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Bulletin No. 1996–25

June 17, 1996

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

ADMINISTRATIVE

Rev. Rul. 96–31, page 4.

LIFO; price indexes; department stores. The April 1996

Bureau of Labor Statistics price indexes are accepted

for use by department stores employing the retail

inventory and last-in, first-out inventory methods for

valuing inventories for tax years ended on, or with

reference to, April 30, 1996.

Notice 96–35, page 8.

As part of the President’s Regulatory Reinvention

Initiative, certain listed regulations have been identified

as obsolete. Public comments are requested.

PS–5–96, page 17.

Proposed regulations under section 708 of the Code

relate to the termination of a partnership upon the sale

or exchange of 50 percent or more of the total interest

in partnership capital and profits.

Rev. Rul. 96–32, page 5.

Involuntary conversion of a residence; deduction for

qualified residence interest. If a principal residence is

destroyed, and the land portion is later sold, gain on

the scale may be deferred under section 1033(a) if the

requirements of that section are met. Taxpayers may

continue to deduct otherwise deductible mortgage

interest on a destroyed residence during a reasonable

period between the destruction of the residence and its

sale or reconstruction and reoccupation.

Rev. Proc. 96–35, page 8.

Magnetic/Electronic Media Filing Program; Form 1040NR.

Participants in the 1996 Magnetic/Electronic Media

Program for Form 1040NR, U.S. Nonresident Alien

Income Tax Return, are informed of their obligations to

the Service and other participants.

Announcement 96–57, page 20.

The schedule, agenda and registration information for

the 1996 Information Reporting Seminars for magnetic/

electronic filing is published. Members of the public

may register to attend one or more of these seminars.

EXEMPT ORGANIZATIONS

Announcement 96–58, page 21.

T.D. 8658, 1996–14 I.R.B. 13, relating to the

determination of the interest expense deduction of

foreign corporations, is corrected.

Announcement 96–59, page 22.

A list is given of organizations now classified as private

foundations.

Finding Lists begin on page 27.

Announcement of Disbarments and Suspensions begins on page 24.

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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 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.

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.

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining officers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great courtesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

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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.

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.

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.

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

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

as precedents by Service personnel in the disposition of

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

court decisions, rulings, and 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.

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).

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.

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.

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

Section 163.—Interest

If a principal residence is destroyed and either

the remaining land portion is sold or the dwelling

is reconstructed and reoccupied within a reasonable period of time after the destruction or

damage, is the property treated as a qualified

residence under § 163(h) during the period between the destruction of the residence and its sale

or reconstruction and reoccupation as a qualified

residence? See Rev. Rul. 96–32, page 5.

Section 472.—Last-in, First-out

Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO;

price

indexes;

department

stores. The April 1996 Bureau of Labor

Statistics price indexes are accepted for

use by department stores employing the

retail inventory and last-in, first-out

inventory methods for valuing inventories for tax years ended on, or with

reference to, April 30, 1996.

Rev. Rul. 96–31

The following Department Store Inventory Price Indexes for April 1996

were issued by the Bureau of Labor

Statistics on May 14, 1996. The indexes are accepted by the Internal

Revenue Service, under § 1.472–1(k)

of the Income Tax Regulations and

Rev. Proc. 86–46, 1986–2 C.B. 739, for

appropriate application to inventories of

department stores employing the retail

inventory and last-in, first-out inventory methods for tax years ended on, or

with reference to, April 30, 1996.

The Department Store Inventory

Price Indexes are prepared on a national basis and include (a) 23 major

groups of departments, (b) three special

combinations of the major groups —

soft goods, durable goods, and miscellaneous goods, and (c) a store total,

which covers all departments, including

some not listed separately, except for

the following: candy, foods, liquor,

tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Apr 1995

Apr 1996

Percent Change from

Apr 1995 to Apr 19961

Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . .

Domestics and Draperies . . . . . . . . . . . . . . . .

Women’s and Children’s Shoes . . . . . . . . . .

Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . .

Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . .

Women’s Underwear. . . . . . . . . . . . . . . . . . . .

Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . .

Women’s and Girls’ Accessories . . . . . . . . .

Women’s Outerwear and Girls’ Wear . . . . .

Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . .

Men’s Furnishings. . . . . . . . . . . . . . . . . . . . . .

Boys’ Clothing and Furnishings . . . . . . . . . .

Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Toilet Articles and Drugs . . . . . . . . . . . . . . .

Furniture and Bedding . . . . . . . . . . . . . . . . . .

Floor Coverings. . . . . . . . . . . . . . . . . . . . . . . .

Housewares. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Major Appliances . . . . . . . . . . . . . . . . . . . . . .

Radio and Television . . . . . . . . . . . . . . . . . . .

Recreation and Education2 . . . . . . . . . . . . . . .

Home Improvements2 . . . . . . . . . . . . . . . . . . .

Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . .

485.2

642.6

639.1

919.0

613.8

540.1

281.3

545.3

448.3

613.4

573.0

494.1

1024.3

779.7

850.8

649.4

570.2

778.8

245.7

85.4

114.2

122.7

106.9

528.6

655.0

658.2

899.6

640.9

538.5

285.7

554.9

430.9

625.7

590.3

491.2

1036.3

785.1

883.3

672.2

571.1

802.9

246.8

79.6

113.7

125.7

107.3

8.9

1.9

3.0

–2.1

4.4

–0.3

1.6

1.8

–3.9

2.0

3.0

–0.6

1.2

0.7

3.8

3.5

0.2

3.1

0.4

–6.8

–0.4

2.4

0.4

Groups 1–15: Soft Goods. . . . . . . . . . . . . . . . . . . .

604.0

608.2

0.7

Groups 16 –20: Durable Goods . . . . . . . . . . . . . . .

465.7

468.8

0.7

Goods2 . . . . . . . . . . . . . . . . .

114.1

0.0

Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

556.6

560.1

0.6

Groups

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

Groups 21–23: Misc.

Store

1Absence

of a minus sign before percentage change in this column signifies price increase.

on a January 1986=100 base.

3The store total index covers all departments, including some not listed separately, except for the following: candy, foods,

liquor, tobacco, and contract departments.

2Indexes

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DRAFTING INFORMATION

The principal author of this revenue

ruling is Stan Michaels of the Office of

Assistant Chief Counsel (Income Tax

and Accounting). For further information regarding this revenue ruling,

contact Mr. Michaels on (202)

622-4970 (not a toll-free call).

Section 1033.—Involuntary

Conversions

26 CFR 1.1033(a)–3: Involuntary conversion

of a principal residence.

(Also §§ 163, 1034; 1.1034–1(c)(3).)

Involuntary conversion of a residence; deduction for qualified residence interest. If a principal residence is destroyed, and the land

portion is later sold, the sale is treated

as part of the involuntary conversion of

the residence, if the requirements of

section 1033(a) are met. Taxpayers

may continue to deduct otherwise

deductible mortgage interest on a destroyed residence during a reasonable

period between the destruction of the

residence and its sale or reconstruction

and reoccupation.

Rev. Rul. 96–32

ISSUES

(1) If the dwelling portion of the

taxpayer’s principal residence is destroyed and the remaining land portion

of the principal residence is subsequently sold within the period described in § 1033(a)(2)(B) of the Internal Revenue Code, is the sale treated as

part of the involuntary conversion of

the principal residence to which

§ 1033(a) may apply to defer recognition of gain realized on the sale?

(2) If the taxpayer subsequently sells

the remaining land portion of the

principal residence described above or

reconstructs the destroyed dwelling and

reoccupies it as the taxpayer’s principal

residence within a reasonable period of

time after the destruction, is the property treated as a qualified residence

under § 163(h) during the period between the destruction of the dwelling

and the sale or reoccupancy?

FACTS

Situation (1)—A’s principal residence (within the meaning of §§ 1034

and 163(h)(4)(A)(i)(I)) was destroyed

in September 1991 by a tornado that

was subsequently declared a disaster by

the President. In the same year, A

received insurance proceeds of $120x

for the destruction of the dwelling. A’s

adjusted basis in the property (land and

improvements) was $100x. A did not

rebuild the dwelling, but instead sold

the land for $10x in November 1993.

In March 1995, A purchased another

home for $130x and used it as A’s

principal residence.

Situation (2)—B’s principal residence (within the meaning of §§ 1034

and 163(h)(4)(A)(i)(I)) was destroyed

in December 1991 by an earthquake

that was subsequently declared a disaster by the President. Because the

widespread destruction in the region

resulted in a severe shortage of available equipment, materials, and skilled

labor, B was not able to begin reconstruction of the dwelling until June

1993. Upon its completion in October

1994, B reoccupied the reconstructed

dwelling and used it as B’s principal

residence. During the period from the

earthquake until B reoccupied the reconstructed dwelling, B lived in rental

housing.

In Situations (1) and (2), the residences were encumbered by mortgages securing debts the interest on

which was qualified residence interest

under § 163(h)(3)(A) prior to the disaster. Had the residences not been destroyed, they would have continued to

qualify as principal residences under

§ 163(h)(4)(A)(i)(I). After the destruction of their principal residences, A and

B continued to make payments of

principal and interest on their mortgage

debts.

LAW AND ANALYSIS—ISSUE (1)

Section 1033(a)(2)(A) provides, in

part, that if property (as a result of its

destruction in whole or in part, theft,

seizure, or requisition or condemnation

or threat or imminence thereof) is

compulsorily or involuntarily converted

into money, which in turn is used to

purchase (within the period specified in

§ 1033(a)(2)(B)) property similar or

related in service or use to the converted property, gain will be recognized only to the extent that the

amount realized upon the conversion

exceeds the cost of the replacement

property.

Section 1033(a)(2)(B) provides that

the period for replacing converted

property generally shall be the period

beginning on the date of the disposition

of the converted property and ending 2

years after the close of the taxable year

in which any part of the gain is

realized. However, § 1033(h)(1)(B),

added by § 13431 of the Omnibus

Budget Reconciliation Act of 1993,

provides that if a principal residence is

compulsorily or involuntarily converted

as a result of a Presidentially declared

disaster, § 1033(a)(2)(B) shall be applied by substituting ‘‘4 years’’ for ‘‘2

years.’’ For this purpose, § 1033(h)(3)

generally provides that the term ‘‘principal residence’’ has the same meaning

as when used in § 1034. Section

1033(h) is effective for property converted as a result of disasters determined after August 31, 1991, to be

Presidentially declared disasters, and

for taxable years ending after that date.

Section 1033(b) provides that the

basis of property acquired in a transaction that resulted in nonrecognition of

gain under § 1033(a)(2) shall be the

cost of the property acquired reduced

by the amount of the gain not so

recognized.

Section 1.1033(a)–3 of the Income

Tax Regulations provides, in part, that

§ 1033 shall apply in the case of

property that the taxpayer uses as the

taxpayer’s principal residence if its

destruction occurs after December 31,

1953. Thus, the nonrecognition of gain

provided by § 1034 is not applicable if

a principal residence is destroyed and

replacement property is acquired.

Section 1.1034–1(c)(3) provides that

whether property is used by the taxpayer as a principal residence under

§ 1034 depends upon all the facts and

circumstances in each case, including

the good faith of the taxpayer.

In Rev. Rul. 76–541, 1976–2 C.B.

246, a taxpayer owned and resided in a

house situated on an undivided parcel

of land containing 10 acres, all of

which the taxpayer used as the principal residence. During a particular year,

the taxpayer sold the dwelling and

three immediately surrounding acres at

a gain. Later in the same year, the

taxpayer sold two more acres at a gain.

The taxpayer constructed a new principal residence on the taxpayer’s remaining five acres within the period provided under § 1034. Rev. Rul. 76–541

holds that § 1034 applies to defer

recognition of the total gain realized on

both sales, and that a single replacement period under § 1034(a) (deter-

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mined with reference to the date of the

first sale) applies. Rev. Rul. 76–541

treats the dwelling and the ten acres of

surrounding land as the taxpayer’s

principal residence. The sale of the first

three acres and the dwelling did not

alter the ‘‘principal residence’’ character of the two-acre portion of land that

was later sold during the applicable

replacement period.

Consistent with the integral nature of

a taxpayer’s principal residence for

§ 1034 purposes, § 1.165–7(b)(2)(ii)

provides that, in determining the

amount of a casualty loss for residential real property and improvements

thereon (such as buildings and landscaping), the improvements are considered an integral part of the residential

property so that no separate basis need

be apportioned to such improvements.

Cf. § 1.165–7(b)(2)(i) (a loss incurred

in a trade or business or in any transaction entered into for profit is determined by reference to the separate fair

market value and basis of each single,

identifiable property damaged or

destroyed).

In Situation (1), A realized $120x of

insurance proceeds upon the 1991 conversion of the dwelling. A may offset

the entire $100x basis in the property

against the amount realized, consistent

with the nonapportionment of basis for

the computation of casualty loss deductions on residential real property under

§ 1.165–7(b)(2)(ii). Thus, A realized a

gain from the insurance proceeds of

$20x and A’s basis in the property is

reduced to $0x.

A thereafter realized an additional

$10x of gain on the 1993 sale of the

land, for a total gain of $30x on the

property. Because the principal residence of A before the disaster consisted of both the dwelling and the land

that was later sold by A after the

destruction of the dwelling, A’s sale of

that land will be treated as part of a

single involuntary conversion of A’s

principal residence that occurred on the

date the dwelling was destroyed. Thus,

§ 1033, and not § 1034, will apply to

defer recognition of A’s $30x gain.

For purposes of this § 1033 deferral,

A’s period for purchasing replacement

property under § 1033(a)(2)(B) and

(h)(1)(B) begins on the date that the

dwelling is destroyed and ends 4 years

after the close of the taxable year in

which gain is first realized. Because A

purchased a new principal residence

within this period at a cost ($130x) that

was not less than the sum of the insurance proceeds ($120x) and the sales

proceeds ($10x), A may defer recognition of the entire $30x gain. A’s basis

in the new principal residence is $100x

($130x cost less $30x unrecognized

gain).

LAW AND ANALYSIS—ISSUE (2)

Section 163(a) allows a deduction for

all interest paid or accrued within the

taxable year on indebtedness. Section

163(h)(1) generally provides that, in

the case of taxpayers other than a

corporation, no deduction is allowed

for personal interest. Section 163(h)(2)(D) specifically excludes from the

definition of the term ‘‘personal interest’’ any qualified residence interest.

Section 163(h)(3)(A) provides that

the term ‘‘qualified residence interest’’

means any interest paid or accrued

during the taxable year on acquisition

or home equity indebtedness with

respect to any qualified residence of

the taxpayer. Section 163(h)(4)(A)(i)

defines the term ‘‘qualified residence’’

to mean (I) the taxpayer’s principal

residence, within the meaning of

§ 1034, and (II) one other residence of

the taxpayer selected by the taxpayer

for purposes of § 163(h) for the taxable

year and used by the taxpayer as a

residence.

In Situation (1), A’s property will

continue to be treated as a qualified

residence under § 163(h) for purposes

of A’s deduction of the interest that A

paid on the mortgage debt until the

date on which A sold the property.

In Situation (2), B began and completed reconstruction of the dwelling,

and reoccupied it as B’s principal

residence, all within a reasonable

period of time after it was destroyed.

Accordingly, B’s property will continue

to be treated as a qualified residence

under § 163(h) for purposes of B’s

deduction for the interest that B paid

on the mortgage debt during that

period. See H.R. Rep. No. 99–426, 99th

Cong., 1st Sess. 299 (1985), 1986–3

C.B. (Vol. 2) 299 (accompanying the

Tax Reform Act of 1986, which

enacted § 163(h)).

quently sold within the period described in § 1033(a)(2)(B), the sale is

treated as part of the involuntary

conversion of the principal residence to

which § 1033(a) applies to defer recognition of gain realized on the sale if the

requirements of that section are met.

(2) If the taxpayer subsequently sells

the land portion of the principal residence described above within a reasonable period of time after the destruction, the property will continue to

be treated as a qualified residence

under § 163(h) during the period between the destruction of the dwelling

and the sale of land. Likewise, if the

taxpayer reconstructs the destroyed

dwelling and reoccupies it as the

taxpayer’s principal residence within a

reasonable period of time after the

destruction, the property will continue

to be treated as a qualified residence

under § 163(h) during that period.

Holdings (1) and (2) apply whether

or not the destruction occurred in

connection with a Presidentially declared disaster. These holdings also

apply if the property is a second

residence within the meaning of

§ 163(h)(4)(A)(i)(II).

EFFECT ON OTHER

DOCUMENTS

Rev. Rul. 74–206, 1974–1 C.B. 198,

is clarified to provide that, in the

context of a casualty involving a

taxpayer’s residence, a taxpayer need

not allocate the basis of the taxpayer’s

residence between the house and the

land to compute a § 165 casualty loss

deduction or the gain eligible for

deferral under § 1033, but instead may

use the aggregate basis of the house

and the land.

DRAFTING INFORMATION

The principal author of this revenue

ruling is George Wright of the Office

of Assistant Chief Counsel (Income

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

contact Mr. Wright on (202) 622-4950

(not a toll-free call).

Section 1034.—Rollover of Gain on

Sale of Principal Residence

HOLDINGS

(1) If the dwelling portion of the

taxpayer’s principal residence is destroyed and the remaining land portion

of the principal residence is subse-

26 CFR 1.1034–1(c)(3): Property used by the

taxpayer as his principal residence.

If a principal residence is destroyed and either

the remaining portion is sold or the dwelling is

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reconstructed and reoccupied, within a reasonable period of time after the destruction or

damage, is the property treated as a principal

residence within the meaning of § 1034, and

therefore as a qualified residence under § 163(h)

during a reasonable period between the destruction of the dwelling and its sale or reconstruction

and reoccupation as a qualified residence? See

Rev. Rul. 96–32, page 5.

Section 6012.—Persons required to

Make Returns of Income

26 CFR 1.6012–5: Composite return in lieu of

specified form.

What are the requirements for participation in

the 1996 Magnetic/Electronic Media Filing Program for the Form 1040NR, U.S. Nonresident

Alien Income Tax Return? See Rev. Proc. 96–35,

page 8.

Section 6061.—Signing of Returns

and Other Documents

26 CFR 1.6061–1: Signing of returns and

other documents by individuals.

What are the requirements for participation in

the 1996 Magnetic/Electronic Media Filing Program for the Form 1040NR, U.S. Nonresident

Alien Income Tax Return? See Rev. Proc. 96–35,

page 8.

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Part III. Administrative, Procedural, and Miscellaneous

Regulatory Reinvention Initiative—

Request For Comments

Notice 96–35

As part of the President’s Regulatory

Reinvention Initiative, the Treasury

Department and the Internal Revenue

Service have identified obsolete regulations that relate to prior law, provide

elections for prior years, or are otherwise outdated due to changes in the

underlying statutory provisions. The

Treasury Department and the Internal

Revenue Service believe that the regulations listed below should be withdrawn or removed.

Public comments are requested prior

to August 1, 1996, regarding whether

any of these regulations should be

retained. Comments should be addressed to Office of Chief Counsel,

Internal Revenue Service, P.O. Box

7604, Ben Franklin Station, Attn:

CC:CORP:R (Regulatory Reinvention

Initiative), Room 5228, Washington,

D.C. 20044. For further information,

contact Philip Bennet, (202) 622-3926

(not a toll-free number).

SECTION

SUBJECT

1.921–1T(c)

1.1502–81T

5c.103–1, 5c.103–2 and 5c.103–3

Export Trade Corporations

Alaskan Native Corporations

Leases and industrial development bonds; Leases and

arbitrage; Special rules for leases

FEDERAL REGISTER CITE AND

PROJECT NUMBER

SECTION

SUBJECT

44 FR 31228 (5/31/79) (EE–16–78)

40 FR 18798 (4/30/75)

44 FR 31228 (5/31/79) (EE–16–78)

1.402(a)–1

40 FR 18798 (4/30/75)

44 FR 31228 (5/31/79) (EE–16–78)

40 FR 18798 (4/30/75)

1.403(a)–1

1.403(a)–2

Taxability of beneficiary under a trust which meets the

requirements of section 401(a)

Treatment of certain lump sum distributions made after 1973

Election to treat pre-1974 participation as post-1973 participation

(the ‘‘402(e)(4)(L) election’’)

Taxability of beneficiary under a qualified annuity plan

Capital gains treatment for certain distributions

1.405–3

Taxation of retirement bonds

1.402(e)–2

1.402(e)–14

26 CFR 601.602: Tax forms and instructions.

(Also Part I, Sections 6012, 6061; 1.6012–5, 1.6061–1.)

Rev. Proc. 96–35

CONTENTS

SECTION 1

SECTION 2

SECTION 3

SECTION 4

SECTION 5

SECTION 6

SECTION 7

SECTION 8

SECTION 9

SECTION 10

SECTION 11

SECTION 12

SECTION 13

SECTION 14

SECTION 15

PURPOSE

BACKGROUND AND CHANGES

TRANSMITTED MEDIA FILING PARTICIPANTS—DEFINITIONS

ACCEPTANCE INTO THE 1040NR PROGRAM

RESPONSIBILITIES OF A 1040NR FILER

PENALTIES

FORM 8453–NR, U.S. NONRESIDENT ALIEN INCOME TAX DECLARATION FOR MAGNETIC

MEDIA FILING

OBLIGATIONS OF A 1040NR RETURN ORIGINATOR TO THE TAXPAYER

DIRECT DEPOSIT OF REFUNDS

BALANCE DUE RETURNS

ADVERTISING STANDARDS FOR A 1040NR FILER AND A FINANCIAL INSTITUTION

MONITORING AND SUSPENSION OF A 1040NR FILER

ADMINISTRATIVE REVIEW PROCESS FOR DENIAL OF PARTICIPATION IN THE 1040NR

PROGRAM

ADMINISTRATIVE REVIEW PROCESS FOR SUSPENSION FROM THE 1040NR PROGRAM

EFFECT ON OTHER DOCUMENTS

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SECTION 16

SECTION 17

EFFECTIVE DATE

PROJECT OFFICE INFORMATION

SECTION 1. PURPOSE

This revenue procedure informs

those who participate in the Magnetic

Media/Electronic Filing Program for

Form 1040NR, U.S. Nonresident Alien

Income Tax Return (‘‘1040NR Program’’), of their obligations to the

Internal Revenue Service, taxpayers,

and other participants. This revenue

procedure updates Rev. Proc. 95–22,

1995–1 C.B. 686.

SECTION 2. BACKGROUND AND

CHANGES

.01 Section 1.6012–5 of the Income

Tax Regulations provides that the Commissioner may authorize the use, at the

option of a person required to make a

return, of a composite return in lieu of

any form specified in 26 CFR Part 1

(Income Tax), subject to the conditions,

limitations, and special rules governing

the preparation, execution, filing, and

correction thereof as the Commissioner

may deem appropriate.

.02 For purposes of this revenue

procedure, a magnetically or electronically filed Form 1040NR is a

composite return consisting of data

transmitted on magnetic tape, floppy

disk, or via modem (‘‘transmitted media’’), and certain paper documents.

The non-transmitted media paper portion of the return consists of a Form

8453–NR, U.S. Nonresident Alien Income Tax Declaration for Magnetic

Media Filing, and other paper documents that cannot be filed on transmitted media. Form 8453–NR must be

received by the Service before any

composite return is complete. A composite return must contain the same

information that a return filed completely on paper contains. See section 7

of this revenue procedure for procedures for completing Form 8453–NR.

.03 The Magnetic Media Project Office (‘‘Project Office’’, see section 17

of this revenue procedure for address

and telephone numbers) will periodically issue a list of the forms and

schedules that can be magnetically or

electronically filed, as well as forms,

schedules, and other information that

cannot be magnetically or electronically

filed.

.04 A tax return with a zero balance,

balance due, or refund due may be

filed on transmitted media.

.05 A tax return cannot be filed on

transmitted media after December 2,

1996, notwithstanding the fact that the

taxpayer has been granted an extension

to file beyond that date. Form 2688,

Application for Additional Extension of

Time To File U.S. Individual Income

Tax Return, cannot be filed on transmitted media.

.06 An amended tax return cannot be

filed on transmitted media. A taxpayer

must file an amended tax return on

paper in accordance with the instructions for Form 1040X, Amended U.S.

Individual Income Tax Return.

.07 Upon request, the Project Office

will provide technical information (i.e.,

file specifications, record layouts, and

testing procedures) for transmitted media filing.

.08 This revenue procedure updates

Rev. Proc. 95–22, which applied to the

1040NR Program for the 1995 filing

season. The updates include changes in

the 1040NR Program for the 1996 filing season, clarifications of prior

1040NR Program statements, and additional guidance derived from other

Service documents that relate to the

1040NR Program. Some of these updates are:

(1) Form 4868, Application for

Automatic Extension of Time To File

U.S. Individual Income Tax Return,

may now be filed on transmitted media;

(2) a 1040NR Filer must complete

the necessary testing at least 30 days

before the 1040NR Filer may submit a

tax return (section 4.03);

(3) a 1040NR Filer may not base

a fee for submission of transmitted

media returns on the amount of taxes

saved (section 5.05);

(4) a 1040NR Filer must submit a

revised Form MAR–8980, Application

for Magnetic Media Filing of Form

1040NR, if there is a change to the

1040NR Filer’s business address (section 5.07);

(5) a 1040NR Filer must notify

the Service when it discontinues participation in the 1040NR Program

(section 5.08);

(6) additions are provided to the

responsibilities of a 1040NR Return

Originator (sections 5.11(5) and 5.13);

(7) a Software Developer may not

incorporate into its software a Serviceassigned production password (section

5.18);

(8) procedures are provided for

submitting balance due returns (section

10);

(9) a 1040NR Filer must adhere to

all relevant federal, state, and local

consumer protection laws that relate to

advertising and soliciting (section

11.02);

(10) a 1040NR Filer may be suspended for having more than one

MTFIN for the same business entity at

the same location unless the Service

has issued more than one MTFIN to a

business entity (section 12.05(9)); and

(11) the two-year period for denial

or suspension is clarified (section

12.08).

SECTION 3. TRANSMITTED

MEDIA FILING PARTICIPANTS—

DEFINITIONS

.01 After acceptance into the

1040NR Program, as described in

section 4 of this revenue procedure, a

participant is referred to as ‘‘1040NR

Filer.’’

.02 A 1040NR Filer is categorized

as follows:

(1) 1040NR RETURN ORIGINATOR. A ‘‘1040NR Return Originator’’

is either (a) a ‘‘1040NR Return Preparer’’ who prepares tax returns, including Forms 8453–NR, for taxpayers

who intend to have their returns

magnetically or electronically filed; or

(b) a ‘‘1040NR Return Collector’’ who

accepts completed tax returns, including Forms 8453–NR, from taxpayers

who intend to have their returns

magnetically or electronically filed.

(2) SERVICE BUREAU. A ‘‘Service Bureau’’ receives tax return information on any media from a 1040NR

Filer, formats the return information,

and either forwards the return information to a Transmitter or sends back the

return information to the 1040NR Filer.

A Service Bureau may or may not process Forms 8453–NR and send them to

the Project Office. A Service Bureau

does not transmit returns directly to the

Service.

(3) SOFTWARE DEVELOPER. A

‘‘Software Developer’’ develops software for the purposes of (a) formatting

returns according to the Service’s transmitted media return specifications; and/

or (b) filing transmitted media returns

directly with the Service. A Software

Developer may also sell its software.

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(4) TRANSMITTER. A ‘‘Transmitter’’ accepts a transmitted media tax

return from a 1040NR Filer and submits the return directly to the Service.

.03 The 1040NR Filer categories are

not mutually exclusive. For example, a

1040NR Return Originator can, at the

same time, be considered a Transmitter,

Software Developer, or Service Bureau

depending on the function(s) performed.

SECTION 4. ACCEPTANCE INTO

THE 1040NR PROGRAM

.01 To be accepted into the 1040NR

Program, an applicant must:

(1) file a properly completed application using Form MAR–8980 with

the Project Office, unless previously

accepted into the 1040NR Program;

(2) successfully complete the necessary testing with the Project Office if

the applicant intends to file transmitted

media returns or has developed software for formatting or filing transmitted media returns; and

(3) receive a letter of acceptance

into the 1040NR Program.

.02 Once accepted into the 1040NR

Program, a 1040NR Filer must, for

each year that it intends to submit

returns on transmitted media:

(1) submit a revised Form MAR–

8980 if there is any change to the

information previously submitted on

that form.

(2) successfully complete the necessary testing with the Project Office if

the 1040NR Filer intends to file

transmitted media returns or has developed software for formatting or filing

transmitted media returns; and

(3) receive a letter confirming that

the 1040NR Filer may submit tax

returns for the current filing season.

.03 A 1040NR Filer may only submit actual tax returns beginning 30

days after successfully completing the

necessary testing.

.04 The following reasons may result in a rejection of an application to

participate in the 1040NR Program

(this list is not all-inclusive):

(1) conviction of any criminal offense under the revenue laws of the

United States, or of any offense involving dishonesty or breach of trust;

(2) failure to file timely and accurate business or personal tax returns;

(3) failure to timely pay personal

or business tax liabilities;

(4) assessment of penalties;

(5) suspension/disbarment from

practice before the Service;

(6) other facts or conduct of a

disreputable nature that would reflect

adversely on the 1040NR Program;

(7) misrepresentation on an

application;

(8) suspension or rejection from

the 1040NR Program in a prior year;

(9) unethical practices in return

preparation;

(10) stockpiling returns (see section 5.06 of this revenue procedure)

prior to official acceptance into the

1040NR Program;

(11) knowingly and directly or

indirectly employing or accepting assistance from any person who has been

denied acceptance into the 1040NR

Program or is suspended from that

Program. This includes any individual

whose actions resulted in the rejection

or suspension of a corporation or a

partnership from that Program; or

(12) knowingly and directly or

indirectly accepting employment as an

associate, correspondent, or subagent

from, or sharing fees with, any person

who has been denied acceptance into

the 1040NR Program or is suspended

from that Program. This includes any

individual whose actions resulted in the

rejection or suspension of a corporation

or a partnership from that Program.

SECTION 5. RESPONSIBILITIES

OF A 1040NR FILER

.01 To ensure that complete returns

are accurately and efficiently filed, a

1040NR Filer must comply with all

publications and notices of the Service.

Currently, these publications and

notices include:

(1) Procedures for Magnetic Media Filing of U.S. Nonresident Alien

Income Tax Returns, Form 1040NR

(available from the Project Office); and

(2) File Specifications and Record

Layouts for Magnetic Media Filing of

U.S. Nonresident Alien Income Tax

Returns, Form 1040NR (available from

the Project Office).

.02 A 1040NR Filer must ensure that

no other entity uses its assigned Magnetic Tape 1040NR Filer Identification

Number (MTFIN). A MTFIN cannot be

transferred by sale, loan, gift, or

otherwise to another entity.

.03 A 1040NR Filer must maintain a

high degree of integrity, compliance,

and accuracy.

.04 A 1040NR Filer may only accept

a return for transmitted media filing

directly from a taxpayer or from a

1040NR Return Originator.

.05 If a 1040NR Filer charges a fee

for the submission of a transmitted

media tax return, the fee may not be

based on a percentage of the refund

amount or on the amount of taxes

saved. A 1040NR Filer may not charge

a separate fee for Direct Deposit. See

section 9 of this revenue procedure for

a discussion of Direct Deposit.

.06 A 1040NR Filer is responsible

for ensuring that stockpiling does not

occur. Prior to official acceptance of

the 1040NR Filer into the 1040NR

Program, stockpiling means collecting

returns from taxpayers. After official

acceptance, stockpiling means:

(1) in the case of a 1040NR

Return Originator, waiting for more

than three days after receiving the

necessary information to submit a

return to a Transmitter, or

(2) in the case of a Transmitter,

waiting for more than ten days after

receiving the necessary information to

submit a transmitted media tax return

to the Service.

.07 A previously accepted 1040NR

Filer must submit a revised Form

MAR-8980 to update information when

there is any change to:

(1) the Firm name or Doing Business As (DBA) name;

(2) the business mailing address;

(3) the contact representative’s

name or telephone number; or

(4) the transmitted media filing

category.

.08 A 1040NR Filer must notify the

Project Office within 14 days of

discontinuing its participation in the

1040NR Program.

.09 A 1040NR Filer must ensure that

a transmitted media return is filed on

or before the due date of the tax return.

A tax return is not considered filed

until the transmitted media portion of

the tax return is acknowledged by the

Service as accepted for processing and

a completed and signed Form 8453–NR

is received by the Service. However, if

the transmitted media portion of a

return is successfully transmitted on or

shortly before the due date and the

taxpayer complies with section 7.01 of

this revenue procedure, the return will

be deemed timely filed. If the transmitted media portion of a return is initially

transmitted on or shortly before the due

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date and is ultimately rejected, but the

taxpayer complies with section 5.13 of

this revenue procedure, the return will

be deemed timely filed. In the case of a

balance due return, see section 10 of

this revenue procedure for instructions

on how to make a timely payment of

tax.

.10 A 1040NR Filer must ensure that

the return for any individual is received

by the Service on or before:

(1) April 15 if the individual was

an employee and received wages subject to U.S. federal income tax withholding; or

(2) June 15 if the individual did

not receive such wages. However,

section 2.05 of this revenue procedure

provides that a transmitted media return

cannot be filed after December 2, 1996.

.11 A 1040NR Return Originator

must:

(1) comply with the procedures

for completing Form 8453–NR described in section 7 of this revenue

procedure;

(2) furnish the taxpayer with a

copy of the signed Form 8453–NR and,

in the case of a prepared or corrected

return, the non-transmitted media portions of the return;

(3) retain the following material

until the end of the calendar year in

which the transmitted media return was

filed, unless otherwise notified by the

Service:

(a) a copy of the signed Form

8453–NR, Forms W–2, W–2G, Certain

Gambling Winnings, and 1099–R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans,

IRAs, Insurance Contracts, etc., and the

non-transmitted media portion of the

taxpayer’s return;

(b) a complete copy of the

magnetically or electronically transmitted portion of the taxpayer’s return

(may be retained on computer media)

that can be readily and accurately

converted into a transmitted media that

the Service can process; and

received from the Service or from a

Transmitter;

(4) upon request by the Service

for the materials described in section

5.11(3) of this revenue procedure,

make those materials available to the

Service at the business address from

which a return was accepted for transmitted media filing; and

(5) identify the paid preparer (if

any) in the appropriate field of the

transmitted media return, in addition to

ensuring that the paid preparer signed

Form 8453–NR. If Form 8453–NR is

not signed by the paid preparer, the

1040NR Return Originator must attach

a copy of pages one and two of a

completed Form 1040NR that includes

the paid preparer’s signature. These

copies must be marked ‘‘COPY-DO

NOT PROCESS’’ to prevent duplicate

filings.

.12 A 1040NR Return Originator

who is also the paid preparer of a

transmitted media return must comply

with § 1.6107–1(b). This section of the

regulations describes the tax return

materials that must be retained and the

retention periods for these materials.

.13 If the transmitted media portion

of a taxpayer’s return is acknowledged

as rejected by the Service, and the

reason for the rejection cannot be

rectified by making nonsubstantive

changes as described in section 6.02(3)

of this revenue procedure, the 1040NR

Return Originator must notify the taxpayer within one work day by mail that

the taxpayer’s return has not been filed.

If the taxpayer chooses to have the

rejected return resubmitted on transmitted media, and the 1040NR Return

Originator successfully works with the

Project Office to correct the problems

causing the return to be rejected, the

return will be accepted as timely filed.

A new Form 8453–NR may be required

(see section 7 of this revenue procedure). However, even when no new

Form 8453–NR is required, the Transmitter must submit a photocopy of the

original Form 8453–NR with the rejected file or return and mark the

photocopy ‘‘Retransmitted.’’ If the

Project Office determines that a transmitted media return cannot be accepted

for processing or the taxpayer chooses

not to have the rejected return resubmitted on transmitted media, the taxpayer must file a paper return. If the

due date (with regard to any extensions

of time to file) of the return has passed,

the taxpayer must file a paper return

within ten days of the rejection along

with an explanation of why the return

is being filed after the due date. A

paper return filed in good faith under

any of these circumstances will be

accepted as timely filed.

.14 A 1040NR Return Originator

must use the taxpayer’s address in the

transmitted media portion of the return.

In addition, a 1040NR Return Originator must not put its address as the

taxpayer’s address in the transmitted

media portion of the return.

.15 A Service Bureau must:

(1) deliver all transmitted media

returns to a Transmitter or to the

1040NR Return Originator who gave

the transmitted media returns to the

Service Bureau within three days of

receipt;

(2) retrieve the acknowledgement

file from the Transmitter within one

day of being informed of the receipt by

the Transmitter;

(3) initiate the communication of

the acknowledgement file to the

1040NR Return Originator (whether

related or not) within one work day of

retrieving the acknowledgement file;

(4) if the Service Bureau processes Form 8453–NR, send back to the

1040NR Return Originator any return

and Form 8453–NR that needs correction, unless the correction is described

in section 7.02(3) of this revenue

procedure;

(5) accept tax return information

only from a 1040NR Return Originator

who is in good standing in the 1040NR

Program;

(6) include its MTFIN and the

1040NR Return Originator’s MTFIN in

the transmission of all tax return

information;

(7) retain each acknowledgement

file received from a Transmitter until

the end of the calendar year in which

the transmitted media return was filed;

(8) if requested, serve as a contact

point between its client 1040NR Return

Originator and the Service; and

(9) if requested, provide the Service with a list of each client 1040NR

Return Originator.

.16 A Transmitter must:

(1) transmit all transmitted media

returns within ten days of receipt and

forward the acknowledgement files to

the 1040NR Return Originators or the

Service Bureau within five days after

receipt of the acknowledgments from

the Service;

(2) match the acknowledgement

file to the original transmission file and

resubmit any return that was not

acknowledged as accepted for processing after necessary corrections are

made within seven days of receiving

the acknowledgement file;

(3) contact the Project Office for

assistance if a return has been rejected

after three attempts, or if an acknowledgement is received for a return that

was not in the original submission;

(4) ensure the security of all transmitted data;

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(5) promptly correct any transmission error that causes a transmitted

media return to be rejected; and

(6) retain an acknowledgement

file received from the Service until the

end of the calendar year in which the

transmitted media return was filed.

(7) immediately contact the Project Office for further instructions if an

acknowledgement of a transmitted media return’s acceptance for processing

has not been received by the Transmitter within 14 days of transmission or if

a Transmitter receives an acknowledgement for a return that was not transmitted on the designated transmission.

.17 A Transmitter who provides

transmission services to another

1040NR Filer must, in addition to the

items covered in section 5.16 of this

revenue procedure, also:

(1) only accept a transmitted media return for transmission to the

Service from an accepted 1040NR

Filer;

(2) provide each client with the

acknowledgement file for the transmitted return within five days after receipt

of the acknowledgment from the Service; and

(3) use its assigned MTFIN when

filing returns.

.18 A Software Developer must:

(1) promptly correct any software

error that causes a transmitted media

return to be rejected; and

(2) promptly distribute any software correction made to its software

packages to all 1040NR Filers utilizing

these packages.

(3) not incorporate into its software a Service-assigned production

password.

.19 In addition to the specific responsibilities described in this section,

a 1040NR Filer must meet all the

requirements of this revenue procedure

to keep the privilege of participating in

the 1040NR Program.

SECTION 6. PENALTIES

.01 Penalties for Disclosure or Use

of Information.

(1) A 1040NR Filer, except a

Software Developer, is a tax return

preparer (‘‘Preparer’’) under the definition of § 301.7216–1(b) of the Regulations on Procedure and Administration.

A Preparer is subject to a criminal

penalty for disclosure or use of tax

return information, as described in

§ 301.7216–1(a). In general, that regulation provides that any preparer who

discloses or uses any tax return information for a purpose other than preparing, assisting in preparing, or obtaining

or providing services in connection

with the preparation of a tax return is

guilty of a misdemeanor. In addition,

§ 6713 of the Internal Revenue Code

provides for civil penalties that may be

assessed against a preparer who makes

an unauthorized disclosure or use of

tax return information.

(2) Under § 301.7216–2(h), disclosure of tax return information

among accepted 1040NR Filers for the

purpose of preparing a return is permissible. For example, it is permissible for

a 1040NR Return Originator to pass on

tax return information to a Service

Bureau and/or a Transmitter for the

purpose of having a transmitted media

return formatted and filed with the

Service. However, if the tax return

information is disclosed or used in any

other way, a Service Bureau and or a

Transmitter may be guilty of a misdemeanor as described in paragraph (1)

above.

.02 Other Preparer Penalties.

(1) Preparer penalties may be asserted against an individual or firm

who meets the definition of an income

tax return preparer under

§§ 7701(a)(36) and 301.7701–15. Examples of preparer penalties that may

be asserted under appropriate circumstances include, but are not limited to,

those set forth in §§ 6694, 6695, and

6713.

(2) Under § 301.7701–15(d),

1040NR Return Collectors, Service

Bureaus, Software Developers, and

Transmitters are not income tax return

preparers for the purpose of assessing

most preparer penalties as long as their

services are limited to ‘‘typing, reproduction, or other mechanical assistance

in the preparation of a return or claim

for refund.’’

(3) If a 1040NR Return Collector,

Service Bureau, Software Developer, or

Transmitter alters the return information in a nonsubstantive way, this

alteration will be considered to come

under the ‘‘mechanical assistance’’ exception described in § 301.7701–15(d)(1). A nonsubstantive change is a

correction or change limited to a

transposition error, misplaced entry,

spelling error, or arithmetic correction

that falls within one of the following

tolerances:

(a) the Total Tax amount, Total

Payments amount, Refund amount, or

the Amount You Owe shown on Form

8453–NR differs from the corresponding amount on the transmitted media

return by no more than $7;

(b) the Total Income amount

shown on Form 8453–NR differs from

the corresponding amount on the transmitted media return by no more than

$25; or

to whole dollars.

(4) If a 1040NR Return Collector,

Service Bureau, or Transmitter alters

the return information in a substantive

way, rather than having the taxpayer

alter the return, the 1040NR Return

Collector, Service Bureau, or Transmitter will be considered to be an income

tax return preparer for purposes of

§ 7701(a)(36).

(5) If a 1040NR Return Collector,

Service Bureau, Transmitter, or the

product of a Software Developer, goes

beyond mechanical assistance, any of

these parties may be held liable for

income tax return preparer penalties.

Rev. Rul. 85–189, 1985–2 C.B. 341,

describes a situation where a Software

Developer was determined to be an

income tax return preparer and subject

to certain preparer penalties.

.03 In addition to the above specified provisions, the Service reserves

the right to assert all appropriate civil

and criminal penalties, including preparer, nonpreparer, and disclosure

penalties, against a 1040NR Filer as

warranted under the circumstances.

SECTION 7. FORM 8453–NR, U.S.

NONRESIDENT ALIEN INCOME

TAX DECLARATION FOR

MAGNETIC MEDIA FILING

.01 Procedures for Completing Form

8453–NR.

(1) Form 8453–NR must be completed in accordance with the instructions for Form 8453–NR.

(2) The taxpayer’s name, address,

taxpayer identification number, tax return information, and direct deposit of

refund information in the transmitted

media submission must be identical to

the information on the Form 8453–NR

that the taxpayer signed and provided

for submission to the Service.

(3) After the transmitted media

return has been prepared and before the

return is submitted, the taxpayer must

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verify the information on the transmitted media return and on Form 8453–

NR and sign Form 8453–NR. An easily

readable file copy of the prepared

return must be provided to the taxpayer

at the time of signature.

(4) A 1040NR Filer must submit a

Form 8453–NR to the Project Office

with each magnetically or electronically

filed return. A single Form 8453–NR

(inscribed with the language ‘‘See

attached Multiple Return Information

Listing’’) may be used for a multiple

return filing if the person who signs

Form 8453–NR has authorization,

either by a specific power of attorney

or as a responsible representative or

agent under § 1.6012–3(b) of the Income Tax Regulations, to sign each of

the returns included in the multiple

return filing. A person who makes a

multiple return filing must attach to

Form 8453–NR an information page(s)

titled ‘‘Form 8453–NR for Multiple

Returns—Tax Return Information Listing’’ at the top of the pages(s). Below

the title, the multiple return 1040NR

Filer must provide his or her name and

address. The next item on the page(s)

must be a list that includes every

taxpayer’s name control, taxpayer identification number, and the information

shown on lines one through five on

Form 8453–NR, for each return included in a multiple return filing.

(5) If a 1040NR Filer functions as

a 1040NR Return Originator, the

1040NR Filer must sign the 1040NR

Return Originator’s Declaration on

Form 8453–NR.

(6) If the 1040NR Filer is also the

paid preparer, the 1040NR Filer must

check the ‘‘Paid Preparer’’ box and

sign the 1040NR Return Originator

Declaration on Form 8453–NR.

.02 Corrections to Form 8453–NR.

(1) If the 1040NR Return Originator makes changes to a transmitted

media return after Form 8453–NR has

been signed by the taxpayer, but before

it is transmitted, the 1040NR Return

Originator must have all the necessary

parties described above sign a new

Form 8453–NR with the corrections if

either of the following applies:

(a) the ‘‘Total Tax’’ (Form

8453–NR, line 2), the ‘‘Refund’’ (Form

8453–NR, line 4), or the ‘‘Amount

Owed’’ (Form 8453–NR, line 5) differs

from the amount on the transmitted

media return by more than $7; or

(b) the ‘‘Total Income’’ (Form

8453–NR, line 1) differs from the

amount on the transmitted media return

by more than $25.

(2) A new Form 8453–NR is not

required for a nonsubstantive change. A

nonsubstantive change is limited to a

correction within the above tolerances

for an arithmetic error, transposition

error, misplaced entry, or a spelling

error. The incorrect nonsubstantive information must be neatly lined through

on Form 8453–NR and the correct data

entered next to the lined-through entry.

Also, the initials or the name of the

person making the correction must be

entered.

(3) Dropping cents and rounding

to whole dollars does not constitute a

substantive change or alteration to the

return unless the amount differs by

more than the above tolerances. All

rounding should be accomplished in

accordance with the instructions in the

Form 104ONR tax package.

.03 If the Service determines that a

Form 8453–NR is missing, the 1040NR

Return Originator must provide the

Service with a replacement. A 1040NR

Return Originator must also provide a

copy of any Form(s) W–2, Wage and

Tax Statement, W–2G, Certain Gambling Winnings, 1099R, Distributions

from Pensions, Annuities, Retirement

or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and all other

attachments to the Form 8453–NR.

.04 If a substitute Form 8453–NR is

used, it must be approved by the

Service prior to use. See Rev. Proc.

95–16, 1995–1 C.B. 525.

SECTION 8. OBLIGATIONS OF A

1040NR RETURN ORIGINATOR TO

THE TAXPAYER

.01 A 1040NR Return Originator

must:

(1) furnish the taxpayer with a

complete paper copy of the transmitted

media material that was transmitted to

the Service. This information can be

contained on a replica of an official

form or on an unofficial form. However, on an unofficial form, data entries

must be referenced to the line numbers

on an official form;

(2) provide the taxpayer with a

copy of Form 8453–NR and, in the

case of a prepared or corrected return,

the non-transmitted media portion of

the taxpayer’s return;

(3) advise the taxpayer to retain a

complete copy of the return and any

supporting material;

(4) advise the taxpayer that an

amended return, if needed, must be

filed as a paper return and mailed to

the Philadelphia Service Center;

(5) upon request, provide the taxpayer with the date the transmitted

media portion of the taxpayer’s return

was acknowledged as accepted for

processing by the Service; and

(6) inform the taxpayer that the

address reported on the transmitted

media portion of the return, once

processed, will be used to update the

taxpayer’s address of record. The Internal Revenue Service uses the taxpayer’s address of record for various

notices that are required to be sent to a

taxpayer’s ‘‘last known address’’ under

the Internal Revenue Code and for

refunds of overpayments of tax (unless

otherwise specifically directed by the

taxpayer, such as by Direct Deposit).

See Rev. Proc. 90–18, 1990–1 C.B.

491, for additional information about

‘‘last known address.’’

.02 A 1040NR Return Originator

should advise the taxpayer to wait at

least three weeks from the acceptance

date of the transmitted media tax return

before contacting the Service for the

status of a refund. If such contact is

necessary, the taxpayer should be advised to use the IRS Tele-Tax system.

SECTION 9. DIRECT DEPOSIT OF

REFUNDS

.01 The Service will ordinarily process a request for Direct Deposit but

reserves the right to issue a paper

refund check.

.02 The Service does not guarantee a

specific date by which a refund will be

directly deposited into the taxpayer’s

financial institution account. The taxpayer’s account must be with a financial institution located in the United

States.

.03 Neither the Service nor the

Financial Management Service (FMS)

is responsible for the misapplication of

a Direct Deposit that is caused by

error, negligence, or malfeasance on

the part of the taxpayer, 1040NR Filer,

financial institution, or any of their

agents.

.04 A 1040NR Return Originator

must:

(1) ensure that the taxpayer is

aware of all the general information

regarding a Direct Deposit;

(2) not charge a separate fee for

Direct Deposit;

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(3) accept any Direct Deposit

election to any eligible financial institution designated by the taxpayer;

(4) ensure that the taxpayer is

eligible to choose Direct Deposit;

(5) verify that the Direct Deposit

information requested on Part II of

Form 8453–NR was entered correctly

and that the information entered is the

information transmitted on the transmitted media portion of the return;

(6) caution the taxpayer that once

a transmitted media return has been

accepted for processing by the Service:

(a) the Direct Deposit election

cannot be rescinded;

(b) the Routing Transit Number

of the financial institution cannot be

changed; and

(7) advise the taxpayer to follow

the procedures in section 8.02 of this

revenue procedure if there is a need to

contact the Service about a Direct

Deposit request.

SECTION 10. BALANCE DUE

RETURNS

.01 A magnetically or electronically

filed balance due return is submitted to

the Philadelphia Service Center in the

same manner that a refund or zero

balance return is submitted. A balance

due return is not complete unless and

until the Service receives a Form

8453–NR completed and signed by the

taxpayer.

.02 A taxpayer who magnetically or

electronically files a balance due return

must make a full and timely payment

of any tax that is due. Failure to make

full payment of any tax that is due on

or before April 15, 1996 (for individuals who were employees and received

wages subject to U.S. income tax withholding), or June 15, 1996 (for individuals who did not receive wages as an

employee that were subject to U.S.

income tax withholding), will result in

the imposition of interest and may

result in the imposition of penalties.

SECTION 11. ADVERTISING

STANDARDS FOR A 1040NR

FILER AND A FINANCIAL

INSTITUTION

.01 A 1040NR Filer must comply

with the advertising and solicitation

provisions of 31 C.F.R. Part 10 (Treas-

ury Department Circular No. 230). This

circular prohibits the use or participation in the use of any form of public

communication containing a false,

fraudulent, misleading, deceptive, unduly influencing, coercive, or unfair

statement or claim. In addition, advertising must not imply a special relationship with the Service, FMS, or the

Treasury Department. Any claims concerning faster refunds by virtue of

transmitted media filing must be consistent with the language in official

Service publications.

.02 A 1040NR Filer must adhere to

all relevant federal, state, and local

consumer protection laws.

.03 A 1040NR Filer must not use

the Service’s name, ‘‘Internal Revenue

Service,’’ or ‘‘IRS’’ within a firm’s

name.

.04 A 1040NR Filer must not use

improper or misleading advertising in

relation to the 1040NR Program (including the time frames for refunds).

.05 Use of Direct Deposit name and

logo.

(1) The name ‘‘Direct Deposit’’

will be used with initial capital letters

or all capital letters.

(2) The logo/graphic for Direct

Deposit will be used whenever feasible

in advertising copy.

(3) The color or size of the Direct

Deposit logo/graphic may be changed

when used in advertising pieces.

.06 Advertising materials must not

carry the FMS, IRS, or other Treasury

seals.

.07 Advertising for a cooperative

transmitted media return project

(public/private sector) must clearly

state the names of all cooperating

parties.

.08 If a 1040NR Filer uses radio or

television broadcasting to advertise, the

broadcast must be pre-recorded. The

1040NR Filer must keep a copy of the

pre-recorded advertisement for a period

of at least 36 months from the date of

the last transmission or use.

.09 If a 1040NR Filer uses direct

mail or fax communications to advertise, the 1040NR Filer must retain a

copy of the actual mailing or fax, along

with a list or other description of

persons to whom the communication

was mailed, faxed, or otherwise distributed for a period of at least 36

months from the date of the last

mailing, fax, or distribution.

.10 Acceptance to participate in the

1040NR Program does not imply en-

dorsement by the Service or FMS of

the software or quality of services

provided.

SECTION 12. MONITORING AND

SUSPENSION OF A 1040NR FILER

.01 The Service will monitor a

1040NR Filer for conformity with this

revenue procedure. The Service can

immediately suspend, without notice, a

1040NR Filer from the 1040NR Program. However, in most circumstances,

a suspension from participation in the

1040NR Program is effective as of the

date of the letter informing the 1040NR

Filer of the suspension. Before suspending a 1040NR Filer, the Service

may issue a warning letter that describes specific corrective action for

deviations from this revenue procedure.

.02 The Service will monitor the

timely receipt of Forms 8453–NR, as

well as their overall legibility.

.03 The Service will monitor the

quality of the 1040NR Filer’s submissions throughout the filing season. The

Service will also monitor transmitted

media returns and tabulate rejections,

errors, and other defects. If quality

deteriorates, the 1040NR Filer may

receive a warning from the Service.

.04 The Service will monitor complaints about a 1040NR Filer and issue

a warning or suspension letter as

appropriate.

.05 The Service reserves the right to

suspend the transmitted media filing

privilege of any 1040NR Filer who

violates any provision of this revenue

procedure. Generally, the Service will

advise a suspended 1040NR Filer concerning the requirements for reacceptance into the 1040NR Program. The

following reasons may lead to a warning letter and/or suspension of a

1040NR Filer from the 1040NR Program (this list is not all-inclusive):

(1) the reasons listed in section

4.04 of this revenue procedure;

(2) deterioration in the format of

individual submissions;

(3) unacceptable cumulative error

or rejection rate;

(4) untimely received, illegible,

missing, or unapproved substitute

Forms 8453–NR;

(5) stockpiling of returns while

participating in the 1040NR Program;

(6) failure on the part of a Transmitter to provide clients with acknowledgement files within five days after

receipt from the Service;

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(7) significant complaints about a

1040NR Filer’s performance in the

1040NR Program;

(8) failure on the part of a

1040NR Filer to ensure that no other

entity uses its assigned MTFIN;

(9) having more than one MTFIN

for the same business entity at the

same location (the business entity is

generally the entity that reports on its

return the income derived from transmitted media filing), unless the Service

has issued more than one MTFIN to a

business entity;

(10) failure on the part of a

1040NR Filer to cooperate with the

Service’s efforts to monitor 1040NR

Filers and investigate transmitted media

filing abuse;

(11) failure on the part of a

1040NR Filer to properly use the

standard/non-standard W–2 indicator;

(12) failure on the part of a

Transmitter to use its assigned MTFIN

when filing returns;

(13) failure on the part of the

Transmitter to include a Service Bureau’s MTFIN in the transmission of a

return submitted by a Service Bureau;

(14) failure on the part of a

Service Bureau or a Transmitter to

include the 1040NR Return Originator’s MTFIN as part of a return that the

1040NR Return Originator submits to

the Service Bureau or the Transmitter;

(15) violation of the advertising

standards described in section 11 of

this revenue procedure;

(16) failure to maintain and make

available records as described in section 5.11(3) and (4) of this revenue

procedure;

(17) accepting a tax return for

transmitted media filing either directly

or indirectly from a person (other than

the taxpayer who is submitting his or

her return) who is not in the 1040NR

Program;

(18) submitting the transmitted

media portion of the return with

information that is not identical to the

information on the Form 8453–NR;

(19) failure to timely pay any

applicable fees, as implemented by

subsequent guidance; or

(20) filing returns before February

15, 1996, with any form of substitute

Form W–2 or wage and tax

documentation.

.06 The Service will list in the

Internal Revenue Bulletin, district office listings, district office newsletters,

and on the EFS Bulletin Board, the

name of any entity that is suspended

from the 1040NR Program and the

effective date of that suspension.

.07 A suspension from participation

in the 1040NR Program or a revocation

of the privilege to participate in the

1040NR Program is effective as of the

date of the letter informing the 1040NR

Filer of the suspension or revocation.

.08 Most denials and suspensions of

participation in the 1040NR Program

will result in:

(1) a rejected applicant not being

reconsidered for participation in the

1040NR Program for at least two filing

seasons; and

(2) a suspended 1040NR Filer not

being reconsidered for participation in

the 1040NR Program for at least two

years. For purposes of this section

12.08, two years means the remaining

months in the calendar year of denial

of participation or suspension and the

following two calendar years.

SECTION 13. ADMINISTRATIVE

REVIEW PROCESS FOR DENIAL

OF PARTICIPATION IN THE

1040NR PROGRAM

.01 An applicant who has been

denied participation in the 1040NR

Program has the right to an administrative review. During the administrative

review process, the denial of participation remains in effect.

.02 In response to the submission of

a Form MAR–8980, the Service will

either (1) accept an applicant into the

1040NR Program, or (2) issue a

proposed letter of denial that explains

to the applicant why the Service

proposes to reject the application to

participate in the 1040NR Program.

.03 An applicant who receives a

proposed letter of denial may respond,

in writing, to the Project Office. The

applicant’s response must address the

Project Office’s explanation for proposing the denial to participate. The

Project Office must receive the applicant’s response within 30 days of the

date of the proposed letter of denial.

.04 Upon receipt of an applicant’s

written response, the Project Office

will reconsider its proposed letter of

denial. The Project Office may (1)

withdraw its proposed letter of denial

and admit the applicant into the

1040NR Program, or (2) finalize its

proposed letter of denial and issue it to

the applicant.

.05 If an applicant receives a final

letter from the Project Office that

denies the applicant participation in the

1040NR Program, the applicant is entitled to an appeal, in writing, to the

Director of Practice.

.06 The appeal must be filed with

the Project Office within 30 days of the

date of the denial letter. An applicant’s

written appeal must contain a detailed

explanation, with supporting documentation, of why the denial should be

reversed. In addition, the applicant

must include a copy of the applicant’s

Form MAR–8980 and a copy of the

denial letter.

.07 The Project Office, upon receipt

of a written appeal to the Director of

Practice, will forward to the Director of

Practice its file on the applicant and the

materials described in section 13.06

that the applicant has submitted to the

Project Office. The Project Office will

forward to the Director of Practice

these materials within 15 days of

receipt of the applicant’s appeal to the

Director of Practice.

.08 Failure to respond within the 30day periods described in sections 13.03

and 13.06 of this revenue procedure

irrevocably terminates an applicant’s

right to an administrative review or

appeal.

SECTION 14. ADMINISTRATIVE

REVIEW PROCESS FOR

SUSPENSION FROM THE 1040NR

PROGRAM

.01 A 1040NR Filer who has been

suspended from participation in the

1040NR Program has the right to an

administrative review. During the administrative review process, the suspension remains in effect.

.02 If a 1040NR Filer receives a

suspension letter from the Project Office, the 1040NR Filer is entitled to an

appeal, in writing, to the Director of

Practice.

.03 The 1040NR Filer must ensure

that the Project Office receives the

1040NR Filer’s written appeal for

review by the Director of Practice

within 30 days of the date of the

suspension letter. The 1040NR Filer’s

written appeal for review must contain

detailed reasons, with supporting documentation, for reversal of the suspension. In addition, the 1040NR Filer

must include a copy of its Form MAR–

8980 and a copy of the suspension

letter.

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.04 The Project Office, upon receipt

of a written appeal to the Director of

Practice, will forward to the Director of

Practice its file on the 1040NR Filer

and the material described in section

14.03 of this revenue procedure that the

1040NR Filer has submitted to the

Project Office. The Project Office will

forward to the Director of Practice

these materials within 15 days of the

receipt of a 1040NR Filer’s written

request for appeal.

.05 Failure to appeal within the 30day period described in section 14.03

of this revenue procedure irrevocably

terminates a 1040NR Filer’s right to

appeal the decision to suspend the

1040NR Filer from participation in the

1040NR Program.

SECTION 15. EFFECT ON OTHER

DOCUMENTS

Rev. Proc. 95–22, 1995–1 C.B. 686,

is superseded.

SECTION 16. EFFECTIVE DATE

This revenue procedure is effective

May 31, 1996.

SECTION 17. PROJECT OFFICE

INFORMATION

All questions regarding this revenue

procedure should be directed to:

Internal Revenue Service

Philadelphia Service Center

ATTN: DP-115-Magnetic Media

Project Office

11601 Roosevelt Blvd.

Philadelphia, PA 19154

U.S.A.

The telephone number of this office is

(215) 516-7533 (not a toll-free number)

or 800-829-6945 (a toll-free number).

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Part IV. Items of General Interest

Notice of Proposed Rulemaking and

Notice of Public Hearing

Termination of a Partnership under

Section 708(b)(1)(B)

PS–5–96

AGENCY: Internal Revenue Service

(IRS), Treasury.

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

SUMMARY: This document contains

proposed regulations relating to the

termination of a partnership upon the

sale or exchange of 50 percent or more

of the total interest in partnership

capital and profits. The proposed regulations affect all partners and partnerships that terminate under section

708(b)(1)(B).

DATES: Written comments and requests to speak (with outlines of oral

comments) at a public hearing scheduled for September 5, 1996, must be

received by August 15, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (PS–5–96), Room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington, DC 20044. In the alternative,

submissions may be hand delivered

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

to: CC:DOM:CORP:R (PS–5–96), Courier’s Desk, Internal Revenue Service,

1111 Constitution Avenue, NW., Washington, DC. The public hearing will be

held in the IRS Auditorium, Seventh

Floor, 7400 Corridor, Internal Revenue

Building, 1111 Constitution Avenue,

NW., Washington, DC.

FOR FURTHER INFORMATION

CONTACT: Concerning the proposed

regulations, Steven R. Schneider, (202)

622-3060; concerning submissions and

the hearing, Christina Vasquez, (202)

622-7190; (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Introduction

This document proposes to revise

§1.708–1(b)(1)(iv) of the Income Tax

Regulations (26 CFR Part 1) under

section 708(b)(1)(B) of the Internal

Revenue Code (Code). This document

also proposes revisions to other sections of the Income Tax Regulations to

reflect the proposed revision to §1.708–

1(b)(1)(iv).

Background

Section 708(b)(1)(B) provides that,

for purposes of section 708(a), a

partnership shall be considered terminated if within a 12-month period there

is a sale or exchange of 50 percent or

more of the total interest in partnership

capital and profits. The Code and the

legislative history to section 708(b)(1)(B) do not specify the tax consequences of that termination or the

steps by which such a termination

occurs.

However, §1.708–1(b)(1)(iv) of the

Income Tax Regulations provides that,

if a partnership is terminated by a sale

or exchange of an interest, the following is deemed to occur: the partnership

distributes its properties to the purchaser and the other remaining partners

in proportion to their respective interests in the partnership properties; and,

immediately thereafter, the purchaser

and the other remaining partners contribute the properties to a new partnership, either for the continuation of

the business or for its dissolution and

winding up.

The distribution of property that is

deemed to occur upon a termination

under section 708(b)(1)(B) is treated

like an actual distribution for federal

tax purposes. As a result, a continuing

partner may recognize gain under section 731(a) if the amount of money

deemed distributed to the partner (including any money deemed distributed

upon a shift in liabilities under section

752) exceeds the partner’s basis in the

partnership interest. In addition, the

distribution may affect the basis of the

partnership’s assets because the basis

of the distributed property in the hands

of the partners (and thus in the hands

of the reconstituted partnership) is

determined under section 732(b) by

reference to the partners’ bases in their

partnership interests. Another possible

consequence of the deemed distribution

is a change in the holding periods of

the partners’ interests in the

partnership.

The deemed distribution of partnership property that occurs on a

termination raises particular concerns

with respect to the interaction of

sections 708(b)(1)(B), 704(c), and 737.

Section 704(c)(1)(A) requires that gain

or loss with respect to property contributed to a partnership by a partner be

shared among the partners so as to take

into account any built-in gain or loss in

the property at the time of the contribution. Section 704(c)(1)(B) provides

that, if property contributed by a

partner is distributed to another partner

within five years, the contributing

partner must recognize gain or loss in

an amount equal to the gain or loss the

partner would have been allocated

under section 704(c)(1)(A) on a sale of

the property by the partnership. Section

737 provides that, if property is distributed to a partner that had contributed other property to the partnership

within five years, the distributee partner must recognize gain equal to the

lesser of (i) the net precontribution gain

on property contributed by the partner,

or (ii) the excess of the value of the

distributed property over the adjusted

basis of the partner’s interest in the

partnership. Net precontribution gain is

the net gain, if any, that would have

been recognized by the distributee

partner under section 704(c)(1)(B) if all

partnership property contributed by the

distributee partner within five years of

the distribution had been distributed to

another partner.

The legislative history of sections

704(c)(1)(B) and 737 indicates that

Congress intended these sections to be

coordinated with the rules governing

partnership terminations under section

708(b)(1)(B). The legislative history

states that such coordination will

provide that (1) no gain is recognized

under sections 704(c)(1)(B) and 737 as

a result of a deemed distribution on

termination; (2) the deemed distribution

will not change the application of the

sharing requirements of section 704(c)

to precontribution gain or loss with

respect to property contributed to the

partnership before the termination; and

(3) the constructive contribution of

partnership property to a new partnership is treated as beginning a new

five-year period for all contributed

property to the extent that the pretermination appreciation in the value of

property was not already required to be

1996– 28 I.R.B.

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allocated to the original contributor (if

any) of the property. H.R. Rep. No.

247, 101st Cong., 1st Sess. 1355

(1989); H.R. Conf. Rep. No. 1018,

102d Cong., 2d Sess. 428 (1992).

These results are difficult to integrate

with the current regulations under

section 708(b)(1)(B). The difficulty

arises primarily because the section

708(b)(1)(B) regulations provide for a

pro rata distribution of property to the

partners, while the legislative history

seems to contemplate that partnership

property previously contributed to the

partnership by a partner will be distributed to that partner, at least to the

extent of the remaining built-in gain or

loss in the property.

The IRS and Treasury Department

recently issued final regulations under

sections 704(c)(1)(B) and 737. Commentators, however, noted that the

approach taken in the legislative history

and the final regulations would not be

required if the section 708(b)(1)(B)

regulations did not create a deemed

distribution of partnership property to

the partners as part of a section

708(b)(1)(B) termination. The preamble

to the final regulations indicated that

the IRS and Treasury would consider

issuing separate guidance on the interaction of sections 704(c) and 708(b)(1)(B) and invited additional comments

and suggestions regarding the project.

Explanation of Provisions

The proposed regulations under section 708(b)(1)(B) provide that, if a

partnership is terminated by a sale or

exchange of an interest, the following

is deemed to occur: the partnership

transfers all of its assets and liabilities

to a new partnership in exchange for an

interest in the new partnership; immediately thereafter, the terminated partnership distributes interests in the new

partnership to the purchasing partner

and the other remaining partners in

liquidation of the terminated partnership, either for the continuation of

the business or for its dissolution and

winding up.

Under the proposed regulations, a

termination under section 708(b)(1)(B)

will no longer result in a deemed

distribution of the terminated partnership’s assets to the purchasing and

remaining partners. As a result, the

federal tax consequences of a termination that result from the deemed

distribution of assets will no longer

1996– 28 I.R.B.

occur on a section 708(b)(1)(B) termination. Such consequences include the

possibility of gain under section 731(a),

a change in the partnership’s basis in

partnership property, and the commencement of a new five-year period

for purposes of sections 704(c)(1)(B)

and 737. In addition, the interaction

between section 704(c) and section

708(b)(1)(B) is greatly simplified under

the proposed regulation. The section

704(c) property held by the terminated

partnership (and deemed contributed to

a new partnership) will continue to be

treated as section 704(c) property in the

hands of the new partnership under

§1.704–3(a)(9). A distribution of property by the new partnership will have

the same effect for purposes of section

704(c)(1)(B) and section 737 as a

distribution from the terminated partnership. See §§1.704–4(c)(4) and

1.737–2(b)(1) as proposed to be

amended by this document.

The proposed regulations do not

change the federal tax consequences of

a termination under section 708(b)(1)(B) to the extent that the consequences were not dependent on the

deemed distribution. Such consequences will continue under the

proposed regulations. For example, the

tax year of the terminated partnership

will still close as a result of the

termination, the elections of the terminated partnership will be invalidated,

and a termination will continue to be

treated as a liquidation under the

section 704(b) regulations.

In addition, the proposed regulations

will not change the effect of a termination on the depreciation of partnership

property by the new partnership. Property deemed contributed to the new

partnership will continue to be subject

to the anti-churning provisions of section 168(f)(5), which generally require

the new partnership to depreciate the

property as if it were newly-acquired

property under the same depreciation

system used by the terminated partnership. This result is required by

statute and is not affected by the

specific mechanics of a termination

under section 708(b)(1)(B). See Code

sections 168(f)(5); 168(i)(7); 168(e)(4)

and (f)(10) (repealed 1986).

This document also contains proposed regulations under sections

704(b), 704(c)(1)(B), 743(b), 737, and

761(e). These proposed regulations relate to the elimination of a deemed

distribution of partnership assets as part

of a section 708(b)(1)(B) termination.

The proposed regulations under section

704(b) will eliminate the reference to a

deemed contribution of partnership

property by the partners of the continuing partnership. The proposed regulations under sections 704(c)(1)(B) and

737 provide that a termination under

section 708(b)(1)(B) does not commence a new five-year period for

partnership property and that a distribution of property by the new partnership

will be treated in the same manner as a

distribution by the terminated partnership would have been treated. Although the legislative history suggests

the beginning of a new five year period

for built in gain or loss in the property

deemed contributed to the new partnership, that legislative history was

commenting on a deemed contribution

of property by the partners to the new

partnership, as then required by the

section 708 regulations. Under the

approach proposed in this regulation, a

new five year period is no longer

appropriate.

The proposed regulations under section 743(b) provide that any special

basis adjustment a partner has in assets

of the terminated partnership as a result

of a section 754 election will carry

over to the new partnership. The proposed regulations under section 761(e)

provide that the distribution of interests

in the new partnership by the terminated partnership is not treated as a

sale or exchange of the interests in the

new partnership. This provision is

necessary to prevent the distribution of

interests in the new partnership from

causing a termination of the new

partnership.

Proposed Effective Date

This section is proposed to apply to

terminations of partnerships under section 708(b)(1)(B) occurring on or after

the date on which these regulations are

published as final regulations in the

Federal Register.

Special Analyses

It has been determined that this

notice of proposed rulemaking is not a

significant regulatory action as defined

in EO 12866. Therefore, a regulatory

assessment is not required. It has also

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) and the Regulatory

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

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed rulemaking will be submitted to the Chief

Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Comments and Public Hearing

Before these proposed regulations

are adopted as final regulations, consideration will be given to any written

comments (a signed original and eight

(8) copies) that are timely submitted to

the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled

for September 5, 1996, at 10 a.m. in

the Auditorium of the Internal Revenue

Building, 1111 Constitution Avenue

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

admitted beyond the Internal Revenue

Building lobby more than 15 minutes

before the hearing starts.

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

apply to the hearing.

Persons that wish to present oral

comments at the hearing must submit

written comments by August 15, 1996,

and submit an outline of the topics to

be discussed and the time to be devoted

to each topic (signed original and eight

(8) copies) by August 15, 1996.

A period of 10 minutes will be

allotted to each person for making

comments.

An agenda showing the scheduling

of the speakers will be prepared after

the deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Steven R. Schneider of the

Office of Assistant Chief Counsel

(Passthroughs and Special Industries),

IRS. However, other personnel from

the IRS and Treasury Department

participated in their development.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

proposed to be amended as follows:

PART I—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as

follows:

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

Section 1.704–4 also issued under 26

U.S.C. 704(c). * * *

Par. 2. Section 1.704–1 is amended

as follows:

1. Paragraph (b)(2)(iv)(l) is amended

by removing the fourth sentence.

2. Paragraph (b)(5) Example 13(v) is

amended by removing sentences five to

the end and adding five new sentences

in their place.

The revisions and addition read as

follows:

§1.704–1 Partner’s distributive share.

(b) * * *

(5) * * *

Example 13. * * *

(v) * * * In accordance with paragraph (b)(2)(iv)(e) of this section, the

partnership agreement provides that the

partners’ capital accounts are adjusted

to reflect how unrealized taxable gain

would have been allocated if the

property distributed to the partners in

liquidation of the partnership (i.e., the

interest in the new partnership constructively received by the terminated

partnership under §1.708–1(b)(1)(iv))

had been sold for its fair market value

of $40,000. Accordingly, the $18,000

of unrealized gain ($40,000 less

$22,000 adjusted tax basis) is credited

to the partners’ capital accounts as

follows:

Capital account following

sale . . . . . . . . . . . . . . . . . . . . .

Deemed sale adjustment. . . .

Capital account before constructive liquidation. . . . . . . .

$11,000

9,000

$20,000

9,000

$20,000

Constructive liquidating distributions of the

interests in the new partnership are made with

reference to its $40,000 fair market value. Under

section 732(b), the adjusted tax basis of the 50

percent interest in the new partnership constructively distributed to Z is equal to the

$11,000 adjusted tax basis of Z’s partnership

interest before the constructive liquidation, and

the adjusted tax basis of the 50 percent interest

in the new partnership constructively distributed

to LK is equal to the $20,000 adjusted tax basis

of LK’s partnership interest before the constructive liquidation. Under paragraph

(b)(2)(iv)(d) of this section, the capital account

of the terminated partnership with respect to the

new partnership would be $40,000 (i.e., the fair

market value of the property constructively

contributed to the new partnership by the

terminated partnership). The capital accounts of

Z and LK with respect to the constructively

distributed interests in the new partnership are

stated at $20,000 (i.e., one-half of the $40,000

capital account of the terminated partnership).

This Example 13(v) applies to terminations of

partnerships under section 708(b)(1)(B) occurring

on or after the date on which these regulations

are published as final regulations in the Federal

Par. 3. Section 1.704–4 is amended

by revising paragraphs (a)(4)(ii) and

(c)(3) to read as follows:

§1.704–4 Distribution of contributed

property.

(a) * * *

(4) * * *

(ii) Section 708(b)(1)(B) terminations. A termination of the partnership

under section 708(b)(1)(B) does not

begin a new five-year period for each

partner with respect to the built-in gain

and built-in loss property that the

terminated partnership is deemed to

contribute to a new partnership following the termination. See §1.704–3(a)(3)(ii) for the definitions of built-in

gain and built-in loss on section 704(c)

property. This paragraph (a)(4)(ii) applies to terminations of partnerships

under section 708(b)(1)(B) occurring

on or after the date on which these

regulations are published as final regulations in the Federal Register.

(3) Section 708(b)(1)(B) terminations. Section 704(c)(1)(B) and this

section do not apply to a deemed

distribution of interests in a new

partnership caused by a termination of

a partnership under section 708(b)(1)(B). A subsequent distribution of

section 704(c) property by the new

partnership to a partner of the new

partnership is subject to section

704(c)(1)(B) to the same extent that a

distribution by the terminated partnership would have been subject to

section 704(c)(1)(B). See also §1.737–

2(a) for a similar rule in the context of

section 737. This paragraph (c)(3)

applies to terminations of partnerships

under section 708(b)(1)(B) occurring

on or after the date on which these

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regulations are published as final regulations in the Federal Register.

Par. 4. In §1.708–1, paragraph

(b)(1)(iv) is amended by removing the

first sentence and adding two new

sentences in its place to read as

follows:

§1.708–1 Continuation of Partnership.

(b) * * *

(1) * * *

(iv) If a partnership is terminated by

a sale or exchange of an interest, the

following is deemed to occur: The

partnership transfers all of its assets

and liabilities to a new partnership in

exchange for an interest in the new

partnership; and, immediately thereafter, the terminated partnership distributes an interest in the new partnership to the purchasing partner and

the other remaining partners in liquidation of the terminated partnership,

either for the continuation of the

business of the new partnership or for

its dissolution and winding up. The

first sentence of this paragraph

(b)(1)(iv) applies to terminations of

partnerships under section 708(b)(1)(B)

occurring on or after the date on which

these regulations are published as final

regulations in the Federal Register.

***

Par. 5. Section 1.743–1 is amended

by adding paragraph (d) as follows:

§1.743–1 Optional adjustment to

basis of partnership property.

(d) Section 708(b)(1)(B) terminations. A partner with a special basis

1996– 28 I.R.B.

adjustment in property held by a

partnership that terminates under section 708(b)(1)(B) will continue to have

the same special basis adjustment with

respect to property contributed by the

terminated partnership to the new partnership under §1.708–1(b)(1)(iv). This

paragraph (d) applies to terminations of

partnerships under section 708(b)(1)(B)

occurring on or after the date on which

these regulations are published as final

regulations in the Federal Register.

Par. 6. In §1.737–2, paragraph (a) is

revised to read as follows:

§1.737–2 Exceptions and special

rules.

(a) Section 708(b)(1)(B) terminations. Section 737 and this section do

not apply to a deemed distribution of

interests in a new partnership caused

by a termination of a partnership under

section 708(b)(1)(B). A subsequent distribution of section 704(c) property by

the new partnership to a partner of the

new partnership is subject to section

737 to the same extent that a distribution by the terminated partnership

would have been subject to section

737. See also §1.704–4(c)(3) for a

similar rule in the context of section

704(c)(1)(B). This paragraph (a) applies to terminations of partnerships

under section 708(b)(1)(B) occurring

on or after the date on which these

regulations are published as final regulations in the Federal Register.

Par 7. In §1.761–1, paragraph (e) is

added to read as follows:

§1.761–1 Terms defined.

(e) Distribution of partnership inter-

est. For purposes of section 708(b)(1)(B) and §1.708–1(b)(1)(iv), the distribution of an interest in a new

partnership by a partnership that terminates under section 708(b)(1)(B) is not

a sale or exchange of an interest in the

new partnership. This paragraph (e)

applies to terminations of partnerships

under section 708(b)(1)(B) occurring

on or after the date on which these

regulations are published as final regulations in the Federal Register.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

May 9, 1996, 8:45 a.m., and published in the

issue of the Federal Register for May 13,

1996, 61 F.R. 21985)

Information Reporting Seminars

Announcement 96–57

Representatives from the Martinsburg Computing Center, Information Returns Branch, will conduct

seminars in 13 cities during the months

of August and September. They will

cover the latest magnetic/electronic

filing of Forms 1099, 1098, 5498, and

W–2G information, backup withholding

and penalties relating to the filing of

information returns. A representative

from Internal Revenue Service/International will discuss the filing of Form

1042–S.

Following is a schedule of seminar

sites and dates, as well as the telephone

numbers of the Internal Revenue Service offices closest to the sites. Please

contact these Internal Revenue Service

offices after July 22 for the exact

location and times. The agenda for the

day has also been included for your

convenience.

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1996 Information Reporting Seminars

Sites

Dates

Telephone Numbers

Atlanta GA

Baltimore MD

Boston MA

Chicago IL

Cincinnati OH

Dallas TX

Denver CO

Los Angeles CA

Minneapolis MN

New York NY

Seattle WA

St. Louis MO

Tampa FL

9/10-11

8/20

9/25

9/24-25

9/17-18

8/27-28

8/29

8/28-29

9/26

8/27

9/19

9/12

(404)331-3808

(410)962-2402

(617)424-5310

(312)886-1572

(513)684-2828

(214)767-3755

(303)446-1667

(304)263-8700

(612)290-3320

(212)436-1023

(206)220-5803

(314)539-2161

(904)232-2514

AGENDA

MORNING SESSION

AFTERNOON SESSION

IRS/MARTINSBURG COMPUTING CENTER

SOCIAL SECURITY ADMINISTRATION

9:00a

1:00p

Welcome

Magnetic Media and Electronic Filing of

Forms 1099, 1098, 5498, & W–2G

Backup Withholding and Penalties

W–2 Magnetic Media

IRS/INTERNATIONAL

10:45a

12:00p

Form 1042–S

LUNCH

ATTENTION PAPER FILERS:

The 1099/W–2 sessions are geared toward the magnetic media/electronic filer, and attendees should expect presentations

to highlight that filing only. No tax law representative will be present to answer questions.

The Form 1042–S presentation will be structured to educate withholding agents on the special rules that apply to

individuals who are not U.S. citizens or resident aliens, and how to report that information to the recipient and IRS.

Determination of Interest Expense

Deduction of Foreign Corporations;

Correction

Announcement 96–58

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION:

regulations.

Correction

final

SUMMARY: This document contain

corrections to final regulations [TD

8658 [1996–14 I.R.B. 13]] which were

published in the Federal Register for

Friday, March 8, 1996 (61 FR 9326).

The final regulations relate to the

determination of the interest expense

deduction of foreign corporations and

apply to foreign corporations engaged

in a trade or business within the United

States.

EFFECTIVE DATE: June 6, 1996.

FOR FURTHER INFORMATION

CONTACT: Ahmad Pirasteh or

Richard Hoge (202) 622-3870 (not a

toll-free number).

882, 864(e), 988(d), and 7701(l) of the

Internal Revenue Code.

Need for Correction

As published, the final regulations

[TD 8658] contain errors that are in

need of clarification.

Correction of Publication

SUPPLEMENTARY INFORMATION:

Accordingly, the publication of final

regulations which are the subject of FR

Doc. 96–5262 is corrected as follows:

Background

§ 1.882–0 [Corrected]

The final regulations that are subject

to these corrections are under sections

1. On page 9329, column 1,

§ 1.882–0, the section heading entry

1996– 28 I.R.B.

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for § 1.882–1, ‘‘§ 1.882–1 Taxation of

foreign corporations engaged in U.S.

business or of foreign corporations

treated as having effectively connected

income.’’ is corrected to read

‘‘§ 1.882–1 Taxation of foreign corporations engaged in U.S. business or of

foreign corporations treated as having

effectively connected income.’’.

is corrected to read

Value

Asset 1 . . . . . . .

Asset 2 . . . . . . .

Asset 3 . . . . . . .

$2,000

2,500

5,500

Amount

Interest

Expense

$800

3,200

6,000

256

§ 1.882-5 [Corrected]

2. On page 9330, column 3,

§ 1.882–5, paragraph (a)(6), line 7

from the bottom of the paragraph, the

language ‘‘respect to U.S.-booked liabilities that’’ is corrected to read

‘‘respect to U.S. booked liabilities

that’’.

3. On page 9331, column 1,

§ 1.882–5, paragraph (a)(8), paragraph

(ii) of Example 1, line 12, the language

‘‘(c)(2)(vi), and (d)(2)(vii) or (e)(1)(ii)

this’’ is corrected to read ‘‘(c)(2)(vi),

and (d)(2)(vii) or (e)(1)(ii) of this’’.

4. On page 9332, column 2,

§ 1.882–5, paragraph (b)(3), last four

lines of the paragraph, the language

‘‘less frequently than monthly by a

large bank (as defined in section

585(c)(2)) and semi-annually by any

other taxpayer’’ is corrected to read

‘‘less frequently than monthly (beginning of taxable year and monthly thereafter) by a large bank (as defined in

section 585(c)(2)) and semi-annually

(beginning, middle and end of taxable

year) by any other taxpayer’’.

5. On page 9332, column 2,

§ 1.882–5, paragraph (c)(2)(i), lines 3

and 2 from the bottom of the paragraph, the language ‘‘annually by a

large bank (as defined in section

585(c)(2)) and annually by any’’ is

corrected to read ‘‘annually (beginning,

middle and end of taxable year) by a

large bank (as defined in section

585(c)(2)) and annually (beginning and

end of taxable year) by any’’.

6. On page 9334, column 3,

§ 1.882–5, paragraph (d)(6), paragraph

(i) of Example 1, the table

Value

Asset 1 . . . . . . .

Asset 2 . . . . . . .

Asset 3 . . . . . . .

Liability 1 . . . . .

Liability 2 . . . . .

Capital . . . . . . . .

1996– 28 I.R.B.

$2,000

2,500

5,500

Amount

$800

3,200

6,000

Interest

256

Liability 1 . . . . .

Liability 2 . . . . .

Capital . . . . . . . .

Michael L. Slaughter,

Acting Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on

April 9, 1996, 8:45 a.m., and published in the

issue of the Federal Register for April 10,

1996, 61 F.R. 15891)

Foundations Status of Certain

Organizations

Announcement 96–59

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:

Alliance of Youth and Industry,

Chicago, IL

Ancient Egyptian Museum Inc.,

Chicago, IL

Animal Advocates Inc., Chicago, IL

Apples of Gold Outreach Center Inc.,

Hartland, WI

Aurora Life Education Center Corp.,

Aurora, IL

Bayou Brigade Washington Battalion,

Beach Park, IL

Bend Lake Search and Rescue Assoc.

Inc., Benton, IL

Big Game Theater, Chicago, IL

Brady County Water District, Brady,

Bright Beginnings Childcare Inc.,

Aledo, IL

Broadway Childrens Center, Chicago,

Capital Soccer Association, Lincoln,

Carrollton Farmers Branch Insurance

Agents Assoc., Carrollton, TX

Center for the Study of Great Ideas,

Chicago, IL

Center High School Booster Club

Inc., Kansas City, MO

Chicago 1994 Bid Committee,

Chicago, IL

Clay County Adult Literacy Council,

Inc., Henrietta, TX

Clowns for Kids Charity, Palatine, IL

Club Impulse Inc., McCook, NE

Coalition for the Homeless of

Northwest Cook County, Chicago,

Colorado Rural Job Training

Foundation Inc., Denver, CO

Common Bread Ministry,

Minneapolis, MN

Community Action Group, Chicago,

Community Business Assoc. of

Nebraska Inc., Lincoln, NE

Concert Singers Chorale Inc.,

Chicago, IL

Dickinson Public Library Foundation,

Dickinson, ND

Dunbar Vocational High School

Alumni Assoc., Chicago, IL

Elmwood-Murdock Education,

Murdock, NE

Family Information & Referral

Center, Albert Lea, MN

Friends of H S Family Ed Prog Inc.,

Boyceville, WI

Geeta Ashram of Chicago Inc.,

Floosmoor, IL

Guttenberg Heritage Society,

Guttenberg, IA

Herman Town Senior Community

Center, Herman Town, MN

Hinkley Softball Assoc. Inc., Brook

Park, MN

Illinois Academic Decathlon Assoc.,

Chicago, IL

Illinois Association of Teacher

Educators, Mt. Vernon, IL

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Illinois Drill Team Assoc., Olympia

Fields, IL

Interpret Inc., Helena, MT

Jesus Never Fails Pentocostal Church,

Chicago, IL

Jodie Bailey and Friends Inc., St.

Louis, MO

Johnson County Area Council on

Child Abuse and Neglect, Iowa

City, IA

Kansas City Camerata Inc., Kansas

City, MO

Korean-American Cultural Foundation,

St. Louis, MO

Learning and Educational Alliance of

Rogers Park Neighborhood,

Chicago, IL

Littleville Preschool and Kindergarten

III, Dixmoor, IL

Metropolitan Employment &

Rehabilitation Service, Belleville,

Minneapolis Area Among Mutual

Assistance Association,

Minneapolis, MN

Mississippi County Transit System

Inc., East Prairie, MO

Moline Babe Ruth Baseball League,

Moline, IL

Mt. Vernon Humane Center Inc., Mt.

Vernon, IL

National Organization for Fetal

Alcohol Syndrome, Rapid City, SD

National Youth Volleyball Assoc.,

Palatine, IL

North End Community Center, East

St. Louis, MO

Northern Choice Volleyball Club Inc.,

Roseau, WI

North Dakota Environmental Health

Assoc., Bismarck, ND

Oak Lawn-Home Town School

District, Oak-Lawn, IL

Opportunities for Access, Mt. Vernon,

Osseo Area School District No. 279

Foundation, Maple Grove, MN

Pathways International, New Brighton,

Peoria Area Literacy Coalition,

Peoria, IL

Public Interest Law Foundation,

Champaign, IL

Quad Cities in Schools, Rock Island,

Rainbow Project, McLaughlin, SD

Rape Crisis Center of Mid Central

IL, Inc., Bloomington, IL

Ray and Rosetta Doerhoff Scholarship

Trust, St. Elizabeth, MO

Ben Brandt Chamber Players Inc.,

Evanston, IL

Rotary Club of Glenview Charitable

Foundation, Glenview, IL

Rosciuszko Community Center

Advisory Board, Milwaukee, WI

Richmond Beautification Club,

Richmond, MO

Samaritan Inn Foundation,

Milwaukee, WI

Sangamon Valley Youth Symphony,

Springfield, IL

Soag Corp., Chicago, IL

South Shore Philharmonic Orchestra,

Chicago, IL

Springfield Music Foundation Inc.,

Springfield, MO

St. Louis Youth Corps Experience,

University City, MO

Tallgrass Prairie Audubon Society,

Grinnell, IA

Team Elmhurst Soccer Club, Elm

Hurst, IL

Technology Learning Center Inc.,

Milwaukee, WI

Theater By Design, Chicago, IL

Tomorrows Future Inc., Kansas City,

Valley & Lakes Education District

(VAL-ED), Fergus Falls, MN

Wabash Valley Arts Council Inc.,

Mt. Carmel, IL

Wawokiya Ospaya Inc., Rapid City,

Western Cass Fire Fighters Assoc.,

Cleveland, MO

West of the Moon Theatre Company,

Minneapolis, MN

Westside Health Authority, Chicago,

Weston Arts Coalition, Weston, MO

White Fish Baseball Inc., White Fish,

Wisconsin Women in Government

Inc., Madison, WI

Womens Consortium, St. Louis, MO

Working Church, Chicago, IL

Young Footliters Childrens Theatre

Inc., Iowa City, IA

Youth Law Foundation, St. Louis,

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.

1996– 28 I.R.B.

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778/20054/29JUL96/IRS25-050

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

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 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 attor-

ney, 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

Behrens, William

Warter, J. Christopher

Leckie, Jerry B.

Retzlaff, Gene

Cahill, Donal

Guidera, George C.

Kirk, Gregg T.

Brock, Guy Charles

Mathews, Thomas

Farnsworth Jr., Harold

King, John C.

Kenosha, WI

South Bend, IN

Macon, GA

Hortonville, WI

Stratford, CT

Straford, CT

Dallas, TX

Spokane, WA

Cincinnati, OH

Starke, FL

Wichita, KS

Enrolled Agent

Attorney

Enrolled Agent

Attorney

CPA

Attorney

March 6, 1996 to May 5, 1996

Indefinite from March 8, 1996

March 9, 1996 to March 8, 1999

March 18, 1996 to July 17, 1996

April 4, 1996 to April 3, 1997

April 11, 1996 to October 10, 1996

Indefinite from May 1, 1996

May 1, 1996 to August 31, 1996

May 1, 1996 to April 30, 1998

May 1, 1996 to August 31, 1996

Announcement of the Expedited Suspension of Attorneys, Certified Public

Accountants, Enrolled Agents, and Enrolled Actuaries From Practice Before the

Internal Revenue Service

Under title 31 of the Code of Federal

Regulations, section 10.76, the Director

of Practice is authorized to immediately

suspend from practice before the Internal Revenue Service any practitioner

who, within five years, from the date

the expedited proceeding is instituted,

(1) has had a license to practice as an

attorney, certified public accountant, or

actuary suspended or revoked for

cause; or (2) has been convicted of any

crime under title 26 of the United

States Code or, of a felony under title

18 of the United States Code involving

dishonesty or breach of trust.

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

Revenue Service matter from directly

or indirectly employing, accepting assistance from, being employed by, or

sharing fees with, any practitioner

disbarred or suspended from practice

before the Internal Revenue Service.

To enable attorneys, certified public

accountants, enrolled agents, and enrolled actuaries to identify practitioners

under expedited suspension from practice before the Internal Revenue Service, the Director of Practice will announce in the Internal Revenue Bulletin

the names and addresses of practitioners who have been suspended from such

practice, their designation as attorney,

certified public accountant, 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:

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778/20054/29JUL96/IRS25-050

Name

Address

Designation

Date of Suspension

Noske, Joan M.

Wahl, Roger W.

Stojanov, Dragan

Gay, Randall D.

Sheffey, Ralph

Doyle, Robert

Singer, Michael G.

Mohme, Robert H.

Vogelei, George Mac

Gaskins, Oscar N.

Gawel, Michael S.

Richmond, MN

Martinez, GA

Detroit, MI

Honolulu, HI

LaCrosse, WI

Sacramento, CA

Minnetonka, MN

St. Louis, MO

Novato, CA

Cherry Hill, NJ

Niagara Falls, NY

CPA

Attorney

CPA

Attorney

CPA

Attorney

Indefinite from March 1, 1996

Indefinite from March 13, 1996

Indefinite from March 19, 1996

Indefinite from March 20, 1996

Indefinite from March 26, 1996

Indefinite from March 29, 1996

SEQ 0071 JOB IRS25-051-002 PAGE-0026 TERMS

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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.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of 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.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

The following abbreviations in current use and

formerly used will appear in material published

in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

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Numerical Finding List1

Bulletins 1996–1 through 1996–24

Announcements:

96–1, 1996–2 I.R.B. 57

96–2, 1996–2 I.R.B. 57

96–3, 1996–2 I.R.B. 57

96–4, 1996–3 I.R.B. 50

96–5, 1996–4 I.R.B. 99

96–6, 1996–5 I.R.B. 43

96–7, 1996–5 I.R.B. 44

96–8, 1996–7 I.R.B. 56

96–9, 1996–8 I.R.B. 30

96–10, 1996–8 I.R.B. 30

96–11, 1996–9 I.R.B. 11

96–12, 1996–11 I.R.B. 30

96–13, 1996–12 I.R.B. 33

96–14, 1996–12 I.R.B. 35

96–15, 1996–11 I.R.B. 9

96–16, 1996–13 I.R.B. 22

96–17, 1996–13 I.R.B. 22

96–18, 1996–15 I.R.B. 15

96–19, 1996–15 I.R.B. 15

96–20, 1996–15 I.R.B. 15

96–21, 1996–15 I.R.B. 15

96–22, 1996–15 I.R.B. 16

96–23, 1996–18 I.R.B. 7

96–24, 1996–16 I.R.B. 35

96–25, 1996–17 I.R.B. 13

96–26, 1996–17 I.R.B. 13

96–27, 1996–17 I.R.B. 16

96–28, 1996–17 I.R.B. 16

96–29, 1996–17 I.R.B. 17

96–30, 1996–17 I.R.B. 17

96–31, 1996–17 I.R.B. 18

96–32, 1996–17 I.R.B. 18

96–33, 1996–18 I.R.B. 12

96–34, 1996–18 I.R.B. 13

96–35, 1996–18 I.R.B. 13

96–36, 1996–18 I.R.B. 13

96–37, 1996–18 I.R.B. 14

96–38, 1996–19 I.R.B. 84

96–39, 1996–19 I.R.B. 84

96–40, 1996–19 I.R.B. 85

96–41, 1996–20 I.R.B. 18

96–42, 1996–20 I.R.B. 18

96–43, 1996–20 I.R.B. 18

96–44, 1996–21 I.R.B. 10

96–45, 1996–21 I.R.B. 10

96–46, 1996–21 I.R.B. 10

96–47, 1996–22 I.R.B. 10

96–48, 1996–22 I.R.B. 10

96–49, 1996–22 I.R.B. 10

96–50, 1996–22 I.R.B. 11

96–51, 1996–22 I.R.B. 11

96–52, 1996–22 I.R.B. 12

96–53, 1996–23 I.R.B. 12

96–54, 1996–23 I.R.B. 12

96–55, 1996–23 I.R.B. 12

96–56, 1996–24 I.R.B. 29

Delegations Orders:

Proposed Regulations—Continued

232 (Rev. 2), 1996–7 I.R.B. 49

236 (Rev. 2), 1996–21 I.R.B. 7

239 (Rev. 1), 1996–7 I.R.B. 49

247, 1996–21 I.R.B. 7

INTL–9–95, 1996–5 I.R.B. 25

INTL–54–95, 1996–14 I.R.B. 39

PS–2–95, 1996–7 I.R.B. 50

PS–6–95, 1996–16 I.R.B. 27

PS–43–95, 1996–24 I.R.B. 20

PS–4–96, 1996–18 I.R.B. 5

Notices:

96–2, 1996–2 I.R.B. 15

96–1, 1996–3 I.R.B. 30

96–4, 1996–4 I.R.B. 69

96–5, 1996–6 I.R.B. 22

96–6, 1996–5 I.R.B. 27

96–7, 1996–6 I.R.B. 22

96–8, 1996–6 I.R.B. 23

96–9, 1996–6 I.R.B. 26

96–10, 1996–7 I.R.B. 47

96–11, 1996–8 I.R.B. 19

96–12, 1996–10 I.R.B. 29

96–13, 1996–10 I.R.B. 29

96–14, 1996–12 I.R.B. 11

96–15, 1996–13 I.R.B. 19

96–16, 1996–13 I.R.B. 20

96–17, 1996–13 I.R.B. 20

96–18, 1996–14 I.R.B. 27

96–19, 1996–14 I.R.B. 28

96–20, 1996–14 I.R.B. 30

96–21, 1996–14 I.R.B. 30

96–22, 1996–14 I.R.B. 30

96–23, 1996–16 I.R.B. 23

96–24, 1996–16 I.R.B. 23

96–25, 1996–17 I.R.B. 11

96–26, 1996–18 I.R.B. 4

96–27, 1996–18 I.R.B. 4

96–28, 1996–19 I.R.B. 7

96–29, 1996–19 I.R.B. 7

96–30, 1996–20 I.R.B. 11

96–31, 1996–22 I.R.B. 7

96–32, 1996–22 I.R.B. 7

96–33, 1996–22 I.R.B. 8

96–34, 1996–24 I.R.B. 15

Proposed Regulations:

DL–1–95, 1996–6 I.R.B. 28

EE–20–95, 1996–5 I.R.B. 15

EE–34–95, 1996–3 I.R.B. 49

EE–35–95, 1996–5 I.R.B. 19

EE–53–95, 1996–5 I.R.B. 23

EE–55–95, 1996–12 I.R.B. 12

EE–106–82, 1996–10 I.R.B. 31

EE–142–87, 1996–12 I.R.B. 13

EE–148–81, 1996–11 I.R.B. 29

GL–1–96, 1996–21 I.R.B. 7

IA–3–94, 1996–17 I.R.B. 12

IA–33–95, 1996–4 I.R.B. 99

IA–41–93, 1996–11 I.R.B. 29

INTL–52–86, 1996–19 I.R.B. 26

INTL–62–90, 1996–19 I.R.B. 26

INTL–32–93, 1996–19 I.R.B. 26

INTL–52–94, 1996–19 I.R.B. 26

INTL–3–95, 1996–6 I.R.B. 29

See footnote at the end of list.

Revenue Procedures:

96–1, 1996–1 I.R.B. 8

96–2, 1996–1 I.R.B. 60

96–3, 1996–1 I.R.B. 82

96–4, 1996–1 I.R.B. 94

96–5, 1996–1 I.R.B. 129

96–6, 1996–1 I.R.B. 151

96–7, 1996–1 I.R.B. 185

96–8, 1996–1 I.R.B. 187

96–8A, 1996–9 I.R.B. 10

96–9, 1996–2 I.R.B. 15

96–10, 1996–2 I.R.B. 17

96–11, 1996–2 I.R.B. 18

96–12, 1996–3 I.R.B. 30

96–13, 1996–3 I.R.B. 31

96–14, 1996–3 I.R.B. 41

96–15, 1996–3 I.R.B. 41

96–16, 1996–3 I.R.B. 45

96–17, 1996–4 I.R.B. 69

96–18, 1996–4 I.R.B. 73

96–19, 1996–4 I.R.B. 80

96–20, 1996–4 I.R.B. 88

96–21, 1996–4 I.R.B. 96

96–22, 1996–5 I.R.B. 27

96–23, 1996–5 I.R.B. 27

96–24, 1996–5 I.R.B. 28

96–24A, 1996–15 I.R.B. 12

96–25, 1996–8 I.R.B. 19

96–26, 1996–8 I.R.B. 22

96–27, 1996–11 I.R.B. 27

96–28, 1996–14 I.R.B. 31

96–29, 1996–16 I.R.B. 24

96–30, 1996–19 I.R.B. 8

96–31, 1996–20 I.R.B. 11

96–32, 1996–20 I.R.B. 14

96–33, 1996–22 I.R.B. 8

Revenue Rulings:

96–1, 1996–1 I.R.B. 7

96–2, 1996–2 I.R.B. 5

96–3, 1996–2 I.R.B. 14

96–6, 1996–2 I.R.B. 8

96–4, 1996–3 I.R.B. 16

96–5, 1996–3 I.R.B. 29

96–7, 1996–3 I.R.B. 12

96–8, 1996–4 I.R.B. 62

96–9, 1996–4 I.R.B. 5

96–10, 1996–4 I.R.B. 27

96–11, 1996–4 I.R.B. 28

96–12, 1996–9 I.R.B. 4

96–13, 1996–10 I.R.B. 19

96–14, 1996–6 I.R.B. 20

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Numerical Finding List1—Continued

Bulletins 1996–1 through 1996–24

Revenue Rulings—Continued

96–15, 1996–11 I.R.B. 9

96–16, 1996–11 I.R.B. 4

96–17, 1996–13 I.R.B. 5

96–18, 1996–13 I.R.B. 4

96–19, 1996–14 I.R.B. 24

96–20, 1996–15 I.R.B. 5

96–21, 1996–15 I.R.B. 7

96–22, 1996–15 I.R.B. 9

96–23, 1996–15 I.R.B. 11

96–24, 1996–19 I.R.B. 5

96–25, 1996–19 I.R.B. 4

96–26, 1996–21 I.R.B. 9

96–27, 1996–24 I.R.B. 9

96–28, 1996–24 I.R.B. 11

96–29, 1996–24 I.R.B. 5

96–30, 1996–24 I.R.B. 4

Treasury Decisions—Continued

8664, 1996–20 I.R.B. 7

8665, 1996–21 I.R.B. 4

8667, 1996–20 I.R.B. 4

8668, 1996–22 I.R.B. 4

8669, 1996–23 I.R.B. 6

8670, 1996–24 I.R.B. 6

Treasury Decisions:

8630, 1996–3 I.R.B. 19

8631, 1996–3 I.R.B. 7

8632, 1996–4 I.R.B. 6

8633, 1996–4 I.R.B. 20

8634, 1996–3 I.R.B. 17

8635, 1996–3 I.R.B. 5

8636, 1996–4 I.R.B. 64

8637, 1996–4 I.R.B. 29

8638, 1996–5 I.R.B. 5

8639, 1996–5 I.R.B. 12

8640, 1996–2 I.R.B. 10

8641, 1996–6 I.R.B. 4

8642, 1996–7 I.R.B. 4

8643, 1996–11 I.R.B. 4

8644, 1996–7 I.R.B. 16

8645, 1996–8 I.R.B. 4

8646, 1996–8 I.R.B. 10

8647, 1996–9 I.R.B. 7

8648, 1996–10 I.R.B. 23

8649, 1996–9 I.R.B. 5

8650, 1996–10 I.R.B. 5

8651, 1996–11 I.R.B. 24

8652, 1996–11 I.R.B. 11

8653, 1996–12 I.R.B. 4

8654, 1996–11 I.R.B. 14

8655, 1996–12 I.R.B. 9

8656, 1996–13 I.R.B. 9

8657, 1996–14 I.R.B. 4

8658, 1996–14 I.R.B. 13

8659, 1996–16 I.R.B. 4

8660, 1996–17 I.R.B. 4

8661, 1996–17 I.R.B. 7

8662, 1996–23 I.R.B. 5

8663, 1996–23 I.R.B. 4

1A cumulative list of all Revenue Rulings,

Revenue Procedures, Treasury Decisions, etc.,

published in Internal Revenue Bulletins 1995–

27 through 1995–52 will be found in Internal

Revenue Bulletin 1996–1, dated January 2,

1996.

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.