# Bulletin No. 1999–50

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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98–59 supplemental and superseded.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 Rul. 98–58 supplemented and superseded.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

1
2
3
4
5

.000131507
.000263031
.000394572
.000526131
.000657707

6
7
8
9
10

.000789301
.000920911
.001052539
.001184184
.001315847

11
12
13
14
15

.001447527
.001579224
.001710939
.001842670
.001974420

16
17
18
19
20

.002106186
.002237970
.002369771
.002501590
.002633425

21
22
23
24
25

.002765279
.002897149
.003029037
.003160942
.003292865

26
27
28
29
30

.003424805
.003556762
.003688736
.003820728
.003952738

31
32
33
34
35

.004084764
.004216808
.004348870
.004480948
.004613045

36
37
38
39
40

.004745158
.004877289
.005009437
.005141603
.005273786

41
42
43
44

.005405986
.005538204
.005670439
.005802692

653

DAYS

4.80 PERCENT
FACTOR

45

.005934962

46
47
48
49
50

.006067249
.006199554
.006331876
.006464215
.006596572

51
52
53
54
55

.006728947
.006861338
.006993748
.007126174
.007258618

56
57
58
59
60

.007391080
.007523558
.007656055
.007788568
.007921099

61
62
63
64
65

.008053648
.008186214
.008318797
.008451398
.008584016

66
67
68
69
70

.008716652
.008849305
.008981976
.009114664
.009247369

71
72
73
74
75

.009380092
.009512833
.009645591
.009778366
.009911159

76
77
78
79
80

.010043969
.010176797
.010309642
.010442504
.010575384

81
82
83
84
85

.010708282
.010841197
.010974130
.011107080
.011240047

86
87
88
89
90

.011373032
.011506035
.011639055
.011772092
.011905147

91

.012038220

December 13, 1999

DAYS

4.80 PERCENT
FACTOR

92
93
94
95

.012171309
.012304417
.012437542
.012570684

96
97
98
99
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 75, pg. 629
Table 31, pg. 585
Table 27, pg. 581
Table 25 pg. 579
Table 23, pg. 577

RATE
6%
9%
7%
6%
12%
20%
16%
11%
11%
11%
13%
11%
10%
9%

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

8%
8%
8%
9%
10%
9%
9%
10%
10%
11%
11%
10%
10%
10%
10%
10%
10%
9%
9%
9%
8%
7%
7%
6%
6%
6%
6%

9%
9%
9%
10%
11%
10%
10%
11%
11%
12%
12%
11%
11%
11%
11%
11%
11%
10%
10%
10%
9%
8%
8%
7%
7%
7%
7%

21
21
21
23
73
71
71
73
25
27
27
25
25
25
25
25
25
23
23
23
69
67
67
65
17
17
17

575
575
575
577
627
625
625
627
579
581
581
579
579
579
579
579
579
577
577
577
623
621
621
619
571
571
571

23
23
23
25
75
73
73
75
27
29
29
27
27
27
27
27
27
25
25
25
71
69
69
67
19
19
19

577
577
577
579
629
627
627
629
581
583
583
581
581
581
581
581
581
579
579
579
625
623
623
621
573
573
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

6%
6%
6%
7%
8%
8%
9%
8%
8%
8%
7%
8%
8%
8%
8%
8%
8%
8%
7%
7%
7%

7%
7%
7%
8%
9%
9%
10%
9%
9%
9%
8%
9%
9%
9%
9%
9%
9%
9%
8%
8%
8%

17
17
17
19
21
21
23
21
21
69
67
69
69
21
21
21
21
21
19
19
19

571
571
571
573
575
575
577
575
575
623
621
623
623
575
575
575
575
575
573
573
573

19
19
19
21
23
23
25
23
23
71
69
71
71
23
23
23
23
23
21
21
21

573
573
573
575
577
577
579
577
577
625
623
625
625
577
577
577
577
577
575
575
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

7%
8%
8%
8%
8%

19
21
21
21
69

573
575
575
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
6%
7%
7%
7%
7%

1995–1 C.B.
TABLE
17
19
19
19
67

659

PG
571
573
573
573
621

UNDERPAYMENTS
RATE
7%
8%
8%
8%
8%

1995–1 C.B.
TABLE
19
21
21
21
69

PG
573
575
575
575
623

December 13, 1999

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 - PRESENT
RATE
13%
12%
12%
12%
11%
10%
10%
9%
9%
9%
9%
9%
9%
9%
10%
11%
11%
12%
11%
11%
11%
10%
11%
11%
11%
11%
11%
11%
11%
10%
10%
10%
9%
10%
10%
10%
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
31
29
29
29
75
73
73
71
23
23
23
23
23
23
25
27
27
29
27
27
75
73
75
75
27
27
27
27
27
25
25
25
23
25
25
25
73

PG
585
583
583
583
629
627
627
625
577
577
577
577
577
577
579
581
581
583
581
581
629
627
629
629
581
581
581
581
581
579
579
579
577
579
579
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%
6.5%
6.5%
5.5%
6.5%
6.5%
6.5%
6.5%
6.5%
6.5%
6.5%
5.5%
5.5%
5.5%
4.5%
5.5%
5.5%
5.5%
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
18
20
18
18
66
64
66
66
18
18
18
18
18
16
16
16
14
16
16
16
64

PG
572
574
572
572
620
618
620
620
572
572
572
572
572
570
570
570
568
570
570
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.
* * * * *
(c) * * *
(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

1

2

3

4

5

6

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

1

2

3

4

5

6

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

1

2

3

4

5

6

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

1

2

3

4

5

6

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

1
2

4.23
8.46

21.15
42.31

42.31
84.62

45.83
91.67

91.67
183.33

Any Other
Filing Status

1
2
3
4

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
(C) Such entity is subsequently involved in an extraordinary transaction
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
by
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.

i

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

ii

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
Rev. Proc. 99–32, 1999–34 I.R.B. 296
65–31
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
70–23
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296

Revenue Procedures—Continued

Revenue Rulings:

71–35
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296

77–475
Modified and superseded by
Rev. Rul. 99–40, 1999–40 I.R.B. 441

72–22
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296

82–80
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296

72–46
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296

Revenue Rulings—Continued

72–48
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
72–53
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
89–48
Obsoleted (after Jan. 31

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A12ac05560afd0d9a. Public record. Not legal advice.