SPECIAL ANNOUNCEMENT - Internal Revenue Service · and other transactions involving stock of the common ... meaning of various Code provisions in light of the ... digests of revenue

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Bulletin No. 1996–17April 22, 1996

HIGHLIGHTSOF THIS ISSUE

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

SPECIAL ANNOUNCEMENT

Announcement 96–32, page 18.A public hearing will be held on May 22, 1996, onproposed regulations to implement a provision of theTax Reform Act of 1984 permitting the reissuance ofmortgage credit certificates.

INCOME TAX

T.D. 8660, page 4.Final regulations under section 1502 of the Codedisallow losses and exclude gain for certain dispositionsand other transactions involving stock of the commonparent of a consolidated group.

Notice 96–25, page 11.Electricity produced from certain renewable resources;calendar year 1996 inflation adjustment factor andreference prices. This notice announces the calendaryear 1996 inflation adjustment factor and referenceprices for the renewable electricity production creditunder section 45 of the Code.

EMPLOYMENT TAXES

T.D. 8661, page 7.IA–03–94, page 12.Temporary and proposed regulations under section6302 of the Code relate to Federal tax deposits byelectronic funds transfer. A public hearing on theproposed regulations will be held on July 16, 1996.

ADMINISTRATIVE

Announcement 96–25, page 13.Copies of proposed examination guidelines pertaining tomultiemployer plans are now available from the Service.

In addition, the Service is seeking public commentsabout these guidelines before they are finalized in theInternal Revenue Manual.

Announcement 96–26, page 13.This announcement provides information to assisttaxpayers in requesting a refund of the excise taxdescribed in section 4972 of the Code for certainnondeductible contributions that were retroactivelyexempted from the section 4972 excise tax by theRetirement Protection Act of 1994.

Announcement 96–27, page 16.American Flag Defender, Inc., Berlin, MD, no longerqualifies as an organization to which contributions aredeductible under section 170 of the Code.

Announcement 96–28, page 16.T.D. 8635, 1996–3 I.R.B. 5, relating to nonbanktrustees with respect to the adequacy of net worthrequirements that must be satisfied in order to be orremain an approved nonbank trustee, is corrected.

Announcement 96–29, page 17.T.D. 8637, 1996–4 I.R.B. 29, providing final andtemporary rules on backup withholding, statementmailing requirements, and due diligence, is corrected.

Announcement 96–30, page 17.DL–1–95, 1996–6 I.R.B. 28, relating to the disclosureof returns and return information in connection with theprocurement of property and services for tax admin-istration purposes, is corrected.

Announcement 96–31, page 18.EE–35–95, 1996–5 I.R.B. 19, relating to proposedregulations that provide guidance on calculation of anemployee’s accrued benefit derived from theemployee’s contributions to a qualified defined pensionplan, is corrected.

Finding Lists begin on page 23.Announcement of Disbarments and Suspensions begins on page 20.

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Mission of the ServiceThe purpose of the Internal Revenue Service is tocollect the proper amount of tax revenue at the leastcost; serve the public by continually improving the

quality of our products and services; and perform in amanner warranting the highest degree of publicconfidence in our integrity, efficiency and fairness.

Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is toadminister the Internal Revenue Code. Tax policyfor raising revenue is determined by Congress.

With this in mind, it is the duty of the Service tocarry out that policy by correctly applying the lawsenacted by Congress; to determine the reasonablemeaning of various Code provisions in light of theCongressional purpose in enacting them; and toperform this work in a fair and impartial manner,with neither a government nor a taxpayer point ofview.

At the heart of administration is interpretation of theCode. It is the responsibility of each person in theService, charged with the duty of interpreting thelaw, to try to find the true meaning of the statutoryprovision and not to adopt a strained construction inthe belief that he or she is ‘‘protecting the revenue.’’The revenue is properly protected only when we as-certain and apply the true meaning of the statute.

The Service also has the responsibility of applyingand administering the law in a reasonable,practical manner. Issues should only be raised byexamining officers when they have merit, neverarbitrarily or for trading purposes. At the sametime, the examining officer should never hesitateto raise a meritorious issue. It is also importantthat care be exercised not to raise an issue or toask a court to adopt a position inconsistent withan established Service position.

Administration should be both reasonable andvigorous. It should be conducted with as littledelay as possible and with great courtesy andconsiderateness. It should never try to overreach,and should be reasonable within the bounds of lawand sound administration. It should, however, bevigorous in requiring compliance with law and itshould be relentless in its attack on unreal taxdevices and fraud.

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IntroductionThe Internal Revenue Bulletin is the authoritativeinstrument of the Commissioner of Internal Revenue forannouncing official rulings and procedures of theInternal Revenue Service and for publishing TreasuryDecisions, Executive Orders, Tax Conventions, legisla-tion, court decisions, and other items of generalinterest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscrip-tion basis. Bulletin contents of a permanent nature areconsolidated semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletinall substantive rulings necessary to promote a uniformapplication of the tax laws, including all rulings thatsupersede, revoke, modify, or amend any of thosepreviously published in the Bulletin. All publishedrulings apply retroactively unless otherwise indicated.Procedures relating solely to matters of internalmanagement are not published; however, statements ofinternal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of theService on the application of the law to the pivotal factsstated in the revenue ruling. In those based onpositions taken in rulings to taxpayers or technicaladvice to Service field offices, identifying details andinformation of a confidential nature are deleted toprevent unwarranted invasions of privacy and to complywith statutory requirements.

Rulings and procedures reported in the Bulletin do nothave the force and effect of Treasury DepartmentRegulations, but they may be used as precedents.Unpublished rulings will not be relied on, used, or citedas precedents by Service personnel in the disposition ofother cases. In applying published rulings and proce-dures, the effect of subsequent legislation, regulations,court decisions, rulings, and procedures must beconsidered, and Service personnel and others con-cerned are cautioned against reaching the sameconclusions in other cases unless the facts andcircumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based onprovisions of 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, Legislationand Related Committee Reports.

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

Part IV.—Items of General Interest.With the exception of the Notice of Proposed Rulemak-ing and the disbarment and suspension list included inthis part, none of these announcements are consoli-dated in the Cumulative Bulletins.

The first Bulletin for each month includes an index forthe matters published during the preceding month.These monthly indexes are cumulated on a quarterlyand semiannual basis, and are published in the firstBulletin of the succeeding quarterly and semi-annualperiod, respectively.

The Bulletin Index-Digest System, a research andreference service supplementing the Bulletin, may beobtained from the Superintendent of Documents on asubscription basis. It consists of four Services: ServiceNo. 1, Income Tax; Service No. 2, Estate and GiftTaxes; Service No. 3, Employment Taxes; Service No.4, Excise Taxes. Each Service consists of a basicvolume and a cumulative supplement that provides (1)finding lists of items published in the Bulletin, (2)digests of revenue rulings, revenue procedures, andother published items, and (3) indexes of Public Laws,Treasury Decisions, and Tax Conventions.

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

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

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

Section 1502.—Regulations

26 CFR 1.1502–13: Intercompany transactions.

T.D. 8660

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 1

Consolidated Groups—IntercompanyTransactions and Related Rules

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations disallowing losses andexcluding gain for certain dispositionsand other transactions involving stockof the common parent of a consolidatedgroup.

DATES: These regulations are effectiveMarch 14, 1996.

For dates of applicability, see theeffective date provision of theseregulations.

FOR FURTHER INFORMATIONCONTACT: Victor Penico or RichardOsborne of the Office of AssistantChief Counsel (Corporate), (202)622-7750 or (202) 622-7770 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information con-tained in these final regulations havebeen reviewed and approved by theOffice of Management and Budget inaccordance with the Paperwork Reduc-tion Act (44 U.S.C. 3507) undercontrol number 1545–1433. Responsesto these collections of information arerequired to obtain a benefit, the avoid-ance of a possible gain because ofbasis adjustments relating to built-inloss.

An agency may not conduct orsponsor, and a person is not required torespond to, a collection of informationunless the collection of informationdisplays a valid control number.

The estimated average annual burdenper respondent is 15 minutes.

Comments concerning the accuracyof this burden estimate and suggestionsfor reducing this burden should be sentto the Internal Revenue Service, Attn:IRS Reports Clearance Officer, T:FP,Washington, DC 20224, and to theOffice of Management and Budget,Attn: Desk Officer for the Departmentof the Treasury, Office of Informationand Regulatory Affairs, Washington,D.C. 20503.

Books or records relating to thiscollection of information must be re-tained as long as their contents maybecome material in the administrationof any internal revenue law. Generally,tax returns and tax return informationare confidential, as required by 26U.S.C. 6103.

Background

On July 12, 1995, the IRS andTreasury issued proposed and tempo-rary regulations disallowing loss in-curred by a member (M) of a consoli-dated group with respect to the stock ofthe common parent (P stock). Theregulations also eliminate gain in cer-tain transactions by M with respect toP stock. The regulations are effectivefor transactions occurring on or afterJuly 12, 1995.

The IRS received comments on theproposed regulations and held a publichearing on December 11, 1995. Afterconsideration of the comments and thestatements made at the hearing, the IRSand Treasury adopt the proposed reg-ulations with revisions in this Treasurydecision. The significant comments andchanges are discussed below.

Explanation of provisions

Scope of the regulations

The proposed regulations disallow alllosses on P stock and eliminate gain inspecified circumstances. Some com-mentators suggested that the regulationsshould treat gain and loss more sym-metrically. Some suggested the regula-tions should achieve this goal byeliminating gain in all circumstances.Others suggested the regulations shoulddisallow loss only in ‘‘abusive’’circumstances.

Eliminating gain in all circumstanceswould effectively require complete sin-gle entity treatment of P stock. Imple-menting such a system would signifi-cantly increase the complexity of theconsolidated return regulations. Notice94–49 (1994–1 C.B. 358), included adetailed discussion of issues relating tothe single entity treatment of P stock.

Limiting the loss disallowance ruleto ‘‘abusive situations’’ would allowconsolidated groups to rely on theseparate-entity treatment of stock toclaim losses and single-entity treatmentto avoid gains. For example, taxpayersmight plan to take advantage of sepa-rate entity treatment by having Mpurchase P stock. If the value of thestock has gone down at a time whenthe group wants to issue equity, M willsell its P stock at a loss (and claim theloss). If the value of the stock has goneup, the group can take advantage ofsingle entity treatment by having P sellthe stock, and no gain would berecognized under section 1032. Thesame would hold true if instead P hadacquired M already owning P stock.Commentators did not suggest anygenerally applicable method of dis-tinguishing between transactions inwhich loss should be allowed and thosein which loss should not be allowed.

The IRS and Treasury have thereforeconcluded that the final regulationsshould retain the general approach ofthe proposed regulations.

Built-in losses

Some commentators suggested that ifM joins the group at a time when itholds P stock with a built-in loss theloss should be allowed because itaccrued outside the group. The finalregulations do not allow this lossbecause doing so without ensuring thatthe built-in gain is taxed would allowthe same selectivity and inconsistenciesthat the regulation is designed toprevent. In addition, allowing the losswould require tracing, which is incon-sistent with the approaches to similarissues in §§1.1502–20 and 1.1502–32.

Commentators further suggested thatinteractions between the proposed reg-ulations and §1.1502–32 could causethe group to recognize an artificial gainfrom the purchase of a corporationowning depreciated P stock. If M joinsthe group at a time when it holds P


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stock with a built-in loss and Msubsequently sells the stock, P willhave a downward basis adjustment inits M stock because of the disallowedloss. See §1.1502–32(b)(3)(iii)(A). Thecommentators asserted that this basisadjustment would be inappropriate ifthe group has a cost basis in M stockbecause the basis of M will reflect thevalue of the P stock at the time ofacquisition (rather than M’s basis in theP stock). To address this problem, thefinal regulations allow the built-in lossto be waived immediately before Mjoins the group. The loss waiver ismodeled after a similar provision in§1.1502–32(b)(4). The election, how-ever, is limited to direct acquisitions ofa corporation holding P stock in a costbasis transaction.

Gain relief

Commentators suggested that thegain relief should be broadened. Somesuggested that the requirement that Mreceive the P stock in a capital con-tribution or section 351(a) transactionbe eliminated. Others suggested elimi-nation of the requirement that M dis-pose of the P stock immediately.Commentators also suggested that thegain relief should apply to options andwarrants in P stock, and not merely toP stock.

The final regulations retain the re-quirements for gain relief but extendthe relief to positions in P stock. Anyfurther expansion of the gain reliefwould require additional limitations andcomplexities.

For instance, if M were not requiredto dispose of the P stock immediately,the regulations would have to requirethat M have no minority shareholders.If M had minority shareholders, thegain relief mechanism (treating cash ascontributed to M followed by a pur-chase of the stock by M) would allowP a full basis adjustment in M stock forpost-contribution appreciation ratherthan a pro rata adjustment as requiredby §1.1502–32 in the case of minorityshareholders. Amending the mechanismto allow only pro rata adjustments (forexample, through a direct basis adjust-ment rather than a cash transaction)would create further complexities, suchas the interaction with §1.1502–20.

Expanding gain relief would requirefurther adjustments if M stock weresold to another member of the group.For example, if B purchases the stock

of M from another member, B’s basisin M will reflect the value of any Pstock held by M. Thus, an increase toB’s basis in the stock of M when Mdisposes of P stock would be unwar-ranted. Additional special rules wouldbe needed if M were permitted toacquire P stock by purchase rather thanthrough a capital contribution. More-over, the IRS and Treasury believe thatin many cases gain on P stock isavoidable without further expansion ofthe regulations. See, e.g., §1.1032–2(b)(no gain or loss on M’s use of certainP stock in triangular reorganizations).Therefore, the final regulations retainthe requirements of the proposed reg-ulations for gain relief.

In addition, commentators claimedthat the relief when M is newly formedwas unclear. The final regulationsclarify that M can be newly formed aspart of the plan to dispose of P stock.

Dealers in P stock

Some commentators suggested that ifa subsidiary is a dealer in P stock, itshould be allowed to recognize lossesfrom its dealing activity. They arguedthat dealing in P stock increases theliquidity of the stock and that theproposed regulations would curtail thisactivity by forcing the recognition ofgain but disallowing loss with respectto P stock.

In response to these comments, thefinal regulations include an exceptionfor dealers in P stock or positions in Pstock. Under the final regulations, adealer in P stock or positions recog-nizes both gain and loss on shares ofthe stock to the extent taken intoaccount because of section 475(a) (or1256(a) in the case of dealer equityoptions). To be eligible for this excep-tion, M must regularly trade in P stock(of the same class) in the ordinarycourse of its business as a dealer. Inaddition, the gain or loss on a share iseligible only to the extent it is takeninto account under section 475(a) (or inthe case of dealer equity options,section 1256(a) to the extent that itwould be taken into account under theprinciples of section 475), and the basisof the share of stock must not beadjusted by reference to the basis ofany other property (for example, under§1.302–2) or by reference to income,gain, deduction or loss from otherproperty. For example, loss that issuspended under section 475(b)(3) and

that is recognized under section 1001as the result of a disposition of thesecurity is not eligible for the relief,but loss taken into account undersection 475(a) immediately before ataxpayer ceases to be the owner of thesecurity is eligible for relief. Finally,relief is not available if either M or anyother member of the group has struc-tured or engaged in any transactionwhile a member (or in anticipation ofbecoming a member) during the taxableyear or in any year within the preced-ing five taxable years that is open forassessment under section 6501 with aprincipal purpose of avoiding gain orcreating loss on P stock subject tosection 475(a).

Positions in P stock

In response to comments, the finalregulations clarify that the scope ofloss disallowance is coextensive withthe scope of section 1032. For exam-ple, cash-settled options are within thescope of loss disallowance. See Rev.Rul. 88–31 (1988–1 C.B. 302). Noinference is intended as to the extent towhich section 1032 and these regula-tions apply to derivative positions in Pstock other than options.

One commentator argued that theloss disallowance rule should not applyto options in P stock because theselectivity available for stock is notpresent with respect to options. Thefinal regulations do not adopt thisapproach. If M purchases an option toacquire P stock and the option expireswhen it is worthless, M has a loss. Ifthe option is in the money, M canpurchase the P stock and hold itindefinitely. Thus, the group wouldhave the ability to recognize losseswhile avoiding gains.

Effective dates

The final regulations apply to gain orloss taken into account on or after July12, 1995, and to transactions (such as amember leaving the group) occurringon or after July 12, 1995. Thus, theregulations are intended to cover thesame gain, loss and transactions cov-ered by the rules published in 1995–32I.R.B. 47. If, however, a taxpayer takesa gain or loss into account, or engagesin a transaction, on or after July 12,1995, during a tax year ending prior toDecember 31, 1995, the taxpayer maytreat the gain, loss or transaction under


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the rules of the temporary rules pub-lished in 1995–32 I.R.B. 47 instead ofunder the rules of the final regulations.

Special Analysis

It has been determined that thisTreasury decision is not a significantregulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It is herebycertified that these regulations do nothave a significant economic impact ona substantial number of small entities.This certification is based on the factthat these regulations will primarilyaffect affiliated groups of corporationsthat have elected to file consolidatedreturns, which tend to be larger busi-nesses. The regulations do not signifi-cantly alter the reporting or recordkeep-ing duties of small entities. Therefore,a Regulatory Flexibility Analysis underthe Regulatory Flexibility Act (5U.S.C. chapter 6) is not required.Pursuant to section 7805(f) of theInternal Revenue Code, the notice ofproposed rulemaking preceding theseregulations was submitted to the SmallBusiness Administration for commenton its impact on small business.

* * * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citationfor part 1 is amended by revising theentry for §1.1502–13 to read asfollows:

Authority: 26 U.S.C. 7805 * * *Section 1.1502–13 also issued under

26 U.S.C. 1502. * * *Par. 2. In §1.267(f)–1(k), the first

sentence is amended by removing thereference ‘‘1.1502–13T(f)(6)’’ andadding ‘‘1.1502–13(f)(6)’’ in its place.

Par. 3. Section 1.1502–13(f)(6) isadded to read as follows:

§1.1502–13 Intercompanytransactions.

* * * * * *

(f) * * * (6) Stock of common parent. In

addition to the general rules of this

section, this paragraph (f)(6) applies toparent stock (P stock) and positions inP stock held or entered into by anothermember. For this purpose, P stock isany stock of the common parent heldby another member or any stock of amember (the issuer) that was thecommon parent if the stock was heldby another member while the issuerwas the common parent.

(i) Loss stock—(A) Recognized loss.Any loss recognized, directly or indi-rectly, by a member with respect to Pstock is permanently disallowed anddoes not reduce earnings and profits.See §1.1502–32(b)(3)(iii)(A) for a cor-responding reduction in the basis of themember’s stock.

(B) Other cases. If a member, M,owns P stock, the stock is subsequentlyowned by a nonmember, and, imme-diately before the stock is owned bythe nonmember, M’s basis in the shareexceeds its fair market value, then, tothe extent paragraph (f)(6)(i)(A) of thissection does not apply, M’s basis in theshare is reduced to the share’s fairmarket value immediately before theshare is held by the nonmember. Forexample, if M owns shares of P stockwith a $100x basis and M becomes anonmember at a time when the Pshares have a value of $60x, M’s basisin the P shares is reduced to $60ximmediately before M becomes a non-member. Similarly, if M contributes theP stock to a nonmember in a transac-tion subject to section 351, M’s basisin the shares is reduced to $60x im-mediately before the contribution. See§1.1502–32(b)(3)(iii)(B) for a corre-sponding reduction in the basis of M’sstock.

(C) Waiver of built-in loss on Pstock—(1) In general. If a nonmemberthat owns P stock with a basis inexcess of its fair market value becomesa member of the P consolidated groupin a qualifying cost basis transaction,the group may make an irrevocableelection to reduce the basis of the Pstock to its fair market value imme-diately before the nonmember becomesa member of the P group. If the non-member was a member of another con-solidated group immediately beforebecoming a member of the P group, thereduction in basis is treated as occur-ring immediately after it ceases to be amember of the prior group. A qualify-ing cost basis transaction is the pur-chase (i.e., a transaction in which basisis determined under section 1012) bymembers of the P consolidated group

(while they are members) in a 12–month period of an amount of thenonmember’s stock satisfying the re-quirements of section 1504(a)(2).

(2) Election. The election describedin this paragraph (6)(i)(C) must bemade in a separate statement entitled‘‘ELECTION TO REDUCE BASIS OFP STOCK UNDER §1.1502–13(f)(6).’’The statement must be filed with the Pconsolidated group’s return for the yearin which the nonmember becomes amember, and it must be signed by bothP and the nonmember. The statementmust identify the fair market value of,and the amount of the basis reductionin, the P stock.

(ii) Gain stock. If a member, M,would otherwise recognize gain on aqualified disposition of P stock, thenimmediately before the qualified dis-position, M is treated as purchasing theP stock from P for fair market valuewith cash contributed to M by P (or, ifnecessary, through any intermediatemembers). A disposition is a qualifieddisposition only if—

(A) The member acquires the Pstock directly from the common parent(P) through a contribution to capital ora transaction qualifying under section351(a) (or, if necessary, through aseries of such transactions involvingonly members);

(B) Pursuant to a plan, the membertransfers the stock immediately to anonmember that is not related, withinthe meaning of section 267(b) or707(b), to any member of the group;

(C) No nonmember receives a sub-stituted basis in the stock within themeaning of section 7701(a)(42);

(D) The P stock is not exchangedfor P stock;

(E) P neither becomes nor ceases tobe the common parent as part of, or incontemplation of, the disposition orplan; and

(F) M is neither a nonmember thatbecomes a member nor a member thatbecomes a nonmember as part of, or incontemplation of, the disposition orplan.

(iii) Mark-to-market of P stock.Paragraphs (f)(6)(i) and (ii) of thissection shall not apply to any gain orloss from a share of P stock held by amember, M, if—

(A) M regularly trades in P stock (ofthe same class) with customers in theordinary course of its business as adealer;


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(B) The gain or loss on the share istaken into account by M pursuant tosection 475(a);

(C) M’s basis in the share is notadjusted by reference to the basis ofany other property or by reference toincome, gain, deduction, or loss fromother property; and

(D) Neither M nor any other mem-ber of the group has structured orengaged in any transaction while amember (or in anticipation of becominga member), during the taxable year orin any year within the preceding fivetaxable years that is open for assess-ment under section 6501, with aprincipal purpose of avoiding gain orcreating loss on P stock subject tosection 475(a).

(iv) Options, warrants, and otherpositions—(A) In general. This para-graph (f)(6) applies with appropriateadjustments to positions in P stock tothe extent that P’s gain or loss from anequivalent position would not be recog-nized under section 1032. Thus, if Mpurchases an option to buy or sell Pstock and sells the option at a loss, theloss is permanently disallowed underparagraph (f)(6)(i)(A) of this section.Similarly, if M is the grantor of suchan option and becomes a nonmember,then the principles of paragraph(f)(6)(i)(B) of this section apply to theextent that M would recognize lossfrom cash settlement of the option atits fair market value immediately be-fore M becomes a nonmember, andproper adjustments must be made in theamount of any gain or loss subse-quently realized from the position byM. If P grants M an option to acquireP stock in a transaction meeting therequirements of paragraph (f)(6)(ii) ofthis section, M is treated as havingpurchased the option from P for fairmarket value with cash contributed toM by P.

(B) Mark-to-market of positions in Pstock. For purposes of paragraph(f)(6)(iii) of this section, gain or losswith respect to a position taken intoaccount under section 1256(a) is treatedas taken into account under section475(a) to the extent that the gain orloss would be taken into account underthe principles of section 475.

(v) Effective date. This paragraph(f)(6) applies to gain or loss taken intoaccount on or after July 12, 1995, andto transactions occurring on or afterJuly 12, 1995. For example, if S sells Pstock to B at a loss prior to July 12,

1995, and B sells the P stock to anonmember after July 12, 1995, S’sloss is disallowed because it is takeninto account after July 12, 1995. If ataxpayer takes a gain or loss intoaccount or engages in a transaction onor after July 12, 1995, during a taxyear ending prior to December 31,1995, the taxpayer may treat the gainor loss or the transaction under therules of §1.1502–13T(f)(6) (publishedin 1995–32 I.R.B. 47), instead of underthe rules of this paragraph (f)(6).

* * * * * *

Par. 5. In §1.1502–13(g)(2)(i)(B), thelast sentence is amended by removingthe language ‘‘paragraph (f)(4) of thissection and §1.1502–13T(f)(6)’’ andadding ‘‘paragraphs (f)(4) and (6) ofthis section.’’

Margaret Milner Richardson,Commissioner of Internal Revenue.

Approved March 8, 1996.

Leslie Samuels,Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register onMarch 13, 1996, 8:45 a.m., and published inthe issue of the Federal Register for March 14,1996, 61 F.R. 10447)

Section 6302.—Mode or Time ofCollection

26 CFR 1.6302–4T: Use of financialinstitutions in connection with individualincome taxes (temporary).

T.D. 8661

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Parts 1 and 31

Federal Tax Deposits by ElectronicFunds Transfer


ACTION: Temporary regulations.

SUMMARY: This document containstemporary regulations relating to thedeposit of Federal taxes by electronicfunds transfer (EFT) under section6302 of the Internal Revenue Code.The document also includes temporaryregulations providing authority for the

voluntary payment of certain Federaltaxes by EFT. The regulations wouldprovide the public with additionalguidance needed to make deposits byEFT and would affect certain taxpayersnot previously required to make de-posits by EFT. The text of thesetemporary regulations also serves as thetext of a cross-reference notice ofproposed rulemaking on this subject inthe Proposed Rules section of this issueof the Federal Register.

EFFECTIVE DATE: March 21, 1996.

FOR FURTHER INFORMATIONCONTACT: Vincent G. Surabian, 202–622–6232 (not a toll-free number).


Background

On July 11, 1994, the IRS issuedTreasury Decision 8553 (59 FR 35414),setting forth temporary regulations re-lating to the deposit of Federal taxes byEFT. Those temporary regulations ex-plained which taxpayers must makedeposits by electronic funds transfer,which taxes must be so deposited, andwhen the deposits must commence. Thetext of those temporary regulations alsoserved as the text of a cross-referencenotice of proposed rulemaking pub-lished in the same issue of the FederalRegister at 59 FR 35418.

The IRS received many commentletters in response to the publication ofthose temporary regulations. In addi-tion, a number of oral comments weremade at the public hearing held onOctober 3, 1994. With limited excep-tions, those comments will not beaddressed in this document, but insteadwill be addressed in final regulationsthat the IRS expects to publish in thenear future.

Under the temporary regulations cur-rently in place, the requirement tobegin EFT deposits is based on thetaxpayer’s total deposits of the taxesimposed by chapters 21 (FICA taxes),22 (railroad retirement taxes) and 24(income tax withheld at source) of theInternal Revenue Code during certain‘‘determination periods.’’ If the tax-payer’s deposits of those taxes during adetermination period exceed a pre-scribed dollar threshold, the taxpayermust begin to deposit by EFT on andafter the applicable effective date pre-scribed in the temporary regulations,unless otherwise exempted.


778/20051/1JUL96/D13-004

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The amendments to the temporaryregulations set forth in this documentprovide a special rule for any taxpayerthat does not make deposits of thetaxes imposed by chapters 21, 22, and24, but that does make deposits ofother taxes required to be depositedpursuant to regulations issued under

section 6302 (for instance, corporateincome taxes). If the taxpayer’s totaldeposits for all other depository taxesduring a prescribed determinationperiod exceed a prescribed dollarthreshold, the taxpayer must begindepositing by EFT on and after theapplicable effective date prescribed in

these amendments to the temporaryregulations, unless otherwise exempted.(A taxpayer will become subject to theEFT requirement for the January 1, 1998,applicable effective date by exceedingthe threshold amount during either calen-dar year 1995 or calendar year 1996.)The phase-in schedule is as follows:

Threshold Amount Determination Period Applicable Effective Date

$50 thousand 1-1-95 to 12-31-95 January 1, 1998$50 thousand 1-1-96 to 12-31-96 January 1, 1998$20 thousand 1-1-97 to 12-31-97 January 1, 1999

The current temporary regulationsprovide that a taxpayer subject to theEFT requirement must use EFT for alldeposits required to be made on andafter the applicable effective date. Thisrequirement may subject a taxpayer totwo different modes of deposit withrespect to the same return period. Forexample, assume an employer is re-quired to deposit by EFT beginningwith the January 1, 1997, applicableeffective date. The employer pays itsemployees weekly and has a paydateon December 31, 1996. The employ-ment taxes incurred for that paydatewould be reportable on the fourthquarter 1996 Form 941, but the duedate for the deposit of those taxeswould occur in early January 1997.Under the current rule, all the depositsrelating to the fourth quarter 1996Form 941 would be made by papercoupon (FTD coupon) with the excep-tion of the deposit for the December 31payroll, which would be made by EFT.For purposes of consistency, this rule isbeing changed with respect to theJanuary 1, 1997, applicable effectivedate and thereafter to provide that thefirst deposit required to be made byEFT is the first deposit with respect toa deposit obligation incurred for areturn period beginning on or after theapplicable effective date. Thus, underthe revised rule, the deposit withrespect to the December 31 paydate inthe example would be made by FTDcoupon rather than by EFT.

The current temporary regulationsprovide that a deposit by EFT isdeemed made (i) at the time a debit ismade (the amount is withdrawn fromthe taxpayer’s account) if the Govern-ment’s authorized financial agent debitsthe taxpayer’s account; or (ii) in allother cases, at the time the funds are

credited to the Treasury’s general ac-count. Comments by the Federal Re-serve Board, the Financial ManagementService, and IRS personnel recom-mended a clarification of that provi-sion. Based on those recommendations,the current temporary regulations areamended to provide that a deposit byEFT is deemed made (i) at the time adebit is made (the amount is withdrawnfrom the taxpayer’s account and notreturned or reversed) if the Govern-ment’s authorized agent originates adebit entry which instructs the tax-payer’s financial institution to debit thetaxpayer’s account for a Federal taxpayment; or (ii) in all other cases(assuming the amount is not returnedor reversed), either at the time thefunds are paid into the Treasury’sgeneral account at the Federal ReserveBank of New York or at the time thefunds are invested under Treasury’sTax and Loan program (see 31 CFRPart 203). Investment occurs when thefunds are credited by the FederalReserve Bank to the depositary institu-tion’s note balance.

These temporary regulations alsodefine the term taxpayer. For purposesof the EFT requirement, a taxpayer isany person required to deposit federaltaxes, including not only individuals,but also any trust, estate, partnership,association, company or corporation.This definition responds to numerousinquiries following the issuance of thecurrent temporary regulations.

Sections 31.6302–1T(h)(2) (describ-ing the taxes required to be depositedby EFT) and 31.6302–1T(h)(8) (de-scribing when a deposit of tax by EFTis deemed to be a payment of tax) havebeen revised solely for purposes of

clarity. No substantive change is beingmade to either of the provisions.

These temporary regulations allowindividual taxpayers to make voluntarypayments of income tax by EFT, eventhough individual income tax is notrequired to be deposited with a govern-ment depositary. The voluntary EFTpayments are to be made in accordancewith instructions provided in proce-dures to be prescribed by the Commis-sioner at a future date.

Special Analyses

It has been determined that thisTreasury decision is not a significantregulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.chapter 5) and the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) do notapply to these rules and, therefore, aRegulatory Flexibility Analysis is notrequired. Pursuant to section 7805(f) ofthe Internal Revenue Code, a copy ofthese temporary regulations will besubmitted to the Chief Counsel forAdvocacy of the Small Business Ad-ministration for comment on theirimpact on small business.

Drafting Information

The principal author of these regula-tions is Vincent G. Surabian, Office ofthe Assistant Chief Counsel (IncomeTax & Accounting), IRS. However,other personnel from the IRS andTreasury Department participated intheir development.

* * * * * *


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Adoption of Amendments to theRegulations.

Accordingly, 26 CFR parts 1 and 31are amended as follows:


Paragraph 1. The authority citationfor part 1 is amended by adding anentry in numerical order to read asfollows:

Authority: 26 U.S.C. 7805 * * *Section 1.6302–4T also issued under

26 U.S.C. 6302(a) and (c). * * *Par. 2. Section 1.6302–4T is added

to read as follows:

§1.6302–4T Use of financialinstitutions in connection withindividual income taxes (temporary).

Voluntary payments by electronicfunds transfer. An individual mayvoluntarily remit by electronic fundstransfer all payments of tax imposed bysubtitle A of the Code, including anypayments of estimated tax. Such pay-ments must be made in accordancewith procedures to be prescribed by theCommissioner.

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOMETAX AT SOURCE

Par. 3. The authority citation for part31 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 4. Section 31.6302–1T is

amended as follows:

1. Paragraph (h)(1)(ii)(A) is redesig-nated as paragraph (h)(1)(ii)(A)(1); thefirst sentence in newly designated para-graph (h)(1)(ii)(A)(1) is removed, andthree new sentences are added in itsplace; and, in the last sentence of thenewly designated paragraph, the textpreceding the table is revised.

2. Paragraph (h)(1)(ii)(A)(2) isadded.

3. Paragraphs (h)(2), (h)(3), (h)(7)and (h)(8) are revised.

The additions and revisions read asfollows:

§31.6302–1T Federal tax depositrules for withheld income taxes andtaxes under the Federal InsuranceContributions Act (FICA)—depositsrequired to be made by electronicfunds transfer after December 31,1994 (temporary).

* * * * * *

(h) * * * (1) * * * (ii) Periods after December 31,

1994. (A)(1) Taxpayers whose aggre-gate deposits of the taxes imposed byChapters 21 (Federal Insurance Contri-butions Act), 22 (Railroad RetirementTax Act), and 24 (Collection of IncomeTax at Source on Wages) of theInternal Revenue Code during a 12–month determination period exceed theapplicable threshold amount are re-quired to deposit all depository taxesdescribed in paragraph (h)(2) of thissection by electronic funds transfer (asdefined in paragraph (h)(3) of thissection) unless exempted under para-graph (h)(4) of this section. If the

applicable effective date is January 1,1995, or January 1, 1996, the require-ment to deposit by electronic fundstransfer applies to all deposits requiredto be made on and after the applicableeffective date. If the applicable effec-tive date is January 1, 1997, or there-after, the requirement to deposit byelectronic funds transfer applies to alldeposits required to be made withrespect to deposit obligations incurredfor return periods beginning on andafter the applicable effective date.* * * The threshold amounts, deter-mination periods and applicable effec-tive dates for purposes of this para-graph (h)(1)(ii)(A)(1) are as follows:* * *

(2) Unless exempted under para-graph (h)(4) of this section, a taxpayerthat does not deposit any of the taxesimposed by chapters 21, 22, and 24during the applicable determinationperiods set forth in paragraph (h)(1)(ii)-(A)(1) of this section, but that doesmake deposits of other depository taxes(as described in paragraph (h)(2) of thissection), is nevertheless subject to therequirement to deposit by electronicfunds transfer if the taxpayer’s aggre-gate deposits of all depository taxesexceed the threshold amount set forthin this paragraph (h)(1)(ii)(A)(2) duringan applicable 12–month determinationperiod. This requirement to deposit byelectronic funds transfer applies to alldepository taxes due with respect todeposit obligations incurred on andafter the applicable effective date. Thethreshold amount, determination peri-ods, and applicable effective dates forpurposes of this paragraph (h)(1)(ii)-(A)(2) are as follows:

Threshold Amount Determination Period Applicable Effective Date

$50 thousand 1-1-95 to 12-31-95 January 1, 1998$50 thousand 1-1-96 to 12-31-96 January 1, 1998$20 thousand 1-1-97 to 12-31-97 January 1, 1999

* * * * * *


778/20051/1JUL96/D13-004

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(2) Taxes required to be depositedby electronic funds transfer. The re-quirement to deposit by electronicfunds transfer under paragraph(h)(1)(ii) of this section applies to allthe taxes required to be depositedunder §§1.6302–1, 1.6302–2, and1.6302–3 of this chapter; §§31.6302–1,31.6302–2, 31.6302–3, 31.6302–4, and31.6302(c)–3; and §40.6302(c)–1 ofthis chapter.

(3) Definitions—(i) Electronic fundstransfer. An electronic funds transfer isany transfer of depository taxes made inaccordance with Revenue Procedure 94–48 (1994–2 C.B. 694), (see §601.601-(d)(2) of this chapter), or in accordancewith procedures subsequently prescribedby the Commissioner.

(ii) Taxpayer. For purposes of thissection, a taxpayer is any personrequired to deposit federal taxes, in-cluding not only individuals, but alsoany trust, estate, partnership, associa-tion, company or corporation.

* * * * * *

(7) Time deemed deposited. A de-posit of taxes by electronic fundstransfer will be deemed made—

(i) At the time a debit is made (theamount is withdrawn from the tax-payer’s account and not returned orreversed) if the Government’s author-ized agent originates a debit entrywhich instructs the taxpayer’s financialinstitution to debit the taxpayer’s ac-count for a Federal tax payment; or

(ii) In all other cases (assuming theamount is not returned or reversed),either at the time that the funds arepaid into the Treasury’s general ac-count at the Federal Reserve Bank ofNew York, or at the time that the fundsare invested under Treasury’s Tax andLoan program (see 31 CFR Part 203).Investment occurs when the funds arecredited by the Federal Reserve Bankto the depositary institution’s notebalance.

(8) Time deemed paid. In general, anamount deposited under this paragraph(h) will be considered to be a paymentof tax on the last day prescribed forfiling the applicable return for the

return period (determined without re-gard to any extension of time for filingthe return) or, if later, at the timedeemed deposited under paragraph(h)(7) of this section. In the case of thetaxes imposed by chapters 21 and 24 ofthe Internal Revenue Code, solely forpurposes of section 6511 and theregulations thereunder (relating to theperiod of limitation on credit or re-fund), if an amount is deposited priorto April 15th of the calendar yearimmediately succeeding the calendaryear that includes the period for whichthe amount was deposited, the amountwill be considered paid on April 15th.


Approved December 22, 1995.

Leslie Samuels,Assistant Secretary of the Treasury.


SEQ 0011 JOB D13-005-002 PAGE-0011 PT 3 PG 11 REVISED 01JUL96 AT 01:28 BY LR DEPTH: 65.01 PICAS WIDTH 46 PICAS COMPOSITE COLOR

778/20051/1JUL96/D13-005

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Part III. Administrative, Procedural, and Miscellaneous

Renewable Electricity ProductionCredit, Publication of InflationAdjustment Factor and ReferencePrices for Calendar Year 1996

Notice 96–25

This notice publishes the inflationadjustment factor and reference pricesfor calendar year 1996 for the renew-able electricity production credit under§ 45(a) of the Internal Revenue Code.The 1996 inflation adjustment factorand reference prices are used in deter-mining the availability of the credit.The 1996 inflation adjustment factorand reference prices apply to calendaryear 1996 sales of kilowatt-hours ofelectricity produced in the UnitedStates or a possession thereof fromqualified energy resources.

BACKGROUND

Section 45(a) provides that the re-newable electricity production creditfor any tax year is an amount equal tothe product of 1.5 cents multiplied bythe kilowatt-hours of specifiedelectricity produced by the taxpayerand sold to an unrelated person duringthe tax year. This electricity must beproduced from qualified energy re-sources and at a qualified facilityduring the 10-year period beginning onthe date the facility was originallyplaced in service.

Section 45(b)(1) provides that theamount of the credit determined under§ 45(a) is reduced by an amount thatbears the same ratio to the amount ofthe credit as (A) the amount by whichthe reference price for the calendaryear in which the sale occurs exceeds 8cents bears to (B) 3 cents. Under§ 45(b)(2), the 1.5 cents in § 45(a) andthe 8 cents in § 45(b)(1) are eachadjusted by multiplying the amount bythe inflation adjustment factor for thecalendar year in which the sale occurs.

Section 45(c)(1) defines qualifiedenergy resources as wind and closed-loop biomass. Section 45(c)(3) defines

a qualified facility as any facilityowned by the taxpayer that originally isplaced in service after December 31,1993 (December 31, 1992, in the caseof a facility using closed-loop biomassto produce electricity), and before July1, 1999.

Section 45(d)(2)(A) requires that theSecretary not later than April 1 of eachcalendar year determine and publish inthe Federal Register the inflation ad-justment factor and the reference pricesfor the calendar year. As required by§ 45(d)(2)(A), the inflation adjustmentfactor and the reference prices for the1996 calendar year were published inthe Federal Register on March 29,1996, (61 Fed. Reg. 14208).

Section 45(d)(2)(B) defines the infla-tion adjustment factor for a calendaryear as the fraction the numerator ofwhich is the GDP implicit price defla-tor for the preceding calendar year andthe denominator of which is the GDPimplicit price deflator for the calendaryear 1992. The term ‘‘GDP implicitprice deflator’’ means the most recentrevision of the implicit price deflatorfor the gross domestic product ascomputed and published by the Depart-ment of Commerce before March 15 ofthe calendar year.

Section 45(d)(2)(C) provides that thereference price is the Secretary’s deter-mination of the annual average contractprice per kilowatt hour of electricitygenerated from the same qualifiedenergy resource and sold in the pre-vious year in the United States. Onlycontracts entered into after December31, 1989, are taken into account.

INFLATION ADJUSTMENTFACTOR AND REFERENCEPRICES

The inflation adjustment factor forcalendar year 1996 is 1.0750. Thereference prices for calendar year 1996are 5.5 cents per kilowatt-hour forfacilities producing electricity fromwind energy resources and 0 cents perkilowatt-hour for facilities producing

electricity from closed-loop biomassenergy resources. The reference pricefor electricity produced from closed-loop biomass, as defined in § 45(c)(2),is based on a determination under§ 45(d)(2)(C) that in calendar year1995 there were no sales of electricitygenerated from closed-loop biomassenergy resources under contracts en-tered into after December 31, 1989.

PHASE-OUT CALCULATION

Because the 1996 reference pricesfor electricity produced from wind andclosed-loop biomass energy resourcesdo not exceed 8 cents per kilowatt hourmultiplied by the inflation adjustmentfactor, the phaseout of the creditprovided in § 45(b)(1) does not applyto electricity produced from wind orclosed-loop biomass energy resourcessold during calendar year 1996.

CREDIT AMOUNT

As required by § 45(b)(2), the 1.5¢amount in § 45(a)(1) is adjusted bymultiplying such amount by the infla-tion adjustment factor for the calendaryear in which the sale occurs. If anyamount as increased under the preced-ing sentence is not a multiple of 0.1¢,such amount is rounded to the nearestmultiple of 0.1¢. Under the calculationrequired by § 45(b)(2), the renewableelectricity production credit for calen-dar year 1996 is 1.6¢ per kilowatt houron the sale of electricity produced fromclosed-loop biomass and wind energyresources.

DRAFTING INFORMATIONCONTACT

The principal author of this notice isDavid A. Selig of the Office ofAssistant Chief Counsel (Passthroughsand Special Industries). For furtherinformation regarding this notice con-tact Mr. Selig on (202) 622-3040 (not atoll-free call).


778/20051/1JUL96/D13-006

121996–26 I.R.B.

Part IV. Items of General Interest

Notice of Proposed Rulemaking andNotice of Public Hearing

Federal Tax Deposits by ElectronicFunds Transfer

IA–03–94


ACTION: Notice of proposed rulemak-ing by cross-reference to temporaryregulations and notice of publichearing.

SUMMARY: In the Rules and Regula-tions section of this issue of theFederal Register, the IRS is issuingtemporary regulations relating to thedeposit of Federal taxes by electronicfunds transfer under section 6302 ofthe Internal Revenue Code. The text ofthe temporary regulations also serves asthe comment document for this noticeof proposed rulemaking. This documentalso provides notice of a public hearingon these proposed regulations.

DATES: Written comments and out-lines of topics to be discussed at thepublic hearing scheduled for July 16,1996, beginning at 10 a.m., must bereceived by June 19, 1996.

ADDRESSES: Send submissions to:CC:DOM:CORP:R (IA–03–94), Room5228, Internal Revenue Service, POB7604, Ben Franklin Station, Wash-ington, DC 20044. In the alternative,submissions may be hand deliveredbetween the hours of 8 a.m. and 5 p.m.to: CC:DOM:CORP:R (IA–03–94),Courier’s Desk, Internal Revenue Serv-ice, 1111 Constitution Avenue, NW.,Washington, DC. The public hearingwill be held in the Commissioner’sConference Room, room 3313, 1111Constitution Avenue, NW., Wash-ington, DC.

FOR FURTHER INFORMATIONCONTACT: Concerning the regula-tions, Vincent G. Surabian, 202-622-6232 (not a toll-free number).Concerning submissions and the publichearing, Michael Slaughter, 202-622-7190 (not a toll-free number).


Background

The temporary regulations publishedin the Rules and Regulations section ofthis issue of the Federal Registercontain amendments to the Regulationson Employment Taxes and Collectionof Income Tax at Source (26 CFR part31) and an addition to the Income TaxRegulations (26 CFR part 1). Theseamendments relate to the deposit ofFederal taxes by electronic funds trans-fer. The text of those temporary regula-tions also serves as the text of theseproposed regulations. The preamble tothe temporary regulations explainsthese proposed regulations.

Special Analyses

It has been determined that thisnotice of proposed rulemaking is not asignificant regulatory action as definedin EO 12866. Therefore, a regulatoryassessment is not required. It also hasbeen determined that section 553(b) ofthe Administrative Procedure Act (5U.S.C. chapter 5) and the RegulatoryFlexibility Act (5 U.S.C. chapter 6) donot apply to these rules and, therefore,a Regulatory Flexibility Analysis is notrequired. Pursuant to section 7805(f) ofthe Internal Revenue Code, a copy ofthis notice of proposed rulemaking willbe submitted to the Chief Counsel forAdvocacy of the Small Business Ad-ministration for comment on its impacton small business.

Comments and Public Hearing

Before these proposed regulationsare adopted as final regulations, consid-eration will be given to any writtencomments (a signed original and eight(8) copies) that are timely submitted tothe IRS. All comments will be avail-able for public inspection and copying.

A public hearing has been scheduledfor July 16, 1996, beginning at 10 a.m.in the Commissioner’s ConferenceRoom, room 3313, Internal RevenueBuilding. Because of access restric-tions, visitors will not be admittedbeyond the building lobby more than15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3)apply to the hearing.

Persons who wish to present oralcomments at the hearing must submitwritten comments and an outline of thetopics to be discussed and the time tobe devoted to each topic (signedoriginal and eight (8) copies) by June19, 1996.

A period of 10 minutes will beallotted to each person for makingcomments.

An agenda showing the schedulingof the speakers will be prepared afterthe deadline for receiving outlines haspassed. Copies of the agenda will beavailable free of charge at the hearing.

Drafting Information

The principal author of these regula-tions is Vincent G. Surabian, Office ofthe Assistant Chief Counsel (IncomeTax & Accounting), IRS. However,other personnel from the IRS andTreasury Department participated intheir development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and rec-ordkeeping requirements.

26 CFR Part 31

Employment taxes, Income taxes,Penalties, Pensions, Railroad retire-ment, Reporting and recordkeeping re-quirements, Social security, Unemploy-ment compensation.

Proposed Amendments to theRegulations

Accordingly, 26 CFR parts 1 and 31are proposed to be amended as follows:


Paragraph 1. The authority citationfor part 1 is amended by adding thefollowing entry to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.6302–4 also issued under

26 U.S.C. 6302(a) and (c). * * * Par. 2. Section 1.6302–4 is added to

read as follows:

§1.6302–4 Use of financialinstitutions in connection withindividual income taxes.

[The text of this proposed section is


778/20051/1JUL96/D13-006

13 1996 –26 I.R.B.

the same as the text of §1.6302–4Tpublished elsewhere in this issue of theFederal Register].

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOMETAX AT SOURCE

Par. 3. The authority citation for part31 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 4. Proposed §31.6302–1(h), pub-

lished July 11, 1994, (59 FR 35418) bycross-referencing temporary regulationspublished the same day (59 FR 35414)is amended as follows:

1. Paragraph (h)(1)(ii)(A) is redesig-nated as paragraph (h)(1)(ii)(A)(1); thefirst sentence in the paragraph isremoved, and three new sentences areadded in its place; and, in the lastsentence of the newly designated para-graph, the text preceding the table isrevised.

2. Paragraph (h)(1)(ii)(A)(2) isadded.

3. Paragraphs (h)(2), (h)(3), (h)(7)and (h)(8) are revised.

The revised and added provisionsread as follows:

§31.6302–1 Federal tax deposit rulesfor withheld income taxes and taxesunder the Federal InsuranceContributions Act (FICA) attributableto payments made after December31, 1992.

[The text of paragraphs (h)(1)(ii)-(A)(1), (h)(1)(ii)(A)(2), (h)(2), (h)(3),(h)(7) and (h)(8) is the same as the textof those paragraphs in §31.6302–1Tpublished elsewhere in this issue of theFederal Register.]



Employee Plans; ExaminationGuidelines

Announcement 96–25

The Internal Revenue Service hasdeveloped proposed examinationguidelines for employee plans ex-aminers to use when examining multi-

employer plans. The guidelines providetechnical background and guidance asto issues that should be consideredduring an examination. The guidelinesare not intended to be all inclusive, andmay be modified based on specificissues encountered by the examinersduring an examination.

As with ear l ier examinat ionguidelines, the Service is seeking pub-lic comments with respect to theproposed examination guidelines per-taining to multiemployer plans beforethose guidelines are finalized in theInternal Revenue Manual.

A copy of the proposed examinationguidelines pertaining to multiemployerplans may be obtained by submitting awritten request to the Internal RevenueService, Attention: Assistant Commis-sioner (Employee Plans and ExemptOrganizations), CP:E:EP:FC, 1111Constitution Avenue, N.W., Wash-ington, DC 20224. Written commentson the guidelines pertaining to multi-employer plans may be submitted on orbefore July 22, 1996, to the InternalRevenue Service, Attention: AssistantCommissioner (Employee Plans andExempt Organizations), CP:E:EP:P:1,1111 Constitution Avenue, N.W.,Washington, DC 20224.

Refund Requests under Section4972(c)(6)


This announcement provides infor-mation to assist taxpayers in requestingrefunds of the excise tax under § 4972of the Internal Revenue Code fornondeductible contributions that wereretroactively exempted from the § 4972excise tax by the Retirement ProtectionAct of 1994 (RPA ’94).

Section 4972 imposes an excise taxon employers (other than governmentaland tax exempt employers) equal to 10percent of the nondeductible contribu-tions made to a qualified employerplan. Section 4972(c)(6)(B), added by§ 755 of RPA ’94, provides a limitedexception to this excise tax. Under§ 4972(c)(6)(B), the § 4972 excise taxdoes not apply to contributions todefined contribution plans that arenondeductible solely because of the§ 404(a)(7) combined limit on deduc-t i o n s f o r c o n t r i b u t i o n s . T h e§ 4972(c)(6)(B) exception to the§ 4972 excise tax applies only if the

defined benefit plans of the employertaken into account under § 404(a)(7)have more than 100 participants under§ 404(a)(1)(D), and only to the extentthat nondeductible contributions to de-fined contribution plans do not exceed6 percent of compensation paid oraccrued to beneficiaries under thedefined contribution plans.

Section 4972(c)(6)(B) is effective fortaxable years ending on or after De-cember 31, 1992. For some of thetaxable years to which § 4972(c)(6)(B)applies, the § 4972 excise tax was duebefore the enactment of § 4972(c)(6)-(B) in RPA ’94. Accordingly,employers that paid the § 4972 excisetax for taxable years ending on or afterDecember 31, 1992, may be entitled toa refund.

In order to request a refund of the§ 4972 excise tax on account of§ 4972(c)(6)(B) for an employer’s tax-able year, the employer must submit anamended Form 5330, Return of ExciseTaxes Related to Employee BenefitPlans, for that taxable year. The words‘‘§ 4972(c)(6)(B) Refund Request’’should be printed clearly and high-lighted on the top right corner of theForm 5330. Under § 301.6402–2(b)(1)of the Procedure and AdministrationRegulations, a claim for refund mustset forth in detail each ground uponwhich a refund is claimed and factssufficient to apprise the Commissionerof the exact basis thereof. The Servicehas identified the information listed onthe attached sample worksheet (Exhibit1) as needed to provide sufficient factsto enable the Service to evaluate§ 4972(c)(6)(B) claims. This informa-tion generally relates to contributions,limits on deductions and participantcompensation for all relevant qualifiedemployer plans. The § 4972 excise taxfor the taxable year, calculated consist-ently with the computations shown inthe sample worksheet, should be en-tered in line 12j of Form 5330, and theremainder of the form should be com-pleted consistently with this calcula-tion. Employers must also includecopies of all previously filed Forms5330 that reflect § 4972 tax liability forany of the taxable years affected, aswell as any additional informationre l evan t unde r t he pa r t i cu l a rcircumstances.

The Service is issuing a field direc-tive to the affected Internal RevenueService Centers, to assist those ServiceCenters in processing refund requestsunder § 4972(c)(6)(B).


778/20051/1JUL96/D13-006

141996 –26 I.R.B.

Exhibit 1

Worksheet for Computation of Corrected Section 4972 Excise Tax

General Information

Employer’s taxable year ending (month/day/year):EIN:

List of Plans subject to 404(a)(7)

Name of defined benefit plan(s): Plan No.

Name of money purchase pension plan(s): Plan No.

Name of profit-sharing and stock bonus plan(s): Plan No.

Contributions to defined benefit and money purchase pension plans that are deductible (before giving effect to section404(a)(7))

1. Contributions paid for year:

(a) to defined benefit plans listed above

(b) to money purchase plans listed above

2. Nondeductible carryover from prior years(carryover under section 404(a)(1)(E))

3. Deductible limit for year (taking into account section 404(a)(1)(D), but not section404(a)(7))

4. Amount deductible before giving effect to section 404(a)(7) (lesser of the sum oflines (1)(a), (1)(b) and (2), or line (3))

Contributions to profit-sharing and stock bonus plans listed above that are deductible (before giving effect to section404(a)(7))

5. Contributions paid for year to profit-sharing and stock bonus plans listed above

6. Nondeductible carryover from prior years(carryover under section 404(a)(3)(A)(ii))

7. Deductible limit for year (before giving effect to section 404(a)(7))

8. Amount deductible before giving effect to section 404(a)(7) (lesser of the sum oflines (5) and (6), or line (7))


778/20051/1JUL96/D13-006

15 1996 –26 I.R.B.

Determination of Section 404(a)(7) Deductible Limit

9. Total compensation under section 404(a)(7)(A)(i)

10. 25% of line 9

11. Amount of contributions made to defined benefit plans necessary to satisfy theminimum funding standard of section 412 (treating the minimum required contri-bution as not less than the unfunded current liability, for any plan to which sec-tion 404(a)(1)(D) applies)

12. Section 404(a)(7) limit (greater of line 10 or line 11)

Determination of deductible contribution amount

13. Deductible contributions without regard to section 404(a)(7) (line 4 plus line 8)

14. Deductible contributions under section 404(a)(7) without section 404(a)(7)(B) car-ryover (lesser of line 12 or line 13)

15. Contributions carried over from prior years under section 404(a)(7)(B), consistingof contributions:

(a) Attributable to contributions to defined benefit plans and/or defined contribu-tion plans that were not exempted from section 4972 tax for the taxable yearin which contributed

(b) Attributable to contributions to defined contribution plans that were exemptedfrom the section 4972 tax for the taxable year in which contributed

(c) Total (sum of (a) and (b))

Note: Line 15(c) is not necessarily the same as the sum of lines 2 and 6.

16. Deductible section 404(a)(7)(B) carryover (lesser of line 15(c), or line 10 minusline 14, but not less than zero)

17. Total deductible contribution amount (line 14 plus line 16)

Determination of nondeductible contributions exempt from section 4972 tax

18. Nondeductible contributions for the year exempted from section 4972 tax (leastof: (1) line 13 minus line 14; (2) line 1(b) plus line 5; or (3) 6% of compensa-tion of participants in the employer’s defined contribution plans)

19. Deductible portion of nondeductible carryover contributions exempt from section4972 tax for the taxable year in which contributed (lesser of (1) line 16 minusline 15(a), with the result not less than zero, and (2) line 15(b))

20. Net section 404(a)(7) nondeductible carryover contributions exempt from section4972 tax (line 15(b) minus line 19)

21. Total nondeductible contributions and carryovers exempted from the section 4972tax for the current year (line 18 plus line 20)

Determination of corrected section 4972 excise tax

22. Contributions subject to section 4972 tax (sum of all contributions made for theyear or carried over from previous years under section 404(a)(1)(E),404(a)(3)(A)(ii), or 404(a)(7)(B), minus the sum of lines 17 and 21)

23. Section 4972 excise tax (10% times line 22)


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Deletion from Cumulative List ofOrganizations Contributions to WhichAre Deductible Under Section 170 ofthe Code


The name of an organization that nolonger qualifies as an organizationdescribed in section 170(c)(2) of theInternal Revenue Code of 1986 is listedbelow.

Generally, the Service will not dis-allow deductions for contributionsmade to a listed organization on orbefore the date of announcement in theInternal Revenue Bulletin that an orga-nization no longer qualifies. However,the Service is not precluded fromdisallowing a deduction for any contri-butions made after an organizationceases to qualify under section170(c)(2) if the organization has nottimely filed a suit for declaratoryjudgment under section 7428 and if thecontributor (1) had knowledge of therevocation of the ruling or determina-tion letter, (2) was aware that suchrevocation was imminent, or (3) was inpart responsible for or was aware ofthe activities or omissions of theorganization that brought about thisrevocation.

If on the other hand a suit fordeclaratory judgment has been timelyfiled, contributions from individualsand organizations described in section170(c)(2) that are otherwise allowablewill continue to be deductible. Protec-tion under section 7428(c) would beginon April 22, 1996, and would end onthe date the court first determines thatthe organization is not described insection 170(c)(2) as more particularlyset forth in section 7428(c)(1). Forindividual contributors, the maximumdeduction protected is $1,000, with ahusband and wife treated as onecontributor. This benefit is not ex-tended to any individual who wasresponsible, in whole or in part, for theacts or omissions of the organizationthat were the basis for revocation.

American Flag Defender, Inc.Berlin, MD

Nonbank Trustee Net WorthRequirements; Correction


AGENCY: Internal Revenue Service,Treasury.

ACTION: Correc t ion to f ina lregulations.

SUMMARY: This document containscorrections to final regulations (TD8635 [1996–3 I.R.B. 5]) which werepublished in the Federal Register onWednesday, December 20, 1995 (60FR 65547), and relates to nonbanktrustees with respect to the adequacy ofnet worth requirements that must besatisfied in order to be or remain anapproved nonbank trustee.

EFFECTIVE DATE: December 20,1995.

FOR FURTHER INFORMATIONCONTACT: Marjorie Hoffman, (202)622-6030 (not a toll-free number).


Background

The final regulations that are thesubject of these corrections are undersections 401 and 408 of the InternalRevenue Code.

Need for Correction

As published, the final regulations(TD 8635) contain errors that are mis-leading and in need of clarification.

Correction of Publication

Accordingly, the publication of thefinal regulations (TD 8635), which wasthe subject of FR Doc. 95–30684, iscorrected as follows:

§ 1.401(f)–1 [Corrected]

1. On page 65549, column 1, amen-datory instruction 2. under ‘‘Par. 4.’’,line 1 is corrected by adding a closedquotation mark following the number‘‘401(d)(1)’’.

§ 1.408–2 [Corrected]

2. On page 65549, column 1, amen-datory instruction 8. under ‘‘Par. 5.’’,line 3, the language ‘‘the language’(n)(3) to (n)(7)’ and’’ is corrected toread ‘‘the language ’(n)(3) to (7)’and’’.

3. On page 65549, column 1, amen-datory instruction 9. under ‘‘Par. 5.’’,line 5, the language ‘‘adding ’theaddress prescribed by the’ is corrected

to read ’’adding ’address prescribed bythe’; and in the last two lines, thelanguage ‘‘(e)(6)(9)(iv), and in the firstsentence of newly designated (e)(6)-(v)(B).’’ is corrected to read‘‘(e)(5)(iv), and in the first sentence ofnewly designated (e)(7)(v)(B).’’

4. On page 65549, column 2, theamendatory instruction 17. under ‘‘Par.5.’’ is corrected to read as follows:

17. Removing the language ‘‘sub-paragraph, subdivision (n)(3)(v)’’ andadding ‘‘paragraph (e)(5), and para-graph (e)(2)(v)’’ in its place, andremoving the language ‘‘subparagraph(n)(8)’’ and adding ‘‘paragraph (e)(7)’’in its place, in newly designatedparagraph (e)(5)(viii).

5. On page 65549, column 2, amen-datory instruction 18. under ‘‘Par. 5.’’,line 3, the language ’(e)(5)(i)(A)(3)’ inits place, and‘‘ is corrected to read’(e)(5)(i)(A)(3)’ in its place, and’’.

6. On page 65549, column 2, amen-datory instruction 20. under ‘‘Par. 5.’’is corrected to read as follows:

20. Adding new paragraph (e)(5)-(ii)(A) and (D).

7. On page 65549, column 2,§ 1.408–2 (e)(5)(ii)(A), second linefrom the bottom of the paragraph, thereference to ‘‘paragraph (e)(6)(ii)(B)and (C)’’ is corrected to read ‘‘para-graph (e)(5)(ii)(B) and (C)’’.

8. On page 65549, column 3,§ 1.408–2 (e)(5)(ii)(D), sixth line fromthe top of the column, the reference to‘‘paragraph (e)(5)(ii)(B)(2)’’ is cor-rected to read ‘‘paragraph (e)(5)-(ii)(B)(2)’’.

9. On page 65549, column 3,§ 1.408–2 (e)(5)(ii)(D), eighth linefrom the top of the column, thereference to ‘‘paragraph (e)(5)(ii)-(C)(2)’’ is corrected to read ‘‘paragraph(e)(5)(ii)(C)(2)’’.

10. On page 65549, column 3,§ 1.408–2 (e)(5)(ii)(D), (ii) paragraph(c) of the Example, line 2, the refer-ence to ‘‘§ 1.408–2 (e)(6)(ii)(B)’’ iscorrected to read ‘‘§ 1.408–2 (e)(5)-(ii)(B)’’.

11. On page 65550, column 1,§ 1.408–2 (e)(5)(ii)(D), (ii) paragraph(d) of the Example, line 2, the refer-ence to ‘‘§ 1.408–2 (e)(6)(ii)(C)’’ iscorrected to read ‘‘§ 1.408–2 (e)(5)-(ii)(C)’’.

Michael L. Slaughter,Acting Chief, Regulations Unit

Assistant Chief Counsel (Corporate).


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Backup Withholding, StatementMailing Requirements, and DueDiligence; Correction



ACTION: Correction to final and tem-porary regulations.

SUMMARY: This document containscorrections to final and temporaryregulations (TD 8637 [1996–4 I.R.B.29]) which were published in theFederal Register Thursday, December21, 1995 (60 FR 66105), providingfinal and temporary rules on backupwithholding, statement mailing require-ments, and due diligence.

EFFECTIVE DATE: December 21,1995.

FOR FURTHER INFORMATIONCONTACT: Renay France of the Of-fice of Assistant Chief Counsel (In-come Tax and Accounting) with respectto domestic transactions, (202)622-4910 (not a toll-free call); andTeresa Burridge Hughes of the Officeof Assistant Chief Counsel (Interna-tional) with respect to internationaltransactions, (202) 622-3880 (not atoll-free number).


Background

The final and temporary regulationsthat are the subject of these correctionsare under sections 3406, 6042, 6044,6049, and 6050N of the InternalRevenue Code.

Need for Correction

As published, the final and tempo-rary regulations (TD 8637) containerrors which may prove to be mislead-ing and are in need of clarification.


Accordingly, the publication of thefinal regulations (TD 8637), which was

the subject of FR Doc. 95–30733, iscorrected as follows:

§ 1.6049–6 [Corrected]

1. On page 66111, column 2, in thePar. 4. amendatory instruction, anamendatory instruction is added after2.c. to read ‘‘d. Paragraph (a), fifthsentence.’’

§ 31.3406(d)–4 [Corrected]

2. On page 66126, column 1,§ 31.3406(d)–4 (a)(3), line 18, thelanguage ‘‘as described in sections3406(a)(1)(B) or’’ is corrected to read‘‘as described in section 3406(a)(1)(B)or’’.

3. On page 66126, column 2,§ 31.3406(d)–4 (b)(1)(iii), line 4, thelanguage ‘‘subject to withholding undersections’’ is corrected to read ‘‘subjectto withholding under section’’.

§ 31.3406(h)–2 [Corrected]

4. On page 66130, column 3,§ 31.3406(h)–2 (b)(2)(i), line 5, thelanguage ‘‘under section 3406 31 per-cent of the fair’’ is corrected to read‘‘under section 3406, 31 percent of thefair’’.

PART 35a—[CORRECTED]

5. On page 66134, columns 1 and 2,Par. 12 and Par. 13 amendatory instruc-tions are corrected to read as follows:

Par. 12. The authority citation forpart 35a continues to read in part asfollows:

Authority: 26 U.S.C. 7805 * * *Par. 13. Section 35a.3406–2 is

amended by adding paragraph (l) toread as follows:

§ 35a.3406–2 Imposition of backupwithholding for notified payeeunderreporting of reportable interestor dividend payments.

* * * * * *

(1) Effective date. This section iseffective until December 31, 1996.

Michael L. Slaughter,Acting Chief, Regulations Unit



Disclosure of Returns and ReturnInformation to Procure Property orServices for Tax AdministrationPurposes; Correction



ACTION: Correction to notice of pro-posed rulemaking.

SUMMARY: This document containscorrections to the notice of proposedrulemaking which was published in theFederal Register for Friday, December15, 1995 (60 FR 64402). The proposedregulations relate to the disclosure ofreturns and return information in con-nection with the procurement of prop-erty and services for tax administrationpurposes.

FOR FURTHER INFORMATIONCONTACT: Donald Squires, (202)622-4570 (not a toll-free number).


Background

The notice of proposed rulemakingthat is the subject of this correction isunder section 6103 of the InternalRevenue Code.

Need for Correction

As published, the notice of proposedrulemaking contains errors that are inneed of clarification.


Accordingly, the publication of thenotice of proposed rulemaking which isthe subject of FR Doc. 95–30505, iscorrected as follows:

1. On page 64402, column three, inthe heading, the ‘‘Agency number’’‘‘[DL–01–95]’’ is corrected to read‘‘[DL–40–95]’’.

2. On page 64402, column three, inthe preamble following the ‘‘AD-DRESSES:’’ caption, lines 2 and 8, thelanguage ‘‘(DL–01–95)’’ is correctedto read ‘‘(DL–40–95)’’.

Cynthia E. Grigsby,Chief, Regulations Unit



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(Filed by the Office of the Federal Register onMarch 8, 1996, 8:45 a.m., and published in theissue of the Federal Register for March 11,1996, 61 F.R. 9660)

Allocation of Accrued BenefitsBetween Employer and EmployeeContributions; Correction



ACTION: Correction to notice of pro-posed rulemaking.

SUMMARY: This document containscorrections to the notice of proposedrulemaking (EE–35–95 [1996–5 I.R.B.19]) which was published in theFederal Register on Friday, December22, 1995 (60 FR 66532), relating toproposed regulations that provide guid-ance on calculation of an employee’saccrued benefit derived from theemployee’s contributions to a qualifieddefined pension plan.

FOR FURTHER INFORMATIONCONTACT: Janet A. Laufer, (202)622-4606, (not a toll-free number).


Background

The notice of proposed rulemakingthat is the subject of this correctionproposes amendments that reflectchanges made to section 411(c)(2) bythe Omnibus Budget Reconciliation Actof 1987 and the Omnibus BudgetReconciliation Act of 1989.

Need for Correction

As published, the notice of proposedrulemaking (EE–35–95) contains errorswhich may prove to be misleading andare in need of clarification.


Accordingly, the publication of thenotice of proposed rulemaking (EE–35–95), which was the subject of FR Doc.95–31006, is corrected as follows:

§ 1.411(c)–1 [Corrected]

1. On page 66535, column 1,§ 1.411(c)–1 (c)(6)(ii), paragraphs (1)

through (8) of Example 1., are correctlydesignated as paragraphs (A) through(H) of Example 1.

2. On page 66535, column 1,§ 1.411(c)–1 (c)(6)(ii), newly desig-nated paragraph (D) of Example 1., line4, the language ‘‘determined in para-graph (3) of this Example’’ is correctedto read ‘‘determined in paragraph (C)of this Example’’.

3. On page 66535, column 1,§ 1.411(c)–1 (c)(6)(ii), newly desig-nated paragraph (D) of Example 1., thelast line, the language ‘‘$11,913 —9.196 = $1,295.’’ is corrected to read ‘‘$11,913 4 9.196 = $1,295.’’

4. On page 66535, column 1,§ 1.411(c)–1 (c)(6)(ii), newly desig-nated paragraph (H) of Example 1.,second and third lines from the bottomof the column, the language ‘‘contribu-tions, the sum of paragraphs (4) and (7)of this Example 1. ($1,295 + $1,654=’’ is corrected to read ‘‘contributions,the sum of paragraphs (D) and (G) ofthis Example 1. ($1,295 + $1,654 =’’.

5. On page 66535, column 2,§ 1.411(c)–1 (c)(6)(ii), paragraphs (1)through (5) of Example 2. are correctlydesignated as paragraphs (A) through(E) of Example 2.

6. On page 66535, column 2,§ 1.411(c)–1 (c)(6)(ii), newly desig-nated paragraph (B) of Example 2., lastline, the language ‘‘($6,480 from para-graph 2 of Example 1).’’ is corrected toread ‘‘($6,480 from paragraph (B) ofExample 1).’’

7. On page 66535, column 2,§ 1.411(c)–1 (c)(6)(ii), newly desig-nated paragraph (C) of Example 2., lastline, the language ‘‘from paragraph 3of Example 1).’’ is corrected to read‘‘from paragraph (C) of Example 1).’’

8. On page 66535, column 2,§ 1.411(c)–1 (c)(6)(ii), newly desig-nated paragraph (D) of Example 2., line4, the language ‘‘determined in para-graph (3) of this Example’’ is correctedto read ‘‘determined in paragraph (C)of this Example’’.

9. On page 66535, column 2,§ 1.411(c)–1 (c)(6)(ii), newly desig-nated paragraph (D) of Example 2., lastline, the language ‘‘($1,295 from para-graph 4 of Example 1)’’ is corrected toread ‘‘($1,295 from paragraph (D) ofExample 1)’’.




Reissuance of Mortgage CreditCertificates; Hearing



ACTION: Notice of public hearing onproposed rulemaking.

SUMMARY: This document providesnotice of a public hearing on proposedregulations relating to implementing aprovision of the Tax Reform Act of1984 permitting the reissuance of mort-gage credit certificates.

DATES: The public hearing will beheld on Wednesday, May 22, 1996,beginning at 10:00 a.m. Requests tospeak and outlines of oral commentsmust be received by Wednesday, May1, 1996.

ADDRESSES: The public hearing willbe held in the Internal Revenue ServiceCommissioner’s Conference Room,Room 3313, Internal Revenue Building,1111 Constitution Avenue, N.W.,Washington, D.C. 20044. Requests tospeak and outlines of oral commentsshould be mailed to the Internal Reve-nue Service, P.O. Box 7604, BenF r a n k l i n S t a t i o n , A t t n :CC:DOM:CORP:R [FI–47–92], Room5228, Washington, D.C., 20044.

FOR FURTHER INFORMATIONCONTACT: Evangelista Lee of theRegulations Unit, Assistant ChiefCounsel (Corporate), (202) 622-8452(not a toll-free number).


The subject of the public hearing isproposed amendments to the IncomeTax Regulations under section 25 ofthe Internal Revenue Code. The pro-posed regulations appeared in the Fed-eral Register for Wednesday, December22, 1993 (58 FR 67745).

The rules of §601.601(a)(3) of the‘‘Statement of Procedural Rules’’ (26CFR Part 601) shall apply with respectto the public hearing. Persons whohave submitted written comments


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within the time prescribed in the noticeof proposed rulemaking and who alsodesire to present oral comments at thehearing on the proposed regulationsshould submit not later than Wednes-day, May 1, 1996, an outline of theoral comments/testimony to be pre-sented at the hearing and the time theywish to devote to each subject.

Each speaker (or group of speakersrepresenting a single entity) will be

limited to 10 minutes for an oralpresentation exclusive of the timeconsumed by the questions from thepanel for the government and answerthereto.

Because of controlled access restric-tions, attenders cannot be admittedbeyond the lobby of the InternalRevenue Building until 9:45 a.m.

An agenda showing the schedulingof the speakers will be made after

outlines are received from the personstestifying. Copies of the agenda will beavailable free of charge at the hearing.



(Filed by the Office of the Federal Register onApril 4, 1996, 8:45 a.m., and published in theissue of the Federal Register for April 5, 1996,61 F.R. 15204)

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Announcement of the Disbarment, Suspension, or Consent to VoluntarySuspension of Attorneys, Certified Public Accountants, Enrolled Agents andEnrolled Actuaries From Practice Before the Internal Revenue Service

Under 31 Code of Federal Regula-tions, Part 10, an attorney, certifiedpublic accountant, enrolled agent or en-rolled actuary, in order to avoid the in-stitution or conclusion of a proceedingfor his disbarment or suspension frompractice before the Internal RevenueService, may offer his consent tosuspension from such practice. TheDirector of Practice, in his discretion,may suspend an attorney, certifiedpublic accountant, enrolled agent orenrolled actuary in accordance with theconsent offered.

Attorneys, certified public account-ants, enrolled agents and enrolled actu-aries are prohibited in any Internal

Revenue Service matter from directlyor indirectly employing, acceptingassistance from, being employed by,or sharing fees with, any practi-tioner disbarred or suspended frompractice before the Internal RevenueService.

To enable attorneys, certified publicaccountants, enrolled agents and en-rolled actuaries to identify practitionersunder consent suspension from practicebefore the Internal Revenue Service,the Director of Practice will announcein the Internal Revenue Bulletin thenames and addresses of practitionerswho have been suspended from suchpractice, their designation as attor-

ney, certified public accountant, en-rolled agent or enrolled actuary anddate or period of suspension. This an-nouncement will appear in the weeklyBulletin at the earliest practicable dateafter such action and will continue toappear in the weekly Bulletins for fivesuccessive weeks or for as many weeksas is practicable for each attorney,certified public accountant, enrolledagent or enrolled actuary so suspendedand will be consolidated and publishedin the Cumulative Bulletin.

The following individuals have beenplaced under consent suspension frompractice before the Internal RevenueService:

Name Address Designation Date of Suspension

Miller, Gorden A. Mineral Wells, WV CPA February 1, 1996 to April 30, 1996Barnes, Charles E. Louisville, KY Enrolled

AgentIndefinite from February 1, 1996

Polizzi, Angelo J. Grosse Point, MI Attorney Indefinite from February 6, 1996Pegler, Charles R. Islandia, NY CPA Indefinite from February 7, 1996Foster, David M. Birmingham, MI Attorney Indefinite from February 9, 1996Smith, Jerry A. Evansville, IN CPA February 9, 1996 to November 8, 1996Penn, Michael J. Dearborn, MI CPA February 9, 1996 to February 8, 1997Mueller, E. Laird Seal Beach, CA CPA February 12, 1996 to June 11, 1996Zezima, Paul P. Norwalk, CT CPA April 1, 1996 to May 31, 1996Van Houten, Robert R. Danbury, CT CPA May 1, 1996 to April 30, 1997

Under Section 330, Title 31 of theUnited States Code, the Secretary ofthe Treasury, after due notice andopportunity for hearing, is authorizedto suspend or disbar from practicebefore the Internal Revenue Serviceany person who has violated the rulesand regulations governing the recogni-tion of attorneys, certified public ac-countants, enrolled agents or enrolledactuaries to practice before the InternalRevenue Service.

Attorneys, certified public account-ants, enrolled agents, and enrolledactuaries are prohibited in any InternalRevenue Service matter from directly

or indirectly employing, accepting as-sistance from, being employed by orsharing fees with, any practitionerdisbarred or under suspension frompractice before the Internal RevenueService.

To enable attorneys, certified publicaccountants, enrolled agents andenrolled actuaries to identify suchdisbarred or suspended practitioners,the Director of Practice will announcein the Internal Revenue Bulletin thenames and addresses of practitionerswho have been suspended from suchpractice, their designation as attorney,certified public accountant, enrolled

agent or enrolled actuary, and the dateof disbarment or period of suspension.This announcement will appear in theweekly Bulletin for five successiveweeks or as long as it is practicable foreach attorney, certified public account-ant, enrolled agent or enrolled actuaryso suspended or disbarred and will beconsolidated and published in theCumulative Bulletin.

After due notice and opportunityfor hearing before an administrativelaw judge, the following individualshave been disbarred from further prac-tice before the Internal RevenueService:

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Name Address Designation Effective Date

Gimbel, Stephen Columbia, SC CPA January 20, 1996Tropsa, Donna C. Stamford, CT Attorney January 20, 1996Seifert, Frank J. Birmingham, AL CPA January 20, 1996Hansen, Joe B. Lubbock, TX CPA March 2, 1996

Announcement of the Expedited Suspension of Attorneys, Certified PublicAccountants, Enrolled Agents, and Enrolled Actuaries From Practice Before theInternal Revenue Service

Under title 31 of the Code of FederalRegulations, section 10.76, the Directorof Practice is authorized to immediatelysuspend from practice before the Inter-nal Revenue Service any practitionerwho, within five years, from the datethe expedited proceeding is instituted,(1) has had a license to practice as anattorney, certified public accountant, oractuary suspended or revoked forcause; or (2) has been convicted of anycrime under title 26 of the UnitedStates Code or, of a felony under title18 of the United States Code involvingdishonesty or breach of trust.

Attorneys, certified public account-ants, enrolled agents, and enrolled ac-tuaries are prohibited in any Internal

Revenue Service matter from directlyor indirectly employing, accepting as-sistance from, being employed by, orsharing fees with, any practitionerdisbarred or suspended from practicebefore the Internal Revenue Service.

To enable attorneys, certified publicaccountants, enrolled agents, and en-rolled actuaries to identify practitionersunder expedited suspension from prac-tice before the Internal Revenue Serv-ice, the Director of Practice will an-nounce in the Internal Revenue Bulletinthe names and addresses of practition-ers who have been suspended from suchpractice, their designation as attorney,certified public accountant, enrolled

agent, or enrolled actuary, and date orperiod of suspension. This announce-ment will appear in the weekly Bulletinat the earliest practicable date aftersuch action and will continue to appearin the weekly Bulletins for five succes-sive weeks or for as many weeks as ispracticable for each attorney, certifiedpublic accountant, enrolled agent, orenrolled actuary so suspended and willbe consolidated and published in theCumulative Bulletin.

The following individuals have beenplaced under suspension from practicebefore the Internal Revenue Service byvirtue of the expedited proceedingprovisions of the applicable regulations:

Name Address Designation Date of Suspension

Ginsberg, Melvin R. Univ. Heights, OH Attorney Indefinite from January 24, 1996Lahey, Charles W. South Bend, IN Attorney Indefinite from January 24, 1996DePiano, Robert Venice, CA Attorney Indefinite from January 24, 1996Kraig, Jerry B. Shaker Hgts, OH Attorney Indefinite from January 29, 1996Brown, David M. Los Angeles, CA Attorney Indefinite from January 29, 1996Hanke Jr., Dale L. Duluth, MN Attorney Indefinite from February 1, 1996Guillory, Patrick R. San Francisco, CA Attorney Indefinite from February 1, 1996Miller, Brian R. Grove, OK CPA Indefinite from February 23, 1996McLeod, Timothy R. Saginaw, MI Attorney Indefinite from February 26, 1996Simone, Robert F. Philadelphia, PA Attorney Indefinite from February 26, 1996Bowen, David Lee Frisco City, AL CPA Indefinite from February 27, 1996Lindley, Clarkson Wayazata, MN Attorney Indefinite from February 27, 1996

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Definition of TermsRevenue rulings and revenue proce-dures (hereinafter referred to as ‘‘rul-ings’’) that have an effect on previousrulings use the following defined termsto describe the effect:

Amplified describes a situation whereno change is being made in a priorpublished position, but the prior posi-tion is being extended to apply to avariation of the fact situation set forththerein. Thus, if an earlier ruling heldthat a principle applied to A, and thenew ruling holds that the same princi-ple also applies to B, the earlier rulingis amplified. (Compare with 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 ina prior ruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previouslypublished ruling and points out anessential 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 butnot to B, and the new ruling holds thatit applies to both A and B, the prior

ruling is modified because it corrects apublished position. (Compare with am-plified and clarified, above).

Obsoleted describes a previouslypublished ruling that is not considereddeterminative with respect to futuretransactions. This term is most com-monly used in a ruling that listspreviously published rulings that areobsoleted because of changes in law orregulations. A ruling may also beobsoleted because the substance hasbeen included in regulations subse-quently adopted.

Revoked describes situations wherethe position in the previously publishedruling is not correct and the correctposition is being stated in the newruling.

Superseded describes a situationwhere the new ruling does nothingmore than restate the substance andsituation of a previously publishedruling (or rulings). Thus, the term isused to republish under the 1986 Codeand regulations the same position pub-lished under the 1939 Code and regula-tions. The term is also used when it isdesired to republish in a single ruling aseries of situations, names, etc., thatwere previously published over aperiod of time in separate rulings.

If the new ruling does more thanrestate the substance of a prior ruling, acombination of terms is used. Forexample, modified and superseded de-scribes a situation where the substanceof a previously published ruling isbeing changed in part and is continuedwithout change in part and it is desiredto restate the valid portion of thepreviously published ruling in a newruling that is self contained. In thiscase the previously published ruling isfirst modified and then, as modified, issuperseded.

Supplemented is used in situations inwhich a list, such as a list of the namesof countries, is published in a rulingand that list is expanded by addingfurther names in subsequent rulings.After the original ruling has beensupplemented several times, a newruling may be published that includesthe list in the original ruling and theadditions, and supersedes all priorrulings in the series.

Suspended is used in rare situationsto show that the previous publishedrulings will not be applied pendingsome future action such as the issuanceof new or amended regulations, theoutcome of cases in litigation, or theoutcome of a Service study.

AbbreviationsThe following abbreviations in current use andformerly used will appear in material publishedin the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C.—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.

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—GrantorIC—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 Procedural 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.

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Numerical Finding List1

Bulletins 1996–1 through 1996–16

Announcements:

96–1, 1996–2 I.R.B. 5796–2, 1996–2 I.R.B. 5796–3, 1996–2 I.R.B. 5796–4, 1996–3 I.R.B. 5096–5, 1996–4 I.R.B. 9996–6, 1996–5 I.R.B. 4396–7, 1996–5 I.R.B. 4496–8, 1996–7 I.R.B. 5696–9, 1996–8 I.R.B. 3096–10, 1996–8 I.R.B. 3096–11, 1996–9 I.R.B. 1196–12, 1996–11 I.R.B. 3096–13, 1996–12 I.R.B. 3396–14, 1996–12 I.R.B. 3596–15, 1996–11 I.R.B. 996–16, 1996–13 I.R.B. 2296–17, 1996–13 I.R.B. 2296–18, 1996–15 I.R.B. 1596–19, 1996–15 I.R.B. 1596–20, 1996–15 I.R.B. 1596–21, 1996–15 I.R.B. 1596–22, 1996–15 I.R.B. 1696–23, 1996–16 I.R.B. 3096–24, 1996–16 I.R.B. 35

Delegations Orders:

232 (Rev. 2), 1996–7 I.R.B. 49239 (Rev. 1), 1996–7 I.R.B. 49

Notices:

96–2, 1996–2 I.R.B. 1596–1, 1996–3 I.R.B. 3096–4, 1996–4 I.R.B. 6996–5, 1996–6 I.R.B. 2296–6, 1996–5 I.R.B. 2796–7, 1996–6 I.R.B. 2296–8, 1996–6 I.R.B. 2396–9, 1996–6 I.R.B. 2696–10, 1996–7 I.R.B. 4796–11, 1996–8 I.R.B. 1996–12, 1996–10 I.R.B. 2996–13, 1996–10 I.R.B. 2996–14, 1996–12 I.R.B. 1196–15, 1996–13 I.R.B. 1996–16, 1996–13 I.R.B. 2096–17, 1996–13 I.R.B. 2096–18, 1996–14 I.R.B. 2796–19, 1996–14 I.R.B. 2896–20, 1996–14 I.R.B. 3096–21, 1996–14 I.R.B. 3096–22, 1996–14 I.R.B. 3096–23, 1996–16 I.R.B. 2396–24, 1996–16 I.R.B. 23

1A cumulative list of all Revenue Rulings,Revenue Procedures, Treasury Decisions, etc.,published in Internal Revenue Bulletins 1995–27through 1995–52 will be found in InternalRevenue Bulletin 1996–1, dated January 2, 1996.

Proposed Regulations:

DL–1–95, 1996–6 I.R.B. 28EE–20–95, 1996–5 I.R.B. 15EE–34–95, 1996–3 I.R.B. 49EE–35–95, 1996–5 I.R.B. 19EE–53–95, 1996–5 I.R.B. 23EE–55–95, 1996–12 I.R.B. 12EE–106–82, 1996–10 I.R.B. 31EE–142–87, 1996–12 I.R.B. 13EE–148–81, 1996–11 I.R.B. 29IA–33–95, 1996–4 I.R.B. 99IA–41–93, 1996–11 I.R.B. 29INTL–3–95, 1996–6 I.R.B. 29INTL–9–95, 1996–5 I.R.B. 25INTL–54–95, 1996–14 I.R.B. 39PS–2–95, 1996–7 I.R.B. 50PS–6–95, 1996–16 I.R.B. 27

Revenue Procedures:

96–1, 1996–1 I.R.B. 896–2, 1996–1 I.R.B. 6096–3, 1996–1 I.R.B. 8296–4, 1996–1 I.R.B. 9496–5, 1996–1 I.R.B. 12996–6, 1996–1 I.R.B. 15196–7, 1996–1 I.R.B. 18596–8, 1996–1 I.R.B. 18796–8A, 1996–9 I.R.B. 1096–9, 1996–2 I.R.B. 1596–10, 1996–2 I.R.B. 1796–11, 1996–2 I.R.B. 1896–12, 1996–3 I.R.B. 3096–13, 1996–3 I.R.B. 3196–14, 1996–3 I.R.B. 4196–15, 1996–3 I.R.B. 4196–16, 1996–3 I.R.B. 4596–17, 1996–4 I.R.B. 6996–18, 1996–4 I.R.B. 7396–19, 1996–4 I.R.B. 8096–20, 1996–4 I.R.B. 8896–21, 1996–4 I.R.B. 9696–22, 1996–5 I.R.B. 2796–23, 1996–5 I.R.B. 2796–24, 1996–5 I.R.B. 2896–24A, 1996–15 I.R.B. 1296–25, 1996–8 I.R.B. 1996–26, 1996–8 I.R.B. 2296–27, 1996–11 I.R.B. 2796–28, 1996–14 I.R.B. 3196–29, 1996–16 I.R.B. 24

Revenue Rulings:

96–1, 1996–1 I.R.B. 796–2, 1996–2 I.R.B. 596–3, 1996–2 I.R.B. 1496–6, 1996–2 I.R.B. 896–4, 1996–3 I.R.B. 1696–5, 1996–3 I.R.B. 29

Revenue Rulings—Continued

96–7, 1996–3 I.R.B. 1296–8, 1996–4 I.R.B. 6296–9, 1996–4 I.R.B. 596–10, 1996–4 I.R.B. 2796–11, 1996–4 I.R.B. 2896–12, 1996–9 I.R.B. 496–13, 1996–10 I.R.B. 1996–14, 1996–6 I.R.B. 2096–15, 1996–11 I.R.B. 996–16, 1996–11 I.R.B. 496–17, 1996–13 I.R.B. 596–18, 1996–13 I.R.B. 496–19, 1996–14 I.R.B. 2496–20, 1996–15 I.R.B. 596–21, 1996–15 I.R.B. 796–22, 1996–15 I.R.B. 996–23, 1996–15 I.R.B. 11

Treasury Decisions:

8630, 1996–3 I.R.B. 198631, 1996–3 I.R.B. 78632, 1996–4 I.R.B. 68633, 1996–4 I.R.B. 208634, 1996–3 I.R.B. 178635, 1996–3 I.R.B. 58636, 1996–4 I.R.B. 648637, 1996–4 I.R.B. 298638, 1996–5 I.R.B. 58639, 1996–5 I.R.B. 128640, 1996–2 I.R.B. 108641, 1996–6 I.R.B. 48642, 1996–7 I.R.B. 48643, 1996–11 I.R.B. 48644, 1996–7 I.R.B. 168645, 1996–8 I.R.B. 48646, 1996–8 I.R.B. 108647, 1996–9 I.R.B. 78648, 1996–10 I.R.B. 238649, 1996–9 I.R.B. 58650, 1996–10 I.R.B. 58651, 1996–11 I.R.B. 248652, 1996–11 I.R.B. 118653, 1996–12 I.R.B. 48654, 1996–11 I.R.B. 148655, 1996–12 I.R.B. 98656, 1996–13 I.R.B. 98657, 1996–14 I.R.B. 48658, 1996–14 I.R.B. 138659, 1996–16 I.R.B. 4

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Finding List of Current Action onPreviously Published Items1

Bulletins 1996–1 through 1996–16

*Denotes entry since last publication

Delegation Orders:

232 (Rev. 1)Superseded by232 (Rev. 2), 1996–7 I.R.B. 49

239Amended by239 (Rev. 1), 1996–7 I.R.B. 49

Revenue Procedures:

65–17Modified by96–14, 1996–3 I.R.B. 41

66–49Modified by96–15, 1996–3 I.R.B. 41

88–32Obsoleted by96–15, 1996–3 I.R.B. 41

88–33Obsoleted by96–15, 1996–3 I.R.B. 41

89–19Superseded by96–17, 1996–4 I.R.B. 69

89–48Superseded in part by96–17, 1996–4 I.R.B. 69

91–22Modified by96–1, 1996–1 I.R.B. 8

91–22Amplified by96–13, 1996–3 I.R.B. 31




92–20Modified by96–1, 1996–1 I.R.B. 8

1A cumulative finding list for previouslypublished items mentioned in Internal RevenueBulletins 1995–27 through 1995–52 will befound in Internal Revenue Bulletin 1996–1, datedJanuary 2, 1996.

Revenue Procedures—Continued

92–85Modified by96–1, 1996–1 I.R.B. 8



Superseded by96–18, 1996–4 I.R.B. 73

94–16Modified by96–29, 1996–16 I.R.B. 24





94–62Modified by96–29, 1996–16 I.R.B. 24








Revenue Procedures—Continued






96–3Amplified by96–12, 1996–3 I.R.B. 30

Revenue Rulings:

66–307Obsoleted by96–3, 1996–2 I.R.B. 14

72–437Modified by96–13, 1996–3 I.R.B. 31

80–80Obsoleted by96–3, 1996–2 I.R.B. 14

82–80Modified by96–14, 1996–3 I.R.B. 41

92–19Supplemented in part96–2, 1996–2 I.R.B. 5

92–75Clarified by96–13, 1996–3 I.R.B. 31

95–10Supplemented and superseded by96–4, 1996–3 I.R.B. 16

95–11Supplemented and superseded by96–5, 1996–3 I.R.B. 29

96–24Modified and amplified by96–24A, 1996–15 I.R.B. 12