Bulletin No. 1997–46
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Internal Revenue
bulletin
Bulletin No. 1997–46
November 17, 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. 97–46, page 00.
Insurance companies; segregated asset accounts. A
life insurance company is not prohibited from transferring
assets other than cash from its general asset account to a
segregated asset account for qualified pension plans. Rev.
Rul. 73–67 revoked.
EMPLOYEE PLANS
Rev. Rul. 97–45, page 00.
Covered compensation tables; 1998. The covered compensation tables for the 1998 calendar year for determining
contributions to defined benefit plans and permitted disparity are set forth.
EXEMPT ORGANIZATIONS
Announcement 97–112, page 00.
A list is provided of organizations now classified as private
foundations.
ADMINISTRATIVE
Notice 97–60, page 00.
Education incentives; credits; interest deduction; individual retirement accounts. Questions and answers are
Finding Lists begin on page 00.
Department of the Treasury
Internal Revenue Service
provided about the Hope Scholarship and Lifetime Learning
Credits, the deduction for student loan interest, Education Individual Retirement Accounts, and other higher education
tax incentives recently enacted by the Taxpayer Relief Act of
1997.
Rev. Proc. 97–52, page 00.
Charitable contributions; business expenses. Guidance is provided on the deductibility, under sections 162
or 170 of the Code, of unreimbursed travel and other outof-pocket expenses incurred by a member of a federal advisory committee while performing services without compensation for the federal government as a member of that
committee.
Announcement 97–113, page 00.
The 1996 Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign
Gifts, is now available for downloading from the IRS home
page.
Announcement 97–114, page 00.
New Form 8023, Election Under Section 338 for Corporations Making Qualified Stock Purchases, will replace Form
8023–A, Corporate Qualified Stock Purchases.
Mission of the Service
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, efficiency, and fairness.
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-
Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
2
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumulative Bulletins.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin of the
succeeding quarterly and semiannual period, respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
3
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 72.—Annuities; Certain
Proceeds of Endowment and
Life Insurance Contracts
Section 401.—Qualified
Pension, Profit-Sharing, And
Stock Bonus Plans
Does the 10 percent additional tax on early withdrawals from individual retirement accounts apply
to early withdrawals used to pay qualified higher education expenses. See Notice 97–60, page 00.
26 CFR 1.401(l)-1: Permitted disparity with
respect to employer-provided contributions or
benefits.
Section 127.—Educational
Assistance Programs
What conditions apply to the extension of taxfree treatment of employer-provided educational assistance under the Taxpayer Relief Act of 1997. See
Notice 97–60, page 00.
Section 170.—Charitable, Etc.,
Contributions and Gifts
26 CFR 1.170A–1: Charitable, etc., contributions
and gifts; allowance of deduction.
What are the rules for the deductibility, under
§ 162 or 170, of unreimbursed travel and other outof-pocket expenses incurred by a member of a federal advisory committee while performing services
without compensation for the federal government as
a member of that committee. See Rev. Proc. 97–52,
page 00.
Section 221.—Interest on
Education Loans
What are the rules for deducting interest on education loans under section 221, added by the Taxpayer Relief Act of 1997. See Notice 97–60,
page 00.
Covered compensation tables; 1998.
The covered compensation tables for the
1998 calendar year for determining contributions to defined benefit plans and
permitted disparity are set forth.
Rev. Rul. 97–45
This revenue ruling provides tables of
covered compensation under § 401(l)(5)(E) of the Internal Revenue Code (the
“Code”) and the Income Tax Regulations,
thereunder, for the 1998 plan year.
Section 401(l)(5)(E)(i) defines covered
compensation with respect to an employee, as the average of the contribution
and benefit bases in effect under § 230 of
the Social Security Act (the “Act”) for
each year in the 35-year period ending
with the year in which the employee attains social security retirement age.
Section 401(l)(5)(E)(ii) of the Code
states that the determination for any year
preceding the year in which the employee
attains social security retirement age shall
be made by assuming that there is no increase in covered compensation after the
determination year and before the employee attains social security retirement
age.
Section 1.401(l)–1(c)(34) of the regulations defines the taxable wage base as the
contribution and benefit base under § 230
of the Act.
Section 1.401(l)–1(c)(7)(i) defines covered compensation for an employee as the
average (without indexing) of the taxable
wage bases in effect for each calendar
year during the 35-year period ending
with the last day of the calendar year in
which the employee attains (or will attain)
social security retirement age. A 35-year
period is used for all individuals regardless of the year of birth of the individual.
In determining an employee’s covered
compensation for a plan year, the taxable
wage base for all calendar years beginning after the first day of the plan year is
assumed to be the same as the taxable
wage base in effect as of the beginning of
the plan year. An employee’s covered
compensation for a plan year beginning
after the 35-year period applicable under
§ 1.401(l)–1(c)(7)(i) is the employee’s
covered compensation for a plan year during which the 35-year period ends. An
employee’s covered compensation for a
plan year beginning before the 35-year
period applicable under this § 1.401(l)–
1(c)(7)(i) is the taxable wage base in effect as of the beginning of the plan year.
Section 1.401(l)–1(c)(7)(ii) provides
that, for purposes of determining the
amount of an employee’s covered compensation under section 1.401(l)–1(c)(7)(i), a plan may use tables, provided by
the Commissioner, that are developed by
rounding the actual amounts of covered
compensation for different years of birth.
For purposes of determining covered
compensation for the 1998 year the taxable wage base is $68,400.
The following tables provide covered
compensation for 1998:
1998 Covered Compensation Table
Calendar
Year of
Birth
Calendar Year of
Social Security
Retirement Age
1998 Covered
Compensation
1907
1972
$4,488
1908
1973
4,704
1909
1974
5,004
1910
1975
5,316
1911
1976
5,664
1912
1977
6,060
November 17, 1997
4
1997–46 I.R.B.
1998 Covered Compensation Table—Continued
Calendar
Year of
Birth
Calendar Year of
Social Security
Retirement Age
1998 Covered
Compensation
1913
1978
6,480
1914
1979
7,044
1915
1980
7,692
1916
1981
8,460
1917
1982
9,300
1918
1983
10,236
1919
1984
11,232
1920
1985
12,276
1921
1986
13,368
1922
1987
14,520
1923
1988
15,708
1924
1989
16,968
1925
1990
18,312
1926
1991
19,728
1927
1992
21,192
1928
1993
22,716
1929
1994
24,312
1930
1995
25,920
1931
1996
27,576
1932
1997
29,304
1933
1998
31,128
1934
1999
32,940
1935
2000
34,752
1936
2001
36,528
1937
2002
38,292
1938
2004
41,748
1939
2005
43,488
1940
2006
45,216
1941
2007
46,908
1942
2008
48,552
1943
2009
50,136
1944
2010
51,684
1945
2011
53,208
1946
2012
54,684
1947
2013
56,136
1948
2014
57,432
1949
2015
58,644
1950
2016
59,760
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November 17, 1997
1997–46 I.R.B.
1998 Covered Compensation Table—Continued
Calendar
Year of
Birth
Calendar Year of
Social Security
Retirement Age
1998 Covered
Compensation
1951
2017
60,780
1952
2018
61,716
1953
2019
62,592
1954
2020
63,420
1955
2022
64,872
1956
2023
65,544
1957
2024
66,120
1958
2025
66,612
1959
2026
67,044
1960
2027
67,404
1961
2028
67,716
1962
2029
67,944
1963
2030
68,148
1964
2031
68,304
1965 or later
2032
68,400
1998 Rounded Covered Compensation Table
Year of Birth
Covered Compensation
1933
$30,000
1934
33,000
1935 – 1936
36,000
1937
39,000
1938 – 1939
42,000
1940
45,000
1941 – 1942
48,000
1943 – 1944
51,000
1945 – 1946
54,000
1947 – 1948
57,000
1949 – 1951
60,000
1952 – 1954
63,000
1955 – 1959
66,000
1960 or later
68,400
November 17, 1997
6
1997–46 I.R.B.
Drafting Information
The principal author of this revenue
ruling is Donna Prestia of the Employee
Plans Division. For further information
regarding this notice, call (202) 622-6076
between 2:30 and 3:30 Eastern time (not a
toll free number) Monday thru Thursday.
Ms. Prestia’s number is (202) 622-7377
(also not a toll free number).
Section 529.—Qualified State
Tuition Programs
How have the rules for qualified state tuition programs been changed by the Taxpayer Relief Act of
1997. See Notice 97–60, page 00.
Section 530.—Education
Individual Retirement
Accounts
What are the rules for education individual retirement accounts, as enacted by the Taxpayer Relief
Act of 1997. See Notice 97–60, page 00.
1997–46 I.R.B.
Section 817.—Treatment of
Variable Contracts
26 CFR 1.801–8: Contracts with reserves based on
segregated asset accounts.
A life insurance company is not prohibited from
transferring assets other than cash from its general
asset account to a segregated asset account for qualified pension plans. Rev. Rul. 73–67 is revoked. See
Rev. Rul. 97–46, page 00.
Insurance companies; segregated
asset accounts. A life insurance company
is not prohibited from transferring assets
other than cash from its general asset account to a segregated asset account for
qualified pension plans. Rev. Rul. 73–67
revoked.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 73–67 is revoked.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Campbell Connell of the Office
of the Assistant Chief Counsel (Financial
Institutions & Products). For further information regarding this revenue ruling
contact Mr. Connell on (202) 622-3970
(not a toll free call).
Rev. Rul. 97–46
Rev. Rul. 73–67, 1973–1 C.B. 330,
held that asset transfers between a life insurance company’s general asset account
and its segregated asset account for qualified pension plans may be made only in
cash. Rev. Rul. 73–67 is hereby revoked.
7
November 17, 1997
Part III. Administrative, Procedural, and Miscellaneous
Education Tax Incentives
Notice 97–60
PURPOSE
The questions and answers contained in
this notice provide guidance on the higher
education tax incentives recently enacted
by the Taxpayer Relief Act of 1997 (Pub.
L. No. 105–34, 111 Stat. 788) (TRA ‘97).
Specifically, TRA ‘97 added § 25A of the
Internal Revenue Code providing the
Hope Scholarship Credit and Lifetime
Learning Credit, § 221 providing a deduction for student loan interest, and § 530
creating Education Individual Retirement
Accounts (“Education IRAs”). TRA ‘97
also amended § 72(t) eliminating the early
withdrawal tax on certain IRA withdrawals, § 127 providing an exclusion
from income for employer-provided educational assistance, and § 529 setting the
requirements for tax-exempt status for
qualified state tuition programs (QSTPs).
These provisions create several new tax
benefits for families who are saving for, or
already paying, higher education costs or
are repaying student loans. In addition,
TRA ‘97 extends the exclusion for employer-provided educational assistance
and makes the rules for qualified state tuition programs more flexible. The following discussion reviews in greater detail the
requirements for each of these benefits.
Whether a taxpayer may take advantage of
these benefits depends on the taxpayer’s
individual facts and circumstances.
DISCUSSION
SECTION 1. THE HOPE
SCHOLARSHIP CREDIT
Beginning January 1, 1998, taxpayers
may be eligible to claim a nonrefundable
Hope Scholarship Credit against their federal income taxes. The Hope Scholarship
Credit may be claimed for the qualified
tuition and related expenses of each student in the taxpayer’s family (i.e., the taxpayer, the taxpayer’s spouse, or an eligible dependent) who is enrolled at least
half-time in one of the first two years of
postsecondary education and who is enrolled in a program leading to a degree,
certificate, or other recognized educa-
November 17, 1997
tional credential. The amount that may be
claimed as a credit is generally equal to:
(1) 100 percent of the first $1,000 of the
taxpayer’s out-of-pocket expenses for
each student’s qualified tuition and related expenses, plus (2) 50 percent of the
next $1,000 of the taxpayer’s out-ofpocket expenses for each student’s qualified tuition and related expenses. Thus,
the maximum credit a taxpayer may claim
for a taxable year is $1,500 multiplied by
the number of students in the family who
meet the enrollment criteria described
above.
The amount a taxpayer may claim as a
Hope Scholarship Credit is gradually reduced for taxpayers who have modified
adjusted gross income between $40,000
($80,000 for married taxpayers filing
jointly) and $50,000 ($100,000 for married taxpayers filing jointly). Taxpayers
with modified adjusted gross income over
$50,000 ($100,000 for married taxpayers
filing jointly) may not claim the Hope
Scholarship Credit. Both the dollar limitation on the expenses for which the credit
may be claimed and the modified adjusted
gross income limitation will be indexed
for inflation in 2002 and years thereafter.
The Hope Scholarship Credit may be
claimed for payments of qualified tuition
and related expenses made on or after
January 1, 1998, for academic periods beginning on or after January 1, 1998.
Therefore, the first time taxpayers will be
able to claim the credit is when they file
their 1998 tax returns in 1999. The Hope
Scholarship Credit is not available for any
amount paid in 1997.
Q1: Who may claim the Hope Scholarship Credit?
A1: An individual paying qualified tuition and related expenses at a postsecondary educational institution
may claim the credit, provided the
student whose expenses are being
paid and the institution meet certain
eligibility requirements.
Q2: May an individual claim a Hope
Scholarship Credit for paying qualified tuition and related expenses for
other family members?
A2: Yes. An individual may claim the
credit for his/her own qualified tuition and related expenses and the
qualified tuition and related ex-
8
penses of his/her spouse and other
eligible dependents (including children) for whom the dependency exemption is claimed. Generally, a
parent may claim the dependency
exemption for his/her unmarried
child if: (1) the parent supplies more
than half the child’s support for the
taxable year, and (2) the child is
under age 19 or is a full-time student
under age 24.
Q3: What are the eligibility requirements
for the student?
A3: A student is eligible for the Hope
Scholarship Credit if: (1) for at least
one academic period (e.g., semester,
trimester, quarter) beginning during
the calendar year, the student is enrolled at least half-time in a program
leading to a degree, certificate, or
other recognized educational credential and is enrolled in one of the first
two years of postsecondary education, and (2) the student is free of
any conviction for a Federal or State
felony offense consisting of the possession or distribution of a controlled
substance. For purposes of the Hope
Scholarship Credit, a student will be
considered to be enrolled at least
half-time if the student is enrolled
for at least half the full-time academic workload for the course of study
the student is pursuing as determined
under the standards of the institution
where the student is enrolled. The
institution’s standard for a full- time
workload must equal or exceed the
standards established by the Department of Education under the Higher
Education Act and set forth in 34
C.F.R. § 674.2(b).
Q4: What are the eligibility requirements
for the institution?
A4: The college, university, vocational
school, or other postsecondary educational institution where the student
is enrolled must be an institution that
is described in section 481 of the
Higher Education Act of 1965 (20
U.S.C. 1088) and, therefore, eligible
to participate in the student aid programs administered by the Department of Education. This category includes virtually all accredited public,
nonprofit, and proprietary postsec-
1997–46 I.R.B.
ondary institutions. (The same eligibility requirements for institutions
apply for the Lifetime Learning
Credit, described in the next section.)
Q5: The Hope Scholarship Credit may be
claimed only for amounts spent on
“qualified tuition and related expenses.” Which expenses are included in qualified tuition and related expenses?
A5: The term “qualified tuition and related expenses” means the tuition
and fees an individual is required to
pay in order to be enrolled at or attend an eligible institution. Amounts
paid for any course or other education involving sports, games, or hobbies are not eligible for the credit,
unless the course or other education
is part of the student’s degree program. Charges and fees associated
with room, board, student activities,
athletics, insurance, books, equipment, transportation, and similar personal, living, or family expenses are
not qualified tuition or related expenses. (The same definition of
“qualified tuition and related expenses” applies for the Lifetime
Learning Credit, described in the
next section.)
Q6: The Hope Scholarship Credit is
available only if a taxpayer’s “modified adjusted gross income” is below
a specified amount. How does a taxpayer know what his/her modified
adjusted gross income is?
A6: For most taxpayers, modified adjusted gross income is the same as
adjusted gross income. Taxpayers
compute adjusted gross income as
part of completing a Federal income
tax return. For those few taxpayers
who earn income abroad or receive
income from certain American territories or possessions, modified adjusted gross income will be greater
than adjusted gross income. In those
cases, the individual’s adjusted gross
income will be increased by: (1) certain amounts that the individual
earns abroad, (2) amounts effectively
connected with the individual’s conduct of a trade or business or derived
from sources in Guam, American
Samoa, or the Northern Mariana Islands (if the individual is a resident
1997–46 I.R.B.
of the possession where the source of
the income is located), and (3)
amounts derived from sources in
Puerto Rico (if the individual is a
Puerto Rican resident). (The same
rules apply for the Lifetime Learning
Credit, described in the next section.)
Q7: May a nonresident alien claim the
Hope Scholarship Credit?
A7: Generally no. There is an exception
for certain nonresident aliens who
are married to U.S. citizens or resident aliens. Nonresident aliens
should consult a U.S. tax advisor to
determine whether the exception applies to them. (The same rules apply
to the Lifetime Learning Credit, described in the next section.)
Q8: Are qualified tuition and related expenses for graduate-level degree
work eligible for the Hope Scholarship Credit?
A8: No. However, the Lifetime Learning
Credit is available for these expenses. (See Sec. 2, Q&A5.)
Q9: May an individual claim a Hope
Scholarship Credit for more than one
family member?
A9: Yes. Furthermore, the credit is calculated on a per student, rather than
a per family, basis. For example, if
an individual whose modified adjusted gross income is $35,000 pays
over $2,000 in qualified tuition and
related expenses for himself and
over $2,000 in qualified tuition and
related expenses for his dependent
child, and both he and his dependent
child meet the eligibility requirements, the individual may claim a
Hope Scholarship Credit of $3,000
(i.e., a credit of $1,500 for his expenses plus a credit of $1,500 for his
child’s expenses).
Q10: May both the parent and a dependent child claim the Hope Scholarship Credit for the child’s qualified
tuition and related expenses in the
same year?
A10: No. Either the parent or the child,
but not both, may claim the credit
for the child’s expenses in a particular year. If an individual claims
the child as a dependent on his/her
Federal income tax return for the
year, only the individual may claim
the Hope Scholarship Credit for the
child’s qualified tuition and related
9
expenses. If no one claims the
child as a dependent on a Federal
income tax return for the year, only
the child may claim the Hope
Scholarship Credit for the child’s
expenses. (The same rules relating
to individuals and dependents apply
for the Lifetime Learning Credit,
described in the next section.)
Q11: If a married taxpayer files a separate return, may the taxpayer claim
a Hope Scholarship Credit on
his/her income tax return?
A11: No. Married taxpayers may claim
the credit only if the taxpayer and
the taxpayer’s spouse file a joint return for the taxable year. (The same
rules apply for the Lifetime Learning Credit, described in the next
section.)
Q12: How does a parent claim a Hope
Scholarship Credit for the qualified
tuition and related expenses of a dependent child?
A12: The parent may claim the credit on
his/her tax return even if the child
files his/her own tax return. When
a child is claimed as a dependent on
a parent’s return, any qualified tuition or related expenses paid by the
child during the year are treated as
if the parent had paid them. Therefore, these expenses are included in
calculating the parent’s Hope
Scholarship Credit. A child may
not claim a Hope Scholarship
Credit on his/her tax return for a
particular year if the child’s parent
claims the child as a dependent in
that same year. (The same rules
apply for the Lifetime Learning
Credit, described in the next section.)
Q13: What is the maximum Hope Scholarship Credit a taxpayer may claim
for an eligible student?
A13: Until 2002 (when the dollar limitations are indexed for inflation), for
each student who meets the eligibility requirements, the credit amount
is 100 percent of the first $1,000 of
the taxpayer’s out-of-pocket expenses for qualified tuition and related expenses, plus 50 percent of
the next $1,000 of the taxpayer’s
out-of-pocket expenses for qualified tuition and related expenses.
Therefore, the maximum credit
November 17, 1997
amount for the expenses of an eligible student is $1,500. If the taxpayer is claiming a credit for more
than one person, the credit amount
for each student in the taxpayer’s
family is added together to determine the maximum total credit the
taxpayer may claim.
Q14: The amount a taxpayer may claim
as a Hope Scholarship Credit is
gradually reduced for taxpayers
with modified adjusted gross income between $40,000 and
$50,000 (between $80,000 and
$100,000 for married taxpayers filing jointly). How does this reduction work?
A14: The reduction works on a sliding
scale that reflects where the taxpayer’s modified adjusted gross income is in the phase-out range. For
example, until 2002 (when the dollar limitations on the credit and the
income ranges are indexed for inflation), if an eligible student (who
is not anyone’s dependent for tax
purposes) pays $2,000 or more in
qualified tuition and related expenses in a particular year, and the
student’s modified adjusted gross
income for the year is $45,000 (half
way along the $10,000 phase-out
range), the credit amount for the
student is limited to $750. By contrast, if the same student’s modified
adjusted gross income was
$35,000, the credit amount for the
student would be the maximum
$1,500.
Q15: How does a taxpayer claim the
Hope Scholarship Credit?
A15: The first year that the credit will be
available is 1998. Thus, taxpayers
will not be able to claim the credit
until they file their 1998 tax returns
in 1999. Instructions accompanying
the 1998 tax forms (for returns required to be filed in 1999) will explain how to calculate the credit and
how to claim it on the tax return.
Q16: Is there a limit to the number of
times a taxpayer may claim the
Hope Scholarship Credit for each
student?
A16: Yes. The credit may be claimed in
no more than two years for each
student. Thus, for example, a couple with a child who starts as a
November 17, 1997
freshman in the fall of 1998, continues as a sophomore in 1999, and
meets the eligibility requirements
may claim the credit for their
child’s expenses in 1998 and again
in 1999. After 1999, neither the
parents, the student, nor anyone
else may claim any additional Hope
Scholarship Credits for this student’s qualified tuition and related
expenses. However, in 2000 and
thereafter, the Lifetime Learning
Credit may be available for this
child’s expenses. Furthermore, if
the couple has another child who
starts as a freshman in the fall of
1999, the couple may claim the
Hope Scholarship Credit for that
child’s expenses in 1999 and one
additional year.
Q17: May an individual claim both the
Hope Scholarship Credit and the
Lifetime Learning Credit for a student’s expenses in a single taxable
year?
A17: No. For each year in which a student meets the eligibility requirements for the Hope Scholarship
Credit, the student’s expenses may
be used as the basis for a Hope
Scholarship Credit or a Lifetime
Learning Credit, but not both. If,
for example, an eligible student
pays more than $2,000 in qualified
tuition and related expenses during
the calendar year, the student (or the
individual claiming the student as a
dependent) may not claim the Hope
Scholarship Credit for the first
$2,000 of expenses and the Lifetime
Learning Credit for the rest.
Q18: If a couple has two children, one
who is a freshman and one who is a
junior, may the couple claim a
Hope Scholarship Credit for the
freshman’s expenses and a Lifetime
Learning Credit for the junior’s expenses?
A18: Yes. Assuming the applicable eligibility requirements have been met
for each credit, a taxpayer may
claim the Hope Scholarship Credit
for one student’s expenses and the
Lifetime Learning Credit for another student’s expenses in the
same year.
Q19: May a parent or student claim a
Hope Scholarship Credit for tuition
10
paid in advance of when the academic period begins?
A19: Generally, the credit is available
only for payments of qualified tuition and related expenses that
cover an academic period beginning in the same calendar year as
the payment is made. (An academic period begins on the first day
of classes, and does not include periods of orientation, counseling, or
vacation.) An exception, however,
allows a parent or student to claim a
Hope Scholarship Credit for payments of qualified tuition and related expenses made during the calendar year to cover an academic
period that begins in January, February, or March of the following
taxable year. Because the Hope
Scholarship Credit does not apply
to expenses paid before January 1,
1998, this exception does not apply
to tuition paid in 1997 to cover academic periods beginning in 1998.
Q20: If a student (who is not claimed as a
dependent on anyone’s Federal income tax return) pays qualified tuition and related expenses using a
combination of a Pell Grant, a loan,
a gift from a family member, and
some personal savings, what expenses may be taken into account in
calculating the Hope Scholarship
Credit the student may claim?
A20: The student may take into account
only “out-of-pocket” expenses in
calculating the credit. Qualified tuition and related expenses paid with
the student’s earnings, a loan, a gift,
an inheritance, or personal savings
(including savings from a qualified
state tuition program) are taken into
account in calculating the credit
amount. However, qualified tuition
and related expenses paid with a
Pell Grant or other tax-free scholarship, a tax-free distribution from an
Education IRA, or tax-free employer-provided educational assistance are not taken into account in
calculating the credit amount. (The
same rules apply for the Lifetime
Learning Credit, described in the
next section.)
Q21: May a student’s parents claim the
Hope Scholarship Credit for the
student’s expenses for a taxable
1997–46 I.R.B.
year in which the student takes
money out of an Education IRA on
a tax-free basis?
A21: No. If a student is receiving a taxfree distribution from an Education
IRA in a particular taxable year,
none of that student’s expenses may
be claimed as the basis for a Hope
Scholarship Credit for that taxable
year. However, the student may
waive the tax-free treatment of the
Education IRA distribution and
elect to pay any tax that would otherwise be owed on the Education
IRA distributions received in any
taxable year so that the student or
the student’s parents may claim a
Hope Scholarship Credit for expenses paid in the same year the Education IRA distributions are received.
SECTION 2. LIFETIME LEARNING
CREDIT
Beginning on July 1, 1998, taxpayers
may be eligible to claim a nonrefundable
Lifetime Learning Credit against their
federal income taxes. The Lifetime
Learning Credit may be claimed for the
qualified tuition and related expenses of
the students in the taxpayer’s family (i.e.,
the taxpayer, the taxpayer’s spouse, or an
eligible dependent) who are enrolled in
eligible educational institutions. Through
2002, the amount that may be claimed as
a credit is equal to 20 percent of the taxpayer’s first $5,000 of out-of-pocket qualified tuition and related expenses for all
the students in the family. After 2002, the
credit amount is equal to 20 percent of the
taxpayer’s first $10,000 of out-of-pocket
qualified tuition and related expenses.
Thus, the maximum credit a taxpayer may
claim for a taxable year is $1,000 through
2002 and $2,000 thereafter. These
amounts are not indexed for inflation.
If the taxpayer is claiming a Hope
Scholarship Credit for a particular student,
none of that student’s expenses for that
year may be applied toward the Lifetime
Learning Credit. The amount a taxpayer
may claim as a Lifetime Learning Credit is
gradually reduced for taxpayers who have
modified adjusted gross income between
$40,000 ($80,000 for married taxpayers
filing jointly) and $50,000 ($100,000 for
married taxpayers filing jointly). Taxpayers with modified adjusted gross income
1997–46 I.R.B.
over $50,000 ($100,000 for married taxpayers filing jointly) may not claim a Lifetime Learning Credit. The modified adjusted gross income limitation will be
indexed for inflation in 2002 and years
thereafter. The definition of modified adjusted gross income is the same as it is for
purposes of the Hope Scholarship Credit.
(See Sec. 1, Q&A6.)
The Lifetime Learning Credit may be
claimed for payments of qualified tuition
and related expenses made on or after
July 1, 1998, for academic periods beginning on or after July 1, 1998. Therefore,
the first time taxpayers will be able to
claim the credit will be when they file
their 1998 tax returns in 1999. The Lifetime Learning Credit is not available for
any amount paid in 1997.
Q1: Who may claim the Lifetime Learning Credit?
A1: An individual paying qualified tuition and related expenses at a postsecondary educational institution
may claim the credit, provided the
institution is an eligible educational
institution. Unlike the Hope Scholarship Credit, students are not required to be enrolled at least halftime in one of the first two years of
postsecondary education. Nonresident aliens generally are not eligible
to claim the Lifetime Learning
Credit. (See Sec. 1, Q&A7.)
Q2: May an individual claim a Lifetime
Learning Credit for paying qualified
tuition and related expenses for other
family members?
A2: Yes. An individual may claim the
credit for his/her own qualified tuition and related expenses and the
qualified tuition and related expenses of his/her spouse and other
eligible dependents (including children) for whom the dependency exemption is allowed. Generally, a
parent may claim the dependency
exemption for his/her unmarried
child if: (1) the parent supplies more
than half the child’s support for the
taxable year, and (2) the child is
under age 19 or is a full-time student
under age 24.
Q3: What are the eligibility requirements
for the institution?
A3: They are the same requirements that
apply for the Hope Scholarship
Credit. (See Sec. 1, Q&A4.)
11
Q4: Is the Lifetime Learning Credit
available for a student taking only
one course?
A4: Yes. For example, a student who has
just graduated from high school and is
taking a single course at a community
college may claim the Lifetime Learning Credit if the student comes within
the income limits and is not claimed as
a dependent by someone else.
Q5: Are qualified tuition and related expenses for graduate- level education
eligible for the Lifetime Learning
Credit?
A5: Yes.
Q6: May an individual claim a Lifetime
Learning Credit for more than one
family member?
A6: Yes. However, unlike the Hope
Scholarship Credit, the Lifetime
Learning Credit is calculated on a
per family, rather than a per student,
basis. Therefore, the maximum
available credit does not vary with
the number of students in the family.
For example, if in 1999 a married individual whose modified adjusted
gross income is $35,000 pays $5,000
of qualified tuition and related expenses to attend an eligible educational institution, the individual may
claim a $1,000 Lifetime Learning
Credit. If in the same year the individual also pays another $2,000 in
qualified tuition and related expenses for his spouse to attend an eligible educational institution, the individual’s Lifetime Learning Credit
is still $1,000.
Q7: May both the parent and a dependent
child claim the Lifetime Learning
Credit for the child’s qualified tuition and related expenses in the
same year?
A7: No. Either the parent or the child,
but not both, may claim the credit for
the child’s expenses in a particular
year. If an individual claims the
child as a dependent on his/her Federal income tax return for the year,
only the individual may claim the
Lifetime Learning Credit for the
child’s qualified tuition and related
expenses. If no one claims the child
as a dependent on a Federal income
tax return for the year, only the child
may claim the Lifetime Learning
Credit for the child’s expenses.
November 17, 1997
Q8: How does a parent claim a Lifetime
Learning Credit for the qualified tuition and related expenses of a dependent child?
A8: The parent may claim the credit on
his/her Federal income tax return
even if the child files his/her own tax
return. When a child is claimed as a
dependent on the parent’s return, any
qualified tuition and related expenses paid by the child during the
year are treated as if the parent had
paid them and, therefore, are included in calculating the parent’s
Lifetime Learning Credit. A child
may not claim a Lifetime Learning
Credit on his/her tax return for any
year if the child’s parent claims the
child as a dependent in that same
year. Also, a married taxpayer who
does not file a joint return is not eligible to claim the Lifetime Learning
Credit. (See Sec. 1, Q&A11.)
Q9: What is the maximum Lifetime
Learning Credit a taxpayer may
claim?
A9: The credit is equal to 20 percent of
the taxpayer’s out-of-pocket expenses for qualified tuition and related expenses of all eligible family
members, up to a maximum of
$5,000 in expenses annually through
2002. Thus, the maximum Lifetime
Learning Credit a taxpayer may
claim through 2002 is $1,000. After
2002, the credit is equal to 20 percent of the taxpayer’s out-of-pocket
expenses up to a maximum of
$10,000 in expenses. Thus, the maximum Lifetime Learning Credit a
taxpayer may claim after 2002 is
$2,000. The maximum credit does
not change even if the taxpayer is
claiming a credit for the expenses of
more than one student in the family.
Q10: What does the term “qualified tuition and related expenses” mean
for purposes of the Lifetime Learning Credit?
A10: The term “qualified tuition and related expenses” for purposes of the
Lifetime Learning Credit has the
same meaning as it does for purposes of the Hope Scholarship
Credit. (See Sec. 1, Q&A5.)
Q11: If a student (who is not claimed as a
dependent on anyone’s Federal income tax return) pays qualified tu-
November 17, 1997
ition and related expenses using a
combination of a Pell Grant, a loan,
a gift from a family member, and
some personal savings, what expenses may be taken into account in
calculating the Lifetime Learning
Credit the student may claim?
A11: The student may take into account
only “out-of-pocket” expenses in
calculating the Lifetime Learning
Credit. Qualified tuition and related expenses paid with the student’s earnings, a loan, a gift, an inheritance, or personal savings
(including savings from a qualified
state tuition program) are taken into
account in calculating the credit
amount. However, qualified tuition
and related expenses paid with a
Pell Grant or other tax-free scholarship, a tax-free distribution from an
Education IRA, or tax-free employer-provided educational assistance are not taken into account in
calculating the credit amount.
Q12: How does a taxpayer claim the
Lifetime Learning Credit?
A12: The first year that the credit will be
available is 1998. Taxpayers will
not be able to claim the credit until
they file their 1998 returns in 1999.
Instructions accompanying the
1998 tax forms (for returns required
to be filed in 1999) will explain
how to calculate the credit and how
to claim it on the tax return.
Q13: Is there a limit on the number of
years in which a Lifetime Learning
Credit may be claimed, as there is
for the Hope Scholarship Credit?
A13: No. Unlike the Hope Scholarship
Credit, there is no limit to the number of years in which a Lifetime
Learning Credit may be claimed for
each student. Thus, for example, an
individual who enrolls in one college-level class every year would
be able to claim the Lifetime Learning Credit for an unlimited number
of years, provided the individual
meets the income limits and is taking the classes at institutions that
meet the eligibility requirements.
(See Q&A3 in this section.)
Q14: May a parent or student claim a
Lifetime Learning Credit for tuition
paid in advance of when the academic period begins?
12
A14: Generally, the credit is available
only for payments of qualified tuition and related expenses that
cover an academic period beginning in the same calendar year as
the year in which payment is made.
(An academic period begins on the
first day of classes, and does not include periods of orientation, counseling, or vacation.) An exception,
however, allows a parent or student
to claim a Lifetime Learning Credit
for payments of qualified tuition
and related expenses made during
the calendar year to cover an academic period that begins in January,
February, or March of the following
taxable year. Because the Lifetime
Learning Credit does not apply to
expenses paid before July 1, 1998,
this exception does not apply to tuition paid before that date to cover
academic periods beginning before
or after that date.
Q15: May a student or a student’s parents
take the Lifetime Learning Credit
for the student’s expenses in a taxable year in which the student takes
money out of an Education IRA on
a tax-free basis?
A15: No. If a student is receiving a taxfree distribution from an Education
IRA in a particular taxable year,
none of that student’s expenses may
be claimed as the basis for a Lifetime Learning Credit for that year.
However, the student may waive
the tax-free treatment of the Education IRA distribution and elect to
pay any tax that would otherwise be
owed on the Education IRA distributions so that the student or the student’s parents may claim a Lifetime
Learning Credit for expenses paid
in the same year the Education IRA
distributions are received.
SECTION 3. EDUCATION IRAs
Beginning January 1, 1998, taxpayers
may deposit up to $500 per year into an
Education IRA for a child under age 18.
Parents, grandparents, other family members, friends, and a child him/herself may
contribute to the child’s Education IRA,
provided that the total contributions for
the child during the taxable year do not
exceed the $500 limit. Amounts deposited
in the account grow tax-free until distrib-
1997–46 I.R.B.
uted, and the child will not owe tax on any
withdrawal from the account if the child’s
qualified higher education expenses at an
eligible educational institution for the year
equal or exceed the amount of the withdrawal. If the child does not need the
money for postsecondary education, the
account balance can be rolled over to the
Education IRA of certain family members
who can use it for their higher education.
Amounts withdrawn from an Education
IRA that exceed the child’s qualified
higher education expenses in a taxable
year are generally subject to income tax
and to an additional tax of 10 percent. The
Hope Scholarship Credit and Lifetime
Learning Credit may not be claimed for a
student’s expenses in a taxable year in
which the student takes a tax-free withdrawal from an Education IRA.
Q1: What is an Education IRA?
A1: An Education IRA is a trust or custodial account that is created or organized in the United States exclusively for the purpose of paying the
qualified higher education expenses
of the designated beneficiary of the
account. The account must be designated as an Education IRA when it is
created in order to be treated as an
Education IRA for tax purposes.
Q2: For whom may an Education IRA be
established?
A2: An Education IRA may be established for the benefit of any child
under age 18. Contributions to the
Education IRA will not be accepted
after the designated beneficiary
reaches his/her 18th birthday.
Q3: Where may an individual open an
Education IRA?
A3: An individual may open an Education IRA with any bank, or other entity that has been approved to serve
as a nonbank trustee or custodian of
an individual retirement account
(IRA), and the bank or entity is offering Education IRAs. Other entities that wish to offer Education
IRAs but are not approved to serve
as IRA trustees or custodians may
seek approval by following the same
IRS procedures used for approval of
other IRA nonbank trustees. See
Notice 97–57, 1997–43 I.R.B. 19
(October 27, 1997).
Q4: When may a taxpayer start contributing to an Education IRA for a child?
1997–46 I.R.B.
A4: A taxpayer may start making contributions on January 1, 1998, or at any
time thereafter.
Q5: How much may be contributed to a
child’s Education IRA?
A5: Up to $500 per year in aggregate
contributions may be made for the
benefit of any child. The contributions may be placed in a single Education IRA or in multiple Education
IRAs.
Q6: What happens if more than $500 is
contributed to an Education IRA on
behalf of a child in a calendar year?
A6: Aggregate contributions for the benefit of a particular child in excess of
$500 for a calendar year are treated
as excess contributions. If the excess contributions (and any earnings
attributable to them) are not withdrawn from the child’s account (or
accounts) before the tax return for
the year is due, the excess contributions are subject to a 6 percent excise
tax for each year the excess amount
remains in the account.
Q7: May contributions other than cash be
made to a child’s Education IRA?
A7: No. Education IRAs are permitted
to accept contributions made in cash
only.
Q8: May contributors take a deduction
for contributions made to an Education IRA?
A8: No.
Q9: Are there any restrictions on who
can contribute to an Education IRA?
A9: Any individual may contribute up to
$500 to a child’s Education IRA if
the individual’s modified adjusted
gross income for the taxable year is
no more than $95,000 ($150,000 for
married taxpayers filing jointly).
(See Sec. 1, Q&A6 for a description
of modified adjusted gross income.)
The $500 maximum contribution per
child is gradually reduced for individuals with modified adjusted gross
income between $95,000 and
$110,000 (between $150,000 and
$160,000 for married taxpayers filing jointly). For example, an unmarried taxpayer with modified adjusted
gross income of $96,500 in a taxable
year could make a maximum contribution per child of $450 for that
year. Taxpayers with modified adjusted gross income above $110,000
13
($160,000 for married taxpayers filing jointly) cannot make contributions to anyone’s Education IRA.
Q10: May a child contribute to his/her
own Education IRA?
A10: Yes.
Q11: Does a taxpayer have to be related
to the designated beneficiary in
order to contribute to the designated beneficiary’s Education IRA?
A11: No.
Q12: How many Education IRAs may a
child have?
A12: There is no limit on the number of
Education IRAs that may be established designating a particular child
as beneficiary. However, in any
given taxable year the total aggregate contributions to all the accounts designating a particular
child as beneficiary may not exceed
$500.
Q13: May a designated beneficiary take a
tax-free withdrawal from an Education IRA to pay qualified higher education expenses if the designated
beneficiary is enrolled less than
full-time at an eligible educational
institution?
A13: Yes. Whether the designated beneficiary is enrolled full- time, halftime, or less than half-time, he/she
may take a tax-free withdrawal to
pay qualified higher education expenses.
Q14: What happens when a designated
beneficiary withdraws assets from
an Education IRA to pay for college?
A14: Generally, the withdrawal is taxfree to the designated beneficiary to
the extent the amount of the withdrawal does not exceed the designated beneficiary’s qualified higher
education expenses.
Q15: What are “qualified higher education expenses”?
A15: “Qualified higher education expenses” mean expenses for tuition,
fees, books, supplies, and equipment required for the enrollment or
attendance of the designated beneficiary at an eligible educational institution. Qualified higher education expenses also include amounts
contributed to a qualified state tuition program. Qualified higher education expenses also include room
November 17, 1997
and board (generally the school’s
posted room and board charge, or
$2,500 per year for students living
off-campus and not at home) if the
designated beneficiary is at least a
half-time student at an eligible educational institution. The standards
for determining whether a student
is enrolled at least half-time are the
same as those used for the Hope
Scholarship Credit. (See Sec. 1,
Q&A3.)
Q16: What is an eligible educational institution?
A16: An eligible educational institution
is any college, university, vocational school, or other postsecondary educational institution that
is described in section 481 of the
Higher Education Act of 1965 (20
U.S.C. 1088) and, therefore, eligible to participate in the student aid
programs administered by the Department of Education. This category includes virtually all accredited public, nonprofit, and
proprietary postsecondary institutions. (The same eligibility requirements for institutions apply
for the Hope Scholarship Credit,
the Lifetime Learning Credit, and
early withdrawals from IRAs for
qualified higher education expenses. (See Sec. 1, Q&A4, Sec. 2,
Q&A3, and Sec. 4, Q&A2.))
Q17: What happens if a designated beneficiary withdraws an amount from
an Education IRA but does not have
any qualified higher education expenses to pay in the taxable year
he/she makes the withdrawal?
A17: Generally, if a designated beneficiary withdraws an amount from an
Education IRA and does not have
any qualified higher education expenses during the taxable year, a
portion of the distribution is taxable. The taxable portion is the
portion that represents earnings that
have accumulated tax-free in the
account. The taxable portion of the
distribution is also subject to a 10
percent additional tax unless an exception applies.
Q18: Is a distribution from an Education
IRA taxable if the distribution is
contributed to another Education
IRA?
November 17, 1997
A18: Any amount distributed from an
Education IRA and rolled over to
another Education IRA for the benefit of the same designated beneficiary or certain members of the designated beneficiary’s family is not
taxable. An amount is rolled over if
it is paid to another Education IRA
on a date within 60 days after the
date of the distribution. Members
of the designated beneficiary’s family include the designated beneficiary’s children and their descendants, stepchildren and their
descendants, siblings and their children, parents and grandparents,
stepparents, and spouses of all the
foregoing. The $500 annual contribution limit to Education IRAs
does not apply to these rollover
contributions. For example, an
older brother who has $2,000 left in
his Education IRA after he graduates from college can roll over the
full $2,000 balance to an Education
IRA for his younger sister who is
still in high school without paying
any tax on the transfer.
Q19: What happens to the assets remaining in an Education IRA after the
designated beneficiary finishes
his/her postsecondary education?
A19: There are two options. The amount
remaining in the account may be
withdrawn for the designated beneficiary. The designated beneficiary
will be subject to both income tax
and the additional 10 percent tax on
the portion of the amount withdrawn
that represents earnings if the designated beneficiary does not have any
qualified higher education expenses
in the same taxable year he/she
makes the withdrawal. Alternatively, if the amount in the designated beneficiary’s Education IRA is
withdrawn and rolled over (as described in Q&A18 of this section) to
another Education IRA for the benefit of a member of the designated
beneficiary’s family, the amount
rolled over will not be taxable.
Q20: Rather than rolling over money
from one Education IRA to another,
may the designated beneficiary of
the account be changed from one
child to another without triggering
a tax?
14
A20: Yes, provided: (1) the terms of the
particular trust or custodial account
permit a change in designated beneficiaries (each trustee or custodian
will control whether options like
this one are available in the accounts they offer), and (2) the new
designated beneficiary is a member
of the previous designated beneficiary’s family. (See Q&A18 in this
section).
Q21: May a student or the student’s parents claim the Hope Scholarship
Credit or Lifetime Learning Credit
for the student’s expenses in a taxable year in which the student receives money from an Education
IRA on a tax-free basis?
A21: No. If a student is receiving a taxfree distribution from an Education
IRA in a particular taxable year,
none of that student’s expenses may
be claimed as the basis for a Hope
Scholarship Credit or Lifetime
Learning Credit for that year.
However, the student may waive
the tax-free treatment of the Education IRA distribution and elect to
pay any tax that would otherwise be
owed on an Education IRA distribution so that the student or the student’s parents may claim a Hope
Scholarship Credit or Lifetime
Learning Credit for expenses paid
in the same year the Education IRA
distributions are received.
Q22: May contributions be made to both
a qualified state tuition program
and an Education IRA on behalf of
the same designated beneficiary in
the same taxable year?
A22: No. Any amount contributed to an
Education IRA on behalf of a designated beneficiary during any taxable year in which an amount is
also contributed to a qualified state
tuition program on behalf of the
same beneficiary will be treated as
an excess contribution to the Education IRA. (See Q&A6 in this
section for the treatment of excess
contributions.)
SECTION 4. USING IRA
WITHDRAWALS TO PAY HIGHER
EDUCATION EXPENSES
Beginning January 1, 1998, a taxpayer
may make withdrawals from an individ-
1997–46 I.R.B.
ual retirement account (IRA) to pay the
qualified higher education expenses for
the taxpayer, the taxpayer’s spouse, or the
child or grandchild of the taxpayer or taxpayer’s spouse at an eligible educational
institution. The taxpayer will owe federal
income tax on the amount withdrawn, but
will not be subject to the 10 percent early
withdrawal tax that applies when amounts
are withdrawn from an individual retirement account before the account holder
reaches age 591⁄2.
Q1: When can an individual first make a
withdrawal from an IRA to pay for
qualified higher education expenses
without paying the 10 percent early
withdrawal tax?
A1: On or after January 1, 1998, an individual can make withdrawals from
his/her IRA to pay for qualified
higher education expenses for academic periods beginning on or after January 1, 1998, without paying the 10
percent early withdrawal tax. See
Notice 97–53, 1997–40 I.R.B. 6 (October 6, 1997). The 10 percent early
withdrawal tax does not apply to a
distribution from an IRA to the extent
that the amount of the distribution
does not exceed the qualified higher
education expenses during the taxable
year for the taxpayer, the taxpayer’s
spouse, and the child or grandchild of
the taxpayer or the taxpayer’s spouse
at an eligible educational institution.
For purposes of this rule, the term
“qualified higher education expenses”
means tuition, fees, books, supplies,
and equipment required for the enrollment or attendance of the student at
an eligible educational institution.
Qualified higher education expenses
also include room and board if the
student is enrolled at least half-time.
Qualified higher education expenses
paid with an individual’s earnings, a
loan, a gift, an inheritance given to the
student or the individual making the
withdrawal, or personal savings (including savings from a qualified state
tuition program) are included in determining the amount of the IRA withdrawal which is not subject to the 10
percent early withdrawal tax. Qualified higher education expenses paid
with a Pell Grant or other tax-free
scholarship, a tax-free distribution
from an Education IRA, or tax-free
1997–46 I.R.B.
employer-provided educational assistance are excluded.
Q2: What are the requirements for an “eligible educational institution”.
A2: An “eligible educational institution”
is any college, university, vocational
school, or other postsecondary educational institution that is described
in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088)
and, therefore, eligible to participate
in the student aid programs administered by the Department of Education. This category includes virtually all accredited public, nonprofit,
and proprietary postsecondary institutions. (The same eligibility requirements for institutions apply for
the Hope Scholarship Credit, the
Lifetime Learning Credit, and Education IRAs. (See Sec. 1, Q&A4,
Sec. 2, Q&A3, and Sec. 3, Q&A16.))
Q3: When are IRA withdrawals usually
subject to the 10 percent early withdrawal tax?
A3: Generally, if a taxpayer makes a
withdrawal from his/her IRA before
reaching age 591⁄2, the taxpayer must
pay the 10 percent early withdrawal
tax on all or part of the amount withdrawn.
Q4: In addition to the Education IRA,
TRA ‘97 also created the Roth IRA.
May a taxpayer make a withdrawal
from a Roth IRA to pay for his/her
child’s qualified higher education
expenses without paying the 10 percent early withdrawal tax?
A4: Yes. A taxpayer may make a withdrawal from a Roth IRA, as they can
from other IRAs, to pay qualified
higher education expenses without
paying the 10 percent early withdrawal tax.
SECTION. 5. STUDENT LOAN
INTEREST DEDUCTION
Beginning January 1, 1998, taxpayers
who have taken loans to pay the cost of
attending an eligible educational institution for themselves, their spouse, or their
dependent generally may deduct interest
they pay on these student loans. The
maximum deduction each taxpayer is permitted to take increases from $1,000 in
1998 to $2,500 in 2001 and thereafter.
The following table summarizes the
yearly increases.
15
Year
Maximum Deduction
1998
1999
2000
2001 and thereafter
$1,000
$1,500
$2,000
$2,500
The deduction is available only for interest payments made during the first 60
months in which interest payments are required on the loan. The student loan interest deduction is available for interest
payments due and made on or after January 1, 1998. Thus, the first time taxpayers
will be able to claim the deduction is
when they file their 1998 tax returns in
1999. No student loan interest deduction
will be allowed for interest due or paid
before 1998.
Q1: Are there any limits on what qualifies as a student loan?
A1: Yes. The loan must have been used
to pay the costs of attendance at an
eligible educational institution for a
student enrolled at least half-time in
a program leading to a degree, certificate, or other recognized educational credential. An eligible educational institution is any college,
university, vocational school, or
other postsecondary educational institution that is described in section
481 of the Higher Education Act of
1965 (20 U.S.C. 1088) and, therefore, eligible to participate in the student aid programs administered by
the Department of Education. This
category includes virtually all accredited public, nonprofit, and proprietary postsecondary institutions.
For purposes of the student loan interest deduction, eligible educational
institutions also include institutions
that conduct an internship or residency program leading to a degree or
certificate awarded by an institution
of higher education, a hospital, or a
health care facility that offers postgraduate training.
Q2: Is a student loan interest deduction
available if the student loan is not
federally guaranteed or otherwise
subsidized?
A2: Yes. As long as the loan was used to
pay the costs of attendance at an eligible educational institution and the
other eligibility requirements are
met, the deduction is available for
the interest on the loan. The deduc-
November 17, 1997
tion does not depend on whether the
loan is federally guaranteed or subsidized.
Q3: What costs are included in the costs
of attendance?
A3: Costs of attendance include all items
that are included in costs of attendance for purposes of calculating a
student’s financial need in accordance with the Higher Education
Act. Thus, they include tuition, fees,
room, board, books, equipment, and
other necessary expenses, such as
transportation. Costs of attendance
include more items than are included
in qualified tuition and related expenses for purposes of the Hope
Scholarship and Lifetime Learning
Credits. (See Sec. 1, Q&A5 and Sec.
2, Q&A10.)
Q4: Is the deduction available for interest
paid on loans used to pay for graduate school?
A4: Yes.
Q5: Are there any limits on who may
take the student loan interest deduction?
A5: Yes, there are income restrictions.
To claim the maximum deduction, a
taxpayer must have modified adjusted gross income of $40,000 or
less ($60,000 for married taxpayers
filing jointly). The amount of the
taxpayer’s deduction is gradually reduced for taxpayers with modified
adjusted gross income between
$40,000 and $55,000 (between
$60,000 and $75,000 for married
taxpayers filing jointly). For example, for 1998, the maximum deduction a single taxpayer with modified
adjusted gross income of $47,500
could take would be $500. Taxpayers with modified adjusted gross income above $55,000 ($75,000 for
married taxpayers filing jointly) may
not claim the student loan interest
deduction. The modified adjusted
gross income limitations are indexed
for inflation after 2002.
Q6: May former students whose loans
are already in repayment deduct the
interest they pay on a student loan on
or after January 1, 1998?
A6: Yes, but they may deduct only those
payments made during the first 60
months that interest payments are required on a loan. If interest pay-
November 17, 1997
ments on a student loan were first required before January 1, 1998, the
months in which those payments
were required count against the 60month time limit for that loan. The
60-month period may run out at different times for different loans.
Q7: May a parent claim the student loan
interest deduction if the parent borrows to pay his/her child’s costs of
attending college?
A7: Yes. An individual may claim the
student loan interest deduction if the
individual borrows money to pay the
costs of attending college for certain
members of the individual’s family
or household (including his/her children) and incurs the debt in a year in
which the individual supplies more
than half of the student’s support.
Q8: If an individual has paid more than
$1,000 in interest on student loans in
1998 and is otherwise eligible to take
the maximum student loan interest
deduction, how large a deduction
may the individual claim?
A8: The individual’s student loan interest
deduction for 1998 is $1,000, provided the individual’s modified adjusted gross income falls below the
point where the deduction is reduced
or eliminated.
Q9: Does an individual have to itemize
his/her income tax deductions to
claim the student loan interest deduction?
A9: No. The student loan interest deduction is available regardless of
whether an individual elects to take
the standard deduction or to itemize
deductions. Instructions accompanying the 1998 tax forms (for returns
required to be filed in 1999) will explain how to compute and claim the
deduction.
Q10: If a student is claimed as a dependent by his/her parent in a particular taxable year, may the student
take the student loan interest deduction for student loan interest that
he/she pays in that year?
A10: No. The student may not claim the
student loan interest deduction in
any taxable year in which he/she is
claimed as a dependent on another
taxpayer’s Federal income tax return. However, if the student continues to pay interest on a student
16
loan and meets the other eligibility
requirements, the student may
claim the student loan interest deduction for payments made in a
later year when the student is no
longer a dependent on his/her parent’s Federal income tax return.
Q11: Are there any tax benefits available
if the student repays his/her loan by
performing community service
rather than making cash payments?
A11: There may be. Loan forgiveness
provided in return for community
service is tax-free when it is part of
certain lending programs run by
Federal, state, or local governments, educational institutions, or
charitable organizations. Students
should consult a tax advisor to determine whether they qualify.
SECTION 6. QUALIFIED STATE
TUITION PROGRAMS
Under current law, a qualified state tuition program (QSTP) means a program
established and maintained by a state
under which a person may: (1) prepay tuition benefits on behalf of a beneficiary so
that the beneficiary is entitled to a waiver
or a payment of qualified higher education expenses, or (2) contribute to an account that is established for paying qualified higher education expenses of the
beneficiary. The tax on earnings attributable to prepayments or contributions is
deferred until the earnings are distributed
from the QSTP. The beneficiary pays tax
on the earnings at the time of distribution.
If amounts saved through a QSTP are
used to pay for college, the student or the
student’s parents still may be eligible to
claim either the Hope Scholarship Credit
or the Lifetime Learning Credit.
Q1: How have the prior rules for QSTPs
been changed by TRA ‘97?
A1: (1) QSTPs may now be used to save
for room and board expenses, up to a
specified level (generally the
school’s posted room and board
charge, or $2,500 per year for students living off-campus and not at
home);
(2) QSTPs may now be used to pay
expenses not only at public and nonprofit institutions but also at proprietary schools (i.e., any school that is
an eligible educational institution for
purposes of the Hope Scholarship or
1997–46 I.R.B.
Lifetime Learning Credits, see Sec.
1, Q&A4);
(3) Accounts in QSTPs may now be
transferred tax-free from the beneficiary to a broader range of family
members. (Step-siblings and spouses
of family members have been added.)
Q2: May a student using a QSTP to pay
for college also benefit from the
Hope Scholarship Credit or Lifetime
Learning Credit?
A2: Yes. The student or the student’s
parent may claim a Hope Scholarship Credit or Lifetime Learning
Credit for qualified tuition and related expenses covered by a qualified state tuition program, provided
the other eligibility requirements for
the credits are met.
Q3: When are the changes to the QSTP
rules made by TRA ‘97 effective?
A3: Generally, the new rules go into effect on January 1, 1998. However,
the new provision permitting QSTPs
to be used to save for room and
board expenses is effective back to
August 20, 1996.
Q4: May contributions be made to both a
qualified state tuition program and
an Education IRA on behalf of the
same designated beneficiary in the
same taxable year?
A4: No. Any amount contributed to an
Education IRA on behalf of a designated beneficiary during any taxable
year in which an amount is also contributed to a qualified state tuition
program on behalf of the same beneficiary will be treated as an excess
contribution to the Education IRA.
(See Sec. 3, Q&A6 for the treatment
of excess contributions to an Education IRA.)
SECTION 7. EXCLUSION FOR
EMPLOYER-PROVIDED
EDUCATIONAL ASSISTANCE
TRA ‘97 extends tax-free treatment to
employer-provided educational assistance
for undergraduate courses that begin before June 1, 2000. Employers may continue to provide up to $5,250 per year in
educational assistance to each employee
on a tax-free basis for courses beginning
before that date, regardless of whether the
education is job-related. This benefit expires for assistance in paying for courses
that begin on or after June 1, 2000.
1997–46 I.R.B.
Q1: How does an employee learn
whether tax-free educational assistance is available to him/her?
A1: Employers have this information.
Employers offering tax- free educational assistance are required to have
a written plan describing the benefit
and the terms under which it is available.
Q2: Does the employee have to do anything special to avoid being taxed on
employer-provided educational assistance, up to the $5,250 limit?
A2: No. The employer will automatically treat the educational assistance
as a tax-free benefit and will not include it as wages on the employee’s
W–2 form.
Q3: May an employee receive tax-free
educational assistance from the employer to attend graduate school?
A3: In general, no. However, employers
can provide job-related educational
assistance for graduate-level education as a tax-free fringe benefit under
certain circumstances. Educational
assistance would generally qualify as
job-related if it maintains or improves skills required for the employee’s current job or satisfies certain express employer-imposed
conditions for continued employment. Individuals should consult a
tax advisor for help in determining
the tax treatment of any assistance
the individual may be receiving from
an employer for graduate-level education.
Q4: If a student is enrolled in undergraduate courses in a particular year and
owes $3,000 in qualified tuition and
related expenses, and the student’s
employer pays all of the student’s
qualified tuition and related expenses, may a Hope Scholarship
Credit or a Lifetime Learning Credit
be claimed for that student for that
year?
A4: No. Neither the Hope Scholarship
Credit nor the Lifetime Learning
Credit may be claimed for that student for that year.
FOR FURTHER INFORMATION CONTACT: Donna J. Welch, (202) 622-4910
regarding the Hope Scholarship and Lifetime Learning Credits; Monice L. Rosenbaum, (202) 622-6070 regarding em-
17
ployer-provided educational assistance
and qualified state tuition programs;
Pamela R. Kinard, (202) 622-6030 regarding Education IRAs and using IRA
withdrawals to pay for higher education
expenses; and John Moriarty, (202) 6224950 regarding student loan interest deduction (not toll-free numbers).
The IRS will publish additional guidance on the provisions discussed in this
notice as well as other provisions included
in TRA ‘97. You may visit the IRS worldwide web site at (http://www.irs. ustreas.gov/prod/hot/index.html) to review
this document or for information on additional guidance as it becomes available.
The Department of Education has a
worldwide web site (http://www.ed.gov/
prog _ info/SFA/StudentGuide) you can
visit and telephone numbers (1-8004FED-AID and 1-800-USA-LEARN) you
can call to get more information on affording college and obtaining student aid,
such as Pell grants and student loans.
DRAFTING INFORMATION: The principal authors of this notice are Donna J.
Welch, Office of Assistant Chief Counsel
(Income Tax and Accounting) and Monice L. Rosenbaum and Pamela R. Kinard,
Office of Associate Chief Counsel (Employee Benefits and Exempt Organizations). However, other personnel from
the IRS and Treasury Department participated in its development.
26 CFR 601.162: Business Expenses.
(Also Part I, §§ 170; 1.162-15, 1.170A–1)
Rev. Proc. 97–52
SECTION 1. PURPOSE
This revenue procedure provides guidance on the deductibility, under § 162 or
170 of the Internal Revenue Code, of unreimbursed travel and other out-of-pocket
expenses incurred by a member of a federal advisory committee while performing
services without compensation for the
federal government as a member of that
committee.
SECTION 2. BACKGROUND
.01 Section 162(a) allows as a deduction all the ordinary and necessary expenses paid or incurred during the taxable
year in carrying on any trade or business.
November 17, 1997
.02 Section 162(b) provides that no deduction is allowed under § 162(a) for any
contribution or gift that would be allowable as a deduction under § 170 were it
not for the percentage limitations, the dollar limitations, or the requirements regarding the time of payment, set forth in
§ 170.
.03 Section 1.162–15 of the Income
Tax Regulations provides, in part, that no
deduction is allowable under § 162(a) for
a contribution or gift by an individual or a
corporation if any part thereof is deductible under § 170(a).
.04 Section 170(a)(1) allows as a deduction any charitable contribution (as
defined in § 170(c)) payment of which is
made within the taxable year.
.05 Section 170(c)(1) provides, in part,
that the term “charitable contribution”
means a contribution or gift to or for the
use of the United States, but only if the
contribution or gift is made for exclusively public purposes.
.06 Section 1.170A–1(c)(5) provides
that transfers of property to an organization described in § 170(c) that bear a direct relationship to the taxpayer’s trade or
business and that are made with a reasonable expectation of financial return commensurate with the amount of the transfer
may constitute allowable deductions as
trade or business expenses under § 162
rather than as charitable contributions
under § 170.
.07 Section 1.170A–1(g) provides that
no deduction is allowable under § 170 for
the contribution of services. However,
unreimbursed expenditures made incident
to the rendition of services to an organization, contributions to which are deductible, may constitute a deductible contribution. For example, out-of-pocket
transportation expenses necessarily incurred in performing donated services are
deductible. Reasonable expenditures for
meals and lodging necessarily incurred
while away from home in the course of
performing donated services also are deductible. For the purposes of this paragraph, the phrase “while away from
home” generally has the same meaning as
that phrase has for purposes of § 162 and
the regulations thereunder.
.08 Section 1.170A–1(h)(1) provides
that no part of a payment that a taxpayer
makes to or for the use of an organization
described in § 170(c) that is in considera-
November 17, 1997
tion of goods or services is a contribution
or gift unless the taxpayer intends to and
actually does pay an amount that exceeds
the fair market value of the goods or services received. See United States v.
American Bar Endowment, 477 U.S. 105
(1986).
.09 Federal advisory committees are
governed by the Federal Advisory Committee Act, 5 U.S.C. app. §§ 1–15 (1994)
(Act), and the regulations thereunder. A
federal advisory committee is a “useful
and beneficial means of furnishing expert
advice, ideas, and diverse opinions to the
Federal Government.” Act § 2(a). Under
the Act, a federal agency may accept the
services without compensation of a federal advisory committee member. 41
C.F.R. § 101–6.1033(d) (1996). An advisory committee member may be reimbursed by the federal agency for travel expenses, including a per diem in lieu of
lodging, meal, and incidental expenses.
41 C.F.R. § 1.101–6.1033(e) (1996).
SECTION 3. LAW
Whether payments are ordinary and
necessary business expenses under § 162,
or are “contributions or gifts” within the
meaning of § 170, depends on whether the
payments bear a direct relationship to the
taxpayer’s business and are made with a
reasonable expectation of substantial benefit or financial return commensurate with
the amount of the payment, or whether the
payments are completely gratuitous. See
Rev. Rul. 72–314, 1972–1 C.B. 44
(amounts paid by stock brokerage business to a charitable organization whose
purpose is to reduce neighborhood tensions and combat community deterioration are deductible under § 162 because
the payments are business related and
could reasonably be expected to produce
commensurate financial return for the
business); Rev. Rul. 72–293, 1972–1 C.B.
95 (payments to the United States Transportation Exposition may be deducted
under § 162 or 170 depending on the facts
and circumstances); Rev. Rul. 65–285,
1965–2 C.B. 56 (out-of-pocket expenses
of invitees to the National Conference on
Law and Poverty are deductible under
§ 170 because invitees are rendering services without compensation to the United
States); and Singer Co. v. United States,
449 F.2d 413 (Ct. Cl. 1971) (discounts on
a taxpayer’s sales of sewing machines to
18
certain qualified donees, including
churches, hospitals, and government agencies, were deductible (under prior law) as
charitable
contributions
under
§ 170 because the taxpayer did not expect
to receive substantial benefit from those
discounts; discounts provided on similar
sales to schools, however, were not deductible as charitable contributions under
§ 170 because the taxpayer expected to receive substantial benefit from those discounts in the form of increased future
sales).
SECTION 4. PROCEDURE
.01 The federal income tax deductibility of unreimbursed expenses of a federal
advisory committee member under § 162
or 170 depends in part on whether the
committee member reasonably expects to
receive substantial benefit or commensurate financial return as a result of incurring the expenses. Determining expected
benefit or financial return often can be
difficult when the committee member is
engaged in a trade or business related to
the subjects discussed by a federal advisory committee while performing services
without compensation for that committee.
.02 Therefore, if a taxpayer incurs an
unreimbursed travel or other out-ofpocket expense while performing services
without compensation as a member of a
federal advisory committee, the Service
will not challenge the taxpayer’s deduction of the expense as a charitable contribution under § 170, provided the taxpayer
satisfies the requirements of that section
other than those relating to the expectation of any benefit or financial return. If a
taxpayer incurs an unreimbursed travel or
other out-of-pocket expense while performing services without compensation as
a member of a federal advisory committee
and the expense is reasonably related to
the taxpayer’s trade or business, the Service will not challenge the taxpayer’s deduction of the expense as an ordinary and
necessary business expense under § 162,
provided the taxpayer satisfies the requirements of that section other than
those relating to the expectation of any
benefit or financial return.
SECTION 5. OTHER APPLICABLE
LAW
Any deduction within the scope of this
revenue procedure must conform to other
1997–46 I.R.B.
specific applicable requirements of law,
such as the requirement to substantiate
deducted expenses. See §§ 170(f)(8),
1.170A–13, 274(d), and 1.274–5T. Also,
limits on the deductibility of expenses incurred for lobbying purposes may apply
in certain situations. See §§ 162(e),
1997–46 I.R.B.
1.162–20, 1.162–28, 1.162–29, 170(f)(6),
1.170A–1(j)(11), 170(f)(9), and 1.170A–
1(j)(6).
DRAFTING INFORMATION
the Office of Assistant Chief Counsel (Income Tax and Accounting). For further
information regarding this revenue procedure, contact Ms. Prohofsky at 202-6224930 (not a toll-free call).
The principal author of this revenue
procedure is Catherine A. Prohofsky of
19
November 17, 1997
Part IV. Items of General Interest
Foundations Status of Certain
Organizations
Announcement 97–112
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:
Aaron E. Brister Memorial Fund, Pollok,
TX
AASPIN Foundation Inc., Madison, WI
Abate of Indiana Inc., Granger, IN
Abernant Youth Football Inc., McCalla,
AL
A Better Way Counseling and Diagnostic
Agency, Inc., Fort Wayne, IN
Ability Associates Inc., Evergreen, CO
Absolutely Nutritious Inc., Destrehan, LA
ABTK Inc., Fennimore, WI
Abundant Life Renewal Center Inc.,
Littleton, CO
Academic Marshall Plan, College
Station, TX
Academy of Interdisciplinary Dentofacial
Therapy, Inc., Springdale, AR
Academy of LDS Dentists Inc., Ogden, UT
Accept Pregnancy Centers Inc.,
Longwood, FL
Achievement Club and Preschool Inc—
Achievement Club Daycare,
Springville, UT
A C H I L D Inc., Baton Rouge, LA
A Childs Reach, Salt Lake City, UT
A Desired Chance Inc., Dallas, TX
A Georgetown Healthcare Foundation
Inc., Georgetown, TX
A Hand Up Inc., Lakewood, CO
A Helping Hand Center Inc., Harrisburg,
November 17, 1997
PA
A I D S -Aspen Cares, Aspen, CO
A Labor of Love Inc-A.L.L., Wichita, KS
American Research Laboratory of
Forensic Science, Arlington Hgts, IL
A Mission in Excellence for Students of
the Future, Chapel Hill, NC
A Small World Academy Inc., Decatur, GA
A Woman’s Place, Lincoln, NE
Boston Junior Eagles, Inc., West
Roxbury, MA
Brackthorn Foundation, Chicago, IL
Breukelein Institute, Brooklyn, NY
Bridge Street Child Development Center,
Brooklyn, NY
C4C: Kaleidscope, Inc., San Antonio, TX
Center for Executive Methods, Inc.,
Baltimore, MD
Eastern Nursing Research Society,
Durham, NH
Family Enrichment Center, Inc.,
Indianapolis, IN
Friends of the FDR Library, Hyde Park,
NY
Global Balance Incorporated, Dallas, TX
GNYHA Housing, Inc., New York, NY
Grandma’s Hands, Charlotte, NC
Jesucristo Reina Evangelistic
Association, Inc., Staten Island, NY
Leichester Soccer Club, Inc., Rochbale,
MA
Lifeforce A Way Out, Columbia, SC
Media Echos, Inc., Flushing, NY
Momma on the Move, Washington, DC
Multi-Cultural English, Inc., New York,
NY
National Association of People With
Disabilities, Inc., Rochester, NY
National Coalition for Child Protection
Reform, Cambridge, MA
Near East Side Substance Abuse Council,
Inc., Buffalo, NY
Neighborhood Kids of Harlem, New
York, NY
New Questions, Inc., Westville, CT
New York Chapter of Core, Inc., New
York, NY
Overseas Chinese Poetry and Painting
Research Center, Inc., New York, NY
Oxford Playground Committee, Inc.,
Oxford, MA
Partners in Action for Sustainable Peace,
Inc., Somerville, MA
People Helping People With Christ, Inc.,
Wareham, MA
20
Police Chiefs Foundation of Rockland
County, Inc., New City, NY
Porter Foundation, Inc., Brooklyn, NY
Public Land Preservation Society, Inc.,
Wilmington, DE
Rainbow Renewal, Lansing, MI
Rainbows of Hope, Inc., Staten Island,
NY
Sanford Project Literacy U.S. Task Force,
Sanford, ME
Saugatuck Rowing Association,
Westport, CT
Self-Help for Hard of Hearing People
Greater Boston Chapter, Inc.,
Brookline, MA
Shelburne Falls Trolley Museum, Inc.,
Shelburne Falls, NY
Shiny International, New York, NY
Shorefront YM-YWHA Nursing School
of Brighton-Manhattan Beach,
Brooklyn, NY
Stamford Cares, Inc., Stamford, CT
State Technologies, Inc., Albany, NY
Stillhouse Trestle Corporation, Danville,
VA
Studio Upstairs Theatre Repertory, Inc.,
Goshen, NY
Suburban Children, Inc., Bay Shore, NY
Sunrise Crisis Pregnancy Center, Inc.,
Wareham, MA
Support Our Schools Fund, Inc., New
York, NY
United Tenant Assoc-Mutual Housing
Development Fund Corporation, Inc.,
New York, NY
Upstate New York Health Care
Resources, Inc., East Syracuse, NY
U.S. Russian Economic Development
Initiative, Ltd., New York, NY
Vermont Environmental Story Telling
Program, Burlington, VT
Vision of Hope, Inc., Bronx, NY
Wakefield 350, Inc., Wakefield, MA
Westchester-Mid-Hudson Chapter the
American Institute of Architects
Scholarship Fund, Yorktown Heights,
NY
Weston Land Trust, Weston, MA
The West Village Quartet, Inc., Bronx,
NY
Westwind Ministries, St. John, WA
Whittier Rehabilitation Hospital Volunteer Association, Inc., Haverhill, MA
Wildomar Elsinore Little League,
Wildomar, CA
1997–46 I.R.B.
Wish is Granted, Inc., Smithtown, NY
World Trust, Inc., Oakland, CA
W. Seavey Joyce S.J. Award, Hull, MA
Yonkers Consortium for Comprehensive
Youth Services, Inc., Yonkers, NY
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a private operating foundation, the Internal
Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and
contributors may thereafter rely upon such
ruling or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classification of foundation status in the Internal
Revenue Bulletin.
Form 3520, Annual Return to
Report Transaction With Foreign
Trusts and Receipt of Certain
Foreign Gifts
Announcement 97–113
Notice 97–34, 1997–25 I.R.B. 22, provided guidance regarding the new foreign
trust and large foreign gift reporting provisions contained in the Small Business
Job Protection Act of 1996 (the “Act”).
The Notice stated that the Service would
1997–46 I.R.B.
issue a revised Form 3520. The revised
form allows U. S. persons to use a single
form to comply with all of the new reporting requirements of the Act pertaining to
transactions with foreign trusts and the receipt of foreign gifts after August 20,
1996.
The 1996 Form 3520, which reflects
the guidelines of Notice 97–34, is now
available to be download from the IRS
home page at www.irs.ustreas.gov. U.S.
persons should use this form to satisfy
their reporting requirements for transactions occurring after August 20, 1996 for
the tax year that includes August 20,
1996. In addition, U.S. persons treated as
owning a portion of a foreign trust at any
time during 1996 should use this form to
satisfy their reporting obligations.
Form 8023 to replace Form
8023–A
Announcement 97–114
New Form 8023, Election Under Section 338 for Corporations Making Qualified Stock Purchases, will replace Form
8023–A, Corporate Qualified Stock Purchases. Corporations that want to make
an election under section 338 can now
download the form from the Internet or
the Internal Revenue Information Services, using a computer and modem. Beginning in early November 1997, you can
order Form 8023 by telephone, at the
number shown below.
Request by—
Number or Address
Telephone
800-TAX-FORM
(800-829-3676)
Computer and modem
703-321-8020
(modem settings are N, 8, 1)
Internet:
World Wide Web
FTP
Telnet
21
www.irs.ustreas.gov
ftp.irs.ustreas.gov
iris.irs.ustreas.gov
November 17, 1997
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior published position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confusion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the substance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published ruling is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a period of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously published ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be published that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
The following abbreviations in current use and formerly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
November 17, 1997
22
1997–46 I.R.B.
Numerical Finding List1
Bulletins 1997–27 through 1997–45
Announcements:
97–61, 1997–29 I.R.B. 13
97–67, 1997–27 I.R.B. 37
97–68, 1997–28 I.R.B. 13
97–69, 1997–28 I.R.B. 13
97–70, 1997–29 I.R.B. 14
97–71, 1997–29 I.R.B. 15
97–72, 1997–29 I.R.B. 15
97–73, 1997–30 I.R.B. 86
97–74, 1997–31 I.R.B. 16
97–75, 1997–32 I.R.B. 28
97–76, 1997–32 I.R.B. 28
97–77, 1997–33 I.R.B. 58
97–78, 1997–34 I.R.B. 11
97–79, 1997–35 I.R.B. 8
97–80, 1997–34 I.R.B. 12
97–81, 1997–34 I.R.B. 12
97–82, 1997–34 I.R.B. 12
97–83, 1997–34 I.R.B. 13
97–84, 1997–34 I.R.B. 13
97–85, 1997–35 I.R.B. 8
97–86, 1997–35 I.R.B. 9
97–87, 1997–35 I.R.B. 9
97–88, 1997–35 I.R.B. 9
97–89, 1997–36 I.R.B. 10
97–90, 1997–36 I.R.B. 10
97–91, 1997–37 I.R.B. 25
97–92, 1997–37 I.R.B. 26
97–93, 1997–36 I.R.B. 11
97–94, 1997–36 I.R.B. 12
97–95, 1997–36 I.R.B. 12
97–96, 1997–39 I.R.B. 15
97–97, 1997–38 I.R.B. 22
97–98, 1997–39 I.R.B. 15
97–99, 1997–40 I.R.B. 7
97–100, 1997–40 I.R.B. 8
97–101, 1997–41 I.R.B. 13
97–102, 1997–41 I.R.B. 15
97–103, 1997–41 I.R.B. 16
97–104, 1997–42 I.R.B. 39
97–105, 1997–42 I.R.B. 40
97–106, 1997–45 I.R.B. 11
97–107, 1997–43 I.R.B. 25
97–108, 1997–43 I.R.B. 25
97–109, 1997–45 I.R.B. 12
97–110, 1997–45 I.R.B. 14
Court Decisions:
2061, 1997–31 I.R.B. 5
2062, 1997–32 I.R.B. 8
Notices–Continued
Revenue Rulings—Continued
97–45, 1997–33 I.R.B. 7
97–46, 1997–34 I.R.B. 10
97–47, 1997–35 I.R.B. 5
97–48, 1997–35 I.R.B. 5
97–49, 1997–36 I.R.B. 8
97–50, 1997–37 I.R.B. 21
97–51, 1997–38 I.R.B. 20
97–52, 1997–38 I.R.B. 20
97–53, 1997–40 I.R.B. 6
97–54, 1997–41 I.R.B. 7
97–55, 1997–40 I.R.B. 6
97–56, 1997–43 I.R.B. 19
97–57, 1997–43 I.R.B. 19
97–58, 1997–45 I.R.B. 7
97–59, 1997–45 I.R.B. 7
97–39, 1997–39 I.R.B. 4
97–40, 1997–39 I.R.B. 8
97–41, 1997–40 I.R.B. 4
97–42, 1997–41 I.R.B. 4
97–43, 1997–42 I.R.B. 8
97–44, 1997–45 I.R.B. 5
Railroad Retirement Quarterly Rate:
1997–28 I.R.B. 5
Public Laws
105–35, 1997–43 I.R.B. 13
Treasury Decisions:
8722, 1997–29 I.R.B. 4
8723, 1997–30 I.R.B. 4
8724, 1997–36 I.R.B. 4
8725, 1997–37 I.R.B. 16
8726, 1997–34 I.R.B. 7
8727, 1997–34 I.R.B. 5
8728, 1997–37 I.R.B. 4
8729, 1997–38 I.R.B. 4
8730, 1997–38 I.R.B. 16
8731, 1997–42 I.R.B. 6
8732, 1997–42 I.R.B. 4
8733, 1997–43 I.R.B. 8
8734, 1997–44 I.R.B. 5
8735, 1997–43 I.R.B. 4
Proposed Regulations:
REG–104893–97, 1997–29 I.R.B. 13
REG–105160–97, 1997–37 I.R.B. 22
REG–106043–97, 1997–37 I.R.B. 24
REG–107644–97, 1997–32 I.R.B. 24
REG–208151–91, 1997–38 I.R.B. 21
REG–246250–96, 1997–42 I.R.B. 30
Revenue Procedures:
97–32, 1997–27 I.R.B. 9
97–32A, 1997–34 I.R.B. 10
97–33, 1997–30 I.R.B. 10
97–34, 1997–30 I.R.B. 14
97–35, 1997–33 I.R.B. 11
97–36, 1997–33 I.R.B. 14
97–37, 1997–33 I.R.B. 18
97–38, 1997–33 I.R.B. 43
97–39, 1997–33 I.R.B. 48
97–40, 1997–33 I.R.B. 50
97–41, 1997–33 I.R.B. 5
97–42, 1997–33 I.R.B. 57
97–43, 1997–39 I.R.B. 12
97–44, 1997–41 I.R.B. 8
97–45, 1997–41 I.R.B. 10
97–46, 1997–42 I.R.B. 10
97–47, 1997–42 I.R.B. 19
97–48, 1997–43 I.R.B. 19
97–49, 1997–43 I.R.B. 22
97–50, 1997–45 I.R.B. 8
97–51, 1997–45 I.R.B. 9
Revenue Rulings:
Delegation Orders:
97 (Rev. 34), 1997–41 I.R.B. 14
172 (Rev. 5), 1997–28 I.R.B. 6
Notices:
97–37, 1997–27 I.R.B. 4
97–38, 1997–27 I.R.B. 8
97–39, 1997–27 I.R.B. 8
97–40, 1997–28 I.R.B. 6
97–41, 1997–28 I.R.B. 6
97–42, 1997–29 I.R.B. 12
97–43, 1997–30 I.R.B. 9
97–44, 1997–31 I.R.B. 15
97–27, 1997–27 I.R.B. 4
97–28, 1997–28 I.R.B. 4
97–29, 1997–28 I.R.B. 4
97–30, 1997–31 I.R.B. 12
97–31, 1997–32 I.R.B. 4
97–32, 1997–33 I.R.B. 4
97–33, 1997–34 I.R.B. 4
97–34, 1997–34 I.R.B. 14
97–35, 1997–35 I.R.B. 4
97–36, 1997–36 I.R.B. 5
97–37, 1997–37 I.R.B. 15
97–38, 1997–38 I.R.B. 14
1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–1 through 1997–26
will be found in Internal Revenue Bulletin 1997–27,
dated July 7, 1997.
1997–46 I.R.B.
23
November 17, 1997
Finding List of Current Action on
Previously Published Items1
Bulletins 1997–27 through 1997–45
*Denotes entry since last publication
Revenue Procedures:
82–36
Modified and superseded by
97–49, 1997–43 I.R.B. 22
96–36
Superseded by
97–34, 1997–30 I.R.B. 14
96–42
Superseded by
97–27, 1997–27 I.R.B. 9
97–32
Modified and amplified by
97–32A, 1997–34 I.R.B. 10
Revenue Rulings:
89–42
Supplemented by
97–31, 1997–32 I.R.B. 4
93–76
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
94–7
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
1 A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–1 through 1997–26 will be found in Internal
Revenue Bulletin 1997–27, dated July 7, 1997.
November 17, 1997
24
1997–46 I.R.B.
Notes
1997–46 I.R.B.
25
November 17, 1997
Notes
November 17, 1997
26
1997–46 I.R.B.
INTERNAL REVENUE BULLETIN
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