Internal Revenue Bulletin No. 2000–3 bulletin January 18 ...2000–3 I.R.B. 297 January 18, 2000 Section 167.—Depreciation 26 CFR 1.167(e)-1: Change in method. Is a change in the

INCOME TAXRev. Rul. 2000–3, page 297.LIFO; price indexes; department stores. The Novem-ber 1999 Bureau of Labor Statistics price indexes are ac-cepted for use by department stores employing the retailinventory and last-in, first-out inventory methods for valu-ing inventories for tax years ended on, or with referenceto, November 30, 1999.

T.D. 8856, page 298.This document contains changes delaying the effectivedate for final regulations (T.D. 8734, 1997–2 C.B. 109)under sections 1441, 1442, and 1443 of the Code relat-ing to the withholding of income tax on certain U.S. sourceincome payments to foreign persons.

Notice 2000–4, page 313.Like-kind exchange and involuntary conversion ofMACRS property. Guidance is provided about the deprecia-tion of property subject to section 168 of the Code (MACRSproperty) that is acquired in a like-kind exchange under sec-tion 1031 or as a result of an involuntary conversion undersection 1033. The Service and the Department of the Trea-sury intend to issue regulations under section 168 that willaddress these transactions. Taxpayers should follow this no-tice until these regulations are issued. Public comments toaid in development of the regulations are requested byMarch 31, 2000. Rev. Proc. 99–49 modified and amplified.

ESTATE TAXRev. Rul. 2000–2, page 305.Qualified terminable interest property (QTIP) elec-tions. This ruling holds that an executor may elect under-section 2056(b)(7) of the Code to treat an individual retire-ment account and a testamentary trust as QTIP undercertain conditions. Rev. Rul. 89–89 obsoleted.

ADMINISTRATIVE

T.D. 8854, page 306.REG–116704–99, page 325.Temporary and proposed regulations under section 6103of the Code authorize the Service to disclose return infor-mation to the Department of Agriculture to structure, pre-pare, and conduct the Census of Agriculture.

REG–101492–98, page 326.Proposed regulations under sections 7508 and 7508A ofthe Code relate to relief for service in a combat zone andfor presidentially declared disasters.

Rev. Proc. 2000–11, page 309.Changes in accounting periods; automatic consent.This procedure provides procedures by which certain cor-porations may obtain automatic approval to change their

Internal Revenue

bbuulllleettiinnBulletin No. 2000–3

January 18, 2000

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

Department of the TreasuryInternal Revenue Service

Finding Lists begin on page ii.(Continued on the page following the Introduction)

The Internal Revenue Bulletin is the authoritative instrumentof the Commissioner of Internal Revenue for announcing offi-cial rulings and procedures of the Internal Revenue Serviceand for publishing Treasury Decisions, Executive Orders, TaxConventions, legislation, court decisions, and other items ofgeneral interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscriptionbasis. Bulletin contents are consolidated semiannually intoCumulative Bulletins, which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of in-ternal management are not published; however, statementsof internal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulingsto taxpayers or technical advice to Service field offices,identifying details and information of a confidential natureare deleted to prevent unwarranted invasions of privacy andto comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not havethe force and effect of Treasury Department Regulations,but they may be used as precedents. Unpublished rulingswill not be relied on, used, or cited as precedents by Servicepersonnel in the disposition of other cases. In applying pub-lished rulings and procedures, the effect of subsequent leg-islation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and oth-ers concerned are cautioned against reaching the same con-clusions in other cases unless the facts and circumstancesare substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisionsof the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions, and Subpart B, Legislation and RelatedCommittee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts and Sub-parts. Also included in this part are Bank Secrecy Act Admin-istrative Rulings. Bank Secrecy Act Administrative Rulingsare issued by the Department of the Treasury’s Office of theAssistant Secretary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The first Bulletin for each month includes a cumulative indexfor the matters published during the preceding months.These monthly indexes are cumulated on a semiannual basis,and are published in the first Bulletin of the succeeding semi-annual period, respectively.

The IRS Mission

Provide America’s taxpayers top quality service by help-ing them understand and meet their tax responsibilities

and by applying the tax law with integrity and fairness toall.

Introduction

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

ADMINISTRATIVE—continuedannual accounting periods under section 442 of theCode. Rev. Procs. 92–13, 92–13A, and 94–12 modified,amplified, and superseded.

Announcement 2000–4, page 317.Arbitration. Pursuant to section 7123(b)(2) of the Code,Appeals is conducting a 2-year test of a binding arbitrationprocedure. This announcement contains procedures thattaxpayers may use to request binding arbitration for fac-tual issues that are already in the Appeals administrativeprocess and which are not docketed in any court. A publichearing is scheduled for April 5, 2000.

Notice 2000–5, page 314.Estimated taxes; penalties. Penalty relief is available forcertain corporate taxpayers whose December 15, 1999,estimated tax installment was affected by section 571 ofthe Tax Relief Extension Act of 1999.

Notice 2000–6, page 315.Information reporting; barter exchanges. Pending theissuance of new regulations, a barter exchange is not re-quired under section 6045 of the Code to report ex-changes involving property or services with a fair marketvalue of less than $1.00. Public comment is also invitedon information reporting issues under section 6045 relat-ing to barter exchanges in connection with the regulations.

2000–3 I.R.B. January 18, 2000

2000–3 I.R.B. 297 January 18, 2000

Section 167.—Depreciation

26 CFR 1.167(e)-1: Change in method.

Is a change in the method of computing depre-ciation for property subject to section 168 of theCode (MACRS property) that is acquired in a sec-tion 1031 like-kind exchange or section 1033 in-voluntary conversion a change in method of ac-counting? See Notice 2000–4, page 313.

Section 442.—Change ofAnnual Accounting Period

26 CFR 1.442–1: Change of annual accountingperiod.

What procedures apply for certain corporationsto obtain automatic approval to change their an-nual accounting periods under section 442 of theCode? See Rev. Proc. 2000–11, page 309.

Section 446.—General Rule forMethods of Accounting

26 CFR 1.446–1: General rule for methods ofaccounting.

Is a change in the method of computing depre-ciation for property subject to section 168 of theCode (MACRS property) that is acquired in a sec-tion 1031 like-kind exchange or section 1033 in-voluntary conversion a change in method of ac-counting? See Notice 2000–4, page 313.

Section 472.—Last-in, First-outInventories

26 CFR 1.472-1: Last-in, first-out inventories.

LIFO; price indexes; departmentstores.The November 1999 Bureau ofLabor Statistics price indexes are ac-cepted for use by department stores em-ploying the retail inventory and last-in,first-out inventory methods for valuinginventories for tax years ended on, or withreference to, November 30, 1999.

Rev. Rul. 2000–3

The following Department Store In-ventory Price Indexes for November1999 were issued by the Bureau ofLabor Statistics. The indexes are ac-cepted by the Internal Revenue Service,under section 1.472–1(k) of the IncomeTax Regulations and Rev. Proc. 86–46,1986–2 C.B. 739, for appropriate appli-cation to inventories of departmentstores employing the retail inventoryand last-in, first-out inventory methodsfor tax years ended on, or with referenceto, November 30, 1999.

The Department Store Inventory PriceIndexes are prepared on a national basisand include (a) 23 major groups of de-partments, (b) three special combina-tions of the major groups - soft goods,durable goods, and miscel laneousgoods, and (c) a store total, which cov-ers all departments, including some notlisted separately, except for the follow-ing: candy, food, liquor, tobacco, andcontract departments.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Percent ChangeGroups Nov. Nov. from Nov. 1998

1998 1999 to Nov. 19991

1. Piece Goods - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -544.5 514.3 -5.52. Domestics and Draperies - - - - - - - - - - - - - - - - - - - - - -635.9 622.0 -2.23. Women’s and Children’s Shoes - - - - - - - - - - - - - - - - - -685.8 651.4 -5.04. Men’s Shoes - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -916.9 875.1 -4.65. Infants’ Wear - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -638.3 647.6 1.56. Women’s Underwear - - - - - - - - - - - - - - - - - - - - - - - - -570.4 571.9 0.37. Women’s Hosiery - - - - - - - - - - - - - - - - - - - - - - - - - - -308.4 328.9 6.68. Women’s and Girls’ Accessories - - - - - - - - - - - - - - - - -546.5 539.6 -1.39. Women’s Outerwear and Girls’ Wear - - - - - - - - - - - - - -417.0 410.3 -1.6

10. Men’s Clothing - - - - - - - - - - - - - - - - - - - - - - - - - - - -619.5 617.4 -0.311. Men’s Furnishings - - - - - - - - - - - - - - - - - - - - - - - - - -608.4 627.6 3.212. Boys’ Clothing and Furnishings - - - - - - - - - - - - - - - - - -519.0 510.2 -1.713. Jewelry - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -977.1 950.5 -2.714. Notions - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -766.3 764.6 -0.215. Toilet Articles and Drugs - - - - - - - - - - - - - - - - - - - - - -945.3 983.6 4.116. Furniture and Bedding - - - - - - - - - - - - - - - - - - - - - - - -686.8 689.7 0.417. Floor Coverings - - - - - - - - - - - - - - - - - - - - - - - - - - - -602.2 602.1 0.018. Housewares - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -811.3 789.3 -2.719. Major Appliances - - - - - - - - - - - - - - - - - - - - - - - - - - -238.9 235.5 -1.420. Radio and Television - - - - - - - - - - - - - - - - - - - - - - - - - 70.1 63.5 -9.421. Recreation and Education2 - - - - - - - - - - - - - - - - - - - - -102.2 96.1 -6.0 22. Home Improvements2 - - - - - - - - - - - - - - - - - - - - - - - -129.6 129.2 -0.323. Auto Accessories2 - - - - - - - - - - - - - - - - - - - - - - - - - -107.9 107.6 -0.3

January 18, 2000 298 2000–3 I.R.B.

DRAFTING INFORMATION The principal author of this revenue

ruling is Alan J. Tomsic of the Office ofAssistant Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue ruling, contact Mr.Tomsic on (202) 622-4970 (not a toll-freecall).

Section 706.—Taxable Year ofPartner and Partnership

26 CFR 1.706–1T: Taxable years of certainpartnerships.

What procedures apply for certain corporationsto obtain automatic approval to change their annualaccounting periods under section 442 of the Code?See Rev. Proc. 2000–11, page 309.

Section 898.—Taxable Year ofCertain Foreign Corporations


Section 1031.—Exchange ofProperty Held for ProductiveUse or Investment

26 CFR 1.1031(a)–1: Property held for productiveuse in trade or business or for investment.

If property subject to section 168 of the Code(MACRS property) is acquired in an exchange ofMACRS property for like-kind MACRS property towhich section 1031 applies, how is the depreciationallowable determined for the acquired MACRSproperty? See Notice 2000–4, page 313.

Section 1033.—InvoluntaryConversions

26 CFR 1.1033(a)–1: Involuntary conversion;nonrecognition of gain.

If property subject to section 168 of the Code(MACRS property) is acquired in replacement of in-voluntarily converted MACRS property to whichsection 1033 applies, how is the depreciation allow-able determined for the acquired MACRS property?See Notice 2000–4, page 313.

Section 1441.—Withholding ofTax on Nonresident Aliens andForeign Corporations

26 CFR 1.1441–1: Requirement for withholding oftax on nonresident aliens, foreign partnerships, andforeign corporations.

T.D. 8856

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Parts 1, 31, 35a, 301,502, 503, 509, 513, 514, 516,517, 520, 521, and 602.

General Revision of RegulationsRelating to Withholding of Taxon Certain U.S. Source IncomePaid to Foreign Persons andRelated Collection, Refunds,and Credits; Revision ofInformation Reporting andBackup WithholdingRegulations; and Removal ofRegulations Under Parts 1 and35a and of Certain RegulationsUnder Income Tax Treaties

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final rule; delay of effectivedate.

SUMMARY: This document containschanges delaying the effective date to finalregulations (TD 8734, 1997–2 C.B. 109),which were published in the Federal Reg-ister of October 14, 1997, relating to the

withholding of income tax on certain U.S.source income payments to foreign per-sons. The Department of the Treasury andthe IRS believe it is in the best interest oftax administration to delay the effectivedate of the final withholding regulations toensure that both taxpayers and the govern-ment can complete changes necessary toimplement the new withholding regime.As extended by this document, the finalwithholding regulations will apply to pay-ments made after December 31, 2000.

DATES: Effective Dates: The amendmentsin this final rule are effective January 1,2001. As of December 31, 1999, the effec-tive date of the final regulations publishedat 62 FR 53387 (TD 8734), October 14,1997, and delayed by TD 8804 (63 FR72183, December 31, 1998), is delayedfrom January 1, 2000, until January 1,2001; however, the effective date of the ad-dition of §§31.9999–0 and 35a.9999–0 andthe removal of §35a.9999–0T remains Oc-tober 14, 1997.

FOR FURTHER INFORMATION CON-TACT: Laurie Hatten-Boyd, (202) 622-3840 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the sub-ject of this amendment provide guidanceunder sections 1441, 1442, and 1443 ofthe Internal Revenue Code (Code) oncertain U.S. source income paid to for-eign persons, the related tax deposit andreporting requirements under section1461 of the Code, and the relatedchanges under sections 163(f), 165(j),871, 881, 1462, 1463, 3401, 3406, 6041,6041A, 6042, 6045, 6049, 6050A,6050N, 6109, 6114, 6402, 6413, and6724 of the Code.

Need for Changes

On April 29, 1999, in Notice 99–25

Groups 1 - 15: Soft Goods - - - - - - - - - - - - - - - - - - - - - - - - - -610.0 606.9 -0.5Groups 16 - 20: Durable Goods - - - - - - - - - - - - - - - - - - - - - - -460.4 446.9 -2.9Groups 21 - 23: Misc. Goods2 - - - - - - - - - - - - - - - - - - - - - - - -106.9 102.7 -3.9

Store Total3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -554.9 547.2 -1.4

1 Absence of a minus sign before percentage change in this column signifies price increase.2 Indexes on a January 1986=100 base.3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,tobacco, and contract departments.

2000–3 I.R.B. 299 January 18, 2000

(1999–20 I.R.B. 1), the IRS and Trea-sury announced their decision to extendthe effective date of the final regula-tions. When originally published in theFederal Registeron October 14, 1997(62 FR 53387), the final regulationswere applicable to payments made afterDecember 31, 1998 and, generally,granted withholding agents until afterDecember 31, 1999, to obtain the newwithholding certif icates (Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY) and statements required underthose regulations. On April 13, 1998, inNotice 98–16 (1998–15 I.R.B. 12), theIRS and Treasury announced the deci-sion to extend the effective date of thefinal regulations to January 1, 2000 andto provide correlative extensions to thetransition rules for obtaining new with-holding certificates and statements.Those extensions were published on De-cember 31, 1998 at 63 FR 72183 as TD8804. This amendment serves to makethe final regulations applicable to pay-ments made after December 31, 2000and to require mandatory use of the newwithholding certificates and statementsfor payments made after that date.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in ExecutiveOrder 12866. Therefore, a regulatoryassessment is not required. It has alsobeen determined that section 553(b) ofthe Administrative Procedure Act (5U.S.C. chapter 5) does not apply tothese regulations. Finally, it has beendetermined that the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) does notapply to these regulations because theregulations do not impose a collection ofinformation on small entities. Pursuantto 7805(f) of the Code, the notice of pro-posed rulemaking preceding these regu-lations (61 FR 17614) was submitted tothe Small Business Administration forcomment on its impact on small busi-ness.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, under the authority of 26U.S.C. 7805, 26 CFR parts 1, 31, and 301

are amended by making the followingcorrecting amendments:

PART 1—INCOME TAXES

Par. 1. The authority citation for part 1continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. In §1.871–14, paragraph (h) is

revised to read as follows:§1.871–14 Rules relating to repeal of taxon interest of nonresident alien individu-als and foreign corporations receivedfrom certain portfolio debt investments.* * * * *

(h) Effective date—(1) In general.This section shall apply to payments ofinterest made after December 31, 2000.

(2) Transition rule. For purposes ofthis section, the validity of a Form W-8that was valid on January 1, 1998, underthe regulations in effect prior to January1, 2001 (see 26 CFR parts 1 and 35a, re-vised April 1, 1999) and expired, or willexpire, at any time during 1998, is ex-tended until December 31, 1998. Thevalidity of a Form W-8 that is valid onor after January 1, 1999 remains validunti l i ts val idity expires under theregualtions in effect prior to January 1,2001 (see 26 CFR parts 1 and 35a, re-vised April 1, 1999) but in no event willsuch a form remain valid after Decem-ber 31, 2000. The rule in this paragraph(h)(2), however, does not apply to ex-tend the validity period of a Form W-8that expired solely by reason of changesin the circumstances of the personwhose name is on the cert i f icate.Notwithstanding the first three sen-tences of this paragraph (h)(2), a with-holding agent or payor may choose tonot take advantage of the transition rulein this paragraph (h)(2) with respect toone or more withholding certificatesvalid under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999)and, therefore, may choose to obtainwithholding certificates conforming tothe requirements described in this sec-tion (new withholding certificates). Forpurposes of this section, a new with-holding certificate is deemed to satisfythe documentation requirement underthe regulations in effect prior to January1, 2001 (see 26 CFR parts 1 and 35a, re-vised April 1, 1999). Further, a new

withholding certificate remains valid forthe period specif ied in§1.1441–1(e)(4)(ii), regardless of whenthe certificate is obtained.

Par. 3. In §1.1441–1, as revised at 62FR 53424 (TD 8734) and amended at 63FR 72183 (TD 8804), paragraph (f) is re-vised to read as follows:§1.1441–1 Requirement for the deductionand withholding of tax on payments toforeign persons.* * * * *

(f) Effective date—(1) In general.This section applies to payments madeafter December 31, 2000.

(2) Transition rules—(i) Special rulesfor existing documentation. For purposesof paragraphs (d)(3) and (e)(2)(i) of thissection, the validity of a withholding cer-tificate (namely, Form W–8, 8233, 1001,4224, or 1078 , or a statement describedin §1.1441–5 in effect prior to January 1,2001 (see §1.1441–5 as contained in 26CFR part 1, revised April 1, 1999)) thatwas valid on January 1, 1998 under theregulations in effect prior to January 1,2001 (see 26 CFR parts 1 and 35a, revisedApril 1, 1999) and expired, or will expire,at any time during 1998, is extended untilDecember 31, 1998. The validity of awithholding certificate that is valid on orafter January 1, 1999, remains valid untilits validity expires under the regulationsin effect prior to January 1, 2001 (see 26CFR parts 1 and 35a, revised April 1,1999) but in no event will such withhold-ing certificate remain valid after Decem-ber 31, 2001. The rule in this paragraph(f)(2)(i), however, does not apply to ex-tend the validity period of a withholdingcertificate that expires solely by reason ofchanges in the circumstances of the per-son whose name is on the certificate.Notwithstanding the first three sentencesof this paragraph (f)(2)(i), a withholdingagent may choose to not take advantageof the transition rule in this paragraph(f)(2)(i) with respect to one or more with-holding certificates valid under the regu-lations in effect prior to January 1, 2001(see 26 CFR parts 1 and 35a, revisedApril 1, 1999) and, therefore, to requirewithholding certificates conforming to therequirements described in this section(new withholding certificates). For pur-poses of this section, a new withholdingcertificate is deemed to satisfy the docu-mentation requirement under the regula-

January 18, 2000 300 2000–3 I.R.B.

tions in effect prior to January 1, 2001(see 26 CFR parts 1 and 35a, revisedApril 1, 1999). Further, a new withhold-ing certificate remains valid for the periodspecified in paragraph (e)(4)(ii) of thissection, regardless of when the certificateis obtained.

(ii) Lack of documentation for pastyears. A taxpayer may elect to apply theprovisions of paragraphs (b)(7)(i)(B), (ii),and (iii) of this section, dealing with lia-bility for failure to obtain documentationtimely, to all of its open tax years, includ-ing tax years that are currently under ex-amination by the IRS. The election ismade by simply taking action under thoseprovisions in the same manner as the tax-payer would take action for paymentsmade after December 31, 2000.

Par. 4. In §1.1441–4, as amended at 62FR 53424 (TD 8734) and at 63 FR 72183(TD 8804), paragraph (g) is revised toread as follows:§1.1441–4 Exemptions from withholdingfor certain effectively connected incomeand other amounts.* * * * *

(g) Effective date—(1) General rule.This section applies to payments madeafter December 31, 2000.

(2) Transition rules. The validity of aForm 4224 or 8233 that was valid onJanuary 1, 1998, under the regulations ineffect prior to January 1, 2001 (see 26CFR part 1, revised April 1, 1999) andexpired, or will expire, at any time dur-ing 1998, is extended until December31, 1998. The validity of a Form 4224or 8233 that is valid on or after January1, 1999, remains valid until its validityexpires under the regulations in effectprior to January 1, 2001 (see 26 CFRpart 1, revised April 1, 1999) but in noevent will such form remain valid afterDecember 31, 2000. The rule in thisparagraph (g)(2), however, does notapply to extend the validity period of aForm 4224 or 8223 that expires solelyby reason of changes in the circum-stances of the person whose name is onthe certificate. Notwithstanding the firstthree sentences of this paragraph (g)(2) ,a withholding agent may choose to nottake advantage of the transition rule inthis paragraph (g)(2) with respect to oneor more withholding certificates validunder the regulations in effect prior toJanuary 1, 2001 (see 26 CFR part 1, re-

vised April 1, 1999) and, therefore, torequire withholding certificates con-forming to the requirements described inthis section (new withholding certifi-cates). For purposes of this section, anew withholding certificate is deemed tosatisfy the documentation requirementunder the regulations in effect prior toJanuary 1, 2001 (see 26 CFR part 1, re-vised April 1, 1999). Further, a newwithholding certificate remains valid forthe period specif ied in§1.1441–1(e)(4)(ii), regardless of whenthe certificate is obtained.

Par. 5. In §1.1441–5, as revised at 62FR 53424 (TD 8734) and amended at 63FR 72183 (TD 8804), paragraph (g) is re-vised to read as follows:§1.1441–5 Withholding on payments topartnerships, trusts, and estates. * * * * *


(2) Transition rules. The validity ofa withholding certificate that was validonJanuary 1, 1998, under the regulationsin effect prior to January 1, 2001 (see 26CFR parts 1 and 35a, revised April 1,1999) and expired, or will expire, at anytime during 1998, is extended until De-cember 31, 1998. The validity of awithholding certificate that is valid onor after January 1, 1999, remains validuntil its validity expires under the regu-lations in effect prior to January 1, 2001(see 26 CFR parts 1 and 35a, revisedApril 1, 1999) but in no event will sucha withholding certificate remain validafter December 31, 2000. The rule inthis paragraph (g)(2), however, does notapply to extend the validity period of awithholding certificate that expiressolely by reason of changes in the cir-cumstances of the person whose name ison the certificate. Notwithstanding thefirst three sentences of this paragraph(g)(2) , a withholding agent may chooseto not take advantage of the transitionrule in this paragraph (g)(2) with respectto one or more withholding certificatesvalid under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999)and, therefore, to require withholdingcertificates conforming to the require-ments described in this section (newwithholding certificates). For purposes

of this section, a new withholding cer-tificate is deemed to satisfy the docu-mentation requirement under the regula-tions in effect prior to January 1, 2001(see 26 CFR parts 1 and 35a, revisedApril 1, 1999). Further, a new withhold-ing certificate remains valid for the pe-riod specified in §1.1441–1(e)(4)(ii), re-gardless of when the cert i f icate isobtained.

Par. 6. In §1.1441–6, as revised at 62FR 53424 (TD 8734) and amended at 63FR 72183 (TD 8804), paragraph (g) is re-vised to read as follows:§1.1441–6 Claim of reduced withholdingunder an income tax treaty.* * * * *


(2) Transition rules. For purposes ofthis section, the validity of a Form 1001or 8233 that was valid on January 1, 1998,under the regulations in effect prior toJanuary 1, 2001 (see 26 CFR parts 1 and35a, revised April 1, 1999) and expired,or will expire, at any time during 1998, isextended until December 31, 1998. Thevalidity of a Form 1001 or 8233 is validon or after January 1, 1999, remains validuntil its validity expires under the regula-tions in effect prior to January 1, 2001(see 26 CFR parts 1 and 35a, revisedApril 1, 1999) but in no event will such aform remain valid after December 31,2000. The rule in this paragraph (g)(2),however, does not apply to extend the va-lidity period of a Form 1001 or 8233 thatexpires solely by reason of changes in thecircumstances of the person whose nameis on the certificate or in interpretation ofthe law under the regulations under§1.894–1T(d). Notwithstanding the firstthree sentences of this paragraph (g)(2), awithholding agent may choose to not takeadvantage of the transition rule in thisparagraph (g)(2) with respect to one ormore withholding certificates valid underthe regulations in effect prior to January1, 2001 (see 26 CFR parts 1 and 35a, re-vised April 1, 1999) and, therefore, to re-quire withholding certificates conformingto the requirements described in this sec-tion (new withholding certificates). Forpurposes of this section, a new withhold-ing certificate is deemed to satisfy thedocumentation requirement under the reg-ulations in effect prior to January 1, 2001

2000–3 I.R.B. 301 January 18, 2000

(see 26 CFR parts 1 and 35a, revisedApril 1, 1999). Further, a new withhold-ing certificate remains valid for the periodspecified in §1.1441–1(e)(4)(ii), regard-less of when the certificate is obtained.

Par. 7. In §1.1441–8 as redesignatedand amended at 62 FR 53464 andamended at 63 FR 72138 (TD 8804),paragraph (f) is revised to read as follows:§1.1441–8 Exemption from withholdingfor payments to foreign governments, in-ternational organizations, foreign centralbanks of issue, and the Bank for Interna-tional Settlements.* * * * *

(f) Effective date—(1) In general.This section applies to payments madeafter December 31, 2000.

(2) Transition rules. For purposes ofthis section, the validity of a Form 8709that was valid on January 1, 1998, underthe regulations in effect prior to January1, 2001 (see 26 CFR part 1, revised April1, 1999) and expired, or will expire, atany time during 1998, is extended untilDecember 31, 1998. The validity of aForm 8709 that is valid on or after Janu-ary 1, 1999, remains valid until its valid-ity expires under the regulations in effectprior to January 1, 2001 (see 26 CFR part1, revised April 1, 1999) but in no eventshall such a form remain valid after De-cember 31, 2000. The rule in this para-graph (f)(2), however, does not apply toextend the validity period of a Form 8709that expires solely by reason of changes inthe circumstances of the person whosename is on the certificate. Notwithstand-ing the first three sentences of this para-graph (f)(2), a withholding agent maychoose to not take advantage of the transi-tion rule in this paragraph (f)(2) with re-spect to one or more withholding certifi-cates valid under the regulations in effectprior to January 1, 2001 (see 26 CFR part1, revised April 1, 1999) and, therefore, torequire withholding certificates conform-ing to the requirements described in thissection (new withholding certificates).For purposes of this section, a new with-holding certificate is deemed to satisfy thedocumentation requirement under the reg-ulations in effect prior to January 1, 2001(see 26 CFR part 1, revised April 1,1999). Further, a new withholding certifi-cate remains valid for the period specifiedin §1.1441–1(e)(4)(ii), regardless of whenthe certificate is obtained.

Par. 8. In §1.1441–9, paragraph (d) isrevised to read as follows:§1.1441–9 Exemption from withholdingon exempt income of a foreign tax-exemptorganization, including foreign privatefoundations.* * * * *

(d) Effective date—(1) In general.This section applies to payments madeafter December 31, 2000.

(2) Transition rules. For purposes ofthis section, the validity of a Form W-8,1001, or 4224 or a statement that wasvalid on January 1, 1998, under the regu-lations in effect prior to January 1, 2001(see 26 CFR parts 1 and 35a, revisedApril 1, 1999) and expired, or will expire,at any time during 1998, is extended untilDecember 31, 1998. The validity of aForm W-8, 1001, or 4224 or a statementthat is valid on or after January 1, 1999remains valid until its validity expiresunder the regulations in effect prior toJanuary 1, 2001 (see 26 CFR parts 1 and35a, revised April 1, 1999) but in no eventshall such form or statement remain validafter December 31, 2000. The rule in thisparagraph (d)(2), however, does not applyto extend the validity period of a Form W-8, 1001, or 4224 or a statement that ex-pires solely by reason of changes in thecircumstances of the person whose nameis on the certificate. Notwithstanding thefirst three sentences of this paragraph(d)(2), a withholding agent may choose tonot take advantage of the transition rule inthis paragraph (d)(2) with respect to oneor more withholding certificates validunder the regulations in effect prior toJanuary 1, 2001 (see 26 CFR parts 1 and35a, revised April 1, 1999) and, therefore,to require withholding certificates con-forming to the requirements described inthis section (new withholding certifi-cates). For purposes of this section, a newwithholding certificate is deemed to sat-isfy the documentation requirement underthe regulations in effect prior to January1, 2001 (see 26 CFR parts 1 and 35a, re-vised April 1, 1999). Further, a new with-holding certificate remains valid for theperiod specified in §1.1441–1(e)(4)(ii),regardless of when the certificate is ob-tained.

Par. 9. In §1.1443–1, as revised at 62FR 53424 (TD 8734) and amended at 63FR 72183), paragraph (c) is revised toread as follows:

§1.1443–1 Foreign tax-exempt organiza-tions.* * * * *

(c) Effective date—(1) In general.This section applies to payments madeafter December 31, 2000.

(2) Transition rules. For purposes ofthis section, the validity of an affidavit oropinion of counsel described in §1.1443–1(b)(4)(i) in effect prior to Janu-ary 1, 2001 (see § 1.1443–1(b)(4)(i) ascontained in 26 CFR part 1, revised April1, 1999) is extended until December 31,2000. However, a withholding agent maychose to not take advantage of the transi-tion rule in this paragraph (c)(2) with re-spect to one or more withholding certifi-cates valid under the regulations in effectprior to January 1, 2001 (see CFR part 1,revised April 1, 1999) and, therefore, torequire withholding certificates conform-ing to the requirements described in thissection (new withholding certificates).For purposes of this section, a new with-holding certificate is deemed to satisfy thedocumentation requirement under the reg-ulations in effect prior to January 1, 2001( see 26 CFR part 1, revised April 1,1999). Further, a new withholding certifi-cate remains valid for the period specifiedin § 1.1441–1(e)(4)(ii), regardless ofwhen the certificate is obtained.

Par. 10. In §1.6042–3, as amended at62 FR 53424 (TD 8734) and amended at63 FR 72183 (TD 8804), paragraph (b)(5)is revised to read as follows:§1.6042–3 Dividends subject to report-ing.* * * * *

(b) * * *(5) Effective date—(i) General rule.

The provisions of this paragraph (b) applyto payments made after December 31,2000.

(ii) Transition rules. The validity of awithholding certificate (namely, Form W-8 or other form upon which the payor ispermitted to rely to hold the payee as aforeign person) that was valid on January1, 1998, under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999)and expired, or will expire, at any timeduring 1998, is extended until December31, 1998. The validity of a withholdingcertificate that is valid on or after January1, 1999, remains valid until its validityexpires under the regulations in effect

January 18, 2000 302 2000–3 I.R.B.

prior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999) butin no event shall such withholding certifi-cate remain valid after December 31,2000. The rule in this paragraph(b)(5)(ii), however, does not apply to ex-tend the validity period of a withholdingcertificate that expires solely by reason ofchanges in the circumstances of the per-son whose name is on the certificate.Notwithstanding the first three sentencesof this paragraph (b)(5)(ii), a payor maychoose not to take advantage of the transi-tion rule in this paragraph (b)(5)(ii) withrespect to one or more withholding cer-tificates valid under the regulations in ef-fect prior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999)and, therefore, to require withholding cer-tificates conforming to the requirementsdescribed in this section (new withhold-ing certificates). For purposes of this sec-tion, a new withholding certificate isdeemed to satisfy the documentation re-quirement under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999).Further, a new withholding certificate re-mains valid for the period specified in§1.1441–1(e)(4)(ii), regardless of whenthe certificate is obtained. *****

Par. 11. In §1.6045–1, as amended at62 FR 53424 (TD 8734) and amended at63 FR 72183 (TD 8804), paragraph (g)(5)is revised to read as follows: §1.6045–1 Returns of information of bro-kers and barter exchanges.* * * * *

(g) * * *(5) Effective date—(i) General rule.

The provisions of this paragraph (g) applyto payments made after December 31,2000.

(ii) Transition rules.The validity of awithholding certificate (namely, Form W-8 or other form upon which the payor ispermitted to rely to hold the payee as aforeign person) that was valid on January1, 1998, under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999)and expired, or will expire, at any time

during 1998, is extended until December31, 1998. The validity of a withholdingcertificate that is valid on or after January1, 1999, remains valid until its validityexpires under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999) butin no event shall such a withholding cer-tificate remain valid after December 31,2000. The rule in this paragraph (g)(5)(ii),however, does not apply to extend the va-lidity period of a form that expires in1998 solely by reason of changes in thecircumstances of the person whose nameis on the certificate. Notwithstanding thefirst three sentences of this paragraph(g)(5)(ii), a payor may choose not to takeadvantage of the transition rule in thisparagraph (g)(5)(ii) with respect to one ormore withholding certificates valid underthe regulations in effect prior to January1, 2001 (see 26 CFR parts 1 and 35a, re-vised April 1, 1999) and, therefore, to re-quire withholding certificates conformingto the requirements described in this sec-tion (new withholding certificates). Forpurposes of this section, a new withhold-ing certificate is deemed to satisfy thedocumentation requirement under the reg-ulations in effect prior to January 1, 2001(see 26 CFR parts 1 and 35a, revisedApril 1, 1999). Further, a new withhold-ing certificate remains valid for the periodspecified in §1.1441–1(e)(4)(ii), regard-less of when the certificate is obtained.*****

Par. 12. In §1.6049–5, as amended at62 FR 53424 (TD 8734) and amended at63 FR 72183 (TD 8804), paragraph (g) isrevised to read as follows:§1.6049–5 Interest and original issuediscount subject to reporting after De-cember 31, 1982.* * * * *

(g) Effective date—(1) General rule.The provisions of paragraphs (b)(6)through (15), (c), (d), and (e) of this sec-tion apply to payments made after De-cember 31, 2000.

(2) Transition rules.The validity of awithholding certificate (namely, Form W-8 or other form upon which the payor ispermitted to rely to hold the payee as a

foreign person) that was valid on January1, 1998, under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999)and expired, or will expire, at any timeduring 1998, is extended until December31, 1998. The validity of a withholdingcertificate that is valid on or after January1, 1999, remains valid until its validityexpires under the regulations in effectprior to January 1, 2001 (see 26 CFRparts 1 and 35a, revised April 1, 1999) butin no event shall such a withholding cer-tificate remain valid after December 31,2000. The rule in this paragraph (g)(2),however, does not apply to extend the va-lidity period of a withholding certificatethat expires solely by reason of changes inthe circumstances of the person whosename is on the certificate. Notwithstand-ing the first three sentences of this para-graph (g)(2), a payor may choose not totake advantage of the transition rule inthis paragraph (g)(2) with respect to oneor more withholding certificates validunder the regulations in effect prior toJanuary 1, 2001 (see 26 CFR parts 1 and35a, revised April 1, 1999) and, therefore,may require withholding certificates con-forming to the requirements described inthis section (new withholding certifi-cates). For purposes of this section, a newwithholding certificate is deemed to sat-isfy the documentation requirement underthe regulations in effect prior to January1, 2001 (see 26 CFR parts 1 and 35a, re-vised April 1, 1999). Further, a new with-holding certificate remains valid for theperiod specified in §1.1441–1(e)(4)(ii),regardless of when the certificate is ob-tained.

Parts 1, 31, and 301 [Amended]

Par. 13. In the list below, for each sec-tion indicated in the left column (whichwas added, revised, or amended at 62 FR53387 (TD 8734) and further amended at63 FR 72138 (TD 8804), remove the lan-guage in the middle column and add thelanguage in the right column:

Section Remove Add

1.871–14(c)(3)(ii), October 12, 2000 October 12, 2001Example, first andsixth sentences

1.871–14(c)(3)(ii), December 31, 2000 December 31, 2001Example, sixth sentence

1.871–14(c)(3)(ii), June 15, 2004 June 15, 2005Example, sixth sentence

1.871–14(c)(3)(ii), June 15, 2004 June 15, 2005Example, seventh sentence

1.1441–1(b)(4)(xix) January 1, 2000 January 1, 2001

1.1441–1(b)(4)(xix) April 1, 1998 April 1, 1999

1.1441–1(b)(7)(v), June 15, 2000 June 15, 2001Example 1, first, fourth,and eighth sentences

1.1441–1(b)(7)(v), September 30, 2002 September 30, 2003Example 1, third andninth sentences

1.1441–1(b)(7)(v), March 15, 2001 March 15, 2002Example 1, ninthsentence

1.1441–1(b)(7)(v), June 15, 2000 June 15, 2001Example 2, first,fourth, and seventhsentences

1.1441–1(b)(7)(v), September 30, 2002 September 30, 2003Example 2, third andseventh sentences

1.1441–1(b)(7)(v), March 15, 2001 March 15, 2002Example 2, seventh and ninth sentences

1.1441–1(c)(6)(ii)(B) January 1, 2000 January 1, 2001

1.1441–1(c)(6)(ii)(B) April 1, 1998 April 1, 1999

1.1441–1(e)(4)(ii)(A) September 30, 2000 September 30, 2001

1.1441–1(e)(4)(ii)(A) December 31, 2003 December 31, 2004

1.1441–2(b)(3)(iv) December 31, 1999 December 31, 2000

1.1441–2(f) December 31, 1999 December 31, 2000

1.1441–3(h) December 31, 1999 December 31, 2000

1.1441–7(g) December 31, 1999 December 31, 2000

1.1461–1(i) December 31, 1999 December 31, 2000

1.1461–2(a)(4), December 2000 December 2001Example 1(i), secondsentence

1.1461–2(a)(4), February 10, 2001 February 10, 2002Example 1(i), thirdsentence

1.1461–2(a)(4), 2000 2001Example 1(ii), first,second, and lastsentences

2000–3 I.R.B. 303 January 18, 2000

January 18, 2000 304 2000–3 I.R.B.

Section Remove Add

1.1461–2(a)(4), March 15, 2001 March 15, 2002 Example 1(ii), firstsentence

1.1461–2(a)(4), 2001 2002Example 1(ii), thirdsentence

1.1461–2(a)(4), 2001 2002Example 2, second andlast sentences

1.1461–2(a)(4), June 2001 June 2002Example 2, secondsentence

1.1461–2(a)(4), July 15, 2001 July 15, 2002 Example 2, thirdsentence

1.1461–2(a)(4), 2000 2001Example 2,thirdsentence

1.1461–2(a)(4), March 15, 2002 March 15, 2003Example 2, last sentence

1.1461–2(a)(4), Example 3, February 15, 2001 February 15, 2002last sentence

1.1461–2(a)(4), Example 3, March 15, 2001 March 15, 2002last sentence

1.1461–2(d) December 31, 1999 December 31, 2000

1.1462–1(c) December 31, 1999 December 31, 2000

1.1463–1(b) December 31, 1999 December 31, 2000

1.6041–4(d) December 31, 1999 December 31, 2000

1.6041A–1(d)(3)(v) December 31, 1999 December 31, 2000

1.6045–1(d)(6)(ii)(B) December 31, 1999 December 31, 2000

1.6049–4(d)(3)(ii)(B) December 31, 1999 December 31, 2000

1.6049–5(c)(4)(v) January 1, 2000 January 1, 2001

1.6050N–1(e), last sentence December 31, 1999 December 31, 2000

31.3401(a)(6)–1(e), January 1, 2000 January 1, 2001paragraph heading

31.3401(a)(6)–1(e), January 1, 2000 January 1, 2001first sentence

31.3401(a)(6)–1(f), December 31, 1999 December 31, 2000paragraph heading

31.3401(a)(6)–1(f), December 31, 1999 December 31, 2000first sentence

31.3406(g)–1(e), December 31, 1999 December 31, 2000first sentence

31.3406(h)–2(d), December 31, 1999 December 31, 2000penultimate sentence

31.9999–0 January 1, 2000 January 1, 2001

301.6114–1(b)(4)(ii)(C), December 31, 1999 December 31, 2000introductory text

Section Remove Add

301.6114–1(b)(4)(ii)(D) December 31, 1999 December 31, 2000

301.6724–1(g)(2) Q–11 January 1, 2000 January 1, 2001

301.6724–1(g)(2) Q–11 April 1, 1998 April 1, 1999

301.6724–1(g)(2) A–11 January 1, 2000 January 1, 2001

301.6724–1(g)(2) A–11 April 1, 1998 April 1, 1999

301.6724–1(g)(3), first December 31, 1999 December 31, 2000sentence

301.6724–1(g)(3), last January 1, 2000 January 1, 2001sentence

301.6724–1(g)(3), last April 1, 1998 April 1, 1999sentence

2000–3 I.R.B. 305 January 18, 2000

Robert E. Wenzel,Deputy Commissioner of

Internal Revenue.

Approved December 21, 1999.

Jonathan Talisman,Acting Assistant Secretary of the Treasury Tax Policy.

(Filed by the Office of the Federal Register on De-cember 29, 1999, 8:45 a.m., and published in theissue of the Federal Register for December 30, 1999,64 F.R. 73408)

Section 1502.—Regulations

26 CFR 1.1502–76: Taxable year of members ofgroup.


Section 2056.— Bequests, Etc.,to Surviving Spouse

26 CFR 20.2056(a)–1: Qualified terminable interestproperty elections.

Qualified terminable interest prop-erty (QTIP) elections.This ruling holdsthat an executor may elect under section2056(b)(7) of the Code to treat an individ-ual retirement account and a testamentarytrust as QTIP under certain conditions.Rev. Rul. 89–89 obsoleted.

Rev. Rul. 2000–2

ISSUE

May an executor elect under

§ 2056(b)(7) of the Internal RevenueCode to treat an individual retirement ac-count (IRA) and a trust as qualified ter-minable interest property (QTIP) if thetrustee of the trust is the named benefi-ciary of decedent’s IRA and the survivingspouse can compel the trustee to with-draw from the IRA an amount equal to allthe income earned on the IRA assets atleast annually and to distribute thatamount to the spouse?

FACTS

A died in 1999 at the age of 55, survivedby spouse, B, who was 50 years old. Priorto death, A established an IRA described in§ 408(a). The IRA is invested only in pro-ductive assets. A named the trustee of a tes-tamentary trust established under A’s willas the beneficiary of all amounts payablefrom the IRA after A’s death. A copy of thetestamentary trust and a list of the trust ben-eficiaries were provided to the custodian ofA’s IRA within nine months after A’s death.As of the date of A’s death, the testamen-tary trust was irrevocable and was a validtrust under the laws of the state of A’sdomicile. The IRA was includible in A’sgross estate under § 2039.

Under the terms of the testatmentarytrust, all trust income is payable annually toB, and no one has the power to appoint trustprincipal to any person other than B. A’schildren, who are all younger than B, arethe sole remainder beneficiaries of the trust.No other person has a beneficial interest inthe trust. Under the terms of the trust, B hasthe power, exercisable annually, to compelthe trustee to withdraw from the IRA anamount equal to the income earned on theassets held by the IRA during the year andto distribute that amount through the trustto B. The IRA document contains no prohi-

bition on withdrawal from the IRA ofamounts in excess of the annual minimumrequired distributions under § 408(a)(6).

In accordance with the terms of theIRA instrument, the trustee of the testa-mentary trust elects, in order to satisfy §408(a)(6), to receive annual minimum re-quired distributions using the exception tothe five year rule in § 401(a)(9)(B)(iii) fordistributions over a distribution periodequal to a designated beneficiary’s life ex-pectancy. Because B’s life expectancy isthe shortest of all the potential beneficia-ries of the testamentary trust’s interest inthe IRA (including remainder beneficia-ries), the distribution period for purposesof § 401(a)(9)(B)(iii) is B’s life ex-pectancy. Because B is not the sole bene-ficiary of the testamentary trust’s interestin the IRA, the trustee elected to have theannual minimum required distributionsfrom the IRA to the testamentary trustbegin no later than December 31 of theyear immediately following the year ofA’s death. The amount of the annual min-imum required distribution for each yearis calculated by dividing the account bal-ance of the IRA as of the December 31immediately preceding the year by the re-maining distribution period. On B’sdeath, any undistributed balance of theIRA will be distributed to the testamen-tary trust over the remaining distributionperiod.

LAW AND ANALYSIS

Section 2056(a) provides that the valueof the taxable estate is, except as limitedby § 2056(b), determined by deductingfrom the value of the gross estate anamount equal to the value of any interestin property that passes from the decedentto the surviving spouse.

January 18, 2000 306 2000–3 I.R.B.

Under § 2056(b)(1), if an interest pass-ing to the surviving spouse will terminate,no deduction is allowed with respect to theinterest if, after termination of the spouse’sinterest, an interest in the property passesor has passed from the decedent to any per-son other than the surviving spouse (or theestate of the spouse).

Section 2056(b)(7) provides that QTIP,for purposes of § 2056(a), is treated aspassing to the surviving spouse and no partof the property shall be treated as passingto any person other than the survivingspouse. Section 2056(b)(7)(B)(i) definesQTIP as property that passes from thedecedent, in which the surviving spousehas a qualifying income interest for life,and to which an election applies. Under §2056(b)(7)(B)(ii), the surviving spouse hasa qualifying income interest for life if (I)the surviving spouse is entitled to all the in-come from the property, payable annuallyor at more frequent intervals, or has ausufruct interest for life in the property, and(II) no person has a power to appoint anypart of the property to any person otherthan the surviving spouse.

Section 20.2056(b)–7(d)(2) of the Es-tate Tax Regulations provides that theprinciples of § 20.2056(b)–5(f), relatingto whether the spouse is entitled for lifeto all of the income from the entire in-terest, apply in determining whether thesurviving spouse is entitled for life to allof the income from the property forQTIP purposes.

Section 20.2056(b)–5(f)(1) providesthat, if an interest is transferred in trust,the surviving spouse is entitled for lifeto all of the income from the entire in-terest, if the effect of the trust is to givethe surviving spouse substantially thatdegree of beneficial enjoyment of thetrust property during the survivingspouse’s life which the principles of thelaw of trusts accord to a person who isunqualifiedly designated as the life ben-eficiary of a trust.

Section 20.2056(b)–5(f)(8) providesthat the terms “entitled for life” and“payable annually or at more frequentintervals” require that under the terms ofthe trust the income referred to must becurrently (at least annually) distributableto the spouse or that the spouse musthave such command over the income sothat it is virtually the spouse’s. Thus,the surviving spouse will be entitled for

life to all of the income from the inter-est, payable annually, if, under the termsof the trust instrument, the spouse hasthe right exercisable annually (or morefrequently) to require distribution to thespouse of the trust income, and other-wise the trust income is to be accumu-lated and added to corpus.

In the present situation, the IRA ispayable to a trust the terms of which enti-tle B to receive all trust income, payableannually. In addition, no one has a powerto appoint any part of the property in thetrust or the IRA to any person other thanB. Therefore, whether A’s executor canelect to treat the trust and the IRA asQTIP depends on whether B is entitled toall the income for life from the IRA,payable annually.

Under the terms of the testamentarytrust, B is given the power, exercisable an-nually, to compel the trustee to withdrawfrom the IRAan amount equal to all the in-come earned on the assets held in the IRAand pay that amount to B. If B exercisesthis power, the trustee must withdraw fromthe IRA the greater of the amount of in-come earned on the IRA assets during theyear or the annual minimum required dis-tribution. Nothing in the IRA instrumentprohibits the trustee from withdrawingsuch amount from the IRA. If B does notexercise this power, the trustee must with-draw from the IRA only the annual mini-mum required distribution.

B’s power to compel the trustee’s ac-tion meets the standard set forth in §20.2056(b)–5(f)(8) for the survivingspouse to be entitled to all the incomefor life payable annually. Thus, B hasa qualifying income interest for lifewithin the meaning of § 2056(b)(7) inboth the IRA and the testamentarytrust. Furthermore, Bhas a qualifyingincome interest for life in the IRA andthe testamentary trust for purposes of§§ 2519 and 2044. Because the trust isa conduit for payments equal to in-come from the IRA to B, A’s executorneeds to make the QTIP election under§ 2056(b)(7) for both the IRA and thetestamentary trust.

The result would be the same if theterms of the testamentary trust requirethe trustee to withdraw from the IRA an-nually an amount equal to all the incomeearned on the IRA assets and pay thatamount to the surviving spouse.

HOLDING

An executor may elect under §2056(b)(7) to treat an IRA and a trust asQTIP when the trustee of the trust is thenamed beneficiary of the decedent’sIRA, the surviving spouse can compelthe trustee to withdraw from the IRA anamount equal to all the income earnedon the IRA assets at least annually andto distribute that amount to the spouse,and no person has a power to appointany part of the trust property to any per-son other than the spouse.

EFFECT ON OTHER REVENUERULING(S)

Rev. Rul. 89–89, 1989–2 C.B. 231, isobsoleted.

DRAFTING INFORMATION

The principal author of this revenueruling is Donna L. Mucha of the Officeof Assistant Chief Counsel(Passthroughs and Special Industries).For further information regarding thisrevenue ruling contact Donna L. Muchaon (202) 622-3120 (not a toll-free call).

Section 6103.—Confidentialityand Disclosure of Returns andReturn Information

26 CFR 301.6103(j)(5)–1T: Disclosures of returninformation to officers and employees of theDepartment of Agriculture for certain statisticalpurposes and related activities (temporary).

T.D. 8854

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 301

Disclosures of ReturnInformation to Officers andEmployees of the Departmentof Agriculture for CertainStatistical Purposes andRelated Activities


ACTION: Temporary regulation.

2000–3 I.R.B. 307 January 18, 2000

SUMMARY: This document provides atemporary regulation relating to the dis-closure of return information to officersand employees of the Department of Agri-culture for certain statistical purposes andrelated activities. The temporary regula-tion would permit the IRS to disclose re-turn information to the Department ofAgriculture to structure, prepare, and con-duct the Census of Agriculture. The textof this temporary regulation also serves asthe text of the proposed regulationREG–116704–99 published on page 325.

DATES: This regulation is effective Jan-uary 4, 2000.

Applicability Date: For dates of applic-ability of this regulation, see,§301.6103(j)(5)– 1T(d).

FOR FURTHER INFORMATION CON-TACT: Jennifer S. McGinty, (202) 622-4570 (not a toll-free number).


Background

Section 6103(j) of the Internal Rev-enue Code (Code) provides for the dis-closure of tax information for statisticalpurposes. Prior to the Census of Agri-culture Act of 1997 (Public Law 105-113), the Bureau of Census had respon-sibility for preparing the Census ofAgriculture. Section 6103(j)(1) autho-rized the Bureau of Census to receivetax information as prescribed in the reg-ulations in structuring censuses. Trea-sury regulations implemented such au-thority with respect to the Census ofAgriculture. The Census of AgricultureAct transferred responsibility for thatCensus from the Bureau of Census tothe Department of Agriculture. In 1998,the Tax and Trade Relief Extension Actof 1998 (Public Law 105-277) addedsection 6103(j)(5) to provide disclosureauthority for the Department of Agricul-ture to receive tax information to struc-ture, prepare, and conduct the Census ofAgriculture. By letter dated May 21,1999, the Secretary of Agriculture re-quested that the regulations be amendedso that the Department of Agriculturecan begin to receive return informationfor purposes of the Census of Agricul-ture. This document contains a tempo-rary regulation which authorizes the IRSto disclose return information to the De-

partment of Agriculture for purposes ofthe Census of Agriculture.

Explanation of Provisions

This temporary regulation will allowthe IRS to disclose return information tothe Department of Agriculture for pur-poses of the Census of Agriculture.

The disclosure of the specific items ofreturn information identified in this regu-lation is necessary in order for the Depart-ment of Agriculture to accurately identify,locate, and classify, as well as properlyprocess, information from agriculturalbusinesses to be surveyed for the statuto-rily mandated Census of Agriculture.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assess-ment is not required. It has also been de-termined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions. For the applicability of the Regula-tory Flexibility Act (5 U.S.C. chapter 6)refer to the Special Analyses section ofthe preamble to the cross reference noticeof proposed rulemaking published in theProposed Rules section in this issue of the(Federal Register). Pursuant to section7805(f) of the Code, this temporary regu-lation will be submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration for comment on itsimpact on small businesses.

Drafting Information

The principal author of this regulationis Jennifer S. McGinty, Office of the As-sistant Chief Counsel (Disclosure Litiga-tion), IRS. However, other personnelfrom the IRS and Treasury Departmentparticipated in its development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 301 isamended as follows:

Part 301—Procedure and Administration

Paragraph 1. The authority citation forpart 301 is amended by adding an entry innumerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 301.6103(j)(5)–1T also issued

under 26 U.S.C. 6103(j)(5);* * *Par. 2. Section 301.6103(j)(5)–1T is

added to read as follows:§301.6103(j)(5)–1T Disclosures of returninformation to officers and employees ofthe Department of Agriculture for certainstatistical purposes and related activities(temporary).

(a) General rule.Pursuant to the provi-sions of section 6103(j)(5) of the InternalRevenue Code (Code) and subject to therequirements of paragraph (c) of this sec-tion, officers or employees of the InternalRevenue Service (IRS) will disclose re-turn information to officers and employ-ees of the Department of Agriculture tothe extent, and for such purposes as maybe, provided by paragraph (b) of this sec-tion.

(b) Disclosure of return information toofficers and employees of the Departmentof Agriculture

(1) Officers or employees of the IRSwill disclose the following return infor-mation for individuals, partnerships, andcorporations with agricultural activity, asdetermined generally by industry codeclassification or the filing of returns forsuch activity, to officers and employees ofthe Department of Agriculture for pur-poses of, but only to the extent necessaryin, structuring, preparing, and conducting,as authorized by chapter 55 of title 7,United States Code, the Census of Agri-culture.

(2) From Form 1040/Schedule F—(i) Taxpayer Identity Information (as

defined in section 6103(b)(6) ofthe Code);

(ii) Spouse’s SSN;(iii) Annual Accounting Period;(iv) Principal Business Activity

(PBA) Code;(v) Sales of livestock and produce

raised;(vi) Taxable cooperative distribu-

tions;(vii) Income from custom hire and

machine work;(viii) Gross income;(ix) Master File Tax (MFT) Code;(x) Document Locator Number

(DLN);(xi) Cycle Posted;(xii) Final return indicator; and(xiii) Part year return indicator.

(3) From Form 943—(i) Taxpayer Identity Information;(ii) Annual Accounting Period;(iii) Total wages subject to Medicare

taxes; (iv) Master File Tax (MFT) Code;(v) Document Locator Number

(DLN);(vi) Cycle Posted;(vii) Final return indicator; and(viii) Part year return indicator.

(4) From Form 1120 series—(i) Taxpayer Identity Information;(ii) Annual Accounting Period;(iii) Gross receipts less returns and

allowances;(iv) PBA code;(v) Parent corporation Employer

Identification Number, and re-lated Name and PBA Code forentities with agricultural activity;

(vi) Master File Tax (MFT) Code; (vii) Document Locator Number

(DLN);(viii) Cycle posted;(ix) Final return indicator;(x) Part year return indicator; and(xi) Consolidated return indicator.

(5) From Form 851—(i) Subsidiary Taxpayer Identity In-

formation; (ii) Annual Accounting Period;(iii) Subsidiary PBA Code;(iv) Parent Taxpayer Identity Infor-

mation; (v) Parent PBA Code;(vi) Master File Tax (MFT) Code;(vii) Document Locator Number

(DLN); and (viii) Cycle Posted.

(6) From Form 1065 series—(i) Taxpayer Identity Information;(ii) Annual Accounting Period;(iii) PBA Code;(iv) Gross receipts less returns and

allowances;(v) Net farm profit (loss);(vi) Master File Tax (MFT) Code; (vii) Document Locator Number

(DLN);(viii) Cycle Posted;(ix) Final return indicator; and(x) Part year return indicator.

(c) Procedures and Restrictions(1) Disclosure of return information by

officers or employees of the IRS as pro-vided by paragraph (b) of this section willbe made only upon written request desig-nating, by name and title, the officers andemployees of the Department of Agricul-ture to whom such disclosure is autho-rized, to the Commissioner of InternalRevenue by the Secretary of the Depart-ment of Agriculture and describing—

(i) The particular return informationto be disclosed;

(ii)The taxable period or date towhich such return information re-lates; and

(iii) The particular purpose for whichthe return information is to beused.

(2) No such officer or employee towhom return information is disclosed pur-suant to the provisions of paragraph (b) ofthis section shall disclose such return in-

formation to any person, other than thetaxpayer to whom such return informationrelates or other officers or employees ofthe Department of Agriculture whose du-ties or responsibilities require such disclo-sure for a purpose described in paragraph(b) of this section, except in a form thatcannot be associated with, or otherwiseidentify, directly or indirectly, a particulartaxpayer. If the IRS determines that theDepartment of Agriculture, or any officeror employee thereof, has failed to, or doesnot, satisfy the requirements of section6103(p)(4) of the Code or regulations orpublished procedures thereunder, the IRSmay take such actions as are deemed nec-essary to ensure that such requirements areor will be satisfied, including suspensionof disclosures of return information other-wise authorized by section 6103(j)(5) andparagraph (b) of this section, until the IRSdetermines that such requirements havebeen or will be satisfied.

(d) Effective date:This section is ap-plicable from January 4, 2000 throughJanuary 3, 2003.

Robert E. Wenzel,Deputy Commissioner

of Internal Revenue.

Approved December 13, 1999.

Jonathan Talisman,Acting Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on Janu-ary 3, 2000, 8:45 a.m., and published in the issue ofthe Federal Register for January 4, 2000, 65 F.R.215)

January 18, 2000 308 2000–3 I.R.B.

2000–3 I.R.B. 309 January 18, 2000

26 CFR 601.204: Changes in accounting periodsand in methods of accounting.(Also Part I, sections 442, 706, 898, 1502; 1.442–1,1.706–1T, 1.1502–76.)

Rev. Proc. 2000–11

CONTENTS

SECTION 1. PURPOSE

SECTION 2. BACKGROUND

SECTION 3. SIGNIFICANT CHANGES

SECTION 4. SCOPE

.01 Applicability.

.02 Inapplicability.

.03 Nonautomatic changes.

.04 Examples.

SECTION 5. TERMS ANDCONDITIONS OF CHANGE

.01 In general.

.02 Short period.

.03 Short period tax return.

.04 Subsequent year tax returns.

.05 Book conformity.

.06 Net operating losses.

.07 General business credits.

.08 Concurrent change for related en-tities.

SECTION 6. MANNER OFEFFECTING THE CHANGE

.01 Consent.

.02 Filing requirements.(1) Where to file.(2) When to file.(3) Label.(4) Signature requirements.(5) No user fee.(6) Consolidated application.

SECTION 7. REVIEW OFAPPLICATION

.01Service Center review.

.02Review of examining officials.

SECTION 8. EFFECTIVE DATE ANDTRANSITION RULE

.01Effective date.

.02Transition rule.

SECTION 9. EFFECT ON OTHERDOCUMENTS

SECTION 1. PURPOSE

This revenue procedure provides pro-cedures by which certain corporationsmay obtain automatic approval to changetheir annual accounting periods under §442 of the Internal Revenue Code. Thisrevenue procedure modifies, amplifies,and supersedes Rev. Proc. 92–13, 1992–1C.B. 665. A corporation complying withall the applicable provisions of this rev-enue procedure has obtained the consentof the Commissioner of the Internal Rev-enue Service to change its annual ac-counting period under § 442 and the In-come Tax Regulations thereunder.

SECTION 2. BACKGROUND

.01 Section 1.442–1(a)(1) of the In-come Tax Regulations provides that if ataxpayer wishes to change its annual ac-counting period (as defined in § 441(c))and adopt a new taxable year (as definedin § 441(b)), it must obtain prior approvalfrom the Commissioner.

.02 Section 1.442–1(b)(1) provides thatin order to secure prior approval of achange of a taxpayer’s annual accountingperiod, the taxpayer must file an applica-tion on Form 1128, Application to Adopt,Change, or Retain a Tax Year, with theCommissioner on or before the 15th dayof the second calendar month followingthe close of the short taxable year re-quired to effect the change. Section1.442–1(b)(1) also provides that approvalwill not be granted unless the taxpayerand the Commissioner agree to the terms,conditions, and adjustments under whichthe change will be effected.

.03 Section 1.442–1(c) provides a spe-cial rule whereby certain corporationsmay change their annual accounting peri-ods without the prior approval of theCommissioner. Rev. Proc. 92–13 alsoprovided procedures whereby certain cor-porations that did not satisfy the condi-tions of § 1.442–1(c) could obtain expedi-tious approval of a change of their annualaccounting period.

.04 Section 1.443–1(b)(1)(i) providesthat if a return is made for a short periodresulting from a change of an annual ac-

counting period, the taxable income forthe short period must be placed on an an-nual basis by multiplying the income by12 and dividing the result by the numberof months in the short period. Unless §§443(b)(2) and 1.443–1(b)(2) apply, thetax for the short period is the same part ofthe tax computed on an annual basis asthe number of months in the short periodis of 12 months.

.05 Sections 1.852–3(e) and1.857–2(a)(4) provide that the taxable in-come of a regulated investment company(RIC) and a real estate investment trust(REIT) are computed without regard to §443(b). Thus, taxable income for a periodof less than 12 months is not placed on anannual basis even though such short tax-able year results from a change of annualaccounting period.

SECTION 3. SIGNIFICANT CHANGES

Significant changes to Rev. Proc. 92–13made by this revenue procedure include:

.01 Section 4.01(2) provides that thisrevenue procedure applies to a corpora-tion that wants to change from a52–53–week taxable year to a taxableyear that ends with reference to the samemonth, and vice versa;

.02 Section 4.01(3) adds a provisionwhereby a controlled foreign corporation(CFC) may revoke its one-month deferralelection under § 898(c)(1)(B) and auto-matically change its taxable year to themajority United States shareholder year(as defined in § 898(c)(1)(C));

.03 Section 4.02(1) provides certain ex-ceptions to the 6-year waiting period be-tween automatic period changes, such asfor changes to or from a 52-53-week tax-able year referencing the same month;

.04 Section 4.02(2) adds three ex-ceptions to the scope restrictions applica-ble to an automatic period change for acorporation that is a member of a partner-ship or a beneficiary of a trust or estate;

.05 Section 4.02(3) adds two excep-tions to the scope restrictions applicableto an automatic period change for a cor-poration that is a shareholder of a foreignsales corporation (FSC) or an interestcharge domestic international sales corpo-ration (IC-DISC);

.06 Section 4.02(6) eliminates the pro-hibition of an automatic period change for

Part III. Administrative, Procedural, and Miscellaneous

January 18, 2000 310 2000–3 I.R.B.

a corporation making an S corporationelection effective for the taxable year im-mediately following a change in account-ing period, provided the corporation ischanging to a permitted S corporation tax-able year;

.07 Section 4.02(14) modifies the scoperestriction for a cooperative associationwith a loss in the short period required toeffect the change to allow an otherwiseautomatic change if the patrons of the co-operative association remain substantiallythe same before and after the accountingperiod change; and

.08 Section 5.06 deletes the require-ment that a net operating loss (NOL) inthe short period required to effect thechange must be deducted ratably over 6years. Further, section 5.06 increases(from $10,000 to $50,000) the exceptionto the general rule proscribing a carrybackof a short period NOL.

SECTION 4. SCOPE

.01 Applicability. (1) In general. Thisrevenue procedure applies to a corpora-tion requesting consent to change its an-nual accounting period. The commonparent of a consolidated group maychange the group’s annual accounting pe-riod under this revenue procedure if everymember of the consolidated group meetsall the requirements and complies with allthe conditions of this revenue procedure.

(2) 52-53-week year.Notwithstandingsection 4.02 of this revenue procedure,this revenue procedure applies to a corpo-ration (including a member of a consoli-dated group) that wants to change from a52-53-week taxable year to a taxable yearthat ends with reference to the samemonth, and vice versa.

(3) Section 898 election. Notwith-standing section 4.02 of this revenue pro-cedure, this revenue procedure applies toa CFC (as defined in § 957) that wants torevoke its one-month deferral electionunder § 898(c)(1)(B) and change its tax-able year to the majority U.S. shareholderyear (as defined in § 898(c)(1)(C)).

.02 Inapplicability. This revenue pro-cedure does not apply to a corporationthat:

(1) has changed its annual account-ing period at any time within the 6 calen-dar years ending with the calendar yearthat includes the beginning of the shortperiod required to effect the change. For

this purpose, the following changes willnot be considered a change in annual ac-counting period:

(a) a change in accounting periodby a subsidiary to its common parent’staxable year in order to comply with thecommon taxable year requirement of §1.1502–76(a)(1). See§ 1.442–1(d);

(b) any prior change in accountingperiod by a majority-owned, newly ac-quired subsidiary that wants to change tothe taxable year of its domestic or foreignparent with which it does not file consoli-dated tax returns in order to file consoli-dated financial statements, provided thechange is made within 12 months of theacquisition. For purposes of this subsec-tion, “majority-owned” means ownershipthat satisfies the test of § 1504(a)(2), sub-stituting “more than 50 percent” for “atleast 80 percent;”

(c) a change from a 52-53-weektaxable year to a taxable year that endswith reference to the same month, andvice versa;

(2) is a member of a partnership or abeneficiary of a trust or an estate (collec-tively referred to as “pass-through enti-ties”) as of the end of the short period.However, an interest in a pass-through en-tity will be disregarded for this purpose ifany of the following conditions are met:

(a) the partnership in which thecorporation is a majority interest partner(i.e., a partner having an interest in thepartnership’s profits and capital of morethan 50 percent) would be required tochange its taxable year pursuant to §706(b) to the new taxable year of the cor-poration. Seesection 5.08 of this revenueprocedure for a special term and conditionrelated to this exception;

(b) the new taxable year of thecorporation would result in no change inor less deferral (as described in §1.706–1T(a)(2)) from the pass-throughentity than the present taxable year of thecorporation. If the pass-through entity isa partnership, the corporation shouldcompare the existing deferral period (be-tween the partnership’s and the corpora-tion’s current taxable years) with the newdeferral period (between the taxable yearof the partnership that would be requiredunder § 706 and the corporation’s newtaxable year). Seesection 4.04 of thisrevenue procedure for an example of thisrule; or

(c) for pass-through entities notqualifying for the exceptions in either sec-tion 4.02(a) or 4.02(b) of this revenueprocedure, the pass-through entity inwhich the corporation has an interest hasbeen in existence for at least 3 taxableyears and the interest is de minimis. Forthis purpose, an interest in a pass-throughentity is de minimis only if:

(i) for each of the prior 3 tax-able years of the corporation, the amountof income (including ordinary income orloss, capital gains or losses, rents, royal-ties, interest, or dividends) from suchpass-through entity is less than or equalto (A) 5 percent of the corporation’sgross receipts (or, in the case of a mem-ber of a consolidated group, the consoli-dated group’s gross receipts) for thosetaxable years, and (B) $500,000; and

(ii) the amount of income fromall such pass-through entities in theaggregate is less than or equal to theamounts described in (A) and (B) above.Seesection 4.04 of this revenue proce-dure for an example of this rule;

(3) is a shareholder of a FSC or IC-DISC, as of the end of the short period.However, an interest in a FSC or IC-DISCis disregarded if either of the followingconditions is met:

(a) the FSC or IC-DISC in which thecorporation is the principal shareholder(i.e., the shareholder with the highest per-centage of voting power as defined in §441(h)) would be required to change itstaxable year pursuant to §§1.921–1T(b)(4) and (b)(6) to the new tax-able year of the corporation. Seesection5.08 of this revenue procedure for a spe-cial term and condition related to this ex-ception; or

(b) the new taxable year of the cor-poration would result in no change in orless deferral of income (as determinedunder the principles of § 1.706–1T(a)(2))from the FSC or IC-DISC than the presenttaxable year of the corporation;

(4) is a FSC or an IC-DISC. See§1.921-1T(b)(4) for rules regarding auto-matic changes of the annual accountingperiod of a FSC or IC-DISC to the taxableyear of its principal shareholder;

(5) is an S corporation (as defined in§ 1361). SeeRev. Proc. 87–32 for proce-dures to follow for certain automaticchanges in the annual accounting periodof an S corporation;

2000–3 I.R.B. 311 January 18, 2000

(6) attempts to make an S corpora-tion election for the taxable year immedi-ately following the short period, unlessthe change is to a permitted S corporationyear. For this purpose, a “permitted Scorporation year” includes a calendaryear, a taxable year permitted under §444, or an ownership taxable year or nat-ural business year (as defined in Rev.Proc. 87–32, 1987–2 C.B. 396);

(7) is a personal service corporation(as defined in § 441(i)). SeeRev. Proc.87–32 for procedures to follow for certainautomatic changes in the annual account-ing period of a personal service corpora-tion;

(8) is a CFC (as defined in § 957) ora foreign personal holding company(FPHC) (as defined in § 552);

(9) is a shareholder of a CFC orFPHC. However, an interest in a CFC orFPHC is disregarded if the shareholder isthe majority U.S. shareholder (i.e., theshareholder that meets the ownership re-quirement of § 898(b)(2)(A)) and theCFC or FPHC would be required tochange its taxable year to the new taxableyear of the shareholder. Seesection 5.08of this revenue procedure for a specialterm and condition related to this excep-tion;

(10) is a tax-exempt organization,other than an organization exempt fromfederal income tax under § 521, 526, 527,or 528. SeeRev. Proc. 85–58, 1985–2C.B. 740, for procedures to follow inchanging an annual accounting period fora tax-exempt organization not meeting thescope of this revenue procedure;

(11) is a direct or indirect share-holder of a passive foreign investmentcompany (PFIC) that is a qualified elect-ing fund (within the meaning of § 1295)with respect to the shareholder;

(12) is a PFIC that U.S. persons(who own directly or indirectly, in the ag-gregate, 10 percent or more of the com-pany) elected under § 1295 to treat as aqualified electing fund;

(13) is a corporation which has in ef-fect an election under § 936; or

(14) is a cooperative association(within the meaning of § 1381(a)) with aloss in the short period required to effectthe change of annual accounting period,unless all the patrons of the cooperativeassociation are substantially the same inthe year before the change of annual ac-

counting period, in the short period re-quired to effect the change, and in theyear following the change. For purposesof this subsection, “substantially thesame” means that ownership of more than90 percent of the cooperative associa-tion’s stock is owned by the same mem-bers.

.03 Nonautomatic changes. Corpora-tions that are unable to use the automaticprovisions of this revenue procedure mustsecure prior approval from the Commis-sioner for a change in an accounting pe-riod pursuant to § 442 and the regulationsthereunder.

.04 Examples.(1) Example 1.(i) Corporations V, W,

X, Y, and Z hold equal 20 percent inter-ests in the capital and profits of partner-ship ABC. V and W are calendar yeartaxpayers. X and Y have a taxable yearending June 30, and Z has a taxable yearending September 30. ABC does nothave a business purpose for a particulartaxable year, and thus, pursuant to §1.706–1T, ABC is required to use a tax-able year ending June 30 because that tax-able year results in the least aggregate de-ferral of income to its partners. Zcurrently has a 3-month deferral period(the number of months from the end ofABC’s taxable year to the end of Z’s tax-able year). Z wants to change its taxableyear to a calendar year.

(ii) If Z changes its taxable year to acalendar year, ABC would be required tochange its taxable year under § 706 to itsmajority interest taxable year, which isthe calendar year. As a result of Z’s newtaxable year and ABC’s new taxable year,Z’s deferral period would be eliminated.Because Z’s new taxable year would re-duce Z’s deferral, Z may disregard its in-terest in ABC under section 4.02(2)(b) ofthis revenue procedure.

(2) Example 2. (i) Corporation X, acalendar year taxpayer, wants to changeits tax year to a year ending June 30. Xhas interests in five partnerships, ABC,DEF, GHI, JKL, and MNO. All of thepartnerships have been in existence forover three taxable years. X’s interests ineach of ABC and DEF is greater than 50percent. X’s interest in GHI, JKL, andMNO is 15 percent, 10 percent, and 5 per-cent, respectively. GHI uses the majorityinterest taxable year ending May 31 andJKL and MNO each use their respective

majority interest taxable year ending De-cember 31. X’s distributive share of in-come/(loss) from JKL for the prior threetaxable years is $300,000, $(100,000),and $200,000, respectively, and fromMNO is $300,000, $200,000, and$100,000, respectively. X’s gross receiptsfor each of those same taxable years was$15,000,000.

(ii) X’s interests in its pass-throughentities will be disregarded only if eachpass-through entity satisfies one of the ex-ceptions enumerated under section4.02(2) of this revenue procedure. In theinstant case, X’s interests in ABC andDEF each meet the exception in section4.02(2)(a) because X is the majority inter-est partner in each partnership. X’s inter-est in GHI meets the exception in section4.02(2)(b) because X’s new taxable yearwould result in less deferral than its oldtaxable year (the deferral between May 31and June 30 of 1 month as compared tothe deferral between May 31 and Decem-ber 31 of 7 months). Because X isnot the majority interest partner in JKLand MNO and because its new taxableyear would not result in less deferral fromthese partnerships, X’s interests in JKLand MNO may be disregarded only if theysatisfy the de minimis exception in sec-tion 4.02(2)(c). Although the incomefrom JKL and MNO for each of the priorthree taxable years is less than 5 percentof X’s gross receipts and $500,000, the in-come for year 1 from JKL and MNO, inthe aggregate ($300,000 and $300,000),exceeds the $500,000 amount specified insection 4.02(2)(c)(ii). Consequently, JKLand MNO fail to satisfy the de minimisexception in section 4.02(2)(c). BecauseX’s interests in all of its pass-through en-tities will not be disregarded, X is notwithin the scope of this revenue proce-dure.

SECTION 5. TERMS ANDCONDITIONS OF CHANGE

.01 In general. A change in annual ac-counting period filed under this revenueprocedure must be made pursuant to theterms and conditions provided in this rev-enue procedure.

.02 Short period. The short period re-quired to effect the change of annual ac-counting period must begin with the dayfollowing the close of the old taxable yearand end with the day preceding the first

January 18, 2000 312 2000–3 I.R.B.

day of the new taxable year. .03 Short period tax return. The corpo-

ration or consolidated group must file afederal income tax return for the short pe-riod by the due date of that return, includ-ing extensions pursuant to § 1.443–1(a).The corporation’s taxable income (or theconsolidated group’s consolidated taxableincome) for the short period must be an-nualized, except in the case of a RIC or aREIT, and the tax must be computed inaccordance with the provisions of §§443(b) and 1.443–1(b). However, forchanges to or from a 52-53-week taxableyear, see special rules in §1.441–2T(c)(5).

.04 Subsequent year tax returns. Returnsfor subsequent taxable years must be madeon the basis of a full 12 months (or on a 52-53-week basis) ending on the last day of thenew taxable year, unless the corporation orconsolidated group secures the approval ofthe Commissioner to change its new tax-able year.

.05 Book conformity. The books of thecorporation or consolidated group must beclosed as of the last day of the new taxableyear. The corporation or consolidatedgroup must compute its income and keepits books and records (including financialstatements and reports to creditors) on thebasis of the new taxable year.

.06 Net operating losses. If the corpo-ration (or consolidated group) has a NOL(or consolidated NOL) in the short periodrequired to effect the change, the NOLmay not be carried back but must be car-ried over in accordance with the provi-sions of § 172 beginning with the firsttaxable year after the short period. How-ever, the short period NOL (or consoli-dated NOL) is carried back or carriedover in accordance with § 172 if it is ei-ther: (a) $50,000 or less, or (b) resultsfrom a short period of 9 months or longerand is less than the NOL (or the consoli-dated NOL) for a full 12-month periodbeginning with the first day of the shortperiod.

.07 General business credits. If there isan unused general business credit or anyother unused credit for the short period,the corporation or consolidated groupmust carry that unused credit forward. Anunused credit from the short period maynot be carried back.

.08 Concurrent change for related enti-ties. If a corporation’s interest in a pass-

through entity, FSC, IC-DISC, CFC, orFPHC is disregarded pursuant to sections4.02(2)(a), 4.02(3)(a), or 4.02(8) of thisrevenue procedure because the entity isrequired to change its taxable year to thecorporation’s new taxable year, the entitymust change its taxable year concurrentlywith the corporation’s change in taxableyear, notwithstanding the testing date pro-visions in §§ 706(b)(4)(A)(ii) and898(c)(1)(C)(ii).

SECTION 6. MANNER OFEFFECTING THE CHANGE

.01 Consent. Approval is hereby grantedto any corporation or consolidated groupwithin the scope of this revenue proce-dure to change its annual accounting pe-riod, provided the corporation or consoli-dated group complies with all theapplicable provisions of this revenue pro-cedure. Approval is granted beginningwith the short period required to effect thechange. A corporation or consolidatedgroup granted approval under this rev-enue procedure to change its annual ac-counting period is deemed to have estab-lished a business purpose for the changeto the satisfaction of the Secretary.

.02 Filing requirements. (1) Where tofile. Any corporation (including the com-mon parent of a consolidated group) thatdecides to change its annual accountingperiod pursuant to the provisions of thisrevenue procedure must complete and filea current Form 1128 with the Director, In-ternal Revenue Service Center, Attention:ENTITY CONTROL, where the corpora-tion or consolidated group files its federalincome tax return. No copies of Form1128 are required to be sent to the Na-tional Office.

(2) When to file. A Form 1128 filedpursuant to this revenue procedure will beconsidered timely filed for purposes of §1.442–1(b)(1) only if it is filed on or be-fore the time (including extensions) forfiling the return for the short period re-quired to effect such change.

(3) Label. In order to assist in theprocessing of the change in annual ac-counting period, reference to this revenueprocedure must be made a part of theForm 1128 by either typing or legiblyprinting the following statement at the topof page 1 of the Form 1128: “FILEDUNDER REV. PROC. 2000–11.” For aCFC that is revoking a § 898(c)(1)(B)

election under section 4.01(3) of this rev-enue procedure, the label at the top ofpage 1 of the Form 1128 should read“REVOCATION OF § 898(c)(1)(B)ELECTION FILED UNDER REV.PROC. 2000–11.”

(4) Signature requirements. TheForm 1128 must be signed on behalf ofthe corporation requesting the change ofannual accounting period by an individualwith authority to bind the corporation insuch matters. If the corporation is a mem-ber of a consolidated group, the Form1128 must be signed by a duly authorizedofficer of the common parent. If an agentis authorized to represent the corporationor consolidated group before the Service,to receive the original or a copy of corre-spondence concerning the application, orto perform any other act(s) regarding theapplication on behalf of the corporation orconsolidated group, a power of attorneyreflecting such authorization(s) should beattached to the application. A corporationor consolidated group’s representativewithout a power of attorney to representthe corporation or consolidated group willnot be given any information about theapplication.

(5) No user fee. A user fee is not re-quired for an application filed under thisrevenue procedure and, except as pro-vided in section 7.01 of this revenue pro-cedure, the receipt of an application filedunder this revenue procedure may not beacknowledged.

(6) Consolidated application. A com-mon parent may file a single application tochange the annual accounting period of itsconsolidated group. The common parentcorporation must clearly indicate that theForm 1128 is filed on behalf of the com-mon parent and all its subsidiaries, and thecommon parent must answer all relevantquestions on the Form 1128 for each mem-ber of the consolidated group.

SECTION 7. REVIEW OFAPPLICATION

.01 Service Center review. A ServiceCenter may deny a change of annual ac-counting period under this revenue proce-dure only if: (a) the Form 1128 is not filedtimely, or (b) the corporation or consoli-dated group fails to meet the scope orterms and conditions of this revenue pro-cedure. If the change is denied, the Ser-vice Center will return the Form 1128

2000–3 I.R.B. 313 January 18, 2000

with an explanation for the denial..02 Review of examining officials. The

appropriate examining official may ascer-tain if the change in annual accountingperiod was made in compliance with allthe applicable provisions of this revenueprocedure. Corporations or consolidatedgroups changing their annual accountingperiod pursuant to this revenue procedurewithout complying with or satisfying allthe terms and conditions of this revenueprocedure ordinarily will be deemed tohave initiated the change in annual ac-counting period without the consent of theCommissioner.

SECTION 8. EFFECTIVE DATE ANDTRANSITION RULE

.01 Effective date. This revenue pro-cedure generally is effective for allchanges in annual accounting periods forwhich the short period ends on or afterJanuary 18, 2000. However, if the timeperiod set forth in section 6.02(2) of thisrevenue procedure for filing a Form 1128with respect to a short period has not yetexpired, a corporation or consolidatedgroup meeting the scope of this revenueprocedure may elect early application ofthe procedure by providing the notifica-tion set forth in section 6.02(3) on the topof page 1 of Form 1128 and by satisfyingthe other procedural requirements of sec-tion 6.

.02 Transition rule. If a corporation orconsolidated group within the scope ofthis revenue procedure filed an applica-tion with the National Office to make achange in annual accounting period andthe application is pending with the Na-tional Office on January 18, 2000, thecorporation or consolidated group maymake the change under this revenue pro-cedure. However, the National Officewill process the application in accordancewith the authority under which it wasfiled, unless prior to the later of March 3,2000, or the issuance of the letter rulinggranting or denying consent to thechange, the corporation or consolidatedgroup notifies the National Office that itwants to make the change under this rev-enue procedure. If the corporation orconsolidated group timely notifies the Na-tional Office that it wants to make thechange under this revenue procedure, theNational Office will require the corpora-tion or consolidated group to make appro-

priate modifications to the application tocomply with the applicable provisions ofthis revenue procedure. In addition, anyuser fee that was submitted with the appli-cation will be refunded to the corporationor consolidated group.

SECTION 9. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 92–13, Rev. Proc. 92–13A,1992–1 C.B. 668, and Rev. Proc. 94–12,1994–1 C.B. 565, are modified, ampli-fied, and superseded.


The principal authors of this revenueprocedure are Roy A. Hirschhorn andMartin Scully, Jr. of the Office of Assis-tant Chief Counsel (Income Tax and Ac-counting). For further information re-garding this revenue procedure, contactRoy A. Hirschhorn or Martin Scully, Jr.on (202) 622-4960 (not a toll-free call).

Exchange of MACRS Propertyfor MACRS Property

Notice 2000–4

This notice provides guidance aboutthe depreciation of property subject to §168 of the Internal Revenue Code(MACRS property) that is acquired in alike-kind exchange under § 1031 or as aresult of an involuntary conversion under§ 1033. The Internal Revenue Serviceand the Department of Treasury intend toissue regulations under § 168 that will ad-dress these transactions. Taxpayersshould follow this notice until these regu-lations are issued. Public comments toaid in the development of the regulationsare requested by March 31, 2000.

BACKGROUND

Section 167 allows as a depreciationdeduction a reasonable allowance for theexhaustion, wear and tear of propertyused a trade or business or held for theproduction of income. The depreciationallowable for depreciable tangible prop-erty placed in service after 1986 generallyis determined under § 168 (MACRS).

Section 1031(a)(1) provides that nogain or loss is recognized on the exchangeof property held for productive use in a

trade or business or for investment if theproperty is exchanged solely for propertyof like kind that is to be held either forproductive use in a trade or business orfor investment.

Section 1033(a)(1) provides that ifproperty (as a result of its destruction inwhole or in part, theft, seizure, or requisi-tion or condemnation or threat or immi-nence thereof) is compulsorily or involun-tarily converted into property similar orrelated in service or use to the property soconverted, no gain is recognized.

The basis of property acquired in atransaction to which § 1031 or § 1033 ap-plies generally is the same as the propertysurrendered in the transaction less anycash received plus any gain recognized.However, there is no guidance as to howto depreciate the basis of the acquiredproperty under § 168.

APPLICATION

For purposes of determining the depre-ciation allowable for MACRS propertyacquired in an exchange of MACRS prop-erty for like-kind property to which §1031 applies, or acquired in replacementof involuntarily converted MACRS prop-erty to which § 1033 applies, the acquiredMACRS property should be treated in thesame manner as the exchanged or invol-untarily converted MACRS property withrespect to so much of the taxpayer’s basisin the acquired MACRS property as doesnot exceed the taxpayer’s adjusted basisin the exchanged or involuntarily con-verted MACRS property. Thus, the ac-quired MACRS property is depreciatedover the remaining recovery period of,and using the same depreciation methodand convention as that of, the exchangedor involuntarily converted MACRS prop-erty. Any excess of the basis in the ac-quired MACRS property over the ad-justed basis in the exchanged orinvoluntarily converted MACRS propertyis treated as newly purchased MACRSproperty.

For acquired MACRS property placedin service on or after January 3, 2000, in alike-kind exchange of MACRS propertyunder § 1031 or as a result of an involun-tary conversion of MACRS propertyunder § 1033, a taxpayer must follow theprinciples set out in this notice.

For acquired MACRS property placedin service before January 3, 2000, in a

January 18, 2000 314 2000–3 I.R.B.

like-kind exchange of, or as a result of aninvoluntary conversion of, MACRS prop-erty, the Service is aware that taxpayersare depreciating this acquired property ei-ther (i) in the manner set out in this noticeconsistent with §1.168–5(f) of the pro-posed Income Tax Regulations, publishedin the Federal Register on February 16,1984 (49 Fed. Reg. 5940), under former §168 (ACRS); or (ii) as newly purchasedMACRS property. The Service will allowa taxpayer to continue to use its presentmethod of depreciating the acquired prop-erty and will treat these methods as allow-able methods of depreciation. However, ataxpayer presently treating the acquiredproperty as newly purchased MACRSproperty may change to treating the prop-erty under the principles in this notice,provided the property has been treated bythe taxpayer as acquired in a § 1031 like-kind exchange or § 1033 involuntary con-version and the change is made for thefirst or second taxable year ending afterJanuary 3, 2000.

CHANGE IN METHOD OFACCOUNTING

A change from treating MACRS prop-erty acquired in a § 1031 like-kind ex-change or § 1033 involuntary conversionas newly purchased MACRS property totreating the property under the principlesof this notice is a change in method of ac-counting to which the provisions of § 446and § 481 and the regulations thereunderapply. A taxpayer changing its method ofaccounting for the acquired MACRSproperty must follow the automaticchange in accounting method provisionsof Rev. Proc. 99–49, 1999–52 I.R.B. 725,provided the taxpayer makes the changein method of accounting for the first orsecond taxable year ending after January3, 2000, and takes into account any neces-sary § 481(a) adjustment in accordancewith the provisions of Rev. Proc. 99–49.The scope limitations in section 4.02 ofRev. Proc. 99–49 do not apply to the tax-payer. However, if the taxpayer is underexamination, before an appeals office, orbefore a federal court, the taxpayer mustprovide a copy of the Form 3115, Appli-cation for Change in Accounting Method,to the examining agent(s), appeals officer,or counsel for the government, as appro-priate, at the same time that the taxpayerfiles the copy of the Form 3115 with the

national office. The Form 3115 must con-tain the name(s) and telephone number(s)of the examining agent(s), appeals officer,or counsel for the government, as appro-priate.

REQUEST FOR COMMENTS

The Service and the Treasury Depart-ment intend to issue regulations under §168 to address the depreciation ofMACRS property acquired in a § 1031like-kind exchange or § 1033 involuntaryconversion. Before issuing proposed reg-ulations, the Service and the Treasury De-partment invite comments from the publicto aid in the development of these regula-tions. Comments should be submitted inwriting by March 31, 2000, to:

Internal Revenue ServiceEXCHANGE OF MACRS PROP-ERTY FOR MACRS PROPERTYCC:DOM:P&SI:6, Room 5112P.O. Box 7604Benjamin Franklin StationWashington, DC 20044

Alternatively, comments may be submittedelectronically via:http://www.irs.gov/prod/tax_regs/com-ments.html (the Service Internet site).

EFFECT ON OTHER DOCUMENTS

Rev. Proc. 99–49 is modified and am-plified to include this automatic account-ing method change in the Appendix.


The principal author of this notice isAlan H. Cooper of the Office of AssistantChief Counsel (Passthroughs and SpecialIndustries). For further information re-garding this notice contact Mr. Cooper at(202) 622-3110 (not a toll-free call).

Penalty Relief for CertainTaxpayers Affected by Section571 of the Tax Relief ExtensionAct of 1999

Notice 2000–5

PURPOSE

This notice informs taxpayers ofpenalty relief available for certain corpo-rate taxpayers whose December 15, 1999,

estimated tax installment is affected by §571 of the Tax Relief Extension Act of1999, P.L. 106–170 (“the Act”). The no-tice provides specific procedures for thesetaxpayers to follow in order to qualify forthe penalty relief.

BACKGROUND

Section 571 of the Act amends § 6655of the Internal Revenue Code by addingnew subsection (e)(5). This subsectionprovides that any dividend that is receivedfrom a closely-held real estate investmenttrust by any person that owns (after appli-cation of § 856(d)(5)) 10 percent or more(by vote or value) of the stock or benefi-cial interests in the trust will be taken intoaccount in computing annualized incometax installments under § 6655(e)(2) in amanner similar to the manner underwhich partnership income inclusions aretaken into account. The statute also refer-ences attribution under § 856(l)(3)(B).This reference is erroneous and presum-ably will be the subject of a technical cor-rection. For the purposes of § 6655(e)(5),the term “closely-held real estate invest-ment trust” means a real estate investmenttrust with respect to which five or fewerpersons own (after application of §856(d)(5)) 50 percent or more (by vote orvalue) of the stock or beneficial interestsin the trust. The amendment made by §571 of the Act applies to estimated taxpayments due on or after December 15,1999.

RETROACTIVE EFFECT OF SECTION571 OF THE ACT

The President signed the Act into lawon December 17, 1999. As a result, § 571of the Act retroactively applies to esti-mated tax installment payments due onDecember 15, 1999, by those corporatetaxpayers that employ the annualizationmethod to calculate quarterly estimatedtax installment payments. Those taxpay-ers may have used the law in effect onDecember 15, 1999, to calculate their es-timated tax installment due on that date.The retroactive application of § 571 of theAct may result in those taxpayers under-paying their installment due on December15, 1999. If so, those taxpayers may besubject to an addition to tax under § 6655of the Code.

PENALTY RELIEF

2000–3 I.R.B. 315 January 18, 2000

In a situation in which the amendmentmade by § 571 of the Act creates or in-creases an underpayment for the quarterlyestimated tax installment due on Decem-ber 15, 1999, the Service will not assessor will abate any addition to tax resultingfrom the change in law to the extent thatthe taxpayer, on or before January 13,2000, makes a deposit sufficient to satisfysuch underpayment using either Form8109, Federal Tax Deposit Coupon, or theElectronic Federal Tax Payment System(EFTPS) if the taxpayer is required to de-posit electronically or chooses to do sovoluntarily. The taxpayer must designatethat the deposit is for the taxpayer’s esti-mated tax installment due December 15,1999. Further, the taxpayer’s 1999 Form2220, Underpayment of Estimated Tax byCorporations, should clearly state acrossthe top “Penalty Relief Under Notice2000–5.”

If a taxpayer that makes a deposit asdescribed above and receives a notice im-posing an addition to tax based on an un-derpayment of the estimated tax for theinstallment due on December 15, 1999,and the underpayment relates to thechange to the law by § 571 of the Act, thetaxpayer should contact the IRS office is-suing the notice and request abatement ofthe addition to tax based on the provisionsin this notice.


The principal author of this notice isRobert A. Desilets, Jr. of the Office of As-sistant Chief Counsel (Income Tax andAccounting). For further information re-garding this notice contact Robert A. De-silets, Jr. at (202) 622-4910 (not a toll-freecall).

Returns of Information ofBrokers and Barter Exchanges

Notice 2000–6

PURPOSE

This notice provides that, pending theissuance of new regulations by the Inter-nal Revenue Service (Service) and theTreasury Department, a barter exchangeis not required under § 6045 of the Inter-nal Revenue Code to report exchanges in-

volving property or services with a fairmarket value of less than $1.00. This no-tice also invites comments on informationreporting issues under § 6045 relating tobarter exchanges in connection with thenew regulations.

BACKGROUND

Section 6045 and the regulations there-under generally require a barter exchangeto make a return of information with re-spect to exchanges of personal property orservices through the barter exchange dur-ing the calendar year among its membersor clients or between such persons and thebarter exchange. Section 1.6045-1(a)(4)of the Income Tax Regulations defines abarter exchange generally to include anyperson with members or clients that con-tract either with each other or with suchperson to trade or barter property or ser-vices either directly or through such per-son. However, a barter exchange throughwhich there are fewer than 100 exchangesduring the calendar year generally is ex-empt from reporting for, or making a re-turn of information with respect to, ex-changes during such calendar year.Section 1.6045–1(e)(2)(ii).

Section 1.6045–1(f)(2) generally re-quires a barter exchange to make returnsof information on a transactional basis.Under this provision, the barter exchangemust show on Form 1099–B, ProceedsFrom Broker and Barter Exchange Trans-actions, the name, address, and taxpayeridentification number of each member orclient providing property or services inthe exchange, the property or servicesprovided, the amount received by themember or client for such property or ser-vices, the date on which the exchange oc-curred, and such other information re-quired by Form 1099, in the form,manner, and number of copies required byForm 1099. However, as to each corpo-rate member or client (as defined in theregulations) providing property or ser-vices in an exchange for which a return ofinformation is required, the regulationsallow the barter exchange to report basedon an aggregate basis, rather than on atransactional basis, for the reporting pe-riod.

The Treasury Department and the Ser-vice have become aware of a growingnumber of barter exchanges that, throughthe use of electronic or Internet services,

engage in millions of transactions dailyinvolving property or services with verylow fair market values. In these situa-tions, the barter exchange reporting re-quirements under § 6045 may imposeburdens on the barter exchange that out-weigh the benefits of the information col-lected on Forms 1099–B. Accordingly,the Treasury Department and the Serviceare studying barter exchange issues with aview to proposing new regulations re-garding the information reporting respon-sibilities of the exchanges.

DE MINIMIS EXCEPTION

A barter exchange is not required toprovide an information return with re-spect to an exchange of property or ser-vices if the fair market value of the prop-erty or services received in that exchangeis less than $1.00.

This exception applies with respect toinformation returns that would otherwisebe due on or after January 5, 2000, andbefore new regulations are issued ad-dressing the information reporting re-sponsibilities of barter exchanges. Withrespect to information returns that weredue before January 5, 2000, the Servicewill not impose penalties under §§ 6721and 6722 on a barter exchange for its fail-ure to file the returns or furnish payeestatements with respect to exchanges thatmeet the criteria of the de minimisexcep-tion above.

REQUEST FOR COMMENTS

The Treasury Department and the Ser-vice invite comments on this notice andon other information reporting issues re-lating to barter exchanges in connectionwith the future regulations. In particular,comments are requested concerning othermeans of reducing the reporting burdenon barter exchanges, such as:

(1) Whether the regulations should pro-vide an exception to the reporting re-quirements for cases in which the fairmarket value of property or services re-ceived by the member or client fallsbelow a de minimistransactionalthreshold (such as that described in thisnotice) but only if the total fair marketvalue of property or services receivedby the member or client during a calen-dar year does not exceed an aggregatethreshold.(2) Whether the regulations should

January 18, 2000 316 2000–3 I.R.B.

allow annual aggregate reporting withrespect to amounts received by noncor-porate members or clients.(3) Whether the regulations shouldspecifically require annual aggregatereporting, rather than transactional re-porting, with respect to transactions in-volving certain types of property or ser-vices.(4) Whether the regulations shouldapply special rules to certain barteringtransactions involving the provision ofelectronic or Internet services.

Further, the Treasury Department and theService welcome information and com-ments on additional tax issues associatedwith electronic commerce transactions.

Written comments should be submittedby April 4, 2000. Written commentsshould be sent to:

Internal Revenue ServiceAttn: CC:DOM:CORP:RRoom 5228 (IT&A:Br2)P.O. Box 7604Ben Franklin StationWashington, DC 20044.

or hand delivered between the hours of 8a.m. and 5 p.m. to:

Courier’s DeskInternal Revenue ServiceAttn: CC:DOM:CORP:R(Notice 2000–6)Room 5228 (IT&A:Br2)1111 Constitution Avenue, NW

Washington, D.C.Alternatively, taxpayers may submit com-ments electronically via e-mail to the fol-lowing address:

[email protected] comments will be available for publicinspection and copying in their entirety.


The principal author of this notice isEdwin B. Cleverdon of the Office of As-sistant Chief Counsel (Income Tax & Ac-counting). For further information re-garding this notice, contact Mr. Cleverdonat (202) 622-4920 (not a toll-free call).

2000–3 I.R.B. 317 January 18, 2000

Test of Arbitration Procedure forAppeals

Announcement 2000–4

SUMMARY: The Internal Revenue Ser-vice Office of Appeals (Appeals) is con-ducting a two-year test of a binding arbi-tration procedure. This procedure allowstaxpayers to request binding arbitrationfor factual issues that are already in theAppeals administrative process. Underthe procedure, the taxpayer and Appealsmust first attempt to negotiate a settle-ment. If those negotiations are unsuc-cessful, the taxpayer and Appeals mayjointly request binding arbitration. Bind-ing arbitration will only be used to resolvefactual disputes. This procedure is effec-tive for requests for arbitration made dur-ing the two-year test period beginning onJanuary 18, 2000, the date this Announce-ment is published in the Internal RevenueBulletin.

BACKGROUND: Section 3465 of the In-ternal Revenue Service Restructuring andReform Act of 1998, Pub. L. 105-206, 112Stat. 685, creates new section 7123(b)(2) ofthe Internal Revenue Code which providesthat the Secretary shall establish a pilot pro-gram under which a taxpayer and Appealsmay jointly request binding arbitration oncertain unresolved issues. This procedureis effective for requests for arbitration madeduring the two-year test period, as de-scribed above.

PUBLIC HEARING: This document con-tains a notice of a public hearing on the ar-bitration procedure set forth in this an-nouncement. A public hearing will be heldat 10:00 a.m. on April 5, 2000 in the IRSAuditorium, Seventh Floor, 7400 Corridor,Internal Revenue Building, 1111 Constitu-tion Ave., NW, Washington, DC.

SUPPLEMENTARY INFORMATION:Written comments on the announcementshould be delivered or mailed by May 5,2000 to:

Internal Revenue ServiceNational Director of AppealsAttn.: C:AP:ADR&CS, Suite 4200E1099 14th Street, N.W.Washington, D.C. 20005

or electronically via:

http://www.irs.gov/prod/tax_regs/com-ments.html (the Service Internet site).

Requests to speak at the public hearingand outlines of oral comments should bedelivered or mailed by March 20, 2000 tothese same addresses. Each speaker (orgroup of speakers representing a single en-tity) will be limited to 10 minutes for anoral presentation exclusive of the time con-sumed by questions from the governmentpanel and answers to these questions.

Because of controlled access restric-tions, persons attending the hearing willnot be permitted beyond the lobby of theInternal Revenue Service building until9:45 a.m.

An agenda showing the scheduling ofthe speakers will be made after outlines arereceived from the persons testifying.Copies of the agenda will be available freeof charge at the hearing.

FOR FURTHER INFORMATION CON-TACT: Thomas Carter Louthan, Director,Office of Alternative Dispute Resolutionand Customer Service, National OfficeAppeals, (202) 694-1842 (not a toll-freenumber), or Gary Slayen, analyst, Officeof Alternative Dispute Resolution andCustomer Service, National Office Ap-peals, (202) 694-1837 (not a toll-freenumber).

TEST OF ARBITRATION PROCEDUREFOR APPEALS

Summary:

Appeals is conducting a two-year test ofan arbitration procedure. This procedureis effective for arbitration requests madeduring the two-year test period beginningon January 18, 2000, the date this An-nouncement is published in the InternalRevenue Bulletin.Under the test, arbitration:• is optional;• must be agreed to in a formal agree-

ment executed by the taxpayer andthe Assistant Regional Director ofAppeals-Large Case or successor(ARDA-LC);

• will bind the parties to the findingsmade by the arbitrator with respect tothe issues to be resolved.

Overview:

Section 3465 of the Internal Revenue Ser-vice Restructuring and Reform Act of1998, Pub. L. 105-206, 112 Stat. 685 cre-ates new section 7123(b)(2) of the InternalRevenue Code, which provides that theSecretary shall establish a pilot programunder which a taxpayer and Appeals mayjointly request binding arbitration on anyissue unresolved at the conclusion of: (A)Appeals procedures, or (B) unsuccessful at-tempts to enter into a closing agreementunder section 7121 or a compromise undersection 7122. The Administrative DisputeResolution (ADR) Act of 1996, Pub. L. No.104-320, 110 Stat. 3870, also encouragesfederal agencies to use all alternative dis-pute resolution techniques in the federal ad-ministrative process (including binding ar-bitration where warranted) to resolvedisputes. See5 U.S.C. § 575, Authorizationof arbitration. Arbitration is an optional process for re-solving factual issues that are currently inthe Appeals process. A factual issue is eli-gible for this process if it is susceptible tobeing resolved solely upon a finding offact, and where any interpretation of law,regulation, ruling or other legal authority isagreed to by the parties. The taxpayer andAppeals must agree to be bound by, and notappeal, the findings of the arbitrator. Thearbitrator and either party must communi-cate through an administrator unless bothparties are present. This includes commu-nications regarding requests for and trans-fers of documentation and information.The administrator will be from Appeals,Office of Alternative Dispute Resolutionand Customer Service (ADR&CS), or theorganization providing the arbitrator. Thearbitrator and the administrator will discusswith the parties the rules and proceduresconcerning the arbitration process and willinform the parties that there can be no exparte communication between either partyand the arbitrator.

Scope of Arbitration:

The arbitration procedure will attempt toresolve issues while a case is in Appeals.This procedure may be used only afterAppeals settlement discussions are unsuc-cessful, and when all other issues are re-solved but for the specific factual issue(s)for which arbitration is being requested.

Part IV. Items of General Interest

January 18, 2000 318 2000–3 I.R.B.

Arbitration is available:• Only for factual issues (such as valu-

ation and reasonable compensation);and

• Whether the case involves a sole fac-tual issue or multiple issues, wherethe factual issue to be arbitrated canbe severed.

In addition, arbitration will not be avail-able for:• Cases where arbitration is not appro-

priate under either 5 U.S.C. §572,General authority, or 5 U.S.C. §575,Authorization of arbitration;

• Issues involving the substantiation ofexpenses under I.R.C. §162, Trade orBusiness Expenses, or §274, Disal-lowance of Certain Entertainment,Etc., Expenses;

• An issue designated for litigation ordocketed in any court [for the ChiefCounsel arbitration program involv-ing issues in docketed cases, seeChief Counsel Directives Manual(CCDM) (35)3(17)1];

• An Industry Specialization Program(ISP) issue or an Appeals Coordi-nated Issue (ACI) [ISP issues arelisted in Exhibit 8.7.1–1 and ACI is-sues are listed in section 8.7.1–3 ofthe Internal Revenue Manual]; or

• An issue for which the taxpayer hasfiled a request for competent author-ity assistance, or an issue for whichthe taxpayer intends to seek compe-tent authority assistance. Arbitrationis also not available for an issue forwhich the taxpayer has requested thesimultaneous Appeals/CompetentAuthority procedure described in sec-tion 8 of Revenue Procedure 96–13,1996–1 C.B. 616 or subsequent rev-enue procedure. If a taxpayer entersinto a settlement with Appeals (in-cluding an Appeals settlementthrough the arbitration process), andthen requests competent authority as-sistance, the U.S. competent author-ity will endeavor only to obtain a cor-relative adjustment with the treatycountry and will not take any actionsthat would otherwise amend the set-tlement. See section 7.05 of RevenueProcedure 96–13.

Arbitration Process:

1. Arbitration is optional.A taxpayer orAppeals may request arbitration after

both parties agree to arbitrate. A tax-payer should send their written request tothe Team Chief/Appeals Officer who hasresponsibility for the case. A written rec-ommendation for action on the requestwill be prepared by this Team Chief/Ap-peals Officer. The request and recom-mendation will be forwarded to the imme-diate supervisor for approval/disapproval.That decision will be reviewed by the su-pervisor’s manager and forwarded to theARDA–LC for final determination. TheNational Director of Appeals, Office ofADR&CS will be consulted before mak-ing a final determination.Generally, the ARDA-LC will make afinal determination within 30 calendardays of the date the Team Chief/AppealsOfficer received the taxpayer’s request.Upon making the final determination, theARDA-LC will promptly informADR&CS and the Appeals Team Chief orAppeals Associate Chief and Appeals Of-ficer. The Team Chief or Appeals Officerwill then promptly inform the taxpayer ofthe final determination.

Request approved - ADR&CS willschedule an administrative conferenceto discuss the arbitration process withthe taxpayer.Request denied- Although no formalappeal procedure exists for the denialof an arbitration request, a taxpayermay request a conference with theARDA-LC to discuss the denial. 2. Agreement to arbitrate.The tax-

payer and Appeals will enter into a writ-ten arbitration agreement. SeeExhibit 1,below, for a model arbitration agreement.This agreement will be negotiated at anadministrative conference provided byADR&CS. The agreement should be asconcise as possible. The agreementshould focus the arbitrator on the pre-scribed tasks of finding facts, preventingex parte contact between the arbitratorand the parties, and limiting or describingthe kind of information the arbitrator ispermitted to consider. The agreementmay indicate the tax treatment of the arbi-trator’s findings or clarify any issueswhich may arise in calculating any defi-ciency or overpayment resulting from thearbitrator’s fact finding.

The following sections describe someterms and considerations that the taxpayerand Appeals should take into account inpreparing this agreement.

3. Participants. The parties to the ar-bitration process will be the taxpayer andtheir authorized representative and Ap-peals. During the test of this program,Appeals reserves the right to have an ob-server attend any arbitration. The purposefor this is to familiarize Appeals person-nel with the arbitration process. If a tax-payer does not accept observers in thistest, the taxpayer will be excluded fromthe test. Appeals also reserves the right tohave District Counsel assist in the arbitra-tion. Taxpayers or their representativemay also have an observer attend any ar-bitration session.

The arbitration agreement will set forththe initial list of participants and ob-servers for each party and may limit thenumber, identity, or participation of suchparticipants. The parties are encouragedto include persons with information andexpertise that will be useful to the arbitra-tor. The parties must notify the adminis-trator, in a signed writing not later thantwo weeks before the arbitration session,of any change to the initial list of partici-pants and observers contained in theAgreement to Arbitrate. The parties andarbitrator, by signed agreement, maymodify the list of participants and ob-servers at any time up to and including thedate of the arbitration session. The ad-ministrator will promptly and simultane-ously forward each party’s final and com-plete list to the other party and thearbitrator. SeeExhibit 2, below, for aModel Participants List.

4. Selection of arbitrators, in general.The taxpayer and Appeals will select anarbitrator at an administrative conferenceprovided by ADR&CS. The test of the ar-bitration procedure described herein seeksto use both non-IRS and Appeals person-nel as arbitrators. See sections 5, 6, and7, below. The parties may, by mutualagreement, use any local or national orga-nization that provides a roster of neutralsin selecting an arbitrator. In the eventsuch local or national organization pro-vides an arbitrator, this organization mayalso provide the administrator for the ar-bitration, or the administrator may be pro-vided by ADR&CS.

In obtaining the services of an arbitra-tor, the IRS will follow all applicable pro-visions of the Federal Acquisition Regula-tion. An arbitrator shall have no official,financial, or personal conflict of interest

2000–3 I.R.B. 319 January 18, 2000

with respect to the parties, unless such in-terest is fully disclosed in writing to thetaxpayer and the ARDA-LC and theyagree that the arbitrator may serve. See5U.S.C. § 573.

5. Appeals personnel as arbitrators,conflict statement, and expenses.Thetaxpayer and the ARDA-LC (in consulta-tion with the Appeals Team Chief or Ap-peals Associate Chief and Appeals Offi-cer) may select an Appeals representativeto be the arbitrator at an administrativeconference provided by ADR&CS. TheAppeals arbitrator shall be from anotherAppeals region, or from National OfficeAppeals. The ARDA-LC from the regionin which the case is located will coordi-nate with the ARDA-LC from the regionin which the proposed arbitrator is lo-cated. For cases assigned to an AppealsOfficer, the Appeals arbitrator may befrom another Appeals office. NationalOffice Appeals will pay all expenses asso-ciated with an Appeals arbitrator.

Due to the inherent conflict that resultsbecause the Appeals arbitrator is an em-ployee of the IRS, Appeals will provide tothe taxpayer a statement confirming theemployee’s proposed service as an arbi-trator, that the person is a current em-ployee of the IRS, and that a conflict re-sults from that arbitrator’s continuedstatus as an IRS employee. The writtenagreement to arbitrate shall include thisstatement.

6. Non-Internal Revenue Service arbi-trator, expenses.The taxpayer and theARDA-LC may agree on an arbitratorfrom outside the IRS. If a non-IRS arbi-trator is selected, the taxpayer and Na-tional Office Appeals will equally sharecompensation, expenses, and related feesand costs of the arbitrator, as well as anyreasonable costs for the services of anoutside administrator subject to applica-ble rules and regulations for Governmentprocurement. The arbitrator will be acontractor subject to the disclosure re-strictions of I.R.C § 6103(n).

7. Criteria for selection of arbitrators.Criteria for selecting an arbitrator will in-clude some or all of the following: com-pletion of arbitration training, previousarbitration experience, a substantiveknowledge of tax law and knowledge ofindustry practices. Criteria may also in-clude the projected travel costs, hourlyfees and other expenses, which will be

considered subject to rules and regula-tions for Government procurement. Thearbitrator’s qualifications and potentialconflicts of interest should be thoroughlyreviewed prior to selection. The arbitratorshould agree to look solely to each partyfor one-half of his or her compensation,expenses and related reasonable fees andcosts, subject to the applicable rules andregulations for Government procurement.

8. Issues covered.The agreement toarbitrate will specify the factual issue(s)that the parties have agreed to arbitrate.Each party will prepare a summary oftheir position for consideration by the ar-bitrator. The parties should submit theirsummaries to the administrator no laterthan two weeks before the scheduled arbi-tration session.

The parties will set forth their agree-ment as to any legal guidance the arbitra-tor must consider, and may also set forththe tax or other treatment of the arbitra-tor’s findings or clarify any other issuesresulting from the arbitrator’s fact find-ing. If appropriate, the parties may re-quire the arbitrator to find a specific valuewithin a range agreed to by the parties.The arbitrator will look solely to the legalguidance provided by the parties. If thearbitrator desires further legal guidance,both parties must agree in writing to theguidance.

9. Site, date, agenda.The agreementto arbitrate should specify that the arbitra-tor may request hearings as necessary.The agreement must prohibit ex partecontacts between the arbitrator and eitherparty. In addition, the agreement mustspecify that no party, witness, agent orother person shall have contact with thearbitrator without the express approval ofthe taxpayer and Appeals. The agreementmust provide that the time and place ofany hearing will be determined at an ad-ministrative conference between the par-ties and an administrator who will befrom either ADR&CS or the organizationproviding the arbitrator.

10. Confidentiality. The arbitrationprocess is confidential. Therefore, all in-formation concerning any dispute resolu-tion communication is confidential andmay not be disclosed by any party or arbi-trator except as provided under 5 U.S.C §574. A dispute resolution communicationincludes all oral or written communica-tions prepared for the purposes of a dis-

pute resolution proceeding [see5 U.S.C.§ 571(5)].

In executing the arbitration agreement,the taxpayer consents to the disclosure bythe IRS of the taxpayer’s returns and re-turn information incident to the arbitra-tion to any participant or observer for thetaxpayer identified in the initial list ofparticipants and observers and to any par-ticipants and observers for the taxpayeridentified in writing by the taxpayer sub-sequent to execution of the agreement toarbitrate. (See section 3 above.) If the ar-bitration agreement is executed by a per-son pursuant to a power of attorney exe-cuted by the taxpayer, that power ofattorney must clearly express the tax-payer’s grant of authority to consent todisclose the taxpayer’s returns and returninformation by the IRS to third parties,and a copy of that power of attorney mustbe attached to the agreement.

IRS and Treasury employees, includingthe administrator, who participate or ob-serve in any way in the arbitration processand any person under contract to the IRSas described in I.R.C. § 6103(n), includ-ing the administrator, that the IRS invitesto participate or observe, will be subjectto the confidentiality and disclosure pro-visions of the Internal Revenue Code, in-cluding I.R.C. §§ 6103, 7213, and 7431.

11. Section 7214(a)(8) disclosure.Under I.R.C. § 7214(a)(8), IRS employ-ees who have knowledge or informationof the violation of any revenue law of theUnited States must report in writing suchknowledge or information to the Secre-tary. The agreement to arbitrate will statethis duty and the parties will acknowledgeit.

12. Disqualification. The arbitratorwill be disqualified from representing thetaxpayer in any pending or future actionthat involves the transactions or issuesthat are the particular subject matter of thearbitration. This disqualification extendsto representing any other parties involvedin the transactions or issues that are the particular subject matter of the arbitra-tion. Moreover, the arbitrator’s firm willbe disqualified from representing the tax-payer or any other parties involved in the transactions or issues that are the particu-lar subject matter of the arbitration in anaction that involves the transactions orissues that are the particular subject mat-ter of the arbitration.

January 18, 2000 320 2000–3 I.R.B.

The arbitrator’s firm will not be dis-qualified from representing the taxpayeror any other parties in any future actionthat involves the same transactions or is-sues that are the particular subject matterof the arbitration, provided that: (i) thearbitrator disclosed the potential of suchrepresentation prior to the parties’ accep-tance of the arbitrator; (ii) such action re-lates to a taxable year that is differentfrom the taxable year under arbitration;(iii) the firm’s internal controls precludethe arbitrator from any form of participa-tion in the matter; and (iv) the firm doesnot allocate to the arbitrator any part ofthe fee therefrom. In the event the arbi-trator has been selected prior to learningthe identity of any party involved in thearbitration, requirement (i) will bedeemed satisfied if the arbitrator promptlynotifies the parties of the potential repre-sentation.

Although the arbitrator may not receivea direct allocation of the fee from the tax-payer (or other party) in the matter forwhich the internal controls are in effect,the arbitrator will not be prohibited fromreceiving a salary, partnership share, orcorporate distribution established by priorindependent agreement. The arbitratorand the firm are not disqualified from rep-resenting the taxpayer or any other partiesinvolved in the arbitration in any mattersunrelated to the transactions or issues that

are the particular subject matter of the ar-bitration.

These procedures only apply to repre-sentations on matters before the IRS. Theprovisions of this section 12 are in addi-tion to any other applicable disqualifica-tion provisions including, for example,the rules of the American Bar AssociationModel Code of Professional Conduct andthe applicable canons of ethics.

13. Withdrawal. With the consent ofthe parties, the arbitrator may suspend thearbitration process to allow the parties toreach a final Appeals settlement at anytime prior to the scheduled arbitration ses-sion.

14. Arbitrator’s report. At the conclu-sion of the arbitration process, the arbitra-tor will prepare a brief written report andsubmit a copy to the administrator. SeeExhibit 3 below, for a model arbitrator’sreport. The report will not provide anyfindings or reasoning that represents aninterpretation of the law. The arbitrator islimited to the task of finding facts. Nei-ther party may appeal the finding(s) of thearbitrator nor contest the finding(s) in anyjudicial proceeding, including but notlimited to the Tax Court, United StatesCourt of Federal Claims or a federal dis-trict or appellate court.

15. Appeals procedures apply.If thearbitrator renders a decision on all orsome issues through the arbitration

process, Appeals will use established pro-cedures to close the case, including prepa-ration of a specific matters closing agree-ment (Form 906). See Statement ofProcedural Rules, 26 C.F.R. § 601.106.Delegation Order 236 (Rev. 3) may applyto settlements resulting from the arbitra-tion process. Each party enters this agree-ment in reliance on the other party’sagreement to be bound by the decision ofthe arbitrator.

16. Precedential Use.The findings bythe arbitrator will neither be binding onnor otherwise control the parties for tax-able years not covered by the arbitration.Except as provided in the agreement to ar-bitrate, the arbitration findings may not beused as precedent by any party.

17. Effective Date.These proceduresare effective for requests for arbitrationmade during the two-year test period be-ginning on January 18, 2000, the date thisAnnouncement is published in the Inter-nal Revenue Bulletin.

For further information contact:Thomas Carter Louthan, Director, Officeof Alternative Dispute Resolution andCustomer Service, National Office Ap-peals, (202) 694-1842 (not a toll-freenumber), or Gary Slayen, Office of Alter-native Dispute Resolution and CustomerService, National Office Appeals, (202)694-1837 (not a toll-free number).

2000–3 I.R.B. 321 January 18, 2000

Exhibit 1:Model Agreement to Arbitrate

1. The Arbitration Process. Arbitration is optional and will be used to assist [NAME OF TAXPAYER] and the InternalRevenue Service (IRS) - Appeals (the PARTIES) in resolving certain factual issues that are currently in the Appealsadministrative process. A factual issue is eligible for this process if it is susceptible to being resolved solely upon a find-ing of fact, and where any interpretation of law, regulation, ruling or other legal authority is agreed to by the PARTIES.The PARTIES to this agreement (see section 2 below) will submit the issue(s) for arbitration (see section 4 below) andagree to be bound by the Arbitrator’s findings on these issues. There can be no ex parte communication between eitherPARTY, any third party, witness, agent, or other person regarding the issue(s) for arbitration, with the arbitrator. Allcommunication between the arbitrator and either PARTY, including requesting and transferring documentation andinformation, will be made through an administrator who will be either the Appeals Office of Alternative DisputeResolution and Customer Service (ADR&CS) or the organization providing the arbitrator. The administrator will informand discuss with the PARTIES the rules and procedures pertaining to the arbitration process.

2. Participants. The participants in the arbitration session will be:

Taxpayer:

For Taxpayer:

For IRS:

Assistant Regional Director of Appeals - Large Case (ARDA-LC)

Appeals Associate Chief

Appeals Team Chief

Appeals Officer

Other

Appeals reserves the right to have an observer attend any arbitration. The purpose for this is to familiarize Appeals per-sonnel with the arbitration process. Taxpayers or their representatives may also have an observer attend the arbitration.

All participants and observers who will attend the arbitration on behalf of or at the request of a PARTY, including wit-nesses and attorneys, must be set forth in the list of participants and observers of section 2 of the Agreement to Arbitrate.If a PARTY subsequently modifies their list, then, no later than two weeks before the arbitration session, such PARTYwill submit to the administrator a complete and final list of participants and observers who will attend the arbitrationsession. The list must identify, for each participant or observer, their position with the PARTY or other affiliation (e.g.,a member of the XYZ law firm, counsel to the taxpayer), and their address, telephone and fax numbers. SeeExhibit 2.The administrator will submit each PARTY’s list to the other PARTY and to the arbitrator. The PARTIES and the arbi-trator by mutual agreement may modify the list of participants and observers in writing at any time up to and includingthe date of the arbitration session.

3. Selection of Arbitrator, Costs. [NAME OF TAXPAYER] and [NAME] , Assistant Regional Director of Appeals-Large Case (ARDA-LC) or successor, by mutual agreement, will select an arbitrator, and can use any local or nation-al organization that provides a roster of neutrals in selecting an arbitrator. The arbitrator may be a non-IRS individualor an Appeals arbitrator. An arbitrator shall have no official, financial, or personal conflict of interest with respect to thePARTIES, unless such interest is fully disclosed in writing to the PARTIES, and the PARTIES agree that the arbitratormay serve. See 5 U.S.C. § 573.

The costs of a non-IRS arbitrator will be shared equally by the taxpayer and National Office Appeals, subject to applicable rulesand regulations for Government procurement. If an Appeals arbitrator is selected, National Office Appeals will pay all expensesassociated with the arbitrator.

Aconflict results when an Appeals employee acts as an arbitrator. In such a case, Appeals will provide to the taxpayer a statementconfirming the employee’s proposed service as an arbitrator, that the person is a current employee of the IRS and that a conflictresults from that arbitrator’s continued status as an IRS employee. This statement shall be acknowledged by the taxpayer.

January 18, 2000 322 2000–3 I.R.B.

4. Issues to be Arbitrated. The PARTIES agree that the following issue(s) submitted for determination by the arbitrator arefactual in nature and do not require the arbitrator to interpret any law, regulation, ruling or other legal authority:

#1)#2)#3)

5. Guidance for Arbitrator.The arbitrator is not permitted to contact either PARTY, nor any participant, nor any other indi-vidual or other entity, in connection with this arbitration unless in the presence of both PARTIES.

Although the arbitrator is not permitted to make any findings of law or provide reasoning that represents an interpreta-tion of the law, it may be necessary for the arbitrator to refer to the law in determining a factual issue. The arbitratorshall look solely to the legal guidance provided by the PARTIES. Any legal guidance for the arbitrator is agreed to bythe PARTIES as follows:

When legal guidance provided by the PARTIES is in conflict, the arbitrator, where practicable, will ignore the guidanceand decide the factual issue. If it is not practicable to set aside the PARTIES’ guidance, then during the arbitration ses-sion or a hearing, the PARTIES will attempt to agree on the guidance needed to resolve the issue. If no agreement canbe reached and the guidance is necessary to decide the matter, then the matter cannot be arbitrated. If any legal guid-ance for the arbitrator was overlooked, the PARTIES may agree upon further legal guidance and the manner in which itis to be communicated to the arbitrator.

The PARTIES may also require the arbitrator to make certain findings, such as a specific value within a range agreed toby the PARTIES. The PARTIES should provide any further guidance for the arbitrator, and may also set forth the taxor other treatment of the arbitrator’s findings or clarify any other issues resulting from the arbitrator’s fact-finding.

6. Submission of Materials. Each PARTY agrees to provide a summary of their position including any evidence relevantand necessary for the arbitrator to understand and determine the issue(s). The PARTIES will submit their summary andany evidence to the administrator by two weeks before the arbitration session. The arbitrator may order a PARTY toproduce a summary of their documents and other evidence which the PARTY intends to present in support of its posi-tion and may order a PARTY to produce other documents, exhibits or evidence deemed necessary or appropriate. Anyand all information and materials that a PARTY provides must be provided to the administrator who will simultaneous-ly forward such to the Arbitrator and the other PARTY. a. The PARTIES agree that the arbitrator shall have the right to interview the following persons:

,and no other persons, except upon joint agreement of both PARTIES. The PARTIES shall specify the formand content of the questions to be asked by the arbitrator. The PARTIES shall specify the dates of the inter-view(s). Any such interviews shall be held in the presence of both PARTIES, or their counsel, unless eitherPARTY waives in writing their right to be present.

b. The PARTIES agree that the arbitrator shall have the right to inspect the following documents or other informa-tion:

,and no other evidentiary material, except upon agreement of both PARTIES. Such inspection shall occur onlyafter reasonable opportunity is given to both PARTIES to be present. If relevant, describe any agreed access bythe arbitrator to such documentation, including the location at which such access is to be made available.

2000–3 I.R.B. 323 January 18, 2000

c. The PARTIES agree that the methodology to be used by the arbitrator in deciding any issue described in sec-tion 4 must follow these principles:

,d. The PARTIES agree to clarify issues that may arise in calculating any deficiency or overpayment resulting

from the arbitrator’s findings and agree to the tax treatment of the arbitrator’s findings as follows:

,e. The PARTIES agree that the time and location of any hearing, or postponement for good cause, shall be deter-

mined by agreement between the PARTIES. If the PARTIES cannot agree, then the determination shall bemade by the administrator.

7. Contact with Arbitrator. The PARTIES agree that there shall be no ex parte communication between the arbitrator andeither PARTY or witness or agent for a PARTY. In addition, the arbitrator may not have contact with any other indi-viduals concerning the arbitration matter without the express approval of the PARTIES. Any contact with the arbitratorby either PARTY must be in the presence of the other PARTY and such contact must be arranged by the administrator.

8. Proposed Schedule. Subject to the approval of the arbitrator, the arbitration session will be conducted according to thefollowing schedule:

Submission ofMaterials to arbitrator: A DATE WHICH IS NOT LATER THAN TWO

WEEKS BEFORE THE DATE OFARBITRATION SESSION

Arbitration: MONTH DATE , YEAR

9. Place of Arbitration. The PARTIES should attempt to select a site at or near the arbitrator’s office, [NAME OFTAXPAYER’s] office, or an Appeals office.

10. Confidentiality IRS and Treasury employees who participate in any way in the arbitration process and any person undercontract to the IRS pursuant to I.R.C. § 6103(n), including the arbitrator, that the IRS invites to participate will be sub-ject to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C. §§ 6103, 7213, and7431. Seealso 5 U.S.C. § 574.

[NAME OF TAXPAYER] consents to the disclosure by the IRS of the taxpayer’s returns and return information inci-dent to the arbitration to any participant or observer for the taxpayer identified in the initial list of participants andobservers in section 2 above and to any participant or observer for[NAME OF TAXPAYER] identified in writing bythe taxpayer subsequent to execution of the agreement to arbitrate. If the arbitration agreement is executed by a per-son pursuant to a power of attorney executed by [NAME OF TAXPAYER] , that power of attorney must clearly expressthe grant of authority by [NAME OF TAXPAYER] to consent to disclose the returns and return information of [NAMEOF TAXPAYER ] by the IRS to third parties, and a copy of that power of attorney must be attached to this agreement.

11. I.R.C. Section 7214 (a)(8) Disclosure. The PARTIES acknowledge that IRS and all other Treasury employees involvedin this arbitration, such as an Appeals arbitrator, are bound by I.R.C. § 7214 (a)(8) and must report information con-cerning violations of any revenue law to the Secretary.

12. Record. A PARTY desiring a stenographic record shall make arrangements and shall bear costs. The PARTIES agreethat any stenographic record or other recording of the arbitration proceeding shall remain confidential as described insection 10 of this agreement.

13. Withdrawal and Postponement. By mutual agreement of the PARTIES, the arbitrator, through the administrator, mayallow the PARTIES to withdraw from the arbitration process in order to reach a final Appeals settlement any time beforethe scheduled arbitration session. Established Appeals procedures apply to any resolution reached by the PARTIES. Thearbitrator may grant postponements for good cause after a hearing before both PARTIES.

January 18, 2000 324 2000–3 I.R.B.

Exhibit 2 Model Arbitration List of Participants and Observers

Case Name: ___________________________________

Submitted By: _________________________________

Date: ________________________________________

Please list below allparticipants and observers attending the arbitration including witnesses, agents or other individuals,and attorneys, and indicate any observers with an asterisk next to their names. This form must be sent to the administrator no laterthan two weeks before the arbitration session. The administrator will promptly forward each party’s list to the other party and tothe arbitrator.

NAME & POSITION ORTELEPHONE AFFILIA TION ADDRESS FAX No.

14. Report by Arbitrator. The arbitrator’s report will identify each issue described in section 4, and will explain the find-ings for each issue and any methodology referred to in section 6.c. that was utilized in reaching such findings.

15. Arbitrator’s Decision is Final. The PARTIES agree to be bound by the arbitrator’s findings and to incorporate thesefindings into an Appeals closing agreement that the PARTIES will execute. Delegation Order 236 (Rev. 3) may beapplied to settlements resulting from the arbitration process. Neither

PARTY may appeal the findings of the arbitrator nor contest the finding(s) in any judicial proceeding, including but notlimited to the United States Tax Court, United States Court of Federal Claims, or a federal district or federal appellatecourt. Each PARTY enters this agreement in reliance on the other PARTY’S agreement to be bound by the decision ofthe arbitrator.

16. Precedential Use.The findings by the arbitrator will not be binding on, or otherwise control, the PARTIES for taxableyears not covered by the arbitration. Except as provided in the agreement to arbitrate, the arbitration findings may notbe used as precedent by any PARTY.

INTERNAL REVENUE SERVICE, NAME OF TAXPAYER APPEALSBy: _____________________ By: _____________________ Assistant Regional Director NAMEof Appeals-Large Case Title

Date :___________________ Date: ____________________

2000–3 I.R.B. 325 January 18, 2000

Exhibit 3:Model Arbitrator’s Report

The PARTIES below agreed to arbitrate their dispute on MONTH, DATE, YEAR .

The arbitrator made the following findings:

ISSUE:

FINDING:

ISSUE:

FINDING:

ISSUE:

FINDING:

Settlement documents will be prepared under established Appeals procedures.

DATED this day of , 200X

/s/ Arbitrator

/s/ PARTY

/s/ PARTY

Notice of Proposed Rulemakingby Cross Reference toTemporary Regulation

Disclosures of ReturnInformation to Officers andEmployees of the Department ofAgriculture for CertainStatistical Purposes and RelatedActivities

REG–116704–99


ACTION: Notice of proposed rulemak-ing by cross-reference to temporary regu-lations.

SUMMARY: This document provides aproposed regulation relating to the dis-closure of return information to officersand employees of the Department ofAgriculture for certain statistical pur-poses and related activities. The pro-posed regulation would permit the IRSto disclose return information to the De-partment of Agriculture to structure,

prepare, and conduct the Census ofAgriculture. The text of the temporaryregulation T.D. 8854, published on page306, also serves as the text of this pro-posed regulation.

DATES: Written and electronic com-ments and requests for a public hearingmust be received by April 3, 2000.

ADDRESSES: Send submissions to:CC:DOM:CORP:R (REG–116704–99),room 5226 Internal Revenue Service, POB7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand deliv-ered Monday through Friday between thehours of 8 a.m. and 5 p.m. to : CC:DOM:CORP:R (REG–116704–99),Courier’s Desk, Internal Revenue Service,1111 Constitution Avenue, NW; Washing-ton, DC. Alternatively, taxpayers may sub-mit comments electronically via the Internetby selecting the “Tax Regs” option on theIRS Home Page, or by submitting commentsdirectly to the IRS Internet site:http://www.irs.gov/tax_regs/regslist.html.

FOR FURTHER INFORMATION CON-TACT: Concerning the proposed regula-tions, Jennifer S. McGinty, (202) 622-

4570; concerning submissions of com-ments, Guy Traynor (202) 622-7180 (nottoll-free numbers).


Background

Temporary regulations in T.D. 8854amend the Procedure and AdministrationRegulations (26 CFR part 301) relating tosection 6103(j)(5). The temporary regula-tions contain rules relating to the disclo-sure of return information to officers andemployees of the Department of Agricul-ture for certain statistical purposes and re-lated activities.

The text of these temporary regulationsalso serves as the text of these proposedregulations. The preamble to the temporaryregulations explains the temporary regula-tions and these proposed regulations.


This proposed regulation will allow theIRS to disclose return information to theDepartment of Agriculture to structure,prepare, and conduct the Census of Agri-culture.

January 18, 2000 326 2000–3 I.R.B.

The disclosure of the specific items ofreturn information identified in this regu-lation is necessary in order for the Depart-ment of Agriculture to accurately identify,locate, and classify, as well as properlyprocess, information from agriculturalbusinesses to be surveyed for the statuto-rily mandated Census of Agriculture.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It hasalso been determined that section 553(b)of the Administrative Procedure Act (5U.S.C. chapter 5) does not apply to theseregulations, and because these regulationsdo not impose a collection of informationon small entities, the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) does notapply. Pursuant to section 7805(f) of theCode, this proposed regulation will besubmitted to the Chief Counsel for Advo-cacy for the Small Business Administra-tion for comment on its impact on smallbusinesses.

Comments and Requests for a PublicHearing

Before this proposed regulation isadopted as a final regulation, considera-tion will be given to any electronic andwritten comments (a signed original andeight (8) copies) that are submitted timelyto the Service. Additionally, the Serviceand Treasury Department specifically re-quest comments on the clarity of the pro-posed regulation and how it can be madeeasier to understand. All comments willbe available for public inspection andcopying. A public hearing may be sched-uled if requested in writing by a personthat timely submits comments. If a publichearing is scheduled, notice of the date,time, and place for the hearing will bepublished in the Federal Register.


The principal author of this regulationis Jennifer S. McGinty, Office of the As-sistant Chief Counsel (Disclosure Litiga-tion), IRS. However, other personnelfrom the IRS and Treasury Departmentparticipated in its development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 301 is pro-posed to be amended as follows:

PART 301—PROCEDURE ANDADMINISTRATION

Paragraph 1. The authority citation forpart 301 is amended by adding an entry innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 301.6103(j)(5)–1 also issued

under 26 U.S.C. 6103(j)(5). * * *Par. 2. Section 301.6103(j)(5)–1 is

added to read as follows:§ 301.6103(j)(5)–1. Disclosures of re-turn information to officers and em-ployees of the Department of Agricul-ture for certain statistical purposes andrelated activities. [The text of this proposed regulation is thesame as the text of §301.6103(j)(5)–1Tpublished elsewhere in T.D. 8854]* * *

Charles O. Rossotti,Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on Janu-ary 3, 2000, 8:45 a.m., and published in the issue ofthe Federal Register for January 4, 2000, 65 F.R.263)

Notice of Proposed Rulemaking

Relief for Service in CombatZone and for PresidentiallyDeclared Disaster

REG–101492–98


ACTION: Notice of proposed rulemaking.

SUMMARY: This document containsproposed regulations relating to the post-ponement of certain tax-related deadlinesdue either to service in a combat zone or aPresidentially declared disaster. The pro-posed regulations reflect changes to thelaw made by the Taxpayer Relief Act of1997. The proposed regulations affecttaxpayers serving in a combat zone andtaxpayers affected by a Presidentially de-clared disaster.

DATES: Written or electronically generatedcomments and requests for a public hearingmust be received by March 30, 2000.

ADDRESSES: Send submissions to:CC:DOM:CORP:R (REG–101492– 98),room 5228, Internal Revenue Service,POB 7604, Ben Franklin Station, Wash-ington, DC 20044. Submissions may behand delivered between the hours of 8a.m. and 5 p.m. to: CC:DOM:CORP:R(REG–101492–98), Courier’s Desk, In-ternal Revenue Service, 1111 ConstitutionAvenue NW, Washington, DC. Alterna-tively, taxpayers may submit commentselectronically via the Internet by selectingthe “Tax Regs” option on the IRS HomePage, or by submitting comments directlyto the IRS Internet site athttp://www.irs.gov/tax_regs/regslist.html.

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, Bev-erly A. Baughman, (202) 622-4940; con-cerning the hearing and submissions ofwritten comments, Guy Traynor (202)622-7180 (not toll-free numbers).


Background

This document contains proposedamendments to the Regulations on Proce-dure and Administration (26 CFR part301) under section 7508 of the InternalRevenue Code (Code), relating to post-ponement of certain acts by reason of ser-vice in a combat zone, and section 7508A,relating to postponement of certain tax-re-lated deadlines by reason of a Presiden-tially declared disaster. Section 7508Awas added to the Code by section 911 ofthe Taxpayer Relief Act of 1997, PublicLaw 105–34 (111 Stat. 788 (1997)), effec-tive for any period for performing an actthat had not expired before August 5,1997.

In general, section 7508 provides that thetime individuals serve in a Acombat zone@plus 180 days will be disregarded in deter-mining whether acts listed in section7508(a)(1), such as filing returns, payingtaxes, filing certain petitions with the TaxCourt, filing a claim for credit or refund,bringing suit, and assessing tax, are per-formed within the time prescribed. Undersection 7508(a)(1)(K), the Secretary has theauthority to provide by regulation other actsto which section 7508 will apply.

2000–3 I.R.B. 327 January 18, 2000

Section 7508A provides that, in thecase of a taxpayer determined by the Sec-retary to be affected by a Presidentiallydeclared disaster, the Secretary may post-pone certain tax-related deadlines for upto 90 days. The deadlines that may bepostponed are determined by cross-refer-ence to section 7508(a)(1). Pursuant tosection 7508A(b), the provision does notapply for purposes of determining intereston any overpayment or underpayment (ifthe underpayment arose prior to the disas-ter). See also H.R. Rep. No. 148, 105th

Cong., 1st Sess. 397 (1997).


Under section 7508, the proposed regu-lations provide that, in addition to the actsdescribed in section 7508(a)(1), the IRSmay postpone other acts specified in rev-enue rulings, revenue procedures, notices,or other guidance published in the InternalRevenue Bulletin.

Under section 7508A, the proposed reg-ulations provide that, for any tax, penalty,additional amount, or addition to the tax ofan affected taxpayer in a Presidentially de-clared disaster area, the IRS may disregardup to 90 days in determining whether cer-tain tax-related deadlines described in sec-tion 7508(a)(1) were satisfied and theamount of any credit or refund. The pro-posed regulations apply to taxpayer dead-lines, such as the time for filing returnsand paying taxes relating to most incometaxes (including domestic service employ-ment taxes), estate taxes, and gift taxes;filing certain court documents, includingpetitions filed in United States Tax Courtfor redetermination of a deficiency; andfiling claims for refund. In addition, underthe authority in section 7508(a)(1)(K), theproposed regulations provide that for pur-poses of section 7508A, the IRS may dis-regard up to 90 days in determiningwhether the deadlines for filing returnsand paying taxes relating to certain excisetaxes and employment taxes have beenmet. Although the proposed regulationsdo not apply to deadlines for depositingfederal taxes pursuant to section 6302 andthe underlying regulations, it is anticipatedthat the failure to deposit penalty undersection 6656 will be waived in appropriatecircumstances, and thus section 7508A re-lief will not be necessary.

The proposed regulations also providefor the postponement of certain govern-

ment deadlines, such as the time for mak-ing assessments, taking collection action,and bringing suit. However, the IRS andTreasury Department anticipate that the au-thority to postpone government deadlineswill only be used in limited circumstanceswhen it is determined that such a postpone-ment is necessary and appropriate.

The proposed regulations provide thatan affected taxpayer is 1) any individualwhose principal residence is located in acovered disaster area; 2) any businesswhose principal place of business is lo-cated in a covered disaster area; 3) any in-dividual who is a relief worker affiliatedwith a recognized government or philan-thropic organization and who is assistingin a covered disaster area; 4) any individ-ual whose principal residence or any busi-ness whose principal place of business islocated outside the disaster area, butwhose tax records necessary to meet cer-tain tax-related deadlines are maintainedin a location, such as a practitioner=s of-fice, in a covered disaster area; 5) any es-tate or trust whose tax records necessaryto meet certain tax-related deadlines aremaintained in a location, such as a practi-tioner=s office, in a covered disaster area;6) any individual who files a joint returnwith an affected taxpayer; or 7) any otherperson who is determined by the IRS tobe affected by a Presidentially declareddisaster. A covered disaster area meansthe location of a Presidentially declareddisaster to which the IRS determines sec-tion 7508A applies.

It is anticipated that the IRS=s authorityto grant extensions of time to file tax re-turns under section 6081 and to pay taxwith respect to such returns under section6161 will provide taxpayers with the nec-essary relief in the case of many Presiden-tially declared disasters. However, if theIRS determines that section 7508A applies,it will publish guidance to inform taxpay-ers of the counties included in the covereddisaster area, the taxpayer and governmentdeadlines to which section 7508A applies,and the period to be disregarded (up to 90days). Guidance will be published as soonas practicable after the declaration of aPresidentially declared disaster.

Section 6404(h) provides that in the caseof a Presidentially declared disaster, ifthere is an extension of time to file incometax returns under section 6081 and an ex-tension of time to pay income tax with re-

spect to such returns under section 6161,interest will be abated during the extensionperiod. The proposed regulations clarifythat if, in addition to an extension undersections 6081 and 6161, there is a post-ponement of tax-related deadlines undersection 7508A, interest will be abatedunder section 6404(h) for the period oftime disregarded under section 7508A inaddition to the period of time covered bythe extensions of time to file and pay. Theabatement of interest only applies in thecase of underpayments of income tax thatarise during the extension period.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It alsohas been determined that section 553(b)of the Administrative Procedure Act (5U.S.C. chapter 5) does not apply to theseregulations, and because these regulationsdo not impose a collection of informationon small entities, the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) does notapply. Pursuant to section 7805(f) of theCode, this notice of proposed rulemakingwill be submitted to the Chief Counsel forAdvocacy of the Small Business Admin-istration for comment on its impact onsmall business.

Comments and Requests for a PublicHearing

Before these proposed regulations areadopted as final regulations, considera-tion will be given to any electronic orwritten comments (a signed original and 8copies) that are submitted timely to theIRS. The IRS and Treasury Departmentspecifically request comments on the clar-ity of the proposed regulations and howthey can be made easier to understand.All comments will be available for publicinspection and copying. A public hearingmay be scheduled if requested by any per-son who timely submits comments. If apublic hearing is scheduled, notice of thedate, time, and place for the hearing willbe published in the Federal Register.


The principal author of these regula-tions is Beverly A. Baughman, Office of

January 18, 2000 328 2000–3 I.R.B.

Assistant Chief Counsel (Income Tax &Accounting). However, other personnelfrom the IRS and Treasury Departmentparticipated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 301 is pro-posed to be amended as follows:

PART 301—PROCEDURE AND AD-MINISTRATION

Paragraph 1. The authority citation forpart 301 is amended by adding entries innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 301.7508–1 also issued under

26 U.S.C. 7508(a)(1)(K).Section 301.7508A–1 also issued

under 26 U.S.C. 7508(a)(1)(K) and7508A(a). * * *

Par. 2. Section 301.7508–1 is added toread as follows:§301.7508–1 Time for performing cer-tain acts postponed by reason of servicein a combat zone.

(a) General rule. The period of timethat may be disregarded for performingcertain acts pursuant to section 7508 ap-plies to acts described in section7508(a)(1) and to other acts specified in arevenue ruling, revenue procedure, no-tice, or other guidance published in theInternal Revenue Bulletin (see‘601.601(d)(2) of this chapter).

(b) Effective date. This section appliesto any period for performing an act thathas not expired before December 30,1999.

Par. 3. Section 301.7508A–1 is addedto read as follows:‘301.7508A–1 Postponement of certaintax-related deadlines by reason of Presi-dentially declared disaster.

(a) Scope.This section prescribes rulesby which the Internal Revenue Service(IRS) may postpone deadlines for per-forming certain acts with respect to taxesother than taxes not administered by theIRS such as taxes imposed for firearms(chapter 32, section 4181); harbor mainte-nance (chapter 36, section 4461); and al-cohol and tobacco (subtitle E).

(b) Postponed deadlines.For any tax,penalty, additional amount, or addition tothe tax of an affected taxpayer (defined inparagraph (d)(1) of this section), the IRSmay disregard a period of up to 90 days in

determining, under the internal revenuelaws—

(1) Whether any or all of the acts de-scribed in paragraph (c) of this sectionwere performed within the time pre-scribed; and

(2) The amount of any credit or refund.(c) Acts for which a period may be dis-

regarded—(1) Acts performed by taxpay-ers. Paragraph (b) of this section appliesto the following acts performed by tax-payers—

(i) Filing any return of income, estate,gift, excise (other than taxes imposed forfirearms (chapter 32, section 4181); har-bor maintenance (chapter 36, section4461); and alcohol and tobacco (subtitleE)) or employment tax (including incometax withheld at source and income tax im-posed by subtitle C or any law supersededthereby);

(ii) Payment of any income, estate, gift,excise (other than taxes imposed forfirearms (chapter 32, section 4181); har-bor maintenance (chapter 36, section4461); and alcohol and tobacco (subtitleE)) or employment tax (including incometax withheld at source and income tax im-posed by subtitle C or any law supersededthereby) or any installment thereof (in-cluding payment under section 6159 relat-ing to installment agreements) or of anyother liability to the United States in re-spect thereof, but not including depositsof taxes pursuant to section 6302 and theregulations thereunder;

(iii) Filing a petition with the Tax Courtfor redetermination of a deficiency, or forreview of a decision rendered by the TaxCourt;

(iv) Allowance of a credit or refund ofany tax;

(v) Filing a claim for credit or refund ofany tax;

(vi) Bringing suit upon a claim forcredit or refund of any tax; and

(vii) Any other act specified in a rev-enue ruling, revenue procedure, notice,or other guidance published in theInternal Revenue Bulletin (see‘601.601(d)(2) of this chapter).

(2) Acts performed by the government.Paragraph (b) of this section applies to thefollowing acts performed by the govern-ment—

(i) Assessment of any tax;(ii) Giving or making any notice or de-

mand for the payment of any tax, or with

respect to any liability to the UnitedStates in respect of any tax;

(iii) Collection by the Secretary, bylevy or otherwise, of the amount of any li-ability in respect of any tax;

(iv) Bringing suit by the United States,or any officer on its behalf, in respect ofany liability in respect of any tax; and

(v) Any other act specified in a revenueruling, revenue procedure, notice, or otherguidance published in the Internal Rev-enue Bulletin (see ‘601.601(d)(2) of thischapter).

(d) Definitions—(1) Affected taxpayermeans—

(i) Any individual whose principal resi-dence (for purposes of section1033(h)(4)) is located in a covered disas-ter area;

(ii) Any business whose principal placeof business is located in a covered disasterarea;

(iii) Any individual who is a reliefworker affiliated with a recognized gov-ernment or philanthropic organization andwho is assisting in a covered disaster area;

(iv) Any individual whose principalresidence (for purposes of section1033(h)(4)) or any business whose princi-pal place of business is not located in acovered disaster area, but whose recordsnecessary to meet a deadline for an actspecified in paragraph (c) of this sectionare maintained in a location, such as apractitioner=s office, in a covered disasterarea;

(v) Any estate or trust whose taxrecords necessary to meet a deadline foran act specified in paragraph (c) of thissection are maintained in a location, suchas a practitioner=s office, in a covereddisaster area;

(vi) The spouse of an affected taxpayer,solely with regard to a joint return of thehusband and wife; or

(vii) Any other person determined bythe IRS to be affected by a Presidentiallydeclared disaster (within the meaning ofsection 1033(h)(3)).

(2) Covered disaster area means anarea of a Presidentially declared disaster(within the meaning of section1033(h)(3)) to which the IRS has deter-mined paragraph (b) of this section ap-plies.

(e) Notice of postponement of certainacts. If any tax- related deadline is post-poned pursuant to section 7508A and this

2000–3 I.R.B. 329 January 18, 2000

section, the IRS will publish a revenueruling, revenue procedure, notice, an-nouncement, news release, or other guid-ance (see ‘601.601(d)(2) of this chapter)describing the acts postponed, the numberof days disregarded with respect to eachact, the time period to which the post-ponement applies, and the location of thecovered disaster area. Guidance underthis paragraph (e) will be published assoon as practicable after the declaration ofa Presidentially declared disaster.

(f) Abatement of interest under section6404(h). In the case of a Presidentiallydeclared disaster, if there is an extensionof time to file income tax returns undersection 6081 and an extension of time topay income tax with respect to such returnunder section 6161, and, in addition, apostponement of tax-related deadlinesunder section 7508A, interest on an un-derpayment of income tax that arises dur-ing such period will be abated under sec-tion 6404(h) for the period of timedisregarded under section 7508A in addi-tion to the period of time covered by theextension of time to file and the extensionof time to pay.

(g) Examples. The rules of this sectionare illustrated by the following examples:

Example 1. (i) Corporation M, a calendar year

taxpayer, has its principal place of business in

County A in State X. Pursuant to a timely filed re-

quest for extension of time to file, Corporation M’s

1999 Form 1120, “U.S. Corporation Income Tax Re-

turn,” is due on September 15, 2000. Also due on

September 15, 2000, is Corporation M’s third quar-

ter estimated tax payment for 2000. Corporation

M’s 2000 third quarter Form 720, “Quarterly Fed-

eral Excise Tax Return,” and third quarter Form 941,

“Employer’s Quarterly Federal Tax Return,” are due

on October 31, 2000. In addition, Corporation M

has an employment tax deposit due on September

15, 2000.

(ii) On September 1, 2000, a hurricane strikes

County A. On September 6, 2000, the President de-

clares that County A is a disaster area within the

meaning of section 1033(h)(3). The IRS determines

that County A in State X is a covered disaster area

and publishes guidance informing taxpayers that for

acts described in paragraph (c) of this section that

are required to be performed within the period be-

ginning on September 1, 2000, and ending on No-

vember 6, 2000, 90 days will be disregarded in de-

termining whether the acts are performed timely.

(iii) Because Corporation M=s principal place of

business is in County A, Corporation M is an af-

fected taxpayer. Accordingly, Corporation M=s

1999 Form 1120 will be filed timely if filed on or

before December 14, 2000. Corporation M=s 2000

third quarter estimated tax payment will be made

timely if paid on or before December 14, 2000. In

addition, because excise and employment tax returns

are described in paragraph (c) of this section, Corpo-

ration M’s 2000 third quarter Form 720 and third

quarter Form 941 will be filed timely if filed on or

before January 29, 2001. However, because de-

posits of taxes are excluded from the scope of para-

graph (c) of this section, Corporation M’s employ-

ment tax deposit is due on September 15, 2000.

Example 2. The facts are the same as in Example

1, except that during 2000, Corporation M=s 1996

Form 1120 is being examined by the IRS. Pursuant

to a timely filed request for extension of time to file,

Corporation M timely filed its 1996 Form 1120 on

September 15, 1997. Without application of this

section, the statute of limitations on assessment for

1996 income tax will expire on September 15, 2000.

However, pursuant to paragraph (c) of this section,

assessment of tax is one of the government acts for

which up to 90 days may be disregarded. The IRS

determines that an extension of the statute of limita-

tions is necessary and appropriate under these cir-

cumstances. Because the September 15, 2000, expi-

ration date of the statute of l imitations on

assessment falls within the period of the disaster as

described in the IRS=s published guidance, the 90

day period disregarded under paragraph (b) of this

section begins on September 16, 2000, and ends on

December 14, 2000. Accordingly, the statute of lim-

itations on assessment for Corporation M=s 1996 in-

come tax will expire on December 14, 2000.


2, except that the examination of the 1996 taxable

year was completed earlier in 2000, and on July 28,

2000, the IRS mailed a statutory notice of deficiency

to Corporation M. Without application of this sec-

tion, Corporation M has 90 days (or until October

26, 2000) to file a petition with the Tax Court. How-

ever, pursuant to paragraph (c) of this section, filing

a petition with the Tax Court is one of the taxpayer

acts for which up to 90 days may be disregarded.

Because Corporation M is an affected taxpayer, Cor-

poration M’s petition to the Tax Court will be filed

timely if filed on or before January 24, 2001.

Example 4. (i) H and W, individual calendar year

taxpayers, intend to file a joint Form 1040, “U.S. In-

dividual Income Tax Return,” for the 2001 taxable

year and are required to file a Schedule H, “House-

hold Employment Taxes.” The joint return is due on

April 15, 2002. H and W fully and timely paid all

taxes for the 2001 taxable year, including domestic

service employment taxes, through withholding and

estimated tax payments. H and W=s principal resi-

dence is in County B in State Y.

(ii) On April 2, 2002, a severe ice storm strikes

County B. On April 5, 2002, the President declares

that County B is a disaster area within the meaning

of section 1033(h)(3). The IRS determines that

County B in State Y is a covered disaster area and

publishes guidance informing taxpayers that for acts

described in paragraph (c) of this section that are re-

quired to be performed within the period beginning

on April 2, 2002, and ending on April 19, 2002, 90

days will be disregarded in determining whether the

acts are performed timely.

(iii) Because H and W=s principal residence is in

County B, H and W are affected taxpayers. Because

April 15, 2002, the due date of H and W=s 2001

Form 1040 and Schedule H, falls within the period

of the disaster as described in the IRS=s published

guidance, the 90 day period disregarded under para-

graph (b) of this section begins on April 16, 2002,

and ends on July 14, 2002, a Sunday. Pursuant to

section 7503, if the last day for performing an act

falls on Saturday, Sunday, or a legal holiday, the per-

formance of the act shall be considered timely if it is

performed on the next succeeding day that is not a

Saturday, Sunday, or legal holiday. Accordingly, H

and W=s 2001 Form 1040 will be filed timely if

filed on or before July 15, 2002. In addition, the

Schedule H will be filed timely if filed on or before

July 15, 2002.


4, except H and W want to file an amended return to

request a refund of 1998 taxes. H and W timely

filed their 1998 income tax return on April 15, 1999.

Without application of this section, H and W’s

amended 1998 tax return must be filed on or before

April 15, 2002. However, pursuant to paragraph (c)

of this section, filing a claim for refund of a tax is

one of the taxpayer acts for which up to 90 days may

be disregarded. Ninety days are disregarded under

paragraph (b) of this section beginning on April 16,

2002, and ending on July 14, 2002. Accordingly, H

and W’s claim for refund for 1998 taxes will be filed

timely if filed, as in Example 4, on or before July 15,

2002.

Example 6. (i) L is an unmarried, calendar year

taxpayer whose principal residence is located in

County R in State T. L does not timely file a 2001

Form 1040, “U.S. Individual Income Tax Return,”

which is due on April 15, 2002, and does not timely

pay tax owed on that return. Absent reasonable

cause, L is subject to the failure to file and failure to

pay penalties under section 6651 beginning on April

16, 2002.

(ii) On May 10, 2002, a tornado strikes County

R. On May 14, 2002, the President declares that

County R is a disaster area within the meaning of

section 1033(h)(3). The IRS determines that County

R in State T is a covered disaster area and publishes

guidance informing taxpayers that for acts described

in paragraph (c) of this section that are required to

January 18, 2000 330 2000–3 I.R.B.

be performed within the period beginning on May

10, 2002, and ending on June 27, 2002, 90 days will

be disregarded in determining whether the acts are

timely.

(iii) On May 31, 2002, L files a 2001 Form 1040,

“U.S. Individual Income Tax Return,” and pays the

tax owed for 2001.

(iv) Because L’s principal residence is in County

R, L is an affected taxpayer. For purposes of penal-

ties under section 6651, 90 days are disregarded

under paragraph (b) of this section beginning on

May 10, 2002. Because L files the return on May

31, 2002, the penalties under section 6651 will run

from April 16, 2002, until May 10, 2002. However,

because the underpayment arose prior to the exten-

sion period, L will be liable for underpayment inter-

est for the entire period of April 16, 2002, through

May 31, 2002.


6, except L does not file the 2001 Form 1040 until

November 25, 2002. Ninety days are disregarded

under paragraph (b) of this section beginning on

May 10, 2002, and ending on August 8, 2002.

Therefore, the section 6651 penalties will run from

April 16, 2002, until May 10, 2002, and from Au-

gust 9, 2002, until November 25, 2002. However,

because the underpayment arose prior to the exten-

sion period, L will be liable for underpayment inter-

est for the entire period of April 16, 2002, through

November 25, 2002.

Example 8. (i) H and W, individual calendar year

taxpayers, intend to file a joint Form 1040, AU.S.

Individual Income Tax Return,@ for the 2001 tax-

able year. The joint return is due on April 15, 2002.

After credits for withholding under section 31 and

estimated tax payments, H and W owe tax for the

2001 taxable year. H and W’s principal residence is

in County C in State Z.

(ii) On March 1, 2002, severe flooding strikes

County C. On March 5, 2002, the President declares

that County C is a disaster area within the meaning

of section 1033(h)(3). The IRS determines that

County C in State Z is a covered disaster area and

publishes guidance informing taxpayers that for acts

described in paragraph (c) of this section that are re-

quired to be performed within the period beginning

on March 1, 2002, and ending on April 25, 2002, 90

days will be disregarded in determining whether the

acts are performed timely. The guidance also grants

affected taxpayers an additional 6 month extension

of time to file returns under section 6081 and an ad-

ditional 6 month extension of time to pay under sec-

tion 6161.

(iii) Because H and W’s principal residence is in

County C, H and W are affected taxpayers. Pursuant

to the published guidance, H and W have until Janu-

ary 13, 2003, to file their return and pay the tax.

This date is computed as follows: Under sections

6081 and 6161, H and W will have an additional 6

months, until October 15, 2002, to file and pay the

tax. Further, under paragraph (f) of this section, 90

days are disregarded in determining the period of the

extension. Therefore, H and W=s return and pay-

ment of tax will be timely if filed and paid on or be-

fore January 13, 2003. In addition, under section

6404(h), underpayment interest under section 6601

is abated for the entire period, from April 16, 2002,

until January 13, 2003.

(h) Effective date. This section appliesto disasters declared after December 30,1999.

Robert E. Wenzel,Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on De-cember 29, 1999, 8:45 a.m., and published in theissue of the Federal Register for December 30, 1999,64 F.R. 73444)

2000–3 I.R.B. i January 18, 2000

Revenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe theeffect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus,if an earlier ruling held that a principleapplied to A, and the new ruling holdsthat the same principle also applies to B,the earlier ruling is amplified. (Comparewith modified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.

Distinguisheddescribes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial difference between them.

Modified is used where the substanceof a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A but notto B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling ismodified because it corrects a publishedposition. (Compare with amplified andclarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.

Revoked describes situations where theposition in the previously published rul-ing is not correct and the correct positionis being stated in the new ruling.

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the

new ruling does more than restate thesubstance of a prior ruling, a combinationof terms is used. For example, modifiedand superseded describes a situationwhere the substance of a previously pub-lished ruling is being changed in part andis continued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this casethe previously published ruling is firstmodified and then, as modified, is super-seded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling andthat list is expanded by adding furthernames in subsequent rulings. After theoriginal ruling has been supplementedseveral times, a new ruling may be pub-lished that includes the list in the originalruling and the additions, and supersedesall prior rulings in the series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current use and for-merly used will appear in material published in theBulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedral Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

Definition of Terms

January 18, 2000 ii 2000–3 I.R.B.

Numerical Finding List1

Bulletins 2000–1 and 2

Announcements:

2000–1, 2000–2 I.R.B. 2942000–2, 2000–2 I.R.B. 2952000–3, 2000–2 I.R.B. 296

Notices:

2000–1, 2000–2 I.R.B. 288

Proposed Regulations:

REG–106012–98, 2000–2 I.R.B. 290

Revenue Procedures:

2000–1, 2000–1 I.R.B. 42000–2, 2000–1 I.R.B. 732000–3, 2000–1 I.R.B. 1032000–4, 2000–1 I.R.B. 1152000–5, 2000–1 I.R.B. 1582000–6, 2000–1 I.R.B. 1872000–7, 2000–1 I.R.B. 2272000–8, 2000–1 I.R.B. 2302000–9, 2000–2 I.R.B. 2802000–10, 2000–2 I.R.B. 287

Revenue Rulings:

2000–1, 2000–2 I.R.B. 250

Treasury Decisions:

8849, 2000–2 I.R.B. 2458850, 2000–2 I.R.B. 2658851, 2000–2 I.R.B. 2758852, 2000–2 I.R.B.253

1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., published inInternal Revenue Bulletins 1999–27 through1999–52 is in Internal Revenue Bulletin 2000–1,dated January 3, 2000.

2000–3 I.R.B. iii January 18, 2000

Finding List of Current Action onPreviously Published Items1

Bulletins 2000–1 and 2

Notices:

97–19Modified by Rev. Proc. 2000–1, 2000–1 I.R.B. 4

Revenue Procedures:

96–13Modified by Rev. Proc. 2000–1, 2000–1 I.R.B. 4

98–64Superseded by Rev. Proc. 2000–9, 2000–2 I.R.B. 280


99–2Superseded byRev. Proc. 2000–2, 2000–1 I.R.B. 73








Treasury Decisions:

8846Corrected by Ann. 2000–3, 2000–2 I.R.B. 296

1 A cumulative list of previously published items inInternal Revenue Bulletins 1999–27 through1999–52 is in Internal Revenue Bulletin 2000–1,dated January 3, 2000.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by theSuperintendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Pleaseallow two to six weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THEINTERNAL REVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, wewould be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the IRS Bulletin Unit, OP:FS:FP:P:1, Room 5617, 1111 Constitution Avenue NW, Washington, DC 20224.