Bulletin No. 1999–50

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Internal Revenue

bulletin

Bulletin No. 1999–50

December 13, 1999

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

Rev. Rul. 99–49, page 667.

CPI adjustments for below-market loans for 2000. The

amount that section 7872(g) of the Code permits a taxpayer

to lend to a qualified continuing care facility without incurring

imputed interest is adjusted for years 1987–2000. Rev. Rul.

98–59 supplemental and superseded.

REG–110385–99, page 670.

Proposed regulations under section 7701 of the Code relate

to transactions involving certain foreign eligible entities. A

public hearing is scheduled for January 31, 2000.

EMPLOYEE PLANS

Rev. Rul. 99–51, page 652.

Section 1274A inflation-adjusted numbers for 2000.

This ruling provides the dollar amounts, increased by the

2000 inflation adjustment, for section 1274A of the Code.

Rev. Rul. 98–58 supplemented and superseded.

Nondiscrimination; duplicate benefits. This ruling provides that the duplication of benefits for highly compensated

employees may result in the failure of plans to satisfy the

nondiscrimination requirements of section 401(a)(4) of the

Code.

Rev. Rul. 99–52, page 652.

EMPLOYMENT TAX

Rev. Rul. 99–50, page 656.

1999 base period T-bill rate. The base period T-bill rate,

under section 995 of the Code, is 4.80 percent for the period ending September 30, 1999.

Rev. Rul. 99–53, page 657.

Interest rates; underpayments and overpayments. The

rate of interest determined under section 6621 of the Code

for the calendar quarter beginning January 1, 2000, will be

8 percent for overpayments (7 percent in the case of a corporation), 8 percent for underpayments, and 10 percent for

large corporate underpayments. The rate of interest paid on

the portion of a corporate overpayment exceeding $10,000

is 5.5 percent.

Notice 99–56, page 668.

This notice provides tables that show the amount of an individual’s income that is exempt from a notice of levy used to

collect delinquent tax in 2000.

ADMINISTRATIVE

Announcement 99–113, page 673.

This document contains a partial withdrawal of proposed regulations (REG–105162–97, 1997–2 C.B. 649) relating to

special basis adjustments under section 743 of the Code.

T.D. 8844, page 661.

Announcement 99–114, page 674.

Final regulations clarify the tax consequences for an existing

entity that makes an election under section 7701 of the

Code to change its classification for federal tax purposes.

Publication 3386, Tax Guide for Veterans’ Organizations,

which provides general information regarding tax exemption

under section 501(c) of the Code, is now available.

Finding Lists begin on page ii.

Department of the Treasury

Internal Revenue Service

The IRS Mission

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

and by applying the tax law with integrity and fairness to

all.

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 are consolidated semiannually into

Cumulative Bulletins, which are sold on a single-copy basis.

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.

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.

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-

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.

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).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

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 semiannual basis,

and are published in the first Bulletin of the succeeding 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.

INSERT

PICTURES

HERE

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

Section 401.—Pension, ProfitSharing, Stock Bonus Plans, etc.

26 CFR 1.401(a)(4)–1: Nondiscrimination

requirements of section 401(a)(4).

Nondiscrimination; duplicate benefits.

This ruling provides that the duplication of

benefits for highly compensated employees

may result in the failure of plans to satisfy

the nondiscrimination requirements of section 401(a)(4) of the Code.

Rev. Rul. 99–51

Employer A maintained one plan, Plan

X, a calendar year defined benefit plan,

benefiting all of A’s highly compensated

employees within the meaning of

§ 414(q) of the Internal Revenue Code of

1986 (HCEs) and all of A’s employees

who are not highly compensated employees (NHCEs). Under Plan X, each employee’s accrued benefit equals an annual

benefit commencing at normal retirement

age of one percent of average annual

compensation per year of service. A

“year of service” includes all years of service with Employer A. There are no related or predecessor employers nor is service under any other plan taken into

account under Plan X.

In November 1997, Plan X was

amended effective as of December 31,

1997 (the spin-off date) to become two

plans: Plan X-H covering Employer A’s

HCEs and Plan X-N covering Employer

A’s NHCEs. The assets and benefit liabilities under Plan X as of the spin-off date

were allocated between Plan X-H and

Plan X-N in accordance with § 414(l).

Pursuant to the terms of the amendment,

NHCEs were excluded from participation

in Plan X-H and HCEs were excluded

from participation in Plan X-N. In addition, the amendment provided that there

would be no benefit accruals under Plan

X-H with respect to periods after the spinoff date (i.e., Plan X-H was “frozen” as of

the spin-off date). Benefit accruals continued under Plan X’s original formula for

participants in Plan X-N.

Employer A later amended Plan X-N to

include the HCEs and to provide the

HCEs with an annual benefit commencing at normal retirement age equal to one

percent of average annual compensation

December 13, 1999

per year of service with Employer A. The

years of service included in the computation of the HCEs’ accrued benefit under

Plan X-H were included in the computation of their benefits under Plan X-N as

well. Benefits employees accrued under

Plan X-N were not offset by their accrued

benefits under Plan X-H.

Plan X, Plan X-H and Plan X-N are the

only plans that have been maintained by

Employer A, and none of these plans have

been top-heavy within the meaning of §

416 for any plan year.

Section 401(a)(4) provides that contributions or benefits under a plan qualified

under § 401(a) must not discriminate in

favor of HCEs.

Section 1.401(a)(4)–1(c)(2) of the Income Tax Regulations provides that the

regulations under § 401(a)(4) must be interpreted in a reasonable manner consistent with the purpose of preventing discrimination in favor of HCEs.

Section 1.401(a)(4)–5(a)(1)&(2) provides that, for determining whether the

timing of a plan amendment or series of

amendments has the effect of discriminating significantly in favor of HCEs, a plan

amendment includes the establishment or

termination of the plan, and any change in

the benefits, rights, features or benefit formulas under the plan. Whether the timing

of a plan amendment or series of plan

amendments has the effect of discriminating significantly in favor of HCEs is determined at the time the plan amendment

first becomes effective based on all relevant facts and circumstances. These include the relative numbers of current

HCEs and NHCEs affected by the plan

amendment, the relative accrued benefits

of current HCEs and NHCEs before and

after the plan amendment and any additional benefits provided to current HCEs

and NHCEs under other plans.

Section 1.401(a)(4)–11(d)(2) provides

that, on the basis of all relevant facts and

circumstances, the manner in which employees’ service is credited for all purposes under the plan must not discriminate in favor of HCEs.

Section 1.401(a)(4)–11(d)(3) provides

that, except as otherwise provided, service for periods in which an employee did

not participate in the plan may not be

652

taken into account in determining whether

the plan satisfies § 401(a)(4).

Held, under the facts of this case there

is a duplication of service and benefits

that discriminates in favor of HCEs in violation of § 401(a)(4).

DRAFTING INFORMATION

The principal author of this revenue

ruling is Kenneth Conn of the Employee

Plans Division. For further information

regarding this revenue ruling, call the

Employee Plans Division’s taxpayer assistance telephone service at (202) 6226074/6075 (not toll-free numbers) between 1:30 and 3:30 p.m. Eastern Time,

Monday through Thursday, or Mr. Conn

at (202) 622-6214 (also not a toll-free

number).

Section 483.—Interest on

Certain Deferred Payments

26 CFR 1.483–1: Computation of interest on

certain deferred payments.

As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated

principal amount. The limits to the stated

principal amount are adjusted for inflation

for sales or exchanges occurring in the

2000 calendar year. See Rev. Rul. 99–50,

page 656.

Section 995.—Taxation of DISC

Income to Shareholders

1999 base period T-bill rate. The

base period T-bill rate, under section 995

of the Code, is 4.80 percent for the period

ending September 30, 1999.

Rev. Rul. 99–52

Section 995(f)(l) of the Internal Revenue

Code provides that a shareholder of a DISC

shall pay interest each taxable year in an

amount equal to the product of the shareholder’s DISC-related deferred tax liability

for the year and the “base period T-bill

rate.” Under section 995(f)(4), the base period T-bill rate is the annual rate of interest

determined by the Secretary to be equiva-

1999–50 I.R.B.

lent to the average investment yield of

United States Treasury bills with maturities

of 52 weeks which were auctioned during

the one-year period ending on September

30 of the calendar year ending with (or of

the most recent calendar year ending before) the close of the taxable year of the

shareholder. The base period T-bill rate for

the period ending September 30, 1999, is

4.80 percent.

Pursuant to section 6622 of the Code,

interest must be compounded daily. The

table below provides factors for compounding the base period T-bill rate daily

for any number of days in the shareholder’s taxable year (including a 52-53

week accounting period) for the 1999

base period T-bill rate. To compute the

amount of the interest charge for the

shareholder’s taxable year, multiply the

amount of the shareholder’s DISC-related

deferred tax liability (as defined in section

995(f)(2)) for that year by the base period

T-bill rate factor corresponding to the

number of days in the shareholder’s taxable year for which the interest charge is

being computed. Generally, one would

use the factor for 365 days. One would

use a different factor only if the shareholder’s taxable year for which the interest charge being determined is a short taxable year, if the shareholder uses the

52-53 week taxable year, or if the shareholder’s taxable year is a leap year.

For the base period T-bill rates for the

periods ending in prior years, see: Rev.

Rul. 86–132, 1986–2 C.B. 137; Rev. Rul.

87–129, 1987-2 C.B. 196; Rev. Rul.

88–94, 1988–2 C.B. 301; Rev. Rul.

89–116, 1989–2 C.B. 197; Rev. Rul.

90–96, 1990–2 C.B. 188; Rev. Rul.

91–59, 1991–2 C.B. 347; Rev. Rul.

92–98, 1992–2 C.B. 201; Rev. Rul.

93–77, 1993–2 C.B. 253; Rev. Rul.

94–68, 1994–2 C.B. 177; Rev. Rul.

95–77, 1995–2 C.B. 122; Rev. Rul.

96–55, 1996–2 C.B. 57; Rev. Rul. 97–49,

1997–2 C.B. 89; and Rev. Rul. 98–54,

1998–56 I.R.B. 5.

DRAFTING INFORMATION

The principal author of this revenue

ruling is David Bergkuist of the Office of

the Associate Chief Counsel (International). For further information about this

revenue ruling, contact Mr. Bergkuist on

(202) 622-3850 (not a toll-free call).

1999–50 I.R.B.

1999 ANNUAL RATE

COMPOUNDED DAILY

DAYS

4.80 PERCENT

FACTOR

.000131507

.000263031

.000394572

.000526131

.000657707

.000789301

.000920911

.001052539

.001184184

.001315847

.001447527

.001579224

.001710939

.001842670

.001974420

.002106186

.002237970

.002369771

.002501590

.002633425

.002765279

.002897149

.003029037

.003160942

.003292865

.003424805

.003556762

.003688736

.003820728

.003952738

.004084764

.004216808

.004348870

.004480948

.004613045

.004745158

.004877289

.005009437

.005141603

.005273786

.005405986

.005538204

.005670439

.005802692

653

DAYS

4.80 PERCENT

FACTOR

.005934962

.006067249

.006199554

.006331876

.006464215

.006596572

.006728947

.006861338

.006993748

.007126174

.007258618

.007391080

.007523558

.007656055

.007788568

.007921099

.008053648

.008186214

.008318797

.008451398

.008584016

.008716652

.008849305

.008981976

.009114664

.009247369

.009380092

.009512833

.009645591

.009778366

.009911159

.010043969

.010176797

.010309642

.010442504

.010575384

.010708282

.010841197

.010974130

.011107080

.011240047

.011373032

.011506035

.011639055

.011772092

.011905147

.012038220

December 13, 1999

DAYS

4.80 PERCENT

FACTOR

.012171309

.012304417

.012437542

.012570684

100

.012703844

.012837022

.012970217

.013103429

.013236659

101

102

103

104

105

.013369907

.013503172

.013636455

.013769755

.013903072

106

107

108

109

110

.014036408

.014169760

.014303131

.014436518

.014569924

111

112

113

114

115

.014703347

.014836787

.014970245

.015103721

.015237214

116

117

118

119

120

.015370724

.015504253

.015637798

.015771362

.015904943

121

122

123

124

125

.016038541

.016172157

.016305791

.016439442

.016573111

126

127

128

129

130

.016706797

.016840501

.016974222

.017107961

.017241718

131

132

133

134

135

.017375492

.017509284

.017643094

.017776921

.017910765

136

137

138

139

.018044628

.018178507

.018312405

.018446320

December 13, 1999

DAYS

4.80 PERCENT

FACTOR

140

.018580253

141

142

143

144

145

.018714203

.018848171

.018982156

.019116159

.019250180

146

147

148

149

150

.019384219

.019518275

.019652348

.019786439

.019920548

151

152

153

154

155

.020054675

.020188819

.020322981

.020457160

.020591357

156

157

158

159

160

.020725572

.020859805

.020994055

.021128322

.021262608

161

162

163

164

165

.021396911

.021531231

.021665570

.021799926

.021934299

166

167

168

169

170

.022068691

.022203100

.022337527

.022471971

.022606433

171

172

173

174

175

.022740913

.022875410

.023009925

.023144458

.023279009

176

177

178

179

180

.023413577

.023548163

.023682766

.023817388

.023952027

181

182

183

184

185

.024086683

.024221358

.024356050

.024490760

.024625487

186

.024760233

654

DAYS

4.80 PERCENT

FACTOR

187

188

189

190

.024894996

.025029776

.025164575

.025299391

191

192

193

194

195

.025434225

.025569076

.025703946

.025838833

.025973738

196

197

198

199

200

.026108660

.026243601

.026378559

.026513534

.026648528

201

202

203

204

205

.026783539

.026918568

.027053615

.027188680

.027323762

206

207

208

209

210

.027458862

.027593980

.027729116

.027864269

.027999440

211

212

213

214

215

.028134629

.028269836

.028405061

.028540303

.028675563

216

217

218

219

220

.028810841

.028946137

.029081450

.029216781

.029352130

221

222

223

224

225

.029487497

.029622882

.029758284

.029893705

.030029143

226

227

228

229

230

.030164599

.030300072

.030435564

.030571073

.030706600

231

232

233

.030842145

.030977708

.031113289

1999–50 I.R.B.

DAYS

4.80 PERCENT

FACTOR

234

235

.031248887

.031384503

236

237

238

239

240

.031520138

.031655790

.031791459

.031927147

.032062852

241

242

243

244

245

.032198576

.032334317

.032470076

.032605853

.032741648

246

247

248

249

250

.032877460

.033013291

.033149139

.033285005

.033420889

251

252

253

254

255

.033556791

.033692711

.033828649

.033964604

.034100578

256

257

258

259

260

.034236569

.034372578

.034508605

.034644650

.034780713

261

262

263

264

265

.034916794

.035052892

.035189009

.035325143

.035461296

266

267

268

269

270

.035597466

.035733654

.035869860

.036006084

.036142326

271

272

273

274

275

.036278586

.036414864

.036551159

.036687473

.036823804

276

277

278

279

280

.036960154

.037096521

.037232906

.037369310

.037505731

1999–50 I.R.B.

DAYS

4.80 PERCENT

FACTOR

281

282

283

284

285

.037642170

.037778627

.037915102

.038051595

.038188106

286

287

288

289

290

.038324635

.038461182

.038597746

.038734329

.038870930

291

292

293

294

295

.039007548

.039144185

.039280840

.039417512

.039554203

296

297

298

299

300

.039690911

.039827638

.039964382

.040101144

.040237925

DAYS

4.80 PERCENT

FACTOR

329

330

.044212391

.044349712

331

332

333

334

335

.044487052

.044624409

.044761784

.044899177

.045036589

336

337

338

339

340

.045174018

.045311466

.045448931

.045586415

.045723917

341

342

343

344

345

.045861437

.045998975

.046136531

.046274105

.046411697

346

347

348

349

350

.046549307

.046686936

.046824582

.046962247

.047099930

301

302

303

304

305

.040374723

.040511540

.040648374

.040785226

.040922097

306

307

308

309

310

.041058985

.041195892

.041332816

.041469758

.041606719

351

352

353

354

355

.047237630

.047375349

.047513086

.047650841

.047788615

311

312

313

314

315

.041743697

.041880694

.042017708

.042154741

.042291791

356

357

358

359

360

.047926406

.048064216

.048202043

.048339889

.048477753

316

317

318

319

320

.042428860

.042565946

.042703051

.042840173

.042977314

361

362

363

364

365

.048615635

.048753535

.048891453

.049029390

.049167344

321

322

323

324

325

.043114473

.043251649

.043388844

.043526057

.043663288

366

367

368

369

370

.049305317

.049443308

.049581317

.049719344

.049857389

326

327

328

.043800536

.043937803

.044075088

371

.049995453

655

December 13, 1999

Section 1274.—Determination

of Issue Price in the Case of

Certain Debt Instruments Issued

for Property

Internal Revenue Code.

In general, §§ 483 and 1274 determine

the principal amount of a debt instrument

given in consideration for the sale or exchange of nonpublicly traded property. In

addition, any interest on a debt instrument

subject to § 1274 is taken into account

under the original issue discount provisions of the Code. Section 1274A, however, modifies the rules under §§ 483 and

1274 for certain types of debt instruments.

In the case of a “qualified debt instrument,” the discount rate used for purposes

of §§ 483 and 1274 may not exceed 9 percent, compounded semiannually. Section

1274A(b) defines a qualified debt instrument as any debt instrument given in consideration for the sale or exchange of

property (other than new § 38 property

within the meaning of § 48(b), as in effect

on the day before the date of enactment of

the Revenue Reconciliation Act of 1990)

if the stated principal amount of the instrument does not exceed the amount

specified in § 1274A(b). For debt instruments arising out of sales or exchanges

before January 1, 1990, this amount is

$2,800,000.

In the case of a “cash method debt instrument,” as defined in § 1274A(c), the

borrower and lender may elect to use the

cash receipts and disbursements method

of accounting. In particular, for any cash

method debt instrument, § 1274 does not

apply, and interest on the instrument is accounted for by both the borrower and the

lender under the cash method of accounting. A cash method debt instrument is a

qualified debt instrument that meets the

following additional requirements: (A) In

the case of instruments arising out of sales

or exchanges before January 1, 1990, the

stated principal amount does not exceed

$2,000,000; (B) the lender does not use an

accrual method of accounting and is not a

dealer with respect to the property sold or

exchanged; (C) § 1274 would have applied to the debt instrument but for an

election under § 1274A(c); and (D) an

election under § 1274A(c) is jointly made

with respect to the debt instrument by the

borrower and lender. Section 1.1274A–

1(c)(1) of the Income Tax Regulations

provides rules concerning the time for,

and manner of, making this election.

Section 1274A(d)(2) provides that, for

any debt instrument arising out of a sale

or exchange during any calendar year

after 1989, the dollar amounts stated in

§ 1274A(b) and § 1274A(c)(2)(A) are increased by the inflation adjustment for the

calendar year. Any increase due to the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is

a multiple of $50 and not of $100, the increase is increased to the nearest multiple

of $100). The inflation adjustment for

any calendar year is the percentage (if

any) by which the CPI for the preceding

calendar year exceeds the CPI for calendar year 1988. Section 1274A(d)(2)(B)

Calendar Year

of Sale

or Exchange

Inflation-Adjusted Amounts Under § 1274A

1274A(b) Amount

(qualified debt

instrument)

1274A(c)(2)(A) Amount

(cash method debt

instrument)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

$2,933,200

$3,079,600

$3,234,900

$3,332,400

$3,433,500

$3,523,600

$3,622,500

$3,723,800

$3,823,100

$3,885,500

$3,960,100

$2,095,100

$2,199,700

$2,310,600

$2,380,300

$2,452,500

$2,516,900

$2,587,500

$2,659,900

$2,730,800

$2,775,400

$2,828,700

26 CFR 1.1274A–1: Special rules for certain

transactions where stated principal amount does

not exceed $2,800,000.

As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated

principal amount. The limits to the stated

principal amount are adjusted for inflation

for sales or exchanges occurring in the

2000 calendar year. See Rev. Rul. 99-50,

on this page.

Section 1274A.—Special Rules

for Certain Transactions Where

Stated Principal Amount Does

Not Exceed $2,800,000

(Also, sections 1274, 483; 1.1274A–1, 1.483–1.)

Section 1274A inflation-adjusted

numbers for 2000. This ruling provides

the dollar amounts, increased by the 2000

inflation adjustment, for section 1274A of

the Code. Rev. Rul. 98–58 supplemented

and superseded.

Rev. Rul. 99–50

This revenue ruling provides the dollar amounts, increased by the 2000 inflation adjustment, for § 1274A of the

BACKGROUND

Rev. Rul. 99–50 Table 1

Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982-1984 base, published by

the Bureau of Labor Statistics.

December 13, 1999

656

1999–50 I.R.B.

defines the CPI for any calendar year as

the average of the Consumer Price Index

as of the close of the 12-month period

ending on September 30 of that calendar

year.

INFLATION-ADJUSTED AMOUNTS

For debt instruments arising out of

sales or exchanges after December 31,

1989, the inflation-adjusted amounts

under § 1274A are shown in Table 1.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 98–58, 1998–52 I.R.B. 6 is

supplemented and superseded.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Courtney Shepardson the Office

of the Assistant Chief Counsel (Financial

Institutions and Products). For further information regarding this revenue ruling

contact Ms. Shepardson on (202) 6223930 (not a toll-free call).

Section 6621.— Determination

of Interest Rate

26 CFR 301.6621–1: Interest rate.

Interest rates; underpayments and

overpayments. The rate of interest determined under section 6621 of the Code for

the calendar quarter beginning January 1,

2000, will be 8 percent for overpayments

(7 percent in the case of a corporation), 8

percent for underpayments, and 10 percent for large corporate underpayments.

The rate of interest paid on the portion of

a corporate overpayment exceeding

$10,000 is 5.5 percent.

Rev. Rul. 99–53

Section 6621 of the Internal Revenue

Code establishes the rates for interest on

tax overpayments and tax underpayments.

Under § 6621(a)(1), the overpayment rate

beginning January 1, 2000, is the sum of

1999–50 I.R.B.

the federal short-term rate plus 3 percentage points (2 percentage points in the case

of a corporation), except the rate for the

portion of a corporate overpayment of tax

exceeding $10,000 for a taxable period is

the sum of the federal short-term rate plus

0.5 of a percentage point for interest computations made after December 31, 1994.

Under § 6621(a)(2), the underpayment

rate is the sum of the federal short-term

rate plus 3 percentage points.

Section 6621(c) provides that for purposes of interest payable under § 6601 on

any large corporate underpayment, the

underpayment rate under § 6621(a)(2) is

determined by substituting “5 percentage

points” for “3 percentage points.” See

§ 6621(c) and § 301.6621–3 of the Regulations on Procedure and Administration

for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section

6621(c) and § 301.6621–3 are generally

effective for periods after December 31,

1990.

Section 6621(b)(1) provides that the

Secretary will determine the federal shortterm rate for the first month in each calendar quarter.

Section 6621(b)(2)(A) provides that the

federal short-term rate determined under

§ 6621(b)(1) for any month applies during

the first calendar quarter beginning after

such month.

Section 6621(b)(2)(B) provides that in

determining the addition to tax under §

6654 for failure to pay estimated tax for

any taxable year, the federal short-term

rate that applies during the third month

following such taxable year also applies

during the first 15 days of the fourth

month following such taxable year.

Section 6621(b)(3) provides that the

federal short-term rate for any month is

the federal short-term rate determined

during such month by the Secretary in accordance with § 1274(d), rounded to the

nearest full percent (or, if a multiple of 1⁄2

of 1 percent, the rate is increased to the

next highest full percent).

657

Notice 88–59, 1988–1 C.B. 546, announced that, in determining the quarterly

interest rates to be used for overpayments

and underpayments of tax under § 6621,

the Internal Revenue Service will use the

federal short-term rate based on daily

compounding because that rate is most

consistent with § 6621 which, pursuant to

§ 6622, is subject to daily compounding.

Rounded to the nearest full percent, the

federal short-term rate based on daily

compounding determined during the

month of October 1999 is 5 percent. Accordingly, an overpayment rate of 8 percent (7 percent in the case of a corporation) and an underpayment rate of 8

percent are established for the calendar

quarter beginning January 1, 2000. The

overpayment rate for the portion of a corporate overpayment exceeding $10,000

for the calendar quarter beginning January 1, 2000, is 5.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning

January 1, 2000, is 10 percent. These

rates apply to amounts bearing interest

during that calendar quarter.

The 8 percent rate also applies to estimated tax underpayments for the first calendar quarter in 2000 and for the first 15

days in April 2000.

Interest factors for daily compound interest for annual rates of 5.5 percent, 7

percent, 8 percent, and 10 percent are

published in Tables 64, 67, 69, and 73 of

Rev. Proc. 95–17, 1995–1 C.B. 556, 618,

621, 623, and 627.

Annual interest rates to be compounded

daily pursuant to § 6622 that apply for

prior periods are set forth in the tables accompanying this revenue ruling.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Raymond Bailey of the Office of

Assistant Chief Counsel (Income Tax and

Accounting). For further information regarding this revenue ruling, contact Mr.

Bailey on (202) 622-6226 (not a toll-free

call).

December 13, 1999

TABLE OF INTEREST RATES

PERIODS BEFORE JUL. 1, 1975 – PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTS

PERIOD

Before Jul. 1, 1975

Jul. 1, 1975—Jan. 31, 1976

Feb. 1, 1976—Jan. 31, 1978

Feb. 1, 1978—Jan. 31, 1980

Feb. 1, 1980—Jan. 31, 1982

Feb. 1, 1982—Dec. 31, 1982

Jan. 1, 1983—Jun. 30, 1983

Jul. 1, 1983—Dec. 31, 1983

Jan. 1, 1984—Jun. 30, 1984

Jul. 1, 1984—Dec. 31, 1984

Jan. 1, 1985—Jun. 30, 1985

Jul. 1, 1985—Dec. 31, 1985

Jan. 1, 1986—Jun. 30, 1986

Jul. 1, 1986—Dec. 31, 1986

In 1995–1 C.B.

DAILY RATE TABLE

Table 2, pg. 557

Table 4, pg. 559

Table 3, pg. 558

Table 2, pg. 557

Table 5, pg. 560

Table 6, pg. 560

Table 37, pg. 591

Table 27, pg. 581

Table 75, pg. 629

Table 31, pg. 585

Table 27, pg. 581

Table 25 pg. 579

Table 23, pg. 577

RATE

12%

20%

16%

11%

13%

11%

10%

TABLE OF INTEREST RATES

FROM JAN. 1, 1987 – Dec. 31, 1998

Jan. 1, 1987—Mar. 31, 1987

Apr. 1, 1987—Jun. 30, 1987

Jul. 1, 1987—Sep. 30, 1987

Oct. 1, 1987—Dec. 31, 1987

Jan. 1, 1988—Mar. 31, 1988

Apr. 1, 1988—Jun. 30, 1988

Jul. 1, 1988—Sep. 30, 1988

Oct. 1, 1988—Dec. 31, 1988

Jan. 1, 1989—Mar. 31, 1989

Apr. 1, 1989—Jun. 30, 1989

Jul. 1, 1989—Sep. 30, 1989

Oct. 1, 1989—Dec. 31, 1989

Jan. 1, 1990—Mar. 31, 1990

Apr. 1, 1990—Jun. 30, 1990

Jul. 1, 1990—Sep. 30, 1990

Oct. 1, 1990—Dec. 31, 1990

Jan. 1, 1991—Mar. 31, 1991

Apr. 1, 1991—Jun. 30, 1991

Jul. 1, 1991—Sep. 30, 1991

Oct. 1, 1991—Dec. 31, 1991

Jan. 1, 1992—Mar. 31, 1992

Apr. 1, 1992—Jun. 30, 1992

Jul. 1, 1992—Sep. 30, 1992

Oct. 1, 1992—Dec. 31, 1992

Jan. 1, 1993—Mar. 31, 1993

Apr. 1, 1993—Jun. 30, 1993

Jul. 1, 1993—Sep. 30, 1993

December 13, 1999

658

OVERPAYMENTS

UNDERPAYMENTS

1995–1 C.B.

RATE TABLE PG

1995–1 C.B.

RATE TABLE PG

10%

11%

10%

11%

10%

11%

12%

11%

10%

575

577

627

625

627

579

581

579

577

623

621

619

571

577

579

629

627

629

581

583

581

579

625

623

621

573

1999–50 I.R.B.

TABLE OF INTEREST RATES—Continued

FROM JAN. 1, 1987 – Dec. 31, 1998

Oct. 1, 1993—Dec. 31, 1993

Jan. 1, 1994—Mar. 31, 1994

Apr. 1, 1994—Jun. 30, 1994

Jul. 1, 1994—Sep. 30, 1994

Oct. 1, 1994—Dec. 31, 1994

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

Oct. 1, 1997—Dec. 31, 1997

Jan. 1, 1998—Mar. 31, 1998

Apr. 1, 1998—Jun. 30, 1998

Jul. 1, 1998—Sep. 30, 1998

Oct. 1, 1998—Dec. 31, 1998

OVERPAYMENTS

UNDERPAYMENTS

1995–1 C.B.

RATE TABLE PG

1995–1 C.B.

RATE TABLE PG

10%

571

573

575

577

575

623

621

623

575

573

575

577

579

577

625

623

625

577

575

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 – PRESENT

NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS

1995–1 C.B

TABLE

PAGE

RATE

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

Jul. 1, 1999—Sep. 30, 1999

Oct. 1, 1999—Dec. 31, 1999

Jan. 1, 2000—Mar. 31, 2000

573

575

623

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 – PRESENT

CORPORATE OVERPAYMENTS AND UNDERPAYMENTS

OVERPAYMENTS

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

Jul. 1, 1999—Sep. 30, 1999

Oct. 1, 1999—Dec. 31, 1999

Jan. 1, 2000—Mar. 31, 2000

1999–50 I.R.B.

RATE

1995–1 C.B.

TABLE

659

571

573

621

UNDERPAYMENTS

RATE

1995–1 C.B.

TABLE

573

575

623

December 13, 1999

TABLE OF INTEREST RATES FOR

LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT

RATE

13%

12%

11%

10%

11%

12%

11%

10%

11%

10%

Jan. 1, 1991—Mar. 31, 1991

Apr. 1, 1991—Jun. 30, 1991

Jul. 1, 1991—Sep. 30, 1991

Oct. 1, 1991—Dec. 31, 1991

Jan. 1, 1992—Mar. 31, 1992

Apr. 1, 1992—Jun. 30, 1992

Jul. 1, 1992—Sep. 30, 1992

Oct. 1, 1992—Dec. 31, 1992

Jan. 1, 1993—Mar. 31, 1993

Apr. 1, 1993—Jun. 30, 1993

Jul. 1, 1993—Sep. 30, 1993

Oct. 1, 1993—Dec. 31, 1993

Jan. 1, 1994—Mar. 31, 1994

Apr. 1, 1994—Jun. 30, 1994

Jul. 1, 1994—Sep. 30, 1994

Oct. 1, 1994—Dec. 31, 1994

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

Oct. 1, 1997—Dec. 31, 1997

Jan. 1, 1998—Mar. 31, 1998

Apr. 1, 1998—Jun. 30, 1998

Jul. 1, 1998—Sep. 30, 1998

Oct. 1, 1998—Dec. 31, 1998

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

Jul. 1, 1999—Sep. 30, 1999

Oct. 1, 1999—Dec. 31, 1999

Jan. 1, 2000—Mar. 31, 2000

December 13, 1999

660

1995–1 C.B.

TABLE

585

583

629

627

625

577

579

581

583

581

629

627

629

581

579

577

579

627

1999–50 I.R.B.

TABLE OF INTEREST RATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 – PRESENT

RATE

6.5%

7.5%

6.5%

5.5%

6.5%

5.5%

4.5%

5.5%

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

Oct. 1, 1997—Dec. 31, 1997

Jan. 1, 1998—Mar. 31, 1998

Apr. 1, 1998—Jun. 30, 1998

Jul. 1. 1998—Sep. 30, 1998

Oct. 1, 1998—Dec. 31, 1998

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

Jul. 1, 1999—Sep. 30, 1999

Oct. 1, 1999—Dec. 31, 1999

Jan. 1, 2000—Mar. 31, 2000

Section 7701.—Definitions

26 CFR 301.7701–3: Classification of certain

business entities.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

T.D. 8844

Treatment of Changes in

Elective Entity Classification

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations describing how elective

changes in classification will be treated

for federal tax purposes. The final regulations affect business entities and their

members. The final regulations provide

1999–50 I.R.B.

guidance to taxpayers who elect to change

an entity’s classification for federal tax

purposes.

DATES: Effective Date: These regulations are effective November 29, 1999.

Applicability Dates: These regulations

apply on or after November 29, 1999.

However, taxpayers may choose to apply

certain provisions in these regulations before November 29, 1999 as specified in

§301.7701–2(e) and §301.7701–3(g)(4).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Dan

Carmody, (202) 622-3080 (not a toll-free

number); concerning international issues,

Mark Harris, (202) 622-3860 (not a tollfree number).

SUPPLEMENTARY INFORMATION:

Background

On October 28, 1997, proposed amend-

661

1995–1 C.B

TABLE

572

574

572

620

618

620

572

570

568

570

618

ments to the regulations (REG–105162–97,

1997–2 C.B. 649) under §§301.6109–1,

301.7701–2, and 301.7701–3 were published in the Federal Register (62 F.R.

55768). A number of comments were received on the proposed regulations. The

public hearing scheduled for February 24,

1998, was canceled because no one requested to speak. After considering the

submitted comments, the IRS and Treasury

adopt the proposed amendments to the regulations under §§301.6109–1, 301.7701–2,

and 301.7701–3 as revised by this Treasury

decision.

Explanation of Provisions

I. Characterization of Elective Changes

in Classification

There are four possible changes in classification of an eligible entity by election

under §301.7701–3: (i) a partnership

elects to be an association taxable as a

December 13, 1999

corporation (association); (ii) an association elects to be a partnership; (iii) an association elects to be disregarded as an

entity separate from its owner (disregarded entity); and (iv) a disregarded entity elects to be an association. The proposed regulations provide a form that

each elective conversion would be treated

as having for federal tax purposes. Under

the proposed regulations, there is only

one form for each elective conversion,

and taxpayers could not elect to have a

different form apply to the elective conversion.

A. Elective Conversions Treated as

Having One Form

Commentators recommended that taxpayers be allowed to choose which form

to apply to an elective conversion. This

would allow taxpayers to avoid having to

take the actual steps of a conversion to

produce the most favorable tax results. A

commentator suggested that the lack of

choice in the proposed regulations is inconsistent with the intent of the check-thebox regulations, which adopted an elective

regime for classifying eligible entities.

Because elective conversions are transactions without actual form, the IRS and

Treasury believe that it is appropriate to

provide that only one transaction form

will be applied to each type of elective

conversion. Furthermore, while the

check-the-box regulations provide an

elective regime for classifying eligible entities, the elective regime was not intended to substitute for actual transactions

in all situations. Instead, the purpose of

implementing the regime was to simplify

an area of the law where legal distinctions

previously drawn in determining an entity’s classification were no longer meaningful. While the factors considered

under prior law did not meaningfully distinguish between business organizations,

taxpayers still were required to expend

considerable resources to ensure that they

obtained the classification they desired.

Small business organizations often lacked

the resources and expertise to achieve

their desired tax classification. This was

viewed as unfair. The IRS was also expending considerable resources providing

guidance on these classification issues.

These same concerns generally are not

present in determining the form of a conversion transaction. Therefore, the final

December 13, 1999

regulations maintain only one form for

each type of elective conversion.

B. Form of Conversion From Association

to Partnership

The proposed regulations provide that

an elective conversion of an association to

a partnership is deemed to have the following form: The association distributes

all of its assets and liabilities to its shareholders in liquidation of the association,

and immediately thereafter, the shareholders contribute all of the distributed

assets and liabilities to a newly formed

partnership.

A commentator suggested that the proposed form for an elective conversion of

an association to a partnership may not

minimize the tax consequences of such a

conversion under certain circumstances.

The commentator suggested that the proposed form should be available as an election, but that the default form should be a

deemed transfer of assets and liabilities

from the electing corporation to a newly

formed partnership for interests in the

partnership followed immediately by a

liquidation of the electing corporation.

The IRS and Treasury believe that

under current law a voluntary formless

change from an association to a partnership should be treated as a liquidation of

the corporation followed by a contribution of assets to the partnership. See Rev.

Rul. 63–107 (1963–2 C.B. 71). Moreover, if the assets were deemed contributed by the electing corporation to the

partnership for partnership interests followed by a liquidation of the corporation,

the application of section 704(c) (contribution of appreciated property), section

708 (partnership termination), and section

754 (elective adjustments to the basis of

partnership assets) could be somewhat

complex and difficult for taxpayers and

the IRS to administer. Therefore, the proposed form for the elective conversion of

an association to a partnership is adopted

without change.

C. Timing of Elective Changes in

Classification

The proposed regulations provide that a

classification election takes effect at the

start of the day for which the election is

effective. Any transactions that are

deemed to occur because of a change in

662

classification are treated as occurring immediately before the close of the day before the effective date of the election. The

owners of the entity when the election is

effective may be different from the owners of the entity when the conversion

transactions are deemed to occur. To ensure that the taxpayers who recognize the

tax consequences of a conversion election

approve of the election, the proposed regulations require that the election be signed

by every owner on the date of the deemed

conversion transactions.

A commentator indicated that purchasers who wish to make a classification

election effective as of their first day of

ownership may endure a burden in obtaining the consents of previous owners. The

commentator recommended that the

deemed conversion transactions be

treated as occurring at the start of the day

for which the election is effective, eliminating the need to obtain the consent of

prior owners. Under this suggestion, purchasers of an association who wish to

elect partnership treatment effective as of

the first day of ownership would be

treated as owning both stock and partnership interests on that first day of ownership. This would result in the purchasers

being responsible for a corporate return

for their transitory period of corporate

ownership. See §1.6012–2.

The IRS and Treasury intended that the

proposed timing rule generally would be

beneficial for taxpayers. The IRS and

Treasury believe that any burden imposed

by this rule is outweighed by the transactional flexibility that this rule provides.

Accordingly, the suggested change to the

timing rule is not adopted.

Another commentator noted a conflict

between the proposed timing rule and the

deemed transactions under section 338.

Section 338 allows a purchasing corporation to treat its stock purchase of another

corporation as an asset purchase. Under

section 338, a purchasing corporation

may elect to treat the target corporation as

(1) selling its assets at fair market value

on the acquisition date, and (2) a new corporation that purchased all of the assets at

the beginning of the day after the acquisition date. If the purchaser also makes a

classification election for the target effective for the purchaser’s first day of ownership, the timing of the deemed liquidation

under §301.7701–3(g)(1) would conflict

1999–50 I.R.B.

with the timing of the deemed transactions required by section 338.

To address the issue, the final regulations specify that if section 338 applies,

an election to convert the target corporation’s classification cannot be effective

before the day after the acquisition date of

the target corporation. Additionally, the

deemed liquidation and conversion under

§301.7701–3(g)(1) will occur immediately after the completion of the section

338 transactions. These rules follow the

approach of §1.338–2(c)(1)(i), which provides that when a target corporation liquidates on the acquisition date, the liquidation is treated as occurring on the

following day and immediately after the

deemed purchase of assets. If a taxpayer

makes an election under section 338

(without a section 338(h)(10) election) regarding a target corporation that is subsequently deemed liquidated under these

final regulations, the target corporation

must file a final or deemed sale return as a

C corporation reflecting the deemed sale.

See §1.338–1(e).

Commentators also expressed concern

over the effect the proposed timing rule

would have on a sequence of elections

when a number of corporations are owned

through a single ownership chain. If the

elections are all effective for the same

date, the effect of the interaction of the

timing rule with section 332 is unclear.

For example, P corporation owns 100 percent of the interest of an eligible entity

classified as an association (S1), which

owns directly 100 percent of the interest

of an eligible entity classified as an association (S2). P wants to convert S1 and

S2 to disregarded entities on the same

day; however, if both deemed liquidations

are treated as occurring simultaneously, it

is not clear that section 332 nonrecognition treatment would be available for both

liquidations. The final regulations clarify

that in such a situation, unless another

order is specified for the elections, S1 will

be treated as liquidating into P immediately before S2 liquidates into P.

Commentators suggested that this situation could be addressed by allowing taxpayers to make elections effective by the

hour, instead of only at the start of the

day. The IRS and Treasury believe that

the clarification in the final regulations

appropriately addresses the treatment of

successive elections. Therefore, the final

1999–50 I.R.B.

regulations maintain the rule that conversion elections take effect at the start of the

day on which the election is effective.

II. Taxpayer Identifying Numbers and

Disregarded Entities

The proposed regulations provide clarification of the rules regarding taxpayer

identifying numbers (TINs). The proposed regulations restate the rule that

when an entity’s classification changes

under §301.7701–3, it retains its employer identification number (EIN). The

proposed regulations also clarified the

rule that a disregarded entity must use its

owner’s TIN for federal tax purposes.

Furthermore, when a disregarded entity

becomes respected as a separate entity, it

must use its own EIN and not the TIN of

the single owner.

One commentator asked for clarification regarding the use of TINs and EINs

in the proposed regulations. TINs include

EINs, social security numbers (SSNs),

and IRS individual taxpayer identification

numbers (ITINs). The regulations require

that a disregarded entity report under the

owner’s TIN. The regulations refer to a

taxpayer’s TIN because the term TIN encompasses not only an EIN, but also an

SSN and an ITIN.

Another commentator suggested that

the proposed regulations were too restrictive and prohibited a disregarded entity

from applying for and receiving its own

TIN. The regulations do not prevent a

single member disregarded entity from

applying for and receiving its own TIN.

The regulations merely provide that, except as otherwise provided in regulations

or other guidance, the single owner disregarded entity must use the owner’s TIN

for federal tax purposes and not the EIN

of the disregarded entity. Notice 99–6

(1999–3 I.R.B. 1) provides guidance on

the limited circumstances under which a

disregarded entity may use its own EIN.

III. Rules for Foreign Entities

These final regulations also contain

rules relating to certain foreign entities.

A. Foreign Per Se Entities

The final check-the-box regulations

provided a list of the names of certain foreign business entities that are treated as

corporations for federal tax purposes. In

663

response to comments from taxpayers, the

proposed regulations clarified those provisions. Specifically, clarifications were

made with respect to certain business entities formed in Finland, Malaysia, Malta,

Mexico, and Norway. These final regulations adopt the proposed regulation’s clarifications.

These final regulations also clarify the

treatment of an entity formed in Trinidad

and Tobago that is specified in the final

check-the-box regulations. Prior to April

1997, Trinidad and Tobago’s Companies

Act distinguished between public and private limited companies. Effective April

1997, Trinidad and Tobago’s Companies

Act was amended and now only provides

for limited companies (and no longer provides for private limited companies). Accordingly, these final regulations have

been modified to take into account that

change. The effective date of these final

regulations with regard to an entity

formed in Trinidad and Tobago has been

modified so as not to disadvantage taxpayers who relied on the final check-thebox regulations. These final regulations

provide that the rule with regard to an entity formed in Trinidad and Tobago will

be effective on or after November 29,

1999. Accordingly, this rule only affects

those entities which were formed (or

made affirmative elections) on or after

November 29, 1999.

These regulations also clarify the exception to per se corporate treatment for

Canadian companies and corporations.

When the final check-the-box regulations

were promulgated, the only company or

corporation that could be formed where

the liability of all of its members was unlimited pursuant to any federal or provincial statute (as opposed to through side

agreements of the members), was a Nova

Scotia Unlimited Liability Company

(NSULC). However, in order to avoid

changing the regulations if any other

province, or the federal government, subsequently allowed for the formation of

unlimited liability companies by statute,

these regulations did not specifically list

the NSULC. In response to questions

from taxpayers, the regulation is clarified,

with effect from January 1, 1997, by

specifically naming the NSULC, while

still providing for any other unlimited liability company that might subsequently

be allowed by any other federal or provincial statute.

December 13, 1999

B. Foreign Eligible Entities

Proposed regulations that provide a

special rule for certain foreign eligible entities are published in REG–110385–99

on page 000. In addition, the IRS and

Treasury are still studying what, if any,

consequences occur when a foreign eligible entity that is not relevant for federal

tax purposes files an entity classification

election. The IRS and Treasury continue

to request comments on this topic.

IV. Changes in Number of Members of an

Entity

The proposed regulations provide that

an entity’s classification may change as a

result of a change in the number of its

members. Specifically, an eligible entity

classified as a partnership will become a

disregarded entity when the entity’s membership is reduced to one member, and a

disregarded entity will be classified as a

partnership when the entity has more than

one member. The final regulations adopt

these provisions without substantive

change. Guidance on the federal tax consequences of such changes has been provided in Rev. Rul. 99–5 (1999–6 I.R.B. 8)

and Rev. Rul. 99–6 (1999–6 I.R.B. 6).

Effective Date

These regulations are applicable on or

after November 29, 1999. In response to

comments, however, the final regulations

include a provision allowing taxpayers to

apply the regulations retroactively for

elective entity conversions that occurred

before November 29, 1999. Taxpayers

may apply the final regulations retroactively only if all taxpayers involved in the

transaction follow the regulations. The

rules contained in §301.6109–1(h) are applicable as of January 1, 1997. Certain

changes to §301.7701–2(b)(8) may be applied before the effective date as specified

in §301.7701–2(e).

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regula-

December 13, 1999

tions, and because these regulations do

not impose a collection of information on

small entities, the Regulatory Flexibility

Act (5 U.S.C. chapter 6) does not apply.

Therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue

Code, the notice of proposed rulemaking

preceding these regulations was submitted to the Chief Counsel for Advocacy of

the Small Business Administration for

comment on its impact on small business.

Drafting Information

The principal authors of these regulations are Dan Carmody and Jeff Erickson,

Office of Chief Counsel (Passthroughs

and Special Industries) and Mark Harris

and Philip Tretiak, Office of Associate

Chief Counsel (International). However,

other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Amendments to the Regulations

(2) Special rules for entities that are

disregarded as entities separate from

their owners—(i) When an entity becomes

disregarded as an entity separate from its

owner. Except as otherwise provided in

regulations or other guidance, a single

owner entity that is disregarded as an entity separate from its owner under

§301.7701–3, must use its owner’s taxpayer identifying number (TIN) for federal tax purposes.

(ii) When an entity that was disregarded as an entity separate from its

owner becomes recognized as a separate

entity. If a single owner entity’s classification changes so that it is recognized as a

separate entity for federal tax purposes,

and that entity had an EIN, then the entity

must use that EIN and not the TIN of the

single owner. If the entity did not already

have its own EIN, then the entity must acquire an EIN and not use the TIN of the

single owner.

(3) Effective date. The rules of this

paragraph (h) are applicable as of January

1, 1997.

Accordingly, 26 CFR part 301 is

amended as follows:

PART 301—PROCEDURE AND

ADMINISTRATION

Paragraph 1. The authority citation for

part 301 continues to read in part as follows:

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

Par. 2. Section 301.6109-1 is amended

as follows:

1. Paragraph (d)(2)(ii) is removed and

reserved.

2. Paragraph (h) is redesignated as

paragraph (i) and the first sentence of

newly designated paragraph (i)(1) is

amended by removing the language

“paragraph (h)” and adding “paragraph

(i)” in its place.

3. A new paragraph (h) is added.

The addition reads as follows:

§301.6109–1 Identifying numbers.

* * * * *

(h) Special rules for certain entities

under §301.7701-3—(1) General rule.

Any entity that has an employer identification number (EIN) will retain that EIN

if its federal tax classification changes

under §301.7701–3.

664

* * * * *

Par. 3. Section 301.7701–2 is amended

as follows:

1. Paragraph (b)(8)(i) is amended by

revising the entries for Finland, Malta,

Norway, and Trinidad and Tobago.

2. Paragraph (b)(8)(ii)(A) is redesignated as paragraph (b)(8)(ii)(A)(1) and is

revised.

3. Paragraph (b)(8)(ii)(B) is redesignated as paragraph (b)(8)(ii)(A)(2).

4. Paragraph (b)(8)(ii) heading and introductory text are redesignated as paragraph (b)(8)(ii)(A) heading and introductory text, and a new paragraph heading is

added for paragraph (b)(8)(ii).

5. Paragraphs (b)(8)(ii)(A)(3) and

(b)(8)(ii)(B) are added.

6. Paragraphs (b)(8)(iii), (b)(8)(iv), and

(e) are revised.

The revisions and additions read as follows:

§301.7701–2 Business entities;

definitions.

* * * * *

(b) * * *

(8) * * *

(i) * * *

1999–50 I.R.B.

Finland, Julkinen Osakeyhtio/Publikt Aktiebolag

* * * * *

Malta, Public Limited Company

* * * * *

Norway, Allment Aksjeselskap

* * * * *

Trinidad and Tobago, Limited Company

* * * * *

(ii) Clarification of list of corporations

in paragraph (b)(8)(i) of this section—

(A) Exceptions in certain cases. * * *

* * * * *

(1) With regard to Canada, a Nova Scotia Unlimited Liability Company (or any

other company or corporation all of

whose owners have unlimited liability

pursuant to federal or provincial law).

* * * * *

(3) With regard to Malaysia, a

Sendirian Berhad.

(B) Inclusions in certain cases. With

regard to Mexico, the term Sociedad

Anonima includes a Sociedad Anonima

that chooses to apply the variable capital

provision of Mexican corporate law (Sociedad Anonima de Capital Variable).

(iii) Public companies. For purposes of

paragraph (b)(8)(i) of this section, with

regard to Cyprus, Hong Kong, and Jamaica, the term Public Limited Company

includes any Limited Company that is not

defined as a private company under the

corporate laws of those jurisdictions. In

all other cases, where the term Public

Limited Company is not defined, that

term shall include any Limited Company

defined as a public company under the

corporate laws of the relevant jurisdiction.

(iv) Limited companies. For purposes

of this paragraph (b)(8), any reference to

a Limited Company includes, as the case

may be, companies limited by shares and

companies limited by guarantee.

* * * * *

(e) Effective date. Except as otherwise

provided in this paragraph (e), the rules of

this section apply as of January 1, 1997.

1999–50 I.R.B.

The reference to the Finnish, Maltese, and

Norwegian entities in paragraph (b)(8)(i)

of this section is applicable on November

29, 1999. The reference to the Trinidadian entity in paragraph (b)(8)(i) of this

section applies to entities formed on or

after November 29, 1999. Any Maltese or

Norwegian entity that becomes an eligible

entity as a result of paragraph (b)(8)(i) of

this section in effect on November 29,

1999, may elect by February 14, 2000, to

be classified for federal tax purposes as an

entity other than a corporation retroactive

to any period from and including January

1, 1997. Any Finnish entity that becomes

an eligible entity as a result of paragraph

(b)(8)(i) of this section in effect on November 29, 1999, may elect by February

14, 2000, to be classified for federal tax

purposes as an entity other than a corporation retroactive to any period from and including September 1, 1997.

Par. 4. Section 301.7701-3 is amended

as follows:

1. A sentence is added at the end of

paragraph (c)(1)(iii).

2. A sentence is added at the end of

paragraph (c)(1)(iv).

3. Paragraph (c)(2)(iii) is added.

4. A heading is added to paragraph

(d)(1).

5. Paragraph (f) is redesignated as

paragraph (h) and newly designated paragraph (h)(1) is revised.

6. Paragraphs (f) and (g) are added.

The revision and additions read as follows:

§301.7701-3 Classification of certain

business entities.

* * * * *

(1) * * *

(iii) Effective date of election. * * * If a

purchasing corporation makes an election

under section 338 regarding an acquired

subsidiary, an election under paragraph

(c)(1)(i) of this section for the acquired

subsidiary can be effective no earlier than

the day after the acquisition date (within

the meaning of section 338(h)(2)).

(iv) Limitation. * * * An election by a

newly formed eligible entity that is effective on the date of formation is not considered a change for purposes of this paragraph (c)(1)(iv).

665

* * * * *

(2) * * *

(iii) Changes in classification. For

paragraph (c)(2)(i) of this section, if an

election under paragraph (c)(1)(i) of this

section is made to change the classification of an entity, each person who was an

owner on the date that any transactions

under paragraph (g) of this section are

deemed to occur, and who is not an owner

at the time the election is filed, must also

sign the election. This paragraph

(c)(2)(iii) applies to elections filed on or

after November 29, 1999.

(d) Special rules for foreign eligible entities—(1) Definition of relevance. * * *

* * * * *

(f) Changes in number of members of

an entity—(1) Associations. The classification of an eligible entity as an association is not affected by any change in the

number of members of the entity.

(2) Partnerships and single member

entities. An eligible entity classified as a

partnership becomes disregarded as an

entity separate from its owner when the

entity’s membership is reduced to one

member. A single member entity disregarded as an entity separate from its

owner is classified as a partnership when

the entity has more than one member. If

an elective classification change under

paragraph (c) of this section is effective at

the same time as a membership change

described in this paragraph (f)(2), the

deemed transactions in paragraph (g) of

this section resulting from the elective

change preempt the transactions that

would result from the change in membership.

(3) Effect on sixty month limitation. A

change in the number of members of an

entity does not result in the creation of a

new entity for purposes of the sixty month

limitation on elections under paragraph

(c)(1)(iv) of this section.

(4) Examples. The following examples

illustrate the application of this paragraph

(f):

Example 1. A, a U.S. person, owns a domestic eligible entity that is disregarded as an entity separate

from its owner. On January 1, 1998, B, a U.S. person, buys a 50 percent interest in the entity from A.

Under this paragraph (f), the entity is classified as a

partnership when B acquires an interest in the entity.

However, A and B elect to have the entity classified

as an association effective on January 1, 1998.

Thus, B is treated as buying shares of stock on Janu-

December 13, 1999

ary 1, 1998. (Under paragraph (c)(1)(iv) of this section, this election is treated as a change in classification so that the entity generally cannot change its

classification by election again during the sixty

months succeeding the effective date of the election.) Under paragraph (g)(1) of this section, A is

treated as contributing the assets and liabilities of

the entity to the newly formed association immediately before the close of December 31, 1997. Because A does not retain control of the association as

required by section 351, A’s contribution will be a

taxable event. Therefore, under section 1012, the

association will take a fair market value basis in the

assets contributed by A, and A will have a fair market value basis in the stock received. A will have no

additional gain upon the sale of stock to B, and B

will have a cost basis in the stock purchased from A.

Example 2. (i) On April 1, 1998, A and B, U.S.

persons, form X, a foreign eligible entity. X is

treated as an association under the default provisions

of paragraph (b)(2)(i) of this section, and X does not

make an election to be classified as a partnership. A

subsequently purchases all of B’s interest in X.

(ii) Under paragraph (f)(1) of this section, X continues to be classified as an association. X, however,

can subsequently elect to be disregarded as an entity

separate from A. The sixty month limitation of paragraph (c)(1)(iv) of this section does not prevent X

from making an election because X has not made a

prior election under paragraph (c)(1)(i) of this section.

Example 3. (i) On April 1, 1998, A and B, U.S.

persons, form X, a foreign eligible entity. X is

treated as an association under the default provisions

of paragraph (b)(2)(i) of this section, and X does not

make an election to be classified as a partnership.

On January 1, 1999, X elects to be classified as a

partnership effective on that date. Under the sixty

month limitation of paragraph (c)(1)(iv) of this section, X cannot elect to be classified as an association

until January 1, 2004 (i.e., sixty months after the effective date of the election to be classified as a partnership).

(ii) On June 1, 2000, A purchases all of B’s interest in X. After A’s purchase of B’s interest, X can no

longer be classified as a partnership because X has

only one member. Under paragraph (f)(2) of this

section, X is disregarded as an entity separate from A

when A becomes the only member of X. X, however, is not treated as a new entity for purposes of

paragraph (c)(1)(iv) of this section. As a result, the

sixty month limitation of paragraph (c)(1)(iv) of this

section continues to apply to X, and X cannot elect to

be classified as an association until January 1, 2004

(i.e., sixty months after January 1, 1999, the effective date of the election by X to be classified as a

partnership).

(5) Effective date. This paragraph (f)

applies as of November 29, 1999.

(g) Elective changes in classification—

(1) Deemed treatment of elective

change—(i) Partnership to association.

If an eligible entity classified as a partnership elects under paragraph (c)(1)(i) of

this section to be classified as an association, the following is deemed to occur:

The partnership contributes all of its assets and liabilities to the association in ex-

December 13, 1999

change for stock in the association, and

immediately thereafter, the partnership

liquidates by distributing the stock of the

association to its partners.

(ii) Association to partnership. If an

eligible entity classified as an association

elects under paragraph (c)(1)(i) of this

section to be classified as a partnership,

the following is deemed to occur: The association distributes all of its assets and liabilities to its shareholders in liquidation

of the association, and immediately thereafter, the shareholders contribute all of the

distributed assets and liabilities to a newly

formed partnership.

(iii) Association to disregarded entity.

If an eligible entity classified as an association elects under paragraph (c)(1)(i) of

this section to be disregarded as an entity

separate from its owner, the following is

deemed to occur: The association distributes all of its assets and liabilities to its

single owner in liquidation of the association.

(iv) Disregarded entity to an association. If an eligible entity that is disregarded as an entity separate from its

owner elects under paragraph (c)(1)(i) of

this section to be classified as an association, the following is deemed to occur:

The owner of the eligible entity contributes all of the assets and liabilities of

the entity to the association in exchange

for stock of the association.

(2) Effect of elective changes. The tax

treatment of a change in the classification

of an entity for federal tax purposes by

election under paragraph (c)(1)(i) of this

section is determined under all relevant

provisions of the Internal Revenue Code

and general principles of tax law, including the step transaction doctrine.

(3) Timing of election—(i) In general.

An election under paragraph (c)(1)(i) of

this section that changes the classification

of an eligible entity for federal tax purposes is treated as occurring at the start of

the day for which the election is effective.

Any transactions that are deemed to occur

under this paragraph (g) as a result of a

change in classification are treated as occurring immediately before the close of

the day before the election is effective.

For example, if an election is made to

change the classification of an entity from

an association to a partnership effective on

January 1, the deemed transactions specified in paragraph (g)(1)(ii) of this section

666

(including the liquidation of the association) are treated as occurring immediately

before the close of December 31 and must

be reported by the owners of the entity on

December 31. Thus, the last day of the association’s taxable year will be December

31 and the first day of the partnership’s

taxable year will be January 1.

(ii) Coordination with section 338

election. A purchasing corporation that

makes a qualified stock purchase of an eligible entity taxed as a corporation may

make an election under section 338 regarding the acquisition if it satisfies the

requirements for the election, and may

also make an election to change the classification of the target corporation. If a

taxpayer makes an election under section

338 regarding its acquisition of another

entity taxable as a corporation and makes

an election under paragraph (c) of this

section for the acquired corporation (effective at the earliest possible date as provided by paragraph (c)(1)(iii) of this section), the transactions under paragraph (g)

of this section are deemed to occur immediately after the deemed asset purchase by

the new target corporation under section

338.

(iii) Application to successive elections

in tiered situations. When elections under

paragraph (c)(1)(i) of this section for a series of tiered entities are effective on the

same date, the eligible entities may specify the order of the elections on Form

8832. If no order is specified for the elections, any transactions that are deemed to

occur in this paragraph (g) as a result of

the classification change will be treated as

occurring first for the highest tier entity’s

classification change, then for the next

highest tier entity’s classification change,

and so forth down the chain of entities

until all the transactions under this paragraph (g) have occurred. For example,

Parent, a corporation, wholly owns all of

the interest of an eligible entity classified

as an association (S1), which wholly

owns another eligible entity classified as

an association (S2), which wholly owns

another eligible entity classified as an association (S3). Elections under paragraph

(c)(1)(i) of this section are filed to classify

S1, S2, and S3 each as disregarded as an

entity separate from its owner effective on

the same day. If no order is specified for

the elections, the following transactions

are deemed to occur under this paragraph

1999–50 I.R.B.

(g) as a result of the elections, with each

successive transaction occurring on the

same day immediately after the preceding

transaction: S1 is treated as liquidating

into Parent, then S2 is treated as liquidating into Parent, and finally S3 is treated as

liquidating into Parent.

(4) Effective date. This paragraph (g)

applies to elections that are filed on or

after November 29, 1999. Taxpayers may

apply this paragraph (g) retroactively to

elections filed before November 29, 1999

if all taxpayers affected by the deemed

transactions file consistently with this

paragraph (g).

(h) Effective date—(1) In general. Except as otherwise provided in this section,

the rules of this section are applicable as

of January 1, 1997.

* * * * *

Robert E. Wenzel,

Deputy Commissioner of

Internal Revenue.

Approved November 2, 1999.

Jonathan Talisman,

Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on

November 26, 1999, 8:45 a.m., and published in the

issue of the Federal Register for November 29,

1999, 64 F.R. 66580)

Section 7872.—Treatment of

Loans with Below-Market

Interest Rates

CPI adjustments for below-market

loans for 2000. The amount that section

7872(g) of the Code permits a taxpayer to

lend to a qualified continuing care facility

without incurring imputed interest is adjusted for years 1987-2000. Rev. Rul. 9859 supplemented and superseded.

1999–50 I.R.B.

Rev. Rul. 99–49

This revenue ruling publishes the

amount that § 7872(g) of the Internal

Revenue Code permits a taxpayer to lend

to a qualifying continuing care facility

without incurring imputed interest. The

amount is adjusted for inflation for the

years after 1986.

Section 7872 generally treats loans

bearing a below-market interest rate as if

they bore interest at the market rate.

Section 7872(g)(1) provides that, in

general, § 7872 does not apply for any

calendar year to any below-market loan

made by a lender to a qualified continuing

care facility pursuant to a continuing care

contract if the lender (or the lender's

spouse) attains age 65 before the close of

the year.

Section 7872(g)(2) provides that, in the

case of loans made after October 11,

1985, and before 1987, § 7872(g)(1) applies only to the extent that the aggregate

outstanding amount of any loan to which

§ 7872(g) applies (determined without regard to § 7872(g)(2)), when added to the

aggregate outstanding amount of all other

previous loans between the lender (or the

lender's spouse) and any qualified continuing care facility to which § 7872(g)(1)

applies, does not exceed $90,000.

Section 7872(g)(5) provides that, for

loans made during any calendar year after

1986 to which § 7872(g)(1) applies, the

$90,000 limit specified in § 7872(g)(2) is

increased by an inflation adjustment. The

inflation adjustment for any calendar year

is the percentage (if any) by which the

Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for

calendar year 1985. Section 7872(g)(5)

states that the CPI for any calendar year is

the average of the CPI as of the close of

the 12-month period ending on September

30 of that calendar year.

Table 1 sets forth the amount specified in § 7872(g)(2) of the Code. The

667

amount is increased by the inflation adjustment for the years 1987-2000.

REV. RUL. 99–49 TABLE 1

Limit under 7872(g)(2)

Year

Amount

Before 1987

$ 90,000

1987

$ 92,200

1988

$ 94,800

1989

$ 98,800

1990

$103,500

1991

$108,600

1992

$114,100

1993

$117,500

1994

$121,100

1995

$124,300

1996

$127,800

1997

$131,300

1998

$134,800

1999

$137,000

2000

$139,700

Note: These inflation adjustments

were computed using the All-Urban,

Consumer Price Index 1982-1984

base, published by the Bureau of

Labor Statistics.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 98–59, 1998–52 I.R.B. 8, is

supplemented and superseded.

DRAFTING INFORMATION

The author of this revenue ruling is

Courtney Shepardson of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, contact

Ms. Shepardson on (202) 622-3930 (not a

toll-free call).

December 13, 1999

Part III. Administrative, Procedural, and Miscellaneous

Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income

Notice 99–56

1. Table for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668–W,

668–W(c), & 668-W(c)(DO)) 2000

Publication 1494, shown below, provides tables which show the amount of an individual's income that is exempt from a notice of

levy used to collect delinquent tax in 2000.

(Amounts are for each pay period.)

Filing Status: Single

Number of Exemptions Claimed on Statement

Pay Period

More Than 6

Daily

27.69

38.46

49.23

60.00

70.77

81.54

16.92 plus 10.77 for

each exemption

Weekly

138.46

192.31

246.15

300.00

353.85

407.69

84.62 plus 53.85 for

each exemption

Biweekly

276.92

384.62

492.31

600.00

707.69

815.38

169.23 plus 107.69 for

each exemption

Semi-monthly

300.00

416.67

533.33

650.00

766.67

883.33

183.33 plus 116.67 for

each exemption

Monthly

600.00

833.33

1066.67

1300.00

1533.33

1766.67

366.67 plus 233.33 for

each exemption

Filing Status: Unmarried Head of Household

Number of Exemptions Claimed on Statement

Pay Period

More Than 6

Daily

35.58

46.35

57.12

67.88

78.65

89.42

24.81 plus 10.77 for

each exemption

Weekly

177.88

231.73

285.58

339.42

393.27

447.12

124.04 plus 53.85 for

each exemption

Biweekly

355.77

463.46

571.15

678.85

786.54

894.23

248.08 plus 107.69 for

each exemption

Semi-monthly

385.42

502.08

618.75

735.42

852.08

968.75

268.75 plus 116.67 for

each exemption

Monthly

770.83

1004.17

1237.50

1470.83

1704.17

1937.50

537.50 plus 233.33 for

each exemption

December 13, 1999

668

1999–50 I.R.B.

Filing Status: Married Filing Joint (and Qualifying Widow(er)s)

Number of Exemptions Claimed on Statement

Pay Period

More Than 6

Daily

39.04

49.81

60.58

71.35

82.12

92.88

28.27 plus 10.77 for

each exemption

Weekly

195.19

249.04

302.88

356.73

410.58

464.42

141.35 plus 53.85 for

each exemption

Biweekly

390.38

498.08

605.77

713.46

821.15

928.85

282.69 plus 107.69 for

each exemption

Semi-monthly

422.92

539.58

656.25

772.92

889.58

1006.25

306.25 plus 116.67 for

each exemption

Monthly

845.83

1079.17

1312.50

1545.83

1779.17

2012.50

612.50 plus 233.33 for

each exemption

Filing Status: Married Filing Separate

Number of Exemptions Claimed on Statement

Pay Period

More Than 6

Daily

24.90

35.67

46.44

57.21

67.98

78.75

14.13 plus 10.77 for

each exemption

Weekly

124.52

178.37

232.21

286.06

339.90

393.75

70.67 plus 53.85 for

each exemption

Biweekly

249.04

356.73

464.42

572.12

679.81

787.50

141.35 plus 107.69 for

each exemption

Semi-monthly

269.79

386.46

503.13

619.79

736.46

853.13

153.13 plus 116.67 for

each exemption

Monthly

539.58

772.92

1006.25

1239.58

1472.92

1706.25

306.25 plus 233.33 for

each exemption

2. Table for Figuring Additional Exempt Amount for Taxpayers at Least 65 Years Old and/or Blind

Additional Exempt Amount

Filing Status

Daily

Wkly

Bi-Wkly

Semi-Mo

Monthly

Single or

Head of Household

4.23

8.46

21.15

42.31

84.62

45.83

91.67

183.33

Any Other

Filing Status

3.27

6.54

9.81

13.08

16.35

32.69

49.04

65.38

32.69

65.38

98.08

130.77

35.42

70.83

106.25

141.67

70.83

141.67

212.50

283.33

* ADDITIONAL STANDARD DEDUCTION claimed on Parts 3, 4, & 5 of levy.

Examples

These tables show the amount exempt from a levy on wages, salary, and other income. For example:

1. A single taxpayer who is paid weekly and claims three exemptions (including one for the taxpayer) has $246.15 exempt from levy.

2. If the taxpayer in number 1 is over 65 and writes 1 in the ADDITIONAL STANDARD DEDUCTION space on Parts 3, 4,

& 5 of the levy, $267.30 is exempt from this levy ($246.15 plus $21.15).

3. A taxpayer who is married, files jointly, is paid bi-weekly, and claims two exemptions (including one for the taxpayer) has

$498.08 exempt from levy.

4. If the taxpayer in number 3 is over 65 and has a spouse who is blind, this taxpayer should write 2 in the ADDITIONAL

STANDARD DEDUCTION space on Parts 3, 4, & 5 of the levy. Then, $563.46 is exempt from this levy ($498.08 plus $65.38).

1999–50 I.R.B.

669

December 13, 1999

Part IV. Items of General Interest

Notice of Proposed Rulemaking

and Notice of Public Hearing

Changes in Entity Classification:

Special Rule for Certain Foreign

Eligible Entities

REG–110385–99

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains

proposed regulations addressing certain

transactions that occur within a specified

period of time before or after a change in

entity classification. The proposed regulations prevent, in limited circumstances,

the use of changes in entity classification

to alter a taxpayer’s Federal tax consequences. Under these regulations, a

change in classification by a foreign eligible entity that was originally classified as

an association taxable as a corporation

(and, but for this regulation, would be

classified as an entity disregarded as an

entity separate from its owner) will be invalidated in certain limited circumstances. This document also contains a

notice of public hearing on these proposed regulations.

DATES: Written comments must be received by February 28, 2000. Requests to

speak (with outlines of oral comments) at

the public hearing scheduled for January

31, 2000, must be submitted by January

10, 2000.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG-110385-99),

room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand delivered between

the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (REG-110385-99),

Courier's Desk, Internal Revenue Service,

1111 Constitution Avenue NW., Washington, DC. Alternatively, taxpayers may

submit comments electronically via the

Internet by selecting the “Tax Regs” option of the IRS Home Page, or by submitting comments directly to the IRS Internet

site at: http://www.irs.ustreas.gov/

prod/tax_regs/regslist.html. The public

hearing will be held in room 2615, Inter-

December 13, 1999

nal Revenue Building, 1111 Constitution

Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Mark

D. Harris, (202) 622-3860 (not a toll-free

number); concerning submissions and the

hearing, LaNita VanDyke, (202) 6227180 (not a toll-free number).

Supplementary Information:

Background

This document proposes to amend the

current Procedure and Administration

Regulations (26 CFR Part 301) relating to

the classification of entities for Federal

tax purposes. On December 18, 1996, the

IRS and the Treasury Department published final regulations (61 FR 66584) relating to the classification of business organizations under section 7701. The

regulations (the check-the-box regulations) replaced the increasingly formalistic entity classification rules with a simpler, elective regime. The new rules were

designed to ease administrative burdens

for taxpayers and the government. They

were not, however, intended to change the

application of substantive Internal Revenue Code (Code) provisions.

In the preamble to the check-the-box

regulations, the IRS and Treasury expressed concern about potential improper

uses of the check-the-box regulations involving partnerships:

[I]n light of the increased flexibility under an

elective regime for the creation of organizations

classified as partnerships, Treasury and the IRS will

continue to monitor carefully the uses of partnerships in the international context and will take appropriate action when partnerships are used to

achieve results that are inconsistent with the policies

and rules of particular Code provisions or of U.S.

tax treaties.

On October 28, 1997, the IRS and

Treasury issued a notice of proposed rulemaking (62 FR 55768) under section

7701. These regulations specify the tax

consequences resulting from an election

to change the Federal tax classification of

an eligible entity (the conversion regulations). The conversion regulations also

provide that the tax consequences of an

elective change in the classification of an

entity for Federal tax purposes are determined under all relevant provisions of the

670

Code and general principles of tax law,

including the step transaction doctrine.

Those final regulations are issued elsewhere in this issue of the Federal Register.

As indicated in the preamble to the

check-the-box regulations, the IRS and

Treasury have been monitoring the manner in which taxpayers have used the

check-the-box regulations since their enactment. The focus has been to determine

whether taxpayers use the regulations in a

manner inconsistent with the application

of any Code provisions, and, if so, what,

if any, action is appropriate. The preamble to the check-the-box regulations cited

the use of partnerships as a primary concern. However, it has become apparent to

the IRS and Treasury that taxpayers may

attempt to use entities that are disregarded

as entities separate from their owners

(disregarded entities), in addition to partnerships, to achieve results, in relation to

certain transactions, that are inconsistent

with the policies and rules of particular

Code sections or tax treaties. These regulations are intended to address inappropriate Federal tax consequences that would

otherwise result from certain of these

transactions under a number of international provisions of the Code. These provisions include the rules governing source

of income under sections 861 through

865, foreign tax credit limitation categories under section 904, the disposition

of ownership interests under Subpart F

(sections 951 through 964), and outbound

transfers under section 367 (in this last

case, leading to a different result than that

outlined in the example in the preamble to

the section 367(a) regulations (63 FR

33550)).

The IRS and Treasury considered several responses to these transactions and

determined that a special rule completely

revoking the entity’s classification as a

disregarded entity was the most equitable

and administrable approach. Of the responses considered, the IRS and Treasury

believe that this approach also gives the

greatest certainty to all parties involved in

the transactions covered by this rule.

Explanation of Provisions

This special rule is limited in scope. It

only applies to “extraordinary transac-

1999–50 I.R.B.

tions” (such as sales of a part or whole interest) that occur within a period commencing one day before and ending 12

months after the date that a foreign eligible entity changed its classification to disregarded entity status, provided that the

entity had been classified as an association taxable as a corporation within the

12-month period prior to the extraordinary transaction. The rule also applies to

certain “shelf” entities that might be used

in an attempt to circumvent the 12-month

rule. In these cases, the entity would not

be treated as a disregarded entity, and instead would be classified as an association taxable as a corporation for all purposes. The regulations provide rules

specifying from what date this classification as an association taxable as a corporation will be applicable. Examples of

these provisions are included in the regulations.

This special rule will not apply to an

extraordinary transaction if a taxpayer establishes to the satisfaction of the Commissioner that the classification as a disregarded entity does not materially alter the

Federal tax consequences of the extraordinary transaction.

The IRS and Treasury do not intend

that this regulation will invalidate an entity classification election in the absence

of a separate extraordinary transaction,

even though the deemed consequences of

such election under the conversion regulations may constitute an extraordinary

transaction. In the preamble to the conversion regulations, however, the IRS and

Treasury requested comments on the appropriate tax consequences of an entity

classification election made by a foreign

eligible entity that is not relevant for Federal tax purposes (e.g., with respect to the

basis of property or earnings and profits

of the entity). No comments have been

received. The IRS and Treasury continue

to study and solicit comments on this important issue and are considering whether,

in certain circumstances, the election,

combined with another event whereby the

entity becomes relevant, should be considered to be inappropriate and, therefore,

invalid under these regulations.

If an entity made a classification election pursuant to §301.7701–3(c) to be disregarded, and that election was considered a change in classification, that entity

would normally be subject to the 60-

1999–50 I.R.B.

month limitation on elections under

§301.7701–3(c)(1)(iv). However, if that

classification

election

under

§301.7701–3(c) is invalid under this regulation, then the election to be a disregarded entity shall not constitute an election for all Federal tax purposes,

including the limitation on elections

under §301.7701–3(c)(1)(iv).

These regulations do not prevent the

Commissioner from applying all applicable common law doctrines to any extraordinary transaction to which this rule applies, in any administrative or judicial

proceeding (and create no inference as to

the treatment of such transactions occurring prior to the effective date of these

regulations). Conversely, the Commissioner may also provide administrative relief from these regulations by published

guidance.

The IRS and Treasury will continue to

monitor potentially improper uses of the

check-the-box regulations involving partnerships and disregarded entities, and will

take appropriate action when such uses

achieve results that are inconsistent with

the policies and rules of particular Code

provisions or of U.S. tax treaties.

This special rule does not apply to the

transactions described in the proposed

regulations on hybrid branch transactions

published in the Federal Register on July

13, 1999 (64 FR 37727), issued pursuant

to Notice 98–35 (1998–27 IRB 35).

These proposed regulations apply only to

dispositions of interests in disregarded entities in extraordinary transactions.

The IRS and Treasury request comments with respect to the special rule contained herein. In particular, the IRS and

Treasury request comments on the specific types of transactions which should

be excluded from the application of the

special rule. When this proposed regulation is finalized, the IRS and Treasury intend to issue guidance that will identify

specific transactions that will be excluded

from the application of this special rule.

Grandfathered Foreign Per Se Entities

The check-the-box regulations allowed

for certain corporations under

§301.7701–2(b)(8)(i) to be treated as

partnerships if certain conditions enumerated in §301.7701–2(d)(1) were satisfied.

However, upon the occurrence of certain

events, such an entity’s “grandfathered

671

status” could be terminated. See

§301.7701–2(d)(3)(i). The IRS and Treasury are concerned that taxpayers have

been trafficking in these types of entities.

Accordingly, these proposed regulations

would add a new provision to

§301.7701–2(d)(3)(i) which terminates an

entity’s “grandfather status” when one or

more persons, who were not owners of

the entity as of November 29, 1999, become owners of 50 percent or more of the

interests in the entity.

Relevance

The check-the-box regulations provide

a special rule when the Federal tax classification of a foreign eligible entity is no

longer relevant. The rule states that if the

classification of a foreign eligible entity

which was previously relevant for Federal

tax purposes ceases to be relevant for

sixty consecutive months, the entity’s

classification will initially be determined

under the default classification when the

classification of the foreign eligible entity

again becomes relevant (hereinafter 60month rule). Several practitioners have

requested guidance on whether the act of

filing an entity classification election

(Form 8832, Entity Classification Election) causes an entity to be relevant for

purposes of the 60-month rule. Practitioners also have requested clarification

regarding whether a newly formed foreign eligible entity, that has never been

relevant, is subject to the 60-month rule.

These proposed regulations provide

that if a foreign eligible entity files an entity classification election, it is considered

relevant on the effective date of the election for purposes of the 60-month rule.

However, if the foreign eligible entity is

otherwise not relevant within the meaning

of §301.7701–3(d)(1)(i), then for purposes of applying the 60-month rule the

entity will be considered to be not relevant on the day after the date the entity

classification election was effective.

The preamble to the conversion regulations stated that a foreign eligible entity

that is not relevant has a Federal tax classification. The proposed regulations clarify that such an entity is subject to the 60month rule. However, the proposed

regulations provide an exception for a foreign eligible entity that was never relevant (within the meaning of

§301.7701–3(d)(1)) during its existence.

December 13, 1999

Such entity’s classification will initially

be determined pursuant to the provisions

of §301.7701–3(b)(2) when the entity

first becomes relevant.

Proposed Effective Date

Except as otherwise specified, these

regulations are proposed to apply as of the

date final regulations are published in the

Federal Register.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also

has been determined that section 553(b)

of the Administrative Procedure Act (5

U.S.C. chapter 5) does not apply to these

regulations, and because these regulations

do not impose a collection of information

on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not

apply. Therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to section 7805(f) of the Code, this notice of

proposed rulemaking will be submitted to

the Chief Counsel for Advocacy of the

Small Business Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any written comments (preferably a signed original and

eight (8) copies) that are submitted timely

to the IRS. The IRS and Treasury request

comments on the clarity of the proposed

regulation and how it may be made easier

to understand. All comments will be

available for public inspection and copying.

A public hearing has been scheduled

for January 31, 2000, beginning at 10

a.m., in room 2615, Internal Revenue

Building, 1111 Constitution Avenue NW.,

Washington, DC. Because of access restrictions, visitors will not be admitted beyond the Internal Revenue Building lobby

more than 15 minutes before the hearing

starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons that wish to present oral comments at the hearing must submit timely

December 13, 1999

written comments and an outline of the

topics to be discussed and the time to be

devoted to each topic by (preferably a

signed original and eight (8) copies) January 10, 2000. However, comments not to

be presented at the hearing must be submitted by February 28, 2000.

A period of 10 minutes will be allotted

to each person for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Mark D. Harris, Office of Associate Chief Counsel (International). However, other personnel from the IRS and

Treasury Department participated in their

development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301--PROCEDURE AND

ADMINISTRATION

Par. 1. The authority citation for part

301 continues to read in part as follows:

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

Par. 2. Section 301.7701–2 is amended

by:

1. Removing the language “or” at the

end of paragraph (d)(3)(i)(B).

2. Removing the period at the end of

paragraph (d)(3)(i)(C) and adding “; or”

in its place.

3. Adding paragraph (d)(3)(i)(D).

4. Adding a sentence at the end of

paragraph (e).

The additions read as follows:

§301.7701–2 Business entities; definitions.

* * * * *

(d) * * *

(3) * * *

(i) * * *

(D) The date any person or persons,

who were not owners of the entity as of

November 29, 1999, own in the aggregate

a 50 percent or greater interest in the entity.

* * * * *

(e) Effective date. * * * However, paragraph (d)(3)(i)(D) of this section applies

672

on or after the date final regulations are

published in the Federal Register.

Par. 3. Section 301.7701–3 is amended

as follows:

1. The text of paragraph (d)(1) following the paragraph heading is redesignated

as paragraph (d)(1)(i), and a paragraph

heading is added for paragraph (d)(1)(i).

2. Paragraph (d)(1)(ii) is added.

3. Paragraph (d)(2) is revised.

4. Paragraphs (d)(3) and (d)(4) are

added.

5. Paragraph (h) is redesignated as

paragraph (i).

6. A new paragraph (h) is added.

The revision and addition reads as follows:

§301.7701–3 Classification of certain

business entities.

* * * * *

(d) Special rules for foreign eligible entities—(1) Definition of relevance—(i)

General rule. * * *

(ii) Deemed relevance—(A) General

rule. For purposes of this section, except

as provided in paragraph (d)(1)(ii)(B) of

this section, a foreign eligible entity that

files Form 8832 (Entity Classification

Election) shall be deemed to be relevant

only on the date the entity classification

election is effective.

(B) Exception. If a foreign eligible entity is relevant within the meaning of

paragraph (d)(1)(i) of this section, then

the rule in paragraph (d)(1)(ii)(A) of this

section shall not apply.

(2) Entities that were never relevant. If

a foreign eligible entity’s Federal tax classification has never been relevant (as defined in paragraph (d)(1) of this section),

then the entity’s classification will initially be determined pursuant to the provisions of paragraph (b)(2) of this section

when the entity first becomes relevant (as

defined in paragraph (d)(1)(i) of this section).

(3) Special rule when classification is

no longer relevant. If the classification of

a foreign eligible entity is not relevant for

sixty consecutive months, the entity’s

classification will initially be determined

under the default classification when the

classification of the foreign eligible entity

becomes relevant. The date that the classification of a foreign entity is not relevant is the date an event occurs that

causes the classification to no longer be

relevant, or, if no event occurs in a tax-

1999–50 I.R.B.

able year that causes the classification to

be relevant, then the date is the first day

of that taxable year.

(4) Effective date. Paragraphs (d)(1)(ii),

(d)(2), and (d)(3) of this section apply on

or after the date final regulations are published in the Federal Register.

* * * * *

(h) Special rule when foreign entities

that are disregarded as entities separate

from their owner are used in an extraordinary transaction—(1) General rule—(i)

When an eligible entity becomes disregarded as an entity separate from its

owner. Notwithstanding any other provision of this section, a foreign eligible entity classified as an entity that is disregarded as an entity separate from its

owner, will instead be classified as an association taxable as a corporation, if—

(A) A 10-percent or greater interest in

the foreign eligible entity is sold, exchanged, transferred or otherwise disposed of in one or more transactions (collectively, extraordinary transactions) that

occur (or are treated as occurring) in the

period commencing one day before and

ending 12 months after the effective date

of that foreign eligible entity’s change in

classification to an entity that is disregarded as an entity separate from its

owner; and

(B) The foreign eligible entity was previously classified as an association taxable as a corporation at any time within

the 12-month period prior to the date of

the commencement of the extraordinary

transaction.

(ii) Period of reclassification. If paragraph (h)(1)(i) of this section applies, the

foreign eligible entity shall be treated as

an association taxable as a corporation

(and no intervening Federal tax classification will be valid) from and including the

date that the foreign eligible entity ceased

to be classified as an association taxable

as a corporation.

(2) Shelf entities—(i) Acquisition of assets from another entity. A foreign eligible entity, classified as an entity that is

disregarded as an entity separate from its

owner, will instead be classified as an association taxable as a corporation, if—

(A) It acquires the assets of one or

more foreign business entities (which

were classified as associations taxable as

corporations at any time within the 12month period prior to the date of the com-

1999–50 I.R.B.

mencement of the extraordinary transaction) in a transaction or series of related

transactions in which gain or loss is not

recognized (for Federal tax purposes), in

whole or in part (acquisition transaction);

(B) After the acquisition transaction (or

transactions), the acquired assets comprise more than 80 percent of the value of

the assets of the entity that is disregarded

as an entity separate from its owner; and

within 12 months of the date on which the

acquisition transaction (or the last of such

transactions) is completed.

(ii) Calculation of value of entities. For

purposes of calculating the ratio of assets

under paragraph (h)(2)(i)(B) of this section, cash and marketable securities of an

entity shall not be included to the extent

that the cash and marketable securities exceed the reasonable needs of that entity’s

business.

(iii) Period of reclassification. If paragraph (h)(2)(i) of this section applies, the

foreign eligible entity shall be treated as

an association taxable as a corporation

from and including the date of the acquisition transaction, or, if the acquisition

transaction involves a series of related

transactions, the date of the last of such

transactions.

(3) Exception. The rules in paragraphs

(h)(1) and (2) of this section will not

apply to an extraordinary transaction if a

taxpayer establishes to the satisfaction of

the Commissioner that the classification

as an entity that is disregarded as an entity

separate from its owner does not materially alter the Federal tax consequences of

the extraordinary transaction. The Commissioner may also provide exceptions to

paragraphs (h)(1) and (2) of this section

published

guidance

(see

§601.601(d)(2) of this chapter).

(4) Examples. The following examples

illustrate the rules of this paragraph (h).

These examples assume that all foreign

entities (FC) are eligible entities that are

classified as associations taxable as corporations, and all U.S. entities (P) are corporations, unless otherwise specified.

The examples are as follows:

months of the effective date of the entity classification election.

(ii) Result. The sale of FC1, an entity that is disregarded as an entity separate from its owner which

was previously classified as an association taxable

as a corporation, is an extraordinary transaction, and

because it occurred within 12 months of the effective date of the entity classification election, it is

subject to the rule of paragraph (h)(1) of this section.

Under paragraph (h)(1) of this section, the entity

classification election to treat FC1 as an entity that is

disregarded as an entity separate from its owner is

invalid, and FC1 remains classified as an association

taxable as a corporation as if there had been no election to be disregarded as an entity separate from its

owner. Therefore, P is taxed as if it sold the stock of

FC1, and not the assets of FC1.

Example 2. (i) Facts. The facts are the same as

Example 1, except that an entity classification election is not made for FC1. P wishes to avoid the result in Example 1, and not be subject to paragraph

(h)(1) of this section. P had formed FC2 two years

before the date of the extraordinary transaction. At

that time, P had elected for FC2 to be treated as an

entity that is disregarded as an entity separate from

P. Since that time, FC2 has conducted no business

activities and has held no assets. P causes FC1 to

merge into FC2 (under foreign law), with FC2 surviving, in a transaction in which gain or loss is not

recognized for Federal tax purposes. On the same

day, P sells FC2 to an unrelated third party.

(ii) Result. The sale of FC2 is an extraordinary

transaction. Furthermore, despite the fact that FC2

was formed two years before the date of the extraordinary transaction, paragraph (h)(2) of this section

treats FC2 as an association taxable as a corporation.

This is because more than 80 percent of FC2's postmerger assets were acquired from FC1. Thus, the

extraordinary transaction is subject to the rule of

paragraph (h)(2) of this section, and has the same result as Example 1.

Example 1. (i) Facts. P owns 100 percent of

FC1. P plans to sell FC1. An entity classification

election under paragraph (c) of this section is made

for FC1 such that FC1 is now classified as an entity

disregarded as an entity separate from its owner (P).

P sells FC1 to an unrelated third party within 12

Announcement 99–113

673

(5) Effective date. This paragraph (h)

applies on or after the date final regulations are published in the Federal Register.

* * * * *

Charles O. Rossotti,

Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on

November 26, 1999, 8:45 a.m., and published in the

issue of the Federal Register for November 29,

1999, 64 F.R. 66591)

Special Basis Rules for

Transfer of Property by a

Partnership to a

Corporation

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Partial withdrawal of proposed

December 13, 1999

regulations.

SUMMARY: This document partially

withdraws certain proposed regulations

relating to special basis adjustments under

section 743. The withdrawal is in response to the publication of subsequent

proposed regulations (REG–209682–94)

addressing the same subject matter.

FOR FURTHER INFORMATION CONTACT: Daniel Carmody at (202) 6223080 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On October 28, 1997, the IRS published in the Federal Register (62 FR

55768) proposed regulations under section 743 of the Internal Revenue Code

(the proposed regulations). Section

1.743–2 of the proposed regulations addresses the effect of the special basis adjustment under section 743 for partnerships that participate in section 351

December 13, 1999

exchanges. This issue is addressed in the

proposed regulations published in the

Federal Register on January 29, 1998 (63

FR 4408), which contain general guidance on basis adjustments under section

743. Therefore, this document withdraws

§1.743–2 of the proposed regulations

published in the Federal Register on October 28, 1997 (62 FR 55768).

Withdrawal of Proposed Amendments to

the Regulations

Accordingly, under the authority of 26

U.S.C. 7805, proposed amendments to 26

CFR part 1 relating to §1.743–2 are withdrawn.

* * * * *

Robert E. Wenzel,

Deputy Commissioner of

Internal Revenue.

November 26, 1999, 8:45 a.m., and published in the

issue of the Federal Register for November 29,

1999, 64 F.R. 66591)

Announcement 99–114

Publication 3386, relating to veterans’

organizations that are recognized as tax

exempt under section 501(c) of the Internal Revenue Code or that are considering

applying for recognition of tax exemption, is now available.

Publication 3386, Tax Guide for Veterans’ Organizations, provides general information regarding tax exemption under

section 501(a) of the Code for unrelated

business income, contributions to veterans’ organizations, recordkeeping, filing

requirements, and group rulings.

You may obtain Publication 3386 by calling the IRS at 1-800-829-3676 or through

the Internet at www/irs/gov/bus-info/eo.

(Filed by the Office of the Federal Register on

674

1999–50 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.

1999–50 I.R.B.

December 13, 1999

Numerical Finding List1

Bulletins 1999–27 through 1999–49

Announcements:

99–47, 1999–28 I.R.B. 29

99–64, 1999–27 I.R.B. 7

99–65, 1999–27 I.R.B. 9

99–66, 1999–27 I.R.B. 9

99–67, 1999–28 I.R.B. 31

99–68, 1999–28 I.R.B. 31

99–69, 1999–28 I.R.B. 33

99–70, 1999–29 I.R.B. 118

99–71, 1999–31 I.R.B. 223

99–72, 1999–30 I.R.B. 132

99–73, 1999–30 I.R.B. 133

99–74, 1999–30 I.R.B. 133

99–75, 1999–30 I.R.B. 134

99–76, 1999–31 I.R.B. 223

99–77, 1999–32 I.R.B. 243

99–78, 1999–31 I.R.B. 229

99–79, 1999–31 I.R.B. 229

99–80, 1999–34 I.R.B. 310

99–81, 1999–32 I.R.B. 244

99–82, 1999–32 I.R.B. 244

99–83, 1999–32 I.R.B. 245

99–84, 1999–33 I.R.B. 248

99–85, 1999–33 I.R.B. 248

99–86, 1999–35 I.R.B. 332

99–87, 1999–35 I.R.B. 333

99–88, 1999–36 I.R.B. 407

99–89, 1999–36 I.R.B. 408

99–90, 1999–36 I.R.B. 409

99–91, 1999–37 I.R.B. 421

99–92, 1999–38 I.R.B. 433

99–93, 1999–36 I.R.B. 409

99–94, 1999–39 I.R.B. 437

99–95, 1999–42 I.R.B. 520

99–96, 1999–41 I.R.B. 504

99–97, 1999–41 I.R.B. 505

99–98, 1999–42 I.R.B. 520

99–99, 1999–42 I.R.B. 522

99–100, 1999–42 I.R.B. 522

99–101, 1999–43 I.R.B. 544

99–102, 1999–43 I.R.B. 545

99–103, 1999–43 I.R.B. 546

99–104, 1999–44 I.R.B. 555

99–105, 1999–44 I.R.B. 555

99–106, 1999–45 I.R.B. 561

99–107, 1999–45 I.R.B. 561

99–108, 1999–46 I.R.B. 573

99–109, 1999–46 I.R.B. 573

99–110, 1999–46 I.R.B. 574

99–111, 1999–47 I.R.B. 587

99–112, 1999–49 I.R.B. 649

Notices:

99–34, 1999–35 I.R.B. 323

99–35, 1999–28 I.R.B. 26

99–37, 1999–30 I.R.B. 124

99–38, 1999–31 I.R.B. 138

99–39, 1999–34 I.R.B. 313

99–40, 1999–35 I.R.B. 324

99–41, 1999–35 I.R.B. 325

99–42, 1999–35 I.R.B. 325

99–43, 1999–36 I.R.B. 344

99–44, 1999–35 I.R.B. 326

99–45, 1999–37 I.R.B. 415

99–46, 1999–37 I.R.B. 415

Notices—Continued

99–47, 1999–36 I.R.B. 391

99–48, 1999–38 I.R.B. 429

99–49, 1999–39 I.R.B. 436

99–50, 1999–40 I.R.B. 444

99–51, 1999–40 I.R.B. 447

99–52, 1999–43 I.R.B. 525

99–53, 1999–46 I.R.B. 565

99–54, 1999–47 I.R.B. 579

99–55, 1999–49 I.R.B. 638

Proposed Regulations:

REG–252487–96, 1999–34 I.R.B. 303

REG–101519–97, 1999–29 I.R.B. 114

REG–107069–97, 1999–36 I.R.B. 346

REG–121063–97, 1999–43 I.R.B. 540

REG–106010–98, 1999–40 I.R.B. 493

REG–106527–98, 1999–34 I.R.B. 304

REG–108287–98, 1999–28 I.R.B. 27

REG–113526–98, 1999–37 I.R.B. 417

REG–113909–98, 1999–30 I.R.B. 125

REG–116733–98, 1999–36 I.R.B. 392

REG–116991–98, 1999–32 I.R.B. 242

REG–121946–98, 1999–36 I.R.B. 403

REG–103841–99, 1999–49 I.R.B. 639

REG–104939–99, 1999–49 I.R.B. 643

REG–105237–99, 1999–35 I.R.B. 331

REG–105327–99, 1999–29 I.R.B. 117

REG–105565–99, 1999–37 I.R.B. 419

REG–115932–99, 1999–47 I.R.B. 583

REG–116125–99, 1999–44 I.R.B. 552

Railroad Retirement Quarterly Rate:

1999–45 I.R.B. 560

1999–46 I.R.B. 563

Revenue Rulings—Continued

99–38, 1999–36 I.R.B. 335

99–39, 1999–38 I.R.B. 424

99–40, 1999–40 I.R.B. 441

99–41, 1999–40 I.R.B. 439

99–42, 1999–41 I.R.B. 497

99–43, 1999–42 I.R.B. 506

99–44, 1999–44 I.R.B. 549

99–45, 1999–45 I.R.B. 558

99–46, 1999–45 I.R.B. 557

99–47, 1999–48 I.R.B. 588

99–48, 1999–49 I.R.B. 600

Treasury Decisions:

8822, 1999–27 I.R.B. 5

8823, 1999–29 I.R.B. 34

8824, 1999–29 I.R.B. 62

8825, 1999–28 I.R.B. 19

8826, 1999–29 I.R.B. 107

8827, 1999–30 I.R.B. 120

8828, 1999–30 I.R.B. 120

8829, 1999–32 I.R.B. 235

8830, 1999–38 I.R.B. 430

8831, 1999–34 I.R.B. 264

8832, 1999–35 I.R.B. 315

8833, 1999–36 I.R.B. 338

8834, 1999–34 I.R.B. 251

8835, 1999–35 I.R.B. 317

8836, 1999–37 I.R.B. 411

8837, 1999–38 I.R.B. 426

8838, 1999–38 I.R.B. 424

8839, 1999–41 I.R.B. 498

8840, 1999–47 I.R.B. 575

8841, 1999–48 I.R.B. 593

8842, 1999–47 I.R.B. 576

8843, 1999–48 I.R.B. 590

Revenue Procedures:

99–28, 1999–29 I.R.B. 109

99–29, 1999–31 I.R.B. 138

99–30, 1999–31 I.R.B. 221

99–31, 1999–34 I.R.B. 280

99–32, 1999–34 I.R.B. 296

99–33, 1999–34 I.R.B. 301

99–34, 1999–40 I.R.B. 450

99–35, 1999–41 I.R.B. 501

99–36, 1999–42 I.R.B. 509

99–37, 1999–42 I.R.B. 517

99–38, 1999–43 I.R.B. 525

99–39, 1999–43 I.R.B. 532

99–40, 1999–46 I.R.B. 565

99–41, 1999–46 I.R.B. 566

99–42, 1999–46 I.R.B. 568

99–43, 1999–47 I.R.B. 579

99–44, 1999–48 I.R.B. 598

99–45, 1999–49 I.R.B. 603

99–46, 1999–49 I.R.B. 605

99–47, 1999–48 I.R.B. 624

Revenue Rulings:

99–29, 1999–27 I.R.B. 3

99–30, 1999–28 I.R.B. 24

99–31, 1999–37 I.R.B. 410

99–32, 1999–31 I.R.B. 135

99–33, 1999–34 I.R.B. 251

99–34, 1999–33 I.R.B. 247

99–35, 1999–34 I.R.B. 278

99–36, 1999–35 I.R.B. 319

99–37, 1999–36 I.R.B. 336

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 1999–1 through 1999–26

is in Internal Revenue Bulletin 1999–27, dated July

6, 1999.

December 13, 1999

1999–50 I.R.B.

Finding List of Current Action on

Previously Published Items1

Bulletins 1999–27 through 1999–49

Announcements:

99–5

Modified by

Ann. 99–106, 1999–45 I.R.B. 561

99–57

Modified by

Ann. 99–104, 1999–44 I.R.B. 555

99–59

Corrected by

Ann. 99–67, 1999–28 I.R.B. 31

Notices:

83–10

Modified by

Notice 99–44, 1999–35 I.R.B. 326

96–64

Modified by

Notice 99–40, 1999–35 I.R.B. 324

97–26

Modified by

Notice 99–41, 1999–35 I.R.B. 325

97–50

Modified and superseded by

Notice 99–41, 1999–35 I.R.B. 325

97–73

Modified by

Notice 99–37, 1999–30 I.R.B. 124

98–7

Modified by

Notice 99–37, 1999–30 I.R.B. 124

98–46

Modified by

Notice 99–37, 1999–30 I.R.B. 124

98–47

Modified and superseded by

Notice 99–41, 1999–35 I.R.B. 325

98–54

Modified by

Notice 99–37, 1999–30 I.R.B. 124

98–59

Modified by

Notice 99–37, 1999–30 I.R.B. 124

Proposed Regulations:

REG–208156–91

Corrected by

Ann. 99–65, 1999–27 I.R.B. 9

Revenue Procedures:

65–17

Superseded by