Bulletin No. 1997–18

Agency decision

Ask Donna

What actually matters in this document.

Text

May 5, 1997

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be relied

upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 97–19, page 11.

Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term exempt rate.

For purposes of sections 1274, 1288, 382, and other

sections of the Code, tables set forth the rates for May

1997.

T.D. 8715, page 5.

REG–209785–95, page 46.

Final, temporary, and proposed regulations under section 274 of the Code relate to the requirement that

business expenses for travel, entertainment, gifts, or

listed property be substantiated by documentary evidence (such as a receipt).

EXEMPT ORGANIZATIONS

Rev. Rul. 97–21, page 8.

Tax consequences of physician recruitment incentives provided by hospitals described in section

501(c)(3) of the Code. This ruling provides examples

illustrating whether nonprofit hospitals that provide incentives to physicians to join their medical staffs or to

provide medical services in the community violate the

requirements for exemption as organizations described

in section 501(c)(3) of the Code.

Announcement 97–46, page 53.

A list is given of organizations now classified as private

foundations.

EXCISE TAX

P.L. 105–2, page 14.

An Act to amend the Internal Revenue Code of 1986 to

reinstate the Airport and Airway Trust Fund excise taxes,

and other purposes.

ADMINISTRATIVE

REG–209823–96, page 47.

Proposed regulations under sections 664 and 2707 of

the Code relate to guidance regarding charitable remainder trusts and transfers of interests in trusts. A public

hearing will be held on September 9, 1997.

Notice 97–28, page 45.

Credit for producing fuel from a nonconventional

source, section 29 inflation adjustment factor, and

section 29 reference price. This notice publishes the

section 29 inflation adjustment factor, the

nonconventional source fuel credit, and the section 29

reference price for calendar year 1996.

Finding Lists begin on page 58.

Index for January—April begins on page 60.

Announcements of Disbarments and Suspensions begin on page 56.

Announcement Relating to Court Decisions on page 4.

Announcement of Declaratory Judgment Proceedings Under Section 7428 on page 53.

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

With this in mind, it is the duty of the Service to

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

law, to try to find the true meaning of the statutory

provision and not to adopt a strained construction in

the belief that he or she is ‘‘protecting the revenue.’’

The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

Introduction

The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for

announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation,

court decisions, and other items of general interest. It is

published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin

contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold on a

single-copy basis.

court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are

cautioned against reaching the same conclusions in

other cases unless the facts and circumstances are

substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all

substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published rulings

apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management

are not published; however, statements of internal

practices and procedures that affect the rights and

duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the

Treasury’s Office of the Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts

stated in the revenue ruling. In those based on positions

taken in rulings to taxpayers or technical advice to

Service field offices, identifying details and information

of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory

requirements.

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in

this part, none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

Unpublished rulings will not be relied on, used, or cited

as precedents by Service personnel in the disposition of

other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations,

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual period,

respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

Announcement Relating to Court Decisions

It is the policy of the Internal Revenue Service to announce at an early

date whether it will follow the holdings

in certain cases. An Action on Decision

is the document making such an announcement. An Action on Decision will

be issued at the discretion of the Service

only on unappealed issues decided adverse to the government. Generally, an

Action on Decision is issued where its

guidance would be helpful to Service

personnel working with the same or

similar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action

on Decision is not an affirmative statement of Service position. It is not

intended to serve as public guidance and

may not be cited as precedent.

Actions on Decisions shall be relied

upon within the Service only as conclusions applying the law to the facts in the

particular case at the time the Action on

Decision was issued. Caution should be

exercised in extending the recommendation of the Action on Decision to similar

cases where the facts are different.

Moreover, the recommendation in the

Action on Decision may be superseded

by new legislation, regulations, rulings,

cases, or Actions on Decisions.

Prior to 1991, the Service published

acquiescence or nonacquiescence only in

certain regular Tax Court opinions. The

Service has expanded its acquiescence

program to include other civil tax cases

where guidance is determined to be

helpful. Accordingly, the Service now

may acquiesce or nonacquiesce in the

holdings of memorandum Tax Court

opinions, as well as those of the United

States District Courts, Claims Court, and

Circuit Courts of Appeal. Regardless of

the court deciding the case, the recommendation of any Action on Decision

will be published in the Internal Revenue Bulletin.

The recommendation in every Action

on Decision will be summarized as

acquiescence, acquiescence in result

only, or nonacquiescence. Both ‘‘acqui-

escence’’ and ‘‘acquiescence in result

only’’ mean that the Service accepts the

holding of the court in a case and that

the Service will follow it in disposing of

cases with the same controlling facts.

However, ‘‘acquiescence’’ indicates neither approval nor disapproval of the

reasons assigned by the court for its

conclusions; whereas, ‘‘acquiescence in

result only’’ indicates disagreement or

concern with some or all of those

reasons. Nonacquiescence signifies that,

although no further review was sought,

the Service does not agree with the

holding of the court and, generally, will

not follow the decision in disposing of

cases involving other taxpayers. In reference to an opinion of a circuit court of

appeals, a nonacquiescence indicates

that the Service will not follow the

holding on a nationwide basis. However,

the Service will recognize the

precedential impact of the opinion on

cases arising within the venue of the

deciding circuit.

The announcements published in the

weekly Internal Revenue Bulletins are

consolidated semiannually and annually.

The semiannual consolidation appears in

the first Bulletin for July and in the

Cumulative Bulletin for the first half of

the year, and the annual consolidation

appears in the first Bulletin for the

following January and in the Cumulative

Bulletin for the last half of the year.

The Commissioner ACQUIESCES in

the following decisions:

Buckeye Countrymark v. Commissioner,1

103 T.C. 547 (1994)

Robert E. and Geneva U. Duncan v.

United States,2

Docket No. 95–338

Cheng C. and Susan L. Kao v. United

Acquiescence relating to whether section 277 of

the Internal Revenue Code applies to nonexempt

cooperatives subject to subchapter T of the Code.

States,3

81 F.3d 114 (9th Cir. 1996)

The Commissioner does NOT ACQUIESCE in the following decisions:

Xerox Corporation v. United States,4

41 F.3d 647 (Fed. Cir. 1994)

Charles E. Hurt v. United States,5

70 F.3d 1261, 76 AFTR2d 95–7815 (4th

Cir. 1995)

Robert B. and Eleanor Risman v.

Commissioner,6

100 T.C. 191 (1993)

Acquiescence relating to whether disability benefits paid to taxpayer from the Policemen and

Firefighter’s Retirement Fund of the LexingtonFayette Urban County Government can be excluded from gross income under Internal Revenue

Code section 104(a)(1) as benefits paid under a

statute in the nature of a workmen’s compensation

act.

Acquiescence in result only relating to whether

the Service can issue summonses to compel a

taxpayer to sign consent directives which authorize

the release of records from unidentified domestic

and foreign banks, consistent with the requirements of Internal Revenue Code section 7609.

Nonacquiescence relating to whether, under Article 23(1)(c) of the U.S.–U.K. Income Tax Treaty,

a U.S. corporation is entitled to continue to treat

U.K. Advance Corporation Tax (ACT) as a creditable tax paid by a U.K. subsidiary in computing

the allowable credit for foreign taxes deemed paid

under section 902(a) of the Internal Revenue Code

for the year in which the ACT was paid, when the

subsidiary subsequently surrenders all or part of

the ACT to lower-tier U.K. subsidiaries for use to

satisfy their U.K. corporate tax liabilities.

Nonacquiescence relating to whether the Service

was entitled to assess and collect statutory interest

on the amount of tax and additions to tax

embodied in a Tax Court decision that resulted

from a settlement agreement entered into by the

taxpayers and the Service.

Continued nonacquiescence, but that this action

on decision be substituted for the action on

decision reported at Risman v. Commissioner,

AOD CC–1996–003 (March 4, 1996), relating to

whether a remittance forwarded to the Service

with a Form 4868, Application for Automatic

Extension of Time to File U.S. Individual Income

Tax Return, constitutes a payment of tax or a

deposit in the nature of a cash bond for purposes

of the period of limitations for seeking a refund of

such remittance.

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

Section 42.—Low-Income Housing

Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

Section 274.—Disallowance of

Certain Entertainment, Etc.,

Expenses

26 CFR 1.274–5T: Substantiation requirements

(temporary).

T.D. 8715

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Substantiation of business

expenses for travel, entertainment,

gifts and listed property

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains

amendments to temporary regulations

relating to the requirement that business

expenses for travel, entertainment, gifts,

or listed property be substantiated by

documentary evidence (such as a receipt). The regulations affect persons

making or receiving reimbursements for

travel, entertainment, gifts, or listed

property. The text of these temporary

regulations also serves as the text of

REG–209785–95, page 46.

DATES: These temporary regulations

are effective March 25, 1997. Applicability: These temporary regulations are

applicable to expenses paid or incurred

after September 30, 1995.

FOR FURTHER INFORMATION CONTACT: Donna M. Crisalli at (202) 622–

4920 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

These regulations are being issued

without prior notice and public comment

pursuant to the Administrative Procedure

Act (5 U.S.C. 553). For this reason, the

collection of information contained in

these regulations has been reviewed and,

pending receipt and evaluation of public

comments, approved by the Office of

Management and Budget (OMB) under

control number 1545–0771. Responses

to this collection of information are

required for a taxpayer to deduct certain

business expenses or to substantiate certain reimbursements of business expenses.

An agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information displays a valid control number.

For further information concerning

this collection of information, and where

to submit comments on the collection of

information and the accuracy of the

estimated burden, and suggestions for

reducing the burden, please refer to the

preamble in the cross-reference notice of

proposed rulemaking published in the

Proposed Rules section of this issue of

the Federal Register.

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 and Explanation of

Provisions

Receipt threshold

Section 274(d) disallows a trade or

business deduction under section 162 for

any traveling (including meals and lodging), entertainment, gift, or listed property expense, unless the taxpayer substantiates the elements of the expense by

adequate records or by sufficient evidence. Under § 1.274–5T(c) of the temporary Income Tax Regulations, a taxpayer must maintain two types of

records to satisfy the ‘‘adequate records’’

requirement: (1) a summary of expenses

(account book, diary, log, statement of

expense, trip sheets, or other similar

record), sometimes called an expense

account or expense voucher, and (2)

documentary evidence (such as receipts

or paid bills). Together, these records

must establish the elements of amount,

time, place, and business purpose (and

for gifts and entertainment, business relationship of recipient or persons entertained) for each expenditure or use.

Section 1.274–5T(c)(2)(iii) generally

requires that a taxpayer have a receipt

or other documentary evidence to substantiate (A) any expenditure for lodging

and (B) any other expenditure of $25 or

more. In Notice 95–50 (1995–2 C.B.

333), the IRS announced that it would

raise the receipt threshold of § 1.274–

5T(c)(2)(iii)(B) from $25 to $75, effective for expenses incurred on or after

October 1, 1995. The temporary regulations effect this amendment by changing

‘‘$25’’ in § 1.274–5T(c)(2)(iii)(B) to

‘‘$75.’’ This change is applicable to both

deductions and reimbursement arrangements and is expected to reduce the

recordkeeping burden on affected taxpayers, including individuals and small

businesses.

Definition of an ‘‘adequate accounting’’

to the employer

An employee who is reimbursed under a reimbursement or other expense

allowance arrangement for expenses

covered by section 274(d) must make an

‘‘adequate accounting’’ to the employer

for the reimbursed expenses. Section

1.274–5T(f)(4) specifies that, as part of

an adequate accounting, the employee

must submit substantiation to the employer that satisfies the requirements of

§ 1.274–5T(c). Notice 95–50 also solicited comments on whether changes

should be made to the substantiation

requirements of the adequate accounting

rules in § 1.274–5T. Comments received related primarily to the adequate

accounting rules and the substantiation

requirements in general.

1. Submission and retention of documentary evidence

A number of commentators, particularly federal government agencies, complained of the administrative burden and

cost of storing large quantities of paper

receipts. Some comments proposed that

the employer should be allowed to dispose of the documentary evidence after

an employee has made an adequate

accounting, or return the documentary

evidence to the employee for retention.

Other comments suggested that submission by an employee of an expense

voucher alone, without documentary evidence, should be considered an adequate

accounting.

With the increase in the receipt

threshold to $75, and the use of electronic document transmission and retention (discussed below), the necessity for

storing large quantities of paper records

is significantly reduced. Nonetheless, the

temporary regulations respond to the

concerns expressed by these comments

by amending § 1.274–5T(f)(4) to authorize the Commissioner to prescribe rules

modifying the substantiation requirements for an adequate accounting by an

employee to an employer. Under the

amendment, the Commissioner could

publish rules defining the circumstances

(including the use of specified internal

controls) under which an employee may

make an adequate accounting to his

employer by submitting an expense account alone, without the necessity of

submitting documentary evidence (such

as receipts). This change is expected to

reduce the recordkeeping burden for

employers and employees. These rules

would not change the substantiation requirements of § 1.274–5T(c) for deductions.

2. Maintenance of adequate records in

electronic form

Some commentators suggested that

taxpayers should be permitted to obtain

and maintain records substantiating expenses under section 274(d) in electronic form. The temporary regulations

make no change to the current regulations, which do not require that the

records be in paper form. Rev. Proc.

91–59 (1991–2 C.B. 841), provides procedures for maintaining tax records in

electronic form. Section 3.08 of Rev.

Proc. 91–59 states that the procedures

apply to documentation required by section 274(d).

3. Types of records that constitute acceptable documentary evidence

Some commentators suggested that

credit card charge records should be

considered acceptable documentary evidence of travel expenses, including

lodging. They noted, however, that

§ 1.274–5T(c)(2)(iii) requires that documentary evidence of lodging must show

separate amounts for charges such as

lodging, meals, and telephone calls. A

credit card statement or record of

charge, unlike a hotel bill, normally will

not segregate lodging and other expenses, such as meals and entertainment

subject to the section 274(n) partial

deduction disallowance, or personal expenses (such as personal phone calls or

gift purchases) that may not be deducted. Therefore, such a credit card

statement or record of charge alone will

not constitute acceptable documentary

evidence of a lodging expense.

The commentators proposed addressing this problem by using statistical

sampling, conducted either by the IRS

or by taxpayers, to establish a breakdown of expenses on hotel bills. One

comment suggested that sampling could

form a basis for a ‘‘safe harbor’’ percentage or percentages (e.g., by industry

or size of company) of hotel bills that

would be deemed to represent the various types of possible expenses. Another

comment suggested that the IRS adopt a

mechanical test based on statistical sampling to make a reasonable allocation of

the total hotel charge to meals.

The temporary regulations make no

change to the current documentary evidence requirements for lodging expenses. Because of the large number of

expenses that can be charged to hotel

bills, and extensive variation from traveler to traveler in the types of expenses

charged to hotel bills, any attempt to

establish percentages for allocating hotel

bills to lodging and other fully deductible business expenses, meals and entertainment, and personal expenses is considered impracticable.

A comment requested that the IRS

clarify whether statements provided to

travelers by airlines in lieu of tickets

can constitute documentary evidence of

travel. The current regulations are sufficiently flexible to permit use of a variety of forms of documentary evidence.

Other Comments in Response to Notice

95–50

1. Substantiation of business purpose

A commentator suggested that the

regulations be revised to permit an employee to initially substantiate business

purpose to the employer orally, for later

entry into the expense processing system. The current regulations do not

preclude an initial oral substantiation of

business purpose which is reduced to

writing no later than the time of the

employee’s final accounting to the employer.

2. Post-expenditure verification procedures

A comment suggested that the regulations be revised to permit an employer

to conduct a post-expenditure review of

only a statistical sampling, as opposed

to 100%, of expense vouchers.

Section 1.274–5T(f)(5)(iii) states that

an employee who makes an adequate

accounting to his employer will not

again be required to substantiate such

expenses, unless the employer’s accounting procedures are not adequate or

it cannot be determined that such procedures are adequate. The district director

will determine whether the employer’s

accounting procedures are adequate by

considering all the facts and circum-

stances, including the employer’s use of

internal controls. The employer’s accounting procedures should include a

requirement that an expense account be

verified and approved by a reasonable

person other than the person incurring

the expense. To the extent the employer

fails to maintain adequate accounting

procedures, the district director may require the employee to separately substantiate his expense account information.

Section 1.274–5T(f)(5)(iii) cites postexpenditure review of employees’ expense accounts as an internal control

that should normally be employed.

However, whether the employer’s postexpenditure review procedures are appropriate is a matter within the discretion of the district director, based on a

review of all the facts and circumstances.

3. De minimis exception to substantiation requirements

A comment proposed that employees

receiving $1000 or less per year in

reimbursed expenses be exempted from

the requirement to substantiate the elements of the expenses, other than business purpose, to the employer. In view

of the other changes made by the temporary regulations that will lessen a

taxpayer’s recordkeeping burden, such

as the increase in the receipt threshold,

the temporary regulations do not incorporate this suggestion.

4. Department of Labor substantiation

requirements for plan trustees

A comment requested the IRS to

coordinate with the Department of Labor to establish common substantiation

requirements under ERISA for travel by

multi-employer plan trustees. Modifications to conform the substantiation requirements under ERISA to those provided in the temporary regulations are

outside the scope of the section 274(d)

regulations.

5. Increase in limit on deduction for

gifts

A comment requested that the $25

limit on the deduction for gifts contained in section 274(b) be increased to

$75. The IRS has no discretion to raise

this statutory limit.

6. Use of full federal per diem method

to substantiate travel for deduction purposes

A comment suggested that selfemployed individuals and unreimbursed

employees should be entitled to substantiate lodging expenses for deduction

purposes by means of the ‘‘high-low’’

per diem method. Rev. Proc. 96–64

(1996–53 I.R.B. 52), permits this substantiation method for employee reimbursements only. This suggestion is outside the scope of this revision to the

temporary regulations.

Special Analyses

It has been determined that these

temporary regulations are not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations do not have a

significant economic impact on a substantial number of small entities. This

certification is based on the fact that, by

increasing the receipt threshold from

$25 to $75, these regulations reduce the

existing recordkeeping requirements of

taxpayers, including small entities. The

regulations do not otherwise significantly alter the reporting or recordkeeping duties of small entities. Therefore, a

Regulatory Flexibility Analysis under

the Regulatory Flexibility Act (5 U.S.C.

chapter 6) is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, these temporary regulations will

be submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on their impact on

small business.

Drafting Information

The principal author of these regulations is Donna M. Crisalli, Office of the

Assistant Chief Counsel (Income Tax

and Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by adding an entry in

numerical order to read as follows:

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

Section 1.274–5T also issued under 26

U.S.C. 274(d). * * *

Par. 2. An undesignated centerheading

is added immediately following

§ 1.280H–1T to read as follows:

Taxable Years Beginning Prior to

January 1, 1986

§ 1.274–5 redesignated as § 1.274–5A

Par. 3. Section 1.274–5 is redesignated as § 1.274–5A and added immediately following the undesignated

centerheading ‘‘Taxable Years Beginning

Prior to January 1, 1986’’.

Par. 4. Section 1.274–5T is amended

by:

1. Revising the first sentence of paragraph (c)(2)(iii)(B).

2. Redesignating the text of paragraph (f)(4) as paragraph (f)(4)(i).

3. Adding a paragraph heading for

paragraph (f)(4)(i).

4. Adding paragraphs (f)(4)(ii) and

(f)(4)(iii).

The revisions and additions read as

follows:

§ 1.274–5T Substantiation requirements

(temporary).

(2) * * *

(iii) * * *

(B) Any other expenditure of $75 or

more ($25 or more for expenditures

incurred before October 1, 1995) except,

for transportation charges, documentary

evidence will not be required if not

readily available, provided, however,

that the Commissioner, in his discretion,

may prescribe rules waiving such requirements in circumstances where he

determines it is impracticable for such

documentary evidence to be required. *

(f) * * *

(4) * * * (i) In general. * * *

(ii) Procedures for adequate accounting without documentary evidence.

The Commissioner may, in his discretion, prescribe rules under which an

employee may make an adequate accounting to his employer by submitting

an account book, log, diary, etc., alone,

without submitting documentary evidence.

(iii) Employer. For purposes of this

section, the term employer includes an

agent of the employer or a third party

payor who pays amounts to an employee under a reimbursement or other

expense allowance arrangement.

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK

REDUCTION ACT

Par. 5. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 6. In § 602.101, paragraph (c) is

amended by:

1. Removing the following entry

from the table:

CFR part or section

where identified and

described

1.274–5 . . . . . . . . . .

Current OMB

control No.

1545–0139

1545–0771

2. Adding an entry in numerical order

to the table to read as follows:

CFR part or section

where identified and

described

1.274–5A. . . . . . . . .

Current OMB

control No.

1545–0139

1545–0771

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved February 14, 1997.

Donald C. Lubick,

Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on

March 24, 1997, 8:45 a.m., and published in the

issue of the Federal Register for March 25, 1997,

62 F.R. 13988)

Section 280G.—Golden Parachute

Payments

Federal short-term, mid-term, and long-term

rates are set forth for the month of May 1997. See

Rev. Rul. 97–19, page 11.

Section 382.—Limitation on Net

Operating Loss Carryforwards and

Certain Built-In Losses Following

Ownership Change

The adjusted federal long-term rate is set forth

for the month of May 1997. See Rev. Rul. 97–19,

page 11.

Section 412.—Minimum Funding

Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

Section 467.—Certain Payments

for the Use of Property or Services

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

Section 468.—Special Rules for

Mining and Solid Waste

Reclamation and Closing Costs

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

Section 483.—Interest on Certain

Deferred Payments

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

Section 501.—Exemption From Tax

on Corporations, Certain Trusts,

Etc.

26 CFR 1.501(c)(3)–1: Organizations organized

and operated for religious, charitable, scientific,

testing for public safety, literary, or educational

purposes, or for the prevention of cruelty to

children or animals.

Tax consequences of physician recruitment incentives provided by hospitals described in section 501(c)(3) of

the Code. This ruling provides examples illustrating whether nonprofit

hospitals that provide incentives to physicians to join their medical staffs or to

provide medical services in the community violate the requirements for exemption as organizations described in section 501(c)(3) of the Code.

Rev. Rul. 97–21

ISSUE

Whether, under the facts described

below, a hospital violates the requirements for exemption from federal income tax as an organization described in

§ 501(c)(3) of the Internal Revenue

Code when it provides incentives to

recruit private practice physicians to join

its medical staff or to provide medical

services in the community.

FACTS

All of the hospitals in the situations

described below have been recognized

as exempt from federal income tax

under § 501(a) as organizations described in § 501(c)(3) and operate in

accordance with the standards for exemption set forth in Revenue Ruling

69–545, 1969–2 C.B. 117. The physicians described in the following recruiting transactions do not have substantial

influence over the affairs of the hospitals that are recruiting them. Therefore,

they are not disqualified persons as

defined in § 4958, nor do they have any

personal or private interest in the activities of the organizations that would

subject them to the inurement proscription of § 501(c)(3). Furthermore, in

Situations 1, 2, and 4, the physicians

have no pre-existing relationship with

the hospital or the members of its board.

For purposes of this revenue ruling, the

physician recruiting activities described

in Situations 1, 2, 3, and 4 are assumed

to be lawful. However, because the

Internal Revenue Service does not have

jurisdiction regarding whether the activities described in Situations 1, 2, 3, and

4 are lawful under the Medicare and

Medicaid anti-kickback statute, 42

U.S.C. § 1320a–7b(b), taxpayers may

not rely upon the facts or assumptions

described in this ruling for purposes

relating to that statute.

Situation 1

Hospital A is located in County V, a

rural area, and is the only hospital

within a 100 mile radius. County V has

been designated by the U.S. Public

Health Service as a Health Professional

Shortage Area for primary medical care

professionals (a category that includes

obstetricians and gynecologists). Physician M recently completed an ob/gyn

residency and is not on Hospital A’s

medical staff. Hospital A recruits Physician M to establish and maintain a

full-time private ob/gyn practice in its

service area and become a member of

its medical staff. Hospital A provides

Physician M a recruitment incentive

package pursuant to a written agreement

negotiated at arm’s-length. The agreement is in accordance with guidelines

for physician recruitment that Hospital

A’s Board of Directors establishes,

monitors, and reviews regularly to ensure that recruiting practices are consistent with Hospital A’s exempt purposes.

The agreement was approved by the

committee appointed by Hospital A’s

Board of Directors to approve contracts

with hospital medical staff. Hospital A

does not provide any recruiting incentives to Physician M other than those set

forth in the written agreement.

In accordance with the agreement,

Hospital A pays Physician M a signing

bonus, Physician M’s professional liability insurance premium for a limited

period, provides office space in a building owned by Hospital A for a limited

number of years at a below market rent

(after which the rental will be at fair

market value), and guarantees Physician

M’s mortgage on a residence in County

V. Hospital A also lends Physician M

practice start-up financial assistance pursuant to an agreement that is properly

documented and bears reasonable terms.

Situation 2

Hospital B is located in an economically depressed inner-city area of City

W. Hospital B has conducted a community needs assessment that indicates both

a shortage of pediatricians in Hospital

B’s service area and difficulties Medicaid patients are having obtaining pediatric services. Physician N is a pediatrician currently practicing outside of

Hospital B’s service area and is not on

Hospital B’s medical staff. Hospital B

recruits Physician N to relocate to City

W, establish and maintain a full-time

pediatric practice in Hospital B’s service

area, become a member of Hospital B’s

medical staff, and treat a reasonable

number of Medicaid patients. Hospital B

offers Physician N a recruitment incentive package pursuant to a written agreement negotiated at arm’s-length and approved by Hospital B’s Board of

Directors. Hospital B does not provide

any recruiting incentives to Physician N

other than those set forth in the written

agreement.

Under the agreement, Hospital B reimburses Physician N for moving expenses as defined in § 217(b), reimburses Physician N for professional

liability ‘‘tail’’ coverage for Physician

N’s former practice, and guarantees Physician N’s private practice income for a

limited number of years. The private

practice income guarantee, which is

properly documented, provides that Hospital B will make up the difference to

the extent Physician N practices fulltime in its service area and the private

practice does not generate a certain level

of net income (after reasonable expenses

of the practice). The amount guaranteed

falls within the range reflected in re-

gional or national surveys regarding income earned by physicians in the same

specialty.

Situation 3

Hospital C is located in an economically depressed inner city area of City

X. Hospital C has conducted a community needs assessment that indicates indigent patients are having difficulty getting access to care because of a shortage

of obstetricians in Hospital C’s service

area willing to treat Medicaid and charity care patients. Hospital C recruits

Physician O, an obstetrician who is

currently a member of Hospital C’s

medical staff, to provide these services

and enters into a written agreement with

Physician O. The agreement is in accordance with guidelines for physician recruitment that Hospital C’s Board of

Directors establishes, monitors, and reviews regularly to ensure that recruiting

practices are consistent with Hospital

C’s exempt purpose. The agreement was

approved by the officer designated by

Hospital C’s Board of Directors to enter

into contracts with hospital medical

staff. Hospital C does not provide any

recruiting incentives to Physician O

other than those set forth in the written

agreement. Pursuant to the agreement,

Hospital C agrees to reimburse Physician O for the cost of one year’s

professional liability insurance in return

for an agreement by Physician O to treat

a reasonable number of Medicaid and

charity care patients for that year.

Situation 4

Hospital D is located in City Y, a

medium to large size metropolitan area.

Hospital D requires a minimum of four

diagnostic radiologists to ensure adequate coverage and a high quality of

care for its radiology department. Two

of the four diagnostic radiologists currently providing coverage for Hospital D

are relocating to other areas. Hospital D

initiates a search for diagnostic radiologists and determines that one of the two

most qualified candidates is Physician P.

Physician P currently is practicing in

City Y as a member of the medical staff

of Hospital E (which is also located in

City Y). As a diagnostic radiologist,

Physician P provides services for patients receiving care at Hospital E, but

does not refer patients to Hospital E or

any other hospital in City Y. Physician P

is not on Hospital D’s medical staff.

Hospital D recruits Physician P to join

its medical staff and to provide coverage

for its radiology department. Hospital D

offers Physician P a recruitment incentive package pursuant to a written agreement, negotiated at arm’s-length and

approved by Hospital D’s Board of

Directors. Hospital D does not provide

any recruiting incentives to Physician P

other than those set forth in the written

agreement.

Pursuant to the agreement, Hospital D

guarantees Physician P’s private practice

income for the first few years that

Physician P is a member of its medical

staff and provides coverage for its radiology department. The private practice

income guarantee, which is properly

documented, provides that Hospital D

will make up the difference to Physician

P to the extent the private practice does

not generate a certain level of net

income (after reasonable expenses of the

practice). The net income amount guaranteed falls within the range reflected in

regional or national surveys regarding

income earned by physicians in the

same specialty.

Situation 5

Hospital F is located in City Z, a

medium to large size metropolitan area.

Because of its physician recruitment

practices, Hospital F has been found

guilty in a court of law of knowingly

and willfully violating the Medicare and

Medicaid anti-kickback statute, 42

U.S.C. § 1320a–7b(b), for providing recruitment incentives that constituted

payments for referrals. The activities

resulting in the violations were substantial.

LAW

Section 501(c)(3) provides, in part,

for the exemption from federal income

tax of corporations organized and operated exclusively for charitable, scientific, or educational purposes, provided

no part of the organization’s net earnings inures to the benefit of any private

shareholder or individual.

Section 1.501(c)(3)–1(d)(2) of the Income Tax Regulations provides that the

term ‘‘charitable’’ is used in § 501(c)(3)

in its generally accepted legal sense.

The promotion of health has long been

recognized as a charitable purpose. See

Restatement (Second) of Trusts, §§ 368,

372 (1959); 4A Austin W. Scott and

William F. Fratcher, The Law of Trusts

§§ 368, 372 (4th ed. 1989); and Rev.

Rul. 69–545, 1969–2 C.B. 117. Under

the common law of charitable trusts, all

such organizations are subject to the

requirement that their purposes may not

be illegal. See Restatement (Second) of

Trusts § 377 (1959); 4A Austin W.

Scott and William F. Fratcher, The Law

of Trusts § 377 (4th ed. 1989); Bob

Jones University v. U.S., 461 U.S. 574,

591 (1983); Rev. Rul. 80–278, 1980–2

C.B. 175; Rev. Rul. 80–279, 1980–2

C.B. 176.

Section 1.501(c)(3)–1(c)(2) states that

an organization is not operated exclusively for charitable purposes if its net

earnings inure in whole or in part to the

benefit of private shareholders or individuals.

Section 1.501(a)–1(c) defines ‘‘private

shareholder or individual’’ as referring

to persons having a personal and private

interest in the activities of the organization.

Section 1.501(c)(3)–1(d)(1)(ii) states

that an organization is not organized

exclusively for any of the purposes

specified in § 501(c)(3) unless it serves

public, rather than private interests.

Thus, an organization applying for tax

exemption under § 501(c)(3) must establish that it is not organized or operated for the benefit of private interests.

Rev. Rul. 69–545, 1969–2 C.B. 117,

holds that a non-profit hospital that

benefits a broad cross section of its

community by having an open medical

staff and a board of trustees broadly

representative of the community, operating a full-time emergency room open to

all regardless of ability to pay, and

otherwise admitting all patients able to

pay (either themselves, or through third

party payers such as private health insurance or government programs such as

Medicare) may qualify as an organization described in § 501(c)(3). The same

standard has been used by the courts as

the basis for evaluating whether health

maintenance organizations qualify for

exemption as organizations described in

§ 501(c)(3). Sound Health Association

v. Commissioner, 71 T.C. 158 (1978),

acq. 1981–2 C.B. 2; Geisinger Health

Plan v. Commissioner, 985 F.2d 1210

(3rd Cir. 1993), rev’g 62 T.C.M. (CCH)

1656 (1991).

Rev. Rul. 72–559, 1972–2 C.B. 247,

holds that an organization that provides

subsidies to recent law school graduates

during the first three years of their

practice to enable them to establish legal

practices in economically depressed

communities that have a shortage of

available legal services and to provide

free legal service to needy members of

the community may qualify as an organization described in § 501(c)(3).

Rev. Rul. 73–313, 1973–2 C.B. 174,

holds that attracting a physician to a

community that had no available medical services furthered the charitable purpose of promoting the health of the

community. In Rev. Rul. 73–313, residents of an isolated rural community

had to travel a considerable distance to

obtain care. Faced with the total lack of

local services, the community formed an

organization to raise funds and build a

medical office building to attract a doctor to the locality. (No hospitals or

existing medical practices were involved.) The ruling states that certain

facts are particularly relevant: (1) the

demonstrated need for a physician to

avert a real and substantial threat to the

community; (2) evidence that the lack of

a suitable office had impeded efforts to

attract a physician; (3) the arrangements

were completely at arm’s-length; and (4)

there was no relationship between any

person connected with the organization

and the recruited physician. The ruling

states that, under all the circumstances,

the arrangement used to induce the

doctor to locate a practice in the area

‘‘bear[s] a reasonable relationship to

promotion and protection of the health

of the community’’ and any private

benefit to the physician is incidental to

the public purpose achieved. It concludes that the activity furthers a charitable purpose and the organization qualifies for exemption as an organization

described in § 501(c)(3).

Rev. Rul. 75–384, 1975–2 C.B. 204,

holds that an organization whose primary activity is sponsoring antiwar protest demonstrations in which demonstrators are urged to commit violations of

local ordinances and breaches of the

public order does not qualify as an

organization described in § 501(c)(3)

because its activities demonstrate an

illegal purpose that is inconsistent with

charitable purposes.

Rev. Rul. 80–278, 1980–2 C.B. 175,

and Rev. Rul. 80–279, 1980–2 C.B. 176,

discuss the qualification as organizations

described in § 501(c)(3) of organizations that conduct environmental litigation and environmental dispute mediation. In holding that these organizations

may qualify, the rulings state that, in

determining whether an organization

meets the operational test, the issue is

whether the particular activity undertaken by the organization appropriately

furthers the organization’s exempt purpose. The rulings state that an organization’s activities will be considered permissible under § 501(c)(3) if the

following conditions are met: (1) the

purpose of the organization is charitable;

(2) the activities are not illegal, contrary

to a clearly defined and established

public policy, or in conflict with express

statutory restrictions; and (3) the activities are in furtherance of the organization’s exempt purpose and are reasonably related to the accomplishment of

that purpose.

ANALYSIS

In order to meet the requirements of

§ 501(c)(3), a hospital that provides

recruitment incentives to physicians

must provide those incentives in a manner that does not cause the organization

to violate the operational test of

§ 1.501(c)(3)–1. Whether the recruitment incentives cause the organization

to violate the operational test is determined based on all relevant facts and

circumstances. When a § 501(c)(3) hospital recruits a physician for its medical

staff who is to perform services for or

on behalf of the organization, the organization meets the operational test by

showing that, taking into account all of

the benefits provided the physician by

the organization, the organization is paying reasonable compensation for the

services the physician is providing in

return. A somewhat different analysis

must be applied when a § 501(c)(3)

hospital recruits a physician for its

medical staff to provide services to

members of the surrounding community

but not necessarily for or on behalf of

the organization. In these cases, a violation will result from a failure to comply

with any of the following four requirements:

First, the organization may not engage

in substantial activities that do not further the hospital’s exempt purposes or

that do not bear a reasonable relationship to the accomplishment of those

purposes. As discussed in Rev. Rul.

80–278 and Rev. Rul. 80–279, in determining whether an organization meets

the operational test, the issue is whether

the particular activity undertaken by the

organization is appropriately in furtherance of the organization’s exempt purpose.

Second, the organization must not

engage in activities that result in inurement of the hospital’s net earnings to a

private shareholder or individual. An

activity may result in inurement if it is

structured as a device to distribute the

net earnings of the hospital. See Lorain

Avenue Clinic v. Commissioner, 31 T.C.

141 (1958); Birmingham Business College, Inc. v. Commissioner, 276 F.2d

476 (5th Cir. 1960).

Third, the organization may not engage in substantial activities that cause

the hospital to be operated for the

benefit of a private interest rather than

public interest so that it has a substantial

non-exempt

purpose.

Section

1.501(c)(3)–1(d)(1)(ii).

Finally, the organization may not engage in substantial unlawful activities.

As discussed in Rev. Rul. 75–384, Rev.

Rul. 80–278, and Rev. Rul. 80–279, the

conduct of an unlawful activity is inconsistent with charitable purposes. An organization conducts an activity that is

unlawful, and therefore not in furtherance of a charitable purpose, if the

organization’s property is to be used for

an objective that is in violation of the

criminal law. Activities can accomplish

an unlawful purpose through either direct or indirect means.

Situation 1

Like the organization described in

Rev. Rul. 73–313, Hospital A has objective evidence demonstrating a need for

obstetricians and gynecologists in its

service area and has engaged in physician recruitment activity bearing a reasonable relationship to promoting and

protecting the health of the community

in accordance with Rev. Rul. 69–545.

As with the subsidies provided to the

recent law school graduates in Rev. Rul.

72–559, the payment of a bonus, the

guarantee of a mortgage, the reimbursement of professional liability insurance

and provision of subsidized office space

for a limited time, and the lending of

start-up financial assistance as recruitment incentives are reasonably related to

causing Physician M to become a member of Hospital A’s medical staff and to

establish and maintain a full-time private ob/gyn practice in Hospital A’s

service area. The provision of the incentives under the circumstances described

furthers the charitable purposes served

by the hospital and is consistent with

the requirements for exemption as an

organization described in § 501(c)(3).

Situation 2

Like Hospital A in Situation 1, Hospital B has objective evidence demonstrating a need for pediatricians in its service

area and has engaged in physician recruitment activity bearing a reasonable

relationship to promoting and protecting

the health of the community in much

the same manner as the organization

described in Rev. Rul. 73–313. As with

the recruitment incentive package provided by Hospital A, the payment of

moving expenses, the reimbursement of

professional liability ‘‘tail’’ coverage,

and the provision of a reasonable private

practice income guarantee as recruitment

incentives are reasonably related to

causing Physician N to become a member of Hospital B’s medical staff and to

establish and maintain a full-time private pediatric practice in Hospital B’s

service area. Thus, the recruitment activity described furthers the charitable purposes served by the hospital and is

consistent with the requirements for exemption as an organization described in

§ 501(c)(3).

Situation 3

In accordance with the standards for

exemption set forth in Rev. Rul. 69–545,

Hospital C admits and treats Medicaid

patients on a non-discriminatory basis.

Hospital C has identified a shortage of

obstetricians willing to treat Medicaid

patients. The payment of Physician O’s

professional liability insurance premiums in return for Physician O’s agreement to treat a reasonable number of

Medicaid and charity care patients is

reasonably related to the accomplishment of Hospital C’s exempt purposes.

Because the amount paid by Hospital C

is reasonable and any private benefit to

Physician O is outweighed by the public

purpose served by the agreement, the

recruitment activity described is consistent with the requirements for exemption

as an organization described in

§ 501(c)(3).

Situation 4

Hospital D has objective evidence

demonstrating a need for diagnostic radiologists to provide coverage for its

radiology department so that it can

promote the health of the community.

The provision of a reasonable private

practice income guarantee as a recruitment incentive that is conditioned upon

Physician P obtaining medical staff

privileges and providing coverage for

the radiology department is reasonably

related to the accomplishment of the

charitable purposes served by the hospital. A significant fact in determining that

the community benefit provided by the

activity outweighs the private benefit

provided to Physician P is the determi-

nation by the Board of Directors of

Hospital D that it needs additional diagnostic radiologists to provide adequate

coverage and to ensure a high quality of

medical care. The recruitment activity

described is consistent with the requirements for exemption as an organization

described in § 501(c)(3).

DRAFTING INFORMATION

Situation 5

Section 807.—Rules for Certain

Reserves

Hospital F has engaged in physician

recruiting practices resulting in a criminal conviction. As in Rev. Rul. 75–384,

the recruiting activities were intentional

and criminal, not isolated or inadvertent

violations of a regulatory statute. An

organization that engages in substantial

unlawful activities, including activities

involving the use of the organization’s

property for an objective that is in

violation of criminal law, does not

qualify as an organization described in

§ 501(c)(3). Because Hospital F has

knowingly and willfully conducted substantial activities that are inconsistent

with charitable purposes, it does not

comply with the requirements of

§ 501(c)(3) and § 1.501(c)(3)–1.

HOLDING

The hospitals in Situations 1, 2, 3,

and 4 have not violated the requirements

for exemption from federal income tax

organizations

described

§ 501(c)(3) as a result of the physician

recruitment incentive agreements they

have made because the transactions further charitable purposes, do not result in

inurement, do not result in the hospitals

serving a private rather than a public

purpose, and are assumed to be lawful

for purposes of this revenue ruling.

Hospital F in Situation 5 does not

qualify as an organization described in

§ 501(c)(3) because its unlawful physician recruitment activities are inconsistent with charitable purposes.

SCOPE

This ruling addresses only issues under § 501(c)(3) in the described situations. No inference is intended as to any

other issue under any other provision of

law, including any issue involving

worker classification, income tax consequences to the physicians, and application of the Medicare and Medicaid antikickback statute, 42 U.S.C. § 1320a–

7b(b).

The principal author of this revenue

ruling is Judith E. Kindell of the Exempt Organizations Division. For further

information regarding this revenue ruling contact Judith E. Kindell on (202)

622–6494 (not a toll-free call).

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

on this page.

Section 846.—Discounted Unpaid

Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

on this page.

Section 1274.—Determination of

Issue Price in the Case of Certain

Debt Instruments Issued for

Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482,

483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal

rates; adjusted federal long-term rate,

and the long-term exempt rate. For

purposes of sections 1274, 1288, 382,

and other sections of the Code, tables

set forth the rates for May 1997.

Rev. Rul. 97–19

This revenue ruling provides various

prescribed rates for federal income tax

purposes for May 1997 (the current

month.) Table 1 contains the short-term,

mid-term, and long-term applicable federal rates (AFR) for the current month

for purposes of section 1274(d) of the

Internal Revenue Code. Table 2 contains

the short-term, mid-term, and long-term

adjusted applicable federal rates (adjusted AFR) for the current month for

purposes of section 1288(b). Table 3

sets forth the adjusted federal long-term

rate and the long-term tax-exempt rate

described in section 382(f). Table 4

contains the appropriate percentages for

determining the low-income housing

credit described in section 42(b)(2) for

buildings placed in service during the

current month. Finally, Table 5 contains

the federal rate for determining the

present value of an annuity, an interest

for life or for a term of years, or a

remainder or a reversionary interest for

purposes of section 7520.

REV. RUL. 97–19 TABLE 1

Applicable Federal Rates (AFR) for May 1997

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

6.23%

6.86%

7.51%

8.14%

6.14%

6.75%

7.37%

7.98%

6.09%

6.69%

7.30%

7.90%

6.06%

6.66%

7.26%

7.85%

6.85%

7.55%

8.25%

8.95%

10.37%

12.15%

6.74%

7.41%

8.09%

8.76%

10.11%

11.80%

6.68%

7.34%

8.01%

8.67%

9.99%

11.63%

6.65%

7.30%

7.96%

8.60%

9.90%

11.52%

7.18%

7.92%

8.65%

9.39%

7.06%

7.77%

8.47%

9.18%

7.00%

7.70%

8.38%

9.08%

6.96%

7.65%

8.32%

9.01%

Short-Term

AFR

110% AFR

120% AFR

130% AFR

Mid-Term

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

Long-Term

AFR

110% AFR

120% AFR

130% AFR

REV. RUL. 97–19 TABLE 2

Adjusted AFR for May 1997

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-term

adjusted AFR

3.97%

3.93%

3.91%

3.90%

Mid-term

adjusted AFR

4.84%

4.78%

4.75%

4.73%

Long-term

adjusted AFR

5.64%

5.56%

5.52%

5.50%

REV. RUL. 97–19 TABLE 3

Rates Under Section 382 for May 1997

Adjusted federal long-term rate for the current month

5.64%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the

adjusted federal long-term rates for the current month and the prior two months.)

5.64%

REV. RUL. 97–19 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for May 1997

Appropriate percentage for the 70% present value low-income housing credit

8.65%

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

3.71%

REV. RUL. 97–19 TABLE 5

Rate Under Section 7520 for May 1997

Applicable federal rate for determining the present value of an annuity, an interest for life or a

term of years, or a remainder or reversionary interest

Section 1288.—Treatment of

Original Issue Discount on

Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

8.2%

Section 7872.—Treatment of Loans

With Below-Market Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the

month of May 1997. See Rev. Rul. 97–19,

page 11.

Part II. Treaties and Tax Legislation

Subpart B.—Legislation and Related Committee Reports

Public Law 105–2

105th Congress, H.R. 668

February 28, 1997

An Act to amend the Internal Revenue Code of 1986 to reinstate the Airport and Airway

Trust Fund excise taxes, and other purposes.

Part III. Administrative, Procedural, and Miscellaneous

Credit for Producing Fuel From a

Nonconventional Source, Section

29 Inflation Adjustment Factor, and

Section 29 Reference Price

Notice 97–28

This notice publishes the § 29 inflation

adjustment

factor,

the

nonconventional source fuel credit, and

the § 29 reference price for calendar

year 1996. These are used to determine

the credit allowable on fuel produced

from a nonconventional source under

§ 29 of the Internal Revenue Code. The

calendar year 1996 inflation-adjusted

credit applies to the sales of barrel-of-oil

equivalent of qualified fuels sold by a

taxpayer to an unrelated person during

the 1996 calendar year, the domestic

production of which is attributable to

the taxpayer.

BACKGROUND

Section 29(a) provides for a credit for

producing fuel from a nonconventional

source, measured in barrel-of-oil equivalent of qualified fuels, the production of

which is attributable to the taxpayer and

sold by the taxpayer to an unrelated

person during the tax year. The credit is

equal to the product of $3.00 and the

appropriate inflation adjustment factor.

Section 29(b)(1) and (2) provides for

a phaseout of the credit. The credit

allowable under § 29(a) must be reduced by an amount which bears the

same ratio to the amount of the credit

(determined

without

regard

§ 29(b)(1)) as the amount by which the

reference price for the calendar year in

which the sale occurs exceeds $23.50

bears to $6.00. The $3.00 in § 29(a)

and the $23.50 and $6.00 must each be

adjusted by multiplying these amounts

by the 1996 inflation adjustment factor.

In the case of gas from a tight formation, the $3.00 amount in § 29(a) must

not be adjusted.

Section 29(c)(1) defines the term

‘‘qualified fuels’’ to include oil produced

from shale and tar sands; gas produced

from geopressurized brine, Devonian

shale, coal seams, or a tight formation,

or biomass; and liquid, gaseous, or solid

synthetic fuels produced from coal (including lignite), including such fuels

when used as feedstocks.

Section 29(d)(1) provides that the

credit is to be applied only for sale of

qualified fuels the production of which

is within the United States (within the

meaning of § 638(1)) or a possession of

the United States (within the meaning of

§ 638(2)).

Section 29(d)(2)(A) requires that the

Secretary, not later than April 1 of each

calendar year, determine and publish in

the Federal Register the inflation adjustment factor and the reference price for

the preceding calendar year.

Section 29(d)(2)(B) defines ‘‘inflation

adjustment factor’’ for a calendar year

as the fraction the numerator of which is

the GNP implicit price deflator for the

calendar year and the denominator of

which is the GNP implicit price deflator

for calendar year 1979. The term ‘‘GNP

implicit price deflator’’ means the first

version of the implicit price deflator for

the gross national product as computed

and published by the Department of

Commerce.

Section 29(d)(2)(C) defines ‘‘reference price’’ to mean with respect to a

calendar year the Secretary’s estimate of

the annual average wellhead price per

barrel of all domestic crude oil the price

of which is not subject to regulation by

the United States.

Section 29(d)(3) provides that in the

case of a property or facility in which

more than one person has an interest,

except to the extent provided by regulations prepared by the Secretary, production from the property or facility (as the

case may be) must be allocated among

the persons in proportion to their respective interests in the gross sales from the

property or facility.

Section 29(d)(5) and (6) provides that

the term ‘‘barrel-of-oil equivalent’’ with

respect to any fuel generally means that

amount of the fuel which has a Btu

content of 5.8 million.

INFLATION ADJUSTMENT FACTOR

AND REFERENCE PRICE

The inflation adjustment factor for

calendar year 1996 is 1.9837. The reference price for calendar year 1996 is

$18.46. As required by § 29(d)(2)(A),

the inflation adjustment factor and reference price for calendar year 1996 were

published in the Federal Register on

April 4, 1997 (62 Fed. Reg. 16216).

PHASE-OUT CALCULATION

Because the calendar year 1996 reference price does not exceed $23.50 multiplied by the inflation adjustment factor,

the phaseout of the credit provided for

in § 29(b)(1) does not occur for any

qualified fuel sold in calendar year

1996.

CREDIT AMOUNT

The nonconventional source fuel

credit under § 29(a) is $5.95 per barrelof-oil equivalent of qualified fuels

($3.00 x 1.9837). This amount was

published in the Federal Register on

April 4, 1997 (62 Fed. Reg. 16216).

DRAFTING INFORMATION CONTACT

The principal author of this notice is

David G. McMunn of the Office of

Assistant Chief Counsel (Passthroughs

and Special Industries). For further information regarding this notice contact

Mr. McMunn on (202)622–3110 (not a

toll-free call).

Part IV. Items of General Interest

Notice of Proposed Rulemaking

Substantiation of Business

Expenses for Travel, Entertainment,

Gifts and Listed Property

REG–209785–95

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary

regulations.

SUMMARY: In T.D. 8715, page 5, the

IRS is issuing temporary regulations

relating to the substantiation requirements for business expenses for travel,

entertainment, gifts, or listed property.

The text of those temporary regulations

also serves as the text of these proposed

regulations.

DATES: Written or electronically generated comments and requests for a public

hearing must be received by June 23,

1997.

ADDRESSES: Send submissions to

CC:DOM:CORP:R (REG–209795–95),

room 5228, Internal Revenue Service,

P.O. Box 7604, Ben Franklin Station,

Washington, DC 20044. In the alternative, submissions may be hand delivered

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

to CC:DOM:CORP:R (REG–209785–

95), Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue NW,

Washington, DC, or electronically, via

the IRS Internet site at: http://

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

comments.html.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, contact Donna M. Crisalli, (202) 622–4920;

concerning submissions, contact Christina Vasquez, (202) 622–7190 (not tollfree numbers).

SUPPLEMENTARY INFORMATION

Paperwork Reduction Act

The collection of information contained in this notice of proposed

rulemaking has 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). Comments on the collection of

information should be sent to the Office

of Management and Budget, Attn: Desk

Officer for the Department of the Trea-

1997–18

I.R.B.

sury, Office of Information and Regulatory Affairs, Washington, DC 20503,

with copies to the Internal Revenue

Service, Attn: IRS Reports Clearance

Officer, T:FP, Washington, DC 20224.

Comments on the collection of information should be received by May 27,

1997.

Comments are specifically requested

concerning:

Whether the proposed collection of information is 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 collection 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 collection of information in this

notice of proposed rulemaking is in

§ 1.274–5T(c)(2) and (f)(4). This information is required by the IRS as a

condition for a taxpayer to deduct certain business expenses or exclude from

income certain reimbursed business expenses of employees. This information

will be used to determine whether a

taxpayer properly qualifies for a deduction or exclusion. The collection of

information is required in order to deduct certain business expenses or exclude from income certain reimbursed

business expenses of employees. The

likely respondents and recordkeepers are

individuals, business or other for-profit

institutions, state or local governments,

federal agencies, and nonprofit institutions. Estimated total annual reporting

and recordkeeping burden: 36,920,000

hours.

The estimated annual burden per respondent or recordkeeper varies from 10

minutes to 20 hours, depending on individual circumstances, with an estimated

average of 1.3 hours.

Estimated number of respondents and

recordkeepers: 28,400,000.

Estimated annual frequency of responses: On occasion.

An agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information displays a valid control number.

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.

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 do not have a

significant economic impact on a substantial number of small entities. This

certification is based on the fact that, by

increasing the receipt threshold from

$25 to $75, these regulations are expected to reduce the existing

recordkeeping requirements of taxpayers, including small entities, from

49,375,000 hours to 36,920,000 hours.

The regulations do not otherwise significantly alter the reporting or recordkeeping duties of small entities. Therefore, a

Regulatory Flexibility Analysis under

the Regulatory Flexibility Act (5 U.S.C.

chapter 6) is not required. Pursuant to

section 7805(f) of the Internal Revenue

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 Requests for a Public

Hearing

Before adopting these proposed regulations as final regulations, consideration

will be given to any comments that are

submitted timely (and in the manner

described in ADDRESSES portion of

this preamble) to the IRS. The IRS is

considering publishing a revenue procedure implementing § 1.274–5T(f)(4)(ii)

of the temporary regulations (that is,

prescribing rules under which an employee may make an adequate accounting to his employer by submitting an

expense voucher or equivalent without

submitting documentary evidence such

as receipts) for federal government

agencies that use the published procedures. In addition, the IRS is considering whether there are circumstances or

conditions under which the IRS could

extend these procedures beyond federal

government agencies, and requests comments in this regard. The IRS also

requests comments on what procedures

(such as internal controls) should be

required in any rules that permit a

taxpayer to satisfy the substantiation

requirements of section 274(d) for purposes of deducting business expenses

reimbursed to employees who have accounted for their expenses only by

means of an expense voucher or equivalent without documentary evidence such

as receipts. All comments will be available for public inspection and copying.

A public hearing will be scheduled and

held upon written request by any person

who submits written comments on the

proposed rules. Notice of the time and

place for the hearing will be published

in the Federal Register.

Drafting Information

The principal author of these regulations is Donna M. Crisalli, Office of the

Assistant Chief Counsel (Income Tax

and Accounting). However, personnel

from other offices of the IRS and Treasury Department participated in their

development.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by adding an entry to

read in part as follows:

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

Section 1.274–5 also issued under 26

U.S.C. 274(d). * * *

Par. 2. Section 1.274–5 is added to

read as follows:

§ 1.274–5 Substantiation requirements.

(a) through (c)(2)(iii)(A) [Reserved].

For further guidance, see § 1.274–5T.

(c)(2)(iii)(B) [The text of paragraph

(c)(2)(iii)(B) is the same as the text in

§ 1.274–5T published in T.D. 8715].

(c)(2)(iv) through (f)(3) [Reserved].

For further guidance, see § 1.274–5T.

(f)(4) through (f)(4)(iii) [The text of

paragraphs (f)(4) through (f)(4)(iii) is

the same as the text in T.D. 8715,

page 5.

(f)(5) through (l) [Reserved]. For further guidance, see § 1.274–5T.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

March 24, 1997, 8:45 a.m., and published in the

issue of the Federal Register for March 25, 1997,

62 F.R. 14051)

Notice of Proposed Rulemaking

and Notice of Public Hearing

Guidance Regarding Charitable

Remainder Trusts

REG–209823–96

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

under section 664 of the Internal Revenue Code of 1986 relating to charitable

remainder trusts and under section 2702

relating to special valuation rules for

transfers of interests in trusts. The proposed amendments contain rules on the

conditions under which the governing

instrument may provide for a change in

the method of calculating the unitrust

amount, the date by which the annuity

amount or the unitrust amount under the

fixed percentage method must be paid to

the recipient, who is required to value

unmarketable assets, and when section

2702 applies to certain charitable remainder unitrusts. The proposed regulations clarify existing law that prohibits

allocating precontribution capital gain to

trust income. The proposed amendments

also contain an example illustrating how

the ordering rule of section 664(b) applies to distributions from a charitable

remainder unitrust using an income exception method to calculate the unitrust

amount. This document also provides

notice of a public hearing on these

proposed regulations.

DATES: Comments and outlines of topics to be discussed at the public hearing

scheduled for September 9, 1997, at 10

a.m. must be received by August 19,

1997.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–209823–96),

room 5228, Internal Revenue Service,

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

also be hand delivered between the

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

CC:DOM:CORP:R (REG–209823–96),

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/comments.html. The public hearing will be

held in the IRS Auditorium, Internal

Revenue Building, 1111 Constitution

Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Jeffrey A. Erickson or Mary Beth Collins,

(202) 622–3070; concerning submissions

and the hearing, Evangelista Lee, (202)

622–7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed

rulemaking has 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, T:FP, Washington, DC

20224. Comments on the collection of

information should be received by July

17, 1997. Comments are specifically

requested concerning:

Whether the proposed collection of

information is 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;

How the quality, utility, and clarity of

the information to be collected may be

enhanced;

How the burden of complying with

the proposed collection of information

may be minimized, including through

1997–18

I.R.B.

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 collection of information in this

proposed regulation is in § 1.664–

1(a)(7). This information is required to

allow taxpayers alternative means of

valuing a charitable remainder trust’s

hard-to-value assets. This information

will be used to determine if a taxpayer

properly claimed a charitable deduction

for a contribution to a charitable remainder trust and if assets in the charitable

remainder trust are properly valued each

year. The collection of information is

voluntary. The likely respondents are

for-profit entities.

Estimated total annual recordkeeping

burden: 75 hours.

Estimated average annual burden

hours per respondent: .5 hours.

Estimated number of respondents:

150.

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

This document proposes amendments

to 26 CFR parts 1 and 25 to provide

additional rules under sections 664 and

2702. Section 664, added to the Internal

Revenue Code by section 201 of the Tax

Reform Act of 1969 (Public Law 91–

172), contains the rules for charitable

remainder trusts. In general, a charitable

remainder trust provides for a specified

periodic distribution to one or more

noncharitable beneficiaries for life or for

a term of years with an irrevocable

remainder interest held for the benefit of

charity. Section 664(c) provides that a

charitable remainder trust is exempt

from all taxes under subtitle A of the

Code for any taxable year except a

taxable year in which the trust has

unrelated business taxable income under

section 512.

1997–18

I.R.B.

There are two types of charitable

remainder trusts. A charitable remainder

annuity trust (a CRAT) pays a sum

certain at least annually to one or more

noncharitable beneficiaries. A charitable

remainder unitrust (a CRUT) pays a

unitrust amount at least annually to one

or more noncharitable beneficiaries. The

unitrust amount is generally a fixed

percentage of the net fair market value

of the CRUT’s assets valued annually

(the fixed percentage method). The

unitrust amount can instead be the lesser

of the fixed percentage amount or the

trust’s net income (the net income

method). Alternatively, the unitrust

amount can be the amount determined

under the net income method plus any

amount of income that exceeds the

current year’s fixed percentage amount

to ‘‘make up’’ for any shortfall in distributions in prior years when the trust

income was less than the fixed percentage amount (the NIMCRUT method).

Explanation of

Provisions

I. Flip Unitrusts

A. General Explanation

The governing instrument of a CRUT

must specify the method of computing

the unitrust payments. Section 664(d)(3)

provides that the income exception

methods (either the net income method

or the NIMCRUT method) may be used

to pay the unitrust amount ‘‘for any

year.’’ The legislative history, however,

provides that the method used to determine the unitrust amount may not be

discretionary with the trustee. H.R.

Conf. Rep. No. 782, 91st Cong., 1st

Sess. 296 (1969), 1969–3 C.B. 644, 655.

Some donors may fund a CRUT with

unmarketable assets that produce little

or no income. These donors often want

the income beneficiary or beneficiaries

of the CRUT to receive a steady stream

of payments based on the total return

available from the value of the assets.

The donors recognize, however, that the

CRUT cannot make these payments until it can convert the unmarketable assets

into liquid assets that can be used to pay

the fixed percentage amount. These donors establish CRUTs that use one of

the income exception methods to calculate the unitrust amount until the unmarketable assets are sold. Following the

sale, the donors may prefer that the

CRUT use the fixed percentage method

to calculate the unitrust amount. A trust

using such a combination of methods

would be a ‘‘flip unitrust.’’

The proposed regulations provide that

a donor may establish a flip unitrust that

qualifies as a CRUT if the following

conditions are satisfied. First, to ensure

that the CRUT has substantially all

unmarketable assets prior to the switch

in methods, at least 90 percent of the

fair market value of the assets held in

the trust immediately after the initial

contribution or any subsequent contribution (prior to the switch in methods)

must consist of unmarketable assets.

Unmarketable assets are assets that are

not cash, cash equivalents, or marketable securities (within the meaning of

section 731(c)).

Second, because the legislative history

indicates that a trustee should not have

discretion to change the method used to

calculate the unitrust amount, the governing instrument must provide that the

CRUT will use an income exception

method until the earlier of (a) the sale

of a specified unmarketable asset or

group of unmarketable assets contributed at the time the trust was created or

(b) the sale of unmarketable assets such

that immediately following the sale, any

remaining unmarketable assets total 50

percent or less of the fair market value

of the trust’s assets. For making this

determination, the remaining unmarketable assets are valued as of the most

recent valuation date.

Third, to ensure that the CRUT will

use the fixed percentage method after

the unmarketable assets are sold, the

CRUT must switch exclusively to the

fixed percentage method for calculating

all remaining unitrust amounts payable

to any income beneficiary at the beginning of the first taxable year following

the year in which the earlier of the

above events occurs.

Finally, because the fixed percentage

method does not provide for a makeup

amount, any makeup amount described

in section 664(d)(3)(B) is forfeited when

the trust switches to the fixed percentage method.

The IRS and Treasury request comments on whether there are additional

circumstances under which a combination of methods should be addressed in

regulations.

B. Proposed Effective Date and Transitional Rules

The amendments allowing a flip

unitrust are proposed to be effective for

CRUTs created on or after the date the

final regulations are published in the

Federal Register.

If a trust was created before the

effective date of this amendment and its

governing instrument contains a flip

provision other than the one permitted

by the regulations, the trust may be

amended or reformed to comply with

the final regulations. If a trust is created

after the effective date of this amendment and has a flip provision not expressly permitted by the regulations, the

trust will qualify as a CRUT if it is

amended or reformed to use the initial

method for computing the unitrust

amount throughout the term of the trust.

If a qualified CRUT is created before or

after the effective date of this amendment and its governing instrument does

not contain a flip provision, the trust

will not continue to qualify as a CRUT

if it is amended or reformed to add a

flip provision.

The IRS and Treasury invite comments on the least burdensome methods

of changing the terms of a trust’s governing instrument.

II. Time for Paying the Annuity Amount

or the Unitrust Amount

A. General Explanation

The regulatory provisions permitting a

trustee of a charitable remainder trust to

pay the annuity or unitrust amount

within a reasonable period of time following the close of the trust’s taxable

year were intended as an administrative

convenience for trustees. Under the income exception methods, the trustee

may not be able to determine the

amount of trust income and, thus, the

amount to be distributed for a trust’s

taxable year until after the close of that

year. Therefore, a trustee may need the

additional time to pay the unitrust

amount if a CRUT uses one of the

income exception methods.

In contrast, a trustee of a CRAT or a

CRUT using the fixed percentage

method can easily determine the annuity

or unitrust amount and pay it before the

close of the taxable year to which it

relates. The annuity amount is fixed and

determinable as of the date the trust is

created. The fixed percentage unitrust

amount is fixed and determinable as of

the annual valuation date, which is

specified in the governing instrument or

on the initial Form 5227, Split-Interest

Trust Information Return. The valuation

date can be set well before the end of

the taxable year.

The IRS and Treasury believe that

certain trustees of charitable remainder

trusts have attempted to abuse the provi-

sions in the current regulations that

permit a trustee to pay the annuity or

unitrust amount within a reasonable time

after the close of the taxable year for

which the payment is due. The IRS and

Treasury are especially concerned about

accelerated charitable remainder trusts

described in Notice 94–78 (1994–2 C.B.

555). Therefore, the regulations propose

to amend §§ 1.664–2(a)(1)(i) and

1.664–3(a)(1)(i) to provide that the payment of the annuity amount or the

unitrust amount determined under the

fixed percentage method must be made

by the close of the taxable year in

which it is due. These proposed amendments should not require the amendment

or reformation of governing instruments

of existing charitable remainder trusts

that allow a trustee to pay the unitrust

or annuity amount after the close of the

taxable year. The trustees of such trusts

can comply with the proposed regulations by actually paying the annuity or

unitrust amount within the time permitted by the proposed amendments.

For CRUTs using an income exception method, the regulations continue to

provide that if the CRUT pays the

unitrust amount within a reasonable time

after the close of the trust’s taxable year,

the trust is not deemed to have engaged

in an act of self-dealing, to have unrelated debt-financed income, to have received an additional contribution, or to

have failed to function exclusively as a

charitable remainder trust.

B. Proposed Effective Date

These amendments are proposed to be

effective for taxable years ending after

April 18, 1997.

The IRS will continue to challenge

the purported tax consequences of accelerated charitable remainder trusts as described in Notice 94–78.

sponding provision, many practitioners

have asked whether a charitable remainder trust that holds unmarketable assets

must have an independent trustee value

the assets.

The proposed regulations provide that

if a charitable remainder trust holds

unmarketable assets and the trustee is

the grantor of the charitable remainder

trust, a noncharitable beneficiary, or a

related or subordinate party to the

grantor or the noncharitable beneficiary

within the meaning of section 672(c)

and the applicable regulations, the

trustee must use a current qualified

appraisal, as defined in § 1.170A–

13(c)(3), from a qualified appraiser, as

defined in § 1.170A–13(c)(5), to value

those assets. A trustee who is not the

grantor, a noncharitable beneficiary, or a

related or subordinate party does not

have to use a qualified appraisal from a

qualified appraiser to value the unmarketable assets. Therefore, the grantor, a

noncharitable beneficiary, or a related or

subordinate party may be the sole

trustee of a charitable remainder trust if

the trustee uses a current qualified appraisal from a qualified appraiser to

compute the fair market value of the

trust’s unmarketable assets.

B. Proposed Effective Date

The amendments are proposed to be

effective for trusts created on or after

the date on which the final regulations

are published in the Federal Register.

If the governing instrument of an existing trust created before the effective

date of this amendment already requires

an independent trustee to value the

trust’s unmarketable assets, the governing instrument may be amended or

reformed to conform with this provision.

III. Appraising Unmarketable Assets

IV. Application of Section 2702 to Certain Charitable Remainder Unitrusts

A. General Explanation

Under § 1.664–1(a)(1)(iii)(a), a trust

may qualify as a charitable remainder

trust only if a deduction is allowable

under sections 170, 2055, 2106, or 2522

for transfers to the trust. The legislative

history of section 664 indicates that

Congress contemplated denying a charitable contribution deduction to a donor

who transferred unmarketable assets to a

charitable remainder trust unless an independent trustee valued the assets. H.R.

Rep. No. 413, 91st Cong., 1st Sess. 60

(1969), 1969–3 C.B. 200, 239. Because

the statute does not contain a corre-

Section 2702 provides special rules to

determine the amount of the gift when

an individual makes a transfer in trust to

or for the benefit of a family member

and the individual or an applicable family member retains an interest in the

trust. Under section 2702(a), the retained interest in these situations is

generally valued at zero unless the interest is a qualified interest. Under section

2702(b), a qualified interest includes the

right to receive fixed payments at least

annually and the right to receive

amounts at least annually that are a

1997–18

I.R.B.

fixed percentage of the annual fair market value of the property in the trust.

Section 2702(a)(3)(A)(iii) was added

by section 1702(f)(11)(A)(iv) of the

Small Business Job Protection Act of

1996 (Public Law 104–188) as a technical correction to the Revenue Reconciliation Act of 1990 (Public Law 101–

508). Section 2702(a)(3)(A)(iii) provides

that section 2702(a) shall not apply to

any transfer to the extent regulations

provide that such transfer is not inconsistent with the purposes of the section.

According to the legislative history, the

regulatory authority could be used to

create an exception from the application

of section 2702 for a qualified charitable

remainder trust that does not otherwise

create an opportunity for transferring

property to a family member free of

transfer tax. H.R. Rep. No. 586, 104th

Cong., 2d Sess. 155–56 (1996). Under

§ 25.2702–1(c)(3) of the Gift Tax Regulations, section 2702 does not apply to

CRUTs or CRATs.

Some taxpayers have created CRUTs

using an income exception method to

take advantage of the section 2702 exclusion granted to charitable remainder

trusts in the regulations. These taxpayers

attempt to use this exclusion and the

income exception feature of a CRUT to

pass substantial assets to family members with minimal transfer tax consequences.

For example, a donor establishes a

NIMCRUT to pay the lesser of trust

income or a fixed percentage to the

donor for a term of 15 years or his life,

whichever is shorter, and then to the

donor’s daughter for her life. If the

tables under section 7520 are used to

value the donor’s retained interest and

the donor’s gift to the daughter, the

amount of the donor’s gift to the daughter is relatively small compared to the

amount the daughter may actually receive. To illustrate, the trustee may

invest in assets that produce little or no

trust income while the donor retains the

unitrust interest, creating a substantial

makeup amount. At the end of the

donor’s interest, the trustee alters the

NIMCRUT’s investments to generate

significant amounts of trust income. The

trustee then uses the income to pay to

the donor’s daughter the current fixed

percentage amount and the makeup

amount, which includes the makeup

amount accumulated while the donor

was the unitrust recipient.

The use of a CRUT as described in

the above example permits the shifting

of a beneficial interest in the trust from

1997–18

I.R.B.

the donor to another family member

and, thus, creates an opportunity for

transferring property to a family member free of transfer tax that is contrary

to section 2702(a)(3)(A)(iii). Therefore,

the proposed regulations will amend

§ 25.2702–1(c)(3) to provide that the

unitrust interests in a CRUT using an

income exception method retained by

the donor or any applicable family

member will be valued at zero when

someone other than (1) the donor, (2)

the donor’s spouse, or (3) both the

donor and the donor’s spouse (who is a

citizen of the U.S.) is a noncharitable

beneficiary of the trust. In these situations, the value of the donor’s gift is the

fair market value of all the property

transferred to the CRUT. The present

value of the remainder interest passing

to the charitable organization will

qualify for the deduction under section

2522. Accordingly, the amount used to

calculate the donor’s gift tax liability is

the value of the property transferred to

the trust less the value of the interest

passing to charity.

Section 25.2702–1(c)(3) will continue

to exclude from the application of section 2702 transfers to pooled income

funds described in section 642(c)(5) and

to CRATs and CRUTs that pay the

unitrust amount under the fixed percentage method.

B. Proposed Effective Date

This amendment is proposed to be

effective for transfers in trust made on

or after May 19, 1997.

V. Prohibition on Allocating Precontribution Gain to Trust Income

A. General Explanation

When assets are transferred to a

charitable remainder trust, the amount of

the donor’s charitable deduction is generally based in part on the fair market

value of the property transferred to the

trust. Although an income exception

CRUT provides a different method for

calculating the unitrust amount than a

fixed percentage CRUT, any charitable

deduction for an income exception

CRUT is calculated as if the fixed

percentage is distributed each year. Allocating amounts to trust income that are

part of the fair market value of the

contributed property on which the charitable deduction was based would be

inconsistent with Congress’s intent to

assure that the amount claimed as a

charitable deduction for the contribution

to the trust relates to the projected

growth of the assets contributed less the

expected distributions to the income

beneficiaries. H.R. Rep. No. 413, 91st

Cong., 1st Sess. 58–59 (1969), 1969–3

C.B. 200, 237–38; S. Rep. No. 552, 91st

Cong., 1st Sess. 87 (1969), 1969–3 C.B.

423, 479. Therefore, the regulations

clarify that the proceeds from the sale of

an income exception CRUT’s assets, at

least to the extent of the fair market

value of the asset when contributed to

the trust, must be allocated to principal.

B. Proposed Effective Date

This amendment is proposed to be

effective for sales or exchanges after

April 18, 1997. For sales or exchanges

on or before the effective date of this

amendment, the Service will continue to

challenge any attempt to allocate

precontribution gain to trust income as

being fundamentally inconsistent with

applicable local law and with the

amount of the charitable deduction

claimed.

VI. Example Illustrating Rule for Characterizing Distributions from CRUTs

Section 664(b) contains the ordering

rule used to determine the character of

the annuity or unitrust amount in the

hands of the recipient. The legislative

history states that the ordering rule

applies to both CRATs and CRUTs. S.

Rep. No. 552, 91st Cong., 1st Sess. 90

(1969), 1969–3 C.B. 423, 481. The

ordering rule applies to the unitrust

amounts received from all CRUTs regardless of the method used by the

CRUT to determine the unitrust amount.

Although the current regulations

clearly provide that the ordering rule of

section 664(b) and § 1.664–1(d)(1)(i)

applies to all unitrust amounts received

from CRUTs, some practitioners have

asked whether the ordering rule applies

to unitrust amounts paid under the income exception methods. To provide

taxpayers with additional guidance, the

proposed regulations add an example of

how the ordering rule operates when the

unitrust amount is computed under an

income exception method.

VII. Request for Comments on Income

Exception CRUTs Holding Certain Investments

The IRS and Treasury are aware that

taxpayers are using income exception

CRUTs to take advantage of the timing

difference between the receipt of trust

income (as defined in section 643(b))

and income for federal income tax purposes. For example, an income excep-

tion CRUT may hold an interest in a

partnership controlled by a trustee of the

trust, a grantor, a beneficiary, or a party

related or subordinate to the trustee, the

grantor, or a beneficiary. In such a case,

an interested party controls when the

trust will receive the earnings from its

partnership interest and, accordingly,

when the unitrust recipient will receive

distributions from the trust. Although

the income exception CRUT has taxable

income on its distributive share of partnership items, the trust does not have

trust income until it actually receives a

distribution of its share of the partnership’s earnings.

The IRS and Treasury are studying

whether investing the assets of an income exception CRUT to take advantage of the timing difference between

the receipt of trust income and income

for federal tax purposes causes the trust

to fail to function exclusively as a

charitable remainder trust. Therefore, the

IRS and Treasury request comments on

drafting future guidance on this issue.

Revenue Procedure 97–23, to be published on April 28, 1997, in Internal

Revenue Bulletin 1997–17, provides that

the IRS will not issue letter rulings on

whether a trust that will calculate the

unitrust amount under section 664(d)(3)

qualifies as a section 664 charitable

remainder trust when a grantor, a

trustee, a beneficiary, or a person related

or subordinate to a grantor, a trustee, or

a beneficiary can control the timing of

the trust’s receipt of trust income from a

partnership or a deferred annuity contract to take advantage of the difference

between trust income under section

643(b) and income for federal income

tax purposes for the benefit of the

unitrust recipient.

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 do not have a

significant economic impact on a substantial number of small entities. This

certification is based upon the fact that

the recordkeeping requirement in these

regulations does not affect small entities.

Therefore, a Regulatory Flexibility

Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not

required. Pursuant to section 7805(f) of

the Internal Revenue Code, this notice

of proposed rulemaking will be submit-

ted to the Chief Counsel for Advocacy

of the Small Business Administration for

comment on its impact on small business.

Par. 2. In § 1.664–1, paragraphs

(a)(7), (d)(1)(iii), and (f)(4) are added to

read as follows (paragraph (f)(4) follows

the concluding text of paragraph (f)(3)):

Comments and Public Hearing

§ 1.664–1 Charitable remainder trusts.

Before these proposed regulations are

adopted as final regulations, consideration will be given to any comments

that are submitted timely to the IRS. All

comments will be available for public

inspection and copying.

A public hearing has been scheduled

for September 9, 1997, at 10 a.m. in the

IRS Auditorium, Internal Revenue

Building, 1111 Constitution Ave, NW.,

Washington DC. Because of access restrictions, visitors will not be admitted

beyond the Internal Revenue Building

lobby more than 15 minutes before the

hearing starts.

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

apply to the hearing.

Persons who wish to present oral

comments at the hearing must submit

comments by August 19, 1997, and

submit an outline of the topics to be

discussed and the time to be devoted to

each topic by August 19, 1997.

A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

(a) * * *

(7) Valuation of unmarketable assets.

If a trust has assets that are not cash,

cash equivalents, or marketable securities (within the meaning of section

731(c) and the applicable regulations)

and the trustee is the grantor of the

charitable

remainder

trust,

noncharitable beneficiary, or a related or

subordinate party to the grantor or

noncharitable beneficiary within the

meaning of section 672(c) and the applicable regulations, the trustee must use a

current qualified appraisal, as defined in

§ 1.170A–13(c)(3), from a qualified appraiser, as defined in § 1.170A–

13(c)(5), to value those assets. A trustee

who is not the grantor of the charitable

remainder trust, a noncharitable beneficiary, or a related or subordinate party

to the grantor or noncharitable beneficiary does not have to use a current

qualified appraisal from a qualified appraiser to value the trust’s assets.

Drafting Information

The principal authors of these proposed regulations are Mary Beth Collins

and Jeffrey A. Erickson, Office of the

Assistant Chief Counsel (Passthroughs

and Special Industries), IRS. However,

personnel from other offices of the IRS

and Treasury Department participated in

their development.

26 CFR Part 25

Gift taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, CFR parts 1 and 25 are

proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority for part 1

continues to read in part as follows:

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

(d) * * *

(1) * * *

(iii) Example. The following example

illustrates the application of this paragraph (d)(1):

Example. (i) X is a charitable remainder unitrust

described in sections 664(d)(2) and (3). The

annual unitrust amount is the lesser of the amount

of trust income, as defined in § 1.664–

3(a)(1)(i)(b)(3), or six percent of the net fair

market value of the trust assets valued annually.

The net fair market value of the trust assets on the

valuation date in 1996 is $150,000. During 1996,

X has $7,500 of income after allocating all

expenses. All of X’s income for 1996 is taxexempt income. At the end of 1996, X’s ordinary

income for the current taxable year and undistributed ordinary income for prior years are both zero;

X’s capital gain for the current taxable year is zero

and undistributed capital gain for prior years is

$30,000; and X’s tax-exempt income for the

current year is $7,500 and undistributed taxexempt income for prior years is $2,500.

(ii) Because the trust income of $7,500 is less

than the fixed percentage amount of $9,000, the

unitrust amount for 1996 is $7,500. The character

of that amount in the hands of the recipient of the

unitrust amount is determined under section

664(b). Because the unitrust amount is less than

X’s undistributed capital gain income, the recipient

of the unitrust amount treats the distribution of

$7,500 as capital gain. At the beginning of 1997,

X’s undistributed capital gain for prior years is

reduced to $22,500, and X’s undistributed taxexempt income is increased to $10,000.

(f) * * *

1997–18

I.R.B.

(4) Valuation of unmarketable assets.

The rules contained in paragraph (a)(7)

of this section are effective for trusts

created on or after the date the final

regulations are published in the Federal

trustee value the trust’s unmarketable

assets may be amended or reformed to

permit any trustee to value those assets

if the trustee uses a current qualified

appraisal, as defined in § 1.170A–

13(c)(3), from a qualified appraiser, as

defined in § 1.170A–13(c)(5), in the

taxable years beginning on or after the

date the final regulations are published

in the Federal Register.

Par. 3. In § 1.664–2, paragraph

(a)(1)(i) is revised to read as follows:

§ 1.664–2 Charitable remainder annuity trust.

(a) * * *

(1) * * * (i) Payment of sum certain

at least annually. The governing instrument provides that the trust will pay a

sum certain not less often than annually

to a person or persons described in

paragraph (a)(3) of this section for each

taxable year of the period specified in

paragraph (a)(5) of this section. The

annuity amount must be paid to the

recipient no later than the close of the

taxable year for which the payment is

due. The rules contained in this paragraph (a)(1)(i) are effective for taxable

years ending after April 18, 1997.

Par. 4. Section 1.664–3 is amended as

follows:

1. Paragraphs (a)(1)(i)(a), (a)(1)(i)(

b)(1), and (a)(1)(i)(b)(2) are revised.

2. Paragraphs

(a)(1)(i)(b)(3),

(a)(1)(i)(c), (a)(1)(i)(d), (a)(1)(i)(e), and

(a)(1)(i)(f) are added.

3. The third sentence of paragraph

(a)(1)(iv) is revised.

4. Paragraph (a)(1)(vi) is added.

The added and revised provisions

read as follows:

§ 1.664–3

unitrust.

Charitable

remainder

(a) * * *

(1) * * *

(i) * * * (a) General rule. The governing instrument provides that the trust

will pay not less often than annually a

fixed percentage of the net fair market

value of the trust assets determined

annually to a person or persons described in paragraph (a)(3) of this sec-

1997–18

I.R.B.

tion for each taxable year of the period

specified in paragraph (a)(5) of this

section.

(b) * * *

(1) The amount of trust income for a

taxable year to the extent that such

amount is not more than the amount

required to be distributed under paragraph (a)(1)(i)(a) of this section.

(2) An amount of trust income for a

taxable year that is in excess of the

amount required to be distributed under

(a)(1)(i)(a) of this section for such year

to the extent that (by reason of paragraph (a)(1)(i)(b)(1) of this section) the

aggregate of the amounts paid in prior

years was less than the aggregate of

such required amounts.

(3) For this paragraph (a)(1)(i)(b),

trust income means income as defined

under section 643(b) and the applicable

regulations. Proceeds from the sale or

exchange of any assets contributed to

the trust by the donor must be allocated

to principal and not to trust income at

least to the extent of the fair market

value of those assets on the date of

contribution.

of the amount described in paragraph

(a)(1)(i)(a) or (b) of this section, the

governing instrument may provide that

the trust will pay the amount described

in paragraph (a)(1)(i)(b) of this section

for an initial period and then pay the

amount described in paragraph

(a)(1)(i)(a) of this section (calculated

using the same fixed percentage) for the

remaining years of the trust if—

(1) At least 90 percent of the fair

market value of the assets held in the

trust immediately after either the initial

contribution or any subsequent contribution (prior to the change in methods) to

the trust consists of unmarketable assets;

(2) The governing instrument provides that the change of method described in this paragraph (a)(1)(i)(c) will

be triggered by the earlier of—

(i) The sale or exchange of a specified asset or group of assets that was

contributed to the trust on its creation;

(ii) The sale or exchange of unmarketable assets if immediately following

the sale or exchange, the fair market

value of any remaining unmarketable

assets total 50 percent or less of the

total fair market value of the trust’s

assets. For making this determination,

the remaining unmarketable assets must

be valued as of the most recent valuation date;

(3) The change of method described

in this paragraph (a)(1)(i)(c) takes effect

at the beginning of the first taxable year

following the year in which the earlier

of paragraph (a)(1)(i)(c)(2)(i) or (ii) of

this section occurs; and

(4) Following the trust’s conversion

to the method described in paragraph

(a)(1)(i)(a) of this section, the trust will

pay at least annually to the permissible

recipients the amount described only in

paragraph (a)(1)(i)(a) of this section and

not any amount described in paragraph

(a)(1)(i)(b) of this section.

(5) For this paragraph (a)(1)(i)(c), unmarketable assets are assets that are not

cash, cash equivalents, or marketable

securities as defined in section 731(c)

and the applicable regulations.

(d) Example. The following example

illustrates the rules in paragraph

(a)(1)(i)(c) of this section:

Example. (i) On the creation of charitable

remainder unitrust Y, S contributes four assets—A,

B, C, and D. A is a marketable security under

section 731(c) and the applicable regulations. B,

C, and D are unmarketable assets. The fair market

value of B, C, and D is at least 90 percent of the

fair market value of all four assets at the time of

contribution.

(ii) The governing instrument of Y provides for

calculating the unitrust amount under the combination of methods described in paragraph (a)(1)(i)(c)

of this section. The initial method for calculating

the unitrust amount is the lesser of the amount of

trust income, as defined in paragraph

(a)(1)(i)(b)(3) of this section, or six percent of the

net fair market value of the trust assets valued

annually. The unitrust amount also includes any

amount of trust income for any taxable year that

exceeds six percent of the net fair market value of

the trust’s assets valued annually to the extent the

total of the amounts paid in prior years was less

than the total of the amounts computed as six

percent of the net fair market value of Y’s assets

on the valuation dates. After the change in

method, the unitrust amount will equal six percent

of the net fair market value of Y’s assets on the

valuation dates.

(iii) The governing instrument provides that the

change in method will occur for the first taxable

year beginning after both B and C are sold or the

year in which the trust has sold or exchanged

enough unmarketable assets so that the remaining

unmarketable assets total 50 percent or less of the

fair market value of the trust’s assets, whichever

occurs first.

(iv) In Year 3, the trustee of Y sells B, one of

the three unmarketable assets. After the sale of B,

the fair market value of all of Y’s unmarketable

assets is greater than 50 percent of the fair market

value of Y’s assets. Therefore, in Year 3, the

method used to calculate the unitrust amount

remains the initial method.

(v) In Year 4, the trustee sells D. After the sale

of both B and D, the fair market value of Y’s

unmarketable assets is 50 percent or less of the

fair market value of Y’s assets. In Year 4, however,

the method used to calculate the unitrust amount

remains the initial method.

(vi) In Year 5 and for all subsequent years, the

trust must pay a unitrust amount equal only to six

percent of the net fair market value of Y’s assets

determined annually. The change in method occurs

in Year 5 because the fair market value of Y’s

unmarketable assets totaled 50 percent or less of

the fair market value of Y’s assets after the sale of

both B and D. The change in method occurs even

though Y still owns C, the other unmarketable

asset specified in the governing instrument.

(vii) By the end of Year 4, Y’s total trust

income had been less than the sum of the unitrust

amounts based on six percent of the net fair

market value of Y’s assets determined annually,

leaving a balance of $1,000. The $1,000 balance

can never be distributed to the unitrust recipient

after the change to the fixed percentage method.

(e) Payment under general rule.

When the unitrust amount is computed

under paragraph (a)(1)(i)(a) of this section, the unitrust amount must be paid to

the recipient no later than the close of

the taxable year of the trust for which

the payment is due.

(f) Payment under income exception.

When the unitrust amount is computed

under paragraph (a)(1)(i)(b) of this section, the unitrust amount may be paid to

the recipient after the close of the

taxable year of the trust for which the

payment is due if paid within a reasonable time after the close of such taxable

year. The trust will not be deemed to

have engaged in an act of self-dealing

(within the meaning of section 4941), to

have unrelated debt-financed income

(within the meaning of section 514), to

have received an additional contribution

(within the meaning of paragraph (b) of

this section), or to have failed to function exclusively as a charitable remainder trust (within the meaning of paragraph (a)(4) of this section) merely

because payment of the unitrust amount

is made after the close of the taxable

year if such payment is made within a

reasonable time after the close of such

taxable year. For this paragraph

(a)(1)(i)(f), a reasonable time will not

ordinarily extend beyond the date by

which the trustee is required to file

Form 5227, Split-Interest Trust Information Return, (including extensions) for

the taxable year.

(iv) * * * If the governing instrument

does not specify the valuation date or

dates, the trustee must select such date

or dates and indicate the selection on

the first return on Form 5227, SplitInterest Trust Information Return, that

the trust must file. * * *

(vi) Effective date and reformations.

(a) The rules in paragraph (a)(1)(i)(a) of

this section are effective for taxable

years ending after April 18,1997.

(b) The

rules

paragraphs

(a)(1)(i)(c) and (d) of this section are

effective for charitable remainder

unitrusts created on or after the date the

final regulations are published in the

Federal Register. If a trust was created

before the effective date of paragraph

(a)(1)(i)(c) of this section and contains a

provision allowing a change in calculating the unitrust method, the trust may be

amended or reformed to comply with

the provisions of paragraph (a)(1)(i)(c)

of this section. If a trust is created after

the effective date of paragraph

(a)(1)(i)(c) of this section and contains a

provision allowing a change in calculating the unitrust method that does not

comply with the provisions of paragraph

(a)(1)(i)(c) of this section, the trust will

continue to qualify as a charitable remainder unitrust if it is amended or

reformed to use the initial method for

computing the unitrust amount throughout the term of the trust. A qualified

charitable remainder unitrust created before or after the effective date of paragraph (a)(1)(i)(c) of this section will not

continue to qualify as a charitable remainder unitrust if its governing instrument is amended or reformed to add a

provision allowing a change in the

method for calculating the unitrust

amount.

rules

paragraphs

(a)(1)(i)(b)(1), (2), and (3) of this section are effective for taxable years ending after April 18, 1997, and for sales or

exchanges described in paragraph

(a)(1)(i)(b)(3) of this section that occur

after April 18, 1997.

(d) The

rules

paragraphs

(a)(1)(i)(e) and (f) of this section are

effective for taxable years ending after

April 18, 1997.

PART 25—GIFT TAX; GIFTS MADE

AFTER DECEMBER 31, 1954

Par. 5. The authority for part 25

continues to read in part as follows:

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

Par. 6. In § 25.2702–1, paragraph

(c)(3) is revised to read as follows:

§ 25.2702–1 Special valuation rules in

the case of transfers of interests in trust.

(3) Charitable remainder trust. (i)

For transfers made on or after May 19,

1997, a transfer to a pooled income fund

described in section 642(c)(5); a transfer

to a charitable remainder annuity trust

described in section 664(d)(1); a transfer

to a charitable remainder unitrust described in section 664(d)(2) if under the

terms of the governing instrument the

unitrust amount is computed only under

section 664(d)(2)(A); and a transfer to a

charitable remainder unitrust described

in sections 664(d)(2) and (3) if the only

permitted recipients of the unitrust

amount are the donor, the donor’s

spouse, or both the donor and the donor’s spouse who is a citizen of the

United States.

(ii) For transfers made before May

19, 1997, a transfer in trust if the

remainder interest in the trust qualifies

for a deduction under section 2522.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

April 17, 1997, 8:45 a.m., and published in the

issue of the Federal Register for April 18, 1998,

62 F.R. 19072)

Notice of Disposition of Declaratory

Judgment Proceedings Under

Section 7428

This announcement serves notice to

donors that by agreement of the parties,

the organization listed below is an organization exempt from taxes under Internal Revenue Code section 501(a) as an

organization described in IRC section

501(c)(3).

Jack Rehburg Ministries a/k/a Total

Christian Television

Snow Camp, NC

Foundations Status of Certain

Organizations

Announcement 97–46

The following organizations have

failed to establish or have been unable

to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not,

after this date, rely on previous rulings

or designations in the Cumulative List

of Organizations (Publication 78), or on

the presumption arising from the filing

of notices under section 508(b) of the

Code. This listing does not indicate that

the organizations have lost their status

as organizations described in section

501(c)(3), eligible to receive deductible

contributions.

Former Public Charities. The following organizations (which have been

treated as organizations that are not

private foundations described in section

509(a) of the Code) are now classified

as private foundations:

1997–18

I.R.B.

African Connection, Inc., Cambridge,

Alcohol and Drug Abuse Recovery

Environment, Inc., Houston, TX

American Friends of the Imperial War

Museum, St. Louis, MO

Americas Business Conscience Corp.,

Scarsdale, NY

Arts for Life, Albuquerque, NM

Asanteman Association of Greater

Houston, Missouri City, TX

Association for Christian Public School

Teachers and Administrators,

Stillwater, OK

Association for Recreation as an

Alternative, Inc., New York, NY

Association of Hispanic Educators of

Massachusetts, Inc., Springfield, MA

BAA & Company, San Antonio, TX

Ballet, Inc., New York, NY

Barbara Oneglia Alvarez Tycienski

Christmas Fund for Needy Children,

Torrington, CT

Becket Land Trust, Inc., Becket, MA

Bellevue Avalon Girls Association,

Bellevue, PA

Bethany Center Inc., Lakeland, FL

Birthright of Encinitas, Encinitas, CA

Black Transplants Action Committee,

Denver, CO

Choices Inc., A Cancer Survivor

Advocate Group, Prairie Village, KS

Christian Medical Missions, Inc.,

Woodward, OK

Christian Medical Relief International,

Inc., Tulsa, OK

Christian Mission Resident Ministry

Corp., St. Petersburg, FL

Christian Support Ministries, Houston,

Christian United Enterprise Non-Profit

Housing Corporation, Flint, MI

Christians United Productions, Littleton,

Christine Historical Society, Christine,

Circle S. Rodeo Ministries, Inc., Trinity,

Citadel Gymnastics Association, Tulsa,

Citizens Crime Line of Gaines County,

Inc., Seagraves, TX

City of Deer Park Texas Senior Citizens

Foundation Trust, Deer Park, TX

Clayton Community Center, Inc.,

Clayton, KS

Clear Thinking, Inc., Scottsdale, AZ

Cliff Haven Adult Day Health Care,

Inc., Dallas, TX

Clinton Crimestoppers, Clinton, OK

C. N. Linscott Memorial Childrens

Foundation, Austin, TX

Colorado Coaches of Girls Sports,

Broomfield, CO

1997–18

I.R.B.

Colorado Health Policy Council,

Denver, CO

Colorado Operation Lifesaver, Inc.,

Denver, CO

Colorado Springs Parents of Prematures,

Colorado Springs, CO

Colorado Yale Association, Denver, CO

Colors of Life, Inc., Lawton, OK

Colquitt-Miller County Historic and

Economic Revitalization Organization,

Inc., Colquitt, GA

Columbus Community Foundation,

Columbus, KS

Contemporary Housing Alternatives Inc.,

Topeka, KS

Cross Country Ministries, Buckeye, AZ

Dinosaurland Resource Conservation &

Development Area, Vernal, UT

Disadvantaged Business Development

Association, Youngstown, OH

Firecon Institute for Research and

Education, Inc., East Earl, PA

Five Moons Theatre, Inc., New York,

For the Record, Inc., Los Angeles, CA

Friends of Father Joseph Inc., Baltimore,

Give One Day Inc., Austin, TX

Gospel for India, Dallas, TX

Heavens Gate Ministries, Inc., Nowata,

Heber Overgaard Economic

Development Corporation, Overgaard,

Helping Hands Community Resource

Center, Beckley, WV

Helping Horse Therapeutic Riding

Center, Thermopolis, WY

Henderson Junior High School Parent,

Inc., China, TX

Hendrick Academy of Honor Inc.,

Plano, TX

High Frequency Wavelengths, Virginia

Beach, VA

Holdenville General Hospital

Foundation, Holdenville, OK

Johnston-Mitchell Preservation

Foundation, Inc., Plano, TX

John Wesley White Franklin Graham

Desert Southwest Crusade, Yuma, AZ

Little Britches Rodeo Association of

Texas, Bandera, TX

Littlefield Arts and Heritage Committee,

Inc., Lubbock, TX

Living Improvements for Elderly, Port

Neches, TX

MGA Golf Foundation, Jefferson City,

Mile by Mile Inc., Mesa, AZ

Missouri City Girls Softball Association,

Missouri City, TX

Mohave County Trails Association Inc.,

Kingman, AZ

Mojave Native Plant Society, Las Vegas,

Montebello-El Rosario Sister City

Association, Montebello, CA

Montgomery County Master Gardener

Association, Conroe, TX

Northeastern Connecticut Aids Project,

Inc., Pomfret Center, CT

Our Lady of Fatima Sanctuary Inc.,

Anchorage, AK

Pend’Orelle County District 3 Firemans

Fund, Newport, WA

Permian Basin Aids Coalition, Midland,

Permian Choir Booster Club, Odessa,

Poltava Center, Inc., Beachwood, OH

Prairie Preservation Incorporated,

Fennimore, WI

Rio Grande Dispute Resolution Center,

Inc., El Paso, TX

River of Light Christian Ministries,

Phoenix, AZ

Riverside Recover Center, Inc., Houston,

Sagebrush Bible Chapel Inc., Sparks,

Southwestern Native American Art

Foundation, Albuquerque, NM

Space Science Educational Foundation

for Tomorrow, Inc., Sugarland, TX

Sparta-White County Main Street,

Sparta, TN

Sports for Life, Inc., Oklahoma City,

Sports Turf Managers Benevolent

Foundation, Aurora, CO

Stinesville Renaissance Group,

Stinesville, IN

Stop Six Community Services, Inc., Fort

Worth, TX

Sunshine House Foundation, Denver,

Upper Valley Foundation, White River

Jct., VT

Vivid Theater Ensemble, Dallas, TX

Vore Buffalo Jump Foundation,

Sundance, WY

West Allegheny Chorus Boosters,

Imperial, PA

West Coast Dance Project Inc., Sarasota,

Women Against Violence Everywhere,

Westminster, CA

Woodstock Academy Inc., Woodstock,

Working Theatre, Cleveland, OH

Wyoming Pioneer Woman, Worland,

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.

1997–18

I.R.B.

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 actu-

aries 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, enrolled 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 individuals 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

Loberg, Thomas

Rose Ann Galati

Labendeira, Anthony

St. Paul, MN

Thousand Oaks, CA

Fresno, CA

CPA

Indefinite from November 13, 1996

Indefinite from November 25, 1996

Nation, D. Mark

Behren, Daryl D.

Murphy, Virginia T.

Albuquerque, NM

Visalia, CA

Laurinburg, NC

CPA

Indefinite from November 25, 1996

Best III, James M.

Rehm, Aysha

Dineen, Lee M.

Miele, Ralph J.

Monroe, NC

Tulsa, OK

Castle Hayne, NC

North Babylon, NY

CPA

Indefinite from November 25, 1996

Indefinite from December 12, 1996

Indefinite from February 14, 1997

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as ‘‘rulings’’)

that have an effect on previous rulings

use the following defined terms to describe the effect:

Amplified describes a situation where

no change is being made in a prior

published position, but the prior position

is being extended to apply to a variation

of the fact situation set forth therein.

Thus, if an earlier ruling held that a

principle applied to A, and the new

ruling holds that the same principle also

applies to B, the earlier ruling is amplified. (Compare with modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

has caused, or may cause, some confusion. It is not used where a position in a

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it

applies to both A and B, the prior ruling

Abbreviations

The following abbreviations in current use and

formerly used will appear in material published in

the Bulletin.

is modified because it corrects a published position. (Compare with amplified

and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly

used in a ruling that lists previously

published rulings that are obsoleted because of changes in law or regulations.

A ruling may also be obsoleted because

the substance has been included in regulations subsequently adopted.

Revoked describes situations where

the position in the previously published

ruling is not correct and the correct

position is being stated in the new

ruling.

Superseded describes a situation

where the new ruling does nothing more

than restate the substance and situation

of a previously published ruling (or

rulings). Thus, the term is used to

republish under the 1986 Code and

regulations the same position published

under the 1939 Code and regulations.

The term is also used when it is desired

to republish in a single ruling a series of

situations, names, etc., that were previously published over a period of time in

separate rulings. If the new ruling does

more than restate the substance of a

prior ruling, a combination of terms is

used. For example, modified and superseded describes a situation where the

substance of a previously published ruling is being changed in part and is

continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names

of countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be

published that includes the list in the

original ruling and the additions, and

supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

ER—Employer.

PR—Partner.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

Del. Order—Delegation Order.

M—Minor.

DISC—Domestic International Sales Corporation.

Nonacq.—Nonacquiescence.

DR—Donor.

O—Organization.

E—Estate.

P—Parent Corporation.

X—Corporation.

EE—Employee.

PHC—Personal Holding Company.

Y—Corporation.

E.O.—Executive Order.

PO—Possession of the U.S.

Z—Corporation.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

I.R.B.—Internal Revenue Bulletin.

TFR—Transferor.

LE—Lessee.

T.I.R.—Technical Information Release.

LP—Limited Partner.

TP—Taxpayer.

LR—Lessor.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

Numerical Finding List1

Bulletin 1997–1 through 1997–17

Announcements:

97–1, 1997–2 I.R.B. 63

97–2, 1997–2 I.R.B. 63

97–3, 1997–2 I.R.B. 63

97–4, 1997–3 I.R.B. 14

97–5, 1997–3 I.R.B. 15

97–6, 1997–4 I.R.B. 11

97–7, 1997–4 I.R.B. 12

97–8, 1997–4 I.R.B. 12

97–9, 1997–5 I.R.B. 27

97–10, 1997–10 I.R.B. 64

97–11, 1997–6 I.R.B. 19

97–12, 1997–7 I.R.B. 55

97–13, 1997–8 I.R.B. 38

97–14, 1997–8 I.R.B. 38

97–15, 1997–9 I.R.B. 23

97–16, 1997–9 I.R.B. 23

97–17, 1997–9 I.R.B. 23

97–18, 1997–10 I.R.B. 67

97–19, 1997–10 I.R.B. 68

97–20, 1997–11 I.R.B. 22

97–21, 1997–11 I.R.B. 23

97–22, 1997–12 I.R.B. 47

97–23, 1997–11 I.R.B. 23

97–24, 1997–11 I.R.B. 24

97–25, 1997–12 I.R.B. 47

97–26, 1997–12 I.R.B. 48

97–27, 1997–13 I.R.B. 30

97–28, 1997–14 I.R.B. 15

97–29, 1997–14 I.R.B. 16

97–30, 1997–14 I.R.B. 16

97–31, 1997–14 I.R.B. 16

97–32, 1997–14 I.R.B. 17

97–33, 1997–15 I.R.B. 8

97–34, 1997–15 I.R.B. 8

97–35, 1997–15 I.R.B. 9

97–36, 1997–15 I.R.B. 10

97–37, 1997–15 I.R.B. 10

97–38, 1997–15 I.R.B. 10

97–39, 1997–16 I.R.B. 27

97–40, 1997–16 I.R.B. 28

97–41, 1997–16 I.R.B. 28

97–42, 1997–17 I.R.B. 19

97–43, 1997–17 I.R.B. 19

97–44, 1997–17 I.R.B. 19

97–45, 1997–17 I.R.B. 20

Notices:

97–1, 1997–2 I.R.B. 22

97–2, 1997–2 I.R.B. 22

97–3, 1997–1 I.R.B. 8

97–4, 1997–2 I.R.B. 24

97–5, 1997–2 I.R.B. 25

97–6, 1997–2 I.R.B. 26

97–7, 1997–1 I.R.B. 8

97–8, 1997–4 I.R.B. 7

97–9, 1997–2 I.R.B. 35

97–10, 1997–2 I.R.B. 41

97–11, 1997–2 I.R.B. 50

97–12, 1997–3 I.R.B. 11

97–13, 1997–6 I.R.B. 13

97–14, 1997–8 I.R.B. 23

97–15, 1997–8 I.R.B. 23

97–16, 1997–9 I.R.B. 15

97–17, 1997–10 I.R.B. 34

97–18, 1997–10 I.R.B. 35

97–19, 1997–10 I.R.B. 40

97–20, 1997–10 I.R.B. 52

Notices—Continued

Revenue Rulings—Continued

97–21, 1997–11 I.R.B. 9

97–22, 1997–13 I.R.B. 9

97–23, 1997–14 I.R.B. 8

97–24, 1997–16 I.R.B. 6

97–25, 1997–16 I.R.B. 8

97–26, 1997–17 I.R.B. 6

97–27, 1997–17 I.R.B. 7

97–7, 1997–5 I.R.B. 14

97–8, 1997–7 I.R.B. 4

97–9, 1997–9 I.R.B. 4

97–10, 1997–10 I.R.B. 31

97–11, 1997–10 I.R.B. 5

97–12, 1997–11 I.R.B. 5

97–13, 1997–16 I.R.B. 4

97–14, 1997–11 I.R.B. 5

97–15, 1997–12 I.R.B. 42

97–16, 1997–13 I.R.B. 4

97–17, 1997–14 I.R.B. 5

97–18, 1997–15 I.R.B. 4

Proposed Regulations:

REG–209332–80, 1997–14 I.R.B. 9

REG–209040–88, 1997–7 I.R.B. 34

REG–209121–89, 1997–11 I.R.B. 15

REG–208288–90, 1997–11 I.R.B. 14

REG–209494–90, 1997–8 I.R.B. 24

REG–208172–91, 1997–10 I.R.B. 59

REG–209672–93, 1997–6 I.R.B. 15

REG–209709–94 1997–13 I.R.B. 12

REG–209729–94, 1997–11 I.R.B. 19

REG–209762–95, 1997–3 I.R.B. 12

REG–209817–96, 1997–7 I.R.B. 41

REG–209824–96, 1997–11 I.R.B. 19

REG–254394–96, 1997–14 I.R.B. 14

REG–209828–96, 1997–6 I.R.B. 15

REG–209830–96, 1997–15 I.R.B. 7

REG–209834–96, 1997–4 I.R.B. 9

REG–209839–96, 1997–8 I.R.B. 26

REG–242996–96, 1997–9 I.R.B. 18

REG–246018–96, 1997–8 I.R.B. 30

REG–247678–96, 1997–6 I.R.B. 17

REG–247862–96, 1997–8 I.R.B. 32

REG–248770–96, 1997–8 I.R.B. 33

REG–249819–96, 1997–7 I.R.B. 50

REG–252231–96, 1997–7 I.R.B. 52

REG–252233–96, 1997–9 I.R.B. 19

REG–252665–96, 1997–12 I.R.B. 46

Revenue Procedures:

97–1, 1997–1 I.R.B. 11

97–2, 1997–1 I.R.B. 64

97–3, 1997–1 I.R.B. 84

97–4, 1997–1 I.R.B. 96

97–5, 1997–1 I.R.B. 132

97–6, 1997–1 I.R.B. 153

97–7, 1997–1 I.R.B. 185

97–8, 1997–1 I.R.B. 187

97–9, 1997–2 I.R.B. 56

97–10, 1997–2 I.R.B. 59

97–11, 1997–6 I.R.B. 13

97–12, 1997–4 I.R.B. 7

97–13, 1997–5 I.R.B. 18

97–14, 1997–5 I.R.B. 20

97–15, 1997–5 I.R.B. 21

97–16, 1997–5 I.R.B. 25

97–17, 1997–9 I.R.B. 15

97–18, 1997–10 I.R.B. 53

97–19, 1997–10 I.R.B. 55

97–20, 1997–11 I.R.B. 10

97–21, 1997–12 I.R.B. 44

97–22, 1997–13 I.R.B. 9

97–23, 1997–17 I.R.B. 7

97–24, 1997–16 I.R.B. 10

97–25, 1997–17 I.R.B. 8

97–26, 1997–17 I.R.B. 17

Revenue Rulings:

97–1, 1997–2 I.R.B. 10

97–2, 1997–2 I.R.B. 7

97–3, 1997–2 I.R.B. 5

97–4, 1997–3 I.R.B. 6

97–5, 1997–4 I.R.B. 5

97–6, 1997–4 I.R.B. 4

A cumulative list of all Revenue Rulings,

Revenue Procedures, Treasury Decisions, etc.,

published in Internal Revenue Bulletins 1996–27

through 1996–53 will be found in Internal

Revenue Bulletin 1997–1, dated January 6, 1997.

Social Security Domestic Coverage Threshold

1997–9, I.R.B. 17

Tax Conventions:

1997–17 I.R.B. 5

Treasury Decisions:

8688, 1997–3 I.R.B. 7

8689, 1997–3 I.R.B. 9

8690, 1997–5 I.R.B. 5

8691, 1997–5 I.R.B. 16

8692, 1997–3 I.R.B. 4

8693, 1997–6 I.R.B. 9

8694, 1997–6 I.R.B. 11

8695, 1997–4 I.R.B. 5

8696, 1997–6 I.R.B. 4

8697, 1997–2 I.R.B. 11

8698, 1997–7 I.R.B. 29

8699, 1997–6 I.R.B. 4

8700, 1997–7 I.R.B. 5

8701, 1997–7 I.R.B. 23

8702, 1997–8 I.R.B. 4

8703, 1997–8 I.R.B. 18

8704, 1997–8 I.R.B. 12

8705, 1997–8 I.R.B. 16

8706, 1997–9 I.R.B. 11

8707, 1997–7 I.R.B. 17

8708, 1997–10 I.R.B. 14

8709, 1997–9 I.R.B. 5

8710, 1997–13 I.R.B. 4

8711, 1997–12 I.R.B. 35

8712, 1997–12 I.R.B. 4

8713, 1997–14 I.R.B. 4

8714, 1997–15 I.R.B. 5

Finding List of Current Action on

Previously Published Items1

Revenue Procedures—Continued

Bulletin 1997–1 through 1997–17

97–3

Amplified by

97–23, 1997–17 I.R.B. 7

*Denotes entry since last publication

Revenue Rulings:

Revenue Procedures:

70–480

Revoked by

97–6, 1997–4 I.R.B. 4

66–3

Modified by

97–11, 1997–6 I.R.B. 13

87–21

Modified by

97–11, 1997–6 I.R.B. 13

92–20

Modified by

97–1, 1997–1 I.R.B. 11

92–20

Modified by

97–10, 1997–2 I.R.B. 59

92–90

Superseded by

97–1, 1997–1 I.R.B. 11

94–52

Revoked by

97–11, 1997–6 I.R.B. 13

96–1

Superseded by

97–1, 1997–1 I.R.B. 11

96–2

Superseded by

97–2, 1997–1 I.R.B. 64

96–3

Superseded by

97–3, 1997–1 I.R.B. 84

96–4

Superseded by

97–4, 1997–1 I.R.B. 96

96–5

Superseded by

97–5, 1997–1 I.R.B. 132

72–527

Obsoleted by

8704, 1997–8 I.R.B. 12

74–59

Revoked by

8708, 1997–10 I.R.B. 14

92–19

Supplemented in part by

97–2, 1997–2 I.R.B. 7

96–12

Superseded by

97–3, 1997–1 I.R.B. 84

96–13

Modified by

97–1, 1997–1 I.R.B. 11

96–22

Superseded by

97–3, 1997–1 I.R.B. 84

96–34

Superseded by

97–3, 1997–1 I.R.B. 84

96–39

Superseded by

97–3, 1997–1 I.R.B. 84

96–43

Superseded by

97–3, 1997–1 I.R.B. 84

96–56

Superseded by

97–3, 1997–1 I.R.B. 84

96–6

Superseded by

97–6, 1997–1 I.R.B. 153

96–7

Superseded by

97–7, 1997–1 I.R.B. 185

96–8

Superseded by

97–8, 1997–1 I.R.B. 187

96–24

96–24A

Superseded by

97–24, 1997–16 I.R.B. 10

96–37

Obsoleted by

97–26, 1997–17 I.R.B. 17

97–2

Amplified by

97–21, 1997–12 I.R.B. 44

A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

1996–27 through 1996–53 will be found in Internal Revenue Bulletin 1997–1, dated January 6,

1997.

Index

Internal Revenue Bulletins 1997–1

Through 1997–17

For index of items published during

the last six months of 1996, see

I.R.B. 1997–1, dated Januar y 6,

1997.

The abbreviation and number in parenthesis following the index entry

refer to the specific item; numbers in

roman and italic type following the

parenthesis refer to the Internal Revenue Bulletin in which the item may

be found and the page number on

which it appears.

Key to Abbreviations:

Revenue Ruling

Revenue Procedure

Treasury Decision

Court Decision

Public Law

Executive Order

Delegation Order

TDO

Treasury Department Order

Tax Convention

SPR

Statement of Procedural

Rules

PTE

Prohibited Transaction

Exemption

EMPLOYMENT TAX

Social Security domestic employee coverage threshold amount for 1997, 9,

ESTATE & GIFT TAXES

ADMINISTRATIVE

Proposed regulations:

CFR

20.2044–1,

added;

20.2056(b)–7, amended; estate and

gift tax marital deduction (REG–

209830–96) 15, 7

Regulations:

26 CFR 20.2044–1T, 20.2056(b)–7T,

–10T, added; estate tax marital deduction (TD 8714) 15, 5

EXCISE TAX

Deposits (Notice 15) 8, 23

Epoxy (DGEBA) determination (Notice

22) 13, 9

Proposed regulations:

26 CFR 48.4081–1, amended;

48.4082–5, 48.6715–2, added;

gasoline and diesel fuel excise tax,

special rules for Alaska, definition

of aviation gasoline and kerosene

(REG–247678–96) 6, 17

EXCISE TAX—Continued

INCOME TAX—Continued

Regulations:

26 CFR 48.4082–5T, 48.6715–2T,

added; diesel fuel excise tax, special rules for Alaska (TD 8693) 6,

Forms W–2 and W–3; general rules and

specifications for private printing (RP

24) 16, 10

Form 8851; electronic and magnetic

media filing specifications (RP 25)

17, 8

Fringe benefits aircraft valuation formula (RR 14) 11, 5

Insurance companies:

Interest rate tables (RR 2) 2, 8

Premium stabilization reserves (RR 5)

4, 5

Interest:

Investment:

Federal short-term, mid-term, and

long-term rates for January 1997

(RR 1) 2, 10; February 1997 (RR

7) 5, 14; March 1997 (RR 10)

10, 31; April 1997 (RR 17) 14, 5

Penalties:

Underpayment and overpayment

rates for April 1997 (RR 12) 11,

Inventories:

LIFO, price indexes, department

stores, November 1996 (RR 6) 4,

4; December 1996 (RR 8) 7, 4;

January 1997 (RR 15) 12, 42; February 1997 (RR 18) 15, 4

Low-income housing tax credit (Notice

14) 8, 23

Major disaster areas (RR 11) 10, 5

Medical and dental expenses (RR 9) 9,

Obsolete revenue rulings and revenue

procedures under TD 8697 (Notice 1)

2, 22

Photocopy fee increase (RP 11) 6, 13

Pilot pre-submission conference procedure (RP 21) 12, 44

Proposed regulations:

26 CFR 1.41–0, amended; 1.41–4,

revised; research activities increase,

credit, hearing (REG–209494–90)

8, 24

26 CFR 1.42–16, added; low-income

housing tax credits, Federal grants

(REG–254394–96) 14, 14

26 CFR 1.167(a)–3, amended;

1.167(a)–14, 1.197–0, 1.197–2,

added; amortization of intangible

property (REG–209709–94) 13, 12

26 CFR 1.337(d)–4, added; certain

asset transfers to tax-exempt entity

(REG–209121–89) 11, 15

26 CFR 1.338(b)–2, –3, added; intangibles under sections 1060 and 338

(REG–252665–96) 12, 46

INCOME TAX

Abusive trusts (Notice 24) 16, 6

Accounting periods; small business corporations (Notice 20) 10, 52

Adoption assistance (Notice 9) 2, 35

Advance guidance under Section 877

(Notice 19) 10, 40

Alternative minimum tax, change in accounting method (Notice 13) 6, 13

Automobile inflation adjustment (RP 20)

11, 10

Books and records; electronic storage;

imaging (RP 22) 13, 9

Charitable remainder unitrusts; no rule

on CRT abuses (RP 23) 17, 7

Credits against tax:

Low-income housing credit:

Building’s credit period beginning

after 1995 (RR 4) 3, 6

Satisfactory bond, bond factor

amounts for January, February,

and March 1997 (RR 16) 13, 4

Depreciation:

Retail motor fuels outlets (RP 10) 2,

Differential earnings rate (Notice 17) 10,

Domestic asset/liability and investment

yield percentages (RP 16) 5, 25

Electing Small Business Trust (ESBT)

election (Notice 12) 3, 11

Employee plans:

Cash or deferred arrangements (Notice 2) 2, 22

Funding:

Full funding limitations, weighted

average interest rate, January

1997 (Notice 8) 4, 7; February

1997 (Notice 16) 9, 15; March

1997 (Notice 23) 14, 8; April

1997 (Notice 27) 17, 7

Qualification:

Qualified domestic relations orders

(Notice 11) 2, 49

Qualified joint and survivor annuities (Notice 10) 2, 49

SIMPLES (RP 9) 2, 55

SIMPLE–IRAs (Notice 6) 2, 26

User fees (RP 8) 1, 187

Exempt organizations:

Unrelated business taxable income

(RP 12) 4, 7

User fees (RP 8) 1, 187

INCOME TAX—Continued

Proposed regulations—Continued

26 CFR 1.354–1, 1.355–1, 1.356–3,

amended; reorganizations, receipt

of securities (REG–249819–96) 7,

26 CFR 1.368–1, amended; shareholder interest continuity requirement for corporate reorganizations

(REG–252231–96) 7, 52

26 CFR 1.368–1, –2, amended; continuity of interest and business requirements (REG–252233–96) 9,

26 CFR 1.453–11, added; installment

obligations received from liquidating corporations; partial withdrawal

(REG–209332–80) 14, 9

26 CFR 1.468A–2, –3, amended;

nuclear decommissioning reserve

funds; revised schedules of ruling

amounts (REG–209828–96) 6, 15

26 CFR 1.704–3, 1.1245–1, amended;

depreciation allocations, recapture

among partners in a partnership

(REG–209762–95) 3, 12

26 CFR 1.801–4, amended; life insurance reserves, recomputation hearing (REG–246018–96) 8, 30

26 CFR 1.832–4, amended; insurance

companies, determination of earned

premiums (REG–209839–96) 8, 26

26 CFR 1.905–2, amended; foreign

tax credit filing requirements

(REG–208288–90) 11, 14

26 CFR 1.1275–7, 1.1286–2, added;

inflation-indexed debt instruments

(REG–242996–96) 9, 18

26 CFR 1.1293–2, 1.1295–2, added;

qualified electing fund elections,

preferred shares, hearing (REG–

209040–88) 7, 34

26 CFR 1.1396–1, added; empowerment zone employment credit;

qualified zone employees (REG–

209834–96) 4, 9

26 CFR 1.1402(a)–18, withdrawn;

(REG–209729–94) 11, 19

26 CFR 1.6013–2, 301.6334–1,

301.6601–1, 301.6651–1, 301.7430–

0, –1, –2, –4, –5, amended;

301.6656–3, added; 301.7122–1(e),

301.7430–6, revised; Taxpayer Bill

of Rights 2 and Personal Responsibility and Work Opportunity Reconciliation Act of 1996, miscellaneous sections affected (REG–

248770–96) 8, 33

26 CFR 1.7701(1)–1, amended;

1.7701(1)–2; obligation-shifting

transactions, multiple-party, realized

income and deductions (REG–

209817–96) 7, 41

Proposed regulations—Continued

26 CFR 53.6011–1, amended; 53.6017–

1T; return and time for filing requirements (REG–247862–96) 8, 32

Qualified mortgage bonds; mortgage

credit certificates; national median

gross income (RP 26) 17, 17

Regulations:

26 CFR 1.25–3, added; 1.25–3T,

amended; mortgage credit certificate reissuance (TD 8692) 3, 4

26 CFR 1.42–16T, added; low-income

housing tax credits, Federal grants

(TD 8713) 14, 4

26 CFR 1.45B–1; withdrawal of

credit for employer social security

taxes paid on employee tips (REG–

209672–93) 6, 15

26 CFR 1.45B–1T, removed; credit for

employer social security taxes paid

on employee tips (TD 8699) 6, 4

26 CFR 1.108(a)–1, –2, 108(b)–1,

1.1016–7, –8, 1.1017–2, removed;

1.108–4, –5, added; 1.1017–1, revised; 1.301.9100–13T, removed;

basis reduction due to discharge of

indebtedness (REG–208172–91) 10,

26 CFR 1.108(c)–1T, 1.163(d)–1T,

1.1044(a)–1T, 1.6655(e)–1T, removed; 1.108(c)–1, 1.163(d)–1,

1.1044(a)–1, 1.6655(e)–1, added;

Omnibus Budget Reconciliation

Act, elections (TD 8688) 3, 7

26 CFR 1.141–1, revised; 1.143–1,

redesignated; 1.144–3, removed;

1.141–0, –2 through –16, 1.142–0,

–3, 1.144–0, 1.145–0, –1, –2,

1.147–0, –1, –2, 1.150–4, added;

1.142–1, –2, 1.144–1, –2, revised;

1.148–6, 1.150–1, amended; private

activity bonds definition (TD 8712)

12, 4

26 CFR 1.170A–1, –13, amended;

charitable contributions, deductibility, substantiation, and disclosure

(TD 8690) 5, 5

26 CFR 1.267(f)–1, 1.1502–11, –13,

–19, –20, –32, –43, –76, –80, corrected; consolidated returns, consolidated and controlled groups

(Notice 25) 16, 8

26 CFR 1.338(b)–2T(b)(2)(v), –2T(c)(4), added; 1.338–3, 1.338(b)–2T,

–3T, 1.1060–1T, amended; intangibles under sections 1060 and 338

(TD 8711) 12, 35

26 CFR Part 1, 1.338–0, –4,

amended; 1.338–4T, removed;

1.338(i)–1(a) and (b), revised; tar-

Regulations—Continued

get affiliates that are controlled

foreign corporations (TD 8710) 13,

26 CFR 1.367(a)–3, added; foreign

corporations, transfer of domestic

stock or securities by U.S. person

(TD 8702) 8, 4

26 CFR 1.475(b)–1T, –2T, 1.475(c)–

1T, –2T, 1.475(d)–1T, 1.475(e)–1T,

removed; 1.475–0, 1.475(a)–3,

1.475(b)–1, –2, –4, 1.475(c)–1, –2,

1.475(d)–1, 1.475(e)–1, added; securities dealers; mark-to-market accounting; equity interests in related

parties and dealer-customer relationship (TD 8700) 7, 5

26 CFR 1.581–1, revised; 1.581–2,

1.761–1(a), revised; 301.6109–1,

amended; 301.7701–1, –2, –3, revised; 301.7701–4, amended; domestic unincorporated business

organizations classified as partnerships or associations (TD 8697) 2,

26 CFR 1.731–2, added; partnerships,

distribution of marketable securities

(TD 8707) 7, 17

26 CFR 1.902–0, –1, –2, added; foreign taxes deemed paid by domestic corporate shareholder; computation (TD 8708) 10, 14

26 CFR 1.952–1(e), (f), addee; 1.952–

2(c)(1), 1.954–1(d)(4)(iii), 1.954–

2(b)(3), 1.954–2(g)(2)(ii)(B)(1)(i),

–(2), revised; 1.957–1, amended;

1.960–1(i), added; controlled foreign corporations, foreign bas company and foreign personal holding

company income, definitions (TD

8704) 8, 12

26 CFR 1.1271–0, 1.1275–4,

amended; 1.1275–7T, 1.1286–2T,

added; inflation-indexed debt instrument (TD 8709) 9, 5

26 CFR 1.1291–0, –9, –10, added;

1.1291–0T, amended; 1.1291–9T,

–10T, removed; treatment of shareholders of certain passive foreign

investment companies (TD 8701) 7,

26 CFR 1.1368–1 amended; 1.1377–

0, –1, –2, –3, added; 18.1377–1,

removed; S corporations and their

shareholders, definitions under

subchapter S (TD 8696) 6, 4

26 CFR 1.1402(a)–2, amended; definition of limited partner for selfemployment tax purposes (REG–

209824–96) 11, 19

26 CFR 1.6081–2, –6, added; 1.6081–

2T, –3T, –4T, removed; 1.6081–4,

INCOME TAX—Continued

Regulations—Continued

amended; 301.6651, amended;

301.6651–1T, removed; individual,

partnership, trust, and U.S. real

estate mortgage investment conduit

income tax returns, automatic extension of filing time (TD 8703) 8,

26 CFR 1.6695–1(b), amended; 1.6695–

1T, removed; 301.6061–1, revised;

301.6061–1T, removed; returns,

statements, or other documents, signing methods (TD 8689) 3, 9

26 CFR 31.3402(f)(5)–1, amended;

31.3402(f)(5)–2T, removed; employment taxes and collection of

income taxes at source, Form W–4,

electronic filing (TD 8706) 9, 11

26 CFR 53.6011–1, amended;

53.6071–1T; return and time for

filing requirements (TD 8705) 8, 16

26 CFR 301.6103(n)–1, amended; return information disclosure; property or services for tax administration purposes, Justice Department

(TD 8695) 4, 5

26 CFR 301.6231(a)(7)–1T, removed;

301.6231(a)(7)–1, added; limited liability companies; tax matters partner selection (TD 8698) 7, 29

26 CFR 301.6335–1, amended; sale

of seized property (TD 8691) 5, 16

REIT preferred stock (Notice 21) 11, 9

Rulings:

Areas in which advance rulings will

not be issued:

Associate Chief Counsel (Domestic), Associate Chief Counsel

(Employee Benefits and Exempt

Organizations (RP 3) 1, 85; Associate Chief Counsel (International) (RP 7) 1, 185

Determination letters, employee plans

(RP 6) 1, 153

Environmental cleanup costs; letter

rulings (Notice 7) 1, 8

Letter rulings, determination letter, information letter, Associate Chief

Counsel (Domestic), Associate

Chief Counsel (Employee Benefits

and Exempt Organizations), Associate Chief Counsel (Enforcement

Litigation), Associate Chief Counsel (International) (RP 1) 1, 11

Rulings and determination letters, issuance procedures (RP 4) 1, 97

Technical advice; employee plans, exempt organizations (RP 5) 1, 132

Technical advice to district directors

and chiefs, appeals offices, Associate Chief Counsel (Domestic), Associate Chief Counsel (Employee

Rulings—Continued

Benefits and Exempt Organizations), Associate Chief Counsel

(Enforcement Litigation), Associate

Chief Counsel (International) (RP

2) 1, 64

SBA guaranteed payment rights; participating securities (RR 3) 2, 5

Scenarios of disciplinary actions, 13, 32

S corporation bank accounting method

change (RP 18) 10, 53

S corporation subsidiaries (Notice 4) 2,

Small Business Corporations:

Accounting periods (Notice 3) 1, 8

Electing small business corporations

and banks (Notice 5) 2, 25

Special use value; farms; interest rates

(RR 13) 16, 4

Tax conventions:

Shipping and aircraft agreements

Malta, 17, 5

Tax-exempt bonds:

Private activity bonds (RP 13) 5, 18;

(RP 14) 5, 20; (RP 15) 5, 21

Timely filing or payment; private delivery services (RP 19) 10, 55; (Notice

26) 17, 6

Transfers to foreign entities (Notice 18)

10, 35

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.