These synopses are intended only as aids to the reader in
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What actually matters in this document.
Text
Bulletin No. 1997–5
February 3, 1997
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be relied
upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 97–7, page 14.
Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term exempt rate.
For purposes of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the rates for
February 1997.
T.D. 8690, page 5.
Final regulations under section 170 of the Code provide
guidance regarding the allowance of certain charitable
contribution deductions, the substantiation requirements
for charitable contributions of $250 or more, and the
disclosure requirements for quid pro quo contributions in
excess of $75.
T.D. 8691, page 16.
Final regulations under section 6335 of the Code relate
to the sale of seized property.
Rev. Proc. 97–13, page 18.
Tax-exempt bonds; private activity bonds. This procedure sets forth conditions under which a management
contract does not result in private business use under
section 141(b) of the Code. This procedure also applies
to determinations of whether a management contract
causes the test in section 145(a)(2)(B) to be met for
qualified 501(c)(3) bonds.
Rev. Proc. 97–14, page 20.
Tax-exempt bonds; private activity bonds. This procedure sets forth conditions under which a research
Finding Lists begin on page 31.
Announcement of Disbarments and Suspensions begins on page 29.
Monthly Index for January begins on page 33.
agreement does not result in private business use under
section 141(b) of the Code. This procedure also applies
to determinations of whether a research agreement
causes the test in section 145(a)(2)(B) of the Code to
be met for qualified 501(c)(3) bonds.
Rev. Proc. 97–15, page 21.
Tax-exempt bonds; private activity bonds. This procedure provides a program under which an issuer of state
or local bonds may request a closing agreement regarding outstanding bonds to fail to meet certain requirements of sections 141 through 150 of the Code relating
to use of proceeds as a result of an action subsequent
to the issue date.
EXEMPT ORGANIZATIONS
Announcement 97–9, page 27.
A list is given of organizations now classified as private
foundations.
ADMINISTRATIVE
Rev. Proc. 97–16, page 25.
Domestic asset/liability and investment yield percentages. This procedure provides the domestic asset/
liability percentages and domestic investment yield percentages necessary for foreign companies conducting
insurance business in the United States to compute the
minimum effectively connected net investment income
under section 842(b) for taxable years after December
31, 1995.
Mission of the Service
The purpose of the Internal Revenue Service is to
collect the proper amount of tax revenue at the least
cost; serve the public by continually improving the
quality of our products and services; and perform in a
manner warranting the highest degree of public
confidence in our integrity, efficiency and fairness.
Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying
and administering the law in a reasonable,
practical manner. Issues should only be raised by
examining of ficers when they have merit, never
arbitrarily or for trading purposes. At the same
time, the examining officer should never hesitate
to raise a meritorious issue. It is also important
that care be exercised not to raise an issue or to
ask a court to adopt a position inconsistent with
an established Service position.
The function of the Internal Revenue Service is to
administer the Internal Revenue Code. Tax policy
for raising revenue is determined by Congress.
With this in mind, it is the duty of the Service to
carry out that policy by correctly applying the laws
enacted by Congress; to determine the reasonable
meaning of various Code provisions in light of the
Congressional purpose in enacting them; and to
perform this work in a fair and impartial manner,
with neither a government nor a taxpayer point of view.
Administration should be both reasonable and
vigorous. It should be conducted with as little
delay as possible and with great cour tesy and
considerateness. It should never try to overreach,
and should be reasonable within the bounds of law
and sound administration. It should, however, be
vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax
devices and fraud.
At the heart of administration is interpretation of the
Code. It is the responsibility of each person in the
Service, charged with the duty of interpreting the
law, to try to find the true meaning of the statutory
provision and not to adopt a strained construction in
the belief that he or she is ‘‘protecting the revenue.’’
The revenue is properly protected only when we ascertain and apply the true meaning of the statute.
2
Introduction
The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation,
court decisions, and other items of general interest. It is
published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin
contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold on a
single-copy basis.
court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are
cautioned against reaching the same conclusions in
other cases unless the facts and circumstances are
substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on
provisions of the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings that
supersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published rulings
apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management
are not published; however, statements of internal
practices and procedures that affect the rights and
duties of taxpayers are published.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows:
Subpart A, Tax Conventions, and Subpart B, Legislation
and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary (Enforcement).
Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts
stated in the revenue ruling. In those based on positions
taken in rulings to taxpayers or technical advice to
Service field offices, identifying details and information
of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory
requirements.
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in
this part, none of these announcements are consolidated in the Cumulative Bulletins.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department
Regulations, but they may be used as precedents.
Unpublished rulings will not be relied on, used, or cited
as precedents by Service personnel in the disposition of
other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations,
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin
of the succeeding quarterly and semi-annual 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, D.C. 20402.
3
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income Housing
Credit
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7,
page 14.
Section 57.—Items of Tax
Preference
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
26 CFR 1.141–3: Definition of private business
use.
What are the conditions under which a management contract does not result in private business
use under § 141(b) or § 145(a)(2)(B) of the
Internal Revenue Code? See Rev. Proc. 97–13,
page 18.
What are the conditions under which a research
agreement does not result in private business use
under § 141(b) or § 145(a)(2)(B) of the Internal
Revenue Code? See Rev. Proc. 97–14, page 20.
26 CFR 1.141–12: Remedial actions.
Section 103.—Interest on State and
Local Bonds
What are the conditions under which a management contract does not result in private business
use under § 141(b) or § 145(a)(2)(B) of the
Internal Revenue Code? See Rev. Proc. 97–13,
page 18.
What are the conditions under which a research
agreement does not result in private business use
under § 141(b) or § 145(a)(2)(B) of the Internal
Revenue Code? See Rev. Proc. 97–14, page 20.
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
Section 141.—Private Activity
Bond; Qualified Bond
What are the conditions under which a management contract does not result in private business
use under § 141(b) or § 145(a)(2)(B) of the
Internal Revenue Code? See Rev. Proc. 97–13,
page 18.
What are the conditions under which a research
agreement does not result in private business use
under § 141(b) or § 145(a)(2)(B) of the Internal
Revenue Code? See Rev. Proc. 97–14, page 20.
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
Section 142.—Exempt Facility
Bond
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
26 CFR 1.142–2: Remedial actions.
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
4
Section 144.—Qualified Small Issue
Bond; Qualified Student Loan Bond;
Qualified Redevelopment Bond
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
26 CFR 1.144–2: Remedial actions.
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
Section 145.—Qualified 501(c)(3)
Bonds
What are the conditions under which a management contract does not result in private business
use under § 141(b) or § 145(a)(2)(B) of the
Internal Revenue Code? See Rev. Proc. 97–13,
page 18.
What are the conditions under which a research
agreement does not result in private business use
under § 141(b) or § 145(a)(2)(B) of the Internal
Revenue Code? See Rev. Proc. 97–14, page 20.
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
26 CFR 1.145–2: Application of private activity
bond regulations.
What are the conditions under which a management contract does not result in private business
use under § 141(b) or § 145(a)(2)(B) of the
Internal Revenue Code? See Rev. Proc. 97–13,
page 18.
What are the conditions under which a research
agreement does not result in private business use
under § 141(b) or § 145(a)(2)(B) of the Internal
Revenue Code? See Rev. Proc. 97–14, page 20.
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
Section 147.—Other Requirements
Applicable to Certain Private
Activity Bonds
What are the procedures which an issuer of
state or local bonds may request a closing agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
26 CFR 1.147–2: Remedial actions.
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
Section 170.—Charitable, Etc.,
Contributions and Gifts
26 CFR 1.170A–1: Charitable, etc., contributions
and gifts; allowance of deduction.
T.D. 8690
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Deductibility, Substantiation, and
Disclosure of Certain Charitable
Contributions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations that provide guidance
regarding the allowance of certain charitable contribution deductions, the substantiation requirements for charitable
contributions of $250 or more, and the
disclosure requirements for quid pro quo
contributions in excess of $75. The
regulations will affect organizations described in section 170(c) and individuals
and entities that make payments to these
organizations.
EFFECTIVE DATE: These regulations
are effective December 16, 1996.
FOR FURTHER INFORMATION
CONTACT: Jefferson K. Fox of the
Office of Assistant Chief Counsel (Income Tax and Accounting) at 202–
622–4930 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the requirements of the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–1464. Responses
to this collection of information are
required for charitable contribution deductions under section 170.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number.
The estimated annual burden per
recordkeeper varies from three minutes
to one hour, depending on individual
circumstances, with an estimated average of six minutes.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to
the Internal Revenue Service, Attn:
IRS Reports Clearance Officer, PC:FP,
Washington, DC 20224, and to the Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503.
Books or records relating to this collection of information must be retained
as long as their contents may be material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential,
as required by 26 U.S.C. 6103.
5
Background
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) that provide guidance relating to
(1) the substantiation rules for charitable
contributions under section 170(f)(8) of
the Internal Revenue Code of 1986
(Code), and (2) the disclosure requirements for quid pro quo contributions
under section 6115. Sections 170(f)(8)
and 6115 were added to the Code by
sections 13172 and 13173 of the Omnibus Budget Reconciliation Act of 1993,
Pub. L. No. 103–66, 107 Stat. 455,
1993–3 C.B. 43.
Temporary regulations (TD 8544) and
a notice of proposed rulemaking crossreferencing the temporary regulations
were published in the Federal Register
for May 27, 1994 (59 FR 27458,
27515). Those regulations primarily addressed substantiation of charitable contributions made by payroll deduction
and substantiation of payments to a
charitable organization in exchange for
goods or services of insubstantial value.
The notice of proposed rulemaking indicated that comments would be considered both on the issues addressed in the
temporary regulations, and on other issues arising under section 170(f)(8).
A notice of proposed rulemaking (IA–
44–94) addressing substantiation issues
under section 170(f)(8) other than contributions made by payroll deduction
was published in the Federal Register
for August 4, 1995 (60 FR 39896).
Included in these proposed regulations
were the provisions that had originally
appeared in the temporary regulations
published on May 27, 1994, relating to
the substantiation of payments to charitable organizations in exchange for
goods or services of insubstantial value.
In drafting these proposed regulations,
the IRS had the benefit of the comments
received in response to the notice of
proposed rulemaking published in the
Federal Register for May 27, 1994.
Many of the suggestions offered in the
comments were incorporated into the
proposed regulations.
Final regulations (TD 8623) relating
to the substantiation of charitable contributions made by payroll deduction were
published in the Federal Register for
October 12, 1995 (60 FR 53126). These
final regulations did not include the
provisions relating to the substantiation
of payments to charitable organizations
in exchange for goods or services with
insubstantial value that had appeared in
the temporary regulations published on
May 27, 1994 and were also included in
the proposed regulations published on
August 4, 1995. The temporary regulations published in the Federal Register
for May 27, 1994, were removed. For
the convenience of taxpayers, the final
regulations relating to the substantiation
of charitable contributions made by payroll deduction (§ 1.170A–13(f)(11) and
(12)) that were published in the Federal
Register for May 27, 1994, have been
reprinted with the final regulations
adopted by this Treasury Decision.
Comments were received in response
to the notice of proposed rulemaking
published on August 4, 1995, and a
public hearing was held on November 1,
1995. After consideration of those comments, together with the relevant comments received in response to the notice
of proposed rulemaking published on
May 27, 1994, the proposed regulations
under sections 170(f)(8) and 6115 are
adopted as revised by this Treasury
Decision.
Public Comments
Intent to Make a Charitable Contribution
Section 1.170A–1(h) of the final regulations incorporates the two-part test
adopted by the Supreme Court in United
States v. American Bar Endowment, 477
U.S. 105 (1986), for determining deductibility under section 170(a) of a
payment that is partly in consideration
for goods or services. A deduction is not
allowed for a payment to charity in
consideration for goods or services except to the extent the amount of the
payment exceeds the fair market value
of the goods or services. In addition, a
deduction is not allowed unless the
taxpayer intends to make a payment in
excess of the fair market value of the
goods or services.
Section 1.170A–13(f)(6) provides that
a charitable organization provides goods
or services ‘‘in consideration for’’ a
taxpayer’s payment if, at the time of
payment, the taxpayer receives or ‘‘expects to receive’’ goods or services in
exchange. One commenter stated that a
charitable organization has no way of
knowing what a taxpayer expects to
receive, and that the regulation requires
the charity to determine its donors’ states
of mind. The commenter suggested that
a payment be treated as made in consideration for goods or services ‘‘if the
donee organization expects to provide
and does provide services of which the
donor has been informed.’’ Another com-
menter questioned whether donor appreciation events, such as banquets honoring contributors, are held ‘‘in
consideration for’’ charitable contributions. The commenter also asked
whether invitations to occasional events
not disclosed to prospective donors until
after they make their contributions are
‘‘in exchange for’’ the contributions.
The regulations follow American Bar
Endowment by incorporating a standard
that is based on the facts and circumstances of each charitable contribution.
When a donor’s contribution is made in
response to an express promise of a
benefit, the donor generally will have an
expectation of a quid pro quo. A donor
may also have an expectation of a quid
pro quo when the donor makes a contribution with knowledge that the charitable
donee has conferred a benefit on other
donors making comparable contributions.
For example, if a charity has a history of
sponsoring a dinner-dance for donors
making substantial contributions, a donor
making a substantial contribution may
have an expectation of receiving an invitation to such an event. The expectation
of a quid pro quo may exist even though
the donor is not aware of the exact nature
of the quid pro quo (e.g., a donation to a
charity that sponsors a donor appreciation
event of a different type every year). This
standard for determining a donor’s expectation of a quid pro quo disallows deductions in situations where facts and circumstances indicate that the donor
expected, at the time of his or her
payment to charity, that there would be a
quid pro quo, even though there was no
explicit promise of one.
A commenter requested guidance on
the proper treatment of a payment in
consideration for a quid pro quo received
in a year after the year of payment.
Under section 1.170A–13(f)(6), goods or
services provided by donee organizations
in consideration for a donor’s payment
include goods or services provided in a
year other than the year of payment.
Accordingly, if a donor makes a payment
to a charitable organization in exchange
for goods or services, the donor’s deductible charitable contribution for the year
of payment is limited to the amount, if
any, by which the payment exceeds the
value of those goods or services, even if
they are not available to the donor until a
subsequent year.
Refusal of Benefits
Commenters asked for guidance on
the proper manner of substantiating a
6
contribution by a donor who refuses
benefits offered by a charitable organization. One commenter suggested that
the regulations indicate that when a
taxpayer receives a right to quid pro quo
benefits but does not use them, the
taxpayer is not necessarily allowed a
charitable contribution deduction in the
full amount of the quid pro quo payment. Another suggested that a taxpayer
wishing to deduct the full amount of a
quid pro quo payment could check a
box on a document to be sent to the
charity at the time of contribution to
show refusal of the benefit.
These comments are consistent with
IRS views. Rev. Rul. 67– 246, 1967–2
C.B. 104, provides guidance relating to
the refusal of benefits offered by a
charitable organization. The revenue ruling holds that a taxpayer choosing not
to use tickets that were made available
to him is not entitled to a greater
contribution than would otherwise be
allowed; i.e., the deduction is limited to
the amount paid in excess of the value
of the tickets received in exchange.
1967–2 C.B. 106. A deduction in the
full amount of a taxpayer’s payment
may be allowed, however, if the taxpayer properly rejects the right to the
tickets. Rev. Rul. 67–246 contains two
examples (Examples 3 and 7) illustrating ways that donors can effectively
reject benefits offered by charitable organizations. Example 7 illustrates that a
check-off box on a form provided by
the charity can be used to reject a ticket
at the time of contribution. A taxpayer
who has properly rejected a benefit
offered by a charitable organization may
claim a deduction in the full amount of
the payment to the charitable organization, and the contemporaneous written
acknowledgment need not reflect the
value of the rejected benefit.
Certain Goods or Services Disregarded
Goods or services with insubstantial
value
Under guidelines set forth in Rev.
Proc. 90–12, 1990–1 C.B. 471, and Rev.
Proc. 92–49, 1992–1 C.B. 987, certain
goods or services received in exchange
for a payment to a charity are treated as
having insubstantial value and can therefore be disregarded for the purpose of
determining the amount of a taxpayer’s
payment that is deductible as a charitable contribution. Under these guidelines, if a taxpayer makes a payment to
a charitable organization in the context
of a fundraising campaign, and receives
benefits with a fair market value of not
more than two percent of the amount of
the payment (up to a maximum of $67,
for 1996), the benefits received are
considered to have insubstantial value
for purposes of determining the amount
of the taxpayer’s contribution. (The $67
benefit limitation is adjusted annually
for inflation.)
Further, if a taxpayer makes a payment of $33.50 or more to a charity and
receives only token items in return, the
items are considered to have insubstantial value if they (1) bear the charity’s
name or logo, and (2) have an aggregate
cost to the charity of $6.70 or less. (The
$33.50 and $6.70 amounts apply to
payments made in 1996; these amounts
are adjusted annually for inflation.) In
addition, newsletters not of commercial
quality and low-cost items provided for
free without an advance order are considered to have insubstantial value.
Under section 1.170A–13(f)(8)(i)(A)
of the regulations, the same types of
goods and services disregarded under
the guidelines of Rev. Procs. 90–12 and
92–49 can be disregarded for purposes
of substantiation under section 170(f)(8).
One commenter asked whether the contemporaneous written acknowledgment
provided to a donor receiving goods or
services of insubstantial value should
indicate that no goods or services were
received. When a donee organization
provides a donor only with goods or
services having insubstantial value under
Rev. Procs. 90–12 and 92–49, the contemporaneous written acknowledgment
may indicate that no goods or services
were provided in exchange for the donor’s payment. See Example 2,
§ 1.170A–13(f)(8)(ii).
Another commenter stated that the
rules in Rev. Procs. 90–12 and 92–49
for goods or services of insubstantial
value are unduly restrictive and prevent
charitable organizations from recognizing longstanding, generous contributors
with suitable gifts of appreciation. Another argued that the costs of token
items received by a taxpayer during the
year from a charity should not be aggregated. Sections 1.170A–13(f)(8)(B) and
1.170A– 13(f)(9)(i) provide that certain
membership benefits provided in exchange for a payment of $75 or less
may be disregarded for purposes of
determining whether any quids pro quo
were provided to the donor. For purposes of sections 170(f)(8) and 6115,
these provisions supplement the categories of goods or services treated as
having insubstantial value under the
guidelines of Rev. Procs. 90–12 and
92–49. The IRS and Treasury believe
that application of the guidelines of Rev.
Procs. 90–12 and 92–49, together with
the membership benefit provisions in the
final regulations, strikes an appropriate
balance between administrative and
compliance concerns under sections
170(f)(8) and 6115. Accordingly, the
guidelines of Rev. Procs. 90–12 and
92–49 have not been modified.
Membership Benefits
The regulations provide limited relief
with respect to certain types of benefits
customarily provided to donors in exchange for membership payments. Two
types of membership benefits offered in
exchange for a payment of $75 or less
may be disregarded: (1) free admission
to members-only events with a perperson cost to the charity that is no
higher than the standard for low-cost
articles under section 513(h)(2)(C)
($6.70 for 1996); and (2) rights or
privileges that can be exercised frequently during the membership period
(other than rights or privileges described
in section 170(l), governing rights to
purchase tickets for college athletic
events).
Some commenters said that the term
frequently, when read in conjunction
with the examples, provided sufficient
clarity and appropriate flexibility. Other
commenters expressed concern about
use of the term frequently, stating that it
was vague and imprecise. For smaller
organizations, they argued, in determining whether a right of free admission to
a series of events can be frequently
exercised, consideration should be given
to the number of events held by the
organization each year. The IRS and
Treasury believe that a charity can make
a determination that a right or privilege
is frequently exercisable by reference to
the examples that were in the proposed
regulations and are adopted in the final
regulations.
A commenter suggested that the $75
payment amount in the special rules for
membership benefits should be indexed
for inflation. The IRS and Treasury
believe that it is important for the
membership payment amount to be a
number that can be easily remembered
by charities and donors. For this reason,
annual inflation adjustments are not advisable. However, the IRS and Treasury
will consider increases to this $75 figure
in the future.
7
A commenter asked whether the rule
that allows taxpayers to disregard certain membership benefits applies to discounts offered by a donee organization
for purchases from retailers working
with the charity to provide discounts to
members. These discounts are to be
treated like any other rights or privileges
and, therefore, may be disregarded for
purposes of section 170(f)(8) if they can
be exercised frequently during the membership period.
Goods or services provided to a donor’s employees
Prior to publication of the proposed
regulations, several commenters asked
for guidance on the proper method of
valuation of goods or services provided
by charitable organizations to employees
of donors. The final regulations follow
the proposed regulations and provide
that goods or services provided to a
donor’s employees can be disregarded if
they consist of the types of benefits that
could be disregarded when provided
directly to a donor (i.e., goods or services with insubstantial value and certain annual membership benefits). For
any other types of goods or services
provided to employees of a donor making a contribution of $250 or more, the
contemporaneous written acknowledgment must describe the goods or services, but need not include the donee
organization’s good faith estimate of
their fair market value.
A commenter stated that the special
rule for goods or services provided to
employees of a donor should also be
available for partners in a partnership. In
the final regulations, the exception for
goods or services provided to a donor’s
employees has been modified to include
partners in a donor-partnership.
A commenter was concerned about
charities that receive funds from a private foundation established by a business entity. The commenter suggested
that such charities should be permitted
to provide benefits to employees of the
business entity without any tax consequences. Because this suggestion raises
issues beyond the scope of this regulation (including issues relating to the
self-dealing rules under section 4941),
this suggestion was not adopted.
A commenter stated that when employees receive benefits as a result of an
employer’s charitable contribution, it
would be easier for the charity (rather
than the employer) to estimate the fair
market value of the benefits. Another
commenter stated that when employees
receive benefits that cannot be disre-
garded under section 170, the employer/
donor is likely to deduct the value of
those benefits as a business expense
under section 162. Because employers
may claim the full amount of their
payments to charity—including the
value of the benefits—as a deduction,
the commenter suggested that employers
should be relieved of the burden of
valuing such benefits, and that the full
amount of such payments should be
deductible under section 170.
The IRS and Treasury recognize that
in cases where employee benefits cannot
be disregarded for purposes of section
170, employers may nevertheless seek to
deduct their costs pursuant to section
162. For deductions under section 170,
however, United States v. American Bar
Endowment, supra, limits the allowable
deduction to the amount of the employer’s payment in excess of the value of
employee benefits. Accordingly, if the
employee benefits cannot be disregarded, their value must be subtracted
from the amount of the employer’s
payment to determine the correct
amount of the charitable contribution
deduction. Although valuation may be
difficult, the IRS and Treasury continue
to believe that the employer is in a
better position than the charity to be
responsible for valuation of benefits provided to employees.
Payments for the right to purchase
tickets to college athletic events
A commenter asked for clarification
regarding the applicability of the substantiation requirements to payments for
the right to purchase tickets to college
athletic events. Section 170(l) provides
that payments to colleges or universities
for the right to purchase tickets to
athletic events are partially (eighty percent) deductible as charitable contributions. The final regulations have been
modified to clarify how sections
170(f)(8) and 6115 apply to payments
described in section 170(l).
For purposes of section 170(f)(8),
twenty percent of the amount paid for
the right to purchase tickets for seating
at college or university athletic events is
treated as the fair market value of such
right. When the total payment for the
right to purchase tickets to college athletic events is $312.50 or more, the
portion of the payment treated as a
charitable contribution will be $250 or
more, and substantiation will be required
under section 170(f)(8). For purposes of
section 6115, twenty percent of the
amount paid for the right to purchase
tickets for seating at college or univer-
sity athletic events is treated as a good
faith estimate of the fair market value of
this right.
Rules Applicable to Corporations
Several commenters suggested that
subchapter C corporations (C corporations) should be relieved of the substantiation requirements. Some indicated that
C corporations should be exempt; others
argued for a de minimis exception for C
corporations making substantial contributions. Under a de minimis exception,
deductions for all of a C corporation’s
charitable contributions would be allowed if the corporation had contemporaneous written acknowledgments substantiating most, or substantially all, of
its contributions. These commenters
stated that the substantiation requirements were enacted to deter individuals—not businesses—that had claimed
charitable contribution deductions for
the full amounts of their payments to
charitable organizations, even though
they had received quids pro quo in
exchange. They suggested that the IRS
exercise the authority provided in section 170(f)(8)(E) and make the substantiation requirements inapplicable to C
corporations. The final regulations do
not adopt these suggestions. The IRS
and Treasury believe that exempting C
corporations from the substantiation requirements could, in fact, encourage
abuses and would therefore conflict with
the purpose of section 170(f)(8).
Meaning of Contemporaneous
A commenter asked whether a taxpayer may file an amended income tax
return to claim a charitable contribution
deduction if the taxpayer obtained the
contemporaneous written acknowledgment for the contribution after timely
filing the original return. Section
170(f)(8)(C) provides that a written acknowledgment is contemporaneous if
obtained on or before the earlier of (1)
the date that the taxpayer files the return
for the year in which the contribution
was made, or (2) the due date (including
extensions) for filing the return for that
taxable year. A written acknowledgment
obtained after a taxpayer files the original return for the year of the contribution is not contemporaneous within the
meaning of the statute.
Substantiation of Multiple Contributions
Several commenters asked whether
the substantiation requirements apply to
multiple contributions totaling $250 or
8
more made to a single charity during a
single year, when each contribution is
less than $250. The conference report
accompanying the Omnibus Budget
Reconciliation Act of 1993 indicates that
separate payments will be treated as
separate contributions and will not be
aggregated for purposes of applying the
$250 threshold. H.R. Conf. Rep. No.
213, 103d Cong., 1st Sess. 565, n. 29
(1993). If there is no separate payment
of $250 or more, substantiation under
section 170(f)(8) is not required, even if
the sum of the separate payments is
$250 or more. Section 1.170A–13(f)(1)
has been modified to clarify this. A
commenter asked whether there must be
a separate contemporaneous written acknowledgment for each contribution of
$250 or more. Section 1.170A–13(f)(1)
has been modified to clarify that for
multiple contributions of $250 or more
to one charity, one acknowledgment that
reflects the total amount of the taxpayer’s contributions to the charity for the
year is sufficient.
Form of Substantiation
Commenters asked whether a contemporaneous written acknowledgment must
be in any particular format. As long as it
is in writing and contains the information required by law, a contemporaneous
written acknowledgment may be in any
format. One commenter suggested that
the regulations should allow charities to
report charitable contributions directly to
the IRS on Form 990 or 990–PF. Section 170(f)(8) authorizes the Secretary to
prescribe regulations allowing donee organizations to satisfy the requirements
of section 170(f)(8) by filing a return
that includes the information described
in section 170(f)(8)(B). The IRS and
Treasury have decided not to implement
this suggestion at this time. However, in
an effort to reduce paperwork and taxpayer burdens, the IRS will examine
whether any existing IRS forms can be
modified to assist in their use in substantiating charitable contributions.
A commenter asked for guidance on
the proper method of substantiating payments by corporations that agree to
match employee contributions to charity.
When an employee makes a charitable
contribution that is eligible for a corporate matching payment, some charities
routinely send the participating corporation a letter, notifying the corporation of
the employee’s gift and thanking it in
advance for the matching payment the
charity expects to receive. Commenters
suggested that this letter be treated as
meeting the corporation’s requirements
under section 170(f)(8). This suggestion
has not been adopted, because letters
sent in advance of a contribution do not
substantiate the contribution. The acknowledgment under section 170(f)(8)
must include information about what has
been ‘‘contributed.’’ The acknowledgment cannot be completed until after the
charitable contribution has been made.
(See section 1.170A–1(b), which states
that ordinarily a contribution is made at
the time delivery is effected.)
Out-of-Pocket Expenses
The proposed regulations allowed volunteers who incurred unreimbursed outof-pocket expenses while performing
services for a charity to substantiate
their contributions with a statement that
described the services and the date they
were performed. The acknowledgment
was not required to list the amount of
the unreimbursed expense. Several commenters suggested an exemption from
the substantiation requirements for
unreimbursed out-of-pocket expenses incurred incident to the rendition of services to a donee organization. Exemption is appropriate, they argued, because
the requirements are burdensome, particularly since a donee organization is
often unaware of the amount and nature
of expenses incurred by volunteers performing services on behalf of the charity, or the exact dates on which the
volunteer services were performed. The
final regulations eliminate the requirement that the contemporaneous written
acknowledgment include the date on
which services were performed for the
charity. However, to carry out the purposes of the statute, volunteers claiming
a charitable contribution deduction for
an unreimbursed expense of $250 or
more are still required to obtain substantiation confirming the type of services
they performed for the charity.
Good Faith Estimate
Section 170(f)(8) requires a written
acknowledgment furnished by a charity
to a donor to include a good faith
estimate of the value of any goods or
services provided to the donor. Section
6115(a)(2) similarly requires a written
disclosure statement provided to a donor
making a quid pro quo contribution of
more than $75 to include a good faith
estimate of the value of goods or services provided to the donor. The regulations define a good faith estimate as an
estimate of the fair market value of the
goods or services. A taxpayer can generally rely on the good faith estimate
provided by a charity.
A commenter stated that the regulations should contain an example illustrating how charities can compute the
fair market value of goods or services.
We have not adopted this suggestion.
There is no single correct way to determine fair market value; a charitable
organization may use any reasonable
methodology (e.g., comparison with
comparable retail prices, mark-up from
wholesale cost) to determine the fair
market value. Examples 1 and 2 of
section 1.6115–1(a)(3) illustrate this
rule.
A commenter recommended that the
regulations state that a donor does not
have to use the good faith estimate
provided by a charitable organization if
the donor believes another estimate is
more accurate. The regulations do not
mandate that a donor use the estimate
provided by a donee organization in
calculating the deductible amount. Indeed, when a taxpayer knows or has
reason to know that an estimate is
inaccurate, the taxpayer may not treat
the donee organization’s estimate as the
fair market value.
A commenter suggested that the regulations indicate that recognition items,
such as plaques or trophies with an
honoree’s name inscribed, should be
considered to have little, if any, fair
market value. This suggestion has not
been adopted. Inscribed plaques and
trophies may have some value, even
though the value may be less than cost.
In addition, see § 1.170A–13(f)(8)(i)(A)
regarding goods or services with insubstantial value.
Another commenter asked whether
the listing of a donor’s name in a
program at a charity-sponsored event
has a substantial value. An acknowledgment in such a program, which identifies— rather than promotes—a donor, is
an inconsequential benefit with no significant value. See Rev. Rul. 68–432,
1968–2 C.B. 104, 105, holding that
‘‘[s]uch privileges as being associated
with or being known as a benefactor of
the [charitable] organization are not significant return benefits that have monetary value.’’
Contributions to a Split-Interest Trust
Section 1.170A–13(f)(13) of the proposed regulations provides that section
170(f)(8) does not apply to a transfer of
9
property to a charitable remainder
unitrust (as defined in section
664(d)(2)). A commenter observed that
there are two other types of unitrusts in
addition to the type described in section
664(d)(2), and that these unitrusts
should be treated similarly. The final
regulations have been modified to provide that the substantiation requirements
of section 170(f)(8) do not apply to
transfers to unitrusts described in section
664(d)(3) or section 1.664–3(a)(1)(i)(b),
as well as to unitrusts described in
section 664(d)(2).
Section 1.170A–13(f)(13) of the proposed regulations provides that section
170(f)(8) applies to a transfer to a
pooled income fund. Commenters requested further guidance on the proper
way to substantiate contributions to
pooled income funds. The final regulations have been modified to require, in
the case of a transfer of cash or other
property to a pooled income fund, that
the written acknowledgment of the
charitable organization maintaining the
fund include a statement that the cash or
other property was transferred to the
organization’s pooled income fund and
state whether any goods or services, in
addition to the income interest in the
fund, were provided to the transferor.
The contemporaneous written acknowledgment need not include an estimate of
the value of the income interest in the
pooled income fund. The final regulations also provide guidance on the
proper method of substantiating a deduction claimed by a taxpayer who has
purchased an annuity from a charitable
organization.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive
Order 12866. Therefore, a cost-benefit
analysis 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 the notice of
proposed rulemaking preceding the
regulations was issued prior to March
29, 1996, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply. See
5 U.S.C. section 601, Pub. L. No.
104–121 section 245. 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 the impact of the proposed
regulations on small businesses.
Drafting Information
The principal author of these regulations is Jefferson K. Fox, Office of the
Assistant Chief Counsel (Income Tax
and Accounting), Internal Revenue Service. However, other personnel from the
IRS and the Treasury Department participated in their development.
*
*
*
*
*
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding a new
entry in numerical order for Section
1.170A–1 and revising the entry for
Section 1.170A–13 to read as follows:
Authority: 26 U.S.C. 7805
Section 1.170A–1 also issued under 26
U.S.C. 170(a).
Section 1.170A–13 also issued under 26
U.S.C. 170(f)(8). * * *
Par. 2. Section 1.170A–1 is amended
as follows:
1. Paragraph (h) is redesignated as
paragraph (j).
2. Paragraph (i) is redesignated as
paragraph (k) and is revised.
3. Paragraph (h) is added.
4. Paragraph (i) is added and reserved.
The additions and revisions read as
follows:
§ 1.170A–1 Charitable, etc., contributions and gifts; allowance of deduction.
*
*
*
*
*
(h) Payment in exchange for consideration—(1) Burden on taxpayer to
show that all or part of payment is a
charitable contribution or gift. No part
of a payment that a taxpayer makes to
or for the use of an organization described in section 170(c) that is in
consideration for (as defined in
§ 1.170A–13(f)(6)) goods or services
(as defined in § 1.170A–13(f)(5)) is a
contribution or gift within the meaning
of section 170(c) unless the taxpayer—
(i) Intends to make a payment in an
amount that exceeds the fair market
value of the goods or services; and
(ii) Makes a payment in an amount
that exceeds the fair market value of the
goods or services.
(2) Limitation on amount deductible—(i) In general. The charitable contribution deduction under section 170(a)
for a payment a taxpayer makes partly
in consideration for goods or services
may not exceed the excess of—
(A) The amount of any cash paid and
the fair market value of any property
(other than cash) transferred by the
taxpayer to an organization described in
section 170(c); over
(B) The fair market value of the
goods or services the organization provides in return.
(ii) Special rules. For special limits
on the deduction for charitable contributions of ordinary income and capital
gain property, see section 170(e) and
§§ 1.170A–4 and 1.170A–4A.
(3) Certain goods or services disregarded. For purposes of section 170(a)
and paragraphs (h)(1) and (h)(2) of this
section, goods or services described in
§ 1.170A–13(f)(8)(i) or § 1.170A–
13(f)(9)(i) are disregarded.
(4) Donee estimates of the value of
goods or services may be treated as fair
market value—(i) In general. For purposes of section 170(a), a taxpayer may
rely on either a contemporaneous written acknowledgment provided under
section 170(f)(8) and § 1.170A–13(f) or
a written disclosure statement provided
under section 6115 for the fair market
value of any goods or services provided
to the taxpayer by the donee organization.
(ii) Exception. A taxpayer may not
treat an estimate of the value of goods
or services as their fair market value if
the taxpayer knows, or has reason to
know, that such treatment is unreasonable. For example, if a taxpayer knows,
or has reason to know, that there is an
error in an estimate provided by an
organization described in section 170(c)
pertaining to goods or services that have
a readily ascertainable value, it is unreasonable for the taxpayer to treat the
estimate as the fair market value of the
goods or services. Similarly, if a taxpayer is a dealer in the type of goods or
services provided in consideration for
the taxpayer’s payment and knows, or
has reason to know, that the estimate is
in error, it is unreasonable for the
taxpayer to treat the estimate as the fair
market value of the goods or services.
10
(5) Examples. The following examples illustrate the rules of this paragraph (h).
Example 1. Certain goods or services disregarded. Taxpayer makes a $50 payment to Charity
B, an organization described in section 170(c), in
exchange for a family membership. The family
membership entitles Taxpayer and members of
Taxpayer’s family to certain benefits. These benefits include free admission to weekly poetry
readings, discounts on merchandise sold by B in
its gift shop or by mail order, and invitations to
special events for members only, such as lectures
or informal receptions. When B first offers its
membership package for the year, B reasonably
projects that each special event for members will
have a cost to B, excluding any allocable overhead, of $5 or less per person attending the event.
Because the family membership benefits are disregarded pursuant to § 1.170A–13(f)(8)(i), Taxpayer
may treat the $50 payment as a contribution or
gift within the meaning of section 170(c), regardless of Taxpayer’s intent and whether or not the
payment exceeds the fair market value of the
goods or services. Furthermore, any charitable
contribution deduction available to Taxpayer may
be calculated without regard to the membership
benefits.
Example 2. Treatment of good faith estimate at
auction as the fair market value. Taxpayer attends
an auction held by Charity C, an organization
described in section 170(c). Prior to the auction, C
publishes a catalog that meets the requirements for
a written disclosure statement under section
6115(a) (including C’s good faith estimate of the
value of items that will be available for bidding).
A representative of C gives a copy of the catalog
to each individual (including Taxpayer) who attends the auction. Taxpayer notes that in the
catalog C’s estimate of the value of a vase is
$100. Taxpayer has no reason to doubt the accuracy of this estimate. Taxpayer successfully bids
and pays $500 for the vase. Because Taxpayer
knew, prior to making her payment, that the
estimate in the catalog was less than the amount
of her payment, Taxpayer satisfies the requirement
of paragraph (h)(1)(i) of this section. Because
Taxpayer makes a payment in an amount that
exceeds that estimate, Taxpayer satisfies the requirements of paragraph (h)(1)(ii) of this section.
Taxpayer may treat C’s estimate of the value of
the vase as its fair market value in determining the
amount of her charitable contribution deduction.
Example 3. Good faith estimate not in error.
Taxpayer makes a $200 payment to Charity D, an
organization described in section 170(c). In return
for Taxpayer’s payment, D gives Taxpayer a book
that Taxpayer could buy at retail prices typically
ranging from $18 to $25. D provides Taxpayer
with a good faith estimate, in a written disclosure
statement under section 6115(a), of $20 for the
value of the book. Because the estimate is within
the range of typical retail prices for the book, the
estimate contained in the written disclosure statement is not in error. Although Taxpayer knows
that the book is sold for as much as $25, Taxpayer
may treat the estimate of $20 as the fair market
value of the book in determining the amount of
his charitable contribution deduction.
(i) [Reserved]
*
*
*
*
*
(k) Effective date. In general this section applies to contributions made in
taxable years beginning after December
31, 1969. Paragraph (j)(11) of this sec-
tion, however, applies only to out-ofpocket expenditures made in taxable
years beginning after December 31,
1976. In addition, paragraph (h) of this
section applies only to payments made
on or after December 16, 1996. However, taxpayers may rely on the rules of
paragraph (h) of this section for payments made on or after January 1, 1994.
Par. 3. Section 1.170A–13 is
amended by revising paragraph (f) to
read as follows:
§ 1.170A–13 Recordkeeping and return
requirements for deductions for charitable contributions.
*
*
*
*
*
(f) Substantiation of charitable contributions of $250 or more—(1) In general. No deduction is allowed under
section 170(a) for all or part of any
contribution of $250 or more unless the
taxpayer substantiates the contribution
with a contemporaneous written acknowledgment from the donee organization. A taxpayer who makes more than
one contribution of $250 or more to a
donee organization in a taxable year
may substantiate the contributions with
one or more contemporaneous written
acknowledgments. Section 170(f)(8)
does not apply to a payment of $250 or
more if the amount contributed (as determined under § 1.170A–1(h)) is less
than $250. Separate contributions of less
than $250 are not subject to the requirements of section 170(f)(8), regardless of
whether the sum of the contributions
made by a taxpayer to a donee organization during a taxable year equals $250
or more.
(2) Written acknowledgment. Except
as otherwise provided in paragraphs
(f)(8) through (f)(11) and (f)(13) of this
section, a written acknowledgment from
a donee organization must provide the
following information—
(i) The amount of any cash the taxpayer paid and a description (but not
necessarily the value) of any property
other than cash the taxpayer transferred
to the donee organization;
(ii) A statement of whether or not the
donee organization provides any goods
or services in consideration, in whole or
in part, for any of the cash or other
property transferred to the donee organization;
(iii) If the donee organization provides any goods or services other than
intangible religious benefits (as described in section 170(f)(8)), a description and good faith estimate of the value
of those goods or services; and
(iv) If the donee organization provides any intangible religious benefits, a
statement to that effect.
(3) Contemporaneous. A written acknowledgment is contemporaneous if it
is obtained by the taxpayer on or before
the earlier of—
(i) The date the taxpayer files the
original return for the taxable year in
which the contribution was made; or
(ii) The due date (including extensions) for filing the taxpayer’s original
return for that year.
(4) Donee organization. For purposes
of this paragraph (f), a donee organization is an organization described in
section 170(c).
(5) Goods or services. Goods or services means cash, property, services,
benefits, and privileges.
(6) In consideration for. A donee organization provides goods or services in
consideration for a taxpayer’s payment
if, at the time the taxpayer makes the
payment to the donee organization, the
taxpayer receives or expects to receive
goods or services in exchange for that
payment. Goods or services a donee
organization provides in consideration
for a payment by a taxpayer include
goods or services provided in a year
other than the year in which the taxpayer makes the payment to the donee
organization.
(7) Good faith estimate. For purposes
of this section, good faith estimate
means a donee organization’s estimate
of the fair market value of any goods or
services, without regard to the manner
in which the organization in fact made
that estimate. See § 1.170A–1(h)(4) for
rules regarding when a taxpayer may
treat a donee organization’s estimate of
the value of goods or services as the fair
market value.
(8) Certain goods or services disregarded—(i) In general. For purposes of
section 170(f)(8), the following goods or
services are disregarded—
(A) Goods or services that have insubstantial value under the guidelines
provided in Revenue Procedures 90–12,
1990–1 C.B. 471, 92–49, 1992–1 C.B.
987, and any successor documents. (See
§ 601.601(d)(2)(ii) of the Statement of
Procedural Rules, 26 CFR part 601.);
and
(B) Annual membership benefits offered to a taxpayer in exchange for a
payment of $75 or less per year that
consist of—
(1) Any rights or privileges, other
than those described in section 170(l),
that the taxpayer can exercise frequently
11
during the membership period. Examples of such rights and privileges
may include, but are not limited to, free
or discounted admission to the organization’s facilities or events, free or discounted parking, preferred access to
goods or services, and discounts on the
purchase of goods or services; and
(2) Admission to events during the
membership period that are open only to
members of a donee organization and
for which the donee organization reasonably projects that the cost per person
(excluding any allocable overhead) attending each such event is within the
limits established for ‘‘low cost articles’’
under section 513(h)(2). The projected
cost to the donee organization is determined at the time the organization first
offers its membership package for the
year (using section 3.07 of Revenue
Procedure 90–12, or any successor
documents, to determine the cost of any
items or services that are donated).
(ii) Examples. The following examples illustrate the rules of this paragraph (f)(8).
Example 1. Membership benefits disregarded.
Performing Arts Center E is an organization
described in section 170(c). In return for a payment of $75, E offers a package of basic membership benefits that includes the right to purchase
tickets to performances one week before they go
on sale to the general public, free parking in E’s
garage during evening and weekend performances,
and a 10% discount on merchandise sold in E’s
gift shop. In return for a payment of $150, E
offers a package of preferred membership benefits
that includes all of the benefits in the $75 package
as well as a poster that is sold in E’s gift shop for
$20. The basic membership and the preferred
membership are each valid for twelve months, and
there are approximately 50 performances of various productions at E during a twelve-month
period. E’s gift shop is open for several hours
each week and at performance times. F, a patron
of the arts, is solicited by E to make a contribution. E offers F the preferred membership benefits
in return for a payment of $150 or more. F makes
a payment of $300 to E. F can satisfy the
substantiation requirement of section 170(f)(8) by
obtaining a contemporaneous written acknowledgment from E that includes a description of the
poster and a good faith estimate of its fair market
value ($20) and disregards the remaining membership benefits.
Example 2. Contemporaneous written acknowledgment need not mention rights or privileges that
can be disregarded. The facts are the same as in
Example 1, except that F made a payment of $300
and received only a basic membership. F can
satisfy the section 170(f)(8) substantiation requirement with a contemporaneous written acknowledgment stating that no goods or services were
provided.
Example 3. Rights or privileges that cannot be
exercised frequently. Community Theater Group G
is an organization described in section 170(c).
Every summer, G performs four different plays.
Each play is performed two times. In return for a
membership fee of $60, G offers its members free
admission to any of its performances. Non-
members may purchase tickets on a performance
by performance basis for $15 a ticket. H, an
individual who is a sponsor of the theater, is
solicited by G to make a contribution. G tells H
that the membership benefit will be provided in
return for any payment of $60 or more. H chooses
to make a payment of $350 to G and receives in
return the membership benefit. G’s membership
benefit of free admission is not described in
paragraph (f)(8)(i)(B) of this section because it is
not a privilege that can be exercised frequently
(due to the limited number of performances offered by G). Therefore, to meet the requirements
of section 170(f)(8), a contemporaneous written
acknowledgment of H’s $350 payment must include a description of the free admission benefit
and a good faith estimate of its value.
Example 4. Multiple memberships. In December
of each year, K, an individual, gives each of her
six grandchildren a junior membership in Dinosaur
Museum, an organization described in section
170(c). Each junior membership costs $50, and K
makes a single payment of $300 for all six
memberships. A junior member is entitled to free
admission to the museum and to weekly films,
slide shows, and lectures about dinosaurs. In
addition, each junior member receives a bimonthly, non-commercial quality newsletter with
information about dinosaurs and upcoming events.
K’s contemporaneous written acknowledgment
from Dinosaur Museum may state that no goods
or services were provided in exchange for K’s
payment.
(9) Goods or services provided to
employees or partners of donors—(i)
Certain goods or services disregarded.
For purposes of section 170(f)(8), goods
or services provided by a donee organization to employees of a donor, or to
partners of a partnership that is a donor,
in return for a payment to the organization may be disregarded to the extent
that the goods or services provided to
each employee or partner are the same
as those described in paragraph (f)(8)(i)
of this section.
(ii) No good faith estimate required
for other goods or services. If a taxpayer makes a contribution of $250 or
more to a donee organization and, in
return, the donee organization offers the
taxpayer’s employees or partners goods
or services other than those described in
paragraph (f)(9)(i) of this section, the
contemporaneous written acknowledgment of the taxpayer’s contribution is
not required to include a good faith
estimate of the value of such goods or
services but must include a description
of those goods or services.
(iii) Example. The following example
illustrates the rules of this paragraph
(f)(9).
Example. Museum J is an organization described in section 170(c). For a payment of $40, J
offers a package of basic membership benefits that
includes free admission and a 10% discount on
merchandise sold in J’s gift shop. J’s other
membership categories are for supporters who
contribute $100 or more. Corporation K makes a
payment of $50,000 to J and, in return, J offers
K’s employees free admission for one year, a
tee-shirt with J’s logo that costs J $4.50, and a gift
shop discount of 25% for one year. The free
admission for K’s employees is the same as the
benefit made available to holders of the $40
membership and is otherwise described in paragraph (f)(8)(i)(B) of this section. The tee-shirt
given to each of K’s employees is described in
paragraph (f)(8)(i)(A) of this section. Therefore,
the contemporaneous written acknowledgment of
K’s payment is not required to include a description or good faith estimate of the value of the free
admission or the tee-shirts. However, because the
gift shop discount offered to K’s employees is
different than that offered to those who purchase
the $40 membership, the discount is not described
in paragraph (f)(8)(i) of this section. Therefore, the
contemporaneous written acknowledgment of K’s
payment is required to include a description of the
25% discount offered to K’s employees.
(10) Substantiation of out-of-pocket
expenses. A taxpayer who incurs
unreimbursed expenditures incident to
the rendition of services, within the
meaning of § 1.170A–1(g), is treated as
having obtained a contemporaneous
written acknowledgment of those expenditures if the taxpayer—
(i) Has adequate records under paragraph (a) of this section to substantiate
the amount of the expenditures; and
(ii) Obtains by the date prescribed in
paragraph (f)(3) of this section a statement prepared by the donee organization
containing—
(A) A description of the services provided by the taxpayer;
(B) A statement of whether or not the
donee organization provides any goods
or services in consideration, in whole or
in part, for the unreimbursed expenditures; and
(C) The information required by
paragraphs (f)(2)(iii) and (iv) of this
section.
(11) Contributions made by payroll
deduction— (i) Form of substantiation.
A contribution made by means of withholding from a taxpayer’s wages and
payment by the taxpayer’s employer to
a donee organization may be substantiated, for purposes of section 170(f)(8),
by both—
(A) A pay stub, Form W–2, or other
document furnished by the employer
that sets forth the amount withheld by
the employer for the purpose of payment to a donee organization; and
(B) A pledge card or other document
prepared by or at the direction of the
donee organization that includes a statement to the effect that the organization
does not provide goods or services in
whole or partial consideration for any
contributions made to the organization
by payroll deduction.
12
(ii) Application of $250 threshold.
For the purpose of applying the $250
threshold
provided
in
section
170(f)(8)(A) to contributions made by
the means described in paragraph
(f)(11)(i) of this section, the amount
withheld from each payment of wages
to a taxpayer is treated as a separate
contribution.
(12) Distributing organizations as donees. An organization described in section 170(c), or an organization described
in 5 CFR 950.105 (a Principal Combined Fund Organization for purposes of
the Combined Federal Campaign) and
acting in that capacity, that receives a
payment made as a contribution is
treated as a donee organization solely
for purposes of section 170(f)(8), even if
the organization (pursuant to the donor’s
instructions or otherwise) distributes the
amount received to one or more organizations described in section 170(c). This
paragraph (f)(12) does not apply, however, to a case in which the distributee
organization provides goods or services
as part of a transaction structured with a
view to avoid taking the goods or
services into account in determining the
amount of the deduction to which the
donor is entitled under section 170.
(13) Transfers to certain trusts. Section 170(f)(8) does not apply to a transfer of property to a trust described in
section 170(f)(2)(B), a charitable remainder annuity trust (as defined in
section 664(d)(1)), or a charitable remainder unitrust (as defined in section
664(d)(2) or (d)(3) or § 1.664–
(3)(a)(1)(i)(b)). Section 170(f)(8) does
apply, however, to a transfer to a pooled
income fund (as defined in section
642(c)(5)); for such a transfer, the contemporaneous written acknowledgment
must state that the contribution was
transferred to the donee organization’s
pooled income fund and indicate
whether any goods or services (in addition to an income interest in the fund)
were provided in exchange for the transfer. The contemporaneous written acknowledgment is not required to include
a good faith estimate of the income
interest.
(14) Substantiation of payments to a
college or university for the right to
purchase tickets to athletic events. For
purposes of paragraph (f)(2)(iii) of this
section, the right to purchase tickets for
seating at an athletic event in exchange
for a payment described in section
170(l) is treated as having a value equal
to twenty percent of such payment. For
example, when a taxpayer makes a
payment of $312.50 for the right to
purchase tickets for seating at an athletic
event, the right to purchase tickets is
treated as having a value of $62.50. The
remaining $250 is treated as a charitable
contribution, which the taxpayer must
substantiate in accordance with the requirements of this section.
(15) Substantiation of charitable contributions made by a partnership or an
S corporation. If a partnership or an S
corporation makes a charitable contribution of $250 or more, the partnership or
S corporation will be treated as the
taxpayer for purposes of section
170(f)(8). Therefore, the partnership or
S corporation must substantiate the contribution with a contemporaneous written acknowledgment from the donee
organization before reporting the contribution on its income tax return for the
year in which the contribution was made
and must maintain the contemporaneous
written acknowledgment in its records.
A partner of a partnership or a shareholder of an S corporation is not required to obtain any additional substantiation for his or her share of the
partnership’s or S corporation’s charitable contribution.
(16) Purchase of an annuity. If a
taxpayer purchases an annuity from a
charitable organization and claims a
charitable contribution deduction of
$250 or more for the excess of the
amount paid over the value of the
annuity, the contemporaneous written
acknowledgment must state whether any
goods or services in addition to the
annuity were provided to the taxpayer.
The contemporaneous written acknowledgment is not required to include a
good faith estimate of the value of the
annuity. See § 1.170A–1(d)(2) for guidance in determining the value of the
annuity.
(17) Substantiation of matched payments—(i) In general. For purposes of
section 170, if a taxpayer’s payment to a
donee organization is matched, in whole
or in part, by another payor, and the
taxpayer receives goods or services in
consideration for its payment and some
or all of the matching payment, those
goods or services will be treated as
provided in consideration for the taxpayer’s payment and not in consideration
for the matching payment.
(ii) Example. The following example
illustrates the rules of this paragraph
(f)(17).
Example. Taxpayer makes a $400 payment to
Charity L, a donee organization. Pursuant to a
matching payment plan, Taxpayer’s employer
matches Taxpayer’s $400 payment with an additional payment of $400. In consideration for the
combined payments of $800, L gives Taxpayer an
item that it estimates has a fair market value of
$100. L does not give the employer any goods or
services in consideration for its contribution. The
contemporaneous written acknowledgment provided to the employer must include a statement
that no goods or services were provided in
consideration for the employer’s $400 payment.
The contemporaneous written acknowledgment
provided to Taxpayer must include a statement of
the amount of Taxpayer’s payment, a description
of the item received by Taxpayer, and a statement
that L’s good faith estimate of the value of the
item received by Taxpayer is $100.
(18) Effective date. This paragraph (f)
applies to contributions made on or after
December 16, 1996. However, taxpayers
may rely on the rules of this paragraph
(f) for contributions made on or after
January 1, 1994.
Par. 4. Section 1.6115–1 is added
under the undesignated centerheading
Miscellaneous Provisions to read as follows:
§ 1.6115–1 Disclosure requirements for
quid pro quo contributions.
(a) Good faith estimate defined—(1)
In general. A good faith estimate of the
value of goods or services provided by
an organization described in section
170(c) in consideration for a taxpayer’s
payment to that organization is an estimate of the fair market value, within the
meaning of § 1.170A–1(c)(2), of the
goods or services. The organization may
use any reasonable methodology in
making a good faith estimate, provided
it applies the methodology in good faith.
If the organization fails to apply the
methodology in good faith, the organization will be treated as not having met
the requirements of section 6115. See
section 6714 for the penalties that apply
for failure to meet the requirements of
section 6115.
(2) Good faith estimate for goods or
services that are not commercially available. A good faith estimate of the value
of goods or services that are not generally available in a commercial transaction may be determined by reference to
the fair market value of similar or
comparable goods or services. Goods or
services may be similar or comparable
even though they do not have the
unique qualities of the goods or services
that are being valued.
(3) Examples. The following examples illustrate the rules of this paragraph (a).
Example 1. Facility not available on a commercial basis. Museum M, an organization described
in section 170(c), is located in Community N. In
return for a payment of $50,000 or more, M
13
allows a donor to hold a private event in a room
located in M. Private events other than those held
by such donors are not permitted to be held in M.
In Community N, there are four hotels, O, P, Q,
and R, that have ballrooms with the same capacity
as the room in M. Of these hotels, only O and P
have ballrooms that offer amenities and atmosphere that are similar to the amenities and
atmosphere of the room in M (although O and P
lack the unique collection of art that is displayed
in the room in M). Because the capacity, amenities, and atmosphere of ballrooms in O and P are
comparable to the capacity, amenities, and atmosphere of the room in M, a good faith estimate of
the benefits received from M may be determined
by reference to the cost of renting either the
ballroom in O or the ballroom in P. The cost of
renting the ballroom in O is $2500 and, therefore,
a good faith estimate of the fair market value of
the right to host a private event in the room at M
is $2500. In this example, the ballrooms in O and
P are considered similar and comparable facilities
to the room in M for valuation purposes, notwithstanding the fact that the room in M displays a
unique collection of art.
Example 2. Services available on a commercial
basis. Charity S is an organization described in
section 170(c). S offers to provide a one-hour
tennis lesson with Tennis Professional T in return
for the first payment of $500 or more that it
receives. T provides one-hour tennis lessons on a
commercial basis for $100. Taxpayer pays $500 to
S and in return receives the tennis lesson with T.
A good faith estimate of the fair market value of
the lesson provided in exchange for Taxpayer’s
payment is $100.
Example 3. Celebrity presence. Charity U is an
organization described in section 170(c). In return
for the first payment of $1000 or more that it
receives, U will provide a dinner for two followed
by an evening tour of Museum V conducted by
Artist W, whose most recent works are on display
at V. W does not provide tours of V on a
commercial basis. Typically, tours of V are free to
the public. Taxpayer pays $1000 to U and in
return receives a dinner valued at $100 and an
evening tour of V conducted by W. Because tours
of V are typically free to the public, a good faith
estimate of the value of the evening tour conducted by W is $0. In this example, the fact that
Taxpayer’s tour of V is conducted by W rather
than V’s regular tour guides does not render the
tours dissimilar or incomparable for valuation
purposes.
(b) Certain goods or services disregarded. For purposes of section 6115,
an organization described in section
170(c) may disregard goods or services
described in § 1.170A–13(f)(8)(i).
(c) Value of the right to purchase
tickets to college or university athletic
events. For purposes of section 6115, the
right to purchase tickets for seating at
an athletic event in exchange for a
payment described in section 170(l) is
treated as having a value equal to
twenty percent of such payment.
(d) Goods or services provided to
employees or partners of donors—(1)
Certain goods or services disregarded.
For purposes of section 6115, goods or
services provided by an organization
described in section 170(c) to employees
of a donor or to partners of a partnership that is a donor in return for a
payment to the donee organization may
be disregarded to the extent that the
goods or services provided to each employee or partner are the same as those
described in § 1.170A–13(f)(8)(i).
(2) Description permitted in lieu of
good faith estimate for other goods or
services. The written disclosure statement required by section 6115 may
include a description of goods or services, in lieu of a good faith estimate of
their value, if the donor is—
(i) An employer and, in return for the
donor’s quid pro quo contribution, an
organization described in section 170(c)
provides the donor’s employees with
goods or services other than those described in paragraph (d)(1) of this section; or
(ii) A partnership and, in return for
its quid pro quo contribution, the organization provides partners in the partnership with goods or services other than
those described in paragraph (d)(1) of
this section.
(e) Effective date. This section applies to contributions made on or after
December 16, 1996. However, taxpayers
may rely on the rules of this section for
contributions made on or after January
1, 1994.
PART 602 — OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 5. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805
Par. 6. Section 602.101(c) is amended
by adding the following entries in numerical order to the table:
§ 602.101 OMB Control numbers.
*
*
*
*
*
(c) * * *
CFR part or section where
identified or described
Approved November 27, 1996.
Donald C. Lubick,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on
December 13, 1996, 8:45 a.m., and published in
the issue of the Federal Register for December 16,
1996, 61 F.R. 65946)
Section 280G.—Golden Parachute
Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of February 1997.
See Rev. Rul. 97–7, this page.
Section 382.—Limitation on Net
Operating Loss Carryforwards and
Certain Built-in Losses Following
Ownership Change
The adjusted federal long-term rate is set forth
for the month of February 1997. See Rev. Rul.
97–7, this page.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, this
page.
Section 467.—Certain Payments
for the Use of Property or Services
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, this
page.
Section 468.—Special Rules for
Mining and Solid Waste
Reclamation and Closing Costs
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, this
page.
Current OMB
control No.
*
*
*
*
*
Section 1.170A–13(f) . . . . . . . . . . 1545–1464
*
*
*
*
*
Section 1.6115–1 . . . . . . . . . . . . . 1545–1464
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Section 483.—Interest on Certain
Deferred Payments
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, this
page.
14
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, this
page.
Section 846.—Discounted Unpaid
Losses Defined
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, this
page.
Section 1274.—Determination of
Issue Price in the Case of Certain
Debt Instruments Issued for
Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal
rates; adjusted federal long-term rate,
and the long-term exempt rate. For
purposes of sections 1274, 1288, 382,
and other sections of the Code, tables
set forth the rates for February 1997.
Rev. Rul. 97–7
This revenue ruling provides various
prescribed rates for federal income tax
purposes for February 1997 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable federal rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted AFR) for the current month for
purposes of section 1288(b). Table 3
sets forth the adjusted federal long-term
rate and the long-term tax-exempt rate
described in section 382(f). Table 4
contains the appropriate percentages for
determining the low-income housing
credit described in section 42(b)(2) for
buildings placed in service during the
current month. Finally, Table 5 contains
the federal rate for determining the
present value of an annuity, an interest
for life or for a term of years, or a
remainder or a reversionary interest for
purposes of section 7520.
REV. RUL. 97–7 TABLE 1
Applicable Federal Rates (AFR) for February 1997
Period for Compounding
Annual
Semiannual
Quarterly
Monthly
5.81%
6.40%
7.00%
7.59%
5.73%
6.30%
6.88%
7.45%
5.69%
6.25%
6.82%
7.38%
5.66%
6.22%
6.78%
7.34%
6.38%
7.03%
7.68%
8.33%
9.64%
11.29%
6.28%
6.91%
7.54%
8.16%
9.42%
10.99%
6.23%
6.85%
7.47%
8.08%
9.31%
10.84%
6.20%
6.81%
7.42%
8.02%
9.24%
10.75%
6.78%
7.47%
8.16%
8.86%
6.67%
7.34%
8.00%
8.67%
6.62%
7.27%
7.92%
8.58%
6.58%
7.23%
7.87%
8.52%
Short-Term
AFR
110% AFR
120% AFR
130% AFR
Mid-Term
AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR
Long-Term
AFR
110% AFR
120% AFR
130% AFR
REV. RUL. 97–7 TABLE 2
Adjusted AFR for February 1997
Period for Compounding
Annual
Semiannual
Quarterly
Monthly
Short-term
adjusted AFR
3.68%
3.65%
3.63%
3.62%
Mid-term
adjusted AFR
4.60%
4.55%
4.52%
4.51%
Long-term
adjusted AFR
5.47%
5.40%
5.36%
5.34%
REV. RUL. 97–7 TABLE 3
Rates Under Section 382 for February 1997
Adjusted federal long-term rate for the current month
5.47%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)
5.48%
REV. RUL. 97–7 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for February 1997
Appropriate percentage for the 70% present value low-income housing credit
8.55%
Appropriate percentage for the 30% present value low-income housing credit
3.66%
15
REV. RUL. 97–7 TABLE 5
Rate Under Section 7520 for February 1997
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest
Section 1288.—Treatment of
Original Issue Discount on
Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, page
14.
Section 6335.—Sale of Seized
Property
property at the minimum price set by
the Secretary. On June 13, 1996, a
notice of proposed rulemaking reflecting
this change was published in the Federal Register (61 FR 30012). No comments responding to the notice of proposed rulemaking were received, and no
public hearing was requested or held.
The final regulations are adopted as
proposed.
26 CFR 301.6335–1: Sale of seized property
Explanation of provisions
T.D. 8691
Section 1570 of the Tax Reform Act
of 1986 amended section 6335(e) of the
Code to require the Secretary to determine before the sale of seized property
whether it would be in the best interest
of the United States to purchase such
property at the minimum price set by
the Secretary. The best interest determination is to be based on criteria prescribed by the Secretary. If, at the sale,
one or more persons offer at least the
minimum price, the property shall be
sold to the highest bidder. If no one
offers at least the minimum price and
the Secretary has determined that it
would be in the best interest of the
United States to purchase the property
for the minimum price, the property will
be declared sold to the United States for
the minimum price. If no one offers the
minimum price and the Secretary has
not determined that it would be in the
best interest of the United States to
purchase the property for the minimum
price, the property shall be released to
the owner of the property and the
expense of the levy and sale shall be
added to the amount of tax for the
collection of which the United States
made the levy. Any property released
shall remain subject to any lien imposed
by subchapter C of chapter 64 of subtitle F of the Code.
The regulations reflect the changes
made by the Tax Reform Act of 1986.
The regulations authorize district directors to make the required determination
whether it would be in the best interest
of the United States to purchase seized
property for the minimum price. In
addition, the regulations set forth factors
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
Sale of Seized Property
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the sale of
seized property. The final regulations
reflect changes concerning the setting of
a minimum price for seized property by
the Tax Reform Act of 1986. The regulations affect all sales of seized property.
EFFECTIVE DATE: December 17,
1996.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations,
Kevin B. Connelly, (202) 622–3640 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to the Procedure and Administration
Regulations (26 CFR part 301) relating
to the sale of seized property under
section 6335 of the Internal Revenue
Code (Code). The Tax Reform Act of
1986 amended section 6335(e), relating
to the manner and conditions of sale, to
require the Secretary to determine
whether it would be in the best interest
of the United States to buy seized
16
7.6%
the district director may consider when
determining the best interest of the
United States. The district director may
consider all relevant facts and circumstances including for example: (1) marketability of the property; (2) cost of
maintaining the property; (3) cost of
repairing or restoring the property; (4)
cost of transporting the property; (5)
cost of safeguarding the property; (6)
cost of potential toxic waste cleanup;
and (7) other factors pertinent to the
type of property. Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 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) and
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant
to section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking 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 author of these regulations is Kevin B. Connelly, Office of
Assistant Chief Counsel (General Litigation) CC:EL:GL, IRS. However, other
personnel from the IRS and Treasury
Department participated in their development.
*
*
*
*
*
Adoption of Amendments to the Regulations
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 301.6335–1 is
amended as follows:
1. Paragraph (c)(3) is revised.
2. Paragraphs (c)(4) through (c)(9)
are redesignated as paragraphs (c)(5)
through (c)(10), respectively.
3. New paragraph (c)(4) is added.
The addition and revision read as
follows:
§ 301.6335–1 Sale of seized property.
*
*
*
*
*
(c) * * *
(3) Determinations relating to minimum price—(i) Minimum price. Before
the sale of property seized by levy, the
district director shall determine a minimum price, taking into account the
expenses of levy and sale, for which the
property shall be sold. The internal
revenue officer conducting the sale may
either announce the minimum price before the sale begins, or defer announcement of the minimum price until after
the receipt of the highest bid, in which
case, if the highest bid is greater than
the minimum price, no announcement of
the minimum price shall be made.
(ii) Purchase by the United States.
Before the sale of property seized by
levy, the district director shall determine
whether the purchase of property by the
United States at the minimum price
would be in the best interest of the
United States. In determining whether
the purchase of property would be in the
best interest of the United States, the
district director may consider all relevant facts and circumstances including
for example—
(a) Marketability of the property;
(b) Cost of maintaining the property;
(c) Cost of repairing or restoring the
property;
(d) Cost of transporting the property;
(e) Cost of safeguarding the property;
(f) Cost of potential toxic waste
cleanup; and
(g) Other factors pertinent to the type
of property.
(iii) Effective date. This paragraph
(c)(3) applies to determinations relating
to minimum price made on or after
December 17, 1996.
(4) Disposition of property at sale—
(i) ale to highest bidder at or above
minimum price. If one or more persons
offer to buy the property for at least the
amount of the minimum price, the property shall be sold to the highest bidder.
(ii) Property deemed sold to United
States at minimum price. If no one
offers at least the amount of the minimum price for the property and the
Secretary has determined that it would
be in the best interest of the United
States to purchase the property for the
minimum price, the property shall be
declared to be sold to the United States
for the minimum price.
(iii) Release to owner. If the property
is not declared to be sold under paragraph (c)(4)(i) or (ii) of this section, the
property shall be released to the owner
of the property and the expense of the
levy and sale shall be added to the
amount of tax for the collection of
which the United States made the levy.
Any property released under this paragraph (c)(4)(iii) shall remain subject to
any lien imposed by subchapter C of
chapter 64 of subtitle F of the Internal
Revenue Code.
17
(iv) Effective date. This paragraph
(c)(4) applies to dispositions of property
at sale made on or after December 17,
1996.
*
*
*
*
*
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved November 19, 1996.
Donald C. Lubick,
Acting Assistant Secretary of Treasury.
(Filed by the Office of the Federal Register on
December 16, 1996, 8:45 a.m., and published in
the issue of the Federal Register for December
127, 1996, F.R. 66216)
Section 7121.—Closing Agreements
What are the procedures under which an issuer
of state or local bonds may request a closing
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in
each case as a result of an action subsequent to
the issue date that causes those bonds to fail to
meet certain requirements of §§ 141 through 150
of the Internal Revenue Code relating to use of
proceeds? See Rev. Proc. 97–15, page 21.
Section 7520.—Valuation Tables
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, page
14.
Section 7872.—Treatment of Loans
With Below-Market Interest Rates
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the
month of February 1997. See Rev. Rul. 97–7, page
14.
Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 103, 141, 145; 1.141–3, 1.145–2.)
Rev. Proc. 97–13
SECTION 1. PURPOSE
The purpose of this revenue procedure is to set forth conditions under
which a management contract does not
result in private business use under
§ 141(b) of the Internal Revenue Code
of 1986. This revenue procedure also
applies to determinations of whether a
management contract causes the test in
§ 145(a)(2)(B) of the 1986 Code to be
met for qualified 501(c)(3) bonds.
SECTION 2. BACKGROUND
.01 Private Business Use.
(1) Under § 103(a) of the 1986
Code, gross income does not include
interest on any state or local bond.
Under § 103(b)(1) of the 1986 Code,
however, § 103(a) of the 1986 Code
does not apply to a private activity
bond, unless it is a qualified bond under
§ 141(e) of the 1986 Code. Section
141(a)(1) of the 1986 Code defines
‘‘private activity bond’’ as any bond
issued as part of an issue that meets
both the private business use and the
private security or payment tests. Under
§ 141(b)(1) of the 1986 Code, an issue
generally meets the private business use
test if more than 10 percent of the
proceeds of the issue are to be used for
any private business use. Under
§ 141(b)(6)(A) of the 1986 Code, private business use means direct or indirect use in a trade or business carried on
by any person other than a governmental unit. Section 145(a) of the 1986
Code also applies the private business
use test of § 141(b)(1) of the 1986
Code, with certain modifications.
(2) Corresponding provisions of
the Internal Revenue Code of 1954 set
forth the requirements for the exclusion
from gross income of the interest on
state or local bonds. For purposes of this
revenue procedure, any reference to a
1986 Code provision includes a reference to the corresponding provision, if
any, under the 1954 Code.
(3) Private business use can arise
by ownership, actual or beneficial use of
property pursuant to a lease, a management or incentive payment contract, or
certain other arrangements. The Conference Report for the Tax Reform Act of
1986, provides as follows:
The conference agreement
generally retains the present-law
rules under which use by persons
other than governmental units is
determined for purposes of the
trade or business use test. Thus, as
under present law, the use of bondfinanced property is treated as a
use of bond proceeds. As under
present law, a person may be a
user of bond proceeds and bondfinanced property as a result of (1)
ownership or (2) actual or beneficial use of property pursuant to a
lease, a management or incentive
payment contract, or (3) any other
arrangement such as a take-or-pay
or other output-type contract.
2 H.R. Conf. Rep. No. 841, 99th Cong.,
2d Sess. II–687–688, (1986) 1986–3
(Vol. 4) C.B. 687–688 (footnote omitted).
(4) A management contract that
gives a nongovernmental service provider an ownership or leasehold interest
in financed property is not the only
situation in which a contract may result
in private business use.
(5) Section 1.141–3(b)(4)(i) of the
Income Tax Regulations provides, in
general, that a management contract
(within the meaning of § 1.141–
3(b)(4)(ii)) with respect to financed
property may result in private business
use of that property, based on all the
facts and circumstances.
(6) Section 1.141–3(b)(4)(i) provides that a management contract with
respect to financed property generally
results in private business use of that
property if the contract provides for
compensation for services rendered with
compensation based, in whole or in part,
on a share of net profits from the
operation of the facility.
(7) Section 1.141–3(b)(4)(iii), in
general, provides that certain arrangements generally are not treated as management contracts that may give rise to
private business use. These are—
(a) Contracts for services that
are solely incidental to the primary
governmental function or functions of a
financed facility (for example, contracts
for janitorial, office equipment repair,
hospital billing or similar services);
(b) The mere granting of admitting privileges by a hospital to a doctor,
even if those privileges are conditioned
on the provision of de minimis services,
if those privileges are available to all
18
qualified physicians in the area, consistent with the size and nature of its
facilities;
(c) A contract to provide for the
operation of a facility or system of
facilities that consists predominantly of
public utility property (as defined in
§ 168(i)(10) of the 1986 Code), if the
only compensation is the reimbursement
of actual and direct expenses of the
service provider and reasonable administrative overhead expenses of the service
provider; and
(d) A contract to provide for
services, if the only compensation is the
reimbursement of the service provider
for actual and direct expenses paid by
the service provider to unrelated parties.
(8) Section 1.145–2(a) provides
generally that §§ 1.141–0 through
1.141–15 apply to § 145(a) of the 1986
Code.
(9) Section 1.145–2(b)(1) provides
that in applying §§ 1.141–0 through
1.141–15 to § 145(a) of the 1986 Code,
references to governmental persons include section 501(c)(3) organizations
with respect to their activities that do
not constitute unrelated trades or businesses under § 513(a) of the 1986
Code.
.02 Existing Advance Ruling Guidelines. Rev. Proc. 93–19, 1993–1 C.B.
526, contains advance ruling guidelines
for determining whether a management
contract results in private business use
under § 141(b) of the 1986 Code.
SECTION 3. DEFINITIONS
.01 Adjusted gross revenues means
gross revenues of all or a portion of a
facility, less allowances for bad debts
and contractual and similar allowances.
.02 Capitation fee means a fixed periodic amount for each person for whom
the service provider or the qualified user
assumes the responsibility to provide all
needed services for a specified period so
long as the quantity and type of services
actually provided to covered persons
varies substantially. For example, a capitation fee includes a fixed dollar amount
payable per month to a medical service
provider for each member of a health
maintenance organization plan for whom
the provider agrees to provide all
needed medical services for a specified
period. A capitation fee may include a
variable component of up to 20 percent
of the total capitation fee designed to
protect the service provider against risks
such as catastrophic loss.
.03 Management contract means a
management, service, or incentive payment contract between a qualified user
and a service provider under which the
service provider provides services involving all, a portion of, or any function
of, a facility. For example, a contract for
the provision of management services
for an entire hospital, a contract for
management services for a specific department of a hospital, and an incentive
payment contract for physician services
to patients of a hospital are each treated
as a management contract. See
§§ 1.141–3(b)(4)(ii) and 1.145–2. .
04 Penalties for terminating a contract include a limitation on the qualified user’s right to compete with the
service provider; a requirement that the
qualified user purchase equipment,
goods, or services from the service
provider; and a requirement that the
qualified user pay liquidated damages
for cancellation of the contract. In contrast, a requirement effective on cancellation that the qualified user reimburse
the service provider for ordinary and
necessary expenses or a restriction on
the qualified user against hiring key
personnel of the service provider is
generally not a contract termination penalty. Another contract between the service provider and the qualified user,
such as a loan or guarantee by the
service provider, is treated as creating a
contract termination penalty if that contract contains terms that are not customary or arm’s- length that could operate
to prevent the qualified user from terminating the contract (for example, provisions under which the contract terminates if the management contract is
terminated or that place substantial restrictions on the selection of a substitute
service provider).
.05 Periodic fixed fee means a stated
dollar amount for services rendered for
a specified period of time. For example,
a stated dollar amount per month is a
periodic fixed fee. The stated dollar
amount may automatically increase according to a specified, objective, external standard that is not linked to the
output or efficiency of a facility. For
example, the Consumer Price Index and
similar external indices that track increases in prices in an area or increases
in revenues or costs in an industry are
objective external standards. Capitation
fees and per-unit fees are not periodic
fixed fees.
.06 Per-unit fee means a fee based on
a unit of service provided specified in
the contract or otherwise specifically
determined by an independent third
party, such as the administrator of the
Medicare program, or the qualified user.
For example, a stated dollar amount for
each specified medical procedure performed, car parked, or passenger mile is
a per-unit fee. Separate billing arrangements between physicians and hospitals
generally are treated as per-unit fee
arrangements.
.07 Qualified user means any state or
local governmental unit as defined in
§ 1.103–1 or any instrumentality
thereof. The term also includes a section
501(c)(3) organization if the financed
property is not used in an unrelated
trade or business under § 513(a) of the
1986 Code. The term does not include
the United States or any agency or
instrumentality thereof.
.08 Renewal option means a provision under which the service provider
has a legally enforceable right to renew
the contract. Thus, for example, a provision under which a contract is automatically renewed for one-year periods absent cancellation by either party is not a
renewal option (even if it is expected to
be renewed).
.09 Service provider means any person other than a qualified user that
provides services under a contract to, or
for the benefit of, a qualified user.
SECTION 4. SCOPE
This revenue procedure applies when,
under a management contract, a service
provider provides management or other
services involving property financed
with proceeds of an issue of state or
local bonds subject to § 141 or
§ 145(a)(2)(B) of the 1986 Code.
SECTION 5. OPERATING
GUIDELINES FOR MANAGEMENT
CONTRACTS
.01 In general. If the requirements of
section 5 of this revenue procedure are
satisfied, the management contract does
not itself result in private business use.
In addition, the use of financed property,
pursuant to a management contract
meeting the requirements of section 5 of
this revenue procedure, is not private
business use if that use is functionally
related and subordinate to that management contract and that use is not, in
substance, a separate contractual agreement (for example, a separate lease of a
portion of the financed property). Thus,
19
for example, exclusive use of storage
areas by the manager for equipment that
is necessary for it to perform activities
required under a management contract
that meets the requirements of section 5
of this revenue procedure, is not private
business use.
.02 General compensation requirements.
(1) In general. The contract must
provide for reasonable compensation for
services rendered with no compensation
based, in whole or in part, on a share of
net profits from the operation of the
facility. Reimbursement of the service
provider for actual and direct expenses
paid by the service provider to unrelated
parties is not by itself treated as compensation.
(2) Arrangements that generally
are not treated as net profits arrangements. For purposes of § 1.141–
3(b)(4)(i) and this revenue procedure,
compensation based on—
(a) A percentage of gross revenues (or adjusted gross revenues) of a
facility or a percentage of expenses
from a facility, but not both;
(b) A capitation fee; or
(c) A per-unit fee is generally
not considered to be based on a share of
net profits.
(3) Productivity reward. For purposes of § 1.141–3(b)(4)(i) and this revenue procedure, a productivity reward
equal to a stated dollar amount based on
increases or decreases in gross revenues
(or adjusted gross revenues), or reductions in total expenses (but not both
increases in gross revenues (or adjusted
gross revenues) and reductions in total
expenses) in any annual period during
the term of the contract, generally does
not cause the compensation to be based
on a share of net profits.
(4) Revision of compensation arrangements. In general, if the compensation arrangements of a management contract are materially revised, the
requirements for compensation arrangements under section 5 of this revenue
procedure are retested as of the date of
the material revision, and the management contract is treated as one that was
newly entered into as of the date of the
material revision.
.03 Permissible Arrangements. The
management contract must be described
in section 5.03(1), (2), (3), (4), (5), or
(6) of this revenue procedure.
(1) 95 percent periodic fixed fee
arrangements. At least 95 percent of the
compensation for services for each annual period during the term of the
contract is based on a periodic fixed fee.
The term of the contract, including all
renewal options, must not exceed the
lesser of 80 percent of the reasonably
expected useful life of the financed
property and 15 years. For purposes of
this section 5.03(1), a fee does not fail
to qualify as a periodic fixed fee as a
result of a one-time incentive award
during the term of the contract under
which compensation automatically increases when a gross revenue or expense target (but not both) is reached if
that award is equal to a single, stated
dollar amount.
(2) 80 percent periodic fixed fee
arrangements. At least 80 percent of the
compensation for services for each annual period during the term of the
contract is based on a periodic fixed fee.
The term of the contract, including all
renewal options, must not exceed the
lesser of 80 percent of the reasonably
expected useful life of the financed
property and 10 years. For purposes of
this section 5.03(2), a fee does not fail
to qualify as a periodic fixed fee as a
result of a one-time incentive award
during the term of the contract under
which compensation automatically increases when a gross revenue or expense target (but not both) is reached if
that award is equal to a single, stated
dollar amount.
(3) Special rule for public utility
property. If all of the financed property
subject to the contract is a facility or
system of facilities consisting of predominantly public utility property (as
defined in § 168(i)(10) of the 1986
Code), then ‘‘20 years’’ is substituted—
(a) For ‘‘15 years’’ in applying
section 5.03(1) of this revenue procedure; and
(b) For ‘‘10 years’’ in applying
section 5.03(2) of this revenue procedure.
(4) 50 percent periodic fixed fee
arrangements. Either at least 50 percent
of the compensation for services for
each annual period during the term of
the contract is based on a periodic fixed
fee or all of the compensation for
services is based on a capitation fee or a
combination of a capitation fee and a
periodic fixed fee. The term of the
contract, including all renewal options,
must not exceed 5 years. The contract
must be terminable by the qualified user
on reasonable notice, without penalty or
cause, at the end of the third year of the
contract term.
(5) Per-unit fee arrangements in
certain 3-year contracts. All of the
compensation for services is based on a
per-unit fee or a combination of a
per-unit fee and a periodic fixed fee.
The term of the contract, including all
renewal options, must not exceed 3
years. The contract must be terminable
by the qualified user on reasonable
notice, without penalty or cause, at the
end of the second year of the contract
term.
(6) Percentage of revenue or expense fee arrangements in certain
2-year contracts. All the compensation
for services is based on a percentage of
fees charged or a combination of a
per-unit fee and a percentage of revenue
or expense fee. During the start-up period, however, compensation may be
based on a percentage of either gross
revenues, adjusted gross revenues, or
expenses of a facility. The term of the
contract, including renewal options,
must not exceed 2 years. The contract
must be terminable by the qualified user
on reasonable notice, without penalty or
cause, at the end of the first year of the
contract term. This section 5.03(6) applies only to—
(a) Contracts under which the
service provider primarily provides services to third parties (for example, radiology services to patients); and
(b) Management contracts involving a facility during an initial
start-up period for which there have
been insufficient operations to establish
a reasonable estimate of the amount of
the annual gross revenues and expenses
(for example, a contract for general
management services for the first year
of operations).
.04 No Circumstances Substantially
Limiting Exercise of Rights.
(1) In general. The service provider must not have any role or relationship with the qualified user that, in
effect, substantially limits the qualified
user’s ability to exercise its rights, including cancellation rights, under the
contract, based on all the facts and
circumstances.
(2) Safe harbor. This requirement
is satisfied if—
(a) Not more than 20 percent of
the voting power of the governing body
of the qualified user in the aggregate is
vested in the service provider and its
directors, officers, shareholders, and employees;
(b) Overlapping board members
do not include the chief executive officers of the service provider or its governing body or the qualified user or its
governing body; and
20
(c) The qualified user and the
service provider under the contract are
not related parties, as defined in
§ 1.150–1(b).
SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 93–19, 1993–1 C.B. 526,
is made obsolete on the effective date of
this revenue procedure.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective
for any management contract entered
into, materially modified, or extended
(other than pursuant to a renewal option) on or after May 16, 1997. In
addition, an issuer may apply this revenue procedure to any management contract entered into prior to May 16, 1997.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Loretta J. Finger of the
Office of Assistant Chief Counsel (Financial Institutions and Products). For
further information regarding this revenue procedure contact Loretta J. Finger
on (202) 622–3980 (not a toll-free call).
26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 103, 141, 145; 1.141–3, 1.145–2.)
Rev. Proc. 97–14
SECTION 1. PURPOSE
The purpose of this revenue procedure is to set forth conditions under
which a research agreement does not
result in private business use under
§ 141(b) of the Internal Revenue Code
of 1986. This revenue procedure also
applies to determinations of whether a
research agreement causes the test in
§ 145(a)(2)(B) of the 1986 Code to be
met for qualified 501(c)(3) bonds.
SECTION 2. BACKGROUND
.01 Private Business Use.
(1) Under § 103(a) of the 1986
Code, gross income does not include
interest on any state or local bond.
Under § 103(b)(1) of the 1986 Code,
however, § 103(a) of the 1986 Code
does not apply to a private activity
bond, unless it is a qualified bond under
§ 141(e) of the 1986 Code. Section
141(a)(1) of the 1986 Code defines
‘‘private activity bond’’ as any bond
issued as part of an issue that meets
both the private business use and the
private security or payment tests. Under
§ 141(b)(1) of the 1986 Code, an issue
generally meets the private business use
test if more than 10 percent of the
proceeds of the issue are to be used for
any private business use. Under
§ 141(b)(6)(A) of the 1986 Code, private business use means direct or indirect use in a trade or business carried on
by any person other than a governmental unit. Section 145(a) of the 1986
Code also applies the private business
use test of § 141(b)(1) of the 1986
Code, with certain modifications.
(2) Corresponding provisions of
the Internal Revenue Code of 1954 set
forth the requirements for the exclusion
from gross income of the interest on
state or local bonds. For purposes of this
revenue procedure, any reference to a
1986 Code provision includes a reference to the corresponding provision, if
any, under the 1954 Code.
.02 Section 1.141–3(b)(6)(i) of the
Income Tax Regulations provides, in
general, that an agreement by a nongovernmental person to sponsor research
performed by a governmental person
may result in private business use of the
property used for the research, based on
all of the facts and circumstances.
.03 Section 1.141–3(b)(6)(ii) provides
in general that a research agreement
with respect to financed property results
in private business use of that property
if the sponsor is treated as the lessee or
owner of financed property for federal
income tax purposes.
.04 Section 1.145–2(a) provides generally that §§ 1.141–0 through 1.141–15
apply to § 145(a) of the 1986 Code.
.05 Section 1.145–2(b)(1) provides
that, in applying §§ 1.141–0 through
1.141–15 to § 145(a) of the 1986 Code,
references to governmental persons include section 501(c)(3) organizations
with respect to their activities that do
not constitute unrelated trades or businesses under § 513(a) of the 1986
Code.
SECTION 3. DEFINITIONS
.01 Basic research, for purposes of
§ 141 of the 1986 Code, means any
original investigation for the advancement of scientific knowledge not having
a specific commercial objective. For
example, product testing supporting the
trade or business of a specific nongovernmental person is not treated as basic
research.
.02 Qualified user means any state or
local governmental unit as defined in
§ 1.103–1 or any instrumentality
thereof. The term also includes a section
501(c)(3) organization if the financed
property is not used in an unrelated
trade or business under § 513(a) of the
1986 Code. The term does not include
the United States or any agency or
instrumentality thereof.
.03 Sponsor means any person, other
than a qualified user, that supports or
sponsors research under a contract.
SECTION 4. SCOPE
This revenue procedure applies when,
under a research agreement, a sponsor
uses property financed with proceeds of
an issue of state or local bonds subject
to § 141 or § 145(a)(2)(B) of the 1986
Code.
SECTION 5. OPERATING
GUIDELINES FOR RESEARCH
AGREEMENTS
.01 In general. If a research agreement is described in either section 5.02
or 5.03 of this revenue procedure, the
research agreement itself does not result
in private business use.
.02 Corporate-sponsored research. A
research agreement relating to property
used for basic research supported or
sponsored by a sponsor is described in
this section 5.02 if any license or other
use of resulting technology by the sponsor is permitted only on the same terms
as the recipient would permit that use
by any unrelated, non-sponsoring party
(that is, the sponsor must pay a competitive price for its use), with the price
paid for that use determined at the time
the license or other resulting technology
is available for use. Although the recipient need not permit persons other than
the sponsor to use any license or other
resulting technology, the price paid by
the sponsor must be no less than the
price that would be paid by any nonsponsoring party for those same rights.
.03 Cooperative research agreements.
A research agreement relating to property used pursuant to a joint industrygovernmental cooperative research arrangement is described in this section
5.03 if—
(1) Multiple, unrelated sponsors
agree to fund governmentally performed
basic research;
(2) The research to be performed
and the manner in which it is to be
performed (for example, selection of the
personnel to perform the research) is
determined by the qualified user;
21
(3) Title to any patent or other
product incidentally resulting from the
basic research lies exclusively with the
qualified user; and
(4) Sponsors are entitled to no
more than a nonexclusive, royalty-free
license to use the product of any of that
research.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective
for any research agreement entered into
on or after May 16, 1997. In addition,
an issuer may apply this revenue procedure to any research agreement entered
into prior to May 16, 1997.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Loretta J. Finger of the
Office of Assistant Chief Counsel (Financial Institutions and Products). For
further information regarding this revenue procedure contact Loretta J. Finger
on (202) 622–3980 (not a toll-free call).
26 CFR 601.202: Closing agreements.
(Also Part I, §§ 57, 103, 141, 142, 144, 145, 147,
7121; 1.141–12, 1.142–2, 1.144–2, 1.145–2,
1.147–2.)
Rev. Proc. 97–15
SECTION 1. PURPOSE
This revenue procedure provides a
program under which an issuer of state
or local bonds may request a closing
agreement with respect to outstanding
bonds (1) to prevent the interest on
those bonds from being includible in
gross income of bondholders or (2) to
prevent the interest on those bonds from
being treated as an item of tax preference for purposes of the alternative
minimum tax for bondholders, in each
case as a result of an action subsequent
to the issue date that causes those bonds
to fail to meet certain requirements of
§§ 141 through 150 of the Internal
Revenue Code of 1986 relating to use of
proceeds.
SECTION 2. BACKGROUND
.01 Under § 103(a) of the 1986
Code, gross income does not include
interest on any state or local bond if the
applicable requirements of §§ 141
through 150 of the 1986 Code are
satisfied. These requirements include requirements relating to use of bond proceeds that must be met after the issue
date.
.02 Sections 1.141–12, 1.142–2,
1.144–2, 1.145–2, and 1.147–2 of the
Income Tax Regulations provide that, in
the event that an action taken subsequent to the issue date causes an issue
of state or local bonds to fail to meet
certain requirements relating to use of
proceeds, an issuer may generally take
certain remedial actions to prevent interest on the bonds from becoming includible in gross income. Application of
these remedial action provisions may
not be possible or practicable for issuers
in some cases.
.03 The remedial action permitted in
§ 1.141–12(f) applies to bonds that
were not treated as private activity
bonds on their issue date. Under this
provision, if a subsequent action causes
bonds of an issue to meet the private
activity bond tests of § 141 of the 1986
Code, the bonds may be treated as
reissued qualified private activity bonds
on the date of the action for certain
purposes, including §§ 55 through 57 of
the 1986 Code.
.04 Section 57(a)(5) of the 1986
Code provides that the interest on certain qualified private activity bonds is
treated as an item of tax preference for
purposes of the alternative minimum
tax.
.05 Corresponding provisions of the
Internal Revenue Code of 1954 set forth
requirements for the exclusion from
gross income of the interest on an issue
of state or local bonds. For purposes of
this revenue procedure, any reference to
a provision of the 1986 Code includes a
reference to the corresponding provision,
if any, under the 1954 Code.
SECTION 3. DESCRIPTION OF THE
CLOSING AGREEMENT PROGRAM
FOR SUBSEQUENT ACTIONS
.01 Under the program established by
this revenue procedure, the Service will
enter into closing agreements with issuers of state or local bonds. These closing agreements will provide that (1) the
interest on bonds will not be includible
in gross income of bondholders or (2)
the interest on bonds will not be treated
as an item of tax preference for purposes of the alternative minimum tax for
bondholders, in each case solely as a
result of an action subsequent to the
issue date that causes those bonds to fail
to meet certain requirements of §§ 141
through 150 of the 1986 Code relating
to use of bond proceeds. The closing
agreements will not resolve any other
matter.
.02 In general, in the case of a closing agreement providing that the interest
on bonds will not be includible in gross
income of bondholders, the closing
agreement will apply only to the period
between the issue date of the bonds and
the next date on which the bonds may
be redeemed under their terms after the
date of the closing agreement (the ‘‘next
redemption date’’). The next redemption
date will be specified in the closing
agreement.
.03 In general, in the case of a closing agreement providing that the interest
on bonds will not be treated as an item
of tax preference for purposes of the
alternative minimum tax, the closing
agreement will apply only to the period
between the date of the subsequent
action and the date specified in the
closing agreement.
.04 This program is a compliance
program but is not based upon an
examination of an issue of bonds by the
Service.
.05 Because this program does not
arise out of an examination, consideration under this program does not preclude or impede an examination of the
issuer, the bondholders, or the issue of
bonds by the Service with respect to
matters not addressed in the closing
agreement.
.06 The intent underlying this program is to treat expeditiously all requests for closing agreements which are
submitted in accordance with sections 5
and 6 of this revenue procedure. Accordingly, negotiations with issuers on
the basis of mitigating circumstances of
individual cases will not be entertained
under the terms of this revenue procedure.
SECTION 4. SCOPE
.01 This revenue procedure applies
only to failures to meet the requirements
for excludability of interest from gross
income in §§ 141 through 150 of the
1986 Code that can be remediated under
§§ 1.141–12, 1.142–2, 1.144–2, 1.145–
2, or 1.147–2 with respect to proceeds
that have been spent. These remedial
action provisions generally require that
the initial use of proceeds of the issue
of bonds, including the use of any
facility financed with those proceeds,
satisfied all the applicable requirements
for tax-exempt bonds under §§ 103 and
141 through 150 of the 1986 Code. The
requirements for excludability of interest
from gross income in §§ 141 through
150 of the 1986 Code that can be
22
remediated under §§ 1.141–12, 1.142–2,
1.144–2, 1.145–2, and 1.147–2 are
§§ 141(b)(1), 141(b)(3), 141(b)(4),
141(b)(5), 141(c), 142 (except paragraphs (d) and (f)), 144 (except paragraphs (a)(4), (a)(10), and (b)), 145(a),
147(c)(3), 147(d)(2) and (3), 147(e), and
147(f) of the 1986 Code. This revenue
procedure has no effect on the application of the provisions set forth in
§§ 150(b) and (c) of the 1986 Code.
.02 An issue of bonds that is under an
examination by the Service is not eligible for the program. An issue of bonds
is under examination if the issuer of the
bonds has been notified in writing by
the Service that the issue has been
selected for examination.
SECTION 5. PROCEDURE
.01 An issuer seeking relief must request, within 180 days from the date of
the subsequent action, a closing agreement following the procedures in this
revenue procedure.
.02 In its request for a closing agreement under this revenue procedure, the
issuer must include the following information relating to the issue of bonds:
(1) A copy of the completed and
filed Form 8038;
(2) A copy of the final offering
document, if any;
(3) A statement detailing the subsequent action;
(4) A statement explaining the
computation of the proposed closing
agreement amount, as described in section 6 of this revenue procedure; and
(5) In the case of a request for a
closing agreement providing that the
interest on bonds will not be includible
in gross income of bondholders, a copy
of the written notice (which may acknowledge that the issuer does not currently have funds on hand to redeem the
nonqualified bonds) to the bondholders
of the issue that:
(a) The nonqualified bonds will
be redeemed on the next redemption
date; and
(b) In the event the issuer fails
to redeem the nonqualified bonds in
accordance with the terms of the closing
agreement on the next redemption date,
the bonds of the issue will be treated as
private activity bonds that are not qualified bonds as of that date.
.03 The closing agreement will be
prepared by the Service and, in general,
will be in substantially the same form
which is shown as an exhibit at the end
of this revenue procedure.
.04 As a condition to the Service
executing a closing agreement under this
procedure, the following requirements
must be met:
(1) The requirements of §§ 1.141–
12(a), 1.142–2, 1.144–2, 1.145–2, or
1.147–2, as applicable, relating to conditions for remedial action must be satisfied.
(2) In the case of a closing agreement providing that the interest on
bonds will not be includible in gross
income of bondholders, the issuer must
agree to:
(a) Notify the bondholders in
writing, within 30 days after the date the
closing agreement is executed by the
Service, that:
(i) The nonqualified bonds
will be redeemed on the next redemption date; and
(ii) In the event the issuer
fails to redeem the nonqualified bonds
in accordance with the terms of the
closing agreement on the next redemption date, the bonds of the issue will be
treated as private activity bonds that are
not qualified bonds as of that date; and
(b) Not make any payment under the closing agreement from proceeds
of bonds described in § 103(a) of the
1986 Code.
(3) In the case of a closing agreement providing that the interest on
bonds will not be treated as an item of
tax preference for purposes of the alternative minimum tax, the issuer must
agree to not make any payment under
the closing agreement from proceeds of
bonds described in § 103(a) of the 1986
Code.
(4) In the case of a closing agreement providing that the interest on
bonds will not be includible in gross
income of bondholders, the issuer must
execute, simultaneously with the execution by the issuer of the closing agreement, a § 6103(c) disclosure consent
authorizing the Service to make public
any returns and return information (as
those terms are defined in § 6103(b) of
the 1986 Code) of the issuer relating to
the closing agreement under this revenue procedure, but only in the event
the issuer fails to redeem the nonqualified bonds in accordance with the terms
of the closing agreement.
(5) The issuer must pay, simultaneously with the execution by the issuer
of the closing agreement, the applicable
closing agreement amount computed under section 6 of this revenue procedure.
.05 A request for a closing agreement
and the closing agreement under this
revenue procedure must be signed by
the issuer. The person who signs for an
issuer must be an official of the issuer
who is authorized to sign a Form 8038
and who has personal knowledge of the
facts regarding bonds to be covered by
the closing agreement, the subsequent
action relating to the use of the proceeds
of those bonds, and the computation of
the proposed closing agreement amount
described in section 6 of this revenue
procedure.
.06 To sign the request for a closing
agreement or to appear before the Service in connection with the request for a
closing agreement, the issuer or the
representative must comply with the
requirements of sections 9.02(11) and
(12) of Rev. Proc. 97–4, 1997–1 I.R.B.
97 or any successor to Rev. Proc. 97–4.
.07 The following declaration must
accompany a request for a closing
agreement and any factual information
submitted after the original request or
any change in the request at a later
time: ‘‘Under penalties of perjury, I
declare that I have examined this
request for a closing agreement, including accompanying documents,
and that, to the best of my knowledge
and belief, the facts presented in support of the requested closing agreement are true, correct, and complete.’’
The declaration must be signed by the
issuer, not the issuer’s representative.
.08 A request for a closing agreement
must be clearly labeled as a request for
a closing agreement under this revenue
procedure and sent to the following
address:
Internal Revenue Service
1111 Constitution Avenue, N.W.
Attention: CP:E:EO:P:2, Room 6052
Washington, D.C. 20224
SECTION 6. CLOSING AGREEMENT
AMOUNT
.01 In general. Except as provided in
section 6.04 of this revenue procedure,
the closing agreement amount is equal
to an estimate of the federal income tax
liability that is not required to be paid
with respect to interest accruing on the
nonqualified bonds commencing on the
date of the subsequent action, as provided in this section. The closing agreement amount is computed as follows:
(1) Step 1. Determine the amount
of interest accruing on the nonqualified
bonds in each calendar year, commenc-
23
ing on the date on which the subsequent
action occurs and ending on the next
redemption date;
(2) Step 2. Multiply the amount
determined in section 6.01(1) of this
revenue procedure for each calendar
year by 0.29;
(3) Step 3. Determine the present
value of each amount determined in
section 6.01(2) of this revenue procedure for each calendar year in accordance with section 6.02 of this revenue
procedure by assuming it is paid on
April 15 in the following calendar year;
(4) Step 4. Determine the sum of
the present value amounts determined in
section 6.01(3) of this revenue procedure for all calendar years.
.02 Computation of present value.
Present value must be computed as of
the date on which the payment is sent to
the Service.
(1) In the case of a closing agreement providing that the interest on
bonds will not be includible in gross
income of bondholders, the discount rate
used to determine present value is the
taxable applicable federal rate (semiannual compounding), determined as of
the date of the subsequent action, for a
term equal to the period between the
date of the subsequent action and the
next redemption date.
(2) In the case of a closing agreement providing that the interest on
bonds will not be treated as an item of
tax preference for purposes of the alternative minimum tax, the discount rate
used to determine present value is the
taxable applicable federal rate (semiannual compounding), determined as of
the date of the subsequent action, for a
term equal to the period between the
date of the subsequent action and the
date specified in the closing agreement.
.03 Nonqualified bonds has the same
meaning as in §§ 1.141–12(j) or 1.142–
2(e), as applicable. Nonqualified bonds
that continue to be treated as tax-exempt
because of a permissible remedial action
under §§ 1.141–12(d), (e), or (f), 1.142–
2(c), 1.144–2, 1.145–2, or 1.147–2, as
applicable, will not be treated as
nonqualified bonds for purposes of this
closing agreement program.
.04 Amount for closing agreement on
item of tax preference. In the case of a
closing agreement providing that the
interest on bonds will not be treated as
an item of tax preference for purposes
of the alternative minimum tax, the
closing agreement amount is equal to an
estimate of the federal income tax liability that is not required to be paid
because of this treatment commencing
on the date of the subsequent action, as
provided in this section. The closing
agreement amount is computed as follows:
(1) Step 1. Determine the principal
amount of nonqualified bonds that will
be outstanding on January 1 of each
calendar year commencing the calendar
year in which the subsequent action
occurs and ending the first calendar year
in which the nonqualified bonds will no
longer be outstanding;
(2) Step 2. Multiply the amount
determined in section 6.04(1) of this
revenue procedure for each calendar
year by .0014;
(3) Step 3. Determine the present
value of each amount determined in
section 6.04(2) of this revenue procedure for each calendar year in accordance with section 6.02 of this revenue
procedure by assuming it is paid on
April 15 in the following calendar year;
(4) Step 4. Determine the sum of
the present value amounts determined in
section 6.04(3) of this revenue procedure for all calendar years.
SECTION 7. INQUIRIES
Inquiries, comments, or suggestions in
regard to this revenue procedure should
be directed to:
Internal Revenue Service
1111 Constitution Avenue, N.W.
Attention: CP:E:EO:P:2, Room 6052
Washington, D.C. 20224
SECTION 8. EFFECTIVE DATE
This revenue procedure is effective
for bonds issued on or after May 16,
1997. In addition, an issuer may apply
this revenue procedure to any bonds
issued before May 16, 1997.
SECTION 9. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control
number 1545–1528.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number.
The collections of information in this
revenue procedure are in section 5 of
this revenue procedure. This information
is required by the Service to verify
compliance with §§ 57, 103, 141, 142,
144, 145, and 147 of the 1986 Code, as
applicable. This information will be
used by the Service to enter into a
closing agreement with the issuer and to
establish the closing agreement amount.
The collections of information are required to obtain a benefit. The likely
respondents are state or local governments.
The estimated total annual reporting
and/or recordkeeping burden is 75
hours.
The estimated annual burden per
respondent/recordkeeper varies from 1
hour to 3 hours, depending on individual
circumstances, with an estimated average of 1.5 hours. The estimated number
of respondents and/or recordkeepers is
50.
The estimated annual frequency of
responses (used for reporting requirements only) is on occasion.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal revenue law. Generally tax returns
and tax return information are confidential, as required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Loretta J. Finger of the
Office of Assistant Chief Counsel (Financial Institutions and Products). For
further information regarding this revenue procedure contact Loretta J. Finger
on (202) 622–3980 (not a toll-free call).
CLOSING AGREEMENT ON FINAL
DETERMINATION COVERING
SPECIFIC MATTERS RELATING TO
A SUBSEQUENT ACTION RELATING
TO USE OF PROCEEDS
Under section 7121 of the Internal
Revenue Code (the ‘‘Code’’),
(the ‘‘Issuer’’) and the Commissioner of
Internal Revenue (the ‘‘Commissioner’’
or ‘‘IRS’’) make this closing agreement
(the ‘‘Agreement’’).
WHEREAS, the parties have determined the following facts and made the
following legal conclusions and representations:
A. This Agreement is in settlement of
issues raised in a request for a closing
agreement under Rev. Proc. 97–15,
1997–5 I.R.B. 21, pertaining to the
(the ‘‘Bonds’’) issued on
(the ‘‘Issue Date’’).
24
B. This Agreement is not based upon
an examination of the Bonds by the IRS
and does not preclude or impede an
examination of the Issuer, any holders
of the Bonds, or the Bonds by the IRS
with respect to matters not addressed in
this Agreement.
C. The IRS has not formally asserted
any claims against the Issuer, or sought
to tax any holders of the Bonds on
interest income on the Bonds.
D. The terms of this Agreement were
arrived at pursuant to Rev. Proc. 97–15
and may differ from the terms of settlement of bond issues examined or to be
examined by the IRS.
E. This Agreement is for the benefit
of the past, present and future registered
and beneficial owners of the Bonds
during the period covered by this Agreement (collectively, the ‘‘Bondholders’’).
F. [In the case of a closing agreement
entered into under section 3.01(1) of
Rev. Proc. 97–15, provide as follows:
The first date on which the Bonds may
be redeemed, under the terms of the
bond documents for the Bonds after the
date of this Agreement, is
(the ‘‘Next Redemption Date’’).]
[Insert additional premises on which
this Agreement is based, including a
description of the subsequent action
causing the Bonds to fail to meet a
requirement of the Code relating to use
of proceeds. Specifically identify that
requirement of the Code.]
NOW IT IS HEREBY DETERMINED
AND AGREED PURSUANT TO THIS
AGREEMENT EXECUTED BY THE
PARTIES HERETO UNDER SECTION
7121 OF THE CODE THAT FOR FEDERAL INCOME TAX PURPOSES:
1. The Issuer shall pay [the amount
computed under section 6 of Rev. Proc.
97–15] to the IRS upon the Issuer’s
execution of this Agreement. Payment of
this amount shall not be made from
proceeds of bonds described in section
103(a) of the Code. Payments of this
amount shall be made by certified check
payable to the ‘‘Internal Revenue Service.’’ Payment must be sent, simultaneously with this Agreement executed
by the Issuer, to Internal Revenue Service, Attention: CP:E:EO, 1111 Constitution Avenue, N.W., Washington, D.C.
20224.
2. [In the case of a closing agreement
entered into under section 3.01(1) of
Rev. Proc. 97–15, provide as follows:
The Bondholders are not required to
include in their gross incomes any interest accrued on the Bonds from the Issue
Date to the Next Redemption Date be-
cause of the violations set forth herein.]
[In the case of a closing agreement
entered into under section 3.01(2) of
Rev. Proc. 97–15, provide as follows:
The Bondholders are not required to
treat interest accrued on the Bonds from
[the date of the subsequent action] to [a
specified date] as an item of tax preference for purposes of the alternative
minimum tax, because of the violations
set forth herein.]
3. [In the case of a closing agreement
entered into under section 3.01(1) of
Rev. Proc. 97–15, provide as follows:
Within 30 days after the date this Agreement is executed by the IRS, the Issuer
must notify all Bondholders in writing
that the Bonds will be redeemed on the
Next Redemption Date and that, in the
event that the Issuer fails to redeem the
Bonds, the Bonds will be treated as
private activity bonds that are not qualified bonds after the Next Redemption
Date.]
4. [In the case of a closing agreement
entered into under section 3.01(1) of
Rev. Proc. 97–15, provide as follows:
The Issuer is required to redeem the
Bonds on the Next Redemption Date.
Further, the Issuer may not redeem the
Bonds from proceeds of bonds described
in section 103(a) of the Code.]
5. Notwithstanding anything to the
contrary contained herein, the IRS may
take any appropriate action with respect
to the Bonds, including taxing the Bondholders on interest earned on the Bonds,
for violations other than those set forth
herein or for violations arising after the
effective date of this Agreement.
6. This Agreement is executed with
respect to a federal income tax liability
of the Bondholders.
7. No income shall be recognized by
any Bondholder as a result of this
Agreement or any payments made pursuant to this Agreement.
8. No party shall endeavor by litigation or other means to attack the validity
of this Agreement.
9. This Agreement may not be cited
or relied upon by any person or entity
whatsoever as precedent in the disposition of any other case.
10. [In the case of a closing agreement entered into under section 3.01(1)
of Rev. Proc. 97–15, provide as follows:
The Issuer shall execute, upon the Issuer’s execution of this Agreement, a
consent meeting the requirements of
section 6103(c) of the Code permitting
the disclosure to the general public of
information concerning this Agreement.
The consent will permit such disclosures
only in the event the Issuer fails to
redeem the Bonds in accordance with
the terms of this Agreement.]
11. [In the case of a closing agreement entered into under section 3.01(1)
of Rev. Proc. 97–15, provide as follows:
In the event that the Bonds are retired
prior to the Next Redemption Date, no
amount paid by the Issuer under paragraph 1 of this Agreement may be
refunded.] [In the case of a closing
agreement entered into under section
3.01(2) of Rev. Proc. 97–15, provide as
follows: In the event that the Bonds are
retired prior to [the date specified in
paragraph 2 of this Agreement], no
amount paid by the Issuer under paragraph 1 of this Agreement may be
refunded.]
12. This Agreement is final and conclusive except that—
a. The matter it relates to may be
reopened in the event of fraud, malfeasance, or misrepresentation of a material
fact;
b. It is subject to the sections of
the Code that expressly provide that
effect be given to their provisions (including any stated exception for section
7122 of the Code) notwithstanding any
other law or rule of law; and
c. It is subject to any law, enacted
after the date of this Agreement, that
applies to a tax period ending after the
date of this Agreement covered by this
Agreement.
By signing, the above parties certify
that they have read and agreed to the
terms of this Agreement.
ISSUER
TIN:
By:
[Name]
Title:
Date:
COMMISSIONER OF INTERNAL
REVENUE
Date:
By:
[Name]
Title:
CONSENT TO DISCLOSE TAX
INFORMATION
I [we] hereby authorize the Internal
Revenue Service (‘‘IRS’’) to make public any returns and return information
(as those terms are defined in section
6103(b) of the Internal Revenue Code)
of [INSERT NAME OF ISSUER] (‘‘the
Issuer’’) relating to the Closing Agreement (‘‘Agreement’’) dated [INSERT
DATE] between the Issuer, [INSERT
NAME OF ANY OTHER PARTY
25
SIGNING THE AGREEMENT] and the
Commissioner of Internal Revenue, concerning [INSERT NAME OF BOND
ISSUE]. The above described information may be disclosed by the IRS to
members of Congress, the press, or the
general public. Such disclosures may be
made only in the event the Issuer fails
to redeem the Bonds in accordance with
the terms of the Agreement.
I [we] am [are] aware that without
this authorization the returns and return
information of [INSERT NAME OF
ISSUER] are confidential and are protected by law under the Internal Revenue Code.
I [we] hereby certify that I [we] have
the authority to execute this consent to
disclose on behalf of the Issuer.
NAME OF ISSUER:
EMPLOYER IDENTIFICATION
NUMBER:
ISSUER’S ADDRESS:
NAME OF INDIVIDUAL
EXECUTING CONSENT:
TITLE:
SIGNATURE:
DATE:
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determination of correct tax liability.
(Also Part I, § 842.)
Rev. Proc. 97–16
SECTION 1. PURPOSE
This revenue procedure provides the
domestic asset/liability percentages and
domestic investment yields needed by
foreign life insurance companies and
foreign property and liability insurance
companies to compute their minimum
effectively connected net investment income under § 842(b) of the Internal
Revenue Code for taxable years beginning after December 31, 1995. Instructions are provided for computing foreign
insurance companies’ liabilities for the
estimated tax and installment payments
of estimated tax for taxable years beginning after December 31, 1995. For more
specific guidance regarding the computation of the amount of net investment
income to be included by a foreign
insurance company on its U.S. income
tax return, see Notice 89–96, 96, 1989–2
C.B. 417. For the domestic asset/liability
percentage and domestic investment
yield, as well as instructions for computing foreign insurance companies’ liabilities for estimated tax and installment
payments of estimated tax for taxable
years beginning after December 31,
1994, see Rev. Proc. 96–23, 1996–1
C.B. 662.
SEC. 2. CHANGES
.01 DOMESTIC ASSET/LIABILITY
PERCENTAGES FOR 1996. The Secretary determines the domestic asset/
liability percentage separately for life
insurance companies and property and
liability insurance companies. For the
first taxable year beginning after December 31, 1995, the relevant domestic
asset/liability percentages are:
114.8 percent for foreign life insurance companies, and
170.2 percent for foreign property and
liability insurance companies.
.02 DOMESTIC
INVESTMENT
YIELDS FOR 1996. The Secretary is
required to prescribe separate domestic
investment yields for foreign life insurance companies and for foreign property
and liability insurance companies. For
the first taxable year beginning after
December 31, 1995, the relevant domestic investment yields are:
7.1 percent for foreign life insurance
companies, and
5.7 percent for foreign property and
liability insurance companies.
The domestic investment yields provided in this revenue procedure are
based on tax return data rather than
NAIC statement data.
SEC. 3. APPLICATION —
ESTIMATED TAXES
To compute estimated tax and the
installment payments of estimated tax
due for taxable years beginning after
December 31, 1995, a foreign insurance
company must compute its estimated tax
payments by adding to its income other
than net investment income the greater
of (i) its net investment income as
determined under § 842(b)(5), that is
actually effectively connected with the
conduct of a trade or business within the
United States for the relevant period, or
(ii) the minimum effectively connected
net investment income under § 842(b)
that would result from using the most
recently available domestic asset/liability
percentage and domestic investment
yield. Thus, for installment payments
due after the release of this revenue
procedure, the domestic asset/liability
percentages and the domestic investment
yields provided in this revenue procedure must be used to compute the
minimum effectively connected net in-
26
vestment income. However, if the due
date of an installment is less than 20
days after the date this revenue procedure is published in the Internal Revenue Bulletin, the asset/liability percentages and domestic investment yields
provided in Rev. Proc. 96–23 may be
used to compute the minimum effectively connected net investment income
for such installment. For further guidance in computing estimated tax, see
Notice 89–96.
SEC. 4. EFFECTIVE DATE
This revenue procedure is effective
for taxable years beginning after December 31, 1995.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Ginny Chung of the Office
of the Associate Chief Counsel (International). For further information regarding this revenue procedure, please contact Ms. Chung at (202) 622–3870 (not
a toll-free call), or write to the Internal
Revenue Service, Office of the Associate Chief Counsel (International), 1111
Constitution Avenue, N.W., Washington,
D.C. 20224, Attention: CC:INTL:Br.5,
Room 4562.
Part IV. Items of General Interest
Foundations Status of Certain
Organizations
Announcement 97–9
The following organizations have
failed to establish or have been unable
to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not,
after this date, rely on previous rulings
or designations in the Cumulative List
of Organizations (Publication 78), or on
the presumption arising from the filing
of notices under section 508(b) of the
Code. This listing does not indicate that
the organizations have lost their status
as organizations described in section
501(c)(3), eligible to receive deductible
contributions.
Former Public Charities. The following organizations (which have been
treated as organizations that are not
private foundations described in section
509(a) of the Code) are now classified
as private foundations:
Alabamians for Quality Education, Inc.,
Birmingham, AL
Alpharetta Youth Football Association
Inc., Alpharetta, GA
American CFIDS Chronic Fatigue and
Immune Dysfunction Syndrome
Association Inc., Bartlett, TN
Americus Literacy Action Inc.,
Americus, GA
Antra Incorporated, Miami, FL
Ark-La-Tex Crisis Pregnancy Center
Inc., Shreveport, LA
Art Judaica Educational Foundation,
Oak Park, MI
Association for the Developmentally
Disabled Inc., Cape Coral, FL
Autism Foundation Inc., Vero Beach, FL
Baton Rouge Therapeutic Riding Center
Inc., Baton Rouge, LA
Berkley County Society for Prevention
of Cruelty to Animals, Moncks
Corner, SC
Bible Themes Inc., Red Bay, AL
Building a Dream Inc., Naples, FL
Bulldog Sports Network Inc.,
Birmingham, AL
Cambridge Jets Youth Track Club
Association, Inc., Cambridge, MA
Camp Alpha Inc., Baton Rouge, LA
Chabad Lubavitch of N. Broward &
Palm Beach Counties Inc., Margate,
FL
Charles Willis Ministries Inc., Lake
Charles, LA
Charlotte Genesis Inc., Charlotte, NC
Charlotte HIV AIDS Network Inc., Port
Charlotte, FL
Charlotte IOTA Chapter CHI ETA PHI
Inc., Charlotte, NC
Cher Ami Home Corporation, New
Orleans, LA
Cher Ami Homes Gretna Louisiana Inc.,
New Orleans, LA
Chestnut Street Mens Club Inc.,
Chattanooga, TN
Christopher D. and Elka P. Norton
Foundation of the Arts, Inc., Hobe
Sound, FL
Clayton County BPN Charitable Trust,
Jonesboro, GA
Cliffdale Area Sports Association,
Fayetteville, NC
Common Claws Inc., Plaquemine, LA
Common Ground, Charlotte, NC
Comp Inc., Baton Rouge, LA
Corporate Health Research Inc.,
Danbury, CT
Counseling Clinic Inc., Miami, FL
Coweta County Foster Parents
Association Inc., Newnan, GA
Day Star Christian Ministries, Inc.,
Salisbury, NC
D’Iberville Pee Wee Football League
Inc., D’Iberville, MS
Emmaus Road Outreach Ministries Inc.,
Pensacola, FL
Every Kid of Palm Beach County
Incorporated, West Palm Beach, FL
Faith Ministries Inc., Dalton, GA
Family Renewal Institute Inc., Naples,
FL
Family Resource Center Communities
Inc., Baton Rouge, LA
Family Shelter Inc., Charlotte, NC
First Heritage, Inc., New York, NY
Flagler County Youth Soccer League
Inc., Palm Coast, FL
Florida Keys Marine Sanctuary Inc.,
Marathon, FL
Floridians for Educational Choice
Foundation Inc., Tallahassee, FL
Fragile X Association of Georgia Inc.,
Marietta, GA
Friends of Fort Clinch Inc., Fernandina
Beach, FL
Friends of Murphy Harpst and Vashti
Inc., Atlanta, GA
Friends of the Animal Shelter, Newport,
TN
Georgia Branch of the Orton Dyslexia
Society Inc., Atlanta, GA
Greater Golden Triangle Crime Stoppers
Inc., Columbus, MS
Greenville Junior Chamber Foundation,
Greenville, SC
Incentive Project Inc., New Orleans, LA
27
Indianapolis F I R E Rally Inc.,
Indianapolis, IN
Institute for Southern Culture Inc.,
Atlanta, GA
Interfaith Volunteer Caregiver of
Northeast Georgia Inc., Gainesville,
GA
International Medical Institute Atlanta
Inc., Atlanta, GA
Islamic Society of Triad, Winston
Salem, NC
Isle Piquant Sugar Foundation, Lydia,
LA
Joyland-Highpoint Community Coalition
Inc., Atlanta, GA
Kenwood Place II, Inc., Indianapolis, IN
Laser Documentation, New Orleans, LA
Leadership Monroe Inc., Amory, MS
Lecanto High School Block and Tackle
Booster Club Inc., Lecanto, FL
Le Conte Woodmanston Foundation
Inc., Hinesville, GA
Louisiana the Beautiful Inc., Baton
Rouge, LA
Manatee AIDS Prevention & Support
Inc., Bradenton, FL
Majorie Bingham Foundation Inc.,
Gainesville, FL
Metropolitan Chorale of Miami, Miami,
FL
Miami Artistic Gymnastics Inc., Miami,
FL
Mission Marti: A Cuban National
Renaissance Inc., Miami, FL
MountainMovers, Inc., Glassboro, NJ
National Association of Black Narcotics
Agents, Inc., Detroit, MI
NBC USA Housing INC Eighteen,
Newark, OH
NBC-USA Housing INC Twenty Five,
Newark, OH
Neighborhood Action United Tenants
Association Inc., Fort Walton Beach,
FL
New Orleans Pro Bono Project, New
Orleans, LA
New Orleans Symphony Chamber
Orchestra Society, New Orleans, LA
North Carolina Desert Storm Memorial
Foundation Inc., Charlotte, NC
Northshore High School Band Boosters
Incorporated, Slidell, LA
Northwest Viking Softball Boosters of
Guilford County North Carolina,
Greensboro, NC
Oak Grove Athletic Booster Club Inc.,
Hattiesburg, MS
Ohio Valley Dive Team Inc., Wheeling,
WV
Oops Inc. Our Own Place Inc., Battle
Creek, MI
1997–5
I.R.B.
Orange Mound Development
Corporation, Memphis, TN
Palmetto Lacross Inc., Miami, FL
Pan American Coalition of Welding
Institutions PACWI Inc., Miami, FL
Parent Teen Resource Foundation Inc.,
Tallahassee, FL
Past Commanders Club, Allen Park, MI
Potluck Inc., Little Rock, AR
Pregnancy Helpline of St. Joseph,
Sturgis, MI
Project M A G I C Foundation Inc.,
Atlanta, GA
Pungo Basin Improvement Association
Inc., Belhaven, NC
River Region Recovery Residences Inc.,
New Orleans, LA
Road to Life Ministry, Cleveland, OH
Rock Radio Group, Durham, NC
Ruah, Inc., Manchester, NH
Rugby Public Library and Community
Center, Rugby, TN
1997–5
I.R.B.
St. Peters Centers for Comprehensive
Services Inc., Winston Salem, NC
Sahara Fund Inc., Miami Beach, FL
Second Chance Inc., Mena, AR
Sherman Michael Anderson Trust Inc.,
Hickory, NC
Signal Mountain Youth Basketball
League Inc., Signal Mountain, TN
South Atlanta Civic League II Inc.,
Atlanta, GA
South Florida Affordable Housing
Corporation, West Palm Beach, FL
STBI Corp., Orlando, FL
Submarine Officers Wives Club of
Charleston Inc., Charleston, SC
Subsahara Relief Organization,
N. Kingstown, RI
Tau Alpha Chi Inc., Atlanta, GA
Tax Clinics Inc., Athens, GA
Telephone History Institute, Dublin, CA
28
Washington & Madison County Casa
Inc., Fayetteville, AR
Washington County Actors Community,
Salem, IN
Yo
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