Bulletin No. 1997–40

Internal Revenue

bulletin

Bulletin No. 1997–40

October 6, 1997

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

EXEMPT ORGANIZATIONS

Rev. Rul. 97–41, page 4.

Announcement 97–99, page 7.

Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term exempt rate. For

purposes of sections 1274, 1288, 382, and other sections

of the Code, tables set forth the rates for October 1997.

A list is given of organizations now classified as private foundations.

ADMINISTRATIVE

Notice 97–55, page 6.

EMPLOYEE PLANS

T.D. 8656, 1996–1 C.B. 329, relating to the imposition of

the accuracy-related penalty, is corrected.

Notice 97–53, page 6.

Announcement 97–100, page 8.

Individual retirement accounts. This notice provides guidance relating to penalty-free withdrawals from IRAs for higher education expenses.

T.D. 8722, 1997–29 I.R.B. 4, relating to the eligibility for

benefits under income tax treaties for payments to entities,

is corrected.

Finding Lists begin on page 10.

Index for July–September begins on page 12.

Department of the Treasury

Internal Revenue Service

Mission of the Service

ucts and services; and perform in a manner warranting

the highest degree of public confidence in our integrity, efficiency, and fairness.

The purpose of the Internal Revenue Service is to collect

the proper amount of tax revenue at the least cost; serve

the public by continually improving the quality of our prod-

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying and

administering the law in a reasonable, practical manner.

Issues should only be raised by examining officers when

they have merit, never arbitrarily or for trading purposes.

At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that

care be exercised not to raise an issue or to ask a court to

adopt a position inconsistent with an established Service

position.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue

is determined by Congress.

With this in mind, it is the duty of the Service to carry out that

policy by correctly applying the laws enacted by Congress;

to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;

and to perform this work in a fair and impartial manner, with

neither a government nor a taxpayer point of view.

Administration should be both reasonable and vigorous. It

should be conducted with as little delay as possible and

with great courtesy and considerateness. It should never

try to overreach, and should be reasonable within the

bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax devices and

fraud.

At the heart of administration is interpretation of the Code. It

is the responsibility of each person in the Service, charged

with the duty of interpreting the law, to try to find the true

meaning of the statutory provision and not to adopt a

strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only

when we ascertain and apply the true meaning of the statute.

2

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription

basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold

on a single-copy basis.

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances

are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements

of internal practices and procedures that affect the rights

and duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions, and Subpart B, Legislation and Related

Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings

are issued by the Department of the Treasury’s Office of the

Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on

the application of the law to the pivotal facts stated in the

revenue ruling. In those based on positions taken in rulings

to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature

are deleted to prevent unwarranted invasions of privacy and

to comply with statutory requirements.

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking

and the disbarment and suspension list included in this part,

none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not have

the force and effect of Treasury Department Regulations,

but they may be used as precedents. Unpublished rulings

will not be relied on, used, or cited as precedents by Service

personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

The first Bulletin for each month includes a cumulative index

for the matters published during the preceding months.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin of the

succeeding quarterly and semiannual period, respectively.

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

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

3

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

Section 42.—Low-Income

Housing Credit

of October 1997. See Rev. Rul. 97–41, on this page.

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, on this page.

Section 482.—Allocation of Income and Deductions Among

Taxpayers

Federal short-term, mid-term, and long-term

rates are set forth for the month of October 1997.

See Rev. Rul. 97–41, on this page.

Section 280G.—Golden

Parachute Payments

Federal short-term, mid-term, and long-term

rates are set forth for the month of October 1997.

See Rev. Rul. 97–41, on this page.

Section 382.—Limitation on Net

Operating Loss Carryforwards

and Certain Built-In Losses

Following Ownership Change

The adjusted federal long-term rate is set forth

for the month of October 1997. See Rev. Rul. 97–41,

on this page.

Section 412.—Minimum Funding

Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, on this page.

Section 483.—Interest on Certain Deferred Payments

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, on this page.

Section 642.—Special Rules for

Credits and Deductions

Federal short-term, mid-term, and long-term

rates are set forth for the month of October 1997.

See Rev. Rul. 97–41, on this page.

Section 807.—Rules for Certain

Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, on this page.

Section 467.—Certain Payments

for the Use of Property or Services

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, on this page.

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, on this page.

Section 468.—Special Rules for

Mining and Solid Waste Reclamation and Closing Costs

Section 1274.—Determination

of Issue Price in the Case of

Certain Debt Instruments Issued

for Property

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal

rates; adjusted federal long-term rate,

and the long-term exempt rate. For

purposes of sections 1274, 1288, 382,

and other sections of the Code, tables set

forth the rates for October 1997.

Rev. Rul. 97–41

This revenue ruling provides various

prescribed rates for federal income tax

purposes for October 1997 (the current

month.) Table 1 contains the short-term,

mid-term, and long-term applicable federal rates (AFR) for the current month

for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains

the short-term, mid-term, and long-term

adjusted applicable federal rates (adjusted AFR) for the current month for

purposes of section 1288(b). Table 3

sets forth the adjusted federal long-term

rate and the long-term tax-exempt rate

described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit

described in section 42(b)(2) for buildings placed in service during the current

month. Finally, Table 5 contains the federal rate for determining the present

value of an annuity, an interest for life or

for a term of years, or a remainder or a

reversionary interest for purposes of section 7520.

(Also Sections 42, 280G, 382, 412, 467, 468, 482,

REV. RUL. 97–41 TABLE 1

Applicable Federal Rates (AFR) for October 1997

Annual

Short-Term

AFR

110% AFR

120% AFR

130% AFR

5.84%

6.44%

7.03%

7.63%

Mid-Term

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

6.34%

6.98%

7.63%

8.27%

9.58%

11.22%

October 6, 1997

Period for Compounding

Semiannual

Quarterly

Monthly

5.76%

6.34%

6.91%

7.49%

5.72%

6.29%

6.85%

7.42%

5.69%

6.26%

6.81%

7.38%

6.24%

6.86%

7.49%

8.11%

9.36%

10.92%

6.19%

6.80%

7.42%

8.03%

9.25%

10.77%

6.16%

6.76%

7.38%

7.98%

9.18%

10.68%

4

1997–40 I.R.B.

REV. RUL. 97–41 TABLE 1 — (Continued)

Applicable Federal Rates (AFR) for October 1997

Annual

Long-Term

AFR

110% AFR

120% AFR

130% AFR

Period for Compounding

Semiannual

6.68%

7.36%

8.04%

8.72%

6.57%

7.23%

7.88%

8.54%

Quarterly

Monthly

6.52%

7.17%

7.80%

8.45%

6.48%

7.12%

7.75%

8.39%

REV. RUL. 97–41 TABLE 2

Adjusted AFR for October 1997

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-term

adjusted AFR

3.98%

3.94%

3.92%

3.91%

Mid-term

adjusted AFR

4.46%

4.41%

4.39%

4.37%

Long-term

adjusted AFR

5.27%

5.20%

5.17%

5.14%

REV. RUL. 97–41 TABLE 3

Rates Under Section 382 for October 1997

Adjusted federal long-term rate for the current month

Long-term tax-exempt rate for ownership changes during the current month (the highest of the

adjusted federal long-term rates for the current month and the prior two months.)

5.27%

5.33%

REV. RUL. 97–41 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for October 1997

Appropriate percentage for the 70% present value low-income housing credit

8.53%

Appropriate percentage for the 30% present value low-income housing credit

3.66%

REV. RUL. 97–41 TABLE 5

Rate Under Section 7520 for October 1997

Applicable federal rate for determining the present value of an annuity, an interest for life or a

term of years, or a remainder or reversionary interest

Section 1288.—Treatment of

Original Issue Discount on

Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, page 4.

1997–40 I.R.B.

Section 7520.—Valuation

Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, page 4.

5

7.6%

Section 7872.—Treatment of

Loans With Below-Market

Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of October 1997. See Rev. Rul. 97–41, page 4.

October 6, 1997

Part III. Administrative, Procedural, and Miscellaneous

Penalty-Free Withdrawals From

IRAs for Higher Education

Expenses

Notice 97–53

Section 203 of the Taxpayer Relief Act

of 1997 provides that the 10-percent additional tax on early distributions from individual retirement arrangements (IRAs)

does not apply to certain distributions for

educational expenses after 1997. This

Notice provides guidance concerning the

effective date of this provision.

In general, section 72(t) of the Internal

Revenue Code imposes an additional 10percent tax on amounts withdrawn from a

qualified retirement plan (including an

IRA) before age 591⁄2 subject to certain

exceptions. Section 203 of the Taxpayer

Relief Act of 1997 added certain educational expenses to the list of exceptions to

the 10-percent additional tax. The exception for educational expenses is limited to

the qualified higher education expenses of

the taxpayer, the taxpayer’s spouse, or

any child or grandchild of the taxpayer or

spouse.

Section 203 is effective for IRA distributions made after December 31, 1997,

with respect to expenses paid after that

date, for education provided in academic

periods beginning after that date. An

“academic period” includes a semester,

trimester, quarter, or other academic term

designated by the educational institution.

For this purpose, an academic period begins on the first day of classes, and does

not include periods of orientation, counseling or vacation.

For example, assume the 1997-1998

schedule of a college or university divides

the academic year into two semesters; the

first semester begins in September 1997,

and the second semester begins in January

October 6, 1997

1998. The benefits are not available for

the September semester. The benefits of

section 203 would be available, however,

for the qualified expenses for the semester

that begins in January 1998, provided the

IRA distribution is made after December

31, 1997 and the expenses are paid after

that date. This result applies to students

who are enrolled in both semesters as well

as to students whose enrollment begins

only with the January semester.

For further information concerning the

term “academic period” contact Monice

Rosenbaum of the Office of Associate

Chief Counsel (Employee Benefits and

Exempt Organizations) at (202) 622-6070

(not a toll-free call). For other information concerning this Notice contact Cathy

Vohs of the Office of Associate Chief

Counsel (Employee Benefits and Exempt

Organizations) at (202) 622-6030 (not a

toll-free call).

Section 6662—Imposition of the

Accuracy-Related Penalty;

Correction

Notice 97–55

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document contains a

correction to final regulations (T.D.

8656[1996–1 C.B. 329]) in the Code of

Federal Regulations, which were published in the Federal Register on Friday,

February 9, 1996 (61 FR 4876). The final

regulations provide guidance on the imposition of the accuracy related penalty.

FOR FURTHER INFORMATION CONTACT: Lisa G. Sams (202) 622-3880 (not

a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of these corrections are under section

6662 of the Internal Revenue Code.

Need for Correction

As published, T.D. 8656 contains an

error that may prove to be misleading and

is in need of clarification.

*

*

*

*

*

Accordingly, 26 CFR part 1 is corrected by making the following correcting

amendment:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

§ 1.6662–6 [Corrected]

Par. 2. In § 1.6662-6, paragraph (d)(2)(ii)(E) is amended by removing the language “§1.482–1(e)(2)(ii)(B)” from the

last sentence and adding the language

“§1.482–1(e)(2)(iii)(B)” in its place.

Cynthia E. Grigsby,

Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on September 4, 1997, 8:45 a.m., and published in the issue

of the Federal Register for September 5, 1997, 62

F.R. 46877)

EFFECTIVE DATE: February 9, 1996.

6

1997–40 I.R.B.

Part IV. Items of General Interest

Foundations Status of Certain

Organizations

Announcement 97–99

The following organizations have

failed to establish or have been unable to

maintain their status as public charities or

as operating foundations. Accordingly,

grantors and contributors may not, after

this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices

under section 508(b) of the Code. This

listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following

organizations (which have been treated as

organizations that are not private foundations described in section 509(a) of the

Code) are now classified as private foundations:

Academy of Comedy Arts & Sciences,

Los Angeles, CA

A Gainer Technical & Assistance

Foundation, New York, NY

Allen South Fork Preserve, Palos Verdes

Estates, CA

Barrasco Sebania Anastatica, San Diego,

CA

Caliban Incorporated, Laguna Beach, CA

Community Legal Services, Inc.,

Beverly Farms, MA

Community Mediators and Arbitrators,

Inc., New York, NY

Community Uplift Through

Perseverance, Inc., New York, NY

Connecticut Chapter of the American

Chestnut Foundation, Inc., Haddam,

CT

Crossroads Quilters Guild, Inc., Ipswich,

MA

Crotona Terrace Housing Development

Fund Company, Inc., Bronx, NY

Cultural Computing Foundation

Incorporated, New York, NY

Curious Group Ensemble, Inc., New

York, NY

D.A.R.E. Massachusetts, Braintree, MA

Dare to Care Fund Foster Parent

Association of Broome County,

Castle Creek, NY

Diabetic Cure Foundation, Inc., New

Rochelle, NY

1997–40 I.R.B.

Dubois Group A Caucus of Concerned

Black Professionals, San Bruno, CA

Florida Foundation for Research in

Spinal Disorders Inc., Gainesville, FL

FWRT Fund, Inc., Boston, MA

Garmendia Gardens Housing Development Fund Corporation, Bronx, NY

Gay Lesbian Alliance of Danbury, Inc.,

Danbury, CT

Genesee County Citizens Crime

Prevention Advisory Board, Batavia, NY

Global Action Plan International, Inc.,

Woodstock, NY

Global Jewish Assistance and Relief

Network, Brooklyn, NY

Great Basin Society for Parenteral and

Enternal Nutrition, Carson City, NV

Greater Boston Relief Society, Inc.,

Malden, MA

Griffith Sandiford Family Assistance

Fund, Inc., Brooklyn, NY

Haitian American Education and

Development Association, Inc.,

Malden, MA

Haitian American Solidarity Corp.,

Rosedale, NY

Haiti Communications Project Fund,

Boston, MA

Happiness is Sharing Charities, Inc.,

Valhalla, NY

Harlem Economic Foundation, Inc., New

York, NY

Harmonia Dance, Inc., New York, NY

Harvest House, Inc., Charlestown, ME

Hawk and Handsaw Theatre Company,

Inc., New York, NY

Health Care We Gotta Have It, Inc.,

Philadelphia, PA

Health on Earth, Wakefield, RI

Heart to Heart-American Jewish Society

for Distinguished Children, Inc.,

Monsey, NY

HEAT in the Central Valley, Fresno, CA

Helderberg Ambulance Squad, Inc., East

Berne, NY

Hells Kitchen Aids Project, Inc., New

York, NY

Helpline Hand House, Belfast, ME

Helpline Soul Rescue Ministry, Inc.,

Long Beach, NY

Heritage of Pride, New York, NY

High Mountain Health Center, Ltd.,

Webster, MA

Hispanic Employees of Restaurants

Outstanding Service, Burbank, CA

Homers Kids, Ltd., Macedon, NY

7

Horse Trails Conservancy, Inc., New

York, NY

Housing Network Rhode Island

Association of Nonprofit Housing

Developers, Providence, RI

Humanities Preservation Corporation,

New York, NY

Icorojoy-Yemenite Heritage Foundation,

Inc., Brooklyn, NY

I Have a Dream-New Haven, Inc., New

Haven, CT

International Communications

Association, Inc., New York, NY

Italian Businessmen’s Foundation, Inc.,

Portland, OR

Jabualu-Nur Foundation, Wyandanch,

NY

JB Williams Charitable Foundation,

Longmeadow, MA

Jesucristo Es El Senor Ministries, New

Haven, CT

JLB, Inc., Cold Springs, NY

John Stamatakis Trust, Watertown, MA

Joseph Haggerty Childrens Fund, New

York, NY

Joshua House, Inc., Sidney Center, NY

Jurupa 12 Step Recovery, Inc., Riverside,

CA

Kalgidhar Trust, Jackson, MS

Keep Me Company, Inc., Jamaica Plains,

MA

Keep Kids Lead Free, Inc., Stamford, CT

Kids Toy Lending Club, Lincoln, MA

Kiruv Rechokim Fund, Inc., Brooklyn,

NY

KQC Foundation, Inc., Boston, MA

LA Image Academy, Honolulu, HI

Miles Ahead Ministries, San Diego, CA

National Association of Small Business

International Trade Educators, Dallas,

TX

New Foundation Ministries, Inc., Benton,

LA

Nu Vision Modeling and Entertainment,

Inc., Los Angeles, CA

Ocean Challenge of Southern California,

Inc., Torrance, CA

Parents Association for Scholarship and

Sensitivity, Orange, CA

Pentucket Activities Association, Inc.,

West Newbury, MA

Progressive Educational Initiatives,

Providence, RI

Read It Believe It & Do It, Berkeley, CA

Real Colegio Complutense, Inc.,

Cambridge, MA

October 6, 1997

Santa Ana Public Library Auxiliary,

Santa Ana, CA

Something Familiar, Inc., New York, NY

South Bay Classic, Inc., Torrance, CA

Valley Partnership for a Drug Free

Community, Palm Desert, CA

Valley Youth Conference, Inc.,

Chatsworth, CA

Vancouver Amateur Hockey Association,

Vancouver, WA

Wrentham Elementary Parent Teacher

Organization, Inc., Wremtham, MA

If an organization listed above submits

information that warrants the renewal of its

classification as a public charity or as a private operating foundation, the Internal

Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and

contributors may thereafter rely upon such

ruling or determination letter as provided

in section 1.509(a)–7 of the Income Tax

Regulations. It is not the practice of the

Service to announce such revised classification of foundation status in the Internal

Revenue Bulletin.

Guidance Regarding Claims for

Certain Income Tax Convention

Benefits; Correction

Announcement 97–100

AGENCY: Internal Revenue Service,

Treasury.

ACTION: Correction to temporary regulations.

SUMMARY: This document contains

October 6, 1997

corrections to temporary regulations (T.D.

8722 [1997–29 I.R.B. 4]) which were

published in the Federal Register on

Wednesday, July 2, 1997 (62 F.R. 35673).

The temporary regulations relate to the eligibility for benefits under income tax

treaties for payments to entities.

EFFECTIVE DATE: July 2, 1997.

FOR FURTHER INFORMATION CONTACT: Elizabeth Karzon, (202) 6223880 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The temporary regulations that are subject to these corrections are under section

894 of the Internal Revenue Code.

Need for Correction

As published, the temporary regulations (T.D. 8722) contain errors that may

prove to be misleading and are in need of

clarification.

Correction of Publication

Accordingly, the publication of the

temporary regulations (T.D. 8722) which

are the subject of F.R. Doc. 97–17467 is

corrected as follows:

1. On page 35673, column 1, in the preamble in the caption “FOR FURTHER

INFORMATION CONTACT”, line 2, the

language “Elizabeth Karzon, (202) 6223860 (not a” is corrected to read “Elizabeth Karzon, (202) 622-3880 (not a”.

8

§ 1.894–1T [Corrected]

2. On page 35676, column 3, § 1.894–

1T, paragraph (d)(1), line 5 from the bottom of the column, the language “a resident of the jurisdiction only to the” is corrected to read “a resident of the

jurisdiction to the”.

3. On page 35677, column 1, § 1.894–

1T, paragraph (d)(1), line 9, the language

“a resident of such jurisdiction only if” is

corrected to read “a resident of such jurisdiction if”.

4. On page 35679, column 2, § 1.894–

1T, paragraph (d)(6), paragraph (i) of Example 11., line 16, the language “holder,

is a corporation organized in Country” is

corrected to read “holder, is a business organization organized in Country”.

5. On page 35679, column 3, § 1.894–

1T, paragraph (d)(6), paragraph (ii) of Example 11., line 15, the language “jurisdiction. F, however, may claim the” is

corrected to read “jurisdiction. F, however, is entitled to the”.

5. On page 35679, column 3, § 1.894–

1T, paragraph (d)(6), paragraph (ii) of Example 11., line 20, the language “of X, because X qualifies as a resident of X” is

corrected to read “of X, because F qualifies as a resident of X”.

Cynthia E. Grigsby,

Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on September 4, 1997, 8:45 a.m., and published in the issue

of the Federal Register for September 5, 1997, 62

F.R. 46876)

1997–40 I.R.B.

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus,

if an earlier ruling held that a principle

applied to A, and the new ruling holds

that the same principle also applies to B,

the earlier ruling is amplified. (Compare

with modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

has caused, or may cause, some confusion. It is not used where a position in a

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling is

modified because it corrects a published

position. (Compare with amplified and

clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used

in a ruling that lists previously published

rulings that are obsoleted because of

changes in law or regulations. A ruling

may also be obsoleted because the substance has been included in regulations

subsequently adopted.

Revoked describes situations where the

position in the previously published ruling is not correct and the correct position

is being stated in the new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a period of time in separate rulings. If the

new ruling does more than restate the

substance of a prior ruling, a combination

of terms is used. For example, modified

and superseded describes a situation

where the substance of a previously published ruling is being changed in part and

is continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be published that includes the list in the original

ruling and the additions, and supersedes

all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

Abbreviations

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedral Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

The following abbreviations in current use and formerly used will appear in material published in 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.

1997–40 I.R.B.

9

October 6, 1997

Numerical Finding List1

Bulletins 1997–27 through 1997–39

Announcements:

97–61, 1997–29 I.R.B. 13

97–67, 1997–27 I.R.B. 37

97–68, 1997–28 I.R.B. 13

97–69, 1997–28 I.R.B. 13

97–70, 1997–29 I.R.B. 14

97–71, 1997–29 I.R.B. 15

97–72, 1997–29 I.R.B. 15

97–73, 1997–30 I.R.B. 86

97–74, 1997–31 I.R.B. 16

97–75, 1997–32 I.R.B. 28

97–76, 1997–32 I.R.B. 28

97–77, 1997–33 I.R.B. 58

97–78, 1997–34 I.R.B. 11

97–79, 1997–35 I.R.B. 8

97–80, 1997–34 I.R.B. 12

97–81, 1997–34 I.R.B. 12

97–82, 1997–34 I.R.B. 12

97–83, 1997–34 I.R.B. 13

97–84, 1997–34 I.R.B. 13

97–85, 1997–35 I.R.B. 8

97–86, 1997–35 I.R.B. 9

97–87, 1997–35 I.R.B. 9

97–88, 1997–35 I.R.B. 9

97–89, 1997–36 I.R.B. 10

97–90, 1997–36 I.R.B. 10

97–91, 1997–37 I.R.B. 25

97–92, 1997–37 I.R.B. 26

97–93, 1997–36 I.R.B. 11

97–94, 1997–36 I.R.B. 12

97–95, 1997–36 I.R.B. 12

97–96, 1997–39 I.R.B. 15

97–97, 1997–38 I.R.B. 22

97–98, 1997–39 I.R.B. 15

Proposed Regulations:

REG–104893–97, 1997–29 I.R.B. 13

REG–105160–97, 1997–37 I.R.B. 22

REG–106043–97, 1997–37 I.R.B. 24

REG–107644–97, 1997–32 I.R.B. 24

REG–208151–91, 1997–38 I.R.B. 21

Revenue Procedures:

97–32, 1997–27 I.R.B. 9

97–32A, 1997–34 I.R.B. 10

97–33, 1997–30 I.R.B. 10

97–34, 1997–30 I.R.B. 14

97–35, 1997–33 I.R.B. 11

97–36, 1997–33 I.R.B. 14

97–37, 1997–33 I.R.B. 18

97–38, 1997–33 I.R.B. 43

97–39, 1997–33 I.R.B. 48

97–40, 1997–33 I.R.B. 50

97–41, 1997–33 I.R.B. 5

97–42, 1997–33 I.R.B. 57

97–43, 1997–39 I.R.B. 12

Revenue Rulings:

97–27, 1997–27 I.R.B. 4

97–28, 1997–28 I.R.B. 4

97–29, 1997–28 I.R.B. 4

97–30, 1997–31 I.R.B. 12

97–31, 1997–32 I.R.B. 4

97–32, 1997–33 I.R.B. 4

97–33, 1997–34 I.R.B. 4

97–34, 1997–34 I.R.B. 14

97–35, 1997–35 I.R.B. 4

97–36, 1997–36 I.R.B. 5

97–37, 1997–37 I.R.B. 15

97–38, 1997–38 I.R.B. 14

97–39, 1997–39 I.R.B. 4

97–40, 1997–39 I.R.B. 8

Treasury Decisions:

Court Decisions:

2061, 1997–31 I.R.B. 5

2062, 1997–32 I.R.B. 8

Delegation Orders:

172 (Rev. 5), 1997–28 I.R.B. 6

Notices:

97–37, 1997–27 I.R.B. 4

97–38, 1997–27 I.R.B. 8

97–39, 1997–27 I.R.B. 8

97–40, 1997–28 I.R.B. 6

97–41, 1997–28 I.R.B. 6

97–42, 1997–29 I.R.B. 12

97–43, 1997–30 I.R.B. 9

97–44, 1997–31 I.R.B. 15

97–45, 1997–33 I.R.B. 7

97–46, 1997–34 I.R.B. 10

97–47, 1997–35 I.R.B. 5

97–48, 1997–35 I.R.B. 5

97–49, 1997–36 I.R.B. 8

97–50, 1997–37 I.R.B. 21

97–51, 1997–38 I.R.B. 20

97–52, 1997–38 I.R.B. 20

8722, 1997–29 I.R.B. 4

8723, 1997–30 I.R.B. 4

8724, 1997–36 I.R.B. 4

8725, 1997–37 I.R.B. 16

8726, 1997–34 I.R.B. 7

8727, 1997–34 I.R.B. 5

8728, 1997–37 I.R.B. 4

8729, 1997–38 I.R.B. 4

8730, 1997–38 I.R.B. 16

Railroad Retirement Quarterly Rate:

1997–28 I.R.B. 5

1

A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 1997–1 through 1997–26

will be found in Internal Revenue Bulletin 1997–27,

dated July 7, 1997.

October 6, 1997

10

1997–40 I.R.B.

Finding List of Current Action on

1

Previously Published Items

Bulletins 1997–27 through 1997–39

*Denotes entry since last publication

Revenue Procedures:

96–36

Superseded by

97–34, 1997–30 I.R.B. 14

96–42

Superseded by

97–27, 1997–27 I.R.B. 9

97–32

Modified and amplified by

97–32A, 1997–34 I.R.B. 10

Revenue Rulings:

89–42

Supplemented by

97–31, 1997–32 I.R.B. 4

93–76

Clarified, modified, partially

obsoleted, and superceded by

97–39, 1997–39 I.R.B 4

94–7

Clarified, modified, partially

obsoleted, and superceded by

97–39, 1997–39 I.R.B 4

1

A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

1997–1 through 1997–26 will be found in Internal

Revenue Bulletin 1997–27, dated July 7, 1997.

1997–40 I.R.B.

11

October 6, 1997

Index

ESTATE TAX

Internal Revenue Bulletins

1997–27 Through 1997–39

Marital or charitable bequests (CtD 2062)

32, 8

26 CFR 301.6634–1, 301.6601–1,

301.6651–1, 1.6013–2(b)(1), amended;

301.6656–3, added; 301.7122–1(e), revised; 301.7430–0, –1, –2, –4, –5,

amended; 301.7420–6, revised; miscellaneous sections affected by TBOR 2

and PRWORA 1996 (TD 8725) 37, 16

For the index of items published during

the first six months of 1997, see I.R.B.

1997–27, dated July 7, 1997.

The abbreviation and number in parenthesis following the index entry refer to

the specific item; numbers in roman and

italic type following the parenthesis refer

to the Internal Revenue Bulletin in which

the item may be found and the page

number on which it appears.

Key to Abbreviations:

RR

Revenue Ruling

RP

Revenue Procedure

TD

Treasury Decision

CD

Court Decision

PL

Public Law

EO

Executive Order

DO

Delegation Order

TDO

Treasury Department Order

TC

Tax Convention

SPR

Statement of Procedural

Rules

PTE

Prohibited Transaction

Exemption

EMPLOYMENT TAX

Penalty:

Guidance regarding waiver of failure to

deposit penalty for certain taxpayers

required to begin using electronic

funds transfer on or after July 1,

1997 (Notice 43) 30, 86

Railroad retirement:

Rate determination; quarterly (July 1,

1997) 28, 5

Regulations:

26 CFR 31.0–1(a), 31.0–3(f), amended;

31.6302–1(h), added; 31.6302–1(i),

redesignated; 31.6302–1T, removed;

31.6302(c)–3, amended; 31.6302–3T,

removed; federal tax deposits by electronic funds transfer (TD 8723) 30, 4

26 CFR 301.6634–1, 301.6601–1,

301.6651–1,

1.6013–2(b)(1),

amended; 301.6656–3, added;

301.7122–1(e), revised; 301.7430–0,

–1, –2, –4, –5, amended; 301.7430–6,

revised; miscellaneous sections affected by TBOR 2 and PRWORA

1996 (TD 8725) 37, 16

October 6, 1997

EXCISE TAX

Group health plans; access, portability,

and renewability requirements; correction (Notice 41) 28, 6

Regulations:

26 CFR 40.6302(c)–1, amended;

40.6302(c)–1T, removed; federal tax

deposits by electronic funds transfer

(TD 8723) 30, 4

26 CFR 301.6634–1, 301.6601–1,

301.6651–1, 1.6013–2(b)(1), amended;

301.6656–3, added; 301.7122–1(e), revised; 301.7430–0, –1, –2, –4, –5,

amended; 301.7420– 6, revised; miscellaneous sections affected by TBOR

2 and PRWORA 1996 (TD 8725)

37, 16

GIFT TAX

Regulations:

26 CFR 301.6634–1, 301.6601–1,

301.6651–1, 1.6013–2(b)(1), amended;

301.6656–3, added; 301.7122–1(e), revised; 301.7430–0, –1, –2, –4, –5,

amended; 301.7420–6, revised; miscellaneous sections affected by TBOR 2

and PRWORA 1996 (TD 8725) 37, 16

INCOME TAX

Allocation of interest expense among taxpayer’s expenditures (Notice 46) 34, 10

Calculation of partner’s limited deficit

restoration obligation (RR 38) 38, 14

Changes to RP 96–11 (Notice 48) 37, 5

Consent to change accounting method to

comply with section 475 mark-to-market rules (RP 43) 39, 12

Depreciation:

Retail motor fuels outlet (RR29) 28, 4

Elections into mark-to-market accounting (Notice 37) 27, 8

12

Electing Small Business Trust (ESBT)

qualification (Notice 49) 36, 8

Electronic or magnetic media filing:

Specifications for 1997 Forms 1098,

1099, 5498, and W–2G (RP 34) 30, 14

Employee plans:

Funding:

Full funding limitations, weighted average interest rate, July 1997 (Notice

44) 31, 15; August 1997 (Notice 47)

35, 5; September 1997 (Notice 51)

38, 20

Highly compensated employee, definition (Notice 45) 33, 7

Organizations, functions, and authority

delegations; director, Employee Plans

Division (DO 172(Rev. 5)) 28, 6

Remedial amendment period extension

(RP 41) 33, 51

Enhanced oil recovery credit for 1997

(Notice 39) 27, 8

Extension of time to file, Form 926 (Notice 42) 29, 12

Forms 1096, 1098, 1099 series, 5498,

W–2G:

Reproduction of forms; RP 97–32, modified and amplified (RP 97–32A) 34,

10; Requirements for reproducing

paper substitutes (RP27) 27, 9

Fringe benefits aircraft valuation formula

(RR 33) 34, 4

Interest:

Investment:

Federal short-term, mid-term, and

long-term rates for July 1997 (RR 27)

27, 4; August 1997 (RR 30) 31, 12;

September 1997 (RR 36) 36, 5

Rates:

Underpayments and overpayments

for calendar quarter beginning October 1, 1997 (RR 40) 39, 8

International operation of ships and aircraft; income exempt from tax (RR 31)

32, 4

Inventories:

LIFO:

Price indexes, department stores,

May 1997 (RR 28) 28, 4; June

1997 (RR 32) 33, 4; July 1997 (RR

37) 37, 15

Late S corporation elections (RP 40) 33,

50

Low-income housing:

Bond factor amounts, July–September

1997 (RR 34) 34, 4

Tax credit (RP 42) 33, 57

Marginal production rates for 1997 (Notice 38) 27, 8

1997–40 I.R.B.

Mark-to-market accounting method for

dealers in securities (RR 39) 39, 4

Methods of accounting:

Automatic consent to change (RP 37)

33, 18

Last-in, first-out inventory method (RP

36) 33, 14

Original issue discount (RP 39) 33, 48

Package design costs (RP 35) 33, 11

Warranty contracts (RP 38) 33, 43

Mutual life insurance companies; differential earnings rate (RR 35) 35, 4

Private delivery services; timely filing or

payment (Notice 50) 37, 21

Proposed regulations:

26 CFR 1.263A–0, amended; rules for

property produced in a farming business (REG–208151–91) 38, 21

26 CFR 1.401(b)–1; remedial amendment period (REG–106043–97) 37, 24

26 CFR 1.411(d)–4, amended; permitted

elimination of preretirement optional

forms benefit (REG–107644–97)

32, 24

26 CFR 1.465–27, added; qualified

nonrecourse financing under section

465(b)(6) (REG–105160–97) 37, 22

1997–40 I.R.B.

26 CFR 1.894–1(d), added; guidance

regarding claims for certain income

tax convention (REG–104893–97)

29, 13

Punitive damages for personal injuries

(CtD 2061) 31, 5

Qualified state tuition programs (Notice

52) 38, 20

Regulations:

26 CFR 1.61–4, 1.162–12(a), 1.263A–

1, 1.471–6, amended; 1.263A–4T, revised; rules for property produced in

a farming business (TD 8729) 38, 4

26 CFR 1.263A–0, –1, –15, amended;

1.263A, added; 1.263A–7T, removed; procedure for changing a

method of accounting under section

263A (TD 8728) 37, 4

26 CFR 1.302–2, amended; 1.1059(e)(1), added; extraordinary dividends (TD 8724) 36, 4

26 CFR 1.401(b)–1, amended; 1.401(b)–1T, added; remedial amendment

period (TD 8727) 34, 5

26 CFR 1.501(c)(5)–1, amended; taxexempt organizations, requirements

(TD 8726) 34, 7

26 CFR 1.704–3, 1.1245–1, amended;

13

allocations of depreciation recapture

among partners in a partnership (TD

8730) 38, 16

26 CFR 1.894–1T(a) through (c),

added; guidance regarding claims for

certain income tax convention (TD

8722) 29, 4

26 CFR 1.6302–1, –2, amended;

1.6302–1T, –2T, –3T, –4T, removed;

1.6302–3(c), revised; 1.6302–4,

added; federal tax deposits by electronic funds transfer (TD 8723) 30, 4

26 CFR 301.6334–1, 301.6601–1,

301.6651–1, 1.6013–2(b)(1), amended;

301.6656–3, added; 301.7122–1(e), revised; 301.7430–0, –1, –2, –4, –5,

amended; 301.7430–6, revised; miscellaneous sections affected by TBOR 2

and PRWORA 1996 (TD 8725) 37, 16

Tax forms and instructions:

Electronic Federal Tax Payment System (EFTPS); electronic remittance

system for federal tax deposits and

payments (RP 33) 30, 10

Treatment of Hong Kong and China (Notice 40) 28, 6

October 6, 1997

Notes

October 6, 1997

14

1997–40 I.R.B.

1997–40 I.R.B.

15

October 6, 1997

INTERNAL REVENUE BULLETIN

The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold

on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of

Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINS

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

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print

and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the

Superintendent of Documents.

HOW TO ORDER

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

detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please

allow two to six weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THE

INTERNAL REVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we

would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page

(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC

20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.

Superintendent of Documents

U.S. Government Printing Office

Washington, DC 20402

Official Business

Penalty for Private Use, $300

First Class Mail

Postage and Fees Paid

GPO

Permit No. G–26

INTERNAL REVENUE BULLETIN

The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold

on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of

Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINS

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

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print

and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the

Superintendent of Documents.

HOW TO ORDER

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

detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please

allow two to six weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THE

INTERNAL REVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we

would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page

(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC

20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.

Internal Revenue Service

First Class Mail

Postage and Fees Paid

IRS

Permit No. G–48

Washington, DC 20224

Official Business

Penalty for Private Use, $300

1997–40 I.R.B.

17

October 6, 1997