# Bulletin No. 1998–18

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Bulletin No. 1998–18
May 4, 1998

Internal Revenue

bulletin
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. 98–23, page 5.
Federal rates; adjusted federal rates; adjusted federal
long-term rate, and the long-term exempt rate. For
purposes of sections 1274, 1288, 382, and other sections
of the Code, tables set forth the rates for May 1998.

Notice 98–27, page 14.
Electricity produced from certain renewable resources; calendar year 1998 inflation adjustment factor and reference prices. This notice announces the calendar year 1998 inflation adjustment factor and reference
prices for the renewable electricity production credit under
section 45 of the Code.

EMPLOYEE PLANS
REG–243025–96, page 18.
Proposed regulations would provide guidance on the circumstances under which a cafeteria plan participant may revoke
an existing election and make a new election during a period
of coverage. A public hearing will be held on Tuesday, May
5, 1998.

Notice 98–26, page 14.
Weighted average interest rate update. Guidelines are
set forth for determining for April 1998, the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for purposes of
the full funding limitation of section 412(c)(7) of the Code as
amended by the Omnibus Budget Reconciliation Act of 1987
and by the Uruguay Round Agreements Act (GATT).

Finding Lists begin on page 22.
Announcement Relating to Court Decisions begins on page 4.
Index for January-April begins on page 24.

Department of the Treasury
Internal Revenue Service

EXEMPT ORGANIZATIONS
Announcement 98–36, page 18.
A list is given of organizations now classified as private foundations.

GIFT TAX
Rev. Rul. 98–21, page 7.
Transfer of nonstatutory stock option. This ruling provides guidance on the time that a completed gift occurs
when a nonstatutory stock option is transferred without consideration by the optionee to a family member.

Rev. Proc. 98–34, page 15.
Valuation of compensatory stock options. This procedure sets forth a methodology to value certain compensatory stock options for gift, estate, and generation-skipping
transfer tax purposes.

ADMINISTRATIVE
Notice 98–23, page 9.
This notice provides guidance regarding recent changes to
the taxation of social security benefits under the U.S.Canada income tax treaty.

Notice 98–25, page 11.
Election to treat trust as a United States person; domestic trust. This notice provides the procedures under
section 1161 of the Taxpayer Relief Act of 1997, P.L.
105–34, 111 Stat. 788 (1997), for trusts that were in existence on August 20, 1996, and that were treated as United
States persons on August 19, 1996, to elect to continue to
be treated as United States persons notwithstanding section
7701(a)(30)(E) of the Code.

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 semiannual basis
and are published in the first Bulletin of the succeeding semiannual period, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

3

Announcement Relating to Court Decisions
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in certain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on unappealed issues decided adverse to the
government. Generally, an Action on Decision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirmative statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclusions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommendation of the Action on Decision to similar
cases where the facts are different. Moreover, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published acquiescence or nonacquiescence only in

certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be helpful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court deciding the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as acquiescence, acquiescence in result only,
or nonacquiescence. Both “acquiescence” and “acquiescence in result only”
mean that the Service accepts the holding
of the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “acquiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. Nonacquiescence signifies that, although no further review was
sought, the Service does not agree with
the holding of the court and, generally,

will not follow the decision in disposing
of cases involving other taxpayers. In reference to an opinion of a circuit court of
appeals, a nonacquiescence indicates that
the Service will not follow the holding on
a nationwide basis. However, the Service
will recognize the precedential impact of
the opinion on cases arising within the
venue of the deciding circuit.
The announcements published in the
weekly Internal Revenue Bulletins are
consolidated semiannually and annually.
The semiannual consolidation appears in
the first Bulletin for July and in the Cumulative Bulletin for the first half of the
year, and the annual consolidation appears in the first Bulletin for the following January and in the Cumulative Bulletin for the last half of the year.
The Commissioner ACQUIESCES in
the following decisions:
Golden Belt Telephone Cooperative
v. Commissioner,1
108 T.C. 498 (1997)
Paul A. Bilzerian v. United States,2
86 F.3d 1067 (11th Cir. 1996), rev’g
887 F. Supp. 1509 (M.D. Fla. 1995),
remanded sub nom. Steffen v. United
States, 952 F. Supp. 779 (M.D. Fla.
1997)

1 Acquiescence in result only relating to whether billing and collection services performed by a rural telephone cooperative on behalf of long-distance carriers con-

stitute “communication services” as defined in Internal Revenue Code section 501(c)(12)(B).
2 Acquiescence in result only relating to whether issuance of an erroneous refund following taxpayer’s payment of the original assessment revives that assessment to

permit enforced collection of the amount erroneously refunded.

May 4, 1998

4

1998–18 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, on this page.

Section 86.—Social Security
and Tier 1 Railroad Retirement
Benefits
Notice 98–23 provides guidance regarding recent
changes to the taxation of social security benefits
under the U.S.-Canada income tax treaty. See Notice
98–23, page 9.

Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of May 1998. See
Rev. Rul. 98–23, on this page.

Section 382.—Limitation on Net
Operating Loss Carryforwards
and Certain Built-In Losses
Following Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of May 1998. See Rev. Rul.
98–23, on this page.

Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, on this page.

Section 467.—Certain Payments
for the Use of Property or
Services
The adjusted applicable federal short-term, mid-

1998–18 I.R.B.

term, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, on this page.

term, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, on this page.

Section 468.—Special Rules for
Mining and Solid Waste
Reclamation and Closing Costs

Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, on this page.

Section 482.—Allocation of
Income and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of May 1998. See
Rev. Rul. 98–23, on this page.

Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, on this page.

Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of May 1998. See
Rev. Rul. 98–23, on this page.

Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, on this page.

Section 846.—Discounted
Unpaid Losses Defined

(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;
adjusted federal long-term rate, and
the long-term exempt rate. For purposes
of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the
rates for May 1998.

Rev. Rul. 98–23
This revenue ruling provides various
prescribed rates for federal income tax
purposes for May 1998 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable federal rates (AFR) for the current month for
purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the appropriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for determining the present value of an annuity, an
interest for life or for a term of years, or a
remainder or a reversionary interest for
purposes of section 7520.

The adjusted applicable federal short-term, mid-

5

May 4, 1998

REV. RUL. 98–23 TABLE 1
Applicable Federal Rates (AFR) for May 1998
Period for Compounding
Annual

Semiannual

Quarterly

Monthly

Short-Term
AFR
110% AFR
120% AFR
130% AFR

5.50%
6.06%
6.63%
7.18%

5.43%
5.97%
6.52%
7.06%

5.39%
5.93%
6.47%
7.00%

5.37%
5.90%
6.43%
6.96%

Mid-Term
AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR

5.69%
6.27%
6.84%
7.42%
8.60%
10.06%

5.61%
6.17%
6.73%
7.29%
8.42%
9.82%

5.57%
6.12%
6.67%
7.22%
8.33%
9.70%

5.55%
6.09%
6.64%
7.18%
8.28%
9.62%

Long-Term
AFR
110% AFR
120% AFR
130% AFR

5.94%
6.54%
7.14%
7.75%

5.85%
6.44%
7.02%
7.61%

5.81%
6.39%
6.96%
7.54%

5.78%
6.36%
6.92%
7.49%

REV. RUL. 98–23 TABLE 2
Adjusted AFR for May 1998
Period for Compounding
Annual

Semiannual

Quarterly

Monthly

Short-term
adjusted AFR

3.73%

3.70%

3.68%

3.67%

Mid-term
adjusted AFR

4.30%

4.25%

4.23%

4.21%

Long-term
adjusted AFR

5.05%

4.99%

4.96%

4.94%

REV. RUL. 98–23 TABLE 3
Rates Under Section 382 for May 1998
Adjusted federal long-term rate for the current month

5.05%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)

5.05%

May 4, 1998

6

1998–18 I.R.B.

REV. RUL. 98–23 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for May 1998
Appropriate percentage for the 70% present value low-income housing credit

8.36%

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

3.58%

REV. RUL. 98–23 TABLE 5
Rate Under Section 7520 for May 1998
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest

Section 1288.—Treatment of
Original Issue Discount on
Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, page 5.

Section 2511.—Transfers in
General
26 CFR 25.2511–1: Transfers in general.
(Also Section 2512; 25.2512–1.)

Transfer of nonstatutory stock option. This ruling provides guidance on the
time that a completed gift occurs when a
nonstatutory stock option is transferred
without consideration by the optionee to a
family member.

Rev. Rul. 98–21
ISSUE
When is the transfer of a nonstatutory
stock option (i.e., a compensatory stock
option that is not subject to the provisions
of § 421 of the Internal Revenue Code) by
the optionee to a family member, for no
consideration, a completed gift under
§ 2511?
FACTS
A is employed by Company. Company
has one class of stock. Company has a
stock option plan under which employees
can be awarded nonstatutory stock op-

1998–18 I.R.B.

tions to purchase shares of Company’s
stock. These stock options are not traded
on an established market. The shares acquired on the exercise of an option are
freely transferable, subject only to generally applicable securities laws, and subject to no other restrictions or limitations.
Company grants to A, in consideration
for services to be performed by A, a nonstatutory stock option to purchase shares
of Company common stock. Company’s
stock option plan provides that the stock
option is exercisable by A only after A
performs additional services.
All options granted under Company’s
stock option plan expire 10 years from the
grant date. The exercise price per share of
A’s option is the fair market value of one
share of Company’s common stock on the
grant date. Company’s stock option plan
permits the transfer of nonstatutory stock
options to a member of an optionee’s immediate family or to a trust for the benefit
of those individuals. The effect of such a
transfer is that the transferee (after the required service is completed and before the
option’s expiration date) will determine
whether and when to exercise the stock
option and will also be obligated to pay
the exercise price.
Before A performs the additional services necessary to allow A’s option to be
exercised, A transfers A’s option to B, one
of A’s children, for no consideration.
LAW AND ANALYSIS
Section 2501 imposes a tax on the
transfer of property by gift by any indi-

7

6.8%

vidual. The gift tax is not imposed upon
the receipt of the property by the donee, is
not necessarily determined by the measure of enrichment resulting to the donee
from the transfer, and is not conditioned
upon the ability to identify the donee at
the time of the transfer. The tax is a primary and personal liability of the donor,
is an excise upon the donor’s act of making the transfer, is measured by the value
of the property passing from the donor,
and attaches regardless of the fact that the
identity of the donee may not then be
known or ascertainable. Section 25.2511–
2(a) of the Gift Tax Regulations.
The gift tax applies to a transfer of
property by way of gift, whether the
transfer is in trust or otherwise, whether
the gift is direct or indirect, and whether
the property is real or personal, tangible
or intangible. Section 25.2511–1(a). For
this purpose, the term property is used in
its broadest and most comprehensive
sense and reaches “every species of right
or interest protected by law and having an
exchangeable value.” H.R. Rep. No. 708,
72d Cong., 1st Sess. 27 (1932); S. Rep.
No. 665, 72d Cong., 1st Sess. 39, (1932);
both reprinted in 1939–1 (Part 2) C.B.
476, 524. Some rights, however, are not
property. See e.g., Estate of Howell v.
Commissioner, 15 T.C. 224 (1950) (nonvested pension rights were not property
rights includible in gross estate under
§ 811(c) of the 1939 Code); Estate of
Barr v. Commissioner, 40 T.C. 227 (1963)
acq., 1964–1 C.B. 4 (death benefits

May 4, 1998

payable at discretion of board of directors
who usually but not always, agreed to
payment, were in the nature of hope or
expectancy and not property rights includible in gross estate for estate tax purposes).
Generally, a gift is complete when the
donor has so parted with dominion and
control over the property as to leave the
donor no power to change its disposition,
whether for the donor’s own benefit or for
the benefit of another. Section 25.2511–
2(b).
In Estate of Copley v. Commissioner,
15 T.C. 17 (1950), aff ’d, 194 F.2d 364
(7th Cir. 1952), acq., 1965–2 C.B. 4, the
petitioner entered into an antenuptial
agreement in which the petitioner
promised to give the future spouse a sum
of money in consideration of the marriage
and in lieu of all the spouse’s marital
rights in the petitioner’s property. The
agreement became legally enforceable
under state law on the date of the marriage in 1931. The petitioner transferred
part of the sum of money in 1936 and the
rest in 1944. The court concluded that a
gift tax would have been due in 1931 if
there had been a gift tax law in effect at
that time.
In Rev. Rul. 79–384, 1979–2 C.B. 344,
a parent promised to pay a child $10,000
if the child graduated from college. Rev.
Rul. 79–384 holds that the parent made a
gift on the day the child graduated from
college, the date when the parent’s
promise became enforceable and determinable in value.

May 4, 1998

In Rev. Rul. 80–186, 1980–2 C.B. 280,
a parent transferred to a child, for nominal
consideration, an option to purchase real
property for a specified period of time at a
price below fair value. Rev. Rul. 80–186
holds that the transfer is a completed gift
at the time the option is transferred provided the option is binding and enforceable under state law on the date of the
transfer.
In the present case, Company grants to
A a nonstatutory stock option conditioned
on the performance of additional services
by A. If A fails to perform the services,
the option cannot be exercised. Therefore, before A performs the services, the
rights that A possesses in the stock option
have not acquired the character of enforceable property rights susceptible of
transfer for federal gift tax purposes. A
can make a gift of the stock option to B
for federal gift tax purposes only after A
has completed the additional required
services because only upon completion
of the services does the right to exercise
the option become binding and enforceable. In the event the option were to become exercisable in stages, each portion
of the option that becomes exercisable at
a different time is treated as a separate
option for the purpose of applying this
analysis. In the event that B is a skip person (within the meaning of § 2613(a)),
the generation-skipping transfer tax
would apply at the same time as the gift
tax. See Rev. Proc. 98–34, 1998–18,
which sets forth a methodology to value
certain compensatory stock options for

8

gift, estate, and generation-skipping
transfer tax purposes.
HOLDING
On the facts stated above, the transfer
to a family member, for no consideration,
of a nonstatutory stock option, is a completed gift under § 2511 on the later of (i)
the transfer or (ii) the time when the
donee’s right to exercise the option is no
longer conditioned on the performance of
services by the transferor.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Robert B. Hanson of the Office
of Assistant Chief Counsel (Passthroughs
and Special Industries). For further information regarding this revenue ruling, contact Melissa C. Liquerman on (202) 6223120 (not a toll-free call).

Section 7520.—Valuation Tables
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, page 5.

Section 7872.—Treatment of
Loans with Below-Market
Interest Rates
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of May 1998. See Rev. Rul. 98–23, page 5.

1998–18 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Taxation of Social Security
Benefits Under U.S.-Canada
Income Tax Treaty
Notice 98–23
This notice provides guidance, in a
question and answer format, regarding recent changes to the taxation of cross-border social security benefits under the Convention Between the United States of
America and Canada With Respect to
Taxes on Income and on Capital Signed at
Washington on September 26, 1980 as
Amended by the Protocols Signed on June
14, 1983, March 28, 1984, March 17,
1995, and July 29, 1997 (the “Treaty”).
For an overview of the changes, see Section I of this notice. For rules that apply to
U.S. residents who receive Canadian social
security benefits, see Section II. For rules
that apply to Canadian residents who receive U.S. social security benefits, see Section III. For information concerning the
Paperwork Reduction Act, see Section IV.
For drafting information, see Section V.
I. OVERVIEW OF CHANGES
Paragraph 5 of Article XVIII of the
Treaty provides rules that govern the taxation of U.S. social security benefits paid
to Canadian residents and Canadian social
security benefits paid to U.S. residents.
These rules were extensively revised by
the protocol signed on March 17, 1995
(the “1995 Protocol”) and again by the
protocol signed on July 29, 1997 (the
“1997 Protocol”).
Under the Treaty prior to amendment
by the 1995 Protocol, each country had the
exclusive right to tax social security benefits paid to its residents by the other country. The 1995 Protocol changed from a
residence-based system to a source-based
system, effective January 1, 1996. Under
the 1995 Protocol, the country that paid
benefits to residents of the other country
had the exclusive right to tax the benefits.
The 1997 Protocol returned to a residence-based system under which social
security benefits are taxable exclusively in
the country where the recipient resides.
The changes made by the 1997 Protocol
are generally retroactive to January 1,
1996. However, benefits paid during 1996
and 1997 will not be subject to a higher

1998–18 I.R.B.

rate of tax than was imposed under the
1995 Protocol. In addition, as explained
below, individuals who received benefits
during 1996 and 1997 that would be subject to a lower rate of tax under the 1997
Protocol may be eligible for refunds.

years. For 1996 and 1997, a U.S. resident
who received Canadian social security
benefits may choose to be taxed in the
United States under the new rules or to remain taxable in Canada under the old
rules.

II. U.S. RESIDENTS WHO RECEIVE
CANADIAN BENEFITS

WILL I HAVE TO PAY ANY
ADDITIONAL TAX FOR 1996 OR
1997?

WHICH CANADIAN BENEFITS ARE
COVERED?
The changes made by the 1997 Protocol affect the taxation of Old Age Security
(OAS) pensions and Canada/Quebec Pension Plan (CPP/QPP) benefits.
HOW WERE MY BENEFITS TAXED
DURING 1996 AND 1997?
Under the old rules (that is, the 1995
Protocol), Canadian social security benefits paid to U.S. residents during 1996 and
1997 were subject to a 25-percent Canadian withholding tax. However, Canada
permitted U.S. recipients of Canadian
benefits to file Canadian tax returns and
pay tax at regular graduated rates on their
net income. As a result, some U.S. recipients of Canadian social security benefits
may have paid little or no Canadian tax on
their benefits.
HOW WILL MY BENEFITS BE
TAXED UNDER THE NEW RULES?
Under the new rules (that is, the 1997
Protocol), Canadian social security benefits paid to U.S. residents generally will
be taxable, if at all, only by the United
States. The benefits will be taxed at graduated rates on a net basis as if they were
benefits paid under the U.S. Social Security Act. Thus, under section 86 of the Internal Revenue Code, the portion of the
benefits that is taxable will depend on
each recipient’s income level. For more
information on the rules that apply to benefits paid under the U.S. Social Security
Act, see IRS Publication 915 (Social Security Benefits and Equivalent Railroad
Retirement Benefits).
WHEN DO THE NEW RULES TAKE
EFFECT?
The new rules must be applied to benefits received during 1998 and future

9

The United States and Canada have
agreed that taxpayers’ 1996 and 1997
benefits will not be subject to an increased rate of tax solely as a result of the
1997 Protocol. Therefore, U.S. recipients
of Canadian social security benefits during 1996 or 1997 should not have to pay
any additional tax unless there is some
other factor that alters their tax liability.
AM I ENTITLED TO A REFUND OF
CANADIAN TAX?
U.S. residents who received Canadian
social security benefits during 1996 and
1997 on which Canadian tax was paid
may be entitled to refunds. Taxpayers
should calculate the amount of U.S. tax, if
any, they would have been required to pay
for 1996 and 1997 under the new rules. If
this amount is less than the amount of
Canadian tax paid, they generally are entitled to a refund of the Canadian tax.
However, they will be required to report
the benefits on U.S. returns (see below)
and pay any U.S. tax that would be due.
WHAT SHOULD I DO TO OBTAIN
MY REFUND?
During February 1998, Revenue
Canada mailed letters to U.S. residents
who received Canadian social security
benefits during 1996 and 1997. Recipients of such letters should follow the instructions provided in the letter and submit the attached Election Form to
Revenue Canada if they elect to be taxed
in the United States. Revenue Canada
will process the Election Forms and issue
checks in the appropriate amount. Revenue Canada will notify the Internal Revenue Service of the Canadian benefits
paid to the affected individuals and the
amounts of the refunds issued.
Taxpayers who did not receive a letter,
but believe they are entitled to a refund of

May 4, 1998

Canadian tax, should contact Revenue
Canada by calling 1-800-661-7896, by
sending a fax to 613-941-6905, or by
writing to the International Tax Services
Office, 2204 Walkley Road, Ottawa, Ontario K1A 1A8. Under the 1997 Protocol,
taxpayers must apply for any refund of
Canadian tax on or before December 16,
2000, which is three years from the date
the 1997 Protocol entered into force.
CAN I REVOKE MY ELECTION TO
BE TAXED IN THE UNITED STATES
INSTEAD OF CANADA?
A taxpayer who receives a refund of
Canadian tax may later determine that the
amount of U.S. tax owed for 1996 and
1997 under the new rules is greater than
the amount of Canadian tax that was originally paid. In this case, the taxpayer may
contact Revenue Canada on or before December 16, 2000 to revoke the election
and repay the Canadian tax. Revenue
Canada will then advise the Internal Revenue Service that the taxpayer has revoked the election to be taxed in the
United States.
HOW SHOULD I REPORT BENEFITS
FOR 1996 AND 1997 ON MY TAX
RETURNS?
Taxpayers who are not applying for refunds from Revenue Canada should not
report the Canadian social security benefits received during 1996 and 1997 on
U.S. federal income tax returns for 1996
and 1997. Taxpayers who are applying
for refunds should report the benefits on
U.S. returns as if the benefits had been
paid under the U.S. Social Security Act.
For more information on how to report
benefits paid under the U.S. Social Security Act, see IRS Publication 915 (Social
Security Benefits and Equivalent Railroad
Retirement Benefits).
Taxpayers who apply for refunds and
have not yet filed a 1996 or 1997 U.S. tax
return must report the Canadian benefits
on a 1996 or 1997 (as the case may be)
U.S. tax return. Such a U.S. return must
be filed even if a U.S. return would not
otherwise be required and even if no U.S.
tax is due. Taxpayers who were not previously required to file U.S. returns will be
required to do so as a result of their election to be taxable in the United States. At
the top of their return, taxpayers should

May 4, 1998

print or type the caption “CANADIAN
TREATY—SOCIAL SECURITY.”
Taxpayers who have already filed returns for 1996 and 1997 should file
amended returns after they have received
their refund checks from Revenue Canada
and pay any U.S. tax that may be due. Interest and penalties generally will not be
imposed if the additional U.S. tax (if any)
is paid by April 15, 1999. At the top of
their amended return, taxpayers should
print or type the caption “CANADIAN
TREATY—SOCIAL SECURITY.”
Taxpayers will not be entitled to any
foreign tax credit for the Canadian tax
that will be refunded.
HOW SHOULD I REPORT BENEFITS
FOR 1998 AND FUTURE YEARS ON
MY TAX RETURNS?
Canadian social security benefits received during 1998 and future years
should be reported as if they were paid
under the U.S. Social Security Act. For
more information on how to report benefits paid under the U.S. Social Security
Act, see IRS Publication 915 (Social Security Benefits and Equivalent Railroad
Retirement Benefits).

paid to Canadian residents generally will
be taxable only by Canada. An amount
equal to 85 percent of the benefits that are
received will be subject to Canadian tax
on a net basis as if the benefits were paid
under the Canadian Pension Plan.
WHEN DO THE NEW RULES
TAKE EFFECT?
The new rules must be applied to benefits received during 1998 and future
years. For 1996 and 1997, Revenue
Canada will determine whether it is more
beneficial for taxpayers to be taxed in
Canada under the new rules or to remain
taxable in the United States under the old
rules. More information is provided
below.
WILL I HAVE TO PAY ANY
ADDITIONAL TAX FOR 1996
OR 1997?

III. CANADIAN RESIDENTS WHO
RECEIVE U.S. BENEFITS

The United States and Canada have
agreed that taxpayers’ 1996 and 1997 benefits will not be subject to an increased
rate of tax solely as a result of the 1997
Protocol. Therefore, Canadian recipients
of U.S. social security benefits during
1996 or 1997 should not have to pay any
additional tax unless there is some other
factor that alters their tax liability.

WHICH U.S. BENEFITS ARE
COVERED?

AM I ENTITLED TO A REFUND OF
U.S. TAX?

The changes made by the 1997 Protocol affect the taxation of monthly benefits
under title II of the Social Security Act
and tier 1 railroad retirement benefits.

Canadian residents who received U.S.
social security benefits during 1996 or
1997 on which U.S. tax was paid may be
entitled to a refund. Revenue Canada will
calculate the amount of Canadian tax, if
any, that would have been due for 1996
and 1997 under the new rules. If this
amount is less than the amount of U.S. tax
paid, the taxpayer generally will be entitled to a refund of the excess amount.
Revenue Canada will notify taxpayers
who are entitled to refunds.

HOW WERE MY BENEFITS TAXED
DURING 1996 AND 1997?
Under the old rules (that is, the 1995
Protocol), U.S. social security benefits
paid to Canadian residents during 1996
and 1997 were subject to a 25.5-percent
U.S. withholding tax. This was a final
payment of tax. Canadian recipients of
U.S. social security benefits, regardless of
their level of income, could not elect to be
taxed in the United States on a net basis at
graduated rates.
HOW WILL MY BENEFITS BE
TAXED UNDER THE NEW RULES?
Under the new rules (that is, the 1997
Protocol), U.S. social security benefits

10

WHAT SHOULD I DO TO OBTAIN
MY REFUND?
Taxpayers who believe they are entitled
to a refund should not claim a refund from
the Internal Revenue Service at this time.
Revenue Canada has set up procedures
for determining which Canadian residents
are entitled to refunds. Revenue Canada
will apply for and obtain the refunds from

1998–18 I.R.B.

the Internal Revenue Service on behalf of
the affected individuals and will issue
checks to them as soon as possible in the
appropriate amount.

Election To Continue To Treat
Trust as a United States Person

IV. PAPERWORK REDUCTION ACT

SECTION 1. PURPOSE

The collections of information contained in this notice have been reviewed
and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545–1602.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
The collections of information in this
notice are in Sections II and III. This information is required to implement the
1997 Protocol. This information will be
used to determine the amounts of refunds
of U.S. tax to which certain Canadian residents are entitled and to notify the Internal Revenue Service as to the amounts of
refunds of Canadian tax paid to certain
U.S. residents. The collections of information are mandatory. The likely respondents are individuals.
The estimated total annual reporting
burden is 25,000 hours.
The estimated annual burden per respondent varies from .25 hours to 1 hour,
depending on individual circumstances,
with an estimated average of .5 hours.
The estimated number of respondents is
50,000.
The estimated annual frequency of responses is one time.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.

This notice provides guidance regarding the election under § 1161 of the Taxpayer Relief Act of 1997, Pub. L. No.
105–34, 111 Stat. 788 (1997) (Taxpayer
Relief Act). Section 1161(a) provides that
to the extent prescribed in regulations by
the Secretary of the Treasury or his delegate, a trust that was in existence on August 20, 1996 (other than a trust treated as
owned by the grantor under subpart E of
part I of subchapter J of chapter 1 of the
Internal Revenue Code of 1986), and that
was treated as a United States person on
August 19, 1996, may elect to continue to
be treated as a United States person
notwithstanding § 7701(a)(30)(E). The
Internal Revenue Service and the Department of the Treasury will incorporate the
guidance contained in this notice in regulations. Accordingly, trusts should follow
the procedures set forth in this notice.

V. DRAFTING INFORMATION
The principal authors of this notice are
M. Grace Fleeman of the Office of Associate Chief Counsel (International) and
Margaret M. Gavaghan of the Office of
the Assistant Commissioner (International). For further information regarding
this notice, contact Ms. Gavaghan on
(202) 874-1550 (not a toll-free call).

1998–18 I.R.B.

Notice 98–25

SECTION 2. BACKGROUND
Prior to the Small Business Job Protection Act of 1996, Pub. L. 104–188, 110
Stat. 1755 (1996) (SBJP Act), the status
of a trust as domestic or foreign turned
upon the subjective determination of
whether the trust was more comparable to
a resident or a nonresident alien individual. See Rev. Rul. 60–181, 1960–1 C.B.
257, citing B.W. Jones Trust v. Commissioner, 46 B.T.A. 531 (1942), aff’d, 132
F.2d 914 (4th Cir. 1943) (prior law).
Section 1907(a) of the SBJP Act
amended § 7701(a)(30) and (31) of the
Code to provide more objective criteria
for determining the status of a trust. New
§ 7701(a)(30)(E) provides that a trust will
be treated as a domestic trust if: (1) a
court within the United States is able to
exercise primary supervision over the administration of the trust, and (2) one or
more United States persons1 have the au1 As originally enacted by the SBJP Act, new

§ 7701(a)(30)(E)(ii) required one or more United
States fiduciaries to have the authority to control all
substantial decisions of the trust. The Taxpayer Relief Act substituted the word “persons” for the word
“fiduciaries.”

11

thority to control all substantial decisions
of the trust. New § 7701(a)(31) provides
that a foreign trust is any trust that is not a
domestic trust.
New § 7701(a)(30) and (31) apply in
determining the status of a trust for taxable years beginning after December 31,
1996. A trust may, however, elect pursuant to § 1907(a)(3)(B) of the SBJP Act
to have the new criteria apply to the first
taxable year of the trust ending after August 20, 1996 (the date of enactment of
the SBJP Act).
A trust that qualified as a domestic trust
under prior law could fail to qualify as a
domestic trust under new § 7701(a)(30)(E). Thus, solely due to the change in
law, a domestic trust could become a foreign trust as of the first day of its first taxable year beginning after December 31,
1996. Such a change may have significant adverse tax consequences. A nongrantor trust whose status changed from
domestic to foreign prior to August 5,
1997 (the effective date of the repeal of
§ 1491), was treated for purposes of
§ 1491 as having transferred, upon becoming a foreign trust, all of its assets to a
foreign trust, and therefore may have
been subject to the § 1491 excise tax. A
nongrantor trust whose status changed
from domestic to foreign on or after August 5, 1997 (the effective date of § 684)
is treated as having transferred all of its
assets to a foreign trust and must recognize as gain the excess of the fair market
value of the property transferred over its
adjusted basis under § 684.
To avoid the change from domestic to
foreign status, a domestic trust needed to
amend its provisions to meet the definition set forth in new § 7701(a)(30)(E) by
the first day of its first taxable year beginning after December 31, 1996. To assist
domestic trusts that may have had difficulty conforming to the new domestic
trust criteria, the Service published Notice
96–65, 1996–2 C.B. 232. That notice permits a domestic trust in existence on August 20, 1996, to continue to file tax returns as a domestic trust for taxable years
beginning after December 31, 1996,
notwithstanding the status of the trust
under new § 7701(a)(30)(E), if certain
conditions are satisfied. See also
§ 1601(i)(4) of the Taxpayer Relief Act.
To obtain the relief provided in Notice

May 4, 1998

96–65, a trust is required to: (1) initiate
modification of the trust to conform to
new § 7701(a)(30)(E) by the due date (including extensions) for filing the trust’s
income tax return for its first taxable year
beginning after December 31, 1996; (2)
complete the modification within two
years of that date; and (3) attach a statement to the trust’s income tax return, as
described in Notice 96–65.
Subsequent to the publication of Notice
96–65, Congress enacted § 1161 of the
Taxpayer Relief Act. Section 1161 allows
a trust that was in existence on August 20,
1996 (other than a trust treated as owned
by the grantor), and that was treated as a
domestic trust on August 19, 1996, to
elect to continue treatment as a domestic
trust, regardless of the result of the application of new § 7701(a)(30)(E) to the
trust.
SECTION 3. TRUSTS ELIGIBLE TO
MAKE THE ELECTION
.01 Basic Rule.
A trust that was in existence on August
20, 1996, and that was treated as a domestic trust on August 19, 1996, as provided
in section 3.02, may elect to continue
treatment as a domestic trust notwithstanding § 7701(a)(30)(E). This election
is not available to a trust that was whollyowned by its grantor under subpart E, part
I, subchapter J, chapter 1, of the Code on
August 20, 1996. (Wholly-owned grantor
trusts may, however, follow the procedures in Notice 96–65.) The election is
available to a trust if only a portion of the
trust was treated as owned by the grantor
under subpart E on August 20, 1996. If a
partially-owned grantor trust makes the
election, the election is effective for the
entire trust. Also, a trust may not make
the election if the trust has made an election pursuant to § 1907(a)(3)(B) of the
SBJP Act to apply the new trust criteria to
the first taxable year of the trust ending
after August 20, 1996, because that election, once made, is irrevocable.
.02 Determining Whether a Trust was
Treated as a Domestic Trust on August
19, 1996
(1) Trusts Filing Form 1041 for the
Taxable Year that Includes August
19, 1996
For purposes of the election, a trust is
considered to have been treated as a do-

May 4, 1998

mestic trust on August 19, 1996, if: (i) the
trustee filed a Form 1041, U.S. Income
Tax Return for Estates and Trusts, for the
trust for the period that includes August
19, 1996 (and did not file a Form 1040NR,
U.S. Nonresident Alien Income Tax Return, for that year); and (ii) the trust had a
reasonable basis (within the meaning of §
6662) under the prior law for reporting as
a domestic trust for that period.
(2) Trusts Not Filing a Form 1041
Some domestic trusts are not required
to file Form 1041. For example, group
trusts described in Rev. Rul. 81–100,
1981–1 C.B. 326, are not required to file
Form 1041. Also, a domestic trust whose
gross income for the taxable year is less
than the amount required for filing an income tax return and that has no taxable
income is not required to file a Form
1041. Section 6012(a)(4).
For purposes of the election, a trust that
filed neither a Form 1041 nor a Form
1040NR for the period that includes August 19, 1996, will be considered to have
been treated as a domestic trust on August
19, 1996, if the trust had a reasonable
basis (within the meaning of § 6662)
under prior law (i) for being treated as a
domestic trust for that period and (ii) for
filing neither a Form 1041 nor a Form
1040NR for that period.
SECTION 4. PROCEDURE FOR
MAKING THE ELECTION
.01 Required Statement.
To make the election, a statement must
be filed with the Service in the manner
and time described in this notice. The
statement must be entitled “Election to
Remain a Domestic Trust under § 1161 of
the Taxpayer Relief Act of 1997,” be
signed under penalties of perjury by at
least one trustee of the trust, and contain
the following information:
(1) A statement that the trust is electing
to continue to be treated as a domestic
trust under § 1161 of the Taxpayer Relief
Act of 1997;
(2) A statement that the trustee had a
reasonable basis (within the meaning of §
6662) under prior law for treating the trust
as a domestic trust on August 19, 1996.
(The trustee need not explain the reasonable basis on the election statement);
(3) A statement either that the trust
filed a Form 1041 treating the trust as a

12

domestic trust for the period that includes
August 19, 1996, (and that the trust did
not file a Form 1040NR for that period),
or that the trust was not required to file a
Form 1041 or a Form 1040NR for the period that includes August 19, 1996, with
an accompanying brief explanation as to
why a Form 1041 was not required to be
filed; and
(4) The name, address, and employer
identification number of the trust.
.02 Filing the Required Statement with
the Service
Except as provided below, the trust
must attach the statement to a Form 1041.
The statement may be attached to either
the Form 1041 that is filed for the first
taxable year of the trust beginning after
December 31, 1996 (1997 taxable year),
or to the Form 1041 filed for the first taxable year of the trust beginning after December 31, 1997 (1998 taxable year).
The statement, however, must be filed no
later than the due date for filing a Form
1041 for the 1998 taxable year, plus extensions. The election will be effective
for the 1997 taxable year, and thereafter,
until revoked or terminated. If the trust
has already filed a Form 1041 for the
1997 taxable year without the statement
attached, the statement should be attached
to the Form 1041 filed for the 1998 taxable year.
If the trust has insufficient gross income and no taxable income for its 1997
or 1998 taxable year, or both, and therefore is not required to file a Form 1041 for
either or both years, the trust must make
the election by filing a Form 1041 for either the 1997 or 1998 taxable year with
the statement attached (even though not
otherwise required to file a Form 1041 for
that year). The trust should only provide
on the Form 1041 the trust’s name, name
and title of fiduciary, address, employer
identification number, date created, and
type of entity. The statement must be attached to a Form 1041 that is filed no later
than October 15, 1999.
If the trust files a Form 1040NR for the
1997 taxable year based on application of
new § 7701(a)(30)(E) to the trust, and satisfies Section 3.01 of this notice, in order
for the trust to make the election the trust
must file an amended Form 1040NR return for the 1997 taxable year. The trust
must note on the amended Form 1040NR
that it is making an election under § 1161

1998–18 I.R.B.

of the Taxpayer Relief Act of 1997. The
trust must attach to the amended Form
1040NR the statement required by this notice and a completed Form 1041 for the
1997 taxable year. The items of income,
deduction and credit of the trust must be
excluded from the amended Form
1040NR and reported on the Form 1041.
The amended Form 1040NR for the 1997
taxable year, with the statement and the
Form 1041 attached, must be filed with
the Philadelphia Service Center no later
than the due date, plus extensions, for filing a Form 1041 for the 1998 taxable year.
If a trust has made estimated tax payments as a foreign trust based on application of new § 7701(a)(30)(E) to the trust,
but has not yet filed a Form 1040NR for
the 1997 taxable year, when the trust files
its Form 1041 for the 1997 taxable year it
must note on its Form 1041 that it made
estimated tax payments based on treatment as a foreign trust. The Form 1041
must be filed with the Philadelphia Service Center (and not with the service center where the trust ordinarily would file its
Form 1041).
If a trust forms part of a qualified stock
bonus, pension, or profit sharing plan, the
election provided by this notice must be
made by attaching the statement to the
plan’s annual return required under
§ 6058 (information return) for the first
plan year beginning after December 31,
1996, or to the plan’s information return
for the first plan year beginning after December 31, 1997. The statement must be
attached to the plan’s information return
that is filed no later than the due date for
filing the plan’s information return for the
first plan year beginning after December
31, 1997, plus extensions. The election
will be effective for the first plan year beginning after December 31, 1996, and
thereafter, until revoked or terminated.
Any other type of trust that is not required to file a Form 1041 for the taxable
year, but that is required to file an information return (for example, Form 5227)
for the 1997 or 1998 taxable year must attach the statement to the trust’s information return for the 1997 or 1998 taxable
year. However, the statement must be attached to an information return that is
filed no later than the due date for filing
the trust’s information return for the 1998
taxable year, plus extensions. The election will be effective for the 1997 taxable

1998–18 I.R.B.

year, and thereafter, until revoked or terminated.
A group trust under Rev. Rul. 81–100,
1981–1 C.B. 326, (and any other trust that
is not described above and that is not required to file a Form 1041 or an information return) need not attach the statement
to any return and should file the statement
with the Philadelphia Service Center. The
trust must make the election provided by
this notice by filing the statement by October 15, 1999. The election will be effective for the 1997 taxable year, and
thereafter, until revoked or terminated.
.03 Failure to File the Statement in the
Required Manner and Time.
If a trust fails to file the statement in the
manner or time provided in Section 4.01
and 4.02, the trustee may provide a written statement to the district director having jurisdiction over the trust setting forth
the reasons for failing to file the statement
in the required manner or time. If the district director determines that the failure to
file the statement in the required manner
or time was due to reasonable cause, the
district director may grant the trust an extension of time to file the statement.
Whether an extension of time is granted
shall be in the sole discretion of the district director. However, the relief provided by this notice is not ordinarily
available if the statute of limitations for
the trust’s 1997 taxable year has expired.
Additionally, if the district director grants
an extension of time, it may contain terms
with respect to assessment as may be necessary to ensure that the correct amount of
tax will be collected from the trust, its
owners, and its beneficiaries.

Treasury Department request comments on
the rules in this notice and, in particular,
the change in circumstances that would
cause a termination of the election.
Comments should be submitted by
June 30, 1998 to: Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044, Attn:
CC:DOM:CORP:R (Notice 98–25
CC:DOM:P&SI:2), Room 5226. Submissions may be hand-delivered between the
hours of 8 a.m. and 5 p.m. to: Courier’s
Desk, Internal Revenue Service, 1111
Constitution Ave., NW, Washington, DC,
Attn: CC:DOM:CORP:R (Notice 98–25
CC:DOM:P&SI:2), Room 5226. Alternatively, taxpayers may submit comments
electronically at
http://www.irs.ustreas.gov/prod/tax__
regs/comments.html
(the Service’s internet site). All comments submitted will be available for public inspection and copying. Please identify the comments as relating to this
Notice 98–25.
SECTION 6. EFFECT OF THIS
NOTICE ON NOTICE 96–65
A trust that otherwise qualifies for the
relief under this notice has the option of
proceeding under the provisions of Notice
96–65 or this Notice 98–25, or both. If
the trustee has begun conforming a trust’s
provisions under Notice 96–65 to meet
the definition set forth in new § 7701(a)(30)(E), the trustee may discontinue conforming the trust’s provisions to meet the
new domestic trust criteria if the trustee
proceeds under this Notice 98–25 instead
of Notice 96–65.

SECTION 5. REVOCATION OR
TERMINATION OF THE ELECTION
AND PUBLIC COMMENTS

SECTION 7. EFFECTIVE DATE

Section 1161(a) of the Taxpayer Relief
Act authorizes the Secretary to prescribe
regulations regarding the election to remain a domestic trust. The regulations will
incorporate the rules contained in this notice and provide guidance with respect to
when the occurrence of certain significant
changes in circumstances related to the
trust will terminate the election (for example, changes in the trustees from United
States persons to foreign persons). The
regulations will also contain procedures for
revoking the election. The Service and the

PAPERWORK REDUCTION ACT

13

This notice applies to an election made
for the first taxable year of a trust beginning after December 31, 1996. The provisions of this notice will be incorporated
into regulations that will be effective for
taxable years beginning after December
31, 1996.

The collections of information contained in this notice have been reviewed
and approved by the Office of Management and Budget for review in accordance with the Paperwork Reduction Act

May 4, 1998

(44 U.S.C. 3507) under control number
1545–1600.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
The collections of information in this
notice are in section 4 headed Procedure
for Making the Election. This information is required by the IRS to assure compliance with the provisions of the Small
Business Job Protection Act of 1996 and
the Taxpayer Relief Act of 1997. The
likely respondents are trusts.
The estimated total annual reporting
burden is 250,000 hours.
The estimated average annual burden
per respondent is 30 minutes.
The estimated number of respondents
is 500,000.
The estimated annual frequency of responses is once.

Month
April

Year
1998

Drafting Information
The principal author of this notice is
Donna Prestia of the Employee Plans Division. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Ms. Prestia’s number
is (202) 622-7377 (also not a toll-free
number).

Renewable Electricity
Production Credit, Publication of
Inflation Adjustment Factor and
Reference Prices for Calendar
Year 1998
Notice 98–27
This notice publishes the inflation adjustment factor and reference prices for
calendar year 1998 for the renewable
electricity production credit under § 45(a)
of the Internal Revenue Code. The 1998
inflation adjustment factor and reference
prices are used in determining the availability of the credit. The 1998 inflation

May 4, 1998

Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal authors of this notice are
Eliana Dolgoff and James A. Quinn of the
Office of Assistant Chief Counsel
(Passthroughs & Special Industries). For
further information regarding this notice
contact Ms. Dolgoff or Mr. Quinn on
(202) 622-3060 (not a toll-free call). For
further information about the international tax consequences of the election
that is the subject of this notice contact
Trina Dang of the Office of the Associate
Chief Counsel (International) on (202)
622-3880.

90% to 106%
Permissible
Range
6.00 to 7.07

Weighted
Average
6.67

adjustment factor and reference prices
apply to calendar year 1998 sales of kilowatt-hours of electricity produced in the
United States or a possession thereof from
qualified energy resources.
BACKGROUND
Section 45(a) provides that the renewable electricity production credit for any
tax year is an amount equal to the product
of 1.5 cents multiplied by the kilowatthours of specified electricity produced by
the taxpayer and sold to an unrelated person during the tax year. This electricity
must be produced from qualified energy
resources and at a qualified facility during
the 10-year period beginning on the date
the facility was originally placed in service.
Section 45(b)(1) provides that the
amount of the credit determined under
§ 45(a) is reduced by an amount that bears
the same ratio to the amount of the credit
as (A) the amount by which the reference
price for the calendar year in which the
sale occurs exceeds 8 cents bears to (B) 3
cents. Under § 45(b)(2), the 1.5 cents in

14

Weighted Average Interest Rate
Update
Notice 98–26
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current liability for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103–465
(GATT).
The average yield on the 30-year Treasury Constant Maturities for March 1998
is 5.95 percent.
The following rates were determined
for the plan years beginning in the month
shown below.

90% to 110%
Permissible
Range
6.00 to 7.34
§ 45(a) and the 8 cents in § 45(b)(1) are
each adjusted by multiplying the amount
by the inflation adjustment factor for the
calendar year in which the sale occurs.
Section 45(c)(1) defines qualified energy resources as wind and closed-loop
biomass. Section 45(c)(3) defines a qualified facility as any facility owned by the
taxpayer that originally is placed in service after December 31, 1993 (December
31, 1992, in the case of a facility using
closed-loop biomass to produce electricity), and before July 1, 1999.
Section 45(d)(2)(A) requires the Secretary to determine and publish in the Federal Register each calendar year the inflation adjustment factor and the reference
prices for the calendar year. The inflation
adjustment factor and the reference prices
for the 1998 calendar year were published
in the Federal Register on April 1, 1998,
(62 Fed. Reg. 15917).
Section 45(d)(2)(B) defines the inflation adjustment factor for a calendar year
as the fraction the numerator of which is
the GDP implicit price deflator for the
preceding calendar year and the denomi-

1998–18 I.R.B.

nator of which is the GDP implicit price
deflator for the calendar year 1992. The
term “GDP implicit price deflator” means
the most recent revision of the implicit
price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15
of the calendar year.
Section 45(d)(2)(C) provides that the
reference price is the Secretary’s determination of the annual average contract
price per kilowatt hour of electricity generated from the same qualified energy resource and sold in the previous year in the
United States. Only contracts entered
into after December 31, 1989, are taken
into account.
INFLATION ADJUSTMENT FACTOR
AND REFERENCE PRICES
The inflation adjustment factor for calendar year 1998 is 1.1240. The reference
prices for calendar year 1998 are 4.95
cents per kilowatt-hour for facilities producing electricity from wind energy resources and 0 cents per kilowatt-hour for
facilities producing electricity from
closed-loop biomass energy resources.
The reference price for electricity produced from closed-loop biomass, as defined in § 45(c)(2), is based on a determination under § 45(d)(2)(C) that in
calendar year 1997 there were no sales of
electricity generated from closed-loop
biomass energy resources under contracts
entered into after December 31, 1989.
PHASE-OUT CALCULATION
Because the 1998 reference prices for
electricity produced from wind and
closed-loop biomass energy resources do
not exceed 8 cents per kilowatt hour multiplied by the inflation adjustment factor,
the phaseout of the credit provided in
§ 45(b)(1) does not apply to electricity
produced from wind or closed-loop biomass energy resources sold during calendar year 1998.
CREDIT AMOUNT
As required by § 45(b)(2), the 1.5¢
amount in § 45(a)(1) is adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in
which the sale occurs. If any amount as
increased under the preceding sentence is
not a multiple of 0.1¢, such amount is

1998–18 I.R.B.

rounded to the nearest multiple of 0.1¢.
Under the calculation required by
§ 45(b)(2), the renewable electricity production credit for calendar year 1998 is
1.7¢ per kilowatt hour on the sale of electricity produced from closed-loop biomass and wind energy resources.
DRAFTING INFORMATION
CONTACT
The principal author of this notice is
David A. Selig of the Office of Assistant
Chief Counsel (Passthroughs and Special
Industries). For further information regarding this notice contact Mr. Selig at
(202) 622-3040 (not a toll-free call).

26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, Section 2512; Section 25.2512–1.)

Rev. Proc. 98–34
SECTION 1. PURPOSE
This revenue procedure sets forth a
methodology to value for gift, estate, and
generation-skipping transfer tax (“transfer
tax”) purposes certain compensatory
stock options described in Section 3 of
this revenue procedure. Taxpayers relying
on this revenue procedure may use an option pricing model that takes into account
on the valuation date specific factors that
are similar to those established by the Financial Accounting Standards Board in
Accounting for Stock-Based Compensation, Statement of Financial Accounting
Standards No. 123, (Fin. Accounting
Standards Bd. 1995), (FAS 123). The Internal Revenue Service will treat the
value of a compensatory stock option as
properly determined for transfer tax purposes, provided that the requirements of
this revenue procedure are met.
SECTION 2. BACKGROUND
Section 2512(a) of the Internal Revenue Code provides that, if a gift is made
in property, the value of the property at
the date of the gift is the amount of the
gift.
Section 25.2512–1 of the Gift Tax Regulations provides that for gift tax purposes
the value of property is the price at which
the property would change hands between
a willing buyer and a willing seller, nei-

15

ther being under any compulsion to buy
or to sell and both having reasonable
knowledge of relevant facts.
Section 2031(a) provides that the value
of the gross estate is determined by including the value at the time of the decedent’s death of all property, real or personal, tangible or intangible, wherever
situated.
Section 20.2031–1(b) of the Estate Tax
Regulations provides that the value of
every item of property includible in a
decedent’s gross estate is its fair market
value at the time of the decedent’s death.
Section 2032(a) provides that the executor may elect to use an alternate valuation date. Under this election, the value
of all property included in the gross estate
generally is determined as of 6 months
after the decedent’s death. However,
property distributed, sold, exchanged, or
otherwise disposed of within 6 months
after death must be valued as of the date
of sale, exchange, or other disposition.
Section 2624(a) provides that, except
as otherwise provided in Chapter 13,
property is valued at the time of the generation- skipping transfer.
FAS 123 establishes financial accounting and reporting standards for stockbased employee compensation plans.
Under FAS 123, the fair value of a stock
option granted by a public entity is estimated using an option pricing model (for
example, the Black-Scholes model or a
binomial model) that takes into account as
of the option grant date: (1) the exercise
price of the option; (2) the expected life of
the option; (3) the current price of the underlying stock; (4) the expected volatility
of the underlying stock; (5) the expected
dividends on the underlying stock; and (6)
the risk-free interest rate for the expected
term of the option.
FAS 123 generally requires a public entity to disclose in its financial statements
for each year beginning after December
15, 1994, a description of the method and
significant assumptions used during the
year to estimate the fair value of stock options granted during the year, including
the following weighted-average information: (1) expected life of the options; (2)
expected volatility; (3) expected dividends; and (4) risk-free interest rate. (The
foregoing is not a complete list of the disclosures required by FAS 123. For example, FAS 123 also requires financial state-

May 4, 1998

ment disclosure of the weighted-average
exercise prices of options granted during
the year.)
SECTION 3. SCOPE
This revenue procedure applies only to
the valuation for transfer tax purposes of
nonpublicly traded compensatory stock
options (that is, stock options that are
granted in connection with the performance of services, including stock options that are subject to the provisions of
§ 421), on stock that, on the valuation
date, is publicly traded on an established
securities market. The options to which
this revenue procedure applies are referred to herein as “Compensatory Stock
Options.”
SECTION 4. APPLICATION
.01 Taxpayers may determine the value
of Compensatory Stock Options for transfer tax purposes by using a generally recognized option pricing model (for example, the Black-Scholes model or an
accepted version of the binomial model)
that takes into account as of the valuation
date the following factors: (1) the exercise price of the option; (2) the expected
life of the option; (3) the current trading
price of the underlying stock; (4) the expected volatility of the underlying stock;
(5) the expected dividends on the underlying stock; and (6) the risk-free interest
rate over the remaining option term.
.02 In order to rely on this revenue
procedure: (1) the taxpayer must use the
factors determined in section 4.03
through 4.07 of this revenue procedure;
(2) each of the factors used in applying
the option pricing model must be reasonable (for this purpose, the use of the factors in section 4.03 through 4.07 of this
revenue procedure will be deemed reasonable); (3) the option pricing model
must be properly applied; (4) the company that granted the option must be subject to FAS 123 in preparing its financial
statements for the fiscal year of the company that includes the valuation date; (5)
the underlying stock must be common
stock and must be the same stock for
which the expected volatility and expected dividends were estimated by the
company for purposes of FAS 123; and
(6) no discount can be applied to the valuation produced by the option pricing

May 4, 1998

model (for example, no discount can be
taken due to lack of transferability or due
to the termination of the option within a
specified number of days following termination of employment).
.03 Except as provided in section 4.04
of this revenue procedure, in determining
the factor for the expected life of the option, taxpayers must use either (1) the
maximum remaining term of the option
on the valuation date (Maximum Remaining Term), or (2) the expected life of the
option on the valuation date computed in
accordance with this section (Computed
Expected Life). The Maximum Remaining Term is the number of years rounded
down to the nearest 1/10th of a year from
the valuation date until the option’s expiration date (assuming no condition or
event occurs that would shorten the life of
the option).
The Computed Expected Life is determined in the following manner:
Step one: Obtain the weighted-average
expected life of options granted by the
publicly traded company that, for purposes of complying with FAS 123, is disclosed in its financial statements for the
fiscal year that includes the valuation date.
(If, instead of disclosing a weighted-average expected life for options granted during the fiscal year, the company disclosed
a method for computing the expected life
of the options granted during the fiscal
year, the taxpayer must compute the
weighted-average expected life for the
taxpayer’s option using the method disclosed by the company.)
Step two: Divide the weighted-average
expected life determined in step one by
the number of years, rounded up to the
nearest 1/10th of a year, from the date the
option was granted (without regard to the
application of § 424(h)(1)) until the option’s expiration date (assuming no condition or event occurs that would shorten
the life of the option).
Step three: Multiply the quotient obtained in step two by the Maximum Remaining Term. The resulting number
rounded down to the nearest 1/10th is the
Computed Expected Life expressed in
years.
This calculation can be demonstrated
by the following example. Assume that
on September 1, 1998, A is granted a
stock option from Company that will terminate on the earlier of the date 10 years

16

from the date of grant or the date 90 days
after the termination of A’s employment
with Company. The option becomes fully
exercisable 3 years from the date of grant.
For the fiscal year that includes September 1, 2001, Company discloses in a footnote to its financial statements, in accordance with FAS 123, that the
weighted-average expected life of stock
options granted by the Company during
the fiscal year is 6 years. On September
1, 2001, when A’s option becomes fully
exercisable, A makes a gift of a portion of
the option. On September 1, 2001, A’s
option qualifies as a Compensatory Stock
Option. For purposes of step one, the
weighted-average expected life is 6 years,
as disclosed by Company for purposes of
complying with FAS 123 for the fiscal
year that includes the valuation date. For
purposes of step two, the weighted-average expected life of 6 years is divided by
10 years, the maximum term of A’s option
on the date the option was granted by
Company. The resulting quotient is 0.6 (6
years divided by 10 years equals 0.6). For
purposes of step three, the quotient in step
two is multiplied by the Maximum Remaining Term to determine the Computed
Expected Life. The result is 4.2 years
(0.6 times 7 years equals 4.2 years).
.04 Taxpayers must use the Maximum
Remaining Term (and may not use the
Computed Expected Life) as the expected
life of the option on the valuation date if
one (or more) of the following conditions
is present:
(1) the transferor of the option (or the
decedent, in the case of a transfer at death)
is not the person to whom the option being
valued was granted by the company;
(2) except in the case of a transfer at
death, the transferor is not an employee or
director of the company on the valuation
date;
(3) except in the case of the death or
disability (within the meaning of
§ 22(e)(3)) of the transferor, the option
being valued does not terminate within 6
months of termination of employment (or
service as a director) of the transferor
with the company;
(4) the terms of the option being valued
permit the option to be transferred to, or
for the benefit of, one or more persons
other than either persons who are the natural objects of the transferor’s bounty or a
charitable organization;

1998–18 I.R.B.

(5) except in the case of the death of the
transferor, the option being valued has an
exercise price that is not fixed on the valuation date. The option does not have a
fixed exercise price if, for example, the
exercise price is determined by a formula
the results of which might change after
the valuation date. In addition, an option
will be deemed not to have a fixed exercise price if the company issuing the option has repriced options (that is, directly
or indirectly lowered the exercise price of
outstanding compensatory stock options)
within the 3-year period ending on the
valuation date;
(6) except in the case of the death of the
transferor, the option being valued has
terms and conditions such that if all the
options granted in the fiscal year of the
company that includes the valuation date
had the same terms and conditions, the
weighted-average expected life for the
year would have been more than 120% of
the weighted-average expected life actually reported for the year; or

1998–18 I.R.B.

(7) the company is not required by FAS
123 to disclose an expected life of the options granted in the fiscal year of the company that includes the valuation date.
.05 In determining the factor for the
expected volatility of the underlying
stock, taxpayers must use the expected
volatility of the underlying stock that, for
purposes of complying with FAS 123, is
disclosed in the financial statements of
the publicly traded company for the fiscal
year of the company that includes the valuation date.
.06 In determining the factor for the
expected dividends on the underlying
stock, taxpayers must use the expected
dividends on the underlying stock that,
for purposes of complying with FAS 123,
is disclosed in the financial statements of
the publicly traded company for the fiscal
year of the company that includes the valuation date.
.07 In determining the factor for the
risk-free interest rate, taxpayers must use
the yield to maturity on the valuation date

17

of zero-coupon U.S. Treasury Bonds with
a remaining term (as of the valuation
date) nearest to the expected life of the
option on the valuation date as determined in section 4.03 of this revenue procedure.
.08 Taxpayers utilizing this revenue
procedure to value a Compensatory Stock
Option for transfer tax purposes should
indicate on the applicable gift, estate, or
generation-skipping transfer tax return:
“FILED PURSUANT TO REV. PROC.
98–34.”
DRAFTING INFORMATION
The principal author of this revenue
procedure is Robert B. Hanson of the Office of Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue procedure, contact Mr. Hanson
on (202) 622-3050 or Melissa C. Liquerman on (202) 622-3120 (not toll-free
calls).

May 4, 1998

Part IV. Items of General Interest
Notice of Public Hearing on
Proposed Regulations
Tax Treatment of Cafeteria
Plans; Hearing
REG–243025–96
AGENCY: Internal Revenue Service,
Treasury.
ACTION: Notice of public hearing on
proposed regulations.
SUMMARY: This document provides
notice of a public hearing on proposed
amendments that would provide guidance
on the circumstances under which a cafeteria plan participant may revoke an existing election and make a new election during a period of coverage.
DATES: The public hearing will be held
on Tuesday, May 5, 1998, beginning at
10:00 a.m. Requests to speak and outlines of oral comments must be received
by Tuesday, April 14, 1998.
ADDRESSES: The public hearing will
be held in room 2615, Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Requests to speak and
outlines of oral comments should be submitted to the CC:DOM:CORP:R (REG–
243025–96), room 5226, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:
CORP:R (REG–243025–96), Courier’s
Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington,
DC.
FOR FURTHER INFORMATION CONTACT: Mike Slaughter of the Regulations Unit, Assistant Chief Counsel (Corporate), 202-622-7190 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
The subject of the public hearing is proposed regulations under section 125 of the
Internal Revenue Code. These regulations
appeared in the Federal Register (62 F.R.
60196) on Friday, November 7, 1997.
The rules of §601.601 (a)(3) of the
“Statement of Procedural Rules” (26 CFR

May 4, 1998

part 601) shall apply with respect to the
public hearing. Persons who have submitted written comments within the time
prescribed in the notice of proposed rulemaking and who also desire to present
oral comments at the hearing on the proposed regulations should submit not later
than Tuesday, April 21, 1998, an outline
of the oral comments/testimony to be presented at the hearing and the time they
wish to devote to each subject.
Each speaker (or group of speakers representing a single entity) will be limited to
10 minutes for an oral presentation exclusive of the time consumed by the questions from the panel for the government
and answers to these questions.
Because of controlled access restrictions, attendees cannot be admitted beyond the lobby of the Internal Revenue
Building until 9:45 a.m.
An agenda showing the scheduling of
the speakers will be made after outlines
are received from the persons testifying.
Copies of the agenda will be available
free of charge at the hearing.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on
March 18, 1998, 8:45 a.m., and published in the
issue of the Federal Register for March 19, 1998, 63
F.R. 13383).

Foundations Status of Certain
Organizations
Announcement 98–36
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

18

organizations that are not private foundations described in section 509(a) of the
Code) are now classified as private foundations:
Christians for Renewed Family Values,
Inc., St. Petersburg, FL
Christopher Area Youth Association,
Christopher, IL
Cincinnati Organization of Parents of
Suzuki, Cincinnati, OH
Circle B. Blessings Therapeutic Riding
Center, Inc., Walkerton, IN
Citizens Against Ravaging Our
Environment, Inc., Clinton, MI
Citizens for Positive Affirmation Inc.,
Jacksonville, FL
Citizens for Tomorrows Future Inc.,
Ivanhole, NC
Citizens Housing and Motivation
Program-CHAMP, Houston, TX
Citizens Island Bridge Company LTD,
Lake Havasu, AZ
Citizens Promoting Recycling, Rifle, CO
Coast of Judea Inc., Whitesboro, NJ
Coastal Area Home Providers
Association, Inc., Savannah, GA
Coastal Carolina HIV Care Consortium,
Inc., Jacksonville, NC
Cobb County Fire and Emergency
Services Benevolent Fund, Marietta,
GA
Coffee Springs School District
Foundation, Inc., Coffee Springs, AL
Coker Volunteer Fire Department Inc.,
Coker, AL
Colcord Little League Inc., Colcord, OK
College Information Systems, Hickory,
NC
Collegians Activated To Liberate Life
Call, Madison, WI
Collierville Rotary Foundation,
Collierville, TN
Collirene Youth Recreation Inc., Tyler,
AL
Collision Ministries Inc., Franklin, TN
Colony Library Foundation, The Colony,
TX
Colorado American Indian Foundation,
Denver, CO
Colorado Assistance Center Inc., Denver,
CO
Colorado Association for Healthcare
Quality, Inc., Fort Collins, CO
Colorado Childrens Center for the
Cinematic & Performing Arts, Inc.,
Denver, CO

1998–18 I.R.B.

Colorado Foxes Recreational Soccer
Club, Inc., Parker, CO
Colorado Senior Network Users Group,
Colorado Springs, CO
Colorado Staff Development Council,
Broomfield, CO
Colorado Teamsters Hispanic Caucus
Joint Council 3, Denver, CO
Colorado Veterans for Housing Inc.,
Denver, CO
Colorado Young Lawyers Christmas in
January Inc., Colorado Springs, CO
Columbia State U Inc., Metairie, LA
Columbus-Copapayo Sister City Project,
Columbus, OH
Columbus Quincentennial Foundation
Inc., Media, PA
Coming Together To Help Promotions,
Philadelphia, PA
Comites Inc., Miami, FL
Commerce Enhancement Corporation,
Shelbyville, KY
Committee for the March on Washington,
Inc., Pittsburgh, PA
Community Access Centers Inc.,
Roanoke, VA
Community Access Television Inc.,
Fayetteville, AR
Community Action Services, Provo,
UT
Community Help Inc., Columbia, SC
Community Housing Action Team
Incorporated, Indianapolis, IN
Community Housing Assistance
Program, Lebanon, OH
Community Housing Corporation,
Southfield, MI
Community Impact Organization,
Greenville, NC
Community Multi-Cultural Action Team,
Jackson, TN
Community of Men, Chicago, IL
Community Redevelopment Inc., Atlanta,
GA
Community Reinvestment Foundation
Inc., Indianapolis, IN
Community Relations Council in
Anderson County, Inc., Palestine, TX
Community Resource Council Polk
Youth Institute, Inc., Raleigh, NC
Community Resources Inc., Thomasville,
GA
Community Resources Unlimited Inc.,
Silver Spring, MD
Community Social Service Inc., Baton
Rouge, LA
Community United Neighbors Against
Drugs, Philadelphia, PA

1998–18 I.R.B.

Community Volunteer Training, Kansas
City, MO
Community Works, Charlotte, NC
Community Youth Association, Nevada,
TX
Compani, Richfield, UT
Compass Ministries Inc., Glendale, AZ
Compass Theatre Company, Denver,
CO
Compassionate Heart Ministries Inc.,
Kansas City, MO
Comprehensive Care Center Memorial
Fund, Houston, TX
Computer Awareness Foundation Inc.,
Edison, NJ
Computer Lifeskills Center Inc., Grand
Rapids, MI
Comsoft, Clemson, SC
Concerned Citizens for a Better
Community, Harvey, IL
Concerned Citizens of Central Texas
Sentinel Communications, Waco,
TX
Concerned Clergy Foundation Inc.,
Indianapolis, IN
Concerned Senior Citizens of Colorado,
Inc., Fort Collins, CO
Concert Dance Ensemble, Waxahachie,
TX
Concho Valley Regional Hospital
Auxiliary, San Angelo, TX
Conneaut Education Foundation,
Conneaut, OH
Connections for a Better World Inc.,
Chevy Chase, MD
Connor Moran Childrens Cancer
Foundation, Inc., Tequesta, FL
Conquerors Quartet Ministries
Incorporated, Evansville, IN
Conway Youth Sports Club Inc., Conway,
AR
Cook County Council on Child Abuse
Inc., Adel, GA
Cormagda Inc., Chicago, IL
Cornerstone Ministries Inc., Dodge City,
KS
Corning Community Center Inc.,
Corning, AR
Coulters Mill Baptist Fellowship, Oreana,
IL
Council for Urban Peace and Justice,
Granville, OH
Council of Friends Groups of Akron,
Akron, OH
Counseling Advocacy Resources Inc.,
Kokomo, IN
Count & Countess De Hoernle, Deerfield
Beach, FL

19

Count It All Joy Inc., Seymour, IN
Country Heights Playground,
Owensboro, KY
Country Kids Pre-School and Day,
Pocahontas, AR
Court Appointed Special Advocates,
Lewisville, TX
Coweta Communities in Schools Inc.,
Newnan, GA
Cowtown Opry, Fort Worth, TX
Cozad Youth Recreation, Cozad, NE
Craigs Divorced Kids, Craig, CO
Cranberry Township Athletic, Cranberry
Twp, PA
Craven County Pirate Club, New Bern,
NC
Create Inc., Tallahassee, FL
Creations Anew Inc., North Royalton,
OH
Creative Learning Day-Care Inc., St.
Martinville, LA
Creative Playground of Ft. Pierce, Ft.
Pierce, FL
Creek County Sheriff Reserve, Supulpa,
OK
Creole Chapter 43 NAWCC, Metairie,
LA
Crime Stoppers of Carroll County,
Huntingdon, TN
Crime Stoppers of Mayfield & Graves,
Mayfield, KY
Crisis Pregnancy C A R E Center Inc.,
Harrodsburg, KY
Crisis Pregnancy Help-Line, Manistique,
MI
Crisis Pregnancy Services of ADA, Ada,
OK
Critical Incident Stress Debriefing,
Winter Haven, FL
Critical Thought Development, Grand
Rapids, MI
Cro-Aid Corp, Fort Lee, NJ
Croatian Council of Kansas City Inc.,
Kansas City, KS
Croation Youth of New Jersey Inc., Fort
Lee, NJ
Crofton Park Production Company,
Morristown, TN
Crossroad Farms Inc., Newark, DE
Crossroads Career Services Inc., Atlanta,
GA
Crosstown Outreach Services, Detroit,
MI
Crown Broadcasting Company, Pella, IA
Dreammakers International Education
Inc., Columbus, OH
Dreamstreets Press Incorporated,
Newark, DE

May 4, 1998

Driver of the Year Foundation Inc.,
Pittsburgh, PA
Drug and AIDS Prevention Among
African-Americans Inc., Smithfield,
NC
Drug Free Housing Foundation Inc.,
Jacksonville, FL
Drug Free Workplace Coalition of Palm
Beach County Inc., West Palm Beach,
FL
Drug Watch International, Elmhurst, IL
Dublin Irish Celebration, Dublin, OH
Dubuque Area Youth Leadership Council,
Dubuque, IA
Duke and Duchess Inc., Houston, TX
Dunbar Bulldog Academic and Athletic
Boosters Inc., Lexington, KY
Duncanville Soccer Association,
Duncanville, TX
Durand Farm Natural Preserve Inc.,
Decatur, GA
Episcopal Investment Corporation,
Houston, TX
Epsilon Tau Omega Endowment Fund,
Greenville, SC
Equestrian Challenge of Naples Inc.,
Naples, FL
Equestrian Support Group, Hampton, AR
Equip and Unify to Reach, Altamonte
Springs, FL
Fous Inc., Decatur, GA
Franciscan Service Program
Incorporated, Covington, KY
Frank L. Rizzo Monument Committee,
Philadelphia, PA
Franklin County Education Corporation,
Meadville, MS
Franz Jaegerstaetter Memorial Fund Inc.,
Marion, SD
Frazier Freedom Neighborhood
Association, Dallas, TX
Fred A. Link III Memorial Scholarship
Inc., Bridgeport, OH

May 4, 1998

Fred Demayo Scholarship Fund Inc.,
Glenridge, NJ
Freddie Moore Memorial Care Home
Inc., Memphis, TN
Frederick County Sheriffs Office Citizen
Advisory Committee Inc., Frederick,
MD
Frederick Knight Ministries Inc.,
Midfield, AL
Free Media Forum Inc., Atlanta, GA
Friends of Kennesaw Mountain National
Battlefield Park Inc., Marietta, GA
Friends of Martin Memorial Library,
Williamston, NC
Friends of Mi Casa Inc., San Antonio, TX
Friends of Nathan Goff House Inc.,
Clarksburg, WV
Friends of Northville Parks & Recreation,
Northville, MI
Friends of Q. A. Thorp, Chicago, IL
Friends of the Blanchard Library Inc.,
Blanchard, OK
Friends of the Coast Corporation, New
Braunfels, TX
Friends of the Colon Township Library,
Colon, MI
Friends of the Culinary Arts Foundation,
Cincinnati, OH
Friends of the Danville Public Library,
Danville, IL
Friends of the Davis Program Inc.,
Columbus, OH
Friends of the Holy Cross, Washington,
DC
Friends of the Kenyon Area Ambulance
Association, Kenyon, MN
Friends of the Knox County Public
Library Incorporated, Vincennes, IN
Friends of the Lancaster Veterans
Memorial Library, Lancaster, TX
Friends of the Marylou Reddick Public
Library, Fort Worth, TX
Friends of the Sierra Leone Peoples
Organization, Washington, DC

20

Friends of the Topiary Park Inc.,
Columbus, OH
Friends of Tijeras Pueblo, Tijeras, NM
Future Harvest, Jackson, MS
Future Leaders for a Better Philadelphia
Inc., Philadelphia, PA
Footprints Only Inc., Timonium, MD
For a Better World Inc., New Orleans,
LA
Foresight Ministries Inc., Cascade, WI
Greenwood Superfund Oversight
Coalition, Warrenton, VA
Greg Mausz Evangelistic Association
Inc., Fayetteville, GA
Gresham Hills Inc., Florence, AL
Gulf Coast—A Journal of Literature &
Fine Arts, Houston, TX
Gulf Coast Cycling Association,
Houston, TX
Gulf Yachting Association Foundation
Inc., Mobile, AL
Gunsight Religious Conference Center &
Dude Ranch, San Antonio, TX
Gurleys Transportation Service Inc., New
Orleans, LA
Guru Nanak Nam Foundation, Santa
Cruz, NM
Gwinnett County Mounted Patrol,
Lawrenceville, GA
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.

1998–18 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior published position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confusion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the substance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published ruling is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a period of time in separate rulings. If the

new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously published ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be published that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

Abbreviations

E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.

PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

The following abbreviations in current use and formerly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.

1998–18 I.R.B.

21

May 4, 1998

Numerical Finding List1

Proposed Regulations—Continued

Revenue Rulings—Continued

Bulletins 1998–1 through 1998–17

REG–102894–97, 1998–3 I.R.B. 59
REG–104062–97, 1998–10 I.R.B. 34
REG–104537–97, 1998–16 I.R.B. 21
REG–104691–97, 1998–11 I.R.B. 13
REG–105163–97, 1998–8 I.R.B. 31
REG–109333–97, 1998–9 I.R.B. 9
REG–109704–97, 1998–3 I.R.B. 60
REG–110965–97, 1998–13 I.R.B. 42
REG–115795–97, 1998–8 I.R.B. 33
REG–119449–97, 1998–10 I.R.B. 35
REG–120200–97, 1998–12 I.R.B. 32
REG–120882–97, 1998–14 I.R.B. 25
REG–121755–97, 1998–9 I.R.B. 13
REG–208299–90, 1998–16 I.R.B. 26
REG–209276–87, 1998–11 I.R.B. 18
REG–209322–82, 1998–15 I.R.B. 26
REG–209373–81, 1998–14 I.R.B. 26
REG–209463–82, 1998–4 I.R.B. 27
REG–209476–82, 1998–8 I.R.B. 36
REG–209484–87, 1998–8 I.R.B. 40
REG–209485–86, 1998–11 I.R.B. 21
REG–209682–94, 1998–17 I.R.B. 20
REG–209807–95, 1998–8 I.R.B. 40
REG–251502–96, 1998–9 I.R.B. 14

98–10, 1998–10 I.R.B. 11
98–11, 1998–10 I.R.B. 13
98–12, 1998–10 I.R.B. 5
98–13, 1998–11 I.R.B. 4
98–14, 1998–11 I.R.B. 4
98–15, 1998–12 I.R.B. 6
98–16, 1998–13 I.R.B. 18
98–17, 1998–13 I.R.B. 21
98–18, 1998–14 I.R.B. 22
98–19, 1998–15 I.R.B. 5
98–20, 1998–15 I.R.B. 8

Announcements:
98–1, 1998–2 I.R.B. 38
98–2, 1998–2 I.R.B. 38
98–3, 1998–2 I.R.B. 38
98–4, 1998–4 I.R.B. 31
98–5, 1998–5 I.R.B. 25
98–6, 1998–5 I.R.B. 25
98–7, 1998–5 I.R.B. 26
98–8, 1998–6 I.R.B. 96
98–9, 1998–7 I.R.B. 35
98–10, 1998–7 I.R.B. 35
98–11, 1998–8 I.R.B. 42
98–12, 1998–8 I.R.B. 43
98–13, 1998–8 I.R.B. 43
98–14, 1998–8 I.R.B. 44
98–15, 1998–10 I.R.B. 36
98–16, 1998–9 I.R.B. 17
98–17, 1998–9 I.R.B. 16
98–18, 1998–10 I.R.B. 44
98–19, 1998–10 I.R.B. 44
98–20, 1998–11 I.R.B. 25
98–21, 1998–11 I.R.B. 26
98–22, 1998–12 I.R.B. 33
98–23, 1998–12 I.R.B. 34
98–24, 1998–12 I.R.B. 35
98–25, 1998–13 I.R.B. 43
98–26, 1998–14 I.R.B. 28
98–27, 1998–15 I.R.B. 30
98–28, 1998–15 I.R.B. 30
98–29, 1998–16 I.R.B. 48
98–30, 1998–17 I.R.B. 38
98–32, 1998–17 I.R.B. 39
98–33, 1998–17 I.R.B. 39
98–34, 1998–17 I.R.B. 39
98–35, 1998–17 I.R.B. 40
Notices:
98–1, 1998–3 I.R.B. 42
98–2, 1998–2 I.R.B. 22
98–3, 1998–3 I.R.B. 48
98–4, 1998–2 I.R.B. 25
98–5, 1998–3 I.B.R. 49
98–6, 1998–3 I.R.B. 52
98–7, 1998–3 I.R.B. 54
98–8, 1998–4 I.R.B. 6
98–9, 1998–4 I.R.B. 8
98–10, 1998–6 I.R.B. 9
98–11, 1998–6 I.R.B. 18
98–12, 1998–5 I.R.B. 12
98–13, 1998–6 I.R.B. 19
98–14, 1998–8 I.R.B. 27
98–15, 1998–9 I.R.B. 8
98–16, 1998–15 I.R.B. 12
98–17, 1998–11 I.R.B. 6
98–18, 1998–12 I.R.B. 11
98–19, 1998–13 I.R.B. 24
98–20, 1998–13 I.R.B. 25
98–21, 1998–15 I.R.B. 14
98–22, 1998–17 I.R.B. 5
98–24, 1998–17 I.R.B. 5
Proposed Regulations:
PS–158–86, 1998–11 I.R.B. 13
REG–100841–97, 1998–8 I.R.B. 30
REG–102144–98, 1998–15 I.R.B. 25

Revenue Procedures:
98–1, 1998–1 I.R.B. 7
98–2, 1998–1 I.R.B. 74
98–3, 1998–1 I.R.B. 100
98–4, 1998–1 I.R.B. 113
98–5, 1998–1 I.R.B. 155
98–6, 1998–1 I.R.B. 183
98–7, 1998–1 I.R.B. 222
98–8, 1998–1 I.R.B. 225
98–9, 1998–3 I.R.B. 56
98–10, 1998–2 I.R.B. 35
98–11, 1998–4 I.R.B. 9
98–12, 1998–4 I.R.B. 18
98–13, 1998–4 I.R.B. 21
98–14, 1998–4 I.R.B. 22
98–15, 1998–4 I.R.B. 25
98–16, 1998–5 I.R.B. 19
98–17, 1998–5 I.R.B. 21
98–18, 1998–6 I.R.B. 20
98–19, 1998–7 I.R.B. 30
98–20, 1998–7 I.R.B. 32
98–21, 1998–8 I.R.B. 27
98–22, 1998–12 I.R.B. 11
98–23, 1998–10 I.R.B. 30
98–24, 1998–10 I.R.B. 31
98–25, 1998–11 I.R.B. 7
98–26, 1998–13 I.R.B. 26
98–27, 1998–15 I.R.B. 15
98–28, 1998–15 I.R.B. 14
98–29, 1998–15 I.R.B. 22
98–30, 1998–17 I.R.B. 6
98–32, 1998–17 I.R.B. 11

Treasury Decisions:
8740, 1998–3 I.R.B. 4
8741, 1998–3 I.R.B. 6
8742, 1998–5 I.R.B. 4
8743, 1998–7 I.R.B. 26
8744, 1998–7 I.R.B. 20
8745, 1998–7 I.R.B. 15
8746, 1998–7 I.R.B. 4
8747, 1998–7 I.R.B. 18
8748, 1998–8 I.R.B. 24
8749, 1998–7 I.R.B. 16
8750, 1998–8 I.R.B. 4
8751, 1998–10 I.R.B. 23
8752, 1998–9 I.R.B. 4
8753, 1998–9 I.R.B. 6
8754, 1998–10 I.R.B. 15
8755, 1998–10 I.R.B. 21
8756, 1998–12 I.R.B. 4
8757, 1998–13 I.R.B. 4
8758, 1998–13 I.R.B. 15
8759, 1998–13 I.R.B. 19
8760, 1998–14 I.R.B. 4
8761, 1998–14 I.R.B. 13
8762, 1998–14 I.R.B. 15
8763, 1998–15 I.R.B. 5
8764, 1998–15 I.R.B. 9
8765, 1998–16 I.R.B. 11
8766, 1998–16 I.R.B. 17
8767, 1998–16 I.R.B. 4

Revenue Rulings:
98–1, 1998–2 I.R.B. 5
98–2, 1998–2 I.R.B. 15
98–3, 1998–2 I.R.B. 4
98–4, 1998–2 I.R.B. 18
98–5, 1998–2 I.R.B. 20
98–6, 1998–4 I.R.B. 4
98–7, 1998–6 I.R.B. 6
98–8, 1998–7 I.R.B. 24
98–9, 1998–6 I.R.B. 5

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–27 through
1997–52 will be found in Internal Revenue Bulletin
1998–1, dated January 5, 1998.

May 4, 1998

22

1998–18 I.R.B.

Finding List of Current Action on
Previously Published Items1
Bulletins 1998–1 through 1998–17
Revenue Procedures:
91–59
Updated and superseded by
98–25, 1998–11 I.R.B. 7
94–16
Modified and superseded by
98–22, 1998–12 I.R.B. 11
93–62
Modified and superseded by
98–22, 1998–12 I.R.B. 11
95–35
95–35A
Superseded by
98–19, 1998–7 I.R.B. 30
96–29
Modified and superseded by
98–22, 1998–12 I.R.B. 11
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–26
Obsoleted by
98–28, 1998–15 I.R.B. 14
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17
Supplemented and superseded by
98–5, 1998–2 I.R.B. 20
92–19
Supplemented in part by
98–2, 1998–2 I.R.B. 15

1 A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins
1997–27 through 1997–52 will be found in Internal
Revenue Bulletin 1998–1, dated January 5, 1998.

1998–18 I.R.B.

23

May 4, 1998

Index

ESTATE TAX—Continued

INCOME TAX—Continued

Internal Revenue Bulletins
1998–1 Through 1998–17

Revocable trust; election (RP 13) 4, 21
Underpayment interest, interest expense
deduction, estates (RP 15) 4, 25

Electronic Federal Tax Payment System:
Batch filers and bulk filers (RP 32) 17,
11
Employee plans:
Administrative programs; closing
agreements (RP 22) 12, 11
Determination letters (RP 6) 1, 183;
(RP 14) 4, 22
Discrimination; CODAs (Notice 1) 3,
42
Eligible deferred compensation plans
(Notice 8) 4, 6
Group health plans; COBRA continuation coverage; HIPAA portability
(Notice 12) 5, 12
Net unrealized appreciation; capital
gains (Notice 24) 17, 5
Funding:
Full funding limitations, weighted average interest rate for January 1998
(Notice 9) 4, 8; February 1998 (Notice 15) 9, 8; March 1998 (Notice
18) 12, 11
Letter rulings, etc. (RP 4) 1, 113
Limitations on benefits and contributions (RR 1) 2, 5
Minimum Funding Standards (RP 10)
2, 35
Proposed regulations:
26 CFR 1.401(a)(9)–1, amended; qualified plans and individual retirement
plans, required distributions (REG–
209463–82) 4, 27
Recovery of basis; retirees (Notice 2) 2,
22
SIMPLE-IRAs (Notice 4) 2, 25
Technical advice (RP 5) 1, 155
User fees (RP 8) 1, 225
Environmental cleanup costs; letter
rulings (RP 17) 5, 21
Exempt Organizations:
Letter rulings, etc. (RP 4) 1, 113
Organizations excepted from reporting
lobbying expenditures (RP 19) 7,
30
Tax consequences of physicians recruitment incentives provided by
hospitals (RR 15) 12, 6
Technical advice (RP 5) 1, 155
User fees (RP 8) 1, 225
Failure to deposit federal tax; penalty
abatement (Notice 14) 8, 27
Foreign partnerships, reporting transfer of
property by U.S. persons (Notice 17)
11, 6
Foreign tax credit abuse (Notice 5) 3, 49

For the index of items published during
the first six months of 1997, see I.R.B.
1998–1, dated January 5, 1998.
The abbreviation and number in parenthesis following the index entry refer to
the specific item; numbers in roman and
italic type following the parenthesis refer
to the Internal Revenue Bulletin in which
the item may be found and the page
number on which it appears.
Key to Abbreviations:
RR
Revenue Ruling
RP
Revenue Procedure
TD
Treasury Decision
CD
Court Decision
PL
Public Law
EO
Executive Order
DO
Delegation Order
TDO
Treasury Department Order
TC
Tax Convention
SPR
Statement of Procedural
Rules
PTE
Prohibited Transaction
Exemption

EMPLOYMENT TAX
Electronic filing; magnetic media; 1998
Form W–4 specifications (RP 26) 13,
26
Proposed regulations:
26 CFR 31.3121(v)(2)–1, revised;
FICA and FUTA taxation of amounts
under employee benefit plans (REG–
209484–87; REG–209807–95) 8, 40
26 CFR 31.6053–1, –4; electronic tip
reports (REG–104691–97) 11, 13
Student FICA exception (RP 16) 5, 19

ESTATE TAX
Regulations:
26 CFR 20.2041–3, 20.2056(d)–2,
amended; 20.2046–1, revised; property interests and disclaimer (TD
8744) 7, 20
26 CFR 25.2702–5, –7, amended; qualified prsonal residence trust, sale of
residence (TD 8743) 7, 26
26 CFR 25.2511–1, 25.2514–3,
25.2518–1, –2, amended; property
interests and disclaimers (TD 8744)
7, 20

May 4, 1998

EXCISE TAX
Bows and arrows; taxable and nontaxable
articles (RR 5) 2, 20
Proposed regulations:
26 CFR 40.0–1T, added; 40.6011(a)–
1T, added; 40.6302(c)–2T, added;
deposits of excise taxes (REG–
102894–97) 3, 59
26 CFR 54.4980B–1, added; group
health plans continuation coverage
requirements (REG–209485–86) 11,
21
Regulations:
26 CFR 40.0–1(a), amended;
40.6011(a)–1(a)(2)(iii), 40.5302(c)–
1, amended, 40.6302(c)–2(b)(2)(iii),
added; deposits of excise taxes (TD
8740) 3, 4
26 CFR 40.6011(a)–1(b)(2)(vi),
amended; 48.4082–5T, removed;
48.4082–5, added; 48.4081–1,
amended; 48.4082–5T, redesignated;
48.6416(b)(4)–1, removed; 48.6421–
3(d)(2), amended; 48.6427–3(d)(2),
amended; 48.6715–1(a)(3), revised;
48.6715–2T, removed; gasoline and
diesel fuel excise tax; special rules
for Alaska, definitions (TD 8748) 8,
24

GIFT TAX
Qualifying income interest, disposition
(RR 8) 7, 24

INCOME TAX
Advance pricing agreements, small business taxpayers (Notice 10) 6, 9
Article XIII (8) Rev. Proc. (RP 21) 8, 27
Automobile owners and lessees (RP 24)
10, 31; (RP 30) 17, 6
Books and records; automatic data processing system (RP 25) 11, 7
Capital gains and charitable remainder
trusts (Notice 20) 13, 25
Classification settlement program:
Extended until further notice (Notice
21) 15, 14
Education loans (Notice 7) 3, 54
Elections under section 7704(g) (Notice
3) 3, 48

24

1998–18 I.R.B.

INCOME TAX—Continued INCOME TAX—Continued INCOME TAX—Continued
Fringe benefits aircraft valuation formula,
first half of 1998 (RR 14) 11, 4
Insurance companies:
Discounting estimated salvage recoverable (RP 12) 4, 18
Interest rate tables (RR 2) 2, 15
Loss reserves; discounting unpaid
losses (RP 11) 4, 9
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for January 1998
(RR4) 2, 18; February 1998
(RR7) 6, 6; March 1998 (RR11)
10, 13; April 1998 (RR 18) 14, 22
Rates, underpayments and overpayments (RR 17) 13, 21
Inventory:
LIFO:
Price indexes; department stores for
November 1997 (RR 6) 4, 4; December 1997 (RR 9) 6, 5; January
1998 (RR 16) 13, 18; February
1998 (RR 20) 15, 8
Shrinkage estimates:
Changing method of accounting for
estimating inventory shrinkage
(RP 29) 15, 22
Letter rulings, determination letters, and
information letters issued by Associate
Chief Counsel (Domestic), Associate
Chief Counsel (EBEO), Associate
Chief Counsel (Enforcement Litigation), and Associate Chief Counsel
(International) (RP 1) 1, 7
Losses attributable to a disaster during
1997 (RR 12) 10, 5
Low-income housing tax credit (Notice
13) 6, 19
Satisfactory bond; “bond factor”
amounts for the period October
through December 1997 (RR 3) 2, 4;
January–March 1998 (RR 13) 11, 4
Passive foreign investment companies:
Shareholders may use rules of sec.
1.1295–1T(b)(4), (f), and (g) to taxable years beginning before January
1, 1998 (Notice 22) 17, 5
Proposed regulations:
26 CFR 1.72(p)–1, amended; loans to
plan participants (REG–209476–82)
8, 36
26 CFR 1.141–7, 1.142(f)(4)–1,
1.150–5, added; 1.141–8, –15,
amended; obligations of states and
political subdivisions (REG–
110965–97) 13, 42

1998–18 I.R.B.

26 CFR 1.195–1, added; election to
amortize start-up expenditures
(REG–209373–81) 14, 26
26 CFR 1.356–6, added; reorganizations, nonqualified preferred stock
(REG–121755–97) 9, 13
26 CFR 1.368–1, amended; corporate
reorganizations, continuity of interest (REG–120882–97) 14, 25
26 CFR 1.460–6, amended; election
not to apply look-back method in de
minimis cases (REG–120200–97)
12, 32
26 CFR 1.469–10, revised; 1.7704–1,
added; investment income, passive
activity income and loss rules for
publicly traded partnerships
(REG–105163–97) 8, 31
26 CFR 1.475(g)–2, new; 1.482–8,
added; 1.482–0, –1, –2, 1.863,
1.863–7(a)(1), 1.864–4, –6, 1.894–1,
amended; 1.482–9, redesignated;
global dealing operation allocation
and sourcing of income and deductions among taxpayers (REG–
208299–90) 16, 26
26 CFR 1.702–1, 1.954–1, 301.7701–3,
amended; 1.952–1(b), (c), redesignated 1.954–2(a)(5), (6), 1.954–
4(b)(2)(iii), 1.954–9, 1.956–2(a)(3),
added (REG–104537–97) 16, 21
26 CFR 1.732–1, amended; 1.732–2,
amended; 1.734–1(e), added; 1.743–
1, revised; 1.751–1, amended;
1.755–1, revised; 1.1017–1, revised;
adjustments to basis of partnership
property and partnership interest
(REG–209682–94) 17, 20
26 CFR 1.925(a)–1, (b)–1, added;
1.927(e)–1, amended; foreign sales
corporation transfer pricing source
and grouping rules (REG–102144–
98) 15, 25
26 CFR 1.1291–1, 1.1293–1, 1.1295–1,
–3, 1.1297–3(c), added; 1.1296–4,
amended; passive foreign investment
company preferred shares, special
income exclusion (REG–115795–
97) 8, 33
26 CFR 1.1397E–1, added; qualified
zone academy bonds (REG–
119449–97) 10, 35
26 CFR 1.1502–3(c), revised; 1.1502–
4(f)(3), (g)(3), added; 1.1502–9(b)(1)(v), added; 1.1502–21(c)(1)(iii),
amended; consolidated returns, limitations on the use of certain losses
and credits (REG–104062–97) 10, 34

25

26 CFR 1.6031–1, removed;
1.6031(a)–1, added; 1.6063–1,
amended; partnership returns
(REG–209322–82) 15, 26
26 CFR 1.7702B–1, –2, added; qualified long-term care insurance contracts (REG–109333–97) 9, 9
26 CFR 301.6159–1, amended; agreements for tax liability installment
payments (REG–100841–97) 8, 30
26 CFR 301.6404–2, added; abatement
of interest (REG–209276–87) 11, 18
26 CFR 301.7433–1(a), (d), (e), and
(f), revised; civil cause of action for
certain unauthorized collection actions (REG–251502–96) 9, 14
26 CFR 54.9812–1, added; mental
health parity; HIPAA (REG–
109704–97) 3, 60
Qualified Funeral Trust; guidance (Notice
6) 3, 52
Qualified intermediary agreements:
Guidance provided to foreign financial
institutions (RP 27) 15, 15
Qualified mortgage bonds, mortgage
credit certificates:
Guidance provided regarding use of national and area median gross income
figures by issuers (RP 28) 15, 14
Qualified Subchapter S Trust (QSST)
conversion to Electing Small Business
Trust (ESBT) 10, 30
Qualified Zone Academy Zone Bonds
(RP) 3, 100
Real estate transactions (RP 20) 7, 32
Regulations:
26 CFR 1.61–12, 1.249–1, 1.1016–5,
1.1275–1, amended; 1.163–13,
1.171–5, added; 1.171–1, –2, –3, –4,
revised; 1.1016–9, removed; amortizable bond premium (TD 8746) 7, 4
26 CFR 1.141–0, –2, amended;
1.141–7, –8, removed; 1.141–7T,
–8T, –15T, 1.142(f)(4)–1T, 1.150–
5T, added; 1.141–15, revised; obligations of states and political subdivisions (TD 8757) 13, 4
26 CFR 1.166–3(a)(3), 1.1001–4,
added; 1.166–3T, 1.1001–4T, removed; modifications of bad debts
and dealer assignments of notional
principal contracts (TD 8763) 15, 5
26 CFR 1.280B–1, added; building demolition, definition of structure (TD
8745) 7, 15
26 CFR 1.338–2, 1.368–1, –2,
amended; 1.368–1T, added; corporate reorganizations, continuity of in-

May 4, 1998

INCOME TAX—Continued INCOME TAX—Continued INCOME TAX—Continued
terest, and continuity of business enterprise (TD 8760) 14, 4; (TD 8761)
14, 13
26 CFR 1.354–1, 1.355–1, 1.356–3,
amended; reorganizations, treatment
of warrants as securities (TD 8752)
9, 4
26 CFR 1.356–6T, added; reorganizations, nonqualified preferred stock
(TD 8753) 9, 6
26 CFR 1.446–1, amended; 1.446–1T,
removed; 301.9100–0, added;
301.9100–1, revised; 301.9100–2,
–3, added; 301.9100–1T, –2T, –3T;
removed extensions of time to make
elections (TD 8742) 5, 4
26 CFR 1.453.11; installment obligations received from liquidating corporations (TD 8762) 14, 15
26 CFR 1.460–0, amended; 1.460–6T,
added; election not to apply lookback method in de minimis cases
(TD 8756) 12, 4
26 CFR 1.468A–2, –3, –8, amended;
nuclear decommissioning funds; revised schedules of ruling amounts
(TD 8758) 13, 15
26 CFR 1.904–5(o), 1.904–5T, 1.954–
0(b), 1.954–1, amended; 1.954–1T,
–2T, –9T, added; 301.7701–3(f)(1),
amended; controlled foreign corporation relating to partnerships and
branches (TD 8767) 16, 4
26 CFR 1.905–2, amended; foreign tax
credit filing requirements (TD 8759)
13, 19
26 CFR 1.925(a)–1T, 1.925(b)–
1T(b)(3)(i), amended; 1.927(e)–1T,

May 4, 1998

revised; foreign sales corporation
transfer pricing source and grouping
rules (TD 8764) 15, 9
26 CFR 1.985–1, –5(a), amended;
1.985–7, added; dollar approximate
separate transactions method of accounting (DASTM) to profit and loss
method of accounting, change from
P&L method to DASTM (TD 8765)
16, 11
26 CFR 1.1271–1, 1.1275–1, amended;
debt instruments with original issue
discount, annuity contracts (TD
8754) 10, 15
26 CFR 1.1202–0, –2, added; qualified
small business stock (TD 8749) 7, 16
26 CFR 1.1290–0, amended; 1.1294–0,
added; a. 1291–0T, amended;
1.1291–1T, added; 1.1291–9,
amended; 1.1293–0, –1T, added;
1.1295–0, –1T, –3T, 1.1297–3T(c),
added; passive foreign investment
company preferred shares, special
income exclusion (TD 8750) 8, 4
26 CFR 1.1396–1; empowerment zone
employment credit, qualified zone
employees (TD 8747) 7, 18
26 CFR 1.1397E–1T, added; qualified
zone academy bonds (TD 8755) 10,
21
26 CFR 1.1502–3, –4, –9(a),
–21T(c)(1)(iii), amended; 1.1502–
3T, –4T, –9T, –55T, added; 1.1502–
23T(b), (c), redesignated; consolidated returns, limitations on the use
of certain losses and credits, overall
foreign loss accounts (TD 8751) 10,
23

26

26 CFR 54.9801–2T, amended;
54.9801–4T, –5T, revised; 54.9804–
1T, redesignated; 54.9806–1T, redesignated; 54.9812–1T, added; mental
health parity, interim rules (TD
8741) 3, 6
Relocation payments:
Authorized by sec. 105(a)(11) of Housing and Community Development
Act, not includible in gross income
(RR 19) 15, 5
Reorganizations; exchange of securities
(RR 10) 10, 11
Rulings:
Areas in which advance rulings will not
be issued:
Associate Chief Counsel (Domestic), Associate Chief Counsel
(EBEO) (RP 3) 1, 100
Associate Chief Counsel (International) (RP 7) 1, 222
Rural airports (RP 18) 6, 20
Technical advice to district directors and
chiefs, appeals offices, Associate Chief
Counsel (Domestic), Associate Chief
Counsel (EBEO), Associate Chief
Counsel (Enforcement Litigation), and
Associate Chief Counsel (International)
(RP 2) 1, 74
Tentative differential earnings rate for
1997 (Notice 19) 13, 24
Treatment of hybrid arrangements under
subpart F (Notice 11) 6, 18
Withholding regulations:
Effective date of sec. 1441 withholding
regulations amended (Notice 16) 15,
12

1998–18 I.R.B.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A27b0707a12c49203. Public record. Not legal advice.