Bulletin No. 1999–13

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March 29, 1999

Internal Revenue

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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

EXEMPT ORGANIZATIONS

Rev. Rul. 99–14, page 3.

Announcement 99–27, page 22.

Business expenses; interest; lease-in/lease-out transactions. A taxpayer may not deduct, under sections 162

and 163 of the Code, rent and interest paid or incurred in

connection with a lease-in/lease-out (LILO) transaction that

lacks economic substance.

A list is given of organizations now classified as private foundations.

Rev. Rul. 99–16, page 5.

Rev. Proc. 99–19, page 10.

Interest rates; underpayments and overpayments. The

rate of interest determined under section 6621 of the Code

for the calendar quarter beginning April 1, 1999, will be 8

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

large corporate underpayments. The rate of interest paid on

the portion of a corporate overpayment exceeding $10,000

is 5.5 percent.

EMPLOYMENT TAX

Notice 99–16, page 10.

Deferred compensation; methods of accounting. This

notice provides procedures for implementing a change in

method of accounting to comply with section 404(a)(11) of

the Code, regarding the payment of deferred compensation.

EMPLOYEE PLANS

REG–118662–98, page 13.

ADMINISTRATIVE

Interest netting for interest accruing before October

1, 1998. This procedure provides guidance on how to apply

the net interest rate of zero in section 6621(d) of the Code

to interest accruing before October 1, 1998, with respect to

overlapping tax underpayments and tax overpayments. Public comments are requested regarding the application of

section 6621 to these payments.

Announcement 99–28, page 25.

This document contains a correction to the notice of proposed rulemaking, REG–106177–98 (1999–12 I.R.B. 25),

published in the Federal Register on December 22, 1998

(63 F.R. 70701).

Announcement 99–29, page 25.

This document contains a correction to final regulations,

T.D. 8804 (1999–12 I.R.B. 5), under section 1441 of the

Code, relating to the withholding of income tax on certain

U.S. source income payments to foreign persons.

Proposed regulations under section 411 of the Code provide

applicable standards for transmitting certain notices and

consent through electronic media, and modify the timing requirements for providing certain distribution-related notices.

A public hearing is scheduled for April 15, 1999.

Announcement 99–30, page 26.

Announcement 99–18, page 21.

Announcement 99–31, page 26.

This announcement clarifies the reporting of conversions to

Roth IRAs on Form 8606, Nondeductible IRAs. It clarifies the

note in Part III of the form relating to the 10% additional tax.

In addition, it corrects the computation of modified AGI for

Roth IRAs and the Ed IRA contribution worksheet in the instructions to the form.

This document contains corrections to T.D. 8795 (1999–7

I.R.B. 8), under section 411 of the Code, relating to defined

benefit plans and to individual account plans that are subject

to the funding standards of section 302 of the Employment

Retirement Income Security Act of 1974.

This document contains a correction to REG–104072–97

(1999–11 I.R.B. 12) relating to financing arrangements involving fast-pay stock.

Finding Lists begin on page 32.

Announcement of Disbarments and Suspensions begins on page 27.

Department of the Treasury

Internal Revenue Service

Mission of the Service

and by applying the tax law with integrity and fairness to

all.

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

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription

basis. Bulletin contents are consolidated semiannually into

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

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.

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

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.

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

Section 162.–Trade or Business

Expenses

26 CFR 1.162–11: Rentals.

(Also section 163; 1.163–1.)

Business expenses; interest; leasein /lease-out transactions. A taxpayer

may not deduct, under sections 162 and

163 of the Code, rent and interest paid or

incurred in connection with a leasein/lease-out (LILO) transaction that lacks

economic substance.

Rev. Rul. 99–14

ISSUE

May a taxpayer deduct, under §§ 162

and 163 of the Internal Revenue Code,

rent and interest paid or incurred in connection with a “lease-in/lease-out”

(“LILO”) transaction?

FACTS

X is a U.S. corporation. FM is a foreign

municipality that has historically owned

and used certain property having a remaining useful life of 50 years and a fair market

value of $100 million. BK1 and BK2 are

banks. None of the parties is related.

On January 1, 1997, X and FM entered

into a LILO transaction under which FM

leased the property to X under a

“Headlease,” and X immediately leased

the property back to FM under a “Sublease.” The term of the Headlease is 34

years. The “primary” term of the Sublease is 20 years. Moreover, as described

below, the Sublease may also have a “put

renewal” term of 10 years.

The Headlease requires X to make two

rental payments to FM during its 34-year

term: (1) an $89 million “prepayment” at

the beginning of year 1; and (2) a “postpayment” at the end of year 34 that has a

discounted present value of $8 million.

For federal income tax purposes, X and

FM allocate the prepayment ratably to the

first 6 years of the Headlease and the future value of the postpayment ratably to

the remaining 28 years of the Headlease.

The Sublease requires FM to make

fixed, annual rental payments over both

the primary term and, if exercised, the put

renewal term. The fixed, annual payments during the put renewal term are

1999–13 I.R.B.

substantially higher than those for the primary term. Nevertheless, the fixed, annual payments during the put renewal

term are projected (as of January 1, 1997)

to equal only 90 percent of the fair market

value rental amounts for that term.

At the end of the Sublease primary

term, FM has a “fixed- payment option”

to purchase from X the Headlease residual

(the right to use the property beyond the

Sublease primary term subject to the

obligation to make the rent postpayment)

for a fixed amount that is projected (as of

January 1, 1997) to be equal to the fair

market value of the Headlease residual. If

FM exercises the option, the transaction is

terminated at that point and X is not required to make any portion of the postpayment due under the Headlease. If FM

does not exercise the option, X may elect

to (1) use the property itself for the remaining term of the Headlease, (2) lease

the property to another person for the remaining term of the Headlease, or (3)

compel FM to lease the property for the

10-year put renewal term of the Sublease.

If FM does not exercise the fixed-payment option and X exercises its put renewal option, X can require FM to purchase a letter of credit guaranteeing the

put renewal rents. If FM does not obtain

the letter of credit, FM must exercise the

fixed-payment option.

To partially fund the $89 million

Headlease prepayment, X borrows $54

million from BK1 and $6 million from

BK2. Both loans are nonrecourse, have

fixed interest rates, and provide for annual debt service payments that fully

amortize the loans over the 20-year primary term of the Sublease. The amount

and timing of the debt service payments

mirror the amount and timing of the Sublease payments due during the primary

term of the Sublease.

Upon receiving the $89 million Headlease prepayment, FM deposits $54 million into a deposit account with an affiliate of BK1 and $6 million into a deposit

account with an affiliate of BK2. The deposits with the affiliates of BK1 and BK2

earn interest at the same rates as the loans

from BK1 and BK2. FM directs the affiliate of BK1 to pay BK1 annual amounts

equal to 90 percent of FM’s annual rent

obligation under the Sublease (that is,

amounts sufficient to satisfy X’s debt service obligation to BK1). The parties treat

these amounts as having been paid from

the affiliate to FM, then from FM to X as

rental payments, and finally from X to

BK1 as debt service payments. In addition, FM pledges the deposit account to X

as security for FM’s obligations under the

Sublease, while X, in turn, pledges its interest in FM’s pledge to BK1 as security

for X’s obligations under the loan from

BK1. Similarly, FM directs the affiliate of

BK2 to pay BK2 annual amounts equal to

10 percent of FM’s annual rent obligation

under the Sublease (that is, amounts sufficient to satisfy X’s debt service obligation

to BK2). The parties treat these amounts

as having been paid from the affiliate to

FM, then from FM to X as rental payments, and finally from X to BK2 as debt

service payments. Although this deposit

account is not pledged, the parties understand that FM will use the account to pay

the remaining 10 percent of FM’s annual

rent obligation under the Sublease.

X requires FM to invest $15 million of

the Headlease prepayment in highly-rated

debt securities that will mature in an

amount sufficient to fund the fixed

amount due under the fixed-payment option, and to pledge these debt securities to

X. Having economically defeased both its

rental obligations under the Sublease and

its fixed payment under the fixed-payment option, FM keeps the remaining

portion of the Headlease prepayment as

its return on the transaction.

For tax purposes, X claims deductions

for interest on the loans and for the allocated rents on the Headlease. X includes

in gross income the rents received on the

Sublease and, if and when exercised, the

payment received on the fixed payment

option. By accounting for each element

of the transaction separately, X purports to

generate a stream of substantial net deductions in the early years of the transaction followed by net income inclusions on

or after the conclusion of the Sublease

primary term. As a result, X anticipates a

substantial net after-tax return from the

transaction. X also anticipates a positive

pre- tax economic return from the transaction. However, this pre-tax return is insignificant in relation to the net after-tax

return.

March 29, 1999

LAW AND ANALYSIS

In general, a transaction will be respected for tax purposes if it has “economic substance which is compelled or

encouraged by business or regulatory realities, is imbued with tax-independent

considerations, and is not shaped solely

by tax-avoidance features that have meaningless labels attached.” Frank Lyon Co.

v. United States, 435 U.S. 561, 583–84

(1978); James v. Commissioner, 899 F.2d

905, 908–09 (10th Cir. 1990). In assessing the economic substance of a transaction, a key factor is whether the transaction has any practical economic effect

other than the creation of tax losses.

Courts have refused to recognize the tax

consequences of a transaction that does

not appreciably affect the taxpayer’s beneficial interest except to reduce tax. The

presence of an insignificant pre-tax profit

is not enough to provide a transaction

with sufficient economic substance to be

respected for tax purposes. Knetsch v.

United States, 364 U.S. 361, 366 (1960);

ACM Partnership v. Commissioner, 157

F.3d 231, 248 (3d Cir. 1998); Sheldon v.

Commissioner, 94 T.C. 738, 768 (1990).

In determining whether a transaction

has sufficient economic substance to be

respected for tax purposes, courts have

recognized that offsetting legal obligations, or circular cash flows, may effectively eliminate any real economic significance of the transaction. For example, in

Knetsch, the taxpayer purchased an annuity bond using nonrecourse financing.

However, the taxpayer repeatedly borrowed against increases in the cash value

of the bond. Thus, the bond and the taxpayer’s borrowings constituted offsetting

obligations. As a result, the taxpayer

could never derive any significant benefit

from the bond. The Supreme Court found

the transaction to be a sham, as it produced no significant economic effect and

had been structured only to provide the

taxpayer with interest deductions.

In Sheldon, the Tax Court denied the

taxpayer the purported tax benefits of a

series of Treasury bill sale-repurchase

transactions because they lacked economic substance. In the transactions, the

taxpayer bought Treasury bills that matured shortly after the end of the tax year

and funded the purchase by borrowing

against the Treasury bills. The taxpayer

March 29, 1999

accrued the majority of its interest deduction on the borrowings in the first year

while deferring the inclusion of its economically offsetting interest income from

the Treasury bills until the second year.

The transactions lacked economic substance because the economic consequences of holding the Treasury bills

were largely offset by the economic cost

of the borrowings. The taxpayer was denied the tax benefit of the transactions because the real economic impact of the

transactions was “infinitesimally nominal

and vastly insignificant when considered

in comparison with the claimed deductions.” Sheldon at 769.

In ACM Partnership, the taxpayer entered into a near-simultaneous purchase

and sale of debt instruments. Taken together, the purchase and sale “had only

nominal, incidental effects on [the taxpayer’s] net economic position.” ACM

Partnership at 250. The taxpayer claimed

that, despite the minimal net economic effect, the transaction had a large tax effect

resulting from the application of the installment sale rules to the sale. The court

held that transactions that do not “appreciably” affect a taxpayer’s beneficial interest, except to reduce tax, are devoid of

substance and are not respected for tax

purposes. ACM Partnership at 248. The

court denied the taxpayer the purported

tax benefits of the transaction because the

transaction lacked any significant economic consequences other than the creation of tax benefits.

Viewed as a whole, the objective facts

of the LILO transaction indicate that the

transaction lacks the potential for any significant economic consequences other

than the creation of tax benefits. During

the 20-year primary term of the Sublease,

X’s obligation to make the property available under the Sublease is completely offset by X’s right to use the property under

the Headlease. X’s obligation to make

debt service payments on the loans from

BK1 and BK2 is completely offset by X’s

right to receive Sublease rentals from FM.

Moreover, X’s exposure to the risk that

FM will not make the rent payments is

further limited by the arrangements with

the affiliates of BK1 and BK2. In the case

of the loan from BK1, X’s economic risk

is completely eliminated through the defeasance arrangement. In the case of the

smaller loan from BK2, X’s economic

risk, although not completely eliminated,

is substantially reduced through the deposit arrangement. As a result, neither

bank requires an independent source of

funds to make the loans, or bears significant risk of nonpayment. In short, during

the Sublease primary term, the offsetting

and circular nature of the obligations

eliminate any significant economic consequences of the transaction.

At the end of the 20-year Sublease primary term, X will have either the proceeds of the fixed-payment option or a

Headlease residual that has a fair market

value approximately equal to the proceeds

of the fixed payment option. If, at the end

of the 20-year Sublease primary term, the

Headlease residual is worth more than the

payment required on the fixed-payment

option, FM will capture this excess value

by exercising the fixed payment option,

leaving X with only the proceeds of the

option. Conversely, if, at the end of the

20-year Sublease primary term, the

Headlease residual is worth significantly

less than the payment required on the

fixed-payment option, X will put the

property back to FM under the put renewal option at rents, that while initially

projected to be at only 90 percent of estimated fair market value, are (because of

the decline in the value of the property)

greater than fair market value. Thus, the

fixed payment option and put renewal option operate to “collar” the value of the

Headlease residual during the primary

term, limiting much of the economic consequence of the Headlease residual.

In addition, facts indicate that there is

little economic consequence from X’s

nominal exposure to FM’s credit under

the fixed-payment option and, if exercised, the put renewal term. At the inception of the transaction, FM was required

to use a portion of the Headlease prepayment to purchase highly-rated debt securities that were pledged to X, ensuring FM’s

ability to make the payment under the

fixed-payment option. If FM does not exercise the fixed-payment option and X exercises the put renewal option, X can require FM to purchase a letter of credit

guaranteeing FM’s obligation to make the

put renewal rent payments. If FM does

not obtain the letter of credit, FM must

exercise the fixed-payment option. Thus,

1999–13 I.R.B.

as a practical matter, the transaction is

structured so that X is never subject to

FM’s credit.

The conclusion that X is insulated from

any significant economic consequence of

the Headlease residual is further supported

by several factors indicating that the parties expect FM to exercise the fixed-payment option. First, FM has historically

used the property. Second, because the

fixed payment obligation is fully defeased,

FM need not draw on other sources of

capital to exercise the option. However, if

FM does not exercise the fixed payment

option and X exercises the put renewal option, FM would be required to draw on

other sources of capital to satisfy its put

renewal rental obligations.

In sum, the LILO transaction lacks the

potential for significant economic consequences other than the creation of tax

benefits. During the primary term of the

Sublease, X’s obligations to provide property are completely offset by its right to

use property. X’s obligations to make

debt service payments on the loans are

completely offset by X’s right to receive

rent on the Sublease. These cash flows

are further assured by the deposit arrangements with the affiliates of BK1 and BK2.

Finally, X’s economic exposure to the

Headlease residual is rendered insignificant by the option structure and the

pledge of the securities that defeases

FM’s option payment. Thus, the only real

economic consequence of the LILO transaction during the 20-year primary term of

the Sublease is X’s pre-tax return. This

pre-tax return is too insignificant, when

compared to X’s after-tax yield, to support

a finding that the transaction has significant economic consequences other than

the creation of tax benefits.

Some of the features of the LILO transaction discussed above are present in

transactions that the Service will respect

for federal income tax purposes. For example, an arrangement for “in-substance

defeasance” of an outstanding debt was

respected in Rev. Rul. 85–42, 1985–1

C.B. 36. By contrast, in the LILO transaction, the deposit arrangement exists

from the inception of the transaction,

eliminating any need by BK1 and BK2 for

an independent source of funds. Simi-

1999–13 I.R.B.

larly, other features of the LILO transaction, such as nonrecourse financing and

fixed-payment options, are respected in

other contexts. However, when these and

other features are viewed as a whole in

the context of the LILO transaction, these

features indicate the transaction should

not be respected for tax purposes.

As a result of the transaction lacking

economic substance, X may not deduct interest or rent paid or incurred in connection with the transaction.

The Service will scrutinize LILO transactions for lack of economic substance

and/or, in appropriate cases, recharacterize transactions for federal income tax

purposes based on their substance. See,

e.g., Gregory v. Helvering 293 U.S. 495

(1935), Bussing v. Commissioner, 88 T.C.

449 (1987), Supplemental Opinion, 89

T.C. 1050 (1987). Use of terms such as

“loan,” “lease,” “Headlease,” and “Sublease” in this revenue ruling should not be

interpreted to indicate the Service’s acceptance of X’s characterization of the

LILO transaction described above.

Section 6601.—Interest on

Underpayment, Nonpayment, or

Extensions of Time for Payment,

of Tax

HOLDING

26 CFR 301.6621–1: Interest rate.

A taxpayer may not deduct, under

§§ 162 and 163, rent and interest paid or

incurred in connection with a LILO transaction that lacks economic substance.

How is the net interest rate of zero in section

6621(d) of the Code to be applied to interest accruing before October 1, 1998, with respect to overlapping tax underpayments and tax overpayments? See

Rev. Proc. 99–19, page 10.

26 CFR 301.6601–1: Interest on underpayments.

How is the net interest rate of zero in section

6621(d) of the Code to be applied to interest accruing before October 1, 1998, with respect to overlapping tax underpayments and tax overpayments? See

Rev. Proc. 99–19, page 10.

Section 6611.—Interest on

Overpayments

26 CFR 301.6611–1: Interest on overpayments.

How is the net interest rate of zero in section

6621(d) of the Code to be applied to interest accruing before October 1, 1998, with respect to overlapping tax underpayments and tax overpayments? See

Rev. Proc. 99–19, page 10.

Section 6621.—Determination

of Rate of Interest

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 85–42 is distinguished.

DRAFTING INFORMATION

The principal author of this revenue

ruling is John Aramburu of the Office of

Assistant Chief Counsel (Income Tax and

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

Aramburu on (202) 622-4960 (not a tollfree call).

Section 163.—Interest

26 CFR 1.163–1: Interest deduction in general.

May a taxpayer deduct interest paid or incurred

in connection with a lease-in /lease-out (LILO)

transaction that lacks economic substance? See Rev.

Rul. 99–14, page 3.

26 CFR 301.6621–1: Interest rate.

Interest rates; underpayments and

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

the calendar quarter beginning April 1,

1999, will be 8 percent for overpayments

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

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

The rate of interest paid on the portion of

a corporate overpayment exceeding

$10,000 is 5.5 percent.

Rev. Rul. 99–16

Section 6621 of the Internal Revenue

Code establishes the rates for interest on

tax overpayments and tax underpayments.

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

beginning April 1, 1999, is the sum of the

March 29, 1999

federal short-term rate plus 3 percentage

points (2 percentage points in the case of

a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is

the sum of the federal short-term rate plus

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

Under § 6621(a)(2), the underpayment

rate is the sum of the federal short-term

rate plus 3 percentage points.

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

any large corporate underpayment, the

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

determined by substituting “5 percentage

points” for “3 percentage points.” See

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

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

6621(c) and § 301.6621–3 are generally

effective for periods after December 31,

1990.

Section 6621(b)(1) provides that the

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

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

federal short-term rate determined under

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

the first calendar quarter beginning after

such month.

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

determining the addition to tax under

§ 6654 for failure to pay estimated tax for

any taxable year, the federal short-term

rate that applies during the third month

following such taxable year also applies

during the first 15 days of the fourth

month following such taxable year.

Section 6621(b)(3) provides that the

federal short-term rate for any month is

the federal short-term rate determined

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

nearest full percent (or, if a multiple of

1/2 of 1 percent, the rate is increased to

the next highest full percent).

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

interest rates to be used for overpayments

and underpayments of tax under § 6621,

the Internal Revenue Service will use the

federal short-term rate based on daily

compounding because that rate is most

consistent with § 6621 which, pursuant to

§ 6622, is subject to daily compounding.

Rounded to the nearest full percent, the

federal short- term rate based on daily

compounding determined during the

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

percent are established for the calendar

quarter beginning April 1, 1999. The

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

for the calendar quarter beginning April 1,

1999, is 5.5 percent. The underpayment

rate for large corporate underpayments

for the calendar quarter beginning April 1,

1999, is 10 percent. These rates apply to

amounts bearing interest during that calendar quarter.

Under § 6621(b)(2)(B), the 7 percent

rate that applies to estimated tax underpayments for the first calendar quarter in 1999,

as provided in Rev. Rul. 98–61, 1998–51

I.R.B. 8, also applies to such underpayments for the first 15 days in April 1999.

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

percent, 8 percent, and 10 percent are

published in Tables 16, 19, 21, and 25 of

Rev. Proc. 95–17, 1995–1 C.B. 556, 570,

573, 575, and 579.

Annual interest rates to be compounded

daily pursuant to § 6622 that apply for

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

INFORMATION

The principal author of this revenue

ruling is Raymond Bailey of the Office of

Assistant Chief Counsel (Income Tax and

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

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

call).

TABLE OF INTEREST RATES

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

OVERPAYMENTS AND UNDERPAYMENTS

PERIOD

RATE

In 1995–1 C.B

DAILY RATE TABLE

Before Jul. 1, 1975

Jul. 1, 1975—Jan. 31, 1976

Feb. 1, 1976—Jan. 31, 1978

Feb. 1, 1978—Jan. 31, 1980

Feb. 1, 1980—Jan. 31, 1982

Feb. 1, 1982—Dec. 31, 1982

Jan. 1, 1983—Jun. 30, 1983

Jul. 1, 1983—Dec. 31, 1983

Jan. 1, 1984—Jun. 30, 1984

Jul. 1, 1984—Dec. 31, 1984

Jan. 1, 1985—Jun. 30, 1985

Jul. 1, 1985—Dec. 31, 1985

Jan. 1, 1986—Jun. 30, 1986

Jul. 1, 1986—Dec. 31, 1986

12%

20%

16%

11%

13%

11%

10%

Table 2, pg. 557

Table 4, pg. 559

Table 3, pg. 558

Table 2, pg. 557

Table 5, pg. 560

Table 6, pg. 560

Table 37, pg. 591

Table 27, pg. 581

Table 75, pg. 629

Table 31, pg. 585

Table 27, pg. 581

Table 25 pg. 579

Table 23, pg. 577

March 29, 1999

1999–13 I.R.B.

TABLE OF INTEREST RATES

FROM JAN. 1, 1987 – Dec. 31, 1998

OVERPAYMENTS

1995–1 C.B.

TABLE

RATE

Jan. 1, 1987—Mar. 31, 1987

Apr. 1, 1987—Jun. 30, 1987

Jul. 1, 1987—Sep. 30, 1987

Oct. 1, 1987—Dec. 31, 1987

Jan. 1, 1988—Mar. 31, 1988

Apr. 1, 1988—Jun. 30, 1988

Jul. 1, 1988—Sep. 30, 1988

Oct. 1, 1988—Dec. 31, 1988

Jan. 1, 1989—Mar. 31, 1989

Apr. 1, 1989—Jun. 30, 1989

Jul. 1, 1989—Sep. 30, 1989

Oct. 1, 1989—Dec. 31, 1989

Jan. 1, 1990—Mar. 31, 1990

Apr. 1, 1990—Jun. 30, 1990

Jul. 1, 1990—Sep. 30, 1990

Oct. 1, 1990—Dec. 31, 1990

Jan. 1, 1991—Mar. 31, 1991

Apr. 1, 1991—Jun. 30, 1991

Jul. 1, 1991—Sep. 30, 1991

Oct. 1, 1991—Dec. 31, 1991

Jan. 1, 1992—Mar. 31, 1992

Apr. 1, 1992—Jun. 30, 1992

Jul. 1, 1992—Sep. 30, 1992

Oct. 1, 1992—Dec. 31, 1992

Jan. 1, 1993—Mar. 31, 1993

Apr. 1, 1993—Jun. 30, 1993

Jul. 1, 1993—Sep. 30, 1993

Oct. 1, 1993—Dec. 31, 1993

Jan. 1, 1994—Mar. 31, 1994

Apr. 1, 1994—Jun. 30, 1994

Jul. 1, 1994—Sep. 30, 1994

Oct. 1, 1994—Dec. 31, 1994

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

Oct. 1, 1997—Dec. 31, 1997

Jan. 1, 1998—Mar. 31, 1998

Apr. 1, 1998—Jun. 30, 1998

Jul. 1, 1998—Sep. 30, 1998

Oct. 1, 1998—Dec. 31, 1998

1999–13 I.R.B.

10%

11%

10%

UNDERPAYMENTS

RATE

575

577

627

625

627

579

581

579

577

623

621

619

571

573

575

577

575

623

621

623

575

573

10%

11%

10%

11%

12%

11%

10%

1995–1 C.B.

TABLE

577

579

629

627

629

581

583

581

579

625

623

621

573

575

577

579

577

625

623

625

577

575

March 29, 1999

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 – PRESENT

NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS

RATE

1995–1 C.B.

TABLE

PAGE

573

575

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 – PRESENT

CORPORATE OVERPAYMENTS AND UNDERPAYMENTS

OVERPAYMENTS

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

UNDERPAYMENTS

RATE

1995–1 C.B.

TABLE

RATE

1995–1 C.B.

TABLE

571

573

575

TABLE OF INTEREST RATES FOR

LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 – PRESENT

RATE

Jan. 1, 1991—Mar. 31, 1991

Apr. 1, 1991—Jun. 30, 1991

Jul. 1, 1991—Sep. 30, 1991

Oct. 1, 1991—Dec. 31, 1991

Jan. 1, 1992—Mar. 31, 1992

Apr. 1, 1992—Jun. 30, 1992

Jul. 1, 1992—Sep. 30, 1992

Oct. 1, 1992—Dec. 31, 1992

Jan. 1, 1993—Mar. 31, 1993

Apr. 1, 1993—Jun. 30, 1993

Jul. 1, 1993—Sep. 30, 1993

Oct. 1, 1993—Dec. 31, 1993

Jan. 1, 1994—Mar. 31, 1994

Apr. 1, 1994—Jun. 30, 1994

Jul. 1, 1994—Sep. 30, 1994

Oct. 1, 1994—Dec. 31, 1994

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

March 29, 1999

13%

12%

11%

10%

11%

12%

11%

10%

11%

1995–1 C.B.

TABLE PG

585

583

629

627

625

577

579

581

583

581

629

627

629

1999–13 I.R.B.

TABLE OF INTEREST RATES FOR

LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 – PRESENT (Continued)

RATE

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

Oct. 1, 1997—Dec. 31, 1997

Jan. 1, 1998—Mar. 31, 1998

Apr. 1, 1998—Jun. 30, 1998

Jul. 1, 1998—Sep. 30, 1998

Oct. 1, 1998—Dec. 31, 1998

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

11%

10%

1995–1 C.B.

TABLE PG

629

581

579

577

579

RATE

1995–1 C.B.

TABLE

6.5%

7.5%

6.5%

5.5%

6.5%

5.5%

4.5%

5.5%

572

574

572

620

618

620

572

570

568

570

TABLE OF INTEREST RATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 – PRESENT

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

Oct. 1, 1997—Dec. 31, 1997

Jan. 1, 1998—Mar. 31, 1998

Apr. 1, 1998—Jun. 30, 1998

Jul. 1. 1998—Sep. 30, 1998

Oct. 1, 1998—Dec. 31, 1998

Jan. 1, 1999—Mar. 31, 1999

Apr. 1, 1999—Jun. 30, 1999

1999–13 I.R.B.

March 29, 1999

Part III. Administrative, Procedural, and Miscellaneous

Change in Accounting Method

for Deferred Compensation

Notice 99–16

This notice provides procedures for implementing a change in method of accounting to comply with § 404(a)(11) of

the Internal Revenue Code, regarding the

payment of deferred compensation.

Section 404(a)(11) was added to the

Code by § 7001 of the Internal Revenue

Service Restructuring and Reform Act of

1998 (RRA), Pub. L. No. 105-206, 112

Stat. 685, 827 (July 22, 1998), effective

for taxable years ending after July 22,

1998. Section 404(a)(11) provides that,

for purposes of determining under § 404

whether compensation of an employee is

deferred compensation and when deferred

compensation is paid, no amount is

treated as received by the employee, or

paid, until it is actually received by the

employee. Section 404(a)(11) overturns

the decision in Schmidt Baking Co. v.

Commissioner, 107 T.C. 271 (1996), in

which the court held that a § 83(a) income

inclusion event upon securitization of vacation and severance pay benefits with a

letter of credit constitutes receipt of those

benefits by employees for purposes of determining whether an employer’s deduction for the benefits is subject to § 404.

Section 7001(b) of the RRA provides

that a taxpayer changing its method of accounting to comply with § 404(a)(11) for

its first taxable year ending after July 22,

1998, will be treated as making a change

initiated by the taxpayer with the consent

of the Commissioner. It further provides

that the change will be made with a § 481

adjustment that will be taken into account

ratably over a 3-taxable-year period beginning with the first taxable year ending

after July 22, 1998.

A taxpayer changing its method of accounting for its first taxable year ending

after July 22, 1998, to comply with

§ 404(a)(11) must follow the automatic

change in accounting method provisions

of Rev. Proc. 98–60, 1998–51 I.R.B. 16,

with the following modifications:

(1) The scope limitations in section

4.02 of Rev. Proc. 98–60 do not apply.

March 29, 1999

However, if the taxpayer is under examination, before an appeals office, or before

a federal court with respect to any income

tax issue, the taxpayer must provide a

copy of the Form 3115, Application for

Change in Accounting Method, to the examining agent(s), appeals officer, or

counsel for the government, as appropriate, at the same time that it files the copy

of the Form 3115 with the national office.

The Form 3115 must contain the name(s)

and telephone number(s) of the examining agent(s), appeals officer, or counsel

for the government, as appropriate.

(2) The § 481(a) adjustment period

generally is three taxable years (as opposed to four taxable years as specified in

section 5.04(1) of Rev. Proc. 98–60).

(3) A taxpayer that, on or before May

28, 1999, files its original federal income

tax return for its first taxable year ending

after July 22, 1998, may comply with the

filing requirement in section 6.02(2)(a) of

Rev. Proc. 98–60 or with the following

filing requirement. The taxpayer must

complete and file a Form 3115 in duplicate. The original must be attached to the

taxpayer’s amended federal income tax

return for the taxpayer’s first taxable year

ending after July 22, 1998. This amended

return must be filed no later than July 27,

1999. A copy of the Form 3115 must be

filed with the national office (at the address specified in section 6.02(6) of Rev.

Proc. 98–60) no later than when the taxpayer’s amended return is filed.

(4) Section 7 of Rev. Proc. 98–60 does

not apply; a taxpayer does not receive

audit protection in connection with this

change.

EFFECT ON OTHER DOCUMENTS

Rev. Proc. 98–60 is modified and amplified to include this automatic accounting method change in the Appendix.

DRAFTING INFORMATION

The principal author of this notice is

Robert Testoff of the Office of the Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Mr. Testoff at

(202) 622-4800 (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, sections 6601, 6611, 6621;

301.6601–1, 301.6611–1, 301.6621–1.)

Rev. Proc. 99–19

SECTION 1. PURPOSE

With respect to interest accruing before

October 1, 1998, this revenue procedure

provides guidance, and requests public

comment, regarding the application of

§ 6621(d) of the Internal Revenue Code.

Section 6621(d) was enacted by § 3301 of

the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA), Pub.

L. No. 105–206, 112 Stat. 741, and was

amended by § 4002(d) of the Tax and

Trade Relief Extension Act of 1998, Pub.

L. No. 105–277, 112 Stat. 2681. Section

6621(d) provides for a net interest rate of

zero to the extent of overlapping tax underpayments and tax overpayments, and

generally applies to interest for periods beginning after July 22, 1998 (i.e., interest

accruing on or after October 1, 1998).

However, the net interest rate of zero in

§ 6621(d) also applies to interest for periods beginning before July 22, 1998 (i.e.,

interest accruing before October 1, 1998),

provided certain conditions are met. This

revenue procedure provides guidance on,

and how to comply with, those conditions.

SECTION 2. BACKGROUND

.01 Interest computations in general.

(1) Section 6601(a) provides, in general, that if any amount of tax imposed by

the Code is not paid on or before the last

date prescribed for payment, interest on

such amount must be paid for the period

from such last date to the date paid at the

underpayment rate established under

§ 6621.

(2) Section 6611(a) provides that interest must be allowed and paid on any overpayment in respect of any internal revenue

tax at the overpayment rate established

under § 6621. Section 6611(b)(1) provides that, in the case of a credit, interest

must be allowed and paid from the date of

the overpayment to the due date of the

amount against which the credit is taken.

1999–13 I.R.B.

Section 6611(b)(2) provides that, in the

case of a refund, interest must be allowed

and paid from the date of the overpayment to a date preceding the date of the

refund check by not more than 30 days.

.02 Interest rates in general.

(1) For interest accruing before January

1, 1999, § 6621(a)(1) provides that the

overpayment rate is the federal short-term

rate (determined under § 6621(b)) plus 2

percentage points. To the extent that an

overpayment of tax by a corporation exceeds $10,000, the overpayment rate is the

federal short-term rate plus 0.5 percent.

(2) Section 6621(a)(2) provides that the

underpayment rate is the federal shortterm rate (determined under § 6621(b))

plus 3 percentage points. Special rules in

§ 6621(c) increase the underpayment rate

on large corporate underpayments.

.03 Interest for overlapping periods.

(1) Section 6621(d), as enacted by the

RRA on July 22, 1998, provides that, to

the extent that for any period interest is

payable under subchapter A (§§ 6601 and

6602) and allowable under subchapter B

(§ 6611) on equivalent underpayments

and overpayments by the same taxpayer

of tax imposed by the Code, the net rate

of interest under § 6621 on such amounts

is zero for such period.

(2) The Conference Report, H. R.

Conf. Rep. No. 599, 105th Cong., 2d

Sess. 257 (1998), accompanying the RRA

provides that the net interest rate of zero

is applied without regard to whether the

overpayment or underpayment is currently outstanding. However, each overpayment or underpayment is considered

only once in determining whether equivalent amounts of overpayment and underpayment overlap for a particular period.

That report also provides that the net interest rate of zero applies even when special rules increase the rate of interest for

large corporate underpayments under

§ 6621(c), or decrease the rate of interest

for large corporate overpayments under

§ 6621(a).

(3) Section 6621(d) generally applies to

interest for periods (calendar quarters) beginning after July 22, 1998 (i.e., interest

accruing on or after October 1, 1998).

See H. R. Rep. No. 364 (Part 1), 105th

Cong., 1st Sess. 64 (1998); S. Rep. No.

1999–13 I.R.B.

174, 105th Cong., 2d Sess. 62 (1998); H.

R. Conf. Rep. No. 599, 105th Cong., 2d

Sess. 257 (1998). However, § 3301(c)(2)

of the RRA provides that § 6621(d) applies to interest for periods beginning before July 22, 1998 (i.e., interest accruing

before October 1, 1998), provided certain

conditions are met. First, both periods of

limitation applicable to the tax underpayment and to the tax overpayment (as described in section 2.04 of this revenue

procedure) must have been open on July

22, 1998. Second, the taxpayer must:

(a) reasonably identify and establish

periods of tax overpayments and underpayments for which the net interest rate of

zero applies, and

(b) not later than December 31,

1999, request the Secretary of the Treasury to apply § 6621(d) to such periods.

.04 Applicable periods of limitation. The

applicable periods of limitation are as follows:

(1) Underpayment interest. A claim for

credit or refund of interest paid on an underpayment pursuant to § 6601 or 6602

generally must be filed within 3 years

from the time the tax return was filed or 2

years from the time the interest was paid,

whichever period expires later, pursuant

to § 6511.

(2) Overpayment interest. A claim for

payment of additional interest allowable

on an overpayment pursuant to § 6611

must be filed within the 6-year period in

which a suit must be filed pursuant to 28

U.S.C. §§ 2401 and 2501. See Rev. Rul.

56–506, 1956–2 C.B. 959.

SECTION 3. SCOPE

.01 Applicability. This revenue procedure applies to a taxpayer that requests the

application of the net interest rate of zero

in § 6621(d) to interest for periods beginning before July 22, 1998 (i.e., interest accruing before October 1, 1998), provided:

(1) both applicable periods of limitation described in section 2.04 of this revenue procedure were open on July 22,

1998;

(2) the periods of tax overpayments

and underpayments for which the net interest rate of zero applies are reasonably

identified and established (as described in

section 4 of this revenue procedure); and

(3) the request is made not later than

December 31, 1999.

.02 Inapplicability. This revenue procedure does not apply to:

(1) the application of the net interest

rate of zero in § 6621(d) to interest for periods beginning after July 22, 1998 (i.e.,

interest accruing on or after October 1,

1998). The Service intends to provide

further guidance for those periods;

(2) an overpayment or underpayment

for any period during which interest on

the overpayment or underpayment was

not allowable or payable by law (e.g., the

45-day interest disallowance rule under

§ 6611(e)); or

(3) an offset made pursuant to

§§ 6402(a) and 6601(f), regarding the

crediting of an outstanding overpayment

against an outstanding underpayment.

SECTION 4. APPLICATION

PROCEDURES

.01 Form to file. Except as provided in

section 4.06 of this revenue procedure, requests for the application of the net interest rate of zero in § 6621(d) to interest accruing before October 1, 1998, should be

made on Form 843, Claim for Refund and

Request for Abatement.

.02 Where to file. Form 843 should be

filed with the Internal Revenue Service

Center where the taxpayer filed its most

recent federal income tax return.

.03 Label. The taxpayer should label

the top of the Form 843: “Request for Net

Interest Rate of Zero Under Rev. Proc.

99–19.”

.04 Filing requirements for Form 843.

(1) Line 1 should be left blank.

(2) The taxpayer may, but is not required to, place a dollar amount on Line

(3) Line 3 should indicate the type of

tax and type of return covered by the request. More than one box may be

checked if more than one type of tax or

return is covered by the request. In addition, any taxes imposed by the Code (or

returns for those taxes) for which there is

no box on Line 3 should be written in on

that line.

(4) Line 4 should be left blank.

(5) Line 5 should:

(a) identify the taxable periods for

which the taxpayer overpaid and underpaid its tax liability. A separate Form 843

is not required for each separate taxable

period involved in the request;

March 29, 1999

(b) state when the taxpayer paid the

tax if the underpayment is no longer outstanding;

a refund of tax if the overpayment is no

longer outstanding;

(d) identify and establish the period(s) for which the taxpayer’s overpayment and underpayment overlapped. For

this purpose, the taxpayer should provide

any background material (such as copies

of examination reports, notices, or prior

interest computations provided by the

Service) relating to the overpayments and

underpayments. The background material

is needed to assist the Service in determining the period(s) for which the overpayment and underpayment overlap, and

the amount of such overlap;

(e) state that, to the extent of equivalent amounts of underpayment and overpayment for the period(s) identified and

established under section 4.04(5)(d) of

this revenue procedure, the period(s) has

(have) been used only once in a request to

obtain the net interest rate of zero under

§ 6621(d); and

(f) provide a computation, to the extent possible, of the amount of interest to

be credited, refunded, or abated to provide

a net interest rate of zero for the period(s)

of overlap. This computation should be

made by applying § 6621(d) to an underpayment year to reduce the taxpayer’s liability for underpayment interest.

.05 Verification. The amounts used in a

computation provided under section

4.04(5)(f) of this revenue procedure are

subject to verification by the Service and

may be subject to adjustment for purposes

of computing the net interest rate of zero

pursuant to § 6621(d).

.06 Special procedure. No Form 843 is

required when a computation of interest

using the net interest rate of zero under

§ 6621(d) for interest accruing before October 1, 1998, is requested by a taxpayer

in connection with a return (or returns) of

the taxpayer under consideration by any

office of the Service. The taxpayer must

furnish a letter or written statement to

such office that:

(1) states that the taxpayer is requesting the net interest rate of zero under

§ 6621(d);

(2) indicates the type of tax and type

of return that affects the interest computation for the taxable period under consideration;

March 29, 1999

(3) states when and for what period(s) the refund or payment (that affects

the interest computation for the taxable

period under consideration) was made;

and

(4) states that, to the extent of equivalent amounts of overpayment or underpayment, the period(s) set forth under

section 4.06(3) of this revenue procedure

has (have) not previously been applied to

obtain a net interest rate of zero under

§ 6621(d).

.07 Special procedure verification. The

refund or payment provided under section

4.06(3) of this revenue procedure is subject to verification by the Service and may

be subject to adjustment for purposes of

computing the net interest rate of zero

pursuant to § 6621(d).

SECTION 5. EXAMPLES

.01 Example 1. X is a calendar year corporation.

The Service examined X’s Form 1120, Corporation

Income Tax Return, for the 1992 and 1994 taxable

years. For the 1994 taxable year, the Service determined that X was entitled to a refund of $30,000.

This Service-initiated refund was made on September

21, 1997, with interest computed from March 15,

1995, to July 29, 1997. For the 1992 taxable year, the

Service determined that X underpaid its income tax by

$80,000. The Service sent X a notice and demand for

payment dated May 3, 1998, which X paid on May

12, 1998, with interest computed from March 15,

1993, to May 3, 1998. On April 27, 1999, X filed a

Form 843 requesting the application of § 6621(d) for

the overlap period from March 15, 1995, to July 29,

1997. On July 22, 1998, both the 6-year period of

limitation for claiming additional overpayment interest on X’s 1997 refund and the 2-year period of limitation for claiming a refund of underpayment interest

paid in 1998 were open. X will be refunded the difference between the underpayment interest paid on

$30,000 for the period from March 15, 1995, to July

29, 1997, and the overpayment interest computed and

paid on $30,000 for that period.

.02 Example 2. The facts are the same as in Example 1, except that the Service sent X a notice and

demand for payment dated May 3, 1996, which X

paid on May 12, 1996, with interest computed from

March 15, 1993, to May 3, 1996. On April 27, 1999,

X filed a Form 843 requesting the application of

§ 6621(d) for the overlap period from March 15,

1995, to May 3, 1996. On July 22, 1998, the 6-year

period of limitation for claiming additional overpayment interest on X’s 1997 refund was open, but the

2-year period of limitation for claiming a refund of

underpayment interest paid in 1996 was not open.

Therefore, the net interest rate of zero under

§ 6621(d) does not apply to the overlap period and

no adjustment will be made.

SECTION 6. REQUEST FOR

COMMENTS

.01 For the application of the net inter-

est rate of zero in computing interest accruing before October 1, 1998, taxpayers

must reasonably identify and establish periods of overlapping overpayments and

underpayments for which the net interest

rate of zero applies, and not later than December 31, 1999, request that § 6621(d)

be applied. The Treasury Department and

the Service recognize that by December

31, 1999, some taxpayers may not be able

to provide a final computation of how the

net interest rate of zero applies to interest

accruing before October 1, 1998. For example, a taxpayer may not be able to provide this final computation by December

31, 1999, because the Service’s examination of the taxable years involved has not

been completed or commenced.

.02 Written comments are requested regarding the level of specificity necessary

to reasonably identify and establish on or

before December 31, 1999, the period(s)

for which an equivalent amount of overpayment and underpayment of tax overlap

when the taxpayer cannot provide by December 31, 1999, a final computation of

how the net interest rate of zero applies to

interest accruing before October 1, 1998.

Comments should be submitted by May

14, 1999, either to:

Internal Revenue Service

P.O. Box 7604

Ben Franklin Station

Washington, DC 20044

Attn: CC:DOM:CORP:R (IT&A,

Branch 1) Room 5228

or electronically via:

http://www.irs.ustreas.gov/prod/tax_regs/

comments.html

(the Service’s internet site).

SECTION 7. EFFECTIVE DATE

This revenue procedure is effective for

taxpayer requests made not later than December 31, 1999, for the application of

the net interest rate of zero in § 6621(d) to

interest accruing before October 1, 1998.

DRAFTING INFORMATION

The principal author of this revenue

procedure is John J. McGreevy of the Office of Assistant Chief Counsel (Income

Tax and Accounting). For further information regarding this revenue procedure,

contact Mr. McGreevy on (202) 622-4910

(not a toll- free call).

1999–13 I.R.B.

Part IV. Items of General Interest

Notice of Proposed Rulemaking

and Notice of Public Hearing

New Technologies in Retirement

Plans

REG–118662–98

AGENCY: Internal Revenue Service

(IRS), Treasury.

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

SUMMARY: This document contains

proposed amendments to the regulations

governing certain notices and consent required in connection with distributions

from retirement plans. Specifically, these

proposed regulations set forth applicable

standards for the transmission of those

notices and consent through electronic

media and modify the timing requirements for providing certain distributionrelated notices. The proposed regulations

provide guidance to plan sponsors and administrators by interpreting the notice and

consent requirements in the context of the

electronic administration of retirement

plans. The proposed regulations affect retirement plan sponsors, administrators,

and participants. This document also provides notice of a public hearing on these

proposed regulations.

DATES: Written comments must be received by March 18, 1999. Outlines of

topics to be discussed at the public hearing scheduled for April 15, 1999, at 10

a.m. must be received by March 25, 1999.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–118662–98),

Room 5226, Internal Revenue Service,

POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be

hand delivered Monday through Friday

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

CC:DOM:CORP:R (REG–118662–98),

Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,

Washington, DC. Alternatively, taxpayers

may submit comments electronically via

the Internet by selecting the “Tax Regs”

option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/

prod/tax_regs/commments.html. The

1999–13 I.R.B.

public hearing will be held in room 2615,

Internal Revenue Service Building, 1111

Constitution Avenue, NW, Washington,

DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Catherine Livingston Fernandez

(202) 622-6030; concerning submissions

of comments and the hearing, and/or to be

placed on the building access list to attend

the hearing Michael L. Slaughter (202)

622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of

Management and Budget for review in accordance with the Paperwork Reduction

Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information

should be sent to the Office of Management and Budget, Attn: Desk Officer for

the Department of the Treasury, Office of

Information and Regulatory Affairs,

Washington, DC 20503, with copies to

the Internal Revenue Service, Attn: IRS

Reports Clearance Officer, OP:FS:FP,

Washington, DC 20224. Comments on

the collection of information should be received by February 16, 1999. Comments

are specifically requested concerning:

Whether the proposed collections of information are necessary for the proper

performance of the functions of the Internal Revenue Service, including whether

the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of

information (see below);

How the quality, utility, and clarity of the

information to be collected may be enhanced;

How the burden of complying with the

proposed collections of information may

be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and

costs of operation, maintenance, and purchase of service to provide information.

The collections of information in this

proposed regulation are in 26 CFR

§§1.402(f)–1, 1.411(a)–11, and 35.3405–

1. This information is required for notices to recipients of distributions from retirement plans, individual retirement accounts, and annuities. This information

will be used to help recipients make informed decisions regarding these distributions. The collections of information are

mandatory. The likely respondents are individuals, business or other for-profit institutions, and nonprofit institutions.

Estimated total annual reporting and/or

recordkeeping burden: 477,563 hours.

Estimated average annual burden hours

per respondent and/or recordkeeper: 76

minutes.

Estimated number of respondents and/or

recordkeepers: 375,000.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless it displays a valid control number assigned by

the Office of Management and Budget.

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.

Background

Section 411(a)(11) of the Internal Revenue Code generally provides that if the

value of a participant’s accrued benefit

exceeds $5,000, the benefit may not be

immediately distributed without the participant’s consent. Section 1.411(a)–11(c)

of the Income Tax Regulations states that

this requirement applies until the later of

normal retirement age or age 62 and requires that the consent be in writing. Section 1.411(a)–11(c)(2) of the regulations

provides that the participant’s consent is

not valid unless, prior to the distribution,

the participant is given an explanation of

the plan distribution options (e.g., lump

sum, annual installments, annuity, etc.)

and is advised of the right to defer the distribution in a manner that would satisfy

the notice requirement of section

417(a)(3).

March 29, 1999

Section 402(f) requires that the plan administrator of a qualified retirement plan

provide the recipient of an eligible rollover distribution with a written explanation of the direct rollover, mandatory 20percent income tax withholding, and

other relevant tax information. Section

1.402(f)–1 Q&A-2 requires that notices

under section 402(f) be provided no less

than 30 and no more than 90 days before

the date of a distribution, although a participant may waive the 30-day period.

Section 3405(e)(10)(B) of the Code requires the payor of any designated distribution (other than an eligible rollover distribution) to transmit to the payee a notice

of the right not to have income tax withheld from the payment.

Section 1510 of the Taxpayer Relief

Act of 1997 provides for the Secretary of

the Treasury to issue guidance designed to

interpret the notice, election, consent, disclosure, time, and related recordkeeping

requirements under the Code and the Employee Retirement Income Security Act of

1974 (ERISA) regarding the use of new

technologies by sponsors and administrators of retirement plans and to clarify the

extent to which writing requirements

under the Code relating to retirement

plans permit “paperless” transactions.

Section 1510 provides that the guidance

must protect participant and beneficiary

rights. Any final regulations applicable to

this guidance may not be effective until

the first plan year beginning at least six

months after issuance as final regulations.

The IRS and Treasury issued Announcement 98–62, 1998–29 I.R.B.13, to

request comments from interested members of the public concerning the development of the guidance described in section

1510. Announcement 98–62 solicited information on the kinds of electronic or

“paperless” technologies used by sponsors and administrators in plan administration, identified a number of specific

legal and practical issues for comment,

and requested that commentators identify

the issues most in need of administrative

guidance. Commentators generally encouraged the IRS and Treasury to issue

guidance facilitating the use of new technologies in plan administration, particularly the use of electronic technologies for

transmission of the notices and consent

required for plan distributions. These

proposed regulations respond to the com-

March 29, 1999

ments by providing the guidance most

frequently requested by commentators.

Additionally, in response to many of

the comments submitted under Announcement 98–62, the IRS and Treasury

are issuing a notice concerning the use of

electronic media for general plan transactions. The notice confirms that the “paperless” administration of participant enrollments, contribution elections,

investment elections, beneficiary designations (other than designations requiring

spousal consent), direct rollover elections,

and certain other transactions will not

cause a qualified plan to fail to satisfy the

requirements of section 401(a) (or the requirements for a qualified cash or deferred arrangement under section 401(k)).

The notice is intended to apply to a broad

range of general plan transactions and

electronic media, but it does not apply to

transactions for which the Code, the regulations, or other guidance of general applicability prescribes requirements for the

media through which such transactions

may be conducted (for example, it does

not apply to providing the section 402(f)

notice). Additionally, the notice does not

address the application of Title I of

ERISA to the use of electronic media for

any plan transactions.

Explanation of Provisions

General

These proposed regulations permit the

use of electronic media for the transmission of certain notices and consent required for distributions from qualified

plans. Using flexible standards — rather

than detailed requirements — the proposed regulations:

• Permit electronic delivery of the notice of distribution options and the

right to defer under section 411(a)(11), the rollover notice under section

402(f), and the voluntary tax withholding notice under section 3405(e)(10)(B);

• Permit participant consent to a distribution under section 411(a)(11) to be

given electronically; and

• Permit a plan to provide the section

411(a)(11) and section 402(f) notices

more than 90 days before a distribution, if the plan provides a summary

of the notices within 90 days before

the distribution.

Notices under sections 402(f), 411(a)(11),

and 3405(e)(10)(B)

1. Use of electronic media for delivery of

notices

The proposed regulations provide that,

in general, a plan may provide a notice required under section 402(f), 411(a)(11),

or 3405(e)(10)(B) either on a written

paper document or through an electronic

medium reasonably accessible to the participant to whom the notice is given. The

proposed regulations generally do not categorize particular electronic media as either permissible or impermissible for this

purpose and do not prescribe detailed,

media-specific rules. Instead, the proposed regulations set forth generally applicable standards that are intended to

parallel the key attributes of notices provided on written paper documents without

imposing more stringent requirements on

electronic notices. The use of generally

applicable standards rather than detailed

rules is consistent with the comments received under Announcement 98–62.

Under the proposed regulations, an

electronic notice must be provided under

a system reasonably designed to give the

notice in a manner no less understandable

to the participant than a written paper

document. The no-less-understandable

requirement is to be applied taking into

account the method of delivery and the

format and content of the electronic notice; however, the standard is not intended

to require that the electronic notice be

identical in form or content to a corresponding notice provided on a written

paper document (although an electronic

notice must contain all the information

that would be required if the notice were

provided on a written paper document).

The IRS and Treasury would expect

that provision of notices through e-mail or

a plan web site would in most cases satisfy the no-less-understandable requirement under well designed systems. However, the IRS and Treasury expect that the

amount and nature of the information that

must be provided in the section 402(f) notice would preclude oral delivery of the

full section 402(f) notice through a telephone system. By contrast, the amount

and nature of the information required in

the notice under section 3405(e)(10)(B) is

such that the no-less-understandable stan-

1999–13 I.R.B.

dard may be met by a notice provided

through a telephone system.1 Whether a

section 411(a)(11) notice may be provided through a telephone system will depend on the complexity of the plan distribution options. A plan with a few simple

distribution options could provide,

through a well designed telephone system, a section 411(a)(11) notice that is

just as understandable as a notice provided on a written paper document; a plan

with more numerous or more complex

distribution options may not be able to

satisfy the no-less-understandable standard in that manner.

The IRS and Treasury believe that participants should be able to receive a written paper notice from the plan on request

and that the right to receive a written

paper notice is an important safeguard for

participants. Many of the comments submitted under Announcement 98-62

strongly supported this proposition. Certain participants may be unable to use

paperless technologies in an effective

manner, particularly as these new technologies emerge and change rapidly. In

such cases, the right to receive a notice on

a written paper document may be necessary to ensure that the participant has an

adequate opportunity to deliberate about

his or her rights and options (and to seek

advice from third parties, if desired). In

accordance with these considerations, the

proposed regulations provide that a participant who is given a legally required

notice through an electronic medium be

advised at the time the notice is given that

he or she may request and receive the notice on a written paper document at no

charge.

Because of its potential significance to

individuals, this written paper notice must

be a copy that participants can retain for

their own records (thus, a posted copy is

not adequate). Merely making paper notices available through the electronic

medium used to deliver the notice or another electronic medium (for example, by

including a “print” option on an e-mail

system or a web site) is not adequate because of the uncertainty in determining

whether a participant will in fact be able to

generate the paper version of the notice. A

written paper notice furnished on request

need not contain precisely the same information or be presented in the same format

as the notice delivered through an electronic medium. Rather, the written paper

notice (like the electronic notice) need

only satisfy the applicable legal requirements regarding that notice.

These generally applicable standards

for electronic notices are illustrated by

several examples. The examples illustrate

whether certain uses of electronic technologies satisfy the proposed regulations,

but they are not intended to constitute an

exhaustive list of permissible uses, systems, or media. Other uses, systems, or

media (whether extant, such as CD-ROM

or touch-screen kiosk, or not yet developed) that satisfy the applicable standards

would be permitted.

To conform the rules for providing the

section 411(a)(11) notice to the standards

described above, the proposed regulations

remove from the existing regulations the

requirement that the section 411(a)(11)

notice be received “in a manner that

would satisfy the notice requirements of

section 417(a)(3).” Also, while they do

not remove references in the existing regulations to the “written” section 402(f) notice (because the statutory provisions of

section 402(f) specifically refer to a “written” notice), the proposed regulations provide for the electronic transmission of the

section 402(f) notice and modify the timing requirement for providing that notice.

1 The permissibility under the proposed regula-

2 The timing requirements and waiver provisions

tions of providing the section 3405 notice through

an electronic medium is not limited to qualified

plans described in section 401(a); rather, it applies

with respect to any payor under section 3405.

for purposes of the section 411(a)(11) notice are provided in Treasury Regulations §§1.411(a)–11(c)(2)(ii) and (iii), which are part of final regulations

published in T.D. 8796, 1999–4 I.R.B. 16.

1999–13 I.R.B.

2. Flexibility for timing requirement in

providing notices

The proposed regulations modify the

timing requirement for providing the section 402(f) and section 411(a)(11) notices.

Under existing regulations, those notices

must be provided no less than 30 days and

no more than 90 days before the date of a

distribution, although a participant is permitted to waive the 30-day period.2 As

discussed above, the proposed regulations

permit plans with comparatively few and

simple distribution options to provide the

section 411(a)(11) notice through a variety of electronic media, including (in

many cases) automated telephone systems. This will make it easier for those

plans to provide the notice within the

90/30-day period (for example, by providing the notice when a participant requests a distribution through the automated telephone system). Similarly,

plans with more numerous or more complex distribution options that use an

e-mail system or a web site may provide

the notice when a participant requests a

distribution through the e-mail system or

the web site.

The proposed regulations also provide

flexibility with respect to the 90-day period by providing an alternative timing

rule under sections 402(f) and 411(a)(11).

Under this alternative timing rule, a plan

may give the full section 402(f) and section 411(a)(11) notices more than 90 days

before the distribution and provide the

participant a summary of the notice during the 90/30-day period. The full notice

is not required to be provided on a regular

periodic basis and could be provided in

connection with other materials (for example, in the summary plan description or

in a brochure describing plan distribution

features), but it must be updated (and provided to the participant) as necessary to

ensure accuracy as of the time the summary is provided.

The summary of the notice must set

forth the material provisions of the notice,

must refer the participant to the most recent occasion on which the full notice was

provided (and, in the case of a notice provided in a document — such as the summary plan description — that contains

other information, must identify that document and must indicate where the notice

may be found in that document), and must

advise the participant of the right to request and receive a full notice without

charge. The plan could make this full notice available through an electronic

medium under a system that satisfies the

standards discussed above if it also offers

the participant the option to request the

full notice on a written paper document.

Whether written or electronic, the full notice, if requested, must be provided without charge no fewer than 30 days prior to

the date of the distribution (although the

March 29, 1999

participant may waive this 30-day period).

In the case of the section 411(a)(11) notice, the summary will consist of a statement that the participant has a right to

defer receipt of the distribution (if applicable) and a summary of the plan distribution options. In the case of the section

402(f) notice, the summary must summarize the principal provisions of the section

402(f) notice. The use of electronic

media to provide these summaries is subject to the same generally applicable standards that apply to the electronic transmission of the full section 411(a)(11) and

section 402(f) notices, as described

above. In contrast to the full section

402(f) notice, however, the IRS and Treasury believe that the summary of the section 402(f) notice can be provided orally

through a well designed telephone system

in a manner no less understandable than a

written paper summary. The following

summary, based on the summary set forth

in Notice 92–48, 1992–2 C.B. 377, is an

example of a section 402(f) summary that

may be provided through an automated

telephone system:

Summary of Notice Regarding

Important Tax Information

The following is a brief explanation of an important

decision you must make about any distribution you

request from the Plan. Please listen to it carefully.

You can find a more complete written explanation of

these rules in the Summary Plan Description for the

Plan, beginning on page x. You can obtain a free

copy of the complete explanation from the Personnel Office, or you will have an opportunity at the

end of this message to request to have a copy mailed

to you.

A payment from the Plan may be eligible for

“rollover” treatment. A payment that is eligible for

“rollover” can be taken in two ways. You can have

ALL OR ANY PORTION of your payment either (1)

PAID IN A “DIRECT ROLLOVER” or (2) PAID

TO YOU.

A rollover is a payment of your Plan benefits to your

individual retirement arrangement (IRA) or to another employer plan. This choice will affect the tax

you owe.

If you choose a DIRECT ROLLOVER

1. Your payment will not be taxed in the current

year and no income tax will be withheld.

2. Your payment will be made directly to your

IRA or, if you choose, to another employer

plan that accepts your rollover.

3. Your payment will be taxed later when you

take it out of the IRA or the employer plan.

If you choose to have your Plan benefits PAID TO

YOU

March 29, 1999

1. You will receive only 80% of the payment, because the plan administrator is required to

withhold 20% of the payment and send it to

the IRS as income tax withholding to be credited against your taxes.

2. Your payment will be taxed in the current year

unless you roll it over. You may be able to use

special tax rules that could reduce the tax you

owe. However, if you receive the payment

before age 59-1/2, you also may have to pay

an additional 10% tax.

3. You can roll over the payment by paying it to

your IRA or to another employer plan that accepts your rollover within 60 days of receiving the payment. The amount rolled over will

not be taxed until you take it out of the IRA or

employer plan.

4. If you choose to have your Plan benefits paid

to you and you want to roll over 100% of the

payment to an IRA or an employer plan, YOU

MUST FIND OTHER MONEY TO REPLACE THE 20% THAT WAS WITHHELD.

If you roll over only the 80% that you received, you will be taxed on the 20% that was

withheld and that is not rolled over.

You can find a complete explanation of these rules,

as well as additional rules that may apply in special

circumstances, beginning on page x of your Summary Plan Description. You can also obtain a free

copy of the complete explanation from the Personnel Office.

If you wish to have a free copy of the complete explanation mailed to you, press 1.

If you wish to hear this explanation again, press 2.

If you wish to end this transaction now, without requesting any distribution, press 3.

If you wish to continue with this transaction, press 4.

Consent under section 411(a)(11)

The proposed regulations provide that,

in general, a plan may receive a participant’s consent either on a written paper

document or through an electronic

medium reasonably accessible to the participant. As in the case of participant notices, the proposed regulations generally

do not categorize particular electronic

media as either permissible or impermissible for this purpose and do not prescribe

detailed, media-specific rules. Instead,

the proposed regulations set forth generally applicable standards for transmitting

consent through electronic media. The

standards are intended to parallel the key

attributes of participant consent provided

on written paper documents without imposing more stringent requirements on

electronic consents. To conform the existing regulations to this change, the proposed regulations remove the requirement

that a participant’s consent be “written.”

The proposed regulations provide that

participant consent transmitted through an

electronic medium must be given under a

system that is reasonably designed to preclude an individual other than the participant from giving the consent and that provides the participant a reasonable

opportunity to review and to confirm,

modify, or rescind the terms of the distribution before the consent to the distribution becomes effective. The proposed

regulations do not set out specific rules

regarding adequate identification or authentication of participants; the IRS and

Treasury note, however, that many comments submitted under Announcement

98–62 confirmed that “paperless” systems

ordinarily use passwords and personal

identification numbers to ensure participant identity in plan transactions.

The requirement that a participant be

given a reasonable opportunity to review

and to confirm, modify, or rescind the

terms of a distribution before his or her

consent becomes effective is not intended

to require a mandatory rescission period

after a transaction has been completed; it

is sufficient for the plan to provide this

opportunity immediately before the participant completes the session in which

the consent is given (for example, before

exiting the plan web site or at the end of

an automated telephone transaction). The

opportunity to review and to confirm,

modify, or rescind the terms of the distribution may be compared to a participant’s

opportunity to review the terms of a distribution on a written paper distribution

election form prior to submitting that

written paper form to the plan.

Many comments submitted under Announcement 98–62 indicated that it is a

very common practice in electronic plan

administration to provide participants

with confirmations (usually written confirmations) of plan transactions. The receipt of a confirmation is, for the participant, analogous to the opportunity to

retain a photocopy of a written paper distribution election form. Consistent with

these comments, the proposed regulations provide for the plan to give the participant a confirmation of the terms of the

distribution within a reasonable time

after the participant has given consent

through an electronic medium. However,

the confirmation of the participant’s consent to the distribution generally need not

1999–13 I.R.B.

be given through a written paper document; it may be given through any electronic medium that would satisfy the provisions of the proposed regulations for

delivery of the section 411(a)(11) notice.

(Thus, if the confirmation is given

through an electronic medium, the participant must be given the right to request

and to receive the confirmation on a written paper document.) Additionally, the

confirmation need not be given as a separate transaction. For example, the confirmation could be given immediately before completion of a session conducted

on a plan web site. Alternatively, a plan

could provide the confirmation by reflecting the transaction in a participant’s

periodic account statement (provided that

the confirmation is given within a reasonable time after the consent).3

As with notices, the general standards

for the section 411(a)(11) consent are illustrated by several examples intended to

describe in broad terms certain uses of

electronic technologies that would satisfy

the proposed regulations. The examples

illustrate consent given through e-mail,

web sites (Internet or intranet), and automated telephone systems and clarify that

a participant may consent to a distribution

orally through an automated telephone

system. The examples are not intended to

constitute an exhaustive list of permissible uses, systems, or electronic media or

to imply that other uses, systems, or electronic media (whether extant or not yet

developed) would fail to satisfy the proposed regulations.

Other transactions and recordkeeping

A few comments submitted under Announcement 98–62 requested guidance on

the use of electronic media for waivers of

the qualified joint and survivor annuity

and the qualified preretirement survivor

annuity, spousal consent, and related explanations under section 417. Guidance

3 Several commentators requested that guidance

on electronic plan administration clarify that participants need not receive written paper confirmation of

every plan transaction conducted through an electronic medium (such as an inquiry regarding a participant’s account value). The IRS and Treasury

note that (apart from the provision of the proposed

regulations described above) neither the Code nor

the regulations impose a requirement to provide

confirmation (written or otherwise) of plan transactions conducted through an electronic medium.

1999–13 I.R.B.

on those issues has not been issued at this

time because any use of electronic media

for those purposes — as well as for the notice requirements of sections 401(k)(12)

and 401(m)(11) (pertaining to the safe harbor methods of satisfying the nondiscrimination requirements of sections 401(k)

and (m)) and the notice requirements of

section 204(h) of ERISA — would raise

substantial issues distinct from those

raised by the use of electronic media for

the notice and consent requirements of

sections 402(f), 411(a)(11), and 3405(e)(10)(B). The IRS and Treasury will be reviewing those issues and will consider

whether guidance should be issued in the

future.

Several comments also requested guidance regarding the use of electronic media

for withholding elections under section

3405. The IRS and Treasury are issuing

guidance permitting payors to establish

systems to receive Form W-4P (Withholding Certificate for Pension or Annuity

Payments) electronically. Interested parties are invited to submit comments concerning what, if any, additional guidance

is needed concerning the use of electronic

media for withholding elections under

section 3405.

Several comments submitted under Announcement 98–62 addressed recordkeeping under section 6001 for electronic plan

administration. Revenue Procedure 98–

25, 1998–11 I.R.B. 7, specifies the basic

requirements that the IRS considers to be

essential in cases where a taxpayer’s

records are maintained within an Automatic Data Processing system. Under

section 3.01 of Revenue Procedure 98–

25, these requirements apply to employee

plans. Additionally, Revenue Procedure

97–22, 1997–1 C.B. 652, provides guidance to taxpayers maintaining books and

records by using an electronic storage

system that either images their hardcopy

(paper) books and records, or transfers

their computerized books and records, to

an electronic storage medium, such as an

optical disk. Under section 3.02 of Revenue Procedure 97–22, the requirements

of that revenue procedure apply employee

plans. The IRS and Treasury invite interested parties to submit comments on what

specific guidance is needed concerning

recordkeeping requirements for electronic

plan administration in addition to that

provided in Revenue Procedures 98–25

and 97–22.

Reliance

Plan sponsors and administrators may

rely on these proposed regulations for

guidance pending the issuance of final

regulations. If, and to the extent, future

guidance is more restrictive than the guidance in these proposed regulations, the future guidance will be applied without

retroactive effect.

Proposed Effective Date

These regulations are proposed to be

effective the first day of the first plan year

beginning on or after the date that is six

months after they are published in the

Federal Register as final regulations.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It is hereby certified

that these regulations will not have a significant economic impact on a substantial

number of small entities. This certification is based on the fact that the regulations provide paperless alternatives to notices that otherwise must be sent as

written paper documents. It is anticipated

that most small businesses affected by

these regulations will be sponsors of retirement plans. Since these notices are

provided only upon distributions and

since, in the case of a small plan, there

will be relatively few distributions per

year, small plans that implement a paperless system for delivering these notices

will likely contract for them as part of a

paperless system for distributions offered

by outside vendors. The paperless delivery of the notices will only add a minor

increment to the cost of these paperless

distribution systems or the plan sponsor

will continue to use a paper-based system.

Accordingly, a Regulatory Flexibility

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

proposed rulemaking will be submitted to

the Chief Counsel for Advocacy of the

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

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, considera-

March 29, 1999

tion will be given to any electronic and

written comments (a signed original and

eight (8) copies) that are submitted timely

to the IRS. The IRS and Treasury specifically request comments on the clarity of

the proposed regulations and how it may

be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled

for April 15, 1999, at 10 a.m. in room

2615, Internal Revenue Service Building,

1111 Constitution Avenue, NW, Washington, DC. Due to security procedures, visitors must enter at the 10th Street entrance,

located between Constitution and Pennsylvania Avenues, NW. In addition, all

visitors must present a photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance

area more than 15 minutes before the

hearing starts. For information about

having your name placed on the building

access list, see the “FOR FURTHER INFORMATION CONTACT” section of

this preamble.

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

apply to the hearing.

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

comments and an outline of topics to be

discussed and the time to be devoted to

each topic (signed original and eight (8)

copies) by March 25, 1999.

A period of 10 minutes will be allotted

to each person for making comments.

An agenda showing the scheduling of

speakers will be prepared after the deadline for receiving outlines has passed.

Copies of the agenda will be available

free of charge at the hearing.

Drafting Information

The principal author of these regulations is Catherine Livingston Fernandez,

Office of the Associate Chief Counsel

(Employee Benefits and Exempt Organizations), Internal Revenue Service. However, personnel from other offices of the

IRS and Treasury Department participated in their development.

* * * * *

Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 35 are

proposed to be amended as follows:

March 29, 1999

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read, in part, as follows:

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

Par. 2. Section 1.402(f)–1 is amended

by:

1. Revising Q&A-2.

2. Adding Q&A-5 and Q&A-6.

The revision and additions read as follows:

§1.402(f)–1 Required explanation of

eligible rollover distributions; questions

and answers.

* * * * *

Q-2: When must the plan administrator

provide the section 402(f) notice to a distributee?

A-2: The plan administrator must provide the section 402(f) notice to a distributee at a time that satisfies either paragraph (a) or (b) of this Q&A-2.

(a) Paragraph (a) of this Q&A-2 is satisfied if the plan administrator provides a

distributee with the section 402(f) notice

no less than 30 days and no more than 90

days before the date of a distribution.

However, if the distributee, after having

received the section 402(f) notice, affirmatively elects a distribution, a plan will

not fail to satisfy section 402(f) merely

because the distribution is made less than

30 days after the section 402(f) notice was

provided to the distributee, provided the

plan administrator clearly indicates to the

distributee that the distributee has a right

to consider the decision of whether or not

to elect a direct rollover for at least 30

days after the notice is provided. The

plan administrator may use any method to

inform the distributee of the relevant time

period, provided that the method is reasonably designed to attract the attention

of the distributee. For example, this information could be either provided in the

section 402(f) notice or stated in a separate document (e.g., attached to the election form) that is provided at the same

time as the notice. For purposes of satisfying the requirement in the first sentence

of paragraph (a) of this Q&A-2, the plan

administrator may substitute the annuity

starting date, within the meaning of

§1.401(a)–20, Q&A-10, for the date of

the distribution.

(b) This paragraph (b) is satisfied if the

plan administrator—

(1) Provides a distributee with the

section 402(f) notice;

(2) Provides the distributee with a

summary of the section 402(f) notice

within the time period described in paragraph (a) of this Q&A-2; and

(3) If the distributee so requests after

receiving the summary described in paragraph (b)(2) of this Q&A-2, provides the

section 402(f) notice to the distributee

without charge and within the period

specified in paragraph (a) of this Q&A-2

(disregarding the 90-day period described

in paragraph (a) of this Q&A-2). The

summary described in paragraph (b)(2) of

this Q&A-2 must set forth a summary of

the principal provisions of the section

402(f) notice, must refer the distributee to

the most recent occasion on which the

section 402(f) notice was provided (and,

in the case of a notice provided in any

document containing information in addition to the notice, must identify that document and must indicate where the notice

may be found in that document), and must

advise the distributee that, upon request, a

copy of the section 402(f) notice will be

provided without charge.

* * * * *

Q-5: Will the requirements of section

402(f) be satisfied if a plan administrator

provides a distributee with the section

402(f) notice or the summary of the notice

described in paragraph (b)(2) of Q&A-2

of this section other than through a written paper document?

A-5: A plan administrator may provide

a distributee with the section 402(f) notice

or the summary of that notice described in

paragraph (b)(2) of Q&A-2 of this section

either on a written paper document or

through an electronic medium reasonably

accessible to the distributee. A notice or

summary provided through an electronic

medium must be provided under a system

that satisfies the following requirements:

(a) The system must be reasonably designed to provide the notice or summary

in a manner no less understandable to the

distributee than a written paper document.

(b) At the time the notice or summary is

provided, the distributee must be advised

that the distributee may request and receive the notice on a written paper document, and, upon request, that document

1999–13 I.R.B.

must be provided to the distributee at no

charge.

Q-6: Are there examples that illustrate

the provisions of Q&A-2 and Q&A-5 of

this section?

A-6: The following examples illustrate

the provisions of Q&A-2 and Q&A-5 of

this section:

Example 1. A qualified plan (Plan A) permits

participants to request distributions by e-mail.

Under Plan A’s system for such transactions, a participant must enter his or her account number and

personal identification number (PIN); this information must match that in Plan A’s records in order for

the transaction to proceed. If a participant changes

his or her PIN, the participant may not proceed with

a transaction until Plan A has sent confirmation of

the change to the participant. If a participant requests a distribution from Plan A by e-mail and the

distribution is an eligible rollover distribution, the

plan administrator provides the participant with a

section 402(f) notice by e-mail. The plan administrator also advises the participant that he or she may

request the section 402(f) notice on a written paper

document and that, if the participant so requests, the

written paper document will be provided at no

charge. To proceed with the distribution by e-mail,

the participant must acknowledge receipt, review,

and comprehension of the section 402(f) notice.

Plan A does not fail to satisfy the notice requirement

of section 402(f) merely because the notice is provided to the participant other than through a written

paper document.

Example 2. A qualified plan (Plan B) permits

participants to request distributions through the Plan

B web site (Internet or intranet). Under Plan B’s

system for such transactions, a participant must

enter his or her account number and personal identification number (PIN); this information must match

that in Plan B’s records in order for the transaction

to proceed. If a participant changes his or her PIN,

the participant may not proceed with a transaction

until Plan B has sent confirmation of the change to

the participant. A participant may request a distribution from Plan B by following the applicable instructions on the Plan B web site. After the participant has requested a distribution that is an eligible

rollover distribution, the participant is automatically

shown a page on the web site containing a section

402(f) notice. Although this page of the web site

may be printed, the page also advises the participant

that he or she may request the section 402(f) notice

on a written paper document and that, if the participant so requests, the written paper document will be

provided at no charge. To proceed with the distribution through the web site, the participant must acknowledge review and comprehension of the section

402(f) notice. Plan B does not fail to satisfy the notice requirement of section 402(f) merely because

the notice is provided to the participant other than

through a written paper document.

Example 3. A qualified plan (Plan C) permits

participants to request distributions through Plan C’s

automated telephone system. Under Plan C’s system for such transactions, a participant must enter

his or her account number and personal identification number (PIN); this information must match that

1999–13 I.R.B.

in Plan C’s records in order for the transaction to

proceed. If a participant changes his or her PIN, the

participant may not proceed with a transaction until

Plan C has sent confirmation of the change to the

participant. Plan C provides the section 402(f) notice in the summary plan description, the most recent

version of which was distributed to participants in

1997. A participant may request a distribution from

Plan C by following the applicable instructions on

the automated telephone system. In 1999, a participant, using Plan C’s automated telephone system,

requests a distribution that is an eligible rollover distribution. The automated telephone system refers

the participant to the most recent occasion on which

the section 402(f) notice was provided in the summary plan description, informs the participant where

the section 402(f) notice may be located in the summary plan description, and provides an oral summary of the material provisions of the section 402(f)

notice. The system also advises the participant that

the participant may request the section 402(f) notice

on a written paper document and that, if the participant so requests, the written paper document will be

provided at no charge. Before proceeding with the

distribution, the participant must acknowledge comprehension of the summary. Under Plan C’s system

for processing such transactions, the participant’s

distribution will be made no more than 90 days and

no fewer than 30 days after the participant requests

the distribution and receives the summary of the section 402(f) notice (unless the participant waives the

30-day period). Plan C does not fail to satisfy the

notice requirement of section 402(f) merely because

Plan C provides a summary of the section 402(f) notice or merely because the summary is provided to

the participant other than through a written paper

document.

Example 4. The facts are the same as in Example

3, except that, pursuant to Plan C’s system for processing such transactions, a participant who so requests is transferred to a customer service representative whose conversation with the participant is

recorded. The customer service representative provides the summary of the section 402(f) notice by

reading from a prepared text. Plan C does not fail to

satisfy the notice requirement of section 402(f)

merely because Plan C provides a summary of the

section 402(f) notice or merely because the summary

of the section 402(f) notice is provided to the participant other than through a written paper document.

Example 5. The facts are the same as in Example

3, except that Plan C does not provide the section

402(f) notice in the summary plan description. Instead, the automated telephone system reads the section 402(f) notice to the participant. Plan C does not

satisfy the notice requirement of section 402(f) by

oral delivery of the section 402(f) notice through the

automated telephone system.

Par. 3. Section 1.411(a)–11 is amended

by:

1. Revising paragraphs (c)(2)(i) and

(iii).

2. Adding paragraphs (f) and (g).

3. Removing the language “Written

consent” in paragraph (c)(2)(ii) and (c)(3)

and adding the language “Consent” in its

place.

The revisions and additions read as follows:

§1.411(a)–11 Restriction and valuation of

distributions.

* * * * *

(2) Consent. (i) No consent is valid unless the participant has received a general

description of the material features of the

optional forms of benefit available under

the plan. In addition, so long as a benefit

is immediately distributable, a participant

must be informed of the right, if any, to

defer receipt of the distribution. Furthermore, consent is not valid if a significant

detriment is imposed under the plan on

any participant who does not consent to a

distribution. Whether or not a significant

detriment is imposed shall be determined

by the Commissioner by examining the

particular facts and circumstances.

* * * * *

(iii) A plan must provide a participant

with notice of the rights specified in this

paragraph (c)(2) at a time that satisfies either paragraph (c)(2)(iii)(A) or (B) of this

section:

(A) This paragraph (c)(2)(iii)(A) is satisfied if the plan provides a participant

with notice of the rights specified in this

paragraph (c)(2) no less than 30 days and

no more than 90 days before the date the

distribution commences. However, if the

participant, after having received this notice, affirmatively elects a distribution, a

plan will not fail to satisfy the consent requirement of section 411(a)(11) merely

because the distribution commences less

than 30 days after the notice was provided

to the participant, provided the plan administrator clearly indicates to the participant that the participant has a right to at

least 30 days to consider whether to consent to the distribution.

(B) This paragraph (c)(2)(iii)(B) is satisfied if the plan—

(1) Provides the participant with notice

of the rights specified in this paragraph

(c)(2);

(2) Provides the participant with a summary of the notice within the time period

described in paragraph (c)(2)(iii)(A) of

this section; and

(3) If the participant so requests after

receiving the summary described in para-

March 29, 1999

graph (c)(2)(iii)(B)(2) of this section, provides the notice to the participant without

charge and within the period specified in

paragraph (c)(2)(iii)(A) of this section

(disregarding the 90-day period described

in paragraph (c)(2)(iii)(A) of this section).

The summary described in paragraph

(c)(2)(iii)(B)(2) of this section must advise the participant of the right, if any, to

defer receipt of the distribution, must set

forth a summary of the distribution options under the plan, must refer the participant to the most recent occasion on

which the notice was provided (and, in

the case of a notice provided in any document containing information in addition

to the notice, must identify that document

and must indicate where the notice may

be found in that document), and must advise the participant that, upon request, a

copy of the notice will be provided without charge.

* * * * *

(f) Medium for notice and consent—

(1) Notice. The notice of a participant’s

rights described in paragraph (c)(2) of this

section or the summary of that notice described in paragraph (c)(2)(iii)(B)(2) of

this section may be provided either on a

written paper document or through an

electronic medium reasonably accessible

to the participant. A notice or summary

provided through an electronic medium

must be provided under a system that satisfies the following requirements:

(i) The system must be reasonably designed to provide the notice or summary

in a manner no less understandable to the

participant than a written paper document.

(ii) At the time the notice or summary is

provided, the participant must be advised

that he or she may request and receive the

notice on a written paper document, and,

upon request, that document must be provided to the participant at no charge.

(2) Consent. The consent described in

paragraphs (c)(2) and (3) of this section

may be given either on a written paper

document or through an electronic

medium reasonably accessible to the participant. A consent given through an electronic medium must be given under a

system that satisfies the following requirements:

(i) The system must be reasonably designed to preclude any individual other

March 29, 1999

than the participant from giving the consent.

(ii) The system must provide the participant with a reasonable opportunity to

review and to confirm, modify, or rescind

the terms of the distribution before the

consent to the distribution becomes effective.

(iii) The system must provide the participant, within a reasonable time after the

consent is given, a confirmation of the

terms (including the form) of the distribution either on a written paper document or

through an electronic medium under a

system that satisfies the requirements of

paragraph (f)(1) of this section.

(g) Examples. The provisions of paragraph (f) of this section are illustrated by

the following examples:

Example 1. A qualified plan (Plan A) permits

participants to request distributions by e-mail.

Under Plan A’s system for such transactions, a participant must enter his or her account number and

personal identification number (PIN); this information must match that in Plan A’s records in order for

the transaction to proceed. If a participant changes

his or her PIN, the participant may not proceed with

a transaction until Plan A has sent confirmation of

the change to the participant. If a participant requests a distribution from Plan A by e-mail, the plan

administrator provides the participant with a section

411(a)(11) notice by e-mail. The plan administrator

also advises the participant that he or she may request the section 411(a)(11) notice on a written

paper document and that, if the participant so requests, the written paper document will be provided

at no charge. To proceed with the distribution by email, the participant must acknowledge receipt, review, and comprehension of the section 411(a)(11)

notice and must consent to the distribution within

the time required under section 411(a)(11). Within a

reasonable time after the participant’s consent, the

plan administrator, by e-mail, sends confirmation of

the distribution to the participant and advises the

participant that he or she may request the confirmation on a written paper document that will be provided at no charge. Plan A does not fail to satisfy the

notice or consent requirement of section 411(a)(11)

merely because the notice and consent are provided

other than through written paper documents.

Example 2. The facts are the same as in Example

1, except that, instead of sending a confirmation of

the distribution by e-mail, the plan administrator,

within a reasonable time after the participant’s consent, sends the participant an account statement for

the period that includes information reflecting the

terms of the distribution. Plan A does not fail to satisfy the consent requirement of section 411(a)(11)

merely because the consent is provided other than

through a written paper document.

Example 3. A qualified plan (Plan B) permits

participants to request distributions through the Plan

B web site (Internet or intranet). Under Plan B’s

system for such transactions, a participant must

enter his or her account number and personal identification number (PIN); this information must match

that in Plan B’s records in order for the transaction

to proceed. If a participant changes his or her PIN,

the participant may not proceed with a transaction

until Plan B has sent confirmation of the change to

the participant. A participant may request a distribution from Plan B by following the applicable instructions on the Plan B web site. After the participant has

requested a distribution, the participant is automatically shown a page on the web site containing a section 411(a)(11) notice. Although this page of the web

site may be printed, the page also advises the participant that he or she may request the section 411(a)(11)

notice on a written paper document and that, if the

participant so requests, the written paper document

will be provided at no charge. To proceed with the

distribution through the web site, the participant must

acknowledge review and comprehension of the section 411(a)(11) notice and must consent to the distribution within the time required under section

411(a)(11). The web site requires the participant to

review and confirm the terms of the distribution before the transaction is completed. After the participant has given consent, the Plan B web site confirms

the distribution to the participant and advises the participant that he or she may request the confirmation

on a written paper document that will be provided at

no charge. Plan B does not fail to satisfy the notice

or consent requirement of section 411(a)(11) merely

because the notice and consent are provided other

than through written paper documents.

Example 4. A qualified plan (Plan C) permits

participants to request distributions through Plan C’s

automated telephone system. Under Plan C’s system for such transactions, a participant must enter

his or her account number and personal identification number (PIN); this information must match that

in Plan C’s records in order for the transaction to

proceed. If a participant changes his or her PIN, the

participant may not proceed with a transaction until

Plan C has sent confirmation of the change to the

participant. Plan C provides only the following distribution options: a lump sum and annual installments over 5, 10, or 20 years. A participant may request a distribution from Plan C by following the

applicable instructions on the automated telephone

system. After the participant has requested a distribution, the automated telephone system reads the section 411(a)(11) notice to the participant. The automated telephone system also advises the participant

that he or she may request the notice on a written

paper document and that, if the participant so requests, the written paper document will be provided

at no charge. Before proceeding with the distribution transaction, the participant must acknowledge

comprehension of the section 411(a)(11) notice and

must consent to the distribution within the time required under section 411(a)(11). The automated

telephone system requires the participant to review

and confirm the terms of the distribution before the

transaction is completed. After the participant has

given consent, the automated telephone system confirms the distribution to the participant and advises

the participant that he or she may request the confirmation on a written paper document that will be provided at no charge. Because Plan C has relatively

few and simple distribution options, the provision of

the section 411(a)(11) notice over the automated

1999–13 I.R.B.

telephone system is no less understandable to the

participant than a written paper notice. Plan C does

not fail to satisfy the notice or consent requirement

of section 411(a)(11) merely because the notice and

consent are provided other than through written

paper documents.

Example 5. The facts are the same as in Example

4, except that, pursuant to Plan C’s system for processing such transactions, a participant who so requests is transferred to a customer service representative whose conversation with the participant is

recorded. The customer service representative provides the section 411(a)(11) notice from a prepared

text and processes the participant’s distribution in

accordance with predetermined instructions of the

plan administrator. Plan C does not fail to satisfy the

notice or consent requirement of section 411(a)(11)

merely because the notice and consent are provided

other than through written paper documents.

PART 35–TEMPORARY

EMPLOYMENT TAX AND

COLLECTION OF INCOME TAX AT

SOURCE REGULATIONS UNDER

THE TAX EQUITY AND FISCAL

RESPONSIBILITY ACT OF 1982

Par. 4. The authority citation for part

35 is revised to read as follows:

Authority: 26 U.S.C. 6047(e), 7805;

68A Stat. 917; 96 Stat. 625; Pub. L. 97–

248 (96 Stat. 623).

Section 35.3405–1 also issued under 26

U.S.C. 3405(e)(10)(B)(iii).

Par. 5. Section 35.3405–1 is amended

by adding d-35 and d-36 to read as follows:

§35.3405–1. Questions and answers

relating to withholding on pensions,

annuities, and certain other deferred

income.

* * * * *

d-35. Q. Through what medium may a

payor provide the notice required under

section 3405 to a payee?

A. A payor may provide the notice required under section 3405 (including the

abbreviated notice described in d-27) to a

payee either on a written paper document

or through an electronic medium reasonably accessible to the payee. A notice

provided through an electronic medium

must be provided under a system that satisfies the following requirements:

(a) The system must be reasonably designed to provide the notice in a manner

no less understandable to the payee than a

written paper document.

(b) At the time the notice is provided,

the payee must be advised that the payee

1999–13 I.R.B.

may request and receive the notice on a

written paper document, and, upon request, that document must be provided to

the payee at no charge.

d-36. Q. Are there examples that illustrate the provisions of d-35 of this section?

A. The provisions of d-35 of this section are illustrated by the following examples:

Example 1. An employer deferred compensation

plan (Plan A) permits participants to request distributions by e-mail. Under Plan A’s system for such

transactions, a participant must enter his or her account number and personal identification number

(PIN); this information must match that in Plan A’s

records in order for the transaction to proceed. If a

participant changes his or her PIN, the participant

may not proceed with a transaction until Plan A has

sent confirmation of the change to the participant.

The plan administrator is the payor. If a participant

requests a distribution from Plan A by e-mail, the

plan administrator provides the participant with the

notice required under section 3405 by e-mail. The

plan administrator also advises the participant that

he or she may request the notice on a written paper

document and that, if the participant so requests, the

written paper document will be provided at no

charge. To proceed with the distribution by e-mail,

the participant must acknowledge receipt, review,

and comprehension of the notice. The plan administrator does not fail to satisfy the notice requirement

of section 3405 merely because the notice is provided to the participant other than through a written

paper document.

Example 2. An employer deferred compensation

plan (Plan B) permits participants to request distributions through the Plan B web site (Internet or intranet). Under Plan B’s system for such transactions, a participant must enter his or her account

number and personal identification number (PIN);

this information must match that in Plan B’s records

in order for the transaction to proceed. If a participant changes his or her PIN, the participant may not

proceed with a transaction until Plan B has sent confirmation of the change to the participant. The plan

administrator is the payor. A participant may request

a distribution from Plan B by following the applicable instructions on the Plan B web site. After the

participant has requested a distribution, the participant is automatically shown a page on the web site

containing the notice required by section 3405. Although this page of the web site may be printed, the

page also advises the participant that he or she may

request the notice on a written paper document and

that, if the participant so requests, the written paper

document will be provided at no charge. To proceed

with the distribution through the web site, the participant must acknowledge review and comprehension

of the notice. The plan administrator does not fail to

satisfy the notice requirement of section 3405

merely because the notice is provided to the participant other than through a written paper document.

Example 3. An employer deferred compensation

plan (Plan C) permits participants to request distributions through Plan C’s automated telephone system. Under Plan C’s system for such transactions, a

participant must enter his or her account number and

personal identification number (PIN); this information must match that in Plan C’s records in order for

the transaction to proceed. If a participant changes

his or her PIN, the participant may not proceed with

a transaction until Plan C has sent confirmation of

the change to the participant. The plan administrator

is the payor. A participant may request a distribution

from Plan C by following the applicable instructions

on the automated telephone system. After the participant has requested a distribution, the automated

telephone system reads the notice required by section 3405 to the participant. The automated telephone system also advises the participant that he or

she may request the notice on a written paper document and that, if the participant so requests, the written paper document will be provided at no charge.

Before proceeding with the distribution transaction,

the participant must acknowledge comprehension of

the notice. The plan administrator does not fail to

satisfy the notice requirement of section 3405

merely because the notice is provided to the participant other than through a written paper document.

Example 4. The facts are the same as in Example

3, except that, pursuant to the system for processing

such transactions, a participant who so requests is

transferred to a customer service representative

whose conversation with the participant is recorded.

The customer service representative provides the

notice required by section 3405 by reading from a

prepared text. The plan administrator does not fail

to satisfy the notice requirement of section 3405

merely because the notice is provided to the participant other than through a written paper document.

* * * * *

John M. Dalrymple,

Acting Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on December 17, 1998, 8:45 a.m., and published in the

issue of the Federal Register for December 18, 1998,

63 F.R. 70071)

Supplemental Instructions for

Form 8606, Nondeductible IRAs

Announcement 99–18

This announcement provides supplemental instructions for the proper completion of Form 8606, Nondeductible IRAs,

for Roth IRA conversions and recharacterizations. It also clarifies the proper

computation of the 10% additional tax for

early distributions in the case of Roth IRA

conversions and subsequent withdrawals

from Roth IRA accounts. Finally, it corrects the computation of modified AGI for

purposes of Roth IRAs on page 2 and the

Ed IRA Contribution Worksheet on page

3 in the separate instructions for Form

8606.

March 29, 1999

I. Reporting Roth IRA Conversions

and Recharacterizations

blank. Mr. Smith completes Part II of

Form 8606 as follows:

II. Clarification of Amount Subject to

10% Additional Tax

Holders of traditional IRAs may convert these accounts to Roth IRAs if they

meet the eligibility requirements and include any previously untaxed amounts

converted in their gross income for the

year of conversion. For conversions in

1998, the includible amount may be

spread over 4 years, at the election of the

taxpayer. A conversion may be undone

by recharacterizing the converted

amounts back to the traditional IRA.

Some questions have arisen about the

proper reporting of conversions, recharacterizations, and reconversions to Roth

IRAs, particularly regarding the reconciliation of amounts on Forms 1099-R issued

by account trustees with amounts to be

entered on Form 8606 and Form 1040.

The following comprehensive example

clarifies this reporting.

Line 14a. Mr. Smith enters $15,000 on

this line. This is the sum of the amounts

reported to him in box 1 of the Forms

1099-R he received for the $8,000 conversion on February 19, 1998, and the

$7,000 reconversion on September 10,

1998.

The Note after line 26 of Form 8606 is

incomplete. Regardless of whether you

have an amount on line 22 or 25 of Form

8606, you may be subject to an additional

10% tax. The Note should read as follows:

“Note: If you receive a Roth IRA distribution before reaching age 591⁄2, you

may be subject to an additional 10% tax.

See Form 5329. Include on line 1 of

Form 5329 the smaller of the amount on

line 20 or the sum of the amounts on lines

16 and 25.”

Please disregard the paragraph headed

Lines 22 and 25-Additional 10% Tax on

page 6 of the instructions for Form 8606,

as well as the first complete paragraph in

the middle column of page 3 of the instructions for Form 5329.

Example: Mr. Smith has the following

IRA activity in 1998:

Date

Activity

2/19/98

Mr. Smith contributes $2,000

to a Roth IRA.

2/19/98

Mr. Smith converts the entire

$8,000 balance in his traditional IRA to a Roth IRA. The

converted amount was placed

into an account separate from

the Roth contribution account.

His total basis in the traditional

IRA was $2,000 (from a nondeductible contribution in an earlier year).

9/10/98

The fair market value of Mr.

Smith’s conversion account decreased from $8,000 to $7,000.

Mr. Smith recharacterizes the

entire remaining balance of

$7,000 to a traditional IRA.

Mr. Smith reconverts the

$7,000 from the traditional

IRA back to a Roth IRA.

In 1999, Mr. Smith receives three

Forms 1099-R: one for the original conversion of $8,000, another for the $7,000

recharacterization, and a third one for the

subsequent reconversion of $7,000.

Completion of Form 8606: Mr. Smith

should complete the identifying information above Part I. He should leave Part I

March 29, 1999

Line 14b. Although Mr. Smith recharacterized $7,000 from his Roth conversion

account to his traditional IRA, he reports

$8,000 on line 14b. This is because line

14a includes $8,000 from his original

conversion and he recharacterized the entire remaining balance of $7,000. He enters $8,000 on line 14b to “zero out” the

conversion and subsequent recharacterization. Otherwise, Mr. Smith would be

taxed on the $1,000 decline in market

value in his Roth conversion account before the recharacterization.

Line 14c. Mr. Smith reports $7,000 on

this line ($15,000-$8,000).

Line 15. Mr. Smith refers to the chart on

page 5 of the Form 8606 instructions to

determine the amount to enter on this line.

As a result, he enters $2,000, which is his

prior year nondeductible contribution to a

traditional IRA.

Line 16. The taxable amount of the conversion is $5,000 ($7,000-$2,000).

Line 17. Mr. Smith elects to have the taxable amount spread over 4 years. In 1998

and in each of the next 3 years, Mr. Smith

is taxed on $1,250.

Part III. Mr. Smith does not complete

Part III. Although he received a Form

1099-R for his recharacterization of

$7,000 from the Roth IRA to a traditional

IRA, the recharacterization is not a distribution that is to be reported on line 18 of

Part III. It is merely a trustee-to-trustee

transfer of funds between IRA accounts.

Completion of Form 1040: Mr. Smith

includes $22,000 on line 15a. This is the

total IRA distributions that were reported

to him in box 1 of the Forms 1099-R he

received. Mr. Smith includes $1,250, the

amount of the conversion that is taxable

in 1998, on line 15b. This is the amount

from line 17 of Form 8606.

III. Correction to Computation of

Modified AGI for Purposes of

Roth IRAs

Under Roth IRAs on page 2 of the

Form 8606 instructions, item 1 under

Modified AGI for purposes of Roth

IRAs should include a reference to Form

1040A, line 10b.

IV. Correction to Ed IRA

Contribution Worksheet

Line 2 of the worksheet on page 3 of

the Form 8606 instructions should read:

“Enter $150,000 if married filing jointly;

or $95,000 for all other filers.” The referenced amount for married filing separately should be deleted.

Foundations Status of Certain

Organizations

Announcement 99–27

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 organiza-

1999–13 I.R.B.

tions have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following

organizations (which have been treated as

organizations that are not private foundations described in section 509(a) of the

Code) are now classified as private foundations:

Adolescent Interchange Service Inc.,

Shreveport, LA

African Haitian American Operation

Hope for Democracy for Rebuilding,

Newburg, IN

American Friends of the International

Disability Foundation Inc., New York,

American Relief Services Inc., Walnut

Creek, CA

Arcadia Academy Valley Inc., Ironton,

Beauty of Life, Brooklyn, NY

Blazer Mat Club, Douglassville, PA

Brothers Empowering African Minds,

Raleigh, NC

Career Kids Incentive Program, Seattle,

Cheerleading Association of Stratford

High School, Goose Creek, SC

Chicago Lawn and Gage Park

Community Youth Center Inc.,

Chicago, IL

City Wide Resident Management

Corporation Inc., Gary, IN

Community Homeowners Association

Inc., Dorchester, MA

Creative Bridges Inc., San Francisco, CA

David S Brown Foundation Inc., Boston,

Dejesus Foundation Inc., Castle Point,

Dobbs Ferry Schools Foundation Inc.,

Dobbs Ferry, NY

Downstate AIDS Projects, Springfield, IL

Dutchman Chapel Corporation, Enoree,

Earth Camp International Inc.,

Los Angeles, CA

Family Wellness Center Inc., North Palm

Beach, FL

Firefighters Museum and Hall of Fame,

College Station, TX

Franklin County Legal Childrens

Services Inc., Malone, NY

Friendly Neighbors Club of N C,

Asheville, NC

Friends of the BBC Marshall Plan of the

Mind Trust Inc., Bethesda, MD

1999–13 I.R.B.

Gaffney Main Street Corporation,

Gaffney, SC

Greater Ottumwa Vocal Arts Project Inc.,

Ottumwa, IA

Hayes School Alumni Inc., Brooklyn, NY

HIV-AIDS Planning & Management

Organization Inc., Miami, FL

Housing Authority of the City of Laredo,

Laredo, TX

Imani & Friends Incorporated, Chicago,

I M P A C T Institute Inc., Oakland Park,

Iberia Pro Bono Project, New Iberia, LA

Idaho Empowerment Program Inc.,

Boise, ID

Idaho Freedom Chorus Inc., Boise, ID

IHS Inc., Winslow, AZ

Ila Gail Educational Foundation Inc., Salt

Lake City, UT

Illinois Education First Foundation,

Springfield, IL

Image Productions, Colorado Springs,

Imagication Childrens Television,

Mansfield Ctr., CT

Imani Inc., Detroit, MI

Immunet Inc., New York, NY

Impact Community & Economic

Development Corporation, Portland,

In Christ International, Santa Ana, CA

In His Service Ministries Inc.,

Ponchatoula, LA

In-Reach Foundation, Pittsburg, CA

In Recital, New York, NY

Incentives Inc., Jamacia, NY

Independence for Physically Disabled

Children Inc., Oceanside, NY

Independent Democratic Education

Association Ideas Inc., Great Neck,

Independent School Board Members of

Wisconsin Inc., Hales Corners, WI

Indian Nations Recreation Trail Inc.,

Muskogee, OK

Indiana Raiders Girls Softball Club,

Portage, IN

Indianapolis AIDS Housing Corp.,

Indianapolis, IN

Indianapolis Neighborhood Resource

Center Inc., Indianapolis, IN

Indigenous Arts Foundation Inc.,

Belmont, MA

Indo-U S Bio-Medical Research

Foundation, Burton, MI

Indonesian Society of Portland, Lake

Oswego, OR

Indy Tres Dias Inc., Indianapolis, IN

Infancia Mexicana Inc., South Bend, IN

Infinity Systems for Nonprofits Inc.,

Minneapolis, MN

Injured Athletes Recovery Fund,

Providence, RI

Inland Empire Pride Inc.,

San Bernardino, CA

Inland Northwest Mens Evolvement

Network, Spokane, WA

Inn Fellowship Inc., St. Louis, MO

Inner City Community Development Inc.,

Knoxville, TN

Inner-City Ministries Inc., Ellendale,

Inner-City Vision Ministries, Mercer

Island, WA

Inner City Youth Foundation, Cleveland,

Inner Development Inc., Staten Island,

Inner Essence Deliverance Ministries,

Kalamazoo, MI

Innervision, Denver, CO

Inside Out Productions, Houston, TX

Insight Alaska, Anchorage, AK

Inspirational Moments Inc., West

Chester, PA

Inspirit Counseling Center, San Anselmo,

Inspirit Inc. A Non-Profit Corporation,

Wheat Ridge, CO

Institute for Family Education and

Economic Development IFEED,

Greenville, MS

Institute for Christian Leadership Inc.,

Portland, OR

Institute for Competition Inc.,

Cambridge, MA

Institute for Disability Resources,

Washington, DC

Institute for Financial Economics and

Public Policy, Bethesda, MD

Institute for Multi-Cultural Enrichment,

Portland, OR

Institute for Multi-Party Democracy Inc.,

Washington, DC

Institute for Naturopathic Medicine,

Van Nuys, CA

Institute for Psycho Social Studies Inc.,

N Wales, PA

Institute for School Board Effectiveness,

Austin, TX

Institute for Strategic Servanthood,

Thousand Oaks, CA

Institute for Sustainable Tropical

Resource Management Inc., Pittsboro,

March 29, 1999

Institute for the Advanced Study of

Culture, Waterford, VA

Institute for the Study of Distributed

Work, Walnut Creek, CA

Institute for University Studies,

Arlington, TX

Institute for the Study of Family

Violence, Mt. Sinai, NY

Institute for Water Policy Studies,

Santa Fe, NM

Institute for World Religions, Irvine, CA

Institute for Young Leaders Inc.,

Marietta, GA

Institute of Caribbean Studies,

Washington, DC

Institute of Tuition Scholarships and

Grants Inc., Wilmington, DE

Institute on Cultural Dynamics and

Social Change Inc., Rochester, MN

Intelcross Inc., Kentfield, CA

Inter-Disciplinary Developmental

Assessment Studies for Kids Corp.,

Chicago, IL

Inter Institute for Infant Nutri &

Gastrointestinal Disease, Haverford,

Inter-Neighborhood Housing, Bronx, NY

Interamericas Hash 95 Inc., Longwood,

Interexchange Network Inc., Kansas City,

Interfaith Hunger Services Inc.,

Bridgeport, CT

Interfaith Pastoral Counseling Service

Inc., Biddford, ME

International Alcohol and Drug Institute,

Mentor, OH

International Association for the Study of

Jewish Mysticism, Cambridge, MA

International Cancer Association Inc.,

Orange City, FL

International Center for Disarmament and

Conversion, Davidson, NC

International Center for Dispute

Resolution, Reno, NV

International Center for Study of Jewish

Heroism Inc., New York, NY

International Christian Training Institute,

New Smyrna Beach, FL

International Committee Invalid

Assistance Cambodia, Portland, ME

International Congress for Environmental

Comm and Technology, Chattanooga,

International Congress on Toxicology

VII, Research Triangle Park, NC

International Development Research and

Initiatives Inc., Gainesville, FL

March 29, 1999

International Eye Project Inc., Port Saint

Lucie, FL

International Fund for Children, Chicago,

International Fund for Humanitarian Aid

& Development Inc., Roswell, GA

International Guild of Musicians In

Dance, Tucson, AZ

International Mind Dynamics Institute

Inc., Chamblee, GA

International Multicultural Inc.,

Beaverton, OR

International Nepali Literary Society,

Washington, DC

International Network of Lesbian and

Gay Officials, Minneapolis, MN

International Nippon Karate-Do

Federation, Alexandria, VA

International Quarterly, Tallahassee, FL

International Roma Federation

Corporation, New York, NY

International Society for Intraoperative

Card Ultrasound Inc., Durham, NC

International Trade Club of Southern

California, Long Beach, CA

International Witness Inc., Cambridge,

International Woode Foundation Inc.,

Brooklyn, NY

International Womens Independence

Network, Houston, TX

Interreligious Council of Linn County

Incorporated, Cedar Rapids, IA

Intro International Inc., Sterling, VA

IOB Productions Inc., Springfield, VA

Irish Focus Inc., Boston, MA

Iroquois Environmental and Educational

Services Inc., Perrysburg, NY

Isabella Community Playscape Inc.,

Mount Pleasant, MI

Isabella International Institute, Bethesda,

Isaiah House Incorporated, Upper

Marlboro, MD

Islamic Education Institute of Texas Inc.,

Houston, TX

Islamic Federation of New Jersey Inc.,

Jersey City, NJ

Islamic Information Center of the

Americas, La Jolla, CA

Issachar Institute Inc., Tupelo, MS

Ithaca Performing Arts Center Inc.,

Ithaca, NY

Its a Kids World Inc., Albuquerque, NM

Ivy Plaza Housing Corporation, Shaker

Heights, OH

Ivy Self Help Publishing Inc., Santa

Barbara, CA

James L Leinwand Foundation, North

Palm Beach, FL

Joe Marzari Foundation, New York,

Lawrence Foundation, Lawrence, KS

Local Community Associates Inc.,

Fairport, NY

Main Street Playground Project, Hyannis,

Marion County Three-Point Club Inc.,

Lebanon, KY

Martha for the Homeless Incorporated,

Petersburg, VA

Mesa Martin Luther King Jr Celebration

Inc., Mesa, AZ

Missouri Research Institute, Kansas City,

Mustang Basketball Association

Incorporated, Merritt Island, FL

National Alliance of Pan African

Seminarians, Antioch, CA

National Amputee Sports Foundation,

Thornton, CO

New Caney AG Supporters Inc.,

New Caney, TX

New Life Options Inc., Palm, FL

New Mexico Middle School Assn.,

Tijeras, NM

New Mexico Society for Perenteral and

Enteral Nutrition, Albuquerque, NM

New Women Entrepreneur Center

Corporation, Miami, FL

Operation Lookout for Missing Children

Inc., Brooklyn, NY

Outreach Foundation Inc., Dallas, TX

Pacific Northwest Aleut Council, Seattle,

Perch America Inc., Hammond, IN

Pleasant Valley Stingray Swim Team,

Davenport, IA

Progress & Freedom Foundation,

Washington, DC

Riverdale High School Band Boosters,

Riverdale, GA

Scottish Rite Tower Development

Corporation, Philadelphia, PA

Smacks Peace Brigades Inc., New York,

Southeastern Massachusetts Round-Up

Inc., New Bedford, MA

St Judes Fund of Tappahannock Inc.,

Tappahannock, VA

Stuff for Kids Inc., Boston, MA

Surrogate Father Program Inc.,

Mt Vernon, NY

Tarrant County Dental Study Group,

Bedford, TX

1999–13 I.R.B.

The Mount Airy Community

Development & Resource Association,

Philadelphia, PA

Troy Chavez Foundation, Denver, CO

United States Hispanic Chamber of

Commerce Inc., Washington, DC

Vision Earth Society Incorporated,

Miami, FL

Washington Center for Policy &

Research Inc., Washington, DC

Washingtonville Centennial Celebration

Inc., Washingtonville, NY

West Branch Athletic Booster Club Inc.,

Salem, OH

West Virginia Society for Parenteral and

Enteral Nutrition, Elkview, WV

Youth-in-Action, St. George, UT

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.

Adequate Disclosure of Gifts;

Correction

Announcement 99–28

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Correction to notice of proposed rulemaking.

SUMMARY: This document contains a

correction to the notice of proposed rulemaking (REG–106177–98, 1999–12

I.R.B. 25), which was published in the

Federal Register Tuesday, December 22,

1998 (63 F.R. 70701 [I.R.B.]), relating to

changes made by the Taxpayer Relief Act

of 1997 and the Internal Revenue Service

Restructuring and Reform Act of 1998 re-

1999–13 I.R.B.

garding the valuation of prior gifts in determining estate and gift tax liability, and

the period of limitations for assessing and

collecting gift tax.

FOR FURTHER INFORMATION CONTACT: William L. Blodgett (202) 6223090 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The notice of proposed rulemaking that

is the subject of this correction is under

sections 2001 and 2504 of the Internal

Revenue Code.

Need for Correction

As published, REG–106177–98 contains an error which may prove to be misleading and is in need of clarification.

Withholding Regulations; and

Removal of Regulations Under

Parts 1 and 35a and of Certain

Regulations Under Income Tax

Treaties; Correction

Announcement 99–29

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Correction to technical

amendments.

SUMMARY: This document contains a

correction to final regulations (T.D. 8804,

1999–12 I.R.B. 5), which were published

in the Federal Register Thursday, December 31, 1998 (63 F.R. 72183), relating

to the withholding of income tax on certain U.S. source income payments to foreign persons.

Correction of Publication

DATES: This correction is effective January 1, 2000.

Accordingly, the publication of the notice of proposed rulemaking (REG–

106177–98), which was the subject of FR

Doc. 98–33648, is corrected as follows:

FOR FURTHER INFORMATION CONTACT: Lilo Hester, (202) 622-3840 (not a

toll-free number).

§20.2001–1 [Corrected]

SUPPLEMENTARY INFORMATION:

On page 70704, column 3, §20.2001–

1(c) introductory text, line 2, the language

“of paragraph (a) of this section, the” is

corrected to read “of paragraph (b) of this

section, the”.

Background

Michael L. Slaughter,

Acting Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on

March 5, 1999, 8:45 a.m., and published in the issue

of the Federal Register for March 8, 1999, 64 F.R.

10964)

General Revision of Regulations

Relating to Withholding of Tax

on Certain U.S. Source Income

Paid to Foreign Persons and

Related Collection, Refunds, and

Credits; Revision of Information

Reporting and Backup

The final regulations that are the subject of these corrections are under sections 1441, 1442, and 1443 of the Internal

Revenue Code.

Need for Correction

As published, TD 8804 contains errors

which may prove to be misleading and are

in need of clarification.

Correction of Publication

Accordingly, the publication of the

final rule; technical amendments (TD

8804), which was the subject of FR Doc.

98-34359, is corrected as follows:

§§1.6041–1 and 1.6042–2 [Corrected]

On page 72188, in the table following

“Par. 15.”, two entries are added in numerical order to read as follows:

March 29, 1999

Section

* * * * *

1.6041–1(d)(5), first sentence . . . . . . .

Remove

Add

December 31, 1998 . . . . . . . . . . . . . . . . .

December 31, 1999 . . . . . . . . . . . . . . .

1099A . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1099 . . . . . . . . . . . . . . . . . . . . . . . . . . .

§1.1441–7 [Corrected]

DATES: These corrections are effective

December 14, 1998.

* * * * *

1.6042–2(a)(l)(iii), first sentence . . . .

* * * * *

Michael L. Slaughter,

Acting Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on

March 8, 1999, 8:45 a.m., and published in the issue

of the Federal Register for March 9, 1999, 64 F.R.

11378)

1. On page 810, column 1, §1.1441–

7(g)(4) Example 2, line 4, the language

“that A entered the arrangement with a” is

corrected to read ”that A entered into the

arrangement with a”.

§1.7701(l)–3 [Corrected]

Recharacterizing Financing

Arrangements Involving

Fast-pay Stock; Correction

Announcement 99–30

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Correction to notice of proposed rulemaking.

SUMMARY: This document contains a

correction to REG–104072–97, which

was published in 1999–11 I.R.B. 12, relating to financing arrangements involving fast-pay stock.

FOR FURTHER INFORMATION CONTACT: Jonathan Zelnik, (202) 622-3940

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The notice of proposed rulemaking that

is the subject of this correction is under

section 7701 of the Internal Revenue Code.

Need for Correction

As published, REG–104072–97 contains errors which may prove to be misleading and are in need of clarification.

Correction of Publication

Accordingly, the publication of the notice of proposed rulemaking (REG–

104072–97), which is the subject of FR

Doc. 99–178, is corrected as follows:

March 29, 1999

2. On page 810, column 3, §1.7701(l)–

3(c)(3)(iv)(A), line 3, the language “attributable to financing instruments)” is

corrected to read “attributable to the financing instruments)”.

3. On page 811, column 3, §1.7701(l)–

3(e) Example 5(i), line 3 from the bottom

of the paragraph, the language “Y’s 1996

deduction attributable to financing” is

corrected to read “Y’s 1996 deduction attributable to the financing”.

FOR FURTHER INFORMATION CONTACT: Diane S. Bloom, (202) 622-6214

or Christine L. Keller, (202) 622-6090

(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of these corrections are under section

411 of the Internal Revenue Code.

Need for Correction

As published, T.D. 8795 contains errors

which may prove to be misleading and are

in need of clarification.

Correction of Publication

Cynthia E. Grigsby,

Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on February 25, 1999, at 8:45 a.m., and published in the

issue of the Federal Register for March 3, 1999, 64

F.R. 10262)

Notice of Significant Reduction

in the Rate of Future Benefit

Accrual; Correction

Announcement 99–31

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Correction to final regulations.

SUMMARY: This document contains

corrections to Treasury Decision (T.D.

8795, 1999–7 I.R.B. 8) relating to defined

benefit plans and to individual account

plans that are subject to the funding standards of section 302 of the Employment

Retirement Income Security Act of 1974.

Accordingly, the publication of the

final regulations (T.D .8795), which was

the subject of FR Doc. 98–32925, is corrected as follows:

1. On page 68680, column 2, in the

preamble under the paragraph heading

“Special Analyses”, line 12, the language

“24, 1996, the Regulatory Flexibility Act”

is corrected to read “29, 1996, the Regulatory Flexibility Act”.

§602.101 [Corrected]

2. On page 68684, column 1,

§602.101(c), in the table under the column heading Current OMB control No.,

the OMB number “1545–1447” is corrected to read “1545–1477”.

Cynthia E. Grigsby,

Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on

March 2, 1999, at 8:45 a.m., and published in the

issue of the Federal Register for March 3, 1999, 64

F.R. 10218)

1999–13 I.R.B.

Announcement of the Consent Voluntary Suspension of Attorneys,

Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries

From Practice Before the Internal Revenue Service

Under 31 Code of Federal Regulations,

Part 10, an enrolled agent, in order to

avoid the institution or conclusion of a

proceeding for his disbarment or suspension from practice before the Internal

Revenue Service, may offer his resignation from such practice. The Director of

Practice, in his discretion, may suspend

an enrolled agent in accordance with the

consent offered.

Attorneys, certified public accountants,

enrolled agents, and enrolled actuaries are

prohibited in any Internal Revenue Ser-

vice matter from directly or indirectly employing, accepting assistance from, being

employed by or sharing fees with, any enrolled agent who has resigned from practice before the Internal Revenue Service.

To enable attorneys, certified public accountants, enrolled agents, and enrolled

actuaries to identify former enrolled

agents who have resigned from practice

before the Internal Revenue Service, the

Director of Practice will announce in the

Internal Revenue Bulletin the names and

addresses of former enrolled agents who

have resigned from such practice, and

date of resignation. This announcement

will appear in the weekly Bulletin at the

earliest practicable date after such action

and will continue to appear in the weekly

Bulletins for five successive weeks or for

as many weeks as is practicable for each

enrolled agent, who has resigned, and will

be consolidated and published in the Cumulative Bulletin.

The following individual has offered

his resignation as an enrolled agent:

Name

Address

Date of Resignation

Ellis, Ronald C.

Billings, MT

October 6, 1998

1999–13 I.R.B.

March 29, 1999

Announcement of the Expedited Suspension of Attorneys, Certified Public

Accountants, Enrolled Agents, and Enrolled Actuaries From Practice

Before the Internal Revenue Service

Under Title 31 of the Code of Federal

Regulations, section 10.76, the Director

of Practice is authorized to immediately

suspend from practice before the Internal

Revenue Service any practitioner who,

within five years, from the date the expedited proceeding is instituted, (1) has had

a license to practice as an attorney, certified public accountant, or actuary suspended or revoked for cause; or (2) has

been convicted of any crime under title 26

of the United States Code or, of a felony

under title 18 of the United States Code

involving dishonesty or breach of trust.

Attorneys, certified public accountants,

enrolled agents, and enrolled actuaries are

prohibited in any Internal Revenue Service

matter from directly or indirectly employing, accepting assistance from, being employed by, or sharing fees with, any practitioner disbarred or suspended from practice

before the Internal Revenue Service.

To enable attorneys, certified public accountants, enrolled agents, and enrolled actuaries to identify practitioners under expedited suspension from practice before the

Internal Revenue Service, the Director of

Practice will announce in the Internal Revenue Bulletin the names and addresses of

practitioners who have been suspended

from such practice, their designation as attorney, certified public accountant, en-

rolled agent, or enrolled actuary, and date

or period of suspension. This announcement will appear in the weekly Bulletin at

the earliest practicable date after such action and will continue to appear in the

weekly Bulletins for five successive weeks

or for as many weeks as is practicable for

each attorney, certified public accountant,

enrolled agent, or enrolled actuary so suspended and will be consolidated and published in the Cumulative Bulletin.

The following individual have been

placed under suspension from practice before the Internal Revenue Service by virtue

of the expedited proceeding provisions of

the applicable regulations:

Name

Address

Designation

Date of Suspension

Pierce, Steven J.

Aventura, FL

Attorney