20049/28MAY96/A02-052
Finding List of Current Action on Revenue Rulings:

Previously Published Items1 66–307
Obsoleted by
Bulletins 1996–1 through 1996–2
96–3, 1996–2 I.R.B. 14*
*Denotes entry since last publication 80–80
Obsoleted by
Revenue Procedures:
96–3, 1996–2 I.R.B. 14*
91–22
92–19
Modified by
Supplemented in part
96–1, 1996–1 I.R.B. 8
96–2, 1996–2 I.R.B. 5*
92–20
Modified by
96–1, 1996–1 I.R.B. 8
92–85
Modified by
96–1, 1996–1 I.R.B. 8
93–16
Superseded by
96–11, 1996–2 I.R.B. 18*
95–1
Superseded by
96–1, 1996–1 I.R.B. 8
95–2
Superseded by
96–2, 1996–1 I.R.B. 60
95–3
Superseded by
96–3, 1996–1 I.R.B. 82
95–4
Superseded by
96–4, 1996–1 I.R.B. 94
95–5
Superseded by
96–5, 1996–1 I.R.B. 129
95–6
Superseded by
96–6, 1996–1 I.R.B. 151
95–7
Superseded by
96–7, 1996–1 I.R.B. 185
95–8
Superseded by
96–8, 1996–1 I.R.B. 187
95–50
Superseded by
96–3, 1996–1 I.R.B. 82
1A cumulative finding list for previously
published items mentioned in Internal Revenue

Bulletins 1995–27 through 1995–52 will be
found in Internal Revenue Bulletin 1996–1, dated
January 2, 1996.
53
COMPOSITE COLOR
778/20049/28MAY96/A02-052
NOTES
54
COMPOSITE COLOR
778/20049/28MAY96/A02-052
NOTES
55
COMPOSITE COLOR
778/20049/28MAY96/A02-052
NOTES
56

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SEQ 0090 JOB A02-001-007 PAGE-0003 COVER

REVISED 28MAY96 AT 09:48 BY LR DEPTH: 66.04 PICAS WIDTH 46 PICAS

Bulletin No. 1996–3

INCOME TAX Announcement 96–4, page 50.

Rev. Rul. 96–5, page 29. EMPLOYMENT TAX

T.D. 8631, page 7.

Finding Lists begin on page 52.

Mission of the Service

Age lx male qx male Age lx female qx female Age lx male qx male

Age lx male qx male Age lx female qx female Age lx female qx female

REV. RUL. 96–4

Calendar Year 1274A(b) Amount 1274A(c) (2) (A) Amount

DRAFTING INFORMATION Background

Section Remove Add

insurance policy to an unincorporated organiza- Section 7872(g)(2) of the Code

Part III. Administrative, Procedural, and Miscellaneous

26 CFR 601.201: Rulings and determination letters.

Rev. Proc. 96–13

SECTION 1. PURPOSE OF MUTUAL AGREEMENT PROCESS

SEC. 3. GENERAL CONDITIONS UNDER WHICH THIS PROCEDURE APPLIES

SEC. 4. PROCEDURES FOR REQUESTING COMPETENT AUTHORITY ASSISTANCE

SEC. 5. SMALL CASE PROCEDURE FOR REQUESTING COMPETENT AUTHORITY ASSISTANCE

SEC. 7. COORDINATION WITH OTHER ADMINISTRATIVE OR JUDICIAL PROCEEDINGS

.02 Coordination with Appeals

SEC. 8. SIMULTANEOUS APPEALS PROCEDURE

SEC. 9. PROTECTIVE MEASURES

SEC. 10. APPLICATION OF REV. PROC. 65–17

SEC. 11. DETERMINATION OF CREDITABLE FOREIGN TAXES

SEC. 12. ACTION BY U.S. COMPETENT AUTHORITY

SEC. 13. REQUESTS FOR RULINGS

SEC. 14. FEES

SEC. 15. EFFECT ON OTHER DOCUMENTS

SEC. 16. EFFECTIVE DATE

Part IV. Items of General Interest

Abbreviations E.O.—Executive Order.

Numerical Finding List1

1A cumulative list of all Revenue Rulings,

Finding List of Current Action on Revenue Rulings:

1A cumulative finding list for previously

published items mentioned in Internal Revenue

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