Bulletin No. 1997–22

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June 2, 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

EMPLOYEE PLANS

Rev. Rul. 97–23, page 18.

Interest rates; underpayments and overpayments.

The rate of interest determined under section 6621 of

the Code for the calendar quarter beginning July 1,

1997, will be 8 percent for overpayments, 9 percent for

underpayments, and 11 percent for large corporate

underpayments. The rate of interest paid on the portion

of a corporate overpayment exceeding $10,000 is 6.5

percent.

Notice 97–33, page 22.

Weighted average interest rate update. Guidelines are

set forth for determining for May 1997, the weighted

average interest rate and the resulting permissible range

of interest rates used to calculate current liability for

purposes of the full funding limitation of section

412(c)(7) of the Code as amended by the Omnibus

Budget Reconciliation Act of 1987 and by the Uruguay

Round Agreements Act (GATT).

Rev. Rul. 97–24, page 17.

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 June

1997.

T.D. 8718, page 4.

Final regulations under section 148 of the Code relate to

arbitrage and related restrictions applicable to taxexempt bonds issued by state and local governments.

Finding Lists begin on page 28.

Announcement of Disbarments and Suspensions begins on page 25.

Index for January—May begins on page 31.

EXEMPT ORGANIZATIONS

Announcement 97–54, page 23.

A list is provided of organizations that no longer qualify

as organizations to which contributions are deductible

under section 170 of the Code.

Announcement 97–55, page 23.

A list is given of organizations now classified as private

foundations.

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.

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 June 1997. See Rev. Rul. 97–24, page

17.

Section 148.—Arbitrage

26 CFR 1.148–4: Yield on an issue of bonds.

T.D. 8718

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Arbitrage Restrictions on

Tax-Exempt Bonds

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations on the arbitrage and

related restrictions applicable to taxexempt bonds issued by State and local

governments. Changes to the applicable

law were made by the Tax Reform Act

of 1986, the Technical and Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989, and

the Revenue Reconciliation Act of 1990.

These regulations affect issuers of taxexempt bonds and provide guidance for

complying with the arbitrage and related

restrictions.

DATES: These regulations are effective

May 9, 1997.

For dates of applicability of these

regulations, see §§ 1.103–8(a)(5),

1.142–4(d), 1.148–11, 1.148–11A,

1.149(d)–1(g)(3), and 1.150–1(a)(2).

FOR FURTHER INFORMATION CONTACT: Brigitte Finley, (202) 622–3980

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in these final regulations have

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control

number 1545–1347. Responses to these

collections of information are required

to obtain a benefit from treating a

contract as a qualified hedge or treating

certain general obligation bonds as a

single issue.

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

respond to, a collection of information

unless the collection of information displays a valid control number.

The estimated average annual burden

hours per recordkeeper: 2 hours.

Comments concerning the accuracy of

this burden estimate and suggestions for

reducing this burden should be sent to

the Internal Revenue Service, Attn: IRS

Reports Clearance Officer, T:FP, Washington, DC 20024, and to the Office of

Management and Budget, Attn: Desk

Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

Books or records relating to collections of information must be retained as

long as their contents may become material in the administration of any internal revenue law. Generally, tax returns

and tax return information are confidential, as required by 26 U.S.C. 6103.

Background

Section 148 of the Internal Revenue

Code restricts the use of proceeds of

tax-exempt State and local bonds to

acquire higher yielding investments. On

June 18, 1993, final regulations (T.D.

8476) relating to the arbitrage restrictions and related rules under sections

103, 148, 149, and 150 (the June 1993

regulations) were published in the Federal Register (59 FR 33510). Corrections to the June 1993 regulations were

published in the Federal Register on

August 23, 1993 (58 FR 44451), and

May 11, 1994 (59 FR 24350).

On May 10, 1994, temporary and

final regulations (T.D. 8538) to clarify

and revise certain provisions of the June

1993 regulations were published in the

Federal Register (59 FR 24039). A

notice of proposed rulemaking (FI–7–

94) cross-referencing the temporary

regulations and proposing additional

changes to the June 1993 regulations

was published in the Federal Register

on the same day (59 FR 24094). Written

comments were received, and a public

hearing was held on September 25,

1995.

After consideration of all the comments, the proposed regulations have

been modified and are adopted in final

form, and the corresponding temporary

regulations are redesignated as final

regulations. The principal changes to the

regulations, as well as the major comments and suggestions, are discussed

below. Comments relating to regulations

under section 148 other than those in

the proposed regulations also were received. The changes requested by those

comments are not addressed in these

final regulations, but are under consideration.

Explanation of Provisions

A. Section 1.142–4—Interest on Bonds

to Finance Certain Exempt Facilities

The proposed regulations provide

generally that costs incurred before the

issue date of an exempt facility bond

may not be financed with the proceeds

of that bond unless an official action

was taken within 60 days of the date

those costs were incurred. For taxexempt bonds subject to § 1.150–2,

however, a reimbursement allocation

may be made if the official action was

taken within 60 days of the date that the

costs were paid. One commentator requested that the official action and reimbursement allocation rules for exempt

facility bonds be the same as the rules

in § 1.150–2. The final regulations generally adopt this suggestion. The final

regulations also clarify that a refinancing of a taxable debt other than a State

or local bond is not treated as a refunding for purposes of this rule. In addition,

the final regulations redesignate this

provision, which was previously contained in § 1.103–8(a)(5), as new

§ 1.142–4.

B. Section 1.148–1—Definitions and

Elections

1. Bonds Financing a Working Capital

Reserve

The June 1993 regulations provide

that replacement proceeds may arise if a

working capital reserve is directly or

indirectly financed with bond proceeds,

but not to the extent the issuer has

maintained a working capital reserve.

The proposed regulations provide a

method for determining whether an issuer has maintained a working capital

reserve. This method is based on the

average amount of working capital

maintained by the issuer before the issue

date of the bonds.

One commentator stated that start-up

operations are unable to demonstrate

any average reserves for past periods

and, therefore, cannot show that they

have not indirectly financed a working

capital reserve with bond proceeds.

The determination of whether an issuer has financed a working capital

reserve with bond proceeds is based on

facts and circumstances. The method in

the proposed regulations provides one

way of making that determination. An

issuer may use alternative methods to

establish that a working capital reserve

is not indirectly financed with bond

proceeds. Therefore, the final regulations adopt the provision in the proposed regulations.

2. Definition of Investment-type Property

The proposed regulations clarify that

the definition of investment-type property includes a contract that would be a

hedge under § 1.148–4(h) except that it

contains a significant investment element. The proposed regulations also

provide that an interest rate cap contains

a significant investment element if the

payments for the cap are made more

quickly than in level annual installments

over the term of the cap, the cap hedges

a bond that is not a variable rate debt

instrument (VRDI) under § 1.1275–5,

or the cap rate is less than the onmarket swap rate on the date the cap is

entered into.

Commentators requested that the provisions relating to whether an interest

rate cap contains a significant investment element be deleted because they

asserted that those conditions do not

give rise to an expected return from the

cap. One commentator stated that these

rules were misplaced and should be

included in the provision in § 1.148–

4(h) dealing with significant investment

element.

The final regulations modify the proposed regulations in several ways. First,

the provision that a cap contains a

significant investment element if the cap

rate is less than the on-market swap rate

has been deleted. The deletion of this

rule is balanced by another rule addressing the timing of payments for a cap.

(See discussion below.) Second, the requirement relating to the pattern of

payments for a cap and the prohibition

on hedging an instrument other than a

VRDI have been moved to § 1.148–

4(h). (See discussion below.) Third, the

final regulations clarify that investmenttype property includes only the investment element of a hedge that contains a

significant investment element. This ele-

ment does not necessarily include all

payments on or receipts from a hedge.

C. Section 1.148–4—Yield on an Issue

of Bonds

1. Yield on Certain Mortgage Revenue

and Student Loan Bonds

The proposed regulations provide that,

for purposes of applying sections 148

and 143(g) to a variable yield issue of

qualified mortgage bonds, qualified veterans’ mortgage bonds, or qualified student loan bonds, the yield on the issue

is computed over the term of the issue,

and § 1.148–4(d) (relating to conversion

from a variable yield issue to a fixed

yield issue) does not apply. The proposed regulations also address how to

compute yield over the term of the

issue.

One commentator requested that this

rule be amended so it applies only for

yield restriction purposes or only to

variable yield issues that are expected to

convert to fixed yield issues. The commentator explained that applying the

rule for rebate purposes may be inappropriate. The final regulations generally

adopt this comment by providing that

the rule applies only to issues that are

expected to convert to a fixed yield and

only for purposes of applying sections

148 and 143(g) to purpose investments.

2. Qualified Hedging Transactions

a. Definition of hedge. The final regulations expand the definition of hedge to

include certain hedges of bonds of an

issue that would otherwise be a fixed

yield issue (a fixed-to-variable hedge).

Generally, a fixed-to-variable hedge

must be entered into no later than 15

days after the issue date of the issue (or

the deemed issue date under § 1.148–

4(d)) or no later than the expiration of

another qualified hedge with respect to

the bonds. The permitted fixed-tovariable hedges are limited in this manner to minimize the complex computations and potential for abuse that may

arise if an issue switches between fixed

yield treatment and variable yield treatment during the term of the issue.

Comments are requested on the extent

to which other fixed-to-variable hedges

should be treated as a hedge.

b. Significant investment element. The

definition of investment-type property in

the proposed regulations provides that

an interest rate cap contains a significant

investment element if the payments for

the cap are made more quickly than in

level annual installments. Commentators

requested that this provision be deleted

because they asserted that early payment

of a cap premium never gives rise to an

expected return from the cap.

Amounts paid for an interest rate cap

generally relate increasingly to the later

years of the term of the cap. Thus, this

rule reflects the concern that the issuer

receives an arbitrage benefit by making

a prepayment. This prepayment concern

also arises in connection with other

types of hedges when an issuer makes

payments before the period to which

those payments relate. Therefore, the

final regulations provide that a hedge

contains a significant investment element if the issuer’s payments for the

hedge are significantly front-loaded. In

addition, a hedge contains a significant

investment element if the issuer’s payments are significantly back-loaded. The

final regulations also include a special

rule for caps that permits cap fees to be

paid in level installments over the term

of the cap.

c. Interest based. The definition of

investment-type property in the proposed regulations provides that an interest rate cap contains a significant investment element if the cap hedges a bond

that is not a VRDI within the meaning

of § 1.1275–5. Commentators requested

that this provision be deleted because

they asserted that hedging a bond that is

not a VRDI does not give rise to an

expected return from the cap.

The final regulations clarify that a

contract meets the requirement that it be

interest based only if, (i) before the

contract is taken into account, each

hedged bond is a type of obligation that

is respected as solely tax-exempt debt

under the original issue discount regulations (i.e., a fixed rate bond, a VRDI

within the meaning of § 1.1275–5 that

is not based on an objective rate other

than a qualified inverse floating rate or

a qualified inflation rate, a tax-exempt

obligation described in § 1.1275–

4(d)(2), or an inflation-indexed debt instrument within the meaning of

§ 1.1275–7T), and (ii) after the contract

is taken into account, each hedged bond

is substantially the same as one of these

types of debt instruments.

d. Timing and allocation of payments.

The proposed regulations provide that

the period to which a payment made by

the issuer relates is based on general

Federal income tax principles, and that

generally a payment received by the

issuer is taken into account in the period

that the interest payment that the payment hedges is required to be made. The

final regulations amend these rules to

provide that payments made or received

by the issuer under a qualified hedge are

taken into account in the period that

those amounts would be treated as income or deductions under § 1.446–4

(without regard to the exclusion from

§ 1.446–4 for tax-exempt obligations).

e. Certain variable yield bonds treated

as fixed yield bonds—certain terminations disregarded. Under the June 1993

regulations, a variable yield issue is

treated as a fixed yield issue if the

issuer enters into a qualified hedge that

meets certain requirements. The proposed regulations in general provide that

upon a termination of this type of

qualified hedge, the issue of which the

hedged bonds are a part is treated for

purposes of § 1.148–3 (relating to rebate) as if it were reissued as of the

termination date. The proposed regulations also provide that the termination

will be disregarded (i.e., the issue will

continue to be treated as a fixed yield

issue) if (i) the issuer immediately replaces the terminated hedge and there is

no change in the yield or (ii) the

termination is caused by the bankruptcy

or insolvency of the hedge provider and

the Commissioner determines that the

termination occurred without any action

by the issuer. The final regulations

modify the proposed regulations by deleting the provision relating to terminations of a qualified hedge caused by the

bankruptcy or insolvency of the hedge

provider because, unless the issuer enters into a replacement hedge, any termination of the hedge may cause a

change in the yield on the bonds.

f. Certain acquisition payments. The

proposed regulations provide that if an

issuer receives a single, up-front payment relating to the off-market portion

of an otherwise qualified hedge, the

hedge does not fail to be a qualified

hedge as long as the off-market rates are

separately identified and are not taken

into account in determining yield on the

bonds. The proposed regulations also

provide that the on-market rates are

determined as of the date the parties

enter into the contract. The final regulations adopt this rule. In the case of

hedges entered into before the issue date

(e.g., a forward swap), the on-market

rate is the forward on-market rate on the

date the parties enter into the hedge.

g. Treatment of hedges entered into before issue date of hedged bonds. The

proposed regulations provide that a

hedge entered into before the issue date

may be a qualified hedge, even if the

payments received by the issuer do not

correspond to interest payments on the

hedged bonds. Commentators requested

clarification about what other special

rules apply to these types of hedges. In

particular, commentators suggested that

payments made or received by an issuer

before the issue date should not prevent

these types of hedges from treatment as

a qualified hedge.

The final regulations clarify the treatment of two different types of hedges

entered into before the issue date. First,

if an issuer expects that a hedge will be

closed in connection with the issuance

of bonds, payments on the hedge made

or received, or deemed made or received, adjust the issue price of the

hedged bonds. For this purpose, issue

price is adjusted by taking into account

the future value as of the issue date of

the payments made or received before

the issue date. Second, if an issuer does

not expect that a hedge will be closed in

connection with the issuance of the

bonds and does not close the hedge in

connection with the issuance of the

bonds, the payments and receipts on the

hedge adjust payments and receipts on

the hedged bonds in the same manner as

other qualified hedges. Payments on the

hedge made by the issuer before the

issue date, however, are not taken into

account for purposes of determining

yield on the hedged bond.

tive. Section 1.148–10(e) gives the

Commissioner the authority to depart

from the rules of §§ 1.148–1 through

1.148–11 to reflect the economic substance of a transaction if a principal

purpose of the transaction is to obtain

an arbitrage benefit that is inconsistent

with the purposes of section 148. Therefore, in general a separate anti-abuse

rule is unnecessary. The final regulations

amend § 1.148–10(e) to clarify that the

actions the Commissioner may take to

clearly reflect the economic substance of

a transaction include treating a hedge as

a qualified hedge or treating a hedge as

other than a qualified hedge. Because

special considerations apply to identification of hedges entered into before the

issue date of the hedged bonds, the final

regulations also provide that this type of

hedge will be treated as a hedge of

bonds that are similar to the bonds that

the issuer expected to issue when it

entered into the hedge.

h. Authority of Commissioner. The proposed regulations permit the Commissioner to determine that a contract is not

a qualified hedge if treating the contract

as a qualified hedge provides a material

potential for arbitrage. In addition, the

proposed regulations permit the Commissioner to recompute the yield on an issue

by taking into account a hedge if the

issuer fails to meet the qualified hedge

rules and the failure distorts the yield or

otherwise fails to clearly reflect the economic substance of the transaction.

D. Section 1.148–5—Yield and Valuation of Investments

Some commentators asserted that this

grant of authority is too broad and adds

uncertainty about the proper treatment

of certain transactions that are not specifically addressed by the regulations,

such as asset hedges.

In general, an issuer may choose

whether a hedge is treated as a qualified

hedge, as long as that choice is prospec-

i. Asset hedging. The proposed regulations do not provide specific rules for

the treatment of hedges of assets allocable to the proceeds of tax-exempt

bonds. One commentator suggested that

the regulations extend the integration

principles currently applicable to qualified hedges to include comparable principles for hedges of assets allocable to

the proceeds of tax-exempt bonds. The

final regulations do not adopt this comment or provide specific rules for asset

hedging. However, comments are requested relating to the proper treatment

of asset hedges for purposes of section

148.

1. Permissive Application of Single Investment Rules to Certain Yield Restricted Investments for all Purposes

of Section 148

The proposed regulations provide that

for all purposes of section 148, an issuer

may blend the yield of all yield restricted, nonpurpose investments in a

refunding escrow and a sinking fund

that is reasonably expected as of the

issue date to be maintained to reduce

the yield on the investments in the

refunding escrow. Commentators requested that this rule be amended to

permit blending of the yield on all yield

restricted nonpurpose investments. The

final regulations do not adopt this comment because a more flexible yield

blending rule could permit avoidance of

the requirement that rebatable arbitrage

must be paid for periods of no greater

than 5 years. In addition, the final

regulations clarify that the rule applies

only to sinking funds that are reasonably

expected as of the issue date to be

established and maintained solely to

reduce the yield on the investments in

the refunding escrow. For example, the

rule does not apply to investments in a

reasonably required reserve fund that the

issuer intends to use to reduce the yield

on the investments in a refunding escrow.

2. Manner of Payment of Yield Reduction Payments

The proposed regulations provide that

yield reduction payments must be made

at the same time and in the same

manner as rebate amounts are required

to be paid under § 1.148–3(f), and that

the date a payment is required to be

paid is determined without regard to

§ 1.148–3(h), which allows the issuer to

pay a penalty in lieu of loss of taxexemption in certain situations. The proposed regulations also provide that a

yield reduction payment that is paid

untimely is not taken into account unless the Commissioner determines that

the failure to pay timely is not due to

willful neglect.

One commentator noted that this rule

imposes a procedural standard that is

different from the rules regarding late

rebate payments and requested that this

rule be amended to eliminate the requirement of action by the Commissioner and to otherwise conform to the

rules for late payment of rebate. The

final regulations adopt this comment.

3. External Commingled Funds

The June 1993 regulations provide

that an issuer that invests in a commingled fund may take indirect administrative costs of the commingled fund

into account for purposes of determining

payments and receipts on nonpurpose

investments if certain requirements are

met. In general, the issuer and any

related parties must not own more than

10 percent of the beneficial interest in

the fund. The proposed regulations provide a test for determining whether the

10 percent limit is met.

One commentator stated that under

the method for determining whether the

10 percent requirement is met the investor is uncertain whether its deposit will

cause it to exceed the 10 percent limit,

whether actions of another investor will

cause it to exceed the 10 percent limit at

any time for the duration of this invest-

ment, whether the whole fund is tainted

if one investor exceeds the 10 percent

limit, whether the impact is limited to

those days that the 10 percent limit is

exceeded, how the 10 percent limit is

measured, and whether the semiannual

period is a fixed or a floating period.

The commentator suggested that the test

should be applied only at the time that a

deposit is made and the result should

not be affected by simultaneous or subsequent activity in the pool.

The final regulations generally adopt

this suggestion. The final regulations

clarify that this rule applies only to

widely held commingled funds and that

the determination of whether a fund is

widely held is based on the average

number of investors during the immediately preceding, fixed, semiannual period chosen by the fund (e.g., semiannual periods ending June 30 and

December 31). Thus, the determination

of whether any issuer that has invested

in a commingled fund may take indirect

administrative costs into account may

change from one 6-month period to

another. The final regulations also provide that the determination of whether

an investor exceeds the 10 percent limit

is made on the date of deposit into the

commingled fund and whether that investor exceeds the 10 percent limit is

not affected by subsequent actions of

investors in the fund. In addition, if any

investor exceeds the 10 percent limit, no

investor in the fund may take indirect

administrative costs into account until

that investor makes sufficient withdrawals from the fund to meet the 10 percent

limit. Thus, if a fund continues to be

widely held and does not accept any

deposits from an investor that exceeds

the 10 percent limit, all issuers that have

invested tax-exempt bond proceeds in

the fund may take the indirect administrative costs of the fund into account.

regulations clarify that a broker’s commission is a qualified administrative cost

to the extent it does not exceed the

lesser of a reasonable amount or the .05

percent limit. No inference should be

drawn that there are necessarily any

situations in which a commission equal

to .05 percent is reasonable.

E. Section 1.150–1—Definitions

The proposed regulations define ‘‘issue’’ for all purposes of sections 103

and 141 through 150. The final regulations adopt the definition as proposed

with one modification. The final regulations delete the rule that a variable yield

bond is treated as sold on its issue date

and clarify that the definition of ‘‘sale

date’’ applies to all bonds.

The proposed regulations also provide

a special rule relating to the treatment of

general obligation bonds sold and issued

on the same dates pursuant to a single

offering document as part of the same

issue. Commentators expressed concern

that this special rule is mandatory and

conflicts with other rules relating to the

determination of whether bonds are part

of a single issue. The commentators

requested that the relationship of the

rules be clarified and that the general

obligation rule not be mandatory.

The final regulations generally adopt

these comments by permitting an issuer

to elect to treat tax-exempt general

obligation bonds sold and issued on the

same dates pursuant to a single offering

document as part of the same issue.

However, taxable bonds still must be

treated as a separate issue. A proposed

amendment to the exception for taxable

bonds in § 1.150–1(c)(2), proposed in

regulations published in the Federal

addressed by these final regulations.

4. Qualified Administrative Costs of

Guaranteed Investment Contracts

F. Effective Dates

The June 1993 regulations generally

provide that administrative costs must

be reasonable in order to be qualified

administrative costs. The proposed regulations provide that a broker’s commission for a guaranteed investment contract is treated as an administrative cost

and is not a qualified administrative cost

to the extent that the present value of

the fee exceeds the present value of

annual payments equal to .05 percent of

the weighted average amount reasonably

expected to be invested each year during

the term of the contract. The final

The final regulations generally are

effective for bonds issued on or after

July 8, 1997. An issuer generally may

apply the final regulations to bonds that

are outstanding on July 8, 1997, and to

which certain prior regulations apply. In

addition, the rules in the temporary

regulations have been redesignated as

§§ 1.148–1A through 1.148–6A, 1.148–

9A, 1.148–10A, 1.148–11A, 1.149(d)–

1A, and 1.150–1A and, together with the

applicable provisions of the June 1993

regulations, continue to apply to bonds

issued before July 8, 1997.

Special Analysis

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.

Therefore, a regulatory assessment is not

required. It also has been determined

that section 553(b) of the Administrative

Procedure Act (5 U.S.C. chapter 5) does

not apply to these regulations, and because the notice of proposed rulemaking

preceding the regulations was issued

prior to March 29, 1996, the Regulatory

Flexibility Act (5 U.S.C. chapter 6) does

not apply. Pursuant to section 7805(f) of

the Internal Revenue Code, the notice of

proposed rulemaking preceding these

regulations was submitted to the Chief

Counsel for Advocacy of the Small

Business Administration for comment on

its impact on small business.

Drafting Information

The principal authors of these regulations are Brigitte Finley and William P.

Cejudo, Office of Assistant Chief Counsel (Financial Institutions and Products).

However, other personnel from the IRS

and Treasury Department participated in

their development.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602

are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by removing the entry

for § 1.148–11T to read in part as

follows:

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

Par. 2. In § 1.103–8, paragraph (a)(5)

is revised to read as follows:

§ 1.103–8 Interest on bonds to finance

certain exempt facilities.

(a) * * *

(5) Limitation. (i) A facility qualifies

under this section only to the extent that

there is a valid reimbursement allocation

under § 1.150–2 with respect to expenditures that are incurred before the issue

date of the bonds to provide the facility

and that are to be paid with the proceeds of the issue. In addition, if the

original use of the facility begins before

the issue date of the bonds, the facility

does not qualify under this section if

any person that was a substantial user of

the facility at any time during the 5-year

period before the issue date or any

related person to that user receives (directly or indirectly) 5 percent or more of

the proceeds of the issue for the user’s

interest in the facility and is a substantial user of the facility at any time

during the 5-year period after the issue

date, unless—

(A) An official intent for the facility

is adopted under § 1.150–2 within 60

days after the date on which acquisition,

construction, or reconstruction of that

facility commenced; and

(B) For an acquisition, no person that

is a substantial user or related person

after the acquisition date was also a

substantial user more than 60 days before the date on which the official intent

was adopted.

(ii) A facility, the original use of

which commences (or the acquisition of

which occurs) on or after the issue date

of bonds to provide that facility, qualifies under this section only to the extent

that an official intent for the facility is

adopted under § 1.150–2 by the issuer

of the bonds within 60 days after the

commencement of the construction, reconstruction, or acquisition of that facility. Temporary construction or other financing of a facility prior to the

issuance of the bonds to provide that

facility will not cause that facility to be

one that does not qualify under this

paragraph (a)(5)(ii).

(iii) For purposes of paragraph

(a)(5)(i) of this section, substantial user

has the meaning used in section

147(a)(1), related person has the meaning used in section 144(a)(3), and a user

that is a governmental unit within the

meaning of § 1.103–1 is disregarded.

(iv) Except to the extent provided in

§§ 1.142–4(d), 1.148–11A(i), and

1.150–2(j), this paragraph (a)(5) applies

to bonds issued after June 30, 1993, and

sold before July 8, 1997. See § 1.142–

4(d) for rules relating to bonds sold on

or after July 8, 1997.

§ 1.103–8T [Removed]

Par. 3. Section 1.103–8T is removed.

Par. 4. Section 1.142–4 is added to

read as follows:

§ 1.142–4 Use of proceeds to provide a

facility.

(a) In general. [Reserved].

(b) Reimbursement allocations. If an

expenditure for a facility is paid before

the issue date of the bonds to provide

that facility, the facility is described in

section 142(a) only if the expenditure

meets the requirements of § 1.150–2

(relating to reimbursement allocations).

For purposes of this paragraph (b), if the

proceeds of an issue are used to pay

principal of or interest on an obligation

other than a State or local bond (for

example, temporary construction financing of the conduit borrower), that issue

is not a refunding issue, and, thus,

§ 1.150–2(g) does not apply.

substantial users—(1) In general. If the

original use of a facility begins before

the issue date of the bonds to provide

the facility, the facility is not described

in section 142(a) if any person that was

a substantial user of the facility at any

time during the 5-year period before the

issue date or any related person to that

user receives (directly or indirectly) 5

percent or more of the proceeds of the

issue for the user’s interest in the facility and is a substantial user of the

facility at any time during the 5-year

period after the issue date, unless—

(i) An official intent for the facility is

adopted under § 1.150–2 within 60 days

after the date on which acquisition,

construction, or reconstruction of that

facility commenced; and

(ii) For an acquisition, no person that

is a substantial user or related person

after the acquisition date was also a

substantial user more than 60 days before the date on which the official intent

was adopted.

(2) Definitions. For purposes of paragraph (c)(1) of this section, substantial

user has the meaning used in section

147(a)(1), related person has the meaning used in section 144(a)(3), and a user

that is a governmental unit within the

meaning of § 1.103–1 is disregarded.

(d) Effective date—(1) In general.

This section applies to bonds sold on or

after July 8, 1997. See § 1.103–8(a)(5)

for rules applicable to bonds sold before

that date.

(2) Elective retroactive application.

An issuer may apply this section to any

bond sold before July 8, 1997.

Par. 5. In § 1.148–0, paragraph (c) is

amended as follows:

1. An entry for § 1.148–1, paragraph

(e) is added.

2. The entries for § 1.148–4, paragraph (h)(4) and (h)(5) are revised.

3. An entry for § 1.148–4, paragraph

(h)(6) is added.

4. An entry for § 1.148–11, paragraph (b)(3) is added.

5. Entries for § 1.148–11, paragraphs

(c)(1) and (g) are revised.

6. Entries for § 1.148–11, paragraphs

(h) and (i) are removed.

The revised and added provisions

read as follows:

§ 1.148–0 Scope and table of contents.

§ 1.148–1 Definitions and elections.

(e) Investment-type property.

Par. 7. Section 1.148–1 is amended as

follows:

1. Paragraph (b) is amended by revising the definition of Investment-type

property, by adding the definition of

Replacement proceeds, and by adding a

new sentence at the end of the definition

of Sale proceeds.

2. Paragraph (c)(4)(ii)(A) is revised.

3. Paragraph (e) is added.

The revised and added provisions

read as follows:

§ 1.148–1 Definitions and elections.

§ 1.148–4 Yield on an issue of bonds.

(h) * * *

(4) Certain variable yield bonds

treated as fixed yield bonds.

(5) Contracts entered into before issue date of hedged bond.

(6) Authority of the Commissioner.

§ 1.148–11 Effective dates.

(b) * * *

(3) No elective retroactive application

for hedges of fixed rate issues.

(1) Retroactive application of overpayment recovery provisions.

(g) Provisions applicable to certain

bonds sold before effective date.

§§ 1.148–1T, 1.148–2T, 1.148–3T,

1.148–4T, 1.148–5T, 1.148–6T, 1.148–

9T, 1.148–10T, and 1.148–11T [Redesignated as §§ 1.148–1A, 1.148–2A,

1.148–3A, 1.148–4A, 1.148–5A, 1.148–

6A, 1.148–9A, 1.148–10A, and 1.148–

11A]

Par. 6. Sections 1.148–1T, 1.148–2T,

1.148–3T, 1.148–4T, 1.148–5T, 1.148–

6T, 1.148–9T, 1.148–10T, and 1.148–

11T are redesignated as §§ 1.148–1A,

1.148–2A, 1.148–3A, 1.148–4A, 1.148–

5A, 1.148–6A, 1.148–9A, 1.148–10A,

and 1.148–11A, respectively, and added

under an undesignated center heading

immediately preceding the undesignated

center heading ‘‘Deductions for Personal

Exemptions’’ to read as follows:

Regulations Applicable to Certain

Bonds Sold Prior to July 8, 1997.

Par. 6a. The section headings of

newly designated §§ 1.148–1A, 1.148–

2A, 1.148–3A, 1.148–4A, 1.148–5A,

1.148–6A, 1.148–9A, 1.148–10A, and

1.148–11A are amended by removing

the language ‘‘(temporary)’’.

(b) * * *

Investment-type property is defined in

paragraph (e) of this section.

Replacement proceeds is defined in

paragraph (c) of this section.

Sale proceeds * * * See also

§ 1.148–4(h)(5) treating amounts received upon the termination of certain

hedges as sale proceeds.

(4) * * *

(ii) Bonds financing a working capital reserve—(A) In general. Except as

otherwise provided in paragraph

(c)(4)(ii)(B) of this section, replacement

proceeds arise to the extent a working

capital reserve is, directly or indirectly,

financed with the proceeds of the issue

(regardless of the expenditure of proceeds of the issue). Thus, for example,

if an issuer that does not maintain a

working capital reserve borrows to fund

a working capital reserve, the issuer will

have replacement proceeds. To determine the amount of a working capital

reserve maintained, an issuer may use

the average amount maintained as a

working capital reserve during annual

periods of at least 1 year, the last of

which ends within 1 year before the

issue date. For example, the amount of a

working capital reserve may be computed using the average of the beginning

or ending monthly balances of the

amount maintained as a reserve (net of

unexpended gross proceeds) during the

1 year period preceding the issue date.

(e) Investment-type property—(1) In

general. Investment-type property includes any property, other than property

described in section 148(b)(2)(A), (B),

(C), or (E), that is held principally as a

passive vehicle for the production of

income. For this purpose, production of

income includes any benefit based on

the time value of money, including the

benefit from making a prepayment.

(2) Non-customary prepayments. Except as otherwise provided in this paragraph (e), a prepayment for property or

services gives rise to investment-type

property if a principal purpose for prepaying is to receive an investment return

from the time the prepayment is made

until the time payment otherwise would

be made. A prepayment does not give

rise to investment-type property if—

(i) The prepayment is made for a

substantial business purpose other than

investment return and the issuer has no

commercially reasonable alternative to

the prepayment; or

(ii) Prepayments on substantially the

same terms are made by a substantial

percentage of persons who are similarly

situated to the issuer but who are not

beneficiaries of tax-exempt financing.

(3) Certain hedges. Investment-type

property also includes the investment

element of a contract that is a hedge

(within the meaning of § 1.148–

4(h)(2)(i)(A)) and that contains a significant investment element because a payment by the issuer relates to a

conditional or unconditional obligation

by the hedge provider to make a payment on a later date. See § 1.148–

4(h)(2)(ii) relating to hedges with a

significant investment element.

Par. 8. In § 1.148–2, paragraph

(b)(2)(ii) is revised to read as follows:

§ 1.148–2 General arbitrage yield restriction rules.

(b) * * *

(2) * * *

(ii) Exceptions to certification requirement. An issuer is not required to

make a certification for an issue under

paragraph (b)(2)(i) of this section if—

(A) The issuer reasonably expects as

of the issue date that there will be no

unspent gross proceeds after the issue

date, other than gross proceeds in a

bona fide debt service fund (e.g., equipment lease financings in which the issuer purchases equipment in exchange

for an installment payment note); or

(B) The issue price of the issue does

not exceed $1,000,000.

Par. 9. In § 1.148–3, the last sentence

of paragraph (h)(3) is revised to read as

follows:

§ 1.148–3 General arbitrage rebate

rules.

(h) * * *

(3) * * * For purposes of this paragraph (h)(3), willful neglect does not

include a failure that is attributable

solely to the permissible retroactive selection of a short first bond year if the

rebate amount that the issuer failed to

pay is paid within 60 days of the

selection of that bond year.

Par. 10. Section 1.148–4 is amended

as follows:

1. Paragraphs (b)(5), (g), (h)(1),

(h)(2) introductory text, and (h)(2)(i) are

revised.

2. Paragraph (h)(2)(vi) and (h)(2)(vii)

are removed.

3. Paragraphs (h)(2)(ii) through

(h)(2)(v) are redesignated as paragraphs

(h)(2)(iii) through (h)(2)(vi) and paragraphs (h)(2)(viii) and (h)(2)(ix) are redesignated as paragraphs (h)(2)(vii) and

(h)(2)(viii).

4. New paragraph (h)(2)(ii) is added.

5. Newly designated paragraphs

(h)(2)(iv), (h)(2)(v), (h)(2)(vi), and

(h)(2)(viii) and paragraphs (h)(3), (h)(4),

and (h)(5) are revised.

6. Paragraph (h)(6) is added.

The revised and added provisions

read as follows:

§ 1.148–4 Yield on an issue of bonds.

(b) * * *

(5) Special aggregation rule treating

certain bonds as a single fixed yield

bond. Two variable yield bonds of an

issue are treated in the aggregate as a

single fixed yield bond if—

(i) Aggregate treatment would result

in the single bond being a fixed yield

bond; and

(ii) The terms of the bonds do not

contain any features that could distort

the aggregate fixed yield from what the

yield would be if a single fixed yield

bond were issued. For example, if an

issue contains a bond bearing interest at

a floating rate and a related bond bearing interest at a rate equal to a fixed

rate minus that floating rate, those two

bonds are treated as a single fixed yield

bond only if neither bond may be

redeemed unless the other bond is also

redeemed at the same time.

(g) Yield on certain mortgage revenue

and student loan bonds. For purposes of

section 148 and this section, section

143(g)(2)(C)(ii) applies to the computa-

tion of yield on an issue of qualified

mortgage bonds or qualified veterans’

mortgage bonds. For purposes of applying section 148 and section 143(g) with

respect to purpose investments allocable

to a variable yield issue of qualified

mortgage bonds, qualified veterans’

mortgage bonds, or qualified student

loan bonds that is reasonably expected

as of the issue date to convert to a fixed

yield issue, the yield may be computed

over the term of the issue, and, if the

yield is so computed, paragraph (d) of

this section does not apply to the issue.

As of any date, the yield over the term

of the issue is based on—

(1) With respect to any bond of the

issue that has not converted to a fixed

and determinable yield on or before that

date, the actual amounts paid or received to that date and the amounts that

are reasonably expected (as of that date)

to be paid or received with respect to

that bond over the remaining term of the

issue (taking into account prepayment

assumptions under section 143(g)(2)(B)(iv), if applicable); and

(2) With respect to any bond of the

issue that has converted to a fixed and

determinable yield on or before that

date, the actual amounts paid or received before that bond converted, if

any, and the amount that was reasonably

expected (on the date that bond converted) to be paid or received with

respect to that bond over the remaining

term of the issue (taking into account

prepayment assumptions under section

143(g)(2)(B)(iv), if applicable).

(h) Qualified hedging transactions—

(1) In general. Payments made or received by an issuer under a qualified

hedge (as defined in paragraph (h)(2) of

this section) relating to bonds of an

issue are taken into account (as provided

in paragraph (h)(3) of this section) to

determine the yield on the issue. Except

as provided in paragraphs (h)(4) and

(h)(5)(ii)(E) of this section, the bonds to

which a qualified hedge relates are

treated as variable yield bonds from the

issue date of the bonds. This paragraph

(h) applies solely for purposes of sections 143(g), 148, and 149(d).

(2) Qualified hedge defined. Except

as provided in paragraph (h)(5) of this

section, the term qualified hedge means

a contract that satisfies each of the

following requirements:

(i) Hedge—(A) In general. The contract is entered into primarily to modify

the issuer’s risk of interest rate changes

with respect to a bond (a hedge). For

example, the contract may be an interest

rate swap, an interest rate cap, a futures

contract, a forward contract, or an option.

(B) Special rule for fixed rate issues.

If the contract modifies the issuer’s risk

of interest rate changes with respect to a

bond that is part of an issue that, absent

the contract, would be a fixed rate issue,

the contract must be entered into—

(1) No later than 15 days after the

issue date (or the deemed issue date

under paragraph (d) of this section) of

the issue; or

(2) No later than the expiration of a

qualified hedge with respect to bonds of

that issue that satisfies paragraph

(h)(2)(i)(B)(1) of this section; or

(3) No later than the expiration of a

qualified hedge with respect to bonds of

that issue that satisfies either paragraph

(h)(2)(i)(B)(2) of this section or this

paragraph (h)(2)(i)(B)(3).

payments. If a hedge provider makes a

single payment to the issuer (e.g., a

payment for an off-market swap) in

connection with the acquisition of a

contract, the issuer may treat a portion

of that contract as a hedge provided—

(1) The hedge provider’s payment to

the issuer and the issuer’s payments

under the contract in excess of those

that it would make if the contract bore

rates equal to the on-market rates for the

contract (determined as of the date the

parties enter into the contract) are separately identified in a certification of the

hedge provider; and

(2) The payments described in paragraph (h)(2)(i)(C)(1) of this section are

not treated as payments on the hedge.

(ii) No significant investment element—(A) In general. The contract

does not contain a significant investment

element. Except as provided in paragraph (h)(2)(ii)(B) of this section, a

contract contains a significant investment element if a significant portion of

any payment by one party relates to a

conditional or unconditional obligation

by the other party to make a payment

on a different date. Examples of contracts that contain a significant investment element are a debt instrument held

by the issuer; an interest rate swap

requiring any payments other than periodic payments, within the meaning of

§ 1.446–3 (periodic payments) (e.g., a

payment for an off-market swap or

prepayment of part or all of one leg of a

swap); and an interest rate cap requiring

the issuer’s premium for the cap to be

paid in a single, up-front payment.

(B) Special level payment rule for

interest rate caps. An interest rate cap

does not contain a significant investment

element if—

(1) All payments to the issuer by the

hedge provider are periodic payments;

(2) The issuer makes payments for

the cap at the same time as periodic

payments by the hedge provider must be

made if the specified index (within the

meaning of § 1.446–3) of the cap is

above the strike price of the cap; and

(3) Each payment by the issuer bears

the same ratio to the notional principal

amount (within the meaning of § 1.446–

3) that is used to compute the hedge

provider’s payment, if any, on that date.

(iv) Hedged bonds. The contract covers, in whole or in part, all of one or

more groups of substantially identical

bonds in the issue (i.e., all of the bonds

having the same interest rate, maturity,

and terms). Thus, for example, a qualified hedge may include a hedge of all or

a pro rata portion of each interest payment on the variable rate bonds in an

issue for the first 5 years following their

issuance. For purposes of this paragraph

(h), unless the context clearly requires

otherwise, hedged bonds means the specific bonds or portions thereof covered

by a hedge.

(v) Interest based contract. The contract is primarily interest based. A contract is not primarily interest based

unless—

(A) The hedged bond, without regard

to the contract, is either a fixed rate

bond, a variable rate debt instrument

within the meaning of § 1.1275–5 provided the rate is not based on an

objective rate other than a qualified

inverse floating rate or a qualified inflation rate, a tax-exempt obligation described in § 1.1275–4(d)(2), or an

inflation-indexed debt instrument within

the meaning of § 1.1275–7T; and

(B) As a result of treating all payments on (and receipts from) the contract as additional payments on (and

receipts from) the hedged bond, the

resulting bond would be substantially

similar to either a fixed rate bond, a

variable rate debt instrument within the

meaning of § 1.1275–5 provided the

rate is not based on an objective rate

other than a qualified inverse floating

rate or a qualified inflation rate, a

tax-exempt obligation described in

§ 1.1275–4(d)(2), or an inflationindexed debt instrument within the

meaning of § 1.1275–7T. For this purpose, differences that would not prevent

the resulting bond from being substantially similar to another type of bond

include a difference between the index

used to compute payments on the

hedged bond and the index used to

compute payments on the hedge where

one index is substantially the same, but

not identical to, the other; the difference

resulting from the payment of a fixed

premium for a cap (e.g., payments for a

cap that are made in other than level

installments); and the difference resulting from the allocation of a termination

payment where the termination was not

expected as of the date the contract was

entered into.

(vi) Payments closely correspond.

The payments received by the issuer

from the hedge provider under the contract correspond closely in time to either

the specific payments being hedged on

the hedged bonds or specific payments

required to be made pursuant to the

bond documents, regardless of the

hedge, to a sinking fund, debt service

fund, or similar fund maintained for the

issue of which the hedged bond is a

part.

(viii) Identification. The contract

must be identified by the actual issuer

on its books and records maintained for

the hedged bonds not later than 3 days

after the date on which the issuer and

the hedge provider enter into the contract. The identification must specify the

hedge provider, the terms of the contract, and the hedged bonds. The identification must contain sufficient detail to

establish that the requirements of this

paragraph (h)(2) and, if applicable, paragraph (h)(4) of this section are satisfied.

In addition, the existence of the hedge

must be noted on the first form relating

to the issue of which the hedged bonds

are a part that is filed with the Internal

Revenue Service on or after the date on

which the contract is identified pursuant

to this paragraph (h)(2)(viii).

(3) Accounting for qualified hedges—

(i) In general. Except as otherwise provided in paragraph (h)(4) of this section,

payments made or received by the issuer

under a qualified hedge are treated as

payments made or received, as appropriate, on the hedged bonds that are taken

into account in determining the yield on

those bonds. These payments are reasonably allocated to the hedged bonds in

the period to which the payments relate,

as determined under paragraph (h)(3)(iii)

of this section. Payments made or received by the issuer include payments

deemed made or received when a con-

tract is terminated or deemed terminated

under this paragraph (h)(3). Payments

reasonably allocable to the modification

of risk of interest rate changes and to

the hedge provider’s overhead under this

paragraph (h) are included as payments

made or received under a qualified

hedge.

(ii) Exclusions from hedge. If any

payment for services or other items

under the contract is not expressly

treated by paragraph (h)(3)(i) of this

section as a payment under the qualified

hedge, the payment is not a payment

with respect to a qualified hedge.

(iii) Timing and allocation of payments. Except as provided in paragraphs

(h)(3)(iv) and (h)(5) of this section,

payments made or received by the issuer

under a qualified hedge are taken into

account in the same period in which

those amounts would be treated as income or deductions under § 1.446–4

(without regard to § 1.446–4(a)(2)(iv))

and are adjusted as necessary to reflect

the end of a computation period and the

start of a new computation period.

(iv) Termination payments—(A) Termination defined. A termination of a

qualified hedge includes any sale or

other disposition of the hedge by the

issuer or the acquisition by the issuer of

an offsetting hedge. A deemed termination occurs when the hedged bonds are

redeemed or when a hedge ceases to be

a qualified hedge of the hedged bonds.

In the case of an assignment by a hedge

provider of its remaining rights and

obligations under the hedge to a third

party or a modification of the hedging

contract, the assignment or modification

is treated as a termination with respect

to the issuer only if it results in a

deemed exchange of the hedge and a

realization event under section 1001 to

the issuer.

(B) General rule. A payment made or

received by an issuer to terminate a

qualified hedge, including loss or gain

realized or deemed realized, is treated as

a payment made or received on the

hedged bonds, as appropriate. The payment is reasonably allocated to the remaining periods originally covered by

the terminated hedge in a manner that

reflects the economic substance of the

hedge.

when bonds are redeemed. Except as

otherwise provided in this paragraph

(h)(3)(iv)(C)

and

paragraph

(h)(3)(iv)(D) of this section, when a

qualified hedge is deemed terminated

because the hedged bonds are redeemed,

the fair market value of the qualified

hedge on the redemption date is treated

as a termination payment made or received on that date. When hedged bonds

are redeemed, any payment received by

the issuer on termination of a hedge,

including a termination payment or a

deemed termination payment, reduces,

but not below zero, the interest payments made by the issuer on the hedged

bonds in the computation period ending

on the termination date. The remainder

of the payment, if any, is reasonably

allocated over the bond years in the

immediately preceding computation period or periods to the extent necessary

to eliminate the excess.

(D) Special rules for refundings. To

the extent that the hedged bonds are

redeemed using the proceeds of a refunding issue, the termination payment

is accounted for under paragraph

(h)(3)(iv)(B) of this section by treating

it as a payment on the refunding issue,

rather than the hedged bonds. In addition, to the extent that the refunding

issue is redeemed during the period to

which the termination payment has been

allocated to that issue, paragraph

(h)(3)(iv)(C) of this section applies to

the termination payment by treating it as

a payment on the redeemed refunding

issue.

(E) Safe harbor for allocation of certain termination payments. A payment to

terminate a qualified hedge does not

result in that hedge failing to satisfy the

applicable provisions of paragraph

(h)(3)(iv)(B) of this section if the payment is allocated in accordance with this

paragraph (h)(3)(iv)(E). For an issue that

is a variable yield issue after termination

of a qualified hedge, an amount must be

allocated to each date on which the

hedge provider’s payment, if any, would

have been made had the hedge not been

terminated. The amounts allocated to

each date must bear the same ratio to

the notional principal amount (within

the meaning of § 1.446–3) that would

have been used to compute the hedge

provider’s payment, if any, on that date,

and the sum of the present values of

those amounts must equal the present

value of the termination payment.

Present value is computed as of the day

the qualified hedge is terminated, using

the yield on the hedged bonds, determined without regard to the termination

payment. The yield used for this purpose is computed for the period beginning on the first date the qualified hedge

is in effect and ending on the date the

qualified hedge is terminated. On the

other hand, for an issue that is a fixed

yield issue after termination of a qualified hedge, the termination payment is

taken into account as a single payment

on the date it is paid.

(4) Certain variable yield bonds

treated as fixed yield bonds—(i) In general. Except as otherwise provided in

this paragraph (h)(4), if the issuer of

variable yield bonds enters into a qualified hedge, the hedged bonds are treated

as fixed yield bonds paying a fixed

interest rate if:

(A) Maturity. The term of the hedge

is equal to the entire period during

which the hedged bonds bear interest at

variable interest rates, and the issuer

does not reasonably expect that the

hedge will be terminated before the end

of that period.

(B) Payments closely correspond.

Payments to be received under the

hedge correspond closely in time to the

hedged portion of payments on the

hedged bonds. Hedge payments received

within 15 days of the related payments

on the hedged bonds generally so correspond.

into account all payments made and

received under the hedge and all payments on the hedged bonds (i.e., after

netting all payments), the issuer’s aggregate payments are fixed and determinable as of a date not later than 15 days

after the issue date of the hedged bonds.

Payments on bonds are treated as fixed

for purposes of this paragraph

(h)(4)(i)(C) if payments on the bonds

are based, in whole or in part, on one

interest rate, payments on the hedge are

based, in whole or in part, on a second

interest rate that is substantially the

same as, but not identical to, the first

interest rate and payments on the bonds

would be fixed if the two rates were

identical. Rates are treated as substantially the same if they are reasonably

expected to be substantially the same

throughout the term of the hedge. For

example, an objective 30-day taxexempt variable rate index or other

objective index may be substantially the

same as an issuer’s individual 30-day

interest rate.

(ii) Accounting. Except as otherwise

provided in this paragraph (h)(4)(ii), in

determining yield on the hedged bonds,

all the issuer’s payments on the hedged

bonds and all payments made and received on a hedge described in paragraph (h)(4)(i) of this section are taken

into account. If payments on the bonds

and payments on the hedge are based, in

whole or in part, on variable interest

rates that are substantially the same

within the meaning of paragraph

(h)(4)(i)(C) of this section (but not identical), yield on the issue is determined

by treating the variable interest rates as

identical. For example, if variable rate

bonds bearing interest at a weekly rate

equal to the rate necessary to remarket

the bonds at par are hedged with an

interest rate swap under which the issuer

receives payments based on a short-term

floating rate index that is substantially

the same as, but not identical to, the

weekly rate on the bonds, the interest

payments on the bonds are treated as

equal to the payments received by the

issuer under the swap for purposes of

computing the yield on the bonds.

(iii) Effect of termination—(A) In

general. Except as otherwise provided in

this paragraph (h)(4)(iii) and paragraph

(h)(5) of this section, the issue of which

the hedged bonds are a part is treated as

if it were reissued as of the termination

date of the qualified hedge covered by

paragraph (h)(4)(i) of this section in

determining yield on the hedged bonds

for purposes of § 1.148–3. The redemption price of the retired issue and the

issue price of the new issue equal the

aggregate values of all the bonds of the

issue on the termination date. In computing the yield on the new issue for

this purpose, any termination payment is

accounted for under paragraph (h)(3)(iv)

of this section, applied by treating the

termination payment as made or received on the new issue under this

paragraph (h)(4)(iii).

(B) Effect of early termination. Except as otherwise provided in this paragraph (h)(4)(iii), the general rules of

paragraph (h)(4)(i) of this section do not

apply in determining the yield on the

hedged bonds for purposes of § 1.148–3

if the hedge is terminated or deemed

terminated within 5 years after the issue

date of the issue of which the hedged

bonds are a part. Thus, the hedged

bonds are treated as variable yield bonds

for purposes of § 1.148–3 from the

issue date.

This paragraph (h)(4)(iii) does not apply

to a termination if, based on the facts

and circumstances (e.g., taking into account both the termination and any

qualified hedge that immediately replaces the terminated hedge), there is no

change in the yield.

(5) Contracts entered into before issue date of hedged bond—(i) In general. A contract does not fail to be a

hedge under paragraph (h)(2)(i) of this

section solely because it is entered into

before the issue date of the hedged

bond. However, that contract must be

one to which either paragraph (h)(5)(ii)

or (h)(5)(iii) of this section applies.

(ii) Contracts expected to be closed

substantially contemporaneously with

the issue date of hedged bond—

(A) Application.

This

paragraph

(h)(5)(ii) applies to a contract if, on the

date the contract is identified, the issuer

reasonably expects to terminate or otherwise close (terminate) the contract substantially contemporaneously with the

issue date of the hedged bond.

(B) Contract terminated. If a contract

to which this paragraph (h)(5)(ii) applies

is terminated substantially contemporaneously with the issue date of the

hedged bond, the amount paid or received, or deemed to be paid or received, by the issuer in connection with

the issuance of the hedged bond to

terminate the contract is treated as an

adjustment to the issue price of the

hedged bond and as an adjustment to

the sale proceeds of the hedged bond for

purposes of section 148. Amounts paid

or received, or deemed to be paid or

received, before the issue date of the

hedged bond are treated as paid or

received on the issue date in an amount

equal to the future value of the payment

or receipt on that date. For this purpose,

future value is computed using yield on

the hedged bond without taking into

account amounts paid or received (or

deemed paid or received) on the contract.

applies is not terminated substantially

contemporaneously with the issue date

of the hedged bond, the contract is

deemed terminated for its fair market

value as of the issue date of the hedged

bond. Once a contract has been deemed

terminated pursuant to this paragraph

(h)(5)(ii)(C), payments on and receipts

from the contract are no longer taken

into account under this paragraph (h) for

purposes of determining yield on the

hedged bond.

(D) Relation to other requirements of

a qualified hedge. Payments made in

connection with the issuance of a bond

to terminate a contract to which this

paragraph (h)(5)(ii) applies do not prevent the contract from satisfying the

requirements of paragraph (h)(2)(vi) of

this section.

(E) Fixed yield treatment. A bond

that is hedged with a contract to which

this paragraph (h)(5)(ii) applies does not

fail to be a fixed yield bond if, taking

into account payments on the contract

and the payments to be made on the

bond, the bond satisfies the definition of

fixed yield bond. See also paragraph

(h)(4) of this section.

(iii) Contracts expected not to be

closed substantially contemporaneously

with the issue date of hedged bond—

(A) Application.

This

paragraph

(h)(5)(iii) applies to a contract if, on the

date the contract is identified, the issuer

does not reasonably expect to terminate

the contract substantially contemporaneously with the issue date of the hedge

bond.

(B) Contract terminated. If a contract

to which this paragraph (h)(5)(iii) applies is terminated in connection with

the issuance of the hedged bond, the

amount paid or received, or deemed to

be paid or received, by the issuer to

terminate the contract is treated as an

adjustment to the issue price of the

hedged bond and as an adjustment to

the sale proceeds of the hedged bond for

purposes of section 148.

applies is not terminated substantially

contemporaneously with the issue date

of the hedged bond, no payments with

respect to the hedge made by the issuer

before the issue date of the hedged bond

are taken into account under this section.

(iv) Identification. The identification

required under paragraph (h)(2)(viii) of

this section must specify the reasonably

expected governmental purpose, issue

price, maturity, and issue date of the

hedged bond, the manner in which interest is reasonably expected to be computed, and whether paragraph (h)(5)(ii)

or (h)(5)(iii) of this section applies to

the contract. If an issuer identifies a

contract under this paragraph (h)(5)(iv)

that would be a qualified hedge with

respect to the anticipated bond, but does

not issue the anticipated bond on the

identified issue date, the contract is

taken into account as a qualified hedge

of any bond of the issuer that is issued

for the identified governmental purpose

within a reasonable interval around the

identified issue date of the anticipated

bond.

(6) Authority of the Commissioner.

The Commissioner, by publication of a

revenue ruling or revenue procedure

(see § 601.601(d)(2) of this chapter),

may specify contracts that, although

they do not meet the requirements of

paragraph (h)(2) of this section, are

qualified hedges or, although they do

not meet the requirements of paragraph

(h)(4) of this section, cause the hedged

bonds to be treated as fixed yield bonds.

Par. 11. In § 1.148–5, paragraphs

(b)(2)(iii), (c)(2)(i), (c)(3)(ii), (d)(3)(ii),

(e)(2)(ii)(B) and (e)(2)(iii) are revised to

read as follows:

§ 1.148–5 Yield and valuation of investments.

(b) * * *

(2) * * *

(iii) Permissive application of single

investment rules to certain yield restricted investments for all purposes of

section 148. For all purposes of section

148, if an issuer reasonably expects as

of the issue date to establish and maintain a sinking fund solely to reduce the

yield on the investments in a refunding

escrow, then the issuer may treat all of

the yield restricted nonpurpose investments in the refunding escrow and that

sinking fund as a single investment

having a single yield, determined under

this paragraph (b)(2). Thus, an issuer

may not treat the nonpurpose investments in a reasonably required reserve

fund and a refunding escrow as a single

investment having a single yield under

this paragraph (b)(2)(iii).

(2) Manner of payment—(i) In general. Except as otherwise provided in

paragraph (c)(2)(ii) of this section, an

amount is paid under this paragraph (c)

if it is paid to the United States at the

same time and in the same manner as

rebate amounts are required to be paid

or at such other time or in such manner

as the Commissioner may prescribe. For

example, yield reduction payments must

be made on or before the date of

required rebate installment payments as

described in §§ 1.148–3(f), (g), and (h).

The provisions of § 1.148–3(i) apply to

payments made under this paragraph (c).

(3) * * *

(ii) Exception to yield reduction payments rule for advance refunding issues.

Paragraph (c)(1) of this section does not

apply to investments allocable to gross

proceeds of an advance refunding issue,

other than—

(A) Transferred proceeds to which

paragraph (c)(3)(i)(C) of this section

applies;

(B) Replacement proceeds to which

paragraph (c)(3)(i)(F) of this section

applies; and

paragraph (c)(3)(i)(E) of this section

applies, but only to the extent necessary

to satisfy yield restriction under section

148(a) on those proceeds treating all

investments allocable to those proceeds

as a separate class.

(d) * * *

(3) * * *

(ii) Exception to fair market value

requirement for transferred proceeds allocations, universal cap allocations, and

commingled funds. Paragraph (d)(3)(i) of

this section does not apply if the investment is allocated from one issue to

another issue as a result of the transferred proceeds allocation rule under

§ 1.148–9(b) or the universal cap rule

under § 1.148–6(b)(2), provided that

both issues consist exclusively of taxexempt bonds. In addition, paragraph

(d)(3)(i) of this section does not apply

to investments in a commingled fund

(other than a bona fide debt service

fund) unless it is an investment being

initially deposited in or withdrawn from

a commingled fund described in

§ 1.148–6(e)(5)(iii).

(e) * * *

(2) * * *

(ii) * * *

(B) External commingled funds. A

widely held commingled fund in which

no investor in the fund owns more than

10 percent of the beneficial interest in

the fund. For purposes of this paragraph

(e)(2)(ii)(B), a fund is treated as widely

held only if, during the immediately

preceding fixed, semiannual period chosen by the fund (e.g., semiannual periods ending June 30 and December 31),

the fund had a daily average of more

than 15 investors that were not related

parties, and the daily average amount

each investor had invested in the fund

was not less than the lesser of $500,000

and 1 percent of the daily average of the

total amount invested in the fund. For

purposes of this paragraph (e)(2)(ii)(B),

an investor will be treated as owning

not more than 10 percent of the beneficial interest in the fund if, on the date of

each deposit by the investor into the

fund, the total amount the investor and

any related parties have on deposit in

the fund is not more than 10 percent of

the total amount that all investors have

on deposit in the fund. For purposes of

the preceding sentence, the total amount

that all investors have on deposit in the

fund is equal to the sum of all deposits

made by the investor and any related

parties on the date of those deposits and

the closing balance in the fund on the

day before those deposits. If any investor in the fund owns more than 10

percent of the beneficial interest in the

fund, the fund does not qualify under

this paragraph (e)(2)(ii)(B) until that

investor makes sufficient withdrawals

from the fund to reduce its beneficial

interest in the fund to 10 percent or less.

(iii) Special rule for guaranteed investment contracts. For a guaranteed

investment contract, a broker’s commission or similar fee paid on behalf of

either an issuer or the provider is treated

as an administrative cost and, except in

the case of an issue that satisfies section

148(f)(4)(D)(i), is a qualified administrative cost to the extent that the present

value of the commission, as of the date

the contract is allocated to the issue,

does not exceed the lesser of a reasonable amount within the meaning of

paragraph (e)(2)(i) of this section or the

present value of annual payments equal

to .05 percent of the weighted average

amount reasonably expected to be invested each year of the term of the

contract. For this purpose, present value

is computed using the taxable discount

rate used by the parties to compute the

commission or, if not readily ascertainable, the yield to the issuer on the

investment contract or other reasonable

taxable discount rate.

Par. 12. In § 1.148–6, paragraph

(d)(3)(iii)(C) is revised to read as follows:

§ 1.148–6 General allocation and accounting rules.

(d) * * *

(3) * * *

(iii) * * *

treated as unavailable. For a 501(c)(3)

organization, a qualified endowment

fund is treated as unavailable. A fund is

a qualified endowment fund if—

(1) The fund is derived from gifts or

bequests, or the income thereon, that

were neither made nor reasonably expected to be used to pay working capital

expenditures;

(2) Pursuant to reasonable, established practices of the organization, the

governing body of the 501(c)(3) organization designates and consistently oper-

ates the fund as a permanent endowment

fund or quasi-endowment fund restricted

as to use; and

(3) There is an independent verification that the fund is reasonably necessary as part of the organization’s permanent capital.

Par. 13. In § 1.148–9, paragraphs

(c)(2)(ii)(B) and (h)(4)(vi) are revised to

read as follows:

§ 1.148–9 Arbitrage rules for refunding

issues.

(2) * * *

(ii) * * *

(B) Permissive allocation of nonproceeds to earliest expenditures. Excluding amounts covered by paragraph

(c)(2)(ii)(A) of this section and subject

to any required earlier expenditure of

those amounts, any amounts in a mixed

escrow that are not proceeds of a refunding issue may be allocated to the

earliest maturing investments in the

mixed escrow, provided that those investments mature and the proceeds

thereof are expended before the date of

any expenditure from the mixed escrow

to pay any principal of the prior issue.

(h) * * *

(4) * * *

(vi) Exception for refundings of interim notes. Paragraph (h)(4)(v) of this

section need not be applied to refunding

bonds issued to provide permanent financing for one or more projects if the

prior issue had a term of less than 3

years and was sold in anticipation of

permanent financing, but only if the

aggregate term of all prior issues sold in

anticipation of permanent financing was

less than 3 years.

Par. 14. Section 1.148–10 is amended

as follows:

1. Paragraphs (b)(2), (c)(2)(viii) and

(c)(2)(ix) are revised.

2. Paragraph (c)(2)(x) is added.

3. Paragraph (e) is revised.

The revised and added provisions

read as follows:

§ 1.148–10 Anti-abuse rules and authority of Commissioner.

(b) * * *

(2) Application. The provisions of

this paragraph (b) only apply to the

portion of an issue that, as a result of

actions taken (or actions not taken) after

the issue date, overburdens the market

for tax-exempt bonds, except that for an

issue that is reasonably expected as of

the issue date to overburden the market,

those provisions apply to all of the gross

proceeds of the issue.

(2) * * *

(viii) Replacement proceeds in a

sinking fund for the refunding issue;

(ix) Qualified guarantee fees for the

refunding issue or the prior issue; and

(x) Fees for a qualified hedge for the

refunding issue.

(e) Authority of the Commissioner to

clearly reflect the economic substance of

a transaction. If an issuer enters into a

transaction for a principal purpose of

obtaining a material financial advantage

based on the difference between taxexempt and taxable interest rates in a

manner that is inconsistent with the

purposes of section 148, the Commissioner may exercise the Commissioner’s

discretion to depart from the rules of

§ 1.148–1 through § 1.148–11 as necessary to clearly reflect the economic

substance of the transaction. For this

purpose, the Commissioner may recompute yield on an issue or on investments, reallocate payments and receipts

on investments, recompute the rebate

amount on an issue, treat a hedge as

either a qualified hedge or not a qualified hedge, or otherwise adjust any item

whatsoever bearing upon the investments and expenditures of gross proceeds of an issue. For example, if the

amount paid for a hedge is specifically

based on the amount of arbitrage earned

or expected to be earned on the hedged

bonds, a principal purpose of entering

into the contract is to obtain a material

financial advantage based on the difference between tax-exempt and taxable

interest rates in a manner that is inconsistent with the purposes of section 148.

Par. 15. Section 1.148–11 is amended

as follows:

1. Paragraphs (a), (b)(1), (c)(1), and

(g) are revised.

2. Paragraph (b)(3) is added.

3. Paragraphs (h) and (i) are removed.

The revised and added provisions

read as follows:

§ 1.148–11 Effective dates.

(a) In general. Except as otherwise

provided in this section, §§ 1.148–1

through 1.148–11 apply to bonds sold

on or after July 8, 1997.

(b) Elective retroactive application in

whole—(1) In general. Except as otherwise provided in this section, and subject to the applicable effective dates for

the corresponding statutory provisions,

an issuer may apply the provisions of

§§ 1.148–1 through 1.148–11 in whole,

but not in part, to any issue that is

outstanding on July 8, 1997, and is

subject to section 148(f) or to sections

103(c)(6) or 103A(i) of the Internal

Revenue Code of 1954, in lieu of otherwise applicable regulations under those

sections.

(3) No elective retroactive application

for hedges of fixed rate issues. The

provisions of § 1.148–4(h)(2)(i)(B) (relating to hedges of fixed rate issues)

may not be applied to any bond sold on

or before July 8, 1997.

certain provisions and special rules—

(1) Retroactive application of overpayment recovery provisions. An issuer may

apply the provisions of § 1.148–3(i) to

any issue that is subject to section

148(f) or to sections 103(c)(6) or

103A(i) of the Internal Revenue Code of

1954.

(g) Provisions applicable to certain

bonds sold before effective date. Except

for bonds to which paragraph (b)(1) of

this section applies—

(1) Section 1.148–11A provides rules

applicable to bonds sold after June 6,

1994, and before July 8, 1997; and

(2) Sections

1.148–1

through

1.148–11 as in effect on July 1, 1993

(see 26 CFR part 1 as revised April 1,

1994), and § 1.148–11A(i) (relating to

elective retroactive application of certain

provisions) provide rules applicable to

certain issues issued before June 7,

1994.

Par. 16. In newly designated § 1.148–

11A, paragraph (i) is revised to read as

follows:

§ 1.148–11A Effective dates.

(i) Transition rules for certain

amendments—(1) In general. Section

1.103–8(a)(5), §§ 1.148–1, 1.148–2,

1.148–3, 1.148–4, 1.148–5, 1.148–6,

1.148–7, 1.148–8, 1.148–9, 1.148–10,

1.148–11, 1.149(d)–1, and 1.150–1 as in

effect on June 7, 1994 (see 26 CFR part

1 as revised April 1, 1997), and

§§ 1.148–1A through 1.148–11A,

1.149(d)–1A, and 1.150–1A apply, in

whole, but not in part—

(i) To bonds sold after June 6, 1994,

and before July 8, 1997;

(ii) To bonds issued before July 1,

1993, that are outstanding on June 7,

1994, if the first time the issuer applies

§§ 1.148–1 through 1.148–11 as in effect on June 7, 1994 (see 26 CFR part 1

as revised April 1, 1997), to the bonds

under § 1.148–11(b) or (c) is after June

6, 1994, and before July 8, 1997;

(iii) At the option of the issuer, to

bonds to which §§ 1.148–1 through

1.148–11, as in effect on July 1, 1993

(see 26 CFR part 1 as revised April 1,

1994), apply, if the bonds are outstanding on June 7, 1994, and the issuer

applies § 1.103–8(a)(5), §§ 1.148–1,

1.148–2, 1.148–3, 1.148–4, 1.148–5,

1.148–6, 1.148–7, 1.148–8, 1.148–9,

1.148–10, 1.148–11, 1.149(d)–1, and

1.150–1 as in effect on June 7, 1994

(see 26 CFR part 1 as revised April 1,

1997), and §§ 1.148–1A through 1.148–

11A, 1.149(d)–1A, and 1.150–1A to the

bonds before July 8, 1997.

(2) Special rule. For purposes of

paragraph (i)(1) of this section, any

reference to a particular paragraph of

§§ 1.148–1T, 1.148–2T, 1.148–3T,

1.148–4T, 1.148–5T, 1.148–6T, 1.148–

9T, 1.148–10T, 1.148–11T, 1.149(d)–1T,

or 1.150–1T shall be applied as a reference to the corresponding paragraph of

§§ 1.148–1A, 1.148–2A, 1.148–3A,

1.148–4A, 1.148–5A, 1.148–6A, 1.148–

9A, 1.148–10A, 1.148–11A, 1.149(d)–

1A, or 1.150–1A, respectively.

(3) Identification of certain hedges.

For any hedge entered into after June

18, 1993, and on or before June 6,

1994, that would be a qualified hedge

within the meaning of § 1.148–4(h)(2),

as in effect on June 7, 1994 (see 26

CFR part 1 as revised April 1, 1997),

except that the hedge does not meet the

requirements of § 1.148–4A(h)(2)(ix)

because the issuer failed to identify the

hedge not later than 3 days after which

the issuer and the provider entered into

the contract, the requirements of

§ 1.148–4A(h)(2)(ix) are treated as met

if the contract is identified by the actual

issuer on its books and records maintained for the hedged bonds not later

than July 8, 1997.

Par. 17. Section 1.149(d)–1 is

amended as follows:

1. Paragraph (f)(3) is revised.

2. Paragraph (g)(3) is added.

The revised and added provisions

read as follows:

§ 1.149(d)–1 Limitations on advance

refundings.

(f) * * *

(3) Application of savings test to multipurpose issues. Except as otherwise

provided in this paragraph (f)(3), the

multipurpose issue rules in § 1.148–9(h)

apply for purposes of the savings test. If

any separate issue in a multipurpose

issue increases the aggregate present

value debt service savings on the entire

multipurpose issue or reduces the

present value debt service losses on that

entire multipurpose issue, that separate

issue satisfies the savings test.

(g) * * *

(3) Special effective date for paragraph (f)(3). Paragraph (f)(3) of this

section applies to bonds sold on or after

July 8, 1997, and to any issue to which

the election described in § 1.148–

11(b)(1) is made. See § 1.148–11A(i)

for rules relating to certain bonds sold

before July 8, 1997.

§ 1.149(d)–1T

§ 1.149(d)–1A]

[Redesignated

Par. 18. Section 1.149(d)–1T is redesignated as § 1.149(d)–1A, is transferred

immediately following § 1.148–11A,

and the section heading is amended by

removing the language ‘‘(temporary)’’.

Par. 19. Section 1.150–1 is amended

as follows:

1. Paragraph (a)(2) is revised.

2. Paragraphs(c)(1) and (c)(4)(iii) are

revised.

3. Paragraph (c)(6) is added.

The revised and added provisions

read as follows:

§ 1.150–1 Definitions.

(a) * * *

(2) Effective date—(i) In general.

Except as otherwise provided in this

paragraph (a)(2), this section applies to

issues issued after June 30, 1993 to

which §§ 1.148–1 through 1.148–11 apply. In addition, this section (other than

paragraph (c)(3) of this section) applies

to any issue to which the election

described in § 1.148–11(b)(1) is made.

(ii) Special effective date for paragraphs (c)(1), (c)(4)(iii), and (c)(6).

Paragraphs (c)(1), (c)(4)(iii), and (c)(6)

of this section apply to bonds sold on or

after July 8, 1997, and to any issue to

which the election described in

§ 1.148–11(b)(1) is made. See § 1.148–

11A(i) for rules relating to certain bonds

sold before July 8, 1997.

this paragraph (c), the term issue means

two or more bonds that meet all of the

following requirements:

(i) Sold at substantially the same

time. The bonds are sold at substantially

the same time. Bonds are treated as sold

at substantially the same time if they are

sold less than 15 days apart.

(ii) Sold pursuant to the same plan of

financing. The bonds are sold pursuant

to the same plan of financing. Factors

material to the plan of financing include

the purposes for the bonds and the

structure of the financing. For example,

generally—

(A) Bonds to finance a single facility

or related facilities are part of the same

plan of financing;

(B) Short-term bonds to finance

working capital expenditures and longterm bonds to finance capital projects

are not part of the same plan of financing; and

lease and general obligation bonds secured by tax revenues are not part of the

same plan of financing.

(iii) Payable from same source of

funds. The bonds are reasonably expected to be paid from substantially the

same source of funds, determined without regard to guarantees from parties

unrelated to the obligor.

(6) Sale date. The sale date of a bond

is the first day on which there is a

binding contract in writing for the sale

or exchange of the bond.

§ 1.150–1T [Redesignated as § 1.150–

1A]

Par. 20. Section 1.150–1T is redesignated as § 1.150–1A, is transferred immediately following § 1.149(d)–1A, and

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK

REDUCTION ACT

Par. 21. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 22. In § 602.101, paragraph (c)

is amended by adding an entry in numerical order to the table to read as

follows:

§ 602.101 OMB Control numbers.

Current

CFR part or section where OMB

identified and described

control No.

1.150–1 . . . . . . . . . . . . . . . 1545–1347

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved May 1, 1997.

Donald C. Lubick,

Acting Assistant Secretary of the

Treasury (Tax Policy).

(Filed by the Office of the Federal Register on

May 8, 1997, 8:45 a.m., and published in the issue

of the Federal Register for May 9, 1997, 62 F.R.

25502)

(4) * * *

(iii) Certain general obligation

bonds. Except as otherwise provided in

paragraph (c)(2) of this section, bonds

that are secured by a pledge of the

issuer’s full faith and credit (or a substantially similar pledge) and sold and

issued on the same dates pursuant to a

single offering document may be treated

as part of the same issue if the issuer so

elects on or before the issue date.

the section heading is amended by removing the language ‘‘(temporary)’’.

Section 280G.—Golden Parachute

Payments

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

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

Rev. Rul. 97–24, page 17.

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 June 1997. See Rev. Rul. 97–24,

page 17.

Section 412.—Minimum Funding

Standards

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

month of June 1997. See Rev. Rul. 97–24, page

17.

Section 467.—Certain Payments

for the Use of Property or Services

Section 807.—Rules for Certain

Reserves

and other sections of the Code, tables

set forth the rates for June 1997.

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

month of June 1997. See Rev. Rul. 97–24, page

17.

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

month of June 1997. See Rev. Rul. 97–24, page

17.

Rev. Rul. 97–24

Section 846.—Discounted Unpaid

Losses Defined

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 June 1997. See Rev. Rul. 97–24, page

17.

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

month of June 1997. See Rev. Rul. 97–24, page

17.

Section 1274.—Determination of

Issue Price in the Case of Certain

Debt Instruments Issued for

Property

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 June 1997. See Rev. Rul. 97–24, page

17.

(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 section 1274, 1288, 382,

This revenue ruling provides various

prescribed rates for federal income tax

purposes for June 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. 97–24 TABLE 1

Applicable Federal Rates (AFR) for June 1997

Period for Compounding

Short-Term

AFR

110% AFR

120% AFR

130% AFR

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%

6.80%

7.50%

8.19%

8.89%

10.29%

12.05%

6.69%

7.36%

8.03%

8.70%

10.04%

11.71%

6.63%

7.29%

7.95%

8.61%

9.92%

11.54%

6.60%

7.25%

7.90%

8.55%

9.84%

11.43%

7.11%

7.84%

8.57%

9.30%

6.99%

7.69%

8.39%

9.09%

6.93%

7.62%

8.30%

8.99%

6.89%

7.57%

8.25%

8.92%

Mid-Term

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

Long-Term

AFR

110% AFR

120% AFR

130% AFR

REV. RUL. 97–24 TABLE 2

Adjusted AFR for June 1997

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-term

adjusted AFR

4.10%

4.06%

4.04%

4.03%

Mid-term

adjusted AFR

4.96%

4.90%

4.87%

4.85%

Long-term

adjusted AFR

5.64%

5.56%

5.52%

5.50%

REV. RUL. 97–24 TABLE 3

Rates Under Section 382 for June 1997

Adjusted federal long-term rate for the current month

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. 97–24 TABLE 4

Appropriate Percentages Under Section 42(b)(2)

for June 1997

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

8.64%

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

3.70%

REV. RUL. 97–24 TABLE 5

Rate Under Section 7520 for June 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 June 1997. See Rev. Rul. 97–24, page

17.

Section 6621.— Determination of

Interest Rate

26 CFR 301.6621–1: Interest rate.

Interest rates; underpayments and

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

Code for the calendar quarter beginning

July 1, 1997, will be 8 percent for

overpayments, 9 percent for underpayments, and 11 percent for large corporate underpayments. The rate of interest

paid on the portion of a corporate

overpayment exceeding $10,000 is 6.5

percent.

Rev. Rul. 97–23

Section 6621 of the Internal Revenue

Code establishes different rates for interest on tax overpayments and interest on

tax underpayments. Under § 6621(a)(1),

the overpayment rate is the sum of the

federal short-term rate plus 2 percentage

points, except the rate for the portion of

a corporate overpayment of tax exceeding $10,000 for a taxable period is the

sum of the federal short-term rate plus

0.5 of a percentage point for interest

computations made after December 31,

1994. Under § 6621(a)(2), the underpayment rate is the sum of the federal

short-term rate plus 3 percentage points.

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

on any large corporate underpayment,

the underpayment rate under § 6621(a)(2) is determined by substituting ‘‘5

percentage points’’ for ‘‘3 percentage

8.2%

points.’’ See § 6621(c) and § 301.6621–

3 of the Regulations on Procedure and

Administration for the definition of a

large corporate underpayment and for

the rules for determining the applicable

rate. Section 6621(c) and § 301.6621–3

are generally effective for periods after

December 31, 1990.

Section 6621(b)(1) provides that the

Secretary will determine the federal

short-term rate for the first month in

each calendar quarter.

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

the federal short-term rate determined

under § 6621(b)(1) for any month applies during the first calendar quarter

beginning after such month.

Section 6621(b)(3) provides that the

federal short-term rate for any month is

the federal short-term rate determined

during such month by the Secretary in

accordance with § 1274(d), rounded to

the nearest full percent (or, if a multiple

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

to the next highest full percent).

Notice 88–59, 1988–1 C.B. 546, announced that in determining the quarterly interest rates to be used for overpayments and underpayments of tax

under § 6621, the Internal Revenue

Service will use the federal short-term

rate based on daily compounding because that rate is most consistent with

§ 6621 which, pursuant to § 6622, is

subject to daily compounding.

Rounded to the nearest full percent,

the federal short-term rate based on

daily compounding determined during

the month of April 1997 is 6 percent.

Accordingly, an overpayment rate of 8

percent and an underpayment rate of 9

percent are established for the calendar

quarter beginning July 1, 1997. The

overpayment rate for the portion of

corporate overpayments exceeding

$10,000 for the calendar quarter beginning July 1, 1997, is 6.5 percent. The

underpayment rate for large corporate

underpayments for the calendar quarter

beginning July 1, 1997, is 11 percent.

These rates apply to amounts bearing

interest during that calendar quarter.

Interest factors for daily compound

interest for annual rates of 6.5 percent, 8

percent, 9 percent, and 11 percent are

published in Tables 18, 21, 23, and 27

of Rev. Proc. 95–17, 1995–1 C.B. 556,

572, 575, 577, and 581.

Annual interest rates to be compounded daily pursuant to § 6622 that

apply for prior periods are set forth in

the accompanying tables.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Marcia Rachy of the Office of

Assistant Chief Counsel (Income Tax

and Accounting). For further information

regarding this revenue ruling, contact

Ms. Rachy on (202) 622–4940 (not a

toll-free call).

TABLE OF INTEREST RATES

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

OVERPAYMENTS AND UNDERPAYMENTS

PERIOD

RATE

DAILY RATE TABLE

IN 1995–1 C.B.

Before Jul. 1, 1975

Jul. 1, 1975—Jan. 31, 1976

Feb. 1, 1976—Jan. 31, 1978

Feb. 1, 1978—Jan. 31, 1980

Feb. 1, 1980—Jan. 31, 1982

Feb. 1, 1982—Dec. 31, 1982

Jan. 1, 1983—Jun. 30, 1983

Jul. 1, 1983—Dec. 31, 1983

Jan. 1, 1984—Jun. 30, 1984

Jul. 1, 1984—Dec. 31, 1984

Jan. 1, 1985—Jun. 30, 1985

Jul. 1, 1985—Dec. 31, 1985

Jan. 1, 1986—Jun. 30, 1986

Jul. 1, 1986—Dec. 31, 1986

12%

20%

16%

11%

13%

11%

10%

Table 2, pg. 557

Table 4, pg. 559

Table 3, pg. 558

Table 2, pg. 557

Table 5, pg. 560

Table 6, pg. 560

Table 37, pg. 591

Table 27, pg. 581

Table 75, pg. 629

Table 31, pg. 585

Table 27, pg. 581

Table 25, pg. 579

Table 23, pg. 577

TABLE OF INTEREST RATES

FROM JAN. 1, 1987 - PRESENT

OVERPAYMENTS

Jan. 1, 1987—Mar. 31, 1987

Apr. 1, 1987—Jun. 30, 1987

Jul. 1, 1987—Sep. 30, 1987

Oct. 1, 1987—Dec. 31, 1987

Jan. 1, 1988—Mar. 31, 1988

Apr. 1, 1988—Jun. 30, 1988

Jul. 1, 1988—Sep. 30, 1988

Oct. 1, 1988—Dec. 31, 1988

Jan. 1, 1989—Mar. 31, 1989

Apr. 1, 1989—Jun. 30, 1989

Jul. 1, 1989—Sep. 30, 1989

Oct. 1, 1989—Dec. 31, 1989

Jan. 1, 1990—Mar. 31, 1990

Apr. 1, 1990—Jun. 30, 1990

UNDERPAYMENTS

RATE TABLE

1995–1 C.B.

RATE TABLE

1995–1 C.B.

10%

11%

10%

575

577

627

625

627

579

581

579

10%

11%

10%

11%

12%

11%

577

579

629

627

629

581

583

581

TABLE OF INTEREST RATES—Continued

FROM JAN. 1, 1987 - PRESENT

OVERPAYMENTS

Jul. 1, 1990—Sep. 30, 1990

Oct. 1, 1990—Dec. 31, 1990

Jan. 1, 1991—Mar. 31, 1991

Apr. 1, 1991—Jun. 30, 1991

Jul. 1, 1991—Sep. 30, 1991

Oct. 1, 1991—Dec. 31, 1991

Jan. 1, 1992—Mar. 31, 1992

Apr. 1, 1992—Jun. 30, 1992

Jul. 1, 1992—Sep. 30, 1992

Oct. 1, 1992—Dec. 31, 1992

Jan. 1, 1993—Mar. 31, 1993

Apr. 1, 1993—Jun. 30, 1993

Jul. 1, 1993—Sep. 30, 1993

Oct. 1, 1993—Dec. 31, 1993

Jan. 1, 1994—Mar. 31, 1994

Apr. 1, 1994—Jun. 30, 1994

Jul. 1, 1994—Sep. 30, 1994

Oct. 1, 1994—Dec. 31, 1994

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

UNDERPAYMENTS

RATE TABLE

1995–1 C.B.

RATE TABLE

1995–1 C.B.

10%

579

577

623

621

619

571

573

575

577

575

623

621

623

575

11%

10%

581

579

625

623

621

573

575

577

579

577

625

623

625

577

RATE TABLE

1995–1 C.B.

13%

12%

11%

10%

11%

585

583

629

627

625

577

579

581

TABLE OF INTEREST RATES FOR

LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT

Jan. 1, 1991—Mar. 31, 1991

Apr. 1, 1991—Jun. 30, 1991

Jul. 1, 1991—Sep. 30, 1991

Oct. 1, 1991—Dec. 31, 1991

Jan. 1, 1992—Mar. 31, 1992

Apr. 1, 1992—Jun. 30, 1992

Jul. 1, 1992—Sep. 30, 1992

Oct. 1, 1992—Dec. 31, 1992

Jan. 1, 1993—Mar. 31, 1993

Apr. 1, 1993—Jun. 30, 1993

Jul. 1, 1993—Sep. 30, 1993

Oct. 1, 1993—Dec. 31, 1993

Jan. 1, 1994—Mar. 31, 1994

Apr. 1, 1994—Jun. 30, 1994

Jul. 1, 1994—Sep. 30, 1994

Oct. 1, 1994—Dec. 31, 1994

Jan. 1, 1995—Mar. 31, 1995

TABLE OF INTEREST RATES FOR

LARGE CORPORATE UNDERPAYMENTS—Continued

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

12%

11%

10%

11%

583

581

629

627

629

581

RATE TABLE

1995–1 C.B.

6.5%

7.5%

6.5%

5.5%

6.5%

572

574

572

620

618

620

572

TABLE OF INTEREST RATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 - PRESENT

Jan. 1, 1995—Mar. 31, 1995

Apr. 1, 1995—Jun. 30, 1995

Jul. 1, 1995—Sep. 30, 1995

Oct. 1, 1995—Dec. 31, 1995

Jan. 1, 1996—Mar. 31, 1996

Apr. 1, 1996—Jun. 30, 1996

Jul. 1, 1996—Sep. 30, 1996

Oct. 1, 1996—Dec. 31, 1996

Jan. 1, 1997—Mar. 31, 1997

Apr. 1, 1997—Jun. 30, 1997

Jul. 1, 1997—Sep. 30, 1997

Section 7520.—Valuation Tables

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

month of June 1997. See Rev. Rul. 97–24, page

17.

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 June 1997. See Rev. Rul. 97–24, page

17.

Part III. Administrative, Procedural, and Miscellaneous

Weighted Average Interest Rate

Update

Notice 97–33

Notice 88–73 provides guidelines for

determining the weighted average interest rate and the resulting permissible

range of interest rates used to calculate

current liability for the purpose of the

full funding limitation of § 412(c)(7) of

the Internal Revenue Code as amended

by the Omnibus Budget Reconciliation

Act of 1987 and as further amended by

the Uruguay Round Agreements Act,

Month

Year

Weighted

Average

May

1997

6.87

Drafting Information

The principal author of this notice is

Donna Prestia of the Employee Plans

90% to 107%

Permissible

Range

90% to 110%

Permissible

Range

6.19 to 7.35

6.19 to 7.56

Division. For further information regarding this notice, call (202) 622–6076

between 2:30 and 4:00 p.m. Eastern

Pub. L. 103–465 (GATT).

The average yield on the 30-year

Treasury Constant Maturities for April

1997 is 7.09 percent.

The following rates were determined

for the plan years beginning in the

month shown below.

time (not a toll-free number). Ms.

Prestia’s number is (202) 622–7377

(also not a toll-free number).

Part IV. Items of General Interest

Deletions From Cumulative List of

Organizations Contributions to

Which Are Deductible Under

Section 170 of the Code

Announcement 97–54

The names of organizations that no

longer qualify as organizations described

in section 170(c)(2) of the Internal Revenue Code of 1986 are listed below.

Generally, the Service will not disallow deductions for contributions made

to a listed organization on or before the

date of announcement in the Internal

Revenue Bulletin that an organization

no longer qualifies. However, the Service is not precluded from disallowing a

deduction for any contributions made

after an organization ceases to qualify

under section 170(c)(2) if the organization has not timely filed a suit for

declaratory judgment under section 7428

and if the contributor (1) had knowledge

of the revocation of the ruling or determination letter, (2) was aware that such

revocation was imminent, or (3) was in

part responsible for or was aware of the

activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely

filed, contributions from individuals and

organizations described in section

170(c)(2) that are otherwise allowable

will continue to be deductible. Protection under section 7428(c) would begin

on June 2, 1997, and would end on the

date the court first determines that the

organization is not described in section

170(c)(2) as more particularly set forth

in section 7428(c)(1). For individual

contributors, the maximum deduction

protected is $1,000, with a husband and

wife treated as one contributor. This

benefit is not extended to any individual

who was responsible, in whole or in

part, for the acts or omissions of the

organization that were the basis for

revocation.

Loving Spirit Foundation, Inc.

Tampa, FL

Senior Outreach Alcoholism Program

Columbus, OH

The Special Wish Foundation

Littleton, CO

Foundations Status of Certain

Organizations

Announcement 97–55

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:

American Home Health Hospice, Inc.,

Santa Ana, CA

American Society To Support

International Students, Harvard, IL

Ample Opportunity, Inc., Portland, OR

Animal Welfare Clearinghouse and

Network Organization, Inc., San

Rafael, CA

Arcola Mills Historic Foundation, Lake

Elmo, MN

Arctic Top Dogs A Youth Organization,

Kotzebue, AK

Armenian Folkloric Ensemble, Los

Angeles, CA

Armenian Theological Society,

Glendale, CA

Booker T. Washington Debate Parents

Association, Tulsa, OK

Bootstraps of America, Inc., Anchorage,

Carson Detoxification Center Inc.,

Carson City, NV

Cascade Colorado Park Association,

Inc., Cascade, CO

Cass County Child Protective Service

Board, Atlanta, TX

Cathedral Church of God in Christ

Comm. Development Corp.,

Cleveland, OH

Center for Civilian Internee Rights, Inc.,

Miami Beach, FL

Down Syndrome Publications, Inc.,

Patchogue, NY

Education Plus Inc., Acworth, GA

Elders New Life Center, Spokane, WA

Forth Smith Soccer Association, Fort

Smith, AR

Foundation for Anglican Christian

Tradition, Wynnewood, PA

Foundation for Leningrad Blockade

Survivors, Inc., Boston, MA

Foundation for the Benefit of Disabled

Persons Common Insurance Trust,

New York, NY

Foundation for Women & Children With

Aids, Houston, TX

Foundation of Oak Ridge, Inc., Santa

Ana, CA

Foundation of the Archeological Record

Inc., New York, NY

Georgetown County Community

Relations Council, Georgetown, SC

Gettysburg Ball Association Inc.,

Gettysburg, OH

Global Education Research Center, Inc.,

Atlanta, GA

Go Camping America Committee Inc.,

Vienna, VA

Homeless Institute Services, Oklahoma

City, OK

Homeless Task Force of Fort Wayne,

Inc., Fort Wayne, IN

Home of Hope Inc., Phoenix, AZ

Home Run Foundation, New York, NY

Homesick, Fort Worth, TX

Honolulu Community Services Center

Inc., Honolulu, HI

Hope-Four-You-Two-Inc., Citrus

Heights, CA

Hope Homes, Inc., Jacksonville, TX

Hope Inc., Springville, CA

Institute of Healthy Families and

Community, Houston, TX

Institute of Optimal Nutrition, Davis,

Instituto Paz en Las Americas Inc.,

Silver City, NM

Intercare, San Diego, CA

Interfaith AIDS Project, Inc., Reading,

International Association for the

Exchange of Charitable Giving,

Woodland Hills, CA

International Care, Inc., Kentwood, MI

Junior Service & Welfare League,

Plainview, TX

Kauai BMX Parents Organization,

Lawai, HI

Keep Clay Beautiful Inc., Green Cove

Springs, FL

Keepers of the Circle, Inc., Albany, NY

Llano County Memorial Hospital

Foundation, Inc., Llano, TX

Logo Foundation Inc., New York, NY

Lone Star Jenkins EMS, Lone Star, TX

Long Beach Youth Development Center,

Long Beach, CA

Los Angeles Area Assistance and

Development Corporation, Santa

Monica, CA

Los Angeles De La Biblioteca Del

Condado De Sonoma Incorporated,

Healdsburg, CA

Los Angeles Drama Critics Circle, West

Hollywood, CA

Minority Task Force on AIDS Housing

Development Fund Company Inc.,

New York, NY

Misfits Ensemble, Las Vegas, NV

Mission Bay Historical Society, San

Diego, CA

MMMBC Development Corporation

Inc., Omaha, NE

Normandie Non-Profit Housing Inc.,

Los Angeles, CA

North Bay Affordables Inc., Sonoma,

Northern California Implant Surgeons

Association, Inc., Sacramento, CA

One World Celebrations, Seattle, WA

Ontario High School Jaguar Booster

Bingo Board, Ontario, CA

Potters House, New York, NY

Prayer Faith Workshops, Aloha, OR

Principled Economics Institute,

Berkeley, CA

Rocky Mountain Pow Wow Association,

Arvada, CO

Skyfire Showchoir, Sparks, NV

Smith College Class of 1987, West

Newton, MA

Snuffys Clown Alley, Laguna Hills, CA

Software for Success Inc., Chicago, IL

Son NGOC Thanh Foundation, Seattle,

Sound Home and Hospice Foundation,

Olympia, WA

Sound Vocational Alternatives, Valdex,

Sources of Korean Tradition

Compilation Committee, Honolulu, HI

South Bay Hospice Project, Inc.,

Redondo Beach, CA

Southeast Just Intonation Center, Inc.,

Gainesville, FL

Southern California Society for

Gastrointestinal Endoscopy, Los

Angeles, CA

Southern Childrens Rights Advocacy

Council, Inc., Raleigh, NC

Southern Ohio Community Concert

Association, Wheelersburg, OH

Southern Oregon Home Services for

Christian Scientists, Medford, OR

Southern West Virginia Regional Health

Council, Inc., Bluefield, WV

South Eugene High School Golf Club,

Inc., Eugene, OR

South Placer Transportation

Management Association, Roseville,

South Thurston United Friends

Rochester-Grand Mound Food Bank,

Rochester, WA

Southwest Louisiana Alliance for the

Mentally Ill, Lake Charles, LA

Special Ministries Outreach

Coordinaters, Inc., Amity, AR

Spirit of 76 Inc., New Braunfels, TX

Torrey Pines Cancer & AIDS Research

Institute, San Diego, CA

Total Youth Homes, Fair Oaks, CA

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.

Announcement of the Disbarment, Suspension, or Consent to Voluntary

Suspension of Attorneys, Certified Public Accountants, Enrolled Agents, and

Enrolled Actuaries From Practice Before the Internal Revenue Service

Under 31 Code of Federal Regulations, Part 10, an attorney, certified public accountant, enrolled agent or enrolled

actuary, in order to avoid the institution

or conclusion of a proceeding for his

disbarment or suspension from practice

before the Internal Revenue Service,

may offer his consent to suspension

from such practice. The Director of

Practice, in his discretion, may suspend

an attorney, certified public accountant,

enrolled agent or enrolled actuary in

accordance with the consent offered.

Attorneys, certified public accountants, enrolled agents and enrolled actuaries are prohibited in any Internal Rev-

enue 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 consent 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 consent suspension from

practice before the Internal Revenue

Service:

Name

Address

Designation

Date of Suspension

Bert Jr., Earol L.

Bernard, Lucius P.

Parker, David A.

Severna Park, MD

Corte Medera, CA

Willmar, MN

CPA

Attorney

CPA

February 1, 1997 to July 31, 1997

March 10, 1997 to March 9, 2000

April 13, 1997 to April 12, 2000

Sheldon, Donald

Grandt, Lawrence E.

Reese, Rex E.

Nashville, TN

Barrington, IL

Alexandria, VA

CPA

Attorney

April 24, 1997 to September 23, 1997

April 24, 1997 to January 23, 1998

May 1, 1997 to April 30, 1999

Glasl, John E.

Coulter, Diane E.

Groves, J. Randall

Lupiloff, Steven

Wilson, Robert L.

Sloop, Wayne F.

Emporium, PA

Monroeville, PA

Matthews, NC

Bloomfield, MI

Spring Hill, FL

Winston-Salem, NC

CPA

Attorney

CPA

May 1, 1997 to September 30, 1997

May 1, 1997 to April 30, 1998

May 1, 1997 to October 31, 1998

Indefinite from May 6, 1997

May 7, 1997 to October 6, 1998

Indefinite from May 7, 1997

Wilnewic, Mark V.

Lenihan, Michael

Crystal Lake, IL

Cincinnati, OH

CPA

May 8, 1997 to November 7, 1997

May 14, 1997 to July 13, 1997

Bergmann, Frederick

Farmer, Craig

Denny, Richard

Tampa, FL

Arlington Hghts, IL

Pine Bluff, AR

CPA

June 1, 1997 to May 30, 1999

June 1, 1997 to August 31, 1997

June 1, 1997 to July 31, 1997

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

Dally, Candace L.

Mellor, Gary D.

Gottesman, Milton

Winston-Salem, NC

Norton, KS

New York, NY

CPA

Attorney

CPA

Indefinite from April 16, 1997

Wiener, James

Lunblad, Gerald

Driscoll, Robert J.

Alico, Kenneth N.

Mack, Roland G.

Germantown, NY

Sacramento, CA

Denver, CO

Orchard Park, NY

Hyattsville, MD

Attorney

CPA

Attorney

CPA

Indefinite from April 16, 1997

Indefinite from May 1, 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

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

and clarified, above).

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

used in a ruling that lists previously

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

A ruling may also be obsoleted because

the substance has been included in regulations subsequently adopted.

Revoked describes situations where

the position in the previously published

ruling is not correct and the correct

position is being stated in the new

ruling.

Superseded describes a situation

where the new ruling does nothing more

than restate the substance and situation

of a previously published ruling (or

rulings). Thus, the term is used to

republish under the 1986 Code and

regulations the same position published

under the 1939 Code and regulations.

The term is also used when it is desired

to republish in a single ruling a series of

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

separate rulings. If the new ruling does

more than restate the substance of a

prior ruling, a combination of terms is

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

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

continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names

of countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be

published that includes the list in the

original ruling and the additions, and

supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

Abbreviations

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

PHC—Personal Holding Company.

PO—Possession of the U.S.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

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.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

M—Minor.

U.S.C.—United States Code.

Nonacq.—Nonacquiescence.

X—Corporation.

O—Organization.

Y—Corporation.

P—Parent Corporation.

Z—Corporation.

The following abbreviations in current use and

formerly used will appear in material published in

the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Numerical Finding List1

Bulletin 1997–1 through 1997–21

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

97–46, 1997–18 I.R.B. 53

97–47, 1997–19 I.R.B. 94

97–48, 1997–20 I.R.B. 8

97–49, 1997–20 I.R.B. 8

97–50, 1997–20 I.R.B. 8

97–51, 1997–20 I.R.B. 9

97–52, 1997–21 I.R.B. 22

97–53, 1997–21 I.R.B. 22

Notices—Continued

Revenue Procedures—Continued

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

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

97–28, 1997–18 I.R.B. 45

97–29, 1997–20 I.R.B. 6

97–30, 1997–20 I.R.B. 6

97–31, 1997–21 I.R.B. 5

97–32, 1997–21 I.R.B. 8

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

97–24A, 1997–20 I.R.B. 7

97–25, 1997–17 I.R.B. 8

97–26, 1997–17 I.R.B. 17

97–27, 1997–21 I.R.B. 10

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–209785–95, 1997–18 I.R.B. 46

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–209823–96, 1997–18 I.R.B. 47

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

REG–253578–96, 1997–19 I.R.B. 93

Public Law:

105–2, 1997–18 I.R.B. 14

Railroad Retirement Quarterly Rate:

Notices:

1997–21 I.R.B. 4

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

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

See footnote at end of list.

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

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

97–19, 1997–18 I.R.B. 11

97–20, 1997–19 I.R.B. 4

97–21, 1997–18 I.R.B. 8

97–22, 1997–20 I.R.B. 5

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

Numerical Finding List—Continued

Bulletins 1997–1 through 1997–21

Treasury Decisions—Continued

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

8715, 1997–18 I.R.B. 5

8716, 1997–19 I.R.B. 5

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.

Finding List of Current Action on

Previously Published Items1

Revenue Procedures—Continued

Bulletin 1997–1 through 1997–21

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 1997–21

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

Railroad retirement:

Rate determination, quarterly (April 1,

1997) 21, 4

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

Airport and airway trust fund excise

taxes (PL 105–2) 18, 14

Deposits (Notice 15) 8, 23

Epoxy (DGEBA) determination (Notice

22) 13, 9

EXCISE TAX—Continued

INCOME TAX—Continued

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

26 CFR 54.9801–1 through –6,

54.9802–1, 54.9804–1, 54.9806–1,

added; group health plan, health

insurance

portability

(REG–

253578–96) 19, 93

Regulations:

26 CFR 48.4082–5T, 48.6715–2T,

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

26 CFR 54.9801–1T through –6T,

54.9802–1T, 54.9804–1T, 54.9806–

1T, added; group health plans, access, portability, and renewability

requirements (TD 8716) 19, 5

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

Electricity from certain renewable resources:

Inflation adjustment factor and reference prices, calendar year 1997

(Notice 30) 20, 6

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:

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

of the Code (RR 21) 18, 8

Unrelated business taxable income

(RP 12) 4, 7

User fees (RP 8) 1, 187

Forms W–2 and W–3; general rules and

specifications for private printing (RP

24) 16, 10; correction (RP 24A) 20, 7

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; May 1997 (RR 19) 18, 11

GIFT TAXES

Proposed regulations:

26 CFR 25.2702–1(c)(3), revised;

charitable remainder trusts (REG–

209823–96) 18, 47

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

Changes in accounting periods and

methods of accounting (RP 27) 21, 10

Charitable remainder unitrusts; no rule

on CRT abuses (RP 23) 17, 7

Consolidated returns, TD 7637; correction (Notice 29) 20, 6

Credit for producing fuel from a

nonconventional source, section 29

inflation adjustment factor, and reference price (Notice 28) 18, 45

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

INCOME TAX—Continued

Interest—Continued

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; March

1997 (RR 22) 20, 5

Low-income housing tax credit (Notice

14) 8, 23

Major disaster areas (RR 11) 10, 5

Medical and dental expenses (RR 9) 9,

Medical savings accounts:

High-deductible plan (RR 20) 19, 4

Modified guaranteed contracts (Notice

32) 21, 8

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 1.274–5, added; substantiation of business expenses for travel,

entertainment, gifts, and listed

property (REG–209785–95) 18, 46

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

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,

Proposed regulations—Continued

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 1.664–1(a)(7), (d)(1)(iii),

(f)(4), added; 1.664–2, revised;

1.664–3, amended; charitable remainder trusts (REG–209823–96)

18, 47

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

26 CFR 53.6011–1, amended; 53.6017–

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

Qualified long-term care, definitions

(Notice 31) 21, 5

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 1.280H–1T, amended;

1.274–5, redesignated; 1.274–5T,

amended; substantiation of business

expenses for travel, entertainment,

gifts, and listed property (TD 8715)

18, 5

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

INCOME TAX—Continued

Regulations—Continued

26 CFR Part 1, 1.338–0, –4,

amended; 1.338–4T, removed;

1.338(i)–1(a) and (b), revised; target 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,

Regulations—Continued

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,

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

Rulings—Continued

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

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.