Bulletin No. 1996–53

Bulletin No. 1996–53

December 30, 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

Rev. Rul. 96–62, page 6.

Training costs; business expenses. The Supreme

Court’s decision in INDOPCO, Inc. v. Commissioner, 503

U.S. 79 (1992), does not affect the treatment of training

costs as business expenses which are generally deductible under section 162 of the Code.

Rev. Rul. 96–63, page 8.

Section 1274A inflation-adjusted numbers for 1997.

This ruling provides the dollar amounts, increased by the

1997 inflation-adjustment, for section 1274A of the

Code. Rev. Rul. 96–4 supplemented and superseded.

Rev. Rul. 96–64, page 11.

CPI adjustment for below-market loans for 1997. The

amount that section 7872(g) of the Code permits a

taxpayer to lend to a qualified continuing care facility

without incurring imputed interest is published and

adjusted for inflation for years 1987–1997. Rev. Rul.

96–5 supplemented and superseded.

Rev. Rul. 96–65, page 5.

Damages received on account of personal injuries or

sickness. Under current section 104(a)(2) of the Code,

back pay and damages for emotional distress received

to satisfy a claim for disparate treatment employment

discrimination under Title VII of the 1964 Civil Rights Act

are not excludable from gross income. Under former

section 104(a)(2), back pay received to satisfy such a

claim was not excludable from gross income, but damages received for emotional distress were excludable.

Rev. Ruls. 72–341, 94–92, and 93–88 obsoleted. Notice 95–45 superseded. Rev. Proc. 96–3 modified.

Notice 96–67, page 12.

Notice on application of section 401(a)(9) to employees who attain age 70½ in 1996. This notice provides

transitional guidance on the application of the definition

of ‘‘required beginning date’’ found in section 401(a)-

Finding Lists begin on page 64.

Announcement of Disbarments and Suspensions begins on page 62.

(9)(C) of the Code, as amended by the Small Business

Job Protection Act of 1996, to employees who attain age

70½ in 1996.

EMPLOYEE PLANS

Notice 96–66, page 12.

Weighted average interest rate update. Guidelines are

set forth for determining for December 1996 the

weighted average interest rate and the resulting permissible range of interest rates used to calculate current

liability for purposes of the full funding limitation of

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

Omnibus Budget Reconciliation Act of 1987 and by the

Uruguay Round Agreements Act (GATT).

Announcement 96–133, page 60.

Beginning January 1, 1997, requests for employee plan

determination letters and applications for recognition of

tax exemption, formerly sent to the district offices in

Chicago, Illinois and Dallas, Texas, should be sent to the

Internal Revenue Service Center in Covington, Kentucky.

EMPLOYMENT TAX

Page 59.

Social security contribution and benefit base. The

Commissioner of the Social Security Administration has

announced the OASDI contribution and benefit base for

remuneration paid in 1997 and self-employment income

earned in taxable years beginning in 1997.

Page 9.

Railroad retirement; rate determination; quarterly.

The Railroad Retirement Board has determined that the

rate of tax imposed by section 3221 of the Code shall

be 34 cents for the quarter beginning October 1, 1996,

and 35 cents for the quarter beginning January 1, 1997.

(Continued on page 4)

HIGHLIGHTS

OF THIS ISSUE—Continued

EMPLOYMENT TAX—Continued

Rev. Proc. 96–59, page 17.

1997 cost-of-living adjustments. The Service provides

1997 cost-of-living adjustment factors and their applications to the tax rate tables for individuals and for

estates and trusts, the standard deduction amounts, the

personal exemption, and several other items that use

the adjustment method provided for the tax rate tables.

Rev. Proc. 96–60, page 24.

Modification of Rev. Proc. 84–77. This procedure

explains the standards and alternate procedures to be

used in preparing employment tax forms when a

predecessor-successor employer relationship exists.

Rev. Proc. 84–77 modified and superseded.

Announcement 96–134, page 60.

Three codes have been added to identify new amounts

required to be reported in box 13 of the 1997 Form

W–2.

Rev. Proc. 96–61, page 27.

1997 Electronic filing program; Form 1040. Participants in the 1997 Electronic Filing Program for the Form

1040 series are informed of their obligations to the

Service, taxpayers, and other participants.

EXCISE TAX

Announcement 96–135, page 60.

A petition has been filed to add diglycidyl ether of

bisphenol-A to the list of taxable substances in section

4672(a)(3) of the Code.

Rev. Proc. 96–62, page 38.

1997 On-line filing program; Form 1040. Participants

in the 1997 On-Line Filing Program for the Form 1040

series are informed of their obligations to the Service,

taxpayers, and other participants.

ADMINISTRATIVE

Rev. Proc. 96–38, page 13.

This procedure provides guidance to taxpayers who wish

to submit offers in compromise on photocopies or

computer-generated copies that are verbatim duplicates

of the official Form 656, Offer in Compromise, published

by the Service.

Rev. Proc. 96–63, page 46.

1997 Optional standard mileage rates. This procedure

announces 31.5 cents as the optional rate for deducting

or accounting for expenses for business use of an

automobile, and 10 cents as the optional rate for

deducting or accounting for use of an automobile as a

medical or moving expense for 1997. It provides rules

for substantiating the deductible expenses of using an

automobile for business, moving, medical, or charitable

purposes. Rev. Proc. 95–54 superseded.

Rev. Proc. 96–57, page 14.

Automatic extensions for Forms W–2. Automatic extensions of time to file Forms W–2 with the Social Security

Administration and to furnish Forms W–2 to employees

will be granted to ‘‘Qualified Employers.’’

Rev. Proc. 96–64, page 52.

Per diem allowances. This procedure provides optional

rules for deeming substantiated the amount for certain

reimbursed traveling expenses of an employee as well

as for determining the amount of deductible meals while

traveling away from home. Rev. Proc. 96–28 superseded.

Rev. Proc. 96–58, page 16.

Penalties; substantial understatement. Guidance is

provided concerning when information shown on a return

in accordance with the applicable forms and instructions

will be adequate disclosure for purposes of reducing an

understatement of income tax under section 6662(d) of

the Code.

4

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

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

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

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

provision and not to adopt a strained construction in

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

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

2

Introduction

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

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

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

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

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

single-copy basis.

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

cautioned against reaching the same conclusions in

other cases unless the facts and circumstances are

substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

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

substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published rulings

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

are not published; however, statements of internal

practices and procedures that affect the rights and

duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

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

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

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

stated in the revenue ruling. In those based on positions

taken in rulings to taxpayers or technical advice to

Service field offices, identifying details and information

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

requirements.

Part IV.—Items of General Interest.

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

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

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

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

as precedents by Service personnel in the disposition of

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

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual period,

respectively.

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

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

3

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

Section 1.—Tax Imposed

26 CFR 1.1–1: Income tax on individuals.

The Service is providing adjusted tax tables for

individuals and trusts and estates for taxable years

beginning in 1997 to reflect changes in the cost of

living. Also provided are certain reductions allowed against the unearned income of minor

children in computing the ‘‘kiddie tax.’’ The

amounts used to determine whether a parent may

elect to report the ‘‘kiddie tax’’ on the parent’s

return are also adjusted. The adjustments concerning the election to report the ‘‘kiddie tax’’ on the

parent’s return are for taxable years beginning in

1996 and 1997. See Rev. Proc. 96–59, page 17.

Section 32.—Earned Income

26 CFR 1.32–2: Earned income credit for taxable

years beginning after December 31, 1978.

The Service is providing inflation adjustments

for taxable years beginning in 1997 to the limitations on the earned income tax credit. See Rev.

Proc. 96–59, page 17.

Section 59.—Other Definitions and

Special Rules

The Service is providing an inflation adjustment

for taxable years beginning in 1996 and 1997 to

the exemption amount use in computing the

alternative minimum tax for a minor child subject

to the ‘‘kiddie tax.’’ See Rev. Proc. 96–59,

page 17.

Section 61.—Gross Income Defined

26 CFR 1.61–1: Gross income.

Are amounts received in satisfaction of a claim

for denial of a promotion due to disparate treatment employment discrimination under Title VII

of the Civil Rights Act of 1964, as amended in

1991, excludable from gross income under

§ 104(a)(2)? See Rev. Rul. 96–65, this page.

Section 62.—Adjusted Gross

Income Defined

26 CFR 1.62–2: Reimbursements and other expense allowance arrangements.

Rules are set forth under which a reimbursement or other expense allowance arrangement for

the cost of lodging, meal, and incidental expenses

or meal and incidental expenses incurred by an

employee while traveling away from home will

satisfy the requirements of § 62(c) of the Code as

to substantiation of the amount of expenses. See

Rev. Proc. 96–64, page 52.

Rules under which a reimbursement or other

expense allowance arrangement for the cost of

operating an automobile for business purposes will

satisfy the requirements of section 62(c) of the

Code as to business connection, substantiation, and

returning amounts in excess of expenses. See Rev.

Proc. 96–63, page 46.

Section 63.—Taxable Income

Defined

26 CFR 1.63–1: Change of treatment with respect

to the zero bracket amount and itemized deductions.

The Service is providing inflation adjustments

for taxable years beginning in 1997 to the standard

deduction amounts (including the limitation in the

case of certain dependents, and the additional

standard deduction for the aged or blind). See Rev.

Proc. 96–59, page 17.

Section 68.—Overall Limitation on

Itemized Deductions

The Service is providing inflation adjustments

for taxable years beginning in 1997 to the overall

limitation on itemized deductions. See Rev. Proc.

96–59, page 17.

Section 104.—Compensation for

Injuries or Sickness

26 CFR 1.104–1(c): Damages received on account

of personal injuries or sickness.

(Also §§ 61, 3121, 3231, 3306, 3401, 7805;

1.61–1; 31–3121(a)–1; 31.3231(e)–1; 31.3306(b)–

1; 31.3401(a)–1; 301.7805–1.)

Damages received on account of

personal injuries or sickness. Under

current § 104(a)(2), back pay and damages for emotional distress received to

satisfy a claim for denial of a promotion

due to disparate treatment employment

discrimination under Title VII of the

1964 Civil Rights Act are not excludable from gross income. Under former

§ 104(a)(2), as in effect before August

21, 1996, back pay received to satisfy

such a claim is not excludable from

gross income. However, damages received for emotional distress under that

statute are excludable. Rev. Rul. 93–88

obsoleted. Notice 95–45 superseded.

Rev. Rul. 72–341 and 84–92 obsoleted.

Rev. Proc. 96–3 modified.

Rev. Rul. 96–65

ISSUE

Are amounts received in satisfaction

of a claim for denial of a promotion due

to disparate treatment employment discrimination under Title VII of the Civil

Rights Act of 1964, as amended in 1991

(Title VII), excludable from gross income under § 104(a)(2) of the Internal

Revenue Code?

LAW AND ANALYSIS

In general, § 61(a) provides that, except as otherwise provided by law, gross

income includes all income from whatever source derived.

5

Section 104(a)(2), as amended by

§ 1605 of the Small Business Job Protection Act of 1996 (the 1996 Act) 110

Stat. 1755, 1838, provides generally that

gross income does not include the

amount of any damages received

(whether by suit or agreement) on account of personal physical injuries or

physical sickness. Section 104(a) further

provides that, for purposes of paragraph

(2), emotional distress is not treated as a

physical injury or physical sickness except to the extent of damages paid for

medical care (described in § 213(d)(1)(A) or (B)) attributable to emotional

distress. The 1996 Act amendments to

§ 104(a) apply to amounts received after August 20, 1996, but not to amounts

received under a written binding agreement, court decree, or mediation award

in effect on (or issued on or before)

September 13, 1995.

Before its amendment by the 1996

Act, former § 104(a)(2) provided generally that gross income does not include

the amount of any damages received

(whether by suit or agreement) on account of personal injuries or sickness.

Section 1.104–1(c) of the Income Tax

Regulations provides that the term

‘‘damages received (whether by suit or

agreement)’’ means an amount received

(other than workmen’s compensation)

through prosecution of a legal suit or

action based upon tort or tort type

rights, or through a settlement agreement entered into in lieu of such prosecution.

In United States v. Burke, 504 U.S.

229 (1992), the Supreme Court held that

back pay received for disparate impact

gender discrimination under Title VII

was not excludable from gross income

as damages received on account of

personal injuries under former

§ 104(a)(2) because that part of Title

VII did not compensate for a broad

range of traditional tort harms.

In light of Burke, the Service issued

Rev. Rul. 93–88, 1993–2 C.B. 61, which

holds that compensatory damages and

back pay are excludable from gross

income as damages for personal injury

under former § 104(a)(2) when received

for: (1) disparate treatment gender discrimination under Title VII, as amended

in 1991; (2) racial discrimination under

§ 16 of the Civil Rights Act of 1870, 42

U.S.C. § 1981 and Title VII; and (3)

disparate treatment discrimination under

the Americans With Disabilities Act, 42

U.S.C. §§ 12101–12213, as amended in

1991. All three of these statutes provide

a broad range of compensatory damages

of the type the Supreme Court focused

upon in Burke.

In Commissioner v. Schleier, 515

, 115 S. Ct. 2159 (1995), the

U.S.

Supreme Court held that back pay and

liquidated damages received to settle a

claim under the Age Discrimination in

Employment Act of 1967, 29 U.S.C.

§§ 621–634 (ADEA), are not excludable from gross income under former

§ 104(a)(2). The Court concluded that

former § 104(a)(2) and its regulations

set forth two requirements for a recovery to be excludable from gross income:

(1) it must be based on tort or tort type

rights, and (2) it must be received ‘‘on

account of personal injuries or sickness.’’ The Court held that back pay and

liquidated damages received under the

ADEA meet neither requirement because

(1) the ADEA does not compensate for

any of the other traditional tort harms

associated with personal injury, (2) the

back pay is completely independent of

the existence or extent of any personal

injury, and (3) the ADEA liquidated

damages are punitive in nature.

Based on Schleier, Notice 95–45,

1995–2 C.B. 330, suspended Rev. Rul.

93–88, and added section 5.05 to Rev.

Proc. 95–3, 1995–1 C.B. 385, to provide

that pending issuance of published guidance, the Service will not issue rulings

or determination letters on whether

amounts received are excludable from

gross income under § 104(a)(2) in situations affected by Schleier.

In light of Schleier, and the amendment of § 104(a)(2) by the 1996 Act,

the Internal Revenue Service has reconsidered Rev. Rul. 93–88.

HOLDINGS

(1) Current § 104(a)(2). Back pay

received in satisfaction of a claim for

denial of a promotion due to disparate

treatment employment discrimination

under Title VII is not excludable from

gross income under § 104(a)(2) because

it is completely independent of, and thus

is not damages received on account of,

personal physical injuries or physical

sickness under that section. Similarly,

amounts received for emotional distress

in satisfaction of such a claim are not

excludable from gross income under

§ 104(a)(2), except to the extent they

are damages paid for medical care (as

described in § 213(d)(1)(A) or (B)) attributable to emotional distress.

(2) Former § 104(a)(2). Back pay received in satisfaction of a claim for

denial of a promotion due to disparate

treatment employment discrimination

under Title VII is not excludable from

gross income under former § 104(a)(2)

because it is completely independent of,

and thus is not damages received on

account of, personal injuries or sickness

under that section. However, damages

received for emotional distress in satisfaction of such a claim are excludable

from gross income under former

§ 104(a)(2) because they are received

‘‘on account of personal injuries or

sickness.’’

(3) Wages and compensation. Back

pay includible in gross income under

Holding (1) or (2) is ‘‘wages’’ for

purposes of § 3121 (Federal Insurance

Contributions Act (FICA)), § 3306

(Federal Unemployment Tax Act

(FUTA)), and § 3401 (federal income

tax withholding), and is ‘‘compensation’’

for purposes of § 3231 (Railroad Retirement Tax Act (RRTA)).

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 93–88 is obsoleted. Notice

95–45 is superseded. Rev. Rul. 72–341,

1972–2 C.B. 32, and Rev. Rul. 84–92,

1984–1 C.B. 204, which hold that

amounts received to settle a claim under

pre-1991 Title VII are (1) includible in

gross income as compensation, (2)

‘‘wages’’ for FICA, FUTA, and federal

income tax withholding purposes, and

(3) ‘‘compensation’’ for RRTA purposes,

are obsoleted. Rev. Proc. 96–3, 1996–1

I.R.B. 82, is modified to delete section

5.05.

PROSPECTIVE APPLICATION

Pursuant to the authority contained in

§ 7805(b), this revenue ruling will not

apply adversely to damages received

under any provision of law providing

tort or tort type remedies for employment discrimination for race, color, religion, gender, national origin, or other

similar classifications, if the damages

are received (1) on or before June 14,

1995, the date that Schleier was decided

by the Supreme Court, or (2) pursuant

to a written binding agreement, court

decree, or mediation award in effect on

(or issued on or before) June 14, 1995.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Sheldon A. Iskow of the Office

of Assistant Chief Counsel (Income Tax

and Accounting). For further information

6

regarding this revenue ruling, contact

Mr. Iskow on (202) 622–4920 (not a

toll-free call).

Section 132.—Certain Fringe

Benefits

The Service is providing inflation adjustments

for taxable years beginning in 1997 to the limitation on the exclusion of a qualified transportation

fringe. See Rev. Proc. 96–59, page 17.

Section 135.—Income From United

States Savings Bonds Used To Pay

Higher Education Tuition and Fees

The Service is providing inflation adjustments

for taxable years beginning in 1993 through 1997

to the limitation on the exclusion of income from

United States savings bonds for taxpayers who pay

qualified higher education expenses for taxable

years. See Rev. Proc. 96–59, page 17.

Section 151.—Allowance of

Deductions for Personal

Exemptions

26 CFR 1.151–4: Amount of deduction for each

exemption under section 151.

The Service is providing inflation adjustments

for taxable years beginning in 1997 to the personal

exemption and to the threshold amounts of adjusted gross income above which the exemption

amount phases out. See Rev. Proc. 96–59,

page 17.

Section 162.—Trade or Business

Expenses

26 CFR 1.162–1: Business expenses.

(Also section 263; 1.263(a)–1.)

Training costs; business expenses.

The Supreme Court’s decision in

INDOPCO, Inc. v. Commissioner, 503

U.S. 79 (1992), does not affect the

treatment of training costs as business

expenses which are generally deductible

under section 162 of the Code.

Rev. Rul. 96–62

ISSUE

Does the Supreme Court’s decision in

INDOPCO, Inc. v. Commissioner, 503

U.S. 79 (1992), affect the treatment of

training costs as business expenses,

which are generally deductible under

§ 162 of the Internal Revenue Code?

LAW AND ANALYSIS

Section 162 and § 1.162–1(a) of the

Income Tax Regulations allow a deduction for all the ordinary and necessary

expenses paid or incurred during the

taxable year in carrying on any trade or

business.

Section 263(a) and § 1.263(a)–1(a)

provide that no deduction is allowed for

any amount paid out for permanent

improvements or betterments made to

increase the value of any property.

Through

provisions

such

as

§§ 162(a), 263(a), and related sections,

the Internal Revenue Code generally

endeavors to match expenses with the

revenues of the taxable period to which

the expenses are properly attributable,

thereby resulting in a more accurate

calculation of net income for tax purposes. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Commissioner v. Idaho Power Co., 418 U.S.

1, 16 (1974).

In INDOPCO, the Supreme Court

concluded that certain legal and professional fees incurred by a target corporation to facilitate a friendly merger created significant long-term benefits for

the taxpayer and, therefore, were capital

expenditures. In reaching this decision,

the Court specifically rejected the argument that its decision in Commissioner

v. Lincoln Savings and Loan Association, 403 U.S. 345 (1971), should be

read as holding ‘‘that only expenditures

that create or enhance separate and

distinct assets are to be capitalized under § 263.’’ INDOPCO at 86–87 (emphasis in original).

The INDOPCO decision clarifies that

the creation or enhancement of a separate and distinct asset is not a prerequisite to capitalization. That clarification

does not, however, change the fundamental legal principles for determining

whether a particular expenditure can be

deducted or must be capitalized. As the

Supreme Court has specifically recognized, the ‘‘decisive distinctions [between capital and ordinary expenditures]

are those of degree and not of kind. . . .’’

Welch v. Helvering, 290 U.S. 111, 114

(1933); Deputy v. du Pont, 308 U.S.

488, 496 (1940). Therefore, with respect

to expenditures that produce benefits

both in the current year and in future

years, the determination of whether such

expenditures must be capitalized or may

be deducted requires a careful examination of all the facts. Although the mere

presence of some future benefit may not

warrant capitalization, a taxpayer’s realization of future benefits is undeniably

important in determining whether an

expenditure is immediately deductible or

must be capitalized. See INDOPCO at

87–88.

The INDOPCO decision does not affect the treatment of training costs under

§ 162. Amounts paid or incurred for

training, including the costs of trainers

and routine updates of training materials, are generally deductible as business

expenses under that section even though

they may have some future benefit.

INDOPCO at 87. See, e.g., Cleveland

Electric Illuminating Co. v. United

States, 7 Cl. Ct. 220 (1985) (deduction

for costs of training employees to operate new equipment in an existing business); Rev. Rul. 58–238, 1958–1 C.B.

90, 91 (deduction for costs of training

employees that relate to the regular

conduct of the employer’s business); see

also Ithaca Industries, Inc. v. Commissioner, 97 T.C. 253, 271 (1991) (deduction for costs of training new employees

to keep the assembled workforce unchanged), aff’d, 17 F.3d 684 (4th Cir.),

cert. denied, 115 S. Ct. 83 (1994).

Training costs must be capitalized only

in the unusual circumstance where the

training is intended primarily to obtain

future benefits significantly beyond

those traditionally associated with training provided in the ordinary course of a

taxpayer’s trade or business. See, e.g.,

Cleveland Electric, 7 Cl. Ct. at 227–29

(capitalization of costs for training employees of an electric utility to operate a

new nuclear power plant, which were

akin to start-up costs of a new business).

HOLDING

The INDOPCO decision does not affect the treatment of training costs as

business expenses, which are generally

deductible under § 162.

Section 170.—Charitable, Etc.,

Contributions and Gifts

26 CFR 1.170–1: Charitable, etc., contributions

and gifts; allowance of deductions.

The Service is providing inflation adjustments

for calendar year 1997 to the ‘‘insubstantial benefit’’ guidelines. Under the guidelines, a charitable

contribution is fully deductible even though the

contributor receives ‘‘insubstantial benefits’’ from

the charity. See Rev. Proc. 96–59, page 17.

Section 263.—Capital Expenditures

26 CFR 1.263(a)–1: Capital expenditures; in general.

Does the Supreme Court’s decision in

INDOPCO, Inc. v. Commissioner, 503 U.S. 79

(1992), affect the treatment of training costs as

business expenses which are generally deductible

under § 162 of the Code? See Rev. Rul. 96–62,

page 38.

Section 267.—Losses, Expenses,

and Interest With Respect to

Transactions Between Related

Taxpayers

26 CFR 1.267(a)–1: Deductions disallowed.

When a payor provides a per diem allowance to

an employee who is a related party, the rules set

forth for the deemed substantiation to the payor of

the amount of the employee’s ordinary and necessary business expenses for lodging, meal, and/or

incidental expenses incurred while traveling away

from home do not apply. See Rev. Proc. 96–64,

page 52.

Section 274.—Disallowance of

Certain Entertainment, Etc.,

Expenses

DRAFTING INFORMATION

26 CFR 1.274(d)–1: Substantiation requirements

The principal author of this revenue

ruling is Barry M. Freiman of the Office

of Assistant Chief Counsel (Income Tax

and Accounting). For further information

regarding this revenue ruling, contact

Mr. Freiman on (202) 622–4950 (not a

toll-free call).

Simplified optional method for substantiating

the amount of a deduction or expense for business

use of an automobile. See Rev. Proc. 96–63,

page 46.

26 CFR 1.162–17: Reporting and substantiation

of certain business expenses of employees.

The rules for substantiating the amount of a

deduction or expense for business use of an

automobile that most nearly represents current

costs are set forth. See Rev. Proc. 96–63, page 46.

The rules for substantiating the amount of a

deduction or expense for lodging, meal, and

incidental expenses or meal and incidental expenses incurred while traveling away from home

that most nearly represents current costs are set

forth. See Rev. Proc. 96–64, page 52.

7

26 CFR 1.274(d)–1(a): Substantiation requirements.

Rules are set forth for substantiating the amount

of ordinary and necessary business expense of an

employee for lodging, meal, and incidental expenses or meal and incidental expenses incurred

while traveling away from home when a payor

provides a per diem allowance under a reimbursement or other expense allowance arrangement to

pay for such expenses. See Rev. Proc. 96–64,

page 52.

26 CFR 1.274–5T: Substantiation requirements

(temporary).

Simplified optional method for substantiating

the amount of a deduction or expense for business

use of an automobile. See Rev. Proc. 96–63,

page 46.

Rules are set forth for substantiating the amount

of ordinary and necessary business expense of an

employee for lodging, meal, and incidental expenses or meal and incidental expenses incurred

while traveling away from home when a payor

provides a per diem allowance under a reimbursement or other expense allowance arrangement to

pay for such expenses. Rules are also set forth for

an optional method for employees and selfemployed individuals to use in computing the

deductible costs of business meal and incidental

expenses paid or incurred while traveling away

from home. See Rev. Proc. 96–64, page 52.

Section 483.—Interest on Certain

Deferred Payments

26 CFR 1.483–1: Computation of interest on

certain deferred payments.

As defined by section 1274A, the definitions for

both ‘‘qualified debt instruments’’ and ‘‘cash

method debt instruments’’ have dollar ceilings on

the stated principal amount. The limits to the

stated principal amount are adjusted for inflation

for sales or exchanges occurring in the 1997

calendar year. See Rev. Rul. 96–63, page 46.

Section 512.—Unrelated Business

Taxable Income

The Service is providing inflation adjustments

for taxable years beginning in 1996 and 1997 to

the maximum amount of annual dues that can be

paid to certain agricultural or horticultural organizations without any portion being treated as unrelated trade or business income by reason of any

benefits or privileges available to members. See

Rev. Proc. 96–59, page 17.

Section 513.—Unrelated Trade or

Business

The Service is providing inflation adjustments

for taxable years beginning in 1997 to the maximum amount of a ‘‘low cost article.’’ Funds raised

through a charity’s distribution of ‘‘low cost

articles’’ will not be treated as unrelated business

income to the charity. See Rev. Proc. 96–59,

page 17.

Section 877.—Expatriation To

Avoid Tax

The Service is providing inflation adjustments

for calendar year 1997 to amounts used to determine whether a principal purpose of expatriation is

to avoid tax. See Rev. Proc. 96–59, page 17.

Section 1016.—Adjustments to

Basis

26 CFR 1.1016–3: Exhaustion, wear and tear,

obsolescence, amortization, and depletion for periods since February 28, 1913.

Reduction of basis for business use of an

automobile under either the optional standard

mileage rate method or a mileage allowance under

a reimbursement or other expense allowance arrangement. See Rev. Proc. 96–63, page 46.

Section 1274.—Determination of

Issue Price in the Case of Certain

Debt Instruments Issued for

Property

26 CFR 1.1274A–1: Special rules for certain

transactions where stated principal amount does

not exceed $2,800,000.

As defined by section 1274A, the definitions for

both ‘‘qualified debt instruments’’ and ‘‘cash

method debt instruments’’ have dollar ceilings on

the stated principal amount. The limits to the

stated principal amount are adjusted for inflation

for sales or exchanges occurring in the 1997

calendar year. See Rev. Rul. 96–63, this page.

Section 1274A.—Special Rules for

Certain Transactions Where Stated

Principal Amount Does Not Exceed

$2,800,000.

(Also §§ 1274, 483; 1.1274A–1.)

Section 1274A inflation-adjusted

numbers for 1997. This ruling provides

the dollar amounts, increased by the

1997 inflation-adjustment, for section

1274A of the Code. Rev. Rul. 96–4

supplemented and superseded.

Rev. Rul. 96–63

This revenue ruling provides the dollar amounts, increased by the 1997

inflation adjustment, for § 1274A of the

Internal Revenue Code.

BACKGROUND

In general, §§ 483 and 1274 of the

Code determine the principal amount of

a debt instrument given in consideration

for the sale or exchange of nonpublicly

traded property. In addition, any interest

on a debt instrument subject to § 1274

is taken into account under the original

issue discount provisions of the Code.

Section 1274A, however, modifies the

rules under §§ 483 and 1274 for certain

types of debt instruments.

In the case of a ‘‘qualified debt

instrument,’’ the discount rate used for

purposes of §§ 483 and 1274 of the

Code may not exceed 9 percent, compounded

semiannually.

Section

1274A(b) defines a qualified debt instrument as any debt instrument given in

consideration for the sale or exchange of

property (other than new § 38 property

within the meaning of § 48(b), as in

effect on the day before the date of

enactment of the Revenue Reconciliation Act of 1990) if the stated principal

amount of the instrument does not exceed the amount specified in § 1274A(b). For debt instruments arising out of

8

sales or exchanges before January 1,

1990, this amount is $2,800,000.

In the case of a ‘‘cash method debt

instrument,’’ as defined in § 1274A(c)

of the Code, the borrower and lender

may elect to use the cash receipts and

disbursements method of accounting. In

particular, for any cash method debt

instrument, § 1274 does not apply, and

interest on the instrument is accounted

for by both the borrower and the lender

under the cash method of accounting. A

cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) In

the case of instruments arising out of

sales or exchanges before January 1,

1990, the stated principal amount does

not exceed $2,000,000, (B) The lender

does not use an accrual method of

accounting and is not a dealer with

respect to the property sold or exchanged, (C) Section 1274 would have

applied to the debt instrument but for an

election under § 1274A(c); and (D) An

election under § 1274A(c) is jointly

made with respect to the debt instrument

by the borrower and lender. Section

1.1274A–1(c)(1) of the Income Tax

Regulations provides rules concerning

the time for, and manner of, making this

election.

Section 1274A(d)(2) of the Code provides that, for any debt instrument arising out of a sale or exchange during any

calendar year after 1989, the dollar

amounts stated in § 1274A(b) and

§ 1274A(c)(2)(A) are increased by the

inflation adjustment for the calendar

year. Any increase due to the inflation

adjustment is rounded to the nearest

multiple of $100 (or, if the increase is a

multiple of $50 and not of $100, the

increase is increased to the nearest multiple of $100). The inflation adjustment

for any calendar year is the percentage

(if any) by which the CPI for the

preceding calendar year exceeds the CPI

for calendar year 1988. Section 1274A(d)(2)(B) defines the CPI for any calendar year as the average of the Consumer

Price Index as of the close of the

12-month period ending on September

30 of that calendar year.

INFLATION-ADJUSTED AMOUNTS

For debt instruments arising out of

sales or exchanges after December 31,

1989, the inflation-adjusted amounts under § 1274A are shown in Table 1.

Rev. Rul. 96–63

Table 1

Inflation-Adjusted Amounts Under § 1274A

Calendar Year of Sale or Exchange

1990

1991

1992

1993

1994

1995

1996

1997

1274A(b) Amount

(qualified debt instrument)

$2,933,200

$3,079,600

$3,234,900

$3,332,400

$3,433,500

$3,523,600

$3,622,500

$3,723,800

1274A(c)(2)(A) Amount

(cash method debt instrument)

$2,095,100

$2,199,700

$2,310,600

$2,380,300

$2,452,500

$2,516,900

$2,587,500

$2,659,900

Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982–1984 base, published by the Bureau of Labor Statistics.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 96–4, 1996–3 I.R.B. 16, is

supplemented and superseded.

DRAFTING INFORMATION

The principal author of this revenue

ruling is David B. Silber of the Office

of the Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue

ruling contact Mr. Silber on (202) 622–

3930 (not a toll-free call).

Section 3121.—Definitions

26 CFR 31.3121(a)–1: Wages.

Is back pay that is received in satisfaction of a

claim for denial of a promotion due to disparate

treatment employment discrimination under Title

VII of the Civil Rights Act of 1964, as amended

in 1991, treated as ‘‘wages’’ for purposes of

§ 3121 (FICA)? See Rev. Rul. 96–65, page 5.

Section 3221.—Rate of Tax

Determination of Quarterly Rate of

Excise Tax for Railroad Retirement

Supplemental Annuity Program

In accordance with directions in Section 3221(c) of the Railroad Retirement

Tax Act (26 U.S.C., Section 3221(c)),

the Railroad Retirement Board has determined that the excise tax imposed by

such Section 3221(c) on every employer, with respect to having individuals in his employ, for each work-hour

for which compensation is paid by such

employer for services rendered to him

during the quarter beginning October 1,

1996, shall be at the rate of 34 cents.

In accordance with directions in Section 15(a) of the Railroad Retirement

Act of 1974, the Railroad Retirement

Board has determined that for the quarter beginning October 1, 1996, 33.8

percent of the taxes collected under

Sections 3211(b) and 3221(c) of the

Railroad Retirement Tax Act shall be

credited to the Railroad Retirement Account and 66.2 percent of the taxes

collected under such Sections 3211(b)

and 3221(c) plus 100 percent of the

taxes collected under Section 3221(d) of

the Railroad Retirement Tax Act shall be

credited to the Railroad Retirement

Supplemental Account.

Dated: August 27, 1996.

Beatrice Ezerski,

Secretary to the Board

(Filed by the Office of the Federal Register on

September 4, 1996, 8:45 a.m., and published in

the issue of the Federal Register for September 5,

1996, 61 F.R. 46871)

In accordance with directions in Section 3221(c) of the Railroad Retirement

Tax Act (26 U.S.C. 3221(c)), the Railroad Retirement Board has determined

that the excise tax imposed by such

Section 3221(c) on every employer, with

respect to having individuals in his

employ, for each work-hour for which

compensation is paid by such employer

for services rendered to him during the

quarter beginning January 1, 1997, shall

be at the rate of 35 cents.

In accordance with directions in Section 15(a) of the Railroad Retirement

Act of 1974, the Railroad Retirement

Board has determined that for the quarter beginning January 1, 1997, 33.4

percent of the taxes collected under

Sections 3211(b) and 3221(c) of the

Railroad Retirement Tax Act shall be

credited to the Railroad Retirement Account and 66.6 percent of the taxes

collected under such Sections 3211(b)

and 3221(c) plus 100 percent of the

taxes collected under Section 3221(d) of

the Railroad Retirement Tax Act shall be

9

credited to the Railroad Retirement

Supplemental Account.

Dated: December 4, 1996.

Beatrice Ezerski,

Secretary to the Board

(Filed by the Office of the Federal Register on

December 11, 1996, 8:45 a.m., and published in

the issue of the Federal Register for December 12,

1996, 61 F.R. 65422)

Section 3231.—Definitions

26 CFR 31.3231(e)–1: Compensation

Is back pay that is received in satisfaction of a

claim for denial of a promotion due to disparate

treatment employment discrimination under Title

VII of the Civil Rights Act of 1964, as amended

in 1991, treated as ‘‘compensation’’ for purposes

of § 3231 (RRTA)? See Rev. Rul. 96–65, page 5.

Section 3306.—Definitions

26 CFR 31.3306(b)–1: Wages.

Is back pay that is received in satisfaction of a

claim for denial of a promotion due to disparate

treatment employment discrimination under Title

VII of the Civil Rights Act of 1964, as amended

in 1991, treated as ‘‘wages’’ for purposes of

§ 3306 (FUTA)? See Rev. Rul. 96–65, page 5.

Section 3401.—Definitions

26 CFR 31.3401(a)–1: Wages.

Is back pay that is received in satisfaction of a

claim for denial of a promotion due to disparate

treatment employment discrimination under Title

VII of the Civil Rights Act of 1964, as amended

in 1991, treated as ‘‘wages’’ for purposes of

§ 3401 (federal income tax withholding)?

Section 4001.—Passenger Vehicles

The Service is providing inflation adjustments

to the price above which a passenger vehicle

becomes subject to an excise tax for transactions

occurring in calendar year 1997. See Rev. Proc.

96–59, page 17.

Section 4003.—Special Rules

lobbying expenditures. See Rev. Proc. 96–59,

page 17.

The Service is providing inflation adjustments

to the price above which a passenger vehicle

becomes subject to an excise tax for transactions

occurring in calendar year 1997. (Price includes

the price of installation of parts or accessories on

a passenger vehicle within six months of the date

after the vehicle was first placed in service.) See

Rev. Proc. 96–59, page 17.

Section 6039F.—Notice of Large

Gifts Received From Foreign

Persons

Section 6011.—General

Requirement of Return, Statement,

or List.

The Service is providing an inflation adjustment

for taxable years beginning in 1997 to the amount

of gifts in a taxable year from foreign person(s)

that triggers a reporting requirement for a United

States person. See Rev. Proc. 96–59, page 17.

26 CFR 31.6011(a)–4: Returns of income tax

withheld.

Section 6051.—Receipts for

Employees

Standard and alternate procedures to be used in

preparing employment tax forms where a

predecessor-successor employer relationship exists.

Rev. Proc. 84–77 modified and superseded. See

Rev. Proc. 96–60, page 24.

26 CFR 31.6051–1: Statements for employees.

26 CFR 301.6011–2T: Required use of magnetic

media (Temporary).

Automatic extensions of time to furnish Forms

W–2 to employees and file Forms W–2 with the

Social Security Administration are provided for

‘‘Qualified Employers.’’ See Rev. Proc. 96–57,

page 14.

Automatic extensions of time to furnish Forms

W–2 to employees and file Forms W–2 with the

Social Security Administration are provided for

‘‘Qualified Employers.’’ See Rev. Proc. 96–57,

page 14.

Standard and alternate procedures to be used in

preparing employment tax forms where a

predecessor-successor employer relationship exists.

Rev. Proc. 84–77 modified and superseded. See

Rev. Proc. 96–60, page 24.

Section 6601.—Interest on

Underpayment, Nonpayment or

Extensions of Time for Payment of

Tax

26 CFR 301.6601–1: Interest on underpayments.

Uniform tables for computing interest using the

daily compounding rules. See Rev. Proc. 95–17,

1995–1, C.B. 556.

Section 6611.—Interest on

Overpayments

26 CFR 301.6611–1: Interest on overpayments.

Uniform tables for computing interest using the

daily compounding rules. See Rev. Proc. 95–17,

1995–1, C.B. 556.

Section 6621.—Determination of

Rate of Interest

26 CFR 301.6621–1: Interest rate.

Uniform tables for computing interest using the

daily compounding rules. See Rev. Proc. 95–17,

1995–1, C.B. 556.

Section 6622.—Interest

Compounded Daily

Section 6012.—Persons Required

to Make Returns of Income

Section 6061.—Signing of Returns

and Other Documents

26 CFR 301.6622–1: Interest compounded daily.

26 CFR 1.6012–1: Individuals required to make

returns of income.

26 CFR 1.6061–1: Signing of returns and other

documents by individuals.

Uniform tables for computing interest using the

daily compounding rules. See Rev. Proc. 95–17,

1995–1, C.B. 556.

The Service is providing adjusted tax tables for

individuals and trusts and estates for taxable years

beginning in 1997 to reflect changes in the cost of

living. See Rev. Proc. 96–59, page 17.

What are the requirements for participation in

the 1997 Electronic Filing Program for the Form

1040 series? See Rev. Proc. 96–61, page 27.

26 CFR 1.6012–5: Composite return in lieu of

specified form.

What are the requirements for participation in

the 1997 Electronic Filing Program for the Form

1040 series? See Rev. Proc. 96–61, page 27.

What are the requirements for participation in

the 1997 On-Line Filing Program for the Form

1040 series? See Rev. Proc. 96–62, page 38.

Section 6013.—Joint Returns of

Income Tax by Husband and Wife

26 CFR 1.6013–1: Joint returns.

The Service is providing adjusted tax tables for

individuals for taxable years beginning in 1997 to

reflect changes in the cost of living. See Rev.

Proc. 96–59, page 17.

Section 6033.—Returns by Exempt

Organizations

The Service is providing inflation adjustments

for taxable years beginning in 1997 to the amount

of dues certain exempt organizations can charge

and still be excepted from the reporting requirements for exempt organizations with nondeductible

Section 6071.—Time for Filing

Returns and Other Documents

26 CFR 31.6071(a)–1: Time for filing returns and

other documents.

Automatic extensions of time to furnish Forms

W–2 to employees and file Forms W–2 with the

Social Security Administration are provided for

‘‘Qualified Employers.’’ See Rev. Proc. 96–57,

page 14.

Standard and alternate procedures to be used in

preparing employment tax forms where a

predecessor-successor employer relationship exists.

Rev. Proc. 84–77 modified and superseded. See

Rev. Proc. 96–60, page 24.

Section 6081.—Extension of Time

for Filing Returns.

26 CFR 31.6081(a)–1: Extensions of time for

filing returns and other documents.

Automatic extensions of time to furnish Forms

W–2 to employees and file Forms W–2 with the

Social Security Administration are provided for

‘‘Qualified Employers.’’ See Rev. Proc. 96–57,

page 14.

10

Section 7430.—Awarding of Costs

and Certain Fees

The Service is providing an inflation adjustment

for calendar year 1997 to the hourly limit on

attorney fees that may be awarded in a judgment

or settlement of an administrative or judicial

proceeding concerning the determination, collection, or refund of tax, interest, or penalty. See Rev.

Proc. 96–59, page 17.

Section 7805.—Rules and

Regulations

26 CFR 301.7805–1: Rules and regulations.

Are amounts received in satisfaction of a claim

for denial of a promotion due to disparate treatment employment discrimination under Title VII

of the Civil Rights Act of 1964, as amended in

1991, excludable from gross income under

§ 104(a)(2)? The holding will not apply adversely

to damages received under any provision of law

providing tort or tort type remedies for employment discrimination on the basis of race, color,

religion, gender, national origin, or other similar

classifications, if the damages are received (1) on

or before June 14, 1995, the date that Schleier was

decided by the Supreme Court, or (2) pursuant to

a written binding agreement, court decree, or

mediation award in effect on (or issued on or

before) June 14, 1995. See Rev. Rul. 96–65,

page 5.

Section 7872.—Treatment of Loans

With Below-Market Interest Rates

CPI adjustment for below-market

loans for 1997. The amount that section

7872(g) of the Code permits a taxpayer

to lend to a qualified continuing care

facility without incurring imputed interest is published and adjusted for inflation for years 1987–1997. Rev. Rul.

96–5 supplemented and superseded.

Rev. Rul. 96–64

This revenue ruling publishes the

amount that § 7872(g) of the Internal

Revenue Code permits a taxpayer to

lend to a qualifying continuing care

facility without incurring imputed interest. The amount is adjusted for inflation

for the years after 1986.

Section 7872 of the Code generally

treats loans bearing a below-market interest rate as if they bore interest at the

market rate.

Section 7872(g)(1) of the Code provides that, in general, § 7872 does not

apply for any calendar year to any

below-market loan made by a lender to

a qualified continuing care facility pursuant to a continuing care contract if the

lender (or the lender’s spouse) attains

age 65 before the close of the year.

Section 7872(g)(2) of the Code provides that, in the case of loans made

after October 11, 1985, and before 1987,

§ 7872(g)(1) applies only to the extent

that the aggregate outstanding amount of

any loan to which § 7872(g) applies

(determined

without

regard

to

§ 7872(g)(2)), when added to the aggregate outstanding amount of all other

previous loans between the lender (or

the lender’s spouse) and any qualified

continuing care facility to which

§ 7872(g)(1) applies, does not exceed

$90,000.

Section 7872(g)(5) of the Code provides that, for loans made during any

calendar year after 1986 to which

§ 7872(g)(1) applies, the $90,000 limit

specified in § 7872(g)(2) is increased

by an inflation adjustment. The inflation

adjustment for any calendar year is the

percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for

calendar year 1985. Section 7872(g)(5)

states that the CPI for any calendar year

is the average of the CPI as of the close

of the 12-month period ending on September 30 of that calendar year.

Rev. Rul. 96–5, 1996–3 I.R.B. 29,

publishes the amount specified in

§ 7872(g)(2) of the Code, increased by

the inflation adjustment, for the years

1987–96.

Table 1 sets forth the amount specified in § 7872(g)(2) of the Code. The

amount is increased by the inflation

adjustment for the years 1987–97.

11

REV. RUL. 96–64

TABLE 1

Limit under 7872(g)(2)

Year

Amount

Before 1987

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

$ 90,000

$ 92,200

$ 94,800

$ 98,800

$103,500

$108,600

$114,100

$117,500

$121,100

$124,300

$127,800

$131,300

Note: These inflation adjustments were computed using the

All-Urban, Consumer Price Index 1982–1984 base, published

by the Bureau of Labor Statistics.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 96–5, 1996–3 I.R.B. 29, is

supplemented and superseded.

DRAFTING INFORMATION

The author of this revenue ruling is

David B. Silber of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling,

contact Mr. Silber on (202) 622–3930

(not a toll-free call).

Part III. Administrative, Procedural, and Miscellaneous

Weighted Average Interest Rate

Update

Notice 96–66

Notice 88–73 provides guidelines for

determining the weighted average interest rate and the resulting permissible

range of interest rates used to calculate

current liability for the purpose of the

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

the Internal Revenue Code as amended

by the Omnibus Budget Reconciliation

Act of 1987 and as further amended by

the Uruguay Round Agreements Act,

Pub. L. 103–465 (GATT).

The average yield on the 30-year

Treasury Constant Maturities for November 1996 is 6.48 percent.

The following rates were determined

for the plan years beginning in the

month shown below.

Month

Year

Weighted Average

90% to 108% Permissible Range

90% to 110% Permissible Range

December

1996

6.89

6.20 to 7.44

6.20 to 7.58

Drafting Information

The principal author of this notice is Donna Prestia of the Employee Plans Division. For further information regarding this

notice, call (202) 622–6076 between 2:30 and 4:00 p.m. Eastern time (not a toll-free number). Ms. Prestia’s number is (202)

622–7377 (also not a toll-free number).

Application of Section 401(a)(9) to

Employees who Attain Age 70½ in

1996.

Notice 96–67

PURPOSE

This Notice addresses certain issues

related to amendments, made by section

1404 of the Small Business Job Protection Act of 1996, Pub.L. 104–188

(SBJPA), to the minimum distribution

requirements of section 401(a)(9) of the

Internal Revenue Code. Specifically, the

notice provides guidance on the application of section 401(a)(9), as amended by

the SBJPA, to employees (other than

5-percent owners) who attain age 70½

in 1996 but who have not retired by the

end of 1996.

BACKGROUND

Section 401(a)(9) provides that, in

order for a plan to be qualified under

section 401(a), distributions from the

plan must commence no later than the

‘‘required beginning date’’. Similar rules

apply to an individual retirement account or annuity (IRA) and a section

403(b) contract (i.e., an annuity contract

described in section 403(b), a custodial

account described in section 403(b)(7)

or a retirement income account described in section 403(b)(9)).

Prior to the amendments made by the

SBJPA, section 401(a)(9)(C) generally

defined required beginning date as April

1 of the calendar year following the

calendar year in which an employee

attained age 70½. This meant that an

employee who attained age 70½ was

required to commence distributions from

the plan, even if the employee had not

retired from employment with the employer maintaining the plan.

Section 1404 of the SBJPA amended

the definition of required beginning date

that applies to an employee who is not a

5-percent owner. The amendment provides that, in the case of such an

employee, the required beginning date is

April 1 of the calendar year following

the later of the calendar year in which

the employee attains age 70½ or the

calendar year in which the employee

retires. In the case of an employee who

is a 5-percent owner, the required beginning date remains April 1 of the calendar year following the calendar year in

which the 5-percent owner attains age

70½. The amendments made by section

1404 of the SBJPA apply to years

beginning after December 31, 1996.

The amendments do not apply to the

required beginning date for distributions

from an IRA, including an IRA established in conjunction with a Simplified

Employee Pension (SEP) or a SIMPLE

Plan. In addition, the amendments do

not affect the determination of the required beginning date for church plans

and government plans, since, under the

pre-SBJPA version of section 401(a)(9),

the required beginning date for these

plans already was April 1 of the calendar year following the later of the

calendar year in which the employee

attains age 70½ or the calendar year in

which the employee retires.

Taxpayers have requested guidance on

the application of the amendments to

section 401(a)(9)(C) made by the SBJPA

to employees who attain age 70½ in

1996, but have not retired by the end of

12

1996. This Notice is issued in response

to those requests.

QUESTIONS AND ANSWERS

Q–1: What is the effective date of the

amendments to section 401(a)(9) made

by section 1404 of the SBJPA?

A–1: Section 401(a)(9), as amended

by section 1404 of the SBJPA, applies

in determining the amount of any minimum distribution required to be made

during any calendar year beginning on

or after January 1, 1997 (that was not

required to be made during an earlier

calendar year).

Q–2: Is a minimum distribution required to be made by April 1, 1997 for

an employee (other than a 5-percent

owner) who attains age 70½ in 1996,

but has not retired from employment

with the employer maintaining the plan

by the end of 1996?

A–2: No. Such an employee’s required beginning date is determined under section 401(a)(9), as amended by the

SBJPA. Thus, the employee’s required

beginning date is not April 1, 1997.

Instead, the employee’s required beginning date is April 1 of the calendar year

following the year in which the employee retires from employment with the

employer maintaining the plan.

Q–3: If a plan distribution is made in

1996 to an employee (other than a

5-percent owner) who attains age 70½

in that year, but has not retired by the

end of 1996 from employment with the

employer maintaining the plan, is any

portion of the distribution a required

distribution for purposes of section

402(c)(4)(B)?

A–3: Yes. Section 402(c)(4)(B) provides that a distribution is not an eli-

gible rollover distribution to the extent

that it is required under section

401(a)(9). If a distribution is made during 1996 (i.e., prior to the January 1,

1997 effective date of the SBJPA

amendments to section 401(a)(9)), then,

whether that distribution is a required

distribution under section 401(a)(9) is

determined by applying section

401(a)(9) as in effect prior to amendment by the SBJPA.

Under Q&A–7 of § 1.402(c)–2 of the

Income Tax Regulations, a distribution

in the year an employee attains age 70½

is treated as a required distribution under section 401(a)(9) to the extent that

the total required minimum distribution

under section 401(a)(9) for that year has

not been satisfied. Therefore, although

under Q&A–2 of this Notice, no distribution is required to be made by April

1, 1997 with respect to an employee

(other than a 5-percent owner) who

attains age 70½ during 1996, but has

not retired by the end of that year, if a

distribution actually is made to such an

employee in 1996, the distribution is

treated as a required distribution to the

extent that the total required minimum

distribution under section 401(a)(9), as

in effect prior to amendment by the

SBJPA, has not been satisfied. Thus, to

that extent, the distribution is not an

eligible rollover distribution and is not

subject to mandatory 20% withholding

under section 3405(c). However, a distribution to such an employee in 1997

(i.e., after the effective date of the

SBJPA amendments) is not a required

distribution under section 401(a)(9).

Q–4: How does the guidance provided in Q&A–2 and Q&A–3 of this

Notice apply to the determination of the

required minimum distribution from a

section 403(b) contract?

A–4: In applying section 401(a)(9) to

a section 403(b) contract to which contributions are made by an employer, an

employee’s required beginning date is

determined under section 401(a)(9) in

the same manner as it would be determined for a qualified plan maintained

by that employer. Accordingly, the required beginning date with respect to a

section 403(b) contract of an employee

who attains age 70½ in 1996 and who

has not retired from employment by the

end of 1996 is determined under

Q&A–2 of this Notice. Similarly,

whether a distribution in 1996 from a

section 403(b) contract is a required

minimum distribution (and thus not an

eligible rollover distribution) is determined in accordance with the guidance

in Q&A–3 of this notice.

REQUEST FOR COMMENTS

CONCERNING RELAXATION OF

SECTION 411(d)(6)

Except to the extent provided by

regulations, section 411(d)(6)(B) precludes a plan amendment that eliminates

an optional form of benefit as it applies

to benefits accrued as of the later of the

adoption date or the effective date of the

amendment. The right to commence

benefit distributions in any form at a

particular time is an optional form of

benefit within the meaning of section

411(d)(6)(B) and Q&A–1(b) of

§ 1.411(d)–4 of the Income Tax Regulations. When it enacted section 1404 of

the SBJPA, Congress did not alter the

application of section 411(d)(6). Accordingly, an amendment that eliminates the

right to receive a distribution prior to

retirement (an in-service distribution) after age 70½ is precluded by section

411(d)(6) if the amendment applies to

benefits accrued as of the later of the

adoption date or the effective date of the

amendment.

A plan that retains in-service distributions after age 70½ (either as a mandatory or an optional form of distribution)

will satisfy the requirements of section

401(a)(9) as amended, and will not be

prohibited by section 411(d)(6). However, the Service and the Treasury recognize the potential complexity of administering these distribution options.

Therefore, the Service and the Treasury

are considering the extent to which it is

appropriate to exercise the authority in

section 411(d)(6)(B) to permit plan

amendments to eliminate the option to

receive in-service distributions after age

70½. In making this determination, factors that the Service and the Treasury

will take into account include the importance to plan participants of protecting

the option to receive in-service distributions as well as the potential complexity

to employers, plan administrators and

participants of retaining the option.

The Service and the Treasury request

comments concerning the extent to

which a relaxation of section 411(d)(6)

protection is appropriate for amendments that eliminate in-service distributions after age 70½ (e.g., by limiting

section 411(d)(6) protection to employees above a certain age). Because the

Service and the Treasury have received

requests that this guidance be provided

13

on an expedited basis, comments are

requested to be submitted by January

31, 1997.

Comments can be addressed to

CC:DOM:CORP:R (Notice 96–XX),

room 5228, Internal Revenue Service,

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

comments may be hand delivered between the hours of 8 a.m. and 5 p.m. to

CC:DOM:CORP:R (Notice 96–XX),

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

Washington, DC. Alternatively, taxpayers may transmit comments electronically via the IRS Internet site at http://

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

comments.html

DRAFTING INFORMATION

The principal author of this Notice is

Cheryl Press of the Office of the Associate Chief Counsel (Employee Benefits

and Exempt Organizations). For further

information regarding this Notice, contact Thomas R. Foley at (202) 622–6050

(not a toll-free number).

26 CFR 601.203: Offers in compromise.

(Also Part I, Section 7122; 301.7122–1)

Rev. Proc. 96–38

SECTION 1. PURPOSE

This revenue procedure provides

guidance to taxpayers who wish to submit offers in compromise on photocopies or computer generated copies of

Form 656, Offer in Compromise, published by the Service at the time the

taxpayer makes the offer. This revenue

procedure also establishes the conditions

under which the Service will process

offers submitted on such forms. Specifically, this revenue procedure sets forth

the required content of a photocopied or

a computer generated Form 656 and

states that taxpayers who submit offers

on such copies authorize the Service to

treat them as verbatim duplicates of the

Form 656 published by the Service.

SEC. 2. CHANGES

.01 This revenue procedure provides

guidance to taxpayers who wish to submit offers in compromise on photocopies or computer generated copies of

Form 656, Offer in Compromise, which

the Service publishes and processes

when the taxpayer makes the offer.

.02 This revenue procedure declares

Rev. Proc. 57–41, 1957–2 C.B. 1119

and Rev. Proc. 80–6, 1980–1 C.B. 586

obsolete.

.06 The decision whether to process

photocopies or computer generated copies of Form 656 remains within the

Service’s discretion.

SEC. 3. PROCEDURE

SEC. 4. INQUIRIES

.01 The Service administers an offer

in compromise program whereby a taxpayer may submit an offer to compromise a tax liability based on doubt as to

liability or doubt as to collectibility.

These offers are submitted on Form 656,

Offer in Compromise, which is revised

by the Service when necessary.

.02 The Service will receive for processing legible photocopies or computer

generated copies that are verbatim duplicates of the most current, revised version of Form 656, Offer in Compromise,

published by the Service when the taxpayer makes the offer. However, this

procedure only applies to revised versions of Form 656 showing a revision

date after September 1993. (See Sec. 6

for a description of the revised versions

of Form 656 to which this revenue

procedure applies.) An offer submitted

on a photocopy or computer generated

copy of Form 656 must be printed on

the same size paper the Service uses to

publish Forms 656 at the time the offer

is made. (The Service currently publishes Form 656 on paper measuring

eight and one-half by eleven inches).

.03 When a taxpayer makes an offer

on a form that appears to be a photocopy or computer generated copy of

Form 656, then pursuant to the terms of

that form, the taxpayer authorizes the

Service to treat the copy as a verbatim

duplicate of the Service’s most currently

revised version of Form 656 that has a

revision date after September 1993.

.04 An offer submitted on a photocopy or computer generated copy of

Form 656 must bear the taxpayer’s

original signature and initials, if required. The Service will not process an

offer in compromise bearing a signature

or initials that were duplicated by electronic or photographic means, i.e., a

facsimile transmission or photocopy.

.05 If a taxpayer submits an offer in

compromise on a photocopy or computer generated copy of Form 656 and

the terms and conditions of the offer

appear on any page other than the front

and reverse sides of the signature page,

then the taxpayer must initial and date

all pages containing terms and conditions of the offer.

Inquiries regarding this revenue procedure should be directed to Internal

Revenue Service, Office of Special Procedures CP:CO:C:SP, 1111 Constitution

Avenue, N.W., Washington, D.C. 20224.

26 CFR 601.602: Forms and instructions.

(Also Part I, §§ 6011, 6051, 6071, 6081;

301.6011–2T, 31.6051–1, 31.6071(a)–1, 31.6081

(a)–1)

Rev. Proc. 96–57

SECTION 1. PURPOSE

SEC. 5. EFFECT ON OTHER

REVENUE PROCEDURES

This revenue procedure declares Rev.

Proc. 57–41, 1957–2 C.B. 1119 and

Rev. Proc. 80–6, 1980–1 C.B. 586 obsolete. Rev. Proc. 57–41 is obsolete because it required taxpayers to use a revision of Form 656 that is not currently

published or processed by the Service.

Rev. Proc. 80–6 is obsolete because the

delegations and procedural matters described therein have been superseded,

i.e., delegations of authority are now set

forth in Delegation Order No. 11 (Rev.

24) and IRM Handbook 1229; all other

procedural matters described therein are

now set forth in Delegation Order No.

11 (Rev. 24), IRM Handbook 1229,

IRM 57(10)0 through 57(10)(23).4, IRM

8(13)20 through 8(13)70, and CCDM

(34)510 through (34)560.

SEC. 6. EFFECTIVE DATE

This revenue procedure is effective

when published. It applies to all revisions of Form 656, Offer in Compromise, showing a revision date after

September 1993. The Service is currently revising Form 656. The version of

Form 656 currently published by the

Service bears the revision date of September 1993. This revenue procedure

shall not apply to the September 1993

version of Form 656, and the Service

will not process substitute forms based

on that version, but will process substitute forms based on the next revised

version.

DRAFTING INFORMATION

The principal author of this revenue

procedure is Elizabeth Rawlins of the

Office of Assistant Chief Counsel (General Litigation). For further information

regarding this revenue procedure, contact Elizabeth Rawlins on (202) 622–

3630 (not a toll-free call).

14

.01 This revenue procedure provides

automatic extensions of time for (1)

furnishing Form W–2, Wage and Tax

Statement, to employees and (2) filing

Form W–2, with the Social Security

Administration (SSA) as provided in

§§ 31.6051–1(d)(2)(ii) and 31.6081(a)–

1(a)(3)(ii) of the Employment Tax Regulations. These automatic extensions also

apply to Form 499R–2/W–2PR, Withholding Statement; Form W–2VI, U.S.

Virgin Island Wage and Tax Statement;

Form W–2GU, Guam Wage and Tax

Statement; and Form W–2AS, American

Samoa Wage and Tax Statement. These

automatic extensions are only available

to ‘‘Qualified Employers,’’ as defined

below.

SECTION 2. BACKGROUND

.01 Section 6011(a) of the Internal

Revenue Code provides that any person

made liable for any tax, or for the

collection of the tax, must make a return

or statement according to the forms or

regulations prescribed by the Secretary.

.02 Section 31.6011(a)–1 prescribes

Form 941 as the form to use for persons

required to make a quarterly return

under the Federal Insurance Contributions Act.

.03 Section 31.6011(a)–4 prescribes

Form 941 as the form to use for persons

required to make a quarterly return of

income tax withheld from wages.

.04 Section 31.6011(a)–6 provides

that an employer who ceases to pay

wages reportable on Form 941 shall file

a final Form 941.

.05 Section 31.6071(a)–1 provides

that Form 941 generally must be filed

on or before the last day of the first

calendar month following the quarter for

which it is made.

.06 Section 6051(a) provides that (1)

every person required to deduct and

withhold income tax, or who would

have been required to deduct and withhold if the employee had claimed no

more than 1 withholding exemption, or

(2) every employer engaged in a trade

or business who pays remuneration for

services performed by an employee,

must furnish a written statement to an

employee regarding the remuneration

paid to the employee during the calen-

dar year. Section 31.6051–1(a) provides

that the statement is Form W–2. Form

W–2 must be furnished to the employee

on or before January 31 of the following

calendar year. If the employee’s employment is terminated before the close of

the calendar year, however, and the

employee requests the Form W–2 in

writing, the Form W–2 must be furnished to the employee within 30 days

of the later of the written request from

the employee or the last payment of

wages, provided such 30-day period

ends before January 31.

.07 Section 31.6051–1(d)(1)(ii) provides that, effective January 1, 1997, an

employer who is required to file a final

Form 941 must furnish Forms W–2 to

its employees on or before the date

required for filing the final Form 941. If

the final Form 941 is a monthly return,

as described in § 31.6011(a)–5, the

Forms W–2 must be furnished on or

before the last day of the month in

which the final Form 941 is required to

be filed.

.08 Section 31.6071(a)–1(a)(3)(ii)

provides that, effective January 1, 1997,

an employer who is required to file a

final Form 941 must file Forms W–2 on

or before the last day of the second

calendar month following the period for

which the final Form 941 is filed.

.09 Section 301.6011–2T(b)(2) of the

temporary Regulations on Procedure and

Administration provides that if an employer is required to file 250 or more

Forms W–2, Forms 499R–2/W–2PR,

Forms W–2VI, Forms W–2GU, or

Forms W–2AS in a calendar year, the

employer must file these forms on magnetic media. The 250 return threshold

applies separately to each type of form.

Employers who file less than 250 of

these forms in a calendar year may file

their forms on magnetic media with

SSA, but are not required to do so.

.10 SSA prepares the magnetic media

specifications (Specifications) for filing

Forms W–2 and updates them annually.

SSA updates the Specifications generally

by July of the year to which they apply,

and prints them in Technical Information

Bulletin–4 (TIB–4). Employers may obtain the Specifications by contacting

their Magnetic Media Coordinator (call

1–800–SSA–1213 for the number of the

local coordinator). Employers using a

personal computer and a modem can

download the TIB–4 from either of two

electronic bulletin board systems: SSA–

BBS (410–965–1133) or IRP–BBS(IRS)

(304–264–7070). Employers can gener-

ally obtain the Specifications by either

of these methods in July of the current

year.

.11 SSA mails the TIB–4 to those

employers who filed on magnetic media

in the prior year. SSA mails the TIB–4

early in the fourth quarter of each year

to allow employers sufficient time to

update their payroll systems for preparing the current year Forms W–2, which

generally are due the last day of February following the year in which the

wages were paid.

.12 SSA also prepares the magnetic

media specifications for Forms 499R–2/

W–2PR, Forms W–2VI, Forms W–2GU,

and Forms W–2AS. These specifications, which are published in TIB–5

(Forms 499R–2/W–2PR); TIB–6 (Form

W–2VI); and TIB–7 (Forms W–2GU

and Forms W–2AS), are available early

in the fourth quarter of the year to

which they apply.

.13 Section 31.6051–1(d)(2)(ii) provides that the Commissioner may publish procedures for automatic extensions

of time to furnish Forms W–2 to employees where the employer is required

to furnish Forms W–2 on an expedited

basis.

.14 Section 31.6081(a)–1(a)(3)(ii)

provides that the Commissioner may

publish procedures for automatic extensions of time to file Forms W–2 with

SSA where the employer is required to

file Forms W–2 on an expedited basis.

.15 Automatic extensions are appropriate for those employers who are

required to (1) furnish Forms W–2 to

employees and file Forms W–2 with

SSA on an expedited basis, and (2) file

Forms W–2 on magnetic media before

the current Specifications are available.

They are also appropriate for those

employers who have filed on magnetic

media in the prior year, even though not

required to do so. While use of magnetic media does not apply to Forms

W–2 furnished to employees, an extended due date for the employee copy

of Forms W–2 is granted to allow the

employer to prepare all the Forms W–2

at approximately the same time.

SECTION 3. SCOPE

.01 Qualified Employers. The automatic extensions of time are available to

‘‘Qualified Employers.’’ A ‘‘Qualified

Employer’’ is an employer who:

1) is required to furnish Forms W–2

to its employees on an expedited basis

under § 31.6051–1(d)(1)(ii) and file

15

Forms W–2 with SSA on an expedited

basis under § 31.6071(a)–1(a)(3)(ii),

and

2) is either required to file the expedited Forms W–2 with SSA on magnetic

media, or filed Forms W–2 on magnetic

media in the year prior to the year that

expedited Forms W–2 are required

(whether or not the employer was required to file on magnetic media in the

prior year).

.02 Application to returns filed by

employers for employees in Guam, U.S.

Virgin Islands, American Samoa and

Puerto Rico. Wage and tax statements

filed by employers for employees in

Guam, U.S. Virgin Islands, American

Samoa and Puerto Rico (Form W–2GU,

Form W–2VI, Form W–2AS and Form

499R–2/W–2PR, respectively) are

treated in the same manner as Forms

W–2.

SECTION 4. AUTOMATIC

EXTENSION PERIOD

.01 Qualified Employers must furnish

Forms W–2 to the employees on or

before the later of the expedited due

date under § 31.6051–1(d)(1)(ii) or October 31 of the year in which they file

their final Form 941.

.02 This automatic extension of time

to furnish Forms W–2 to employees

does not relieve an employer of its

obligation to furnish a Form W–2 within

30 days to any employee who makes

such a request in writing under § 6051.

.03 Qualified Employers must file

Forms W–2 on or before the later of the

expedited due date under § 31.6071(a)–

1(a)(3)(ii) or November 30 of the year

in which they file their final Form 941.

.04 These automatic extension periods remain in effect until new automatic

extension periods are published by the

Commissioner.

SECTION 5. DISCRETIONARY

EXTENSIONS

.01 Qualified Employers may request

additional extensions of time to furnish

Forms W–2 to employees and file

Forms W–2 with SSA. Additional extensions of time are discretionary and

should be requested from the Director,

Martinsburg Computing Center. See

§§ 31.6051–1(d)(2)(i), 31.6081(a)–

1(a)(3)(i) and Form 8809.

.02 Employers who do not meet the

definition of a ‘‘Qualified Employer’’

may request an extension of time to

furnish Forms W–2 to employees and

file Forms W–2 with SSA. These exten-

sions of time are discretionary and

should be requested from the Director,

Martinsburg Computing Center. See

§§ 31.6051–1(d)(2)(i), 31.6081(a)–

1(a)(3)(i) and Form 8809.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective

January 1, 1997.

DRAFTING INFORMATION

The principal author of this revenue

procedure is Jean M. Casey of the

Office of the Associate Chief Counsel

(Employee Benefits and Exempt Organizations). For further information regarding this revenue procedure, contact Ms.

Casey on (202) 622–6040 (not a tollfree call).

26 CFR 601.105: Examination of returns and

claims for refund, credit or abatement; determination of correct tax liability.

(Also Part I, § 6662.)

Rev. Proc. 96–58

SECTION 1. PURPOSE

.01 This revenue procedure updates

Rev. Proc. 95–55, 1995–2 C.B. 457, and

identifies circumstances under which the

disclosure on a taxpayer’s return of a

position with respect to an item is

adequate for the purpose of reducing the

understatement of income tax under

§ 6662(d) of the Internal Revenue Code

(relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding

the preparer penalty under § 6694(a)

(relating to understatements due to unrealistic positions). This revenue procedure does not apply with respect to any

other penalty provision (including the

negligence or disregard provisions of the

§ 6662 accuracy-related penalty).

.02 This revenue procedure applies to

any return filed on 1996 tax forms for a

taxable year beginning in 1996, and to

any return filed on 1996 tax forms in

1997 for short taxable years beginning

in 1997.

SEC. 2. CHANGES FROM REV.

PROC. 95–55

Editorial changes only have been

made in this revenue procedure.

SEC. 3. BACKGROUND

.01 If § 6662 applies to any portion

of an underpayment of tax required to

be shown on a return, an amount equal

to 20 percent of the portion of the

underpayment to which the section applies is added to the tax. (The penalty

rate is 40 percent in the case of certain

gross valuation misstatements.) Under

§ 6662(b)(2), § 6662 applies to the portion of an underpayment that is attributable to a substantial understatement of

income tax.

.02 Section 6662(d)(1) provides that

there is a substantial understatement of

income tax if the amount of the understatement exceeds the greater of 10

percent of the amount of tax required to

be shown on the return for the taxable

year or $5,000 ($10,000 in the case of a

corporation other than an S corporation

or a personal holding company). Section

6662(d)(2) defines an understatement as

the excess of the amount of tax required

to be shown on the return for the

taxable year over the amount of the tax

that is shown on the return reduced by

any rebate (within the meaning of §

6211(b)(2)).

.03 In the case of an item not attributable to a tax shelter, § 6662(d)(2)(B)(ii) provides that the amount of the

understatement is reduced by the portion

of the understatement attributable to any

item with respect to which the relevant

facts affecting the item’s tax treatment

are adequately disclosed on the return or

on a statement attached to the return,

and there is a reasonable basis for the

tax treatment of such item by the taxpayer.

.04 In general, this revenue procedure

provides guidance in determining when

disclosure is adequate for purposes of

§ 6662(d). For purposes of this revenue

procedure, the taxpayer must furnish all

required information in accordance with

the applicable forms .and instructions,

and the money amounts entered on these

forms must be verifiable. Guidance under § 6662(d) for returns filed in 1994,

1995, and 1996 is provided in Rev.

Proc. 94–36, 1994–1 C.B. 682; Rev.

Proc. 94–74, 1994–2 C.B. 823; and Rev.

Proc. 95–55, 1995–2 C.B. 457, respectively.

SEC. 4. PROCEDURE

.01 Additional disclosure of facts relevant to, or positions taken with respect

to, issues involving any of the items set

forth below is unnecessary for purposes

of reducing any understatement of income tax under § 6662(d) provided that

the forms and attachments are completed in a clear manner and in accordance with their instructions. The money

amounts entered on the forms must be

16

verifiable, and the information on the

return must be disclosed in the manner

described below. For purposes of this

revenue procedure, a number is verifiable if, on audit, the taxpayer can

demonstrate the origin of the number

(even if that number is not ultimately

accepted by the Internal Revenue Service) and the taxpayer can show good

faith in entering that number on the

applicable form.

(1) Form 1040, Schedule A, Itemized Deductions:

(a) Medical and Dental Expenses: Complete lines 1 through 4,

supplying all required information.

(b) Taxes: Complete lines 5

through 9, supplying all required information. Line 8 must list each type of tax

and the amount paid.

(c) Interest Expense: Complete

lines 10 through 14, supplying all required information. This section

4.01(1)(c) does not apply to (i) amounts

disallowed under § 163(d) unless Form

4952, Investment Interest Expense Deduction, is completed, or (ii) amounts

disallowed under § 265.

(d) Contributions: Complete

lines 15 through 18, supplying all required information. Merely entering the

amount of the donation on Schedule A,

however, will not constitute adequate

disclosure if the taxpayer receives a

substantial benefit from the donation

shown. If a contribution of property

other than cash is made and the amount

claimed as a deduction exceeds $500, a

properly completed Form 8283, Noncash

Charitable Contributions, must be attached to the return. This section

4.01(1)(d) will not apply to any contribution of $250 or more unless the

contemporaneous written acknowledgement requirement of § 170(f)(8) is satisfied.

(e) Casualty and Theft Losses:

Complete Form 4684, Casualties and

Thefts, and attach to the return. Each

item or article for which a casualty or

theft loss is claimed must be listed on

Form 4684.

(2) Certain Trade or Business Expenses (including, for purposes of this

section 4.01(2), the following six expenses as they relate to the rental of

property):

(a) Casualty and Theft Losses:

The procedure outlined in section

4.01(1)(e) above must be followed.

(b) Legal Expenses: The amount

claimed must be stated. This section

4.01(2)(b) does not apply, however, to

amounts properly characterized as capi-

tal expenditures, personal expenses, or

nondeductible lobbying or political expenditures, including amounts that are

required to be (or that are) amortized

over a period of years.

(c) Specific Bad Debt Chargeoff: The amount written off must be

stated.

(d) Reasonableness of Officers’

Compensation: Form 1120, Schedule E,

Compensation of Officers, must be completed when required by its instructions.

The time devoted to business must be

expressed as a percentage as opposed to

‘‘part’’ or ‘‘as needed.’’ This section

4.01(2)(d) does not apply to ‘‘golden

parachute’’ payments, as defined under

§ 280G. This section 4.01(2)(d) will not

apply to the extent that remuneration

paid or incurred exceeds the $1 million

employee remuneration limitation, if applicable.

(e) Repair

Expenses:

The

amount claimed must be stated. This

section 4.01(2)(e) does not apply, however, to any repair expenses properly

characterized as capital expenditures or

personal expenses.

(f) Taxes (other than foreign

taxes): The amount claimed must be

stated.

(3) Form 1120, Schedule M–1,

Reconciliation of Income (Loss) per

Books With Income per Return, provided:

(a) The amount of the deviation

from the financial books and records is

not the result of a computation that

includes the netting of items; and

(b) The information provided

reasonably may be expected to apprise

the Internal Revenue Service of the

nature of the potential controversy concerning the tax treatment of the item.

(4) Foreign Tax Items:

(a) International Boycott Transactions: Transactions disclosed on Form

5713, International Boycott Report.

(b) Intercompany Transactions:

Transactions and amounts shown on

Schedule M (Form 5471), Transactions

Between Controlled Foreign Corporation

and Shareholders or Other Related Persons, lines 19 and 20, and Form 5472,

Part IV, Monetary Transactions Between

Reporting Corporations and Foreign Related Party, lines 7 and 18.

(5) Other:

(a) Moving Expenses: Complete

Form 3903, Moving Expenses, or Form

3903–F, Foreign Moving Expenses, and

attach to the return.

(b) Sale or Exchange of Your

Main Home: Complete Form 2119, Sale

of Your Home, and attach to the return.

(c) Employee Business Ex-

penses: Complete Form 2106, Employee

Business Expenses, or Form 2106–EZ,

Unreimbursed Employee Business Expenses, and attach to the return. This

section 4.01(5)(c) does not apply to club

dues, or to travel expenses for any

non-employee accompanying the taxpayer on a trip.

(d) Fuels Credit: Complete Form

4136, Credit for Federal Tax Paid on

Fuels, and attach to the return.

(e) Investment Credit: Complete

Form 3468, Investment Credit, and attach to the return.

SEC. 5. EFFECTIVE DATE

.01 This revenue procedure applies to

any return filed on 1996 tax forms for a

taxable year beginning in 1996, and to

any return filed on 1996 tax forms in

1997 for short taxable years beginning

in 1997.

SEC. 6. DRAFTING INFORMATION

The principal author of this revenue

procedure is Marcia Rachy of the Office

of Assistant Chief Counsel (Income Tax

and Accounting). For further information

regarding this revenue procedure, contact Ms. Rachy on (202) 622–6232 (not

a toll-free call).

26 CFR 601.602: Tax forms and instructions.

(Also Part I, §§ 1, 32, 59, 63, 68, 132, 135, 151, 170, 512, 513, 877, 4001, 4003, 6012, 6013, 6033, 6039F, 7430; 1.1–1, 1.32–2, 1.63–1, 1.151–4, 1.170–1,

1.6012–1, 1.6013–1)

Rev. Proc. 96–59

Table of Contents

SECTION 1. PURPOSE

SECTION 2. HANGES MADE FROM PRECEDING YEAR

SECTION 3. 1997 ADJUSTED ITEMS

.01

.02

.03

.04

.05

.06

.07

.08

.09

.10

.11

.12

.13

.14

Tax Rate Tables

Unearned Income of Minor Children Taxed as if Parent’s Income (‘‘Kiddie Tax’’)

Earned Income Tax Credit

Alternative Minimum Tax Exemption for ‘‘Kiddie Tax’’ Reported on Parent’s Return

Standard Deduction

Overall Limitation on Itemized Deductions

Qualified Transportation Fringe

Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education

Expenses

Personal Exemption

Treatment of Dues Paid to Agricultural or Horticultural Organizations.

Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising

Campaigns

Expatriation to Avoid Tax

Luxury Automobile Excise Tax

Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying

Expenditures

17

Code Section

1(a)–(e)

1(g)

32

59(j)

63

68

132(f)

135

151

512(d)

513(h)

877

4001 & 4003

6033(e)(3)

Code Section

6039F

7430

.15 Notice of Large Gifts Received from Foreign Persons

.16 Attorney Fee Awards

SECTION 4. COMPUTATION OF INFLATION ADJUSTMENTS

SECTION 5. 1997 INFLATION ADJUSTMENT FACTORS

SECTION 6. EFFECT ON OTHER DOCUMENTS

SECTION 7. EFFECTIVE DATE

SECTION 8. DRAFTING INFORMATION

SECTION 1. PURPOSE

This revenue procedure sets forth inflation adjusted items for 1997.

SECTION 2. CHANGES MADE

FROM PRECEDING YEAR

.01 Amounts used to determine eligibility for the elective method under

§ 1(g)(7) to report the ‘‘kiddie tax’’ on

the parent’s tax return, and to make

computations under this method, are

adjusted for inflation for tax years beginning in 1997. See section 3.02 of this

revenue procedure.

.02 The amount of investment income that causes an individual to be

denied the earned income tax credit

under § 32(i) is adjusted for inflation

for tax years beginning in 1997. See

section 3.03(2) of this revenue procedure.

.03 A limited exemption from the

alternative minimum tax under § 59(j)

for a child subject to the ‘‘kiddie tax’’ is

adjusted for inflation for tax years beginning in 1997. See section 3.04 of this

revenue procedure.

.04 The maximum amount of annual

dues that can be paid to certain agricultural or horticultural organizations under

§ 512(d)(1) without any portion being

treated as unrelated trade or business

income by reason of any benefits or

privileges available to members is adjusted for inflation for tax years beginning in 1997. See section 3.10 of this

revenue procedure.

.05 The amounts used under § 877 to

determine whether a principal purpose

of expatriation is to avoid tax are adjusted for inflation for calendar year

1997. See section 3.12 of this revenue

procedure.

.06 The amount of gifts in a taxable

year from foreign person(s), which triggers a reporting requirement for a

United States person under § 6039F, is

adjusted for inflation for tax years beginning in 1997. See section 3.15 of this

revenue procedure.

.07 The hourly limit on attorney fees

that may be awarded under § 7430, in a

judgment or settlement of an administrative or judicial proceeding concerning

the determination, collection, or refund

of tax, interest, or penalty under the

Code, is adjusted for inflation for tax

years beginning in 1997. See section

3.16 of this revenue procedure.

SECTION 3. 1997 ADJUSTED

ITEMS

.01 Tax Rate Tables. The following adjusted tax rate tables are prescribed in lieu of the tables in subsections (a), (b), (c), (d), and (e) of § 1 of

the Code with respect to tax years

beginning in 1997.

TABLE 1—Section 1(a).—MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES

If Taxable Income Is:

The Tax Is:

Not Over $41,200

15% of the taxable income

Over $41,200 but not over $99,600

$6,180 plus 28% of the excess over $41,200

Over $99,600 but not over $151,750

$22,532 plus 31% of the excess over $99,600

Over $151,750 but not over $271,050

$38,698.50 plus 36% of the excess over $151,750

Over $271,050

$81,646.50 plus 39.6% of the excess over $271,050

TABLE 2—Section 1(b).—HEADS OF HOUSEHOLDS

If Taxable Income Is:

The Tax Is:

Not Over $33,050

15% of the taxable income

Over $33,050 but not over $85,350

$4,957.50 plus 28% of the excess over $33,050

Over $85,350 but not over $138,200

$19,601.50 plus 31% of the excess over $85,350

Over $138,200 but not over $271,050

$35,985 plus 36% of the excess over $138,200

Over $271,050

$83,811 plus 39.6% of the excess over $271,050

TABLE 3—Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES

AND HEADS OF HOUSEHOLDS)

If Taxable Income Is:

The Tax Is:

Not Over $24,650

15% of the taxable income

Over $24,650 but not over $59,750

$3,697.50 plus 28% of the excess over $24,650

18

TABLE 3—Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES

AND HEADS OF HOUSEHOLDS)—Continued

If Taxable Income Is:

The Tax Is:

Over $59,750 but not over $124,650

$13,525.50 plus 31% of the excess over $59,750

Over $124,650 but not over $271,050

$33,644.50 plus 36% of the excess over $124,650

Over $271,050

$86,348.50 plus 39.6% of the excess over $271,050

TABLE 4—Section 1(d).—MARRIED INDIVIDUALS FILING SEPARATE RETURNS

If Taxable Income Is:

The Tax Is:

Not Over $20,600

15% of the taxable income

Over $20,600 but not over $49,800

$3,090 plus 28% of the excess over $20,600

Over $49,800 but not over $75,875

$11,266 plus 31% of the excess over $49,800

Over $75,875 but not over $135,525

$19,349.25 plus 36% of the excess over $75,875

Over $135,525

$40,823.25 plus 39.6% of the excess over $135,525

TABLE 5—Section 1(e).—ESTATES AND TRUSTS

If Taxable Income Is:

The Tax Is:

Not Over $1,650

15% of the taxable income

Over $1,650 but not over $3,900

$247.50 plus 28% of the excess over $1,650

Over $3,900 but not over $5,950

$877.50 plus 31% of the excess over $3,900

Over $5,950 but not over $8,100

$1,513 plus 36% of the excess over $5,950

Over $8,100

$2,287 plus 39.6% of the excess over $8,100

.02 Unearned Income of Minor Children Taxed as if Parent’s Income (the

‘‘Kiddie Tax’’).

(1) Reporting on Child’s Return.

(a) Section 1(g) provides that the

tax on the net unearned income of a

child under the age of 14 is computed at

the marginal rate of the child’s parent.

Under § 1(g)(4)(A)(ii), net unearned income generally equals unearned income

less the sum of (I) the amount in effect

for the tax year under § 63(c)(5)(A),

plus (II) the greater of the amount

described in (I) or certain itemized deductions.

(b) The amount in effect for tax

years beginning in 1997 under

§ 63(c)(5)(A) is $650. See section

3.05(2) below. Accordingly, for tax

years beginning in 1997, net unearned

income will generally equal unearned

income less the greater of $1,300 or

$650 plus certain itemized deductions.

(2) Election to Report on Parent’s

Return.

(a) Section 1(g)(7)(A) provides

that if a child’s gross income from

interest and dividends is more than the

amount described in § 1(g)(4)(A)(ii)(I)

and less than ten times that amount, and

certain other conditions are met, a parent may elect to include a child’s gross

income in the parent’s gross income for

the taxable year. Under § 1(g)(7)(B),

the ‘‘kiddie tax’’ is determined by (I)

including the portion of a child’s gross

income in the parent’s gross income to

the extent that the child’s gross income

exceeds twice the amount described in

§ 1(g)(4)(A)(ii)(I), and (II) adding to

the tax on that income the lesser of 15

percent of either the amount described

in § 1(g)(4)(A)(ii)(I) or the excess of

the child’s gross income over such

amount.

(b) The amount in effect for tax

years beginning in 1997 under

§ 1(g)(4)(A)(ii)(I), which is also the

amount under § 63(c)(5)(A) (see section

3.02(1)(b) above), is $650. Accordingly,

for tax years beginning in 1997, to

qualify to make the parent’s election, the

19

child’s gross income from interest and

dividends must be more than $650 and

less than $6,500 pursuant to § 1(g)(7)(A). Under § 1(g)(7)(B), the ‘‘kiddie

tax’’ is imposed on the parent by (I)

including a child’s gross income in excess of $1,300 in the parent’s gross income, and (II) adding to the tax on that

income the lesser of either $97.50 (or

$98 if the taxpayer elects to round on

the return) or 15 percent of the excess

of the child’s gross income over $650.

.03 Earned Income Tax Credit.

(1) Amount of credit; phaseout income levels.

(a) Section 32(a)(1) provides an

earned income tax credit amount for

certain taxpayers with one child, two or

more children, or no children. For tax

years beginning in 1997, the ‘‘maximum

amount of the credit’’ is calculated by

multiplying the ‘‘earned income

amount’’ by the ‘‘credit percentage’’ as

follows:

Type of Taxpayer

Credit Percentage

Earned Income Amount

Maximum Amount

of the Credit

1 child

34

$6,500

$2,210

2 or more children

40

$9,140

$3,656

No children

7.65

$4,340

$ 332

(b) Section 32(a)(2) provides for the phaseout of the earned income tax credit. The amount of the reduction in the

maximum amount of the credit caused by the phaseout is calculated by multiplying the ‘‘phaseout percentage’’ by the amount

by which the taxpayer’s adjusted gross income (or, if greater, earned income) exceeds the ‘‘threshold phaseout amount.’’ For tax

years beginning in 1997, the ‘‘phaseout percentages,’’ the ‘‘threshold phaseout amounts,’’ and the ‘‘completed phaseout

amounts’’ are as follows:

Threshold Phaseout

Completed Phaseout

Type of Taxpayer

Phaseout Percentage

Amount

Amount

1 child

2 or more children

No children

(c) The Internal Revenue Service

will prescribe tables showing the

amount of the earned income tax credit

for each type of taxpayer.

(2) Excessive investment income.

(a) Under § 32(i), the earned income tax credit is denied if the aggregate amount of certain investment income for the taxable year exceeds

$2,200 (the ‘‘disqualified income limitation’’).

(b) For tax years beginning in

1997, the ‘‘disqualified income limitation’’ is $2,250.

.04 Alternative Minimum Tax Exemption for ‘‘Kiddie Tax’’ Reported on Parent’s Return.

(1) Section 59(j) provides that for

a child to whom § 1(g) applies, the

exemption amount for purposes of the

alternative minimum tax under § 55

shall not exceed the sum of (A) such

child’s earned income for the taxable

year, plus (B) twice the amount in effect

for the taxable year under § 63(c)(5)(A)

(or, if greater, the child’s share of the

unused parental minimum tax exemption).

(2) The amount in effect for tax

years beginning in 1997 under

§ 63(c)(5)(A) is $650. See section

3.05(2) below. Accordingly, for tax

years beginning in 1997, twice the

amount in effect for the taxable year

under § 63(c)(5)(A) is $1,300.

.05 Standard Deduction.

(1) The following adjusted standard deduction amounts are prescribed

in lieu of the amounts set forth in

§ 63(c)(2) with respect to tax years

beginning in 1997.

15.98

21.06

7.65

$11,930

$11,930

$ 5,430

Standard

Deduction

Filing Status

MARRIED INDIVIDUALS

FILING JOINT RETURNS

AND SURVIVING

SPOUSES (§ 1(a))

$6,900

HEADS OF HOUSEHOLDS (§ 1(b))

$6,050

UNMARRIED INDIVIDUALS (OTHER THAN

SURVIVING SPOUSES

AND HEADS OF

HOUSEHOLDS) (§ 1(c))

$4,150

MARRIED INDIVIDUALS

FILING SEPARATE RETURNS (§ 1(d))

$3,450

(2) Under § 63(c)(5)(A) for tax

years beginning in 1997, the standard

deduction for an individual who may be

claimed as a dependent by another taxpayer for a tax year beginning in the

calendar year in which the individual’s

tax year begins, cannot exceed the

greater of (A) $650 or (B) the amount

of the individual’s earned income.

(3) Under § 63(f) for tax years

beginning in 1997, the additional standard deduction amounts for the aged

and for the blind are $800 for each.

These amounts are each increased to

$1,000 if the individual is also unmarried and not a surviving spouse.

.06 Overall Limitation on Itemized

Deductions.

(1) Section 68 provides that the

amount of itemized deductions otherwise allowable for the tax year shall be

reduced by the lesser of (1) 3 percent of

the excess of adjusted gross income

over the ‘‘applicable amount,’’ or (2) 80

percent of the amount of certain item-

20

$25,760

$29,290

$ 9,770

ized deductions otherwise allowable for

the tax year.

(2) The ‘‘applicable amount’’ for

tax years beginning in 1997 is $121,200

($60,600 in the case of a separate return

filed by a married individual within the

meaning of § 7703).

.07 Qualified Transportation Fringe.

(1) Section 132(f) provides an exclusion from gross income for certain

employer-provided transportation referred to as a ‘‘qualified transportation

fringe.’’ A ‘‘qualified transportation

fringe’’ means any of the following:

transportation in a commuter highway

vehicle between the employee’s residence and place of employment, any

transit pass, and qualified parking. Section 132(f)(2)(A) limits the exclusion for

the aggregate of the transportation in a

commuter highway vehicle and the transit pass to $60 per month (the ‘‘$60

vehicle/transit’’ limitation). Section

132(f)(2)(B) limits the exclusion for

qualified parking to $155 per month (the

‘‘$155 parking’’ limitation).

(2) For tax years beginning in

1997, the ‘‘$60 vehicle/transit’’ limitation is $65 and the ‘‘$155 parking’’

limitation is $170.

.08 Income from United States Savings Bonds for Taxpayers Who Pay

Qualified Higher Education Expenses.

(1) Section 135 provides an exclusion of income from the redemption of

United States savings bonds for taxpayers who pay qualified higher education

expenses. Section 135(b)(2) provides for

the phaseout of the exclusion. The

amount of the reduction in the exclusion

caused by the phaseout is calculated by

multiplying the amount otherwise excludable by a fraction. The numerator of

the fraction is the excess of the taxpayer’s modified adjusted gross income

over the threshold amount ($60,000 for

joint returns or $40,000 for others) and

the denominator is $30,000 for joint

returns or $15,000 for others.

(2) For tax years beginning in

1997, the amounts of modified adjusted

gross income above which the phaseout

of the exclusion begins (‘‘threshold

phaseout amounts’’), and the amounts at

which the benefit is completely phased

out (‘‘completed phaseout amounts’’),

are as follows:

Filing Status

Threshold Completed

Phaseout Phaseout

Amount

Amount

Code § 1(a)

Others

$76,250

$50,850

$106,250

$ 65,850

.09 Personal Exemption.

(1) Section 151(b) generally allows

a taxpayer an exemption for himself or

herself. Section 151(c) generally allows

a taxpayer additional exemptions for

dependents as defined in § 152. The

personal exemption for tax years beginning in 1997 is $2,650.

(2) Section 151(d)(3) provides for

the phaseout of the tax benefit of the

personal exemptions allowed by § 151.

The reduction in the amount of personal

exemptions caused by the phaseout is

calculated by reducing the total amount

of the personal exemptions by 2 percent

for each $2,500 increment (or portion

thereof) of adjusted gross income in

excess of a threshold phaseout amount.

For tax years beginning in 1997, the

‘‘threshold phaseout amounts’’ and the

‘‘completed phaseout amounts’’ are as

follows:

Filing Status

Threshold

Phaseout

Amount

Completed

Phaseout

Amount

After

Code § 1(a) $181,800

$304,300

Code § 1(b) $151,500

$274,000

Code § 1(c) $121,200

$243,700

Code § 1(d) $ 90,900

$152,150

.10 Treatment of Dues Paid to Agricultural or Horticultural Organizations.

(1) Section 512(d)(1) provides that

no portion of annual dues required by

an agricultural or horticultural organization described in § 501(c)(5) is treated

as derived from an unrelated trade or

business by reason of any benefits or

privileges to which members are entitled

if the amount of required annual dues

from each member does not exceed

$100 (the ‘‘$100 amount’’).

(2) For tax years beginning in

1997, the ‘‘$100 amount’’ is $106.

.11 Insubstantial Benefit Limitations

for Contributions Associated with Charitable Fund-Raising Campaigns.

(1) Section 513(h)(1)(A) provides

that, in the case of certain exempt

organizations, the term ‘‘unrelated business income’’ does not include activities

relating to the distribution of ‘‘low cost

articles’’ (as defined in § 513(h)(2)) if

the distribution of such articles is incidental to the solicitation of charitable

contributions.

(2) Section 3 of Rev. Proc. 90–12,

1990–1 C.B. 471, as amplified by Rev.

Proc. 92–49, 1992–1 C.B. 987, and as

modified by Rev. Proc. 92–102, 1992–2

C.B. 579, provides guidelines for determining the deductible amount of contributions under § 170 when contributors

receive something in return for their

contributions. The guidelines provide

that insubstantial benefits received by a

contributor (in the context of a charitable fund-raising campaign) are disregarded, which makes the contribution

fully deductible under § 170. The

guidelines further provide the following

three alternative limitations on what are

insubstantial benefits:

(a) The fair market value of all

the benefits received is not more than

2-percent of the contribution, or $50

(the ‘‘$50 benefit’’ limitation), whichever is less;

(b) The contribution is $25 (the

‘‘$25 payment’’ limitation) or more, and

the only benefits received by the donor

in return during the calendar year have a

cost, in the aggregate, of not more than

a ‘‘low cost article’’ under § 513(h)(2);

or

(c) In connection with a request

for a charitable contribution, the charity

mails or otherwise distributes free, unordered items to patrons, and the cost of

such items (in the aggregate) distributed

to any single patron in a calendar year

is not more than a ‘‘low cost article’’

under § 513(h)(2).

(3) For tax years beginning in

1997, the ‘‘$50 benefit’’ limitation is

$69, the ‘‘$25 payment’’ limitation is

$34.50, and the ‘‘low cost article’’ limitation is $6.90.

.12 Expatriation to Avoid Tax.

(1) Under § 877(a)(1), an individual who loses United States citizenship may be subject to taxation under

§ 877(b) if a principal purpose of such

loss is the avoidance of tax. Under

§ 877(a)(2), an individual is treated as

having the avoidance of tax as a principal purpose of such loss if (A) the

average annual net income tax (as de-

21

fined in § 38(c)(1)) of such individual

for a period of 5 taxable years ending

before the date of the loss of United

States citizenship is greater than

$100,000 (the ‘‘$100,000 amount’’) or

(B) the net worth of the individual as of

such date is $500,000 or more (the

‘‘$500,000 amount’’).

(2) For calendar year 1997, the

‘‘$100,000 amount’’ is $106,000 and the

‘‘$500,000 amount’’ is $528,000.

.13 Luxury Automobile Excise Tax.

(1) Section 4001(a) imposes an excise tax on the first retail sale of any

passenger vehicle to the extent the price

exceeds $30,000 (the ‘‘$30,000

amount’’). Section 4003(a) imposes an

excise tax on the installation of parts or

accessories on a passenger vehicle

within six months of the date after the

vehicle was first placed in service, to

the extent the price of all parts and

accessories, including installation, and

the price of the vehicle exceed the

‘‘$30,000 amount.’’

(2) For calendar year 1997, the

‘‘$30,000 amount’’ is $36,000.

.14 Reporting Exception for Certain

Exempt Organizations with Nondeductible Lobbying Expenditures.

(1) Section 6033(e)(1)(A) provides

that certain exempt organizations that

pay or incur nondeductible lobbying

expenditures must include the total of

those expenditures on their annual returns and must notify their members

with a reasonable estimate of the portion

of dues allocated to those expenditures.

Section 6033(e)(3) provides that

§ 6033(e)(1)(A) shall not apply to an

organization that establishes to the satisfaction of the Secretary that substantially all of its dues are nondeductible

without regard to the lobbying expenditure restrictions. Section 4.02 of Rev.

Proc. 95–35, 1995–2 C.B. 391, provides

that § 501(c)(4) social welfare organizations and § 501(c)(5) agricultural and

horticultural organizations are treated as

satisfying § 6033(e)(3) if either (1)

more than 90 percent of all annual dues

are received from persons, families, or

entities who each pay $50 or less (the

‘‘$50 exception’’ amount), or (2) more

than 90 percent of all annual dues are

received from certain exempt entities.

(2) For tax years beginning in

1997, the ‘‘$50 exception’’ amount is

$53.

.15 Notice of Large Gifts Received

from Foreign Persons.

(1) Section 6039F requires that a

United States person report information

on gifts from foreign persons if the

aggregate of such gifts from all such

persons exceeds $10,000 (the ‘‘$10,000

amount’’) in a taxable year.

(2) For tax years beginning in

1997, the ‘‘$10,000 amount’’ is $10,276.

.16 Attorney Fee Awards.

(1) Under § 7430, attorney fees

may be awarded in a judgment or

settlement of an administrative or judicial proceeding concerning the determination, collection, or refund of tax,

interest, or penalty under the Code. The

attorney fees are subject to an hourly

limit of $110 (the ‘‘$110 amount’’)

pursuant to § 7430(c)(1).

(2) For calendar year 1997, the

‘‘$110 amount’’ is $110.

SECTION 4. COMPUTATION OF

INFLATION ADJUSTMENTS

.01 Tax Rate Tables.

(1) Section 1(f)(1) provides that

not later than December 15 of each

calendar year, the Secretary shall prescribe inflation-adjusted tax rate tables

that apply in lieu of the tax rate tables

in § 1 with respect to tax years beginning in the succeeding calendar year.

(2) Under § 1(f)(3), the inflation

adjustment for a calendar year is the

percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for

the calendar year 1992. However,

§ 1(f)(7)(B) provides that in prescribing

the inflation adjustments for the 36

percent and 39.6 percent tax rate brackets, the preceding calendar year’s CPI is

compared with the CPI for the calendar

year 1993. For purposes of computing

the inflation adjustment, § 1(f)(4) defines the CPI as the average of the 12

monthly CPIs for the 12-month period

ending on August 31 of such calendar

year. Under § 1(f)(5), the CPI is that for

all-urban consumers published by the

Department of Labor.

(3) Section 1(f)(2)(A) provides that

the inflation adjustment is reflected in

the tax rate tables by increasing the

minimum and maximum dollar amounts

for each rate bracket. Under § 1(f)(6),

an adjusted bracket amount is ‘‘rounded

down’’ to the nearest multiple of $50

($25 in the case of married individuals

filing separately).

.02 Kiddie Tax.

(1) Reporting on Child’s Return.

Section 1(g)(4) uses the limitation on

the standard deduction for certain dependents under § 63(c)(5)(A) in computing the ‘‘kiddie tax.’’ That limitation

is adjusted for inflation under

§ 63(c)(4). The inflation adjustment

computation under § 63(c)(4) is described below in section 4.05.

(2) Election To Report on Parent’s

Return. Section 1(g)(7) uses an amount

described in § 1(g)(4) in computing the

‘‘kiddie tax.’’ Section 1(g)(4) uses the

limitation on the standard deduction for

certain dependents under § 63(c)(5)(A),

and is adjusted, as described above in

section 4.02(1).

.03 Earned Income Tax Credit.

(1) Amount of credit; phaseout income levels.

(a) Section 32(j) provides that

the ‘‘earned income amounts’’ and

‘‘phaseout amounts,’’ which limit the

earned income tax credit, are adjusted

for inflation under the method described

in § 1(f)(3), except that the preceding

calendar year’s CPI is compared with

the CPI for the calendar year 1995.

Under § 32(j)(2)(A), the adjusted

amount is rounded to the nearest multiple of $10.

(b) Under § 32(b)(2), the base

amounts of the ‘‘earned income

amounts’’ and ‘‘phaseout amounts’’ are

$6,330 and $11,610 for a taxpayer with

one child, $8,890 and $11,610 for a

taxpayer with two or more children, and

$4,220 and $5,280 for a taxpayer with

no children.

(2) Excessive Investment Income.

(a) Section 32(j) provides that

the ‘‘disqualified income limitation’’ is

adjusted for inflation under the method

described in § 1(f)(3), except that the

preceding calendar year’s CPI is compared with the CPI for the calendar year

1995. Under § 32(j)(2)(B), the ‘‘disqualified income limitation’’ is ‘‘rounded

down’’ to the next lowest multiple of

$50.

(b) Under § 32(i), the base

amount of the ‘‘disqualified income

limitation’’ is $2,200.

.04 Alternative Minimum Tax Exemption for ‘‘Kiddie Tax’’ Reported on Parent’s Return. Section 59(j) uses the

limitation on the standard deduction for

certain dependents under § 63(c)(5)(A)

in computing the alternative minimum

tax on income subject to the ‘‘kiddie

tax.’’ The limitation on the standard

deduction is adjusted for inflation under

§ 63(c)(4). The inflation adjustment

computation under § 63(c)(4) is described below in section 4.05.

.05 Standard Deduction.

(1) Under § 63(c)(4), the standard

deduction amounts (including the limitation for certain dependents and the additional standard deduction amounts for

22

the aged and for the blind) are adjusted

for inflation under the method described

in § 1(f)(3), except that the preceding

calendar year’s CPI is compared with

the CPI for the calendar year 1987.

Under § 1(f)(6), an adjusted amount is

‘‘rounded down’’ to the nearest multiple

of $50 ($25 in the case of the basic

standard deduction for married individuals filing separately).

(2) Under § 63(c)(2), the base

amounts of the basic standard deduction

are $5,000 for married individuals filing

joint returns and surviving spouses;

$4,400 for heads of households; $3,000

for unmarried individuals (other than

surviving spouses and heads of households); and $2,500 for married individuals filing separate returns. Under

§ 63(c)(5)(A), the base amount of the

limited standard deduction for an individual who may be claimed as a dependent by another taxpayer is $500. Under

§ 63(f), the base amounts of the additional standard deduction for the aged

and for the blind are $600 for each,

except that these amounts are increased

to $750 if the individual is unmarried

and not a surviving spouse.

.06 Overall Limitation on Itemized

Deductions.

(1) Section 68(b)(2) provides that

the ‘‘applicable amount’’ for the overall

limitation on itemized deductions is adjusted for inflation under the method

described in § 1(f)(3), except that the

preceding calendar year’s CPI is compared with the CPI for the calendar year

1990. Under § 1(f)(6), the adjusted ‘‘applicable amount’’ is ‘‘rounded down’’ to

the nearest multiple of $50 ($25 in the

case of married individuals filing separately).

(2) Under § 68(b)(1), the base

amount of the ‘‘applicable amount’’ is

$100,000 ($50,000 in the case of a

separate return by a married individual

within the meaning of § 7703).

.07 Qualified Transportation Fringe.

Section 132(f)(6) provides that the limitation on the amount of the exclusion

from gross income for a qualified transportation fringe is adjusted for inflation

under the method described in § 1(f)(3).

See section 4.01 above. Under

§ 132(f)(6)(B), an increased amount that

is not a multiple of $5 is ‘‘rounded

down’’ to the next lowest multiple of

$5.

.08 Income from United States Savings Bonds for Taxpayers Who Pay

Qualified Higher Education Expenses.

Section 135(b)(2)(B) provides that the

dollar amount at which the phaseout of

the exclusion (of income from the redemption of United States savings bonds

for taxpayers who pay qualified higher

education expenses) begins is adjusted

for inflation under the method described

in § 1(f)(3). The preceding calendar

year’s CPI is compared with the CPI for

the calendar year 1989. The adjusted

dollar amount is rounded to the nearest

multiple of $50 (if the adjusted figure is

a multiple of $25, it is increased to the

next highest multiple of $50) under

§ 135(b)(2)(C).

.09 Personal Exemption.

(1) Exemption amount.

(a) Section 151(d)(4)(A) provides that the personal exemption

amount is adjusted for inflation under

the method described in § 1(f)(3), except that the preceding calendar year’s

CPI is compared with the CPI for the

calendar year 1988. The adjusted exemption is ‘‘rounded down’’ to the nearest multiple of $50 under § 1(f)(6).

(b) Under § 151(d)(1), the base

amount of the personal exemption is

$2,000.

(2) Phaseout amounts.

(a) Section 151(d)(4)(B) provides that the ‘‘threshold amounts’’ at

which the phaseout of the tax benefit of

the personal exemptions begins are adjusted for inflation under the method

described in § 1(f)(3), except that the

preceding calendar year’s CPI is compared with the CPI for the calendar year

1990. Under § 1(f)(6), an adjusted

‘‘threshold amount’’ is ‘‘rounded down’’

to the nearest multiple of $50 ($25 in

the case of married individuals filing

separately).

(b) Under § 151(d)(3)(C), the

base amounts of the ‘‘threshold

amounts’’ are $150,000 for Code § 1(a)

taxpayers; $125,000 for Code § 1(b)

taxpayers; $100,000 for Code § 1(c)

taxpayers; and $75,000 for Code § 1(d)

taxpayers.

.10 Treatment of Dues Paid to Agricultural or Horticultural Organizations.

Section 512(d)(2) provides that the

‘‘$100 amount’’ is adjusted for inflation

under the method described in § 1(f)(3),

except that the preceding calendar year’s

CPI is compared with the CPI for the

calendar year 1994.

.11 Insubstantial Benefit Limitations

for Contributions Associated with Charitable Fund-Raising Campaigns.

(1) Section 513(h).

(a) Section 513(h)(1)(C) provides that the maximum cost of a ‘‘low

cost article’’ is adjusted for inflation

under the method described in § 1(f)(3),

except that the preceding calendar year’s

CPI is compared with the CPI for the

calendar year 1987.

(b) Under § 513(h)(2)(A), the

base amount of the ‘‘low cost article’’ is

$5.

(2) Rev. Proc. 90–12. Rev. Proc.

90–12 provides for the adjustment of the

‘‘low cost article’’ and the ‘‘$25 payment’’ limitations in that revenue procedure as provided under § 513(h)(2)(C).

The ‘‘$50 benefit’’ limitation in that

revenue procedure is adjusted in the

same manner.

.12 Expatriation to Avoid Tax. Section 877(a)(2) provides that the

‘‘$100,000 amount’’ and the ‘‘$500,000

amount’’ are adjusted for inflation under

the method described in § 1(f)(3), except that the preceding calendar year’s

CPI is compared with the CPI for the

calendar year 1994. Under § 877(a)(2),

the adjusted ‘‘$100,000 amount’’ and

‘‘$500,000 amount’’ are rounded to the

nearest multiple of $1,000.

.13 Luxury Automobile Excise Tax.

Section 4001(e)(1) provides that the

‘‘$30,000 amount’’ threshold for the excise tax on a luxury automobile in

§§ 4001(a) and 4003(a) is adjusted for

inflation under the method described in

§ 1(f)(3), except that the preceding calendar year’s CPI is compared with the

CPI for the calendar year 1990. Under

§ 4001(e)(2), the adjusted ‘‘$30,000

amount’’ is ‘‘rounded down’’ to the

nearest multiple of $2,000.

.14 Reporting Exception for Certain

Exempt Organizations with Nondeductible Lobbying Expenditures. Section

5.05 of Rev. Proc. 95–35 provides that

the ‘‘$50 exception’’ amount is adjusted

for inflation under the method described

in § 1(f)(3), except that the preceding

calendar year’s CPI is compared with

the CPI for the calendar year 1994. The

adjusted ‘‘$50 exception’’ amount is

rounded up to the next highest dollar.

.15 Notice of Large Gifts Received

from Foreign Persons. Section 6039F(d)

provides that the ‘‘$10,000 amount’’ is

adjusted for inflation under the method

described in § 1(f)(3), except that the

preceding calendar year’s CPI is compared with the CPI for the calendar year

1995.

.16 Attorney Fee Awards. Section

7430(c)(1)(B) provides that the ‘‘$110

amount’’ is adjusted for inflation under

the method described in § 1(f)(3), except that the preceding calendar year’s

CPI is compared with the CPI for the

calendar year 1995. The adjusted ‘‘$110

23

amount’’ is rounded to the nearest multiple of $10 under § 7430(c)(1)(B).

SECTION 5. 1997 INFLATION

ADJUSTMENT FACTORS

.01 1995 Base Year Adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1995 is 151.0750000000. This

results in an inflation adjustment factor

of 1.0275801202. This factor applies to

the earned income tax credit, the reporting of large gifts from foreign persons

for tax years beginning in 1997, and the

awarding of attorney fees for calendar

year 1997.

.02 1994 Base Year Adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1994 is 146.9000000000. This

results in an inflation adjustment factor

of 1.0567846608. This factor applies to

the treatment of dues paid to agricultural

or horticultural organizations, the

amounts used to determine whether a

principal purpose of expatriation is to

avoid tax, and the reporting exception

for certain exempt organizations with

nondeductible lobbying expenditures for

tax years beginning in 1997.

.03 1993 Base Year Adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1993 is 143.1750000000. This

results in an inflation adjustment factor

of 1.0842791456. This factor applies to

the 36 percent and 39.6 percent brackets

of the tax rate tables for tax years

beginning in 1997.

.04 1992 Base Year Adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1992 is 138.9250000000. This

results in an inflation adjustment factor

of 1.1174494631. This factor applies to

the 15 percent, 28 percent, and 31

percent brackets of the tax rate tables,

and to the qualified transportation fringe

limitations for tax years beginning in

1997.

.05 1990 base year adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1990 is 128.0583333333. This

results in an inflation adjustment factor

of 1.2122730526. This factor applies to

the phaseout of personal exemptions, to

the limitation on itemized deductions,

and to the luxury automobile excise tax

threshold for tax years beginning in

1997.

.06 1989 base year adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1989 is 122.1500000000. This

results in an inflation adjustment factor

of 1.2709100832. This factor applies to

the qualified higher education expense

exclusion for tax years beginning in

1997.

.07 1988 Base Year Adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1988 is 116.6166666667. This

results in an inflation adjustment factor

of 1.3312133772. This factor applies to

the personal exemption for tax years

beginning in 1997.

.08 1987 Base Year Adjustments. The

CPI for 1996 is 155.2416666667 and the

CPI for 1987 is 111.9833333333. This

results in an inflation adjustment factor

of 1.3862926031. This factor applies to

the ‘‘kiddie tax’’ (including the election

to report on the parent’s return) and the

limitation on the alternative minimum

tax exemption for ‘‘kiddie tax’’ reported

on a parent’s return, the standard deduction amounts, and the insubstantial benefit limitations for charitable contributions for tax years beginning in 1997.

SECTION 6. EFFECT ON OTHER

DOCUMENTS

.01 Rev. Proc. 95–53. Rev. Proc. 95–

53, 1995–2 C.B. 445, is amplified and

modified as follows:

(1) Kiddie Tax. For tax years beginning in 1996, the amount in effect

under § 1(g)(4)(A)(ii)(I) for purposes of

the election to report on a parent’s

return is the same as that provided in

section 3.02(b) of this revenue procedure for tax years beginning in 1997.

(2) Alternative Minimum Tax Exemption for ‘‘Kiddie Tax’’ Reported on

Parent’s Return. For tax years beginning

in 1996, the amount in effect under

§ 63(c)(5)(A) is the same as that provided in section 3.04 of this revenue

procedure for tax years beginning in

1997.

(3) Income from United States Savings Bonds for Taxpayers Who Pay

Qualified Higher Education Expenses.

For tax years beginning in 1996, the

amounts of modified adjusted gross income above which the § 135 exclusion

begins to phase out and the amounts at

which the phaseout is complete, are as

follows:

Threshold

Completed

Phaseout

Phaseout

Filing Status

Amount

Amount

Code § 1(a)

$74,200

$104,200

Others

$49,450

$ 64,450

(4) Treatment of Dues Paid to Agricultural or Horticultural Organizations. For tax years beginning in 1996,

no portion of annual dues required by

an agricultural or horticultural organization described in § 501(c)(5) is treated

as derived from an unrelated trade or

business by reason of any benefits or

privileges to which members are entitled

if the amount of required annual dues

from each member does not exceed

$103.

.02 Rev. Proc. 94–72. Rev. Proc. 94–

72, 1994–2 C.B. 811, is modified as

follows: For tax years beginning in

1995, the amounts of modified adjusted

gross income above which the § 135

exclusion begins to phase out and the

amounts at which the phaseout is complete, are as follows:

Threshold

Completed

Phaseout

Phaseout

Filing Status

Amount

Amount

Code § 1(a)

Others

$72,150

$48,100

$102,150

$ 63,100

.03 Rev. Proc. 93–49. Rev. Proc. 93–

49, 1993–2 C.B. 581, is modified as

follows: For tax years beginning in

1994, the amounts of modified adjusted

gross income above which the § 135

exclusion begins to phase out and the

amounts at which the phaseout is complete, are as follows:

Threshold

Completed

Phaseout

Phaseout

Filing Status

Amount

Amount

Code § 1(a)

Others

$70,350

$46,900

$100,350

$ 61,900

.04 Rev. Proc. 92–102. Rev. Proc.

92–102, 1992–2 C.B. 579, is modified

as follows: For tax years beginning in

1993, the amounts of modified adjusted

gross income above which the § 135

exclusion begins to phase out and the

amounts at which the phaseout is complete, are as follows:

Filing Status

Threshold

Phaseout

Amount

Completed

Phaseout

Amount

Code § 1(a)

Others

$68,250

$45,500

$98,250

$60,500

SECTION 7. EFFECTIVE DATE

.01 General Rule. Except as provided

in sections 6 and 7.02, this revenue

procedure applies to tax years beginning

in 1997.

.02 Calendar Year Rule. This revenue

procedure applies to transactions or

events occurring in calendar year 1997

for purposes of section 3.12 (the expatriation tax), section 3.13 (the excise tax

24

on luxury automobiles), and section 3.16

(the hourly limit on attorney fee

awards).

SECTION 8. DRAFTING

INFORMATION

The principal author of this revenue

procedure is John Moran of the Office

of Assistant Chief Counsel (Income Tax

and Accounting). For further information

regarding this revenue procedure, contact Mr. Moran on (202) 622–4940 (not

a toll-free call).

The economist responsible for development of the factors set forth in this

revenue procedure is David Ludlum of

the Research Division of the Internal

Revenue Service. For further information regarding these factors, contact Mr.

Ludlum on (202) 874–0026 (not a tollfree call).

26 CFR 601.602: Forms and instructions.

(Also Part I, §§ 6011, 6051, 6071; 31.6011(a)–4,

31.6051–1, 31.6071(a)–1.

Rev. Proc. 96–60

SECTION 1. PURPOSE

.01 This revenue procedure modifies

and supersedes Rev. Proc. 84–77,

1984–2 C.B. 753. This revenue procedure explains both the standard procedure and an alternate procedure for

preparing and filing Form W–2, Wage

and Tax Statement; Form W–3, Transmittal of Income and Tax Statements;

Form 941, Employer’s Quarterly Federal

Tax Return; Form W–4, Employee’s

Withholding Allowance Certificate; and

Form W–5, Earned Income Credit Advance Payment Certificate in certain

acquisitions. This revenue procedure applies when an employer (successor) acquires substantially all the property (1)

used in a trade or business of another

employer (predecessor), or (2) used in a

separate unit of a trade or business of a

predecessor, and in connection with, or

immediately after the acquisition (but

during the same calendar year) the successor employs individuals who immediately prior to the acquisition were employed in the trade or business of the

predecessor. (The term ‘‘trade or business,’’ for purposes of this revenue

procedure, may include the activity of a

nonprofit organization or of a federal or

state agency.)

.02 This revenue procedure does not

apply to the situation described in Rev.

Rul. 62–60, 1962–1 C.B. 186, which

relates to the absorption of one corpora-

tion by another in a statutory merger or

consolidation, where the resultant entity

is regarded as the same taxpayer and the

same employer as the absorbed corporation.

SECTION 2. CHANGES

.01 Section 4.01, which provided the

time frame for a predecessor to furnish

Forms W–2 under the standard procedure, has been modified to explain that

the predecessor must furnish Forms

W–2 to its former employees, and file

Forms W–2 and W–3 with the Social

Security Administration (SSA) on an

expedited basis, if the predecessor has

ceased to pay wages and is required to

file a final Form 941.

.02 Section 5.01, which provided the

alternate procedure for furnishing Forms

W–2, has been modified to provide that

the expedited furnishing and filing requirements do not apply to the successor.

.03 Section 5.02, which provided the

alternate procedure for the predecessor

to submit Form 941, has been modified

to provide that if the predecessor is

required to file a final Form 941, the

predecessor must both furnish Forms

W–2 to its employees who are not

acquired by the successor and file

Forms W–2 and W–3 with SSA on an

expedited basis.

.04 Section 5.06 has been added to

provide procedures for transferring electronically filed Forms W–4 from the

predecessor to the successor.

SECTION 3. BACKGROUND

.01 Section 6011(a) of the Internal

Revenue Code provides that any person

made liable for any tax, or for the

collection of the tax, must make a return

or statement according to the forms or

regulations prescribed by the Secretary.

.02 Section 31.6011(a)–1 of the Employment Tax Regulations prescribes

Form 941 as the form to use for persons

required to make a quarterly return

under the Federal Insurance Contributions Act.

.03 Section 31.6011(a)–4 prescribes

Form 941 as the form to use for persons

required to make a quarterly return of

income tax withheld from wages.

.04 Section 31.6011(a)–6 provides

that an employer who ceases to pay

wages reportable on Form 941 shall file

a final Form 941.

.05 Section 31.6071(a)–1 provides

that the Form 941 generally must be

filed on or before the last day of the

first calendar month following the quarter for which it is made.

.06 Section 6051(a) provides that (1)

every person required to deduct and

withhold income tax, or who would

have been required to deduct and withhold if the employee had claimed no

more than 1 withholding exemption, or

(2) every employer engaged in a trade

or business who pays remuneration for

services performed by an employee,

must furnish a written statement to an

employee regarding the remuneration

paid to the employee during the calendar year. Section 31.6051–1(a) provides

that the statement is Form W–2. Form

W–2 must be furnished to the employee

on or before January 31 of the following

calendar year. If the employee’s employment is terminated before the close of

the calendar year, however, and the

employee requests the Form W–2 in

writing, the Form W–2 must be furnished to the employee within 30 days

of the later of the written request from

the employee or the last payment of

wages, provided such 30-day period

ends before January 31.

.07 Section 31.6051–1(d)(1)(ii) provides that, effective January 1, 1997, an

employer who is required to file a final

Form 941 must furnish Forms W–2 to

its employees on or before the date

required for filing the final Form 941. If

the final Form 941 is a monthly return

as described in § 31.6011(a)–5, the

Forms W–2 must be furnished on or

before the last day of the month in

which the final Form 941 is required to

be filed.

.08 Section 31.6071(a)–1(a)(3)(ii)

provides that, effective January 1, 1997,

an employer who is required to file a

final Form 941 must file Forms W–2

and W–3 on or before the last day of

the second calendar month following the

period for which the final Form 941 is

filed.

.09 Section 31.3402(f)(5)–1(c) provides that an employer may establish a

system for its employees to file Form

W–4 electronically.

SECTION 4. STANDARD

PROCEDURE

.01 In general. Under the standard

procedure, the predecessor performs all

the reporting duties for the wages and

other compensation it pays. These duties

include the filing of quarterly Forms

941 and the furnishing and filing of

Forms W–2 and W–3. In connection

with the successor’s acquisition of prop-

25

erty and hiring of employees from the

predecessor, as described in section

1.01, the predecessor may cease to pay

any wages required to be reported on

Form 941 (for example, the predecessor

may go out of business). In that case,

the predecessor must file the Form 941

for the quarter of the acquisition as a

final Form 941. If the predecessor does

not cease to pay any wages required to

be reported on Form 941, (for example,

the predecessor remains in business) a

final Form 941 is not required. Instead,

the predecessor would file its quarterly

Form 941 for the quarter of the acquisition. The successor, under the standard

procedure, performs all the reporting

duties for the wages and other compensation it pays.

.02 Forms W–2.

(1) In general. If, under the circumstances described in section 1.01,

the predecessor is not required to file a

final Form 941, the predecessor and

successor both must furnish Forms W–2

to their respective employees no later

than January 31 of the following calendar year. If an employee requests the

Form W–2 earlier, however, the Form

W–2 must be furnished within 30 days

of the written request, or within 30 days

after the final payment of wages to the

employee, whichever is later, provided

the 30 day period ends before January

31. The predecessor and successor must

file Forms W–2 and W–3 for their

respective employees with SSA no later

than the last day of February of the

following calendar year.

(2) Expedited Forms W–2. If, under the circumstances described in section 1.01, the predecessor is required to

file a final Form 941, the predecessor

must furnish Forms W–2 to its former

employees on an expedited basis. The

Forms W–2 are due on or before the

date required for filing the final Form

941. If the predecessor is required to file

Form 941 on a monthly basis, the Forms

W–2 are due on or before the last day

of the month in which the final Form

941 is required to be filed. The predecessor must also file Forms W–2 and

W–3 with SSA on an expedited basis.

The Forms W–2 and W–3 are due on or

before the last day of the second calendar month following the period for

which the final Form 941 is required to

be filed.

.03 Forms W–4. The predecessor

must keep on file the Forms W–4

provided by its former employees. The

transferred employees must provide the

successor with new Forms W–4 as the

successor now becomes responsible for

deducting and withholding tax from

wages paid to the transferred employees.

.04 Forms W–5. The predecessor

must also keep on file the Forms W–5

provided by its former employees. The

transferred employees must provide the

successor with new Forms W–5 for the

current year.

SEC. 5. ALTERNATE PROCEDURE

.01 In general. If, in connection with

the circumstances described in section

1.01, the predecessor and successor so

agree, the predecessor will be relieved

from furnishing Forms W–2 to any

employees who will be employed in the

same calendar year by the successor

(acquired employees). In such circumstances the acquired employees presumably will be paid wages by the successor in the same calendar year and the

Forms W–2 furnished to the acquired

employees by the successor for the year

will include wages paid, and taxes withheld, by both the predecessor and the

successor. The predecessor will also be

relieved from filing Forms W–2 with

SSA for the acquired employees. The

predecessor’s entire Form W–2 reporting

obligations for the acquired employees

will be assumed by the successor. The

predecessor remains responsible for the

Form W–2 reporting obligations for

those employees who are not employed

by the successor.

.02 Forms W–2.

(1) In general. If, under the circumstances described in section 1.01,

the predecessor is not required to file a

final Form 941, the predecessor must

furnish Forms W–2 to employees who

are not employed by the successor by

January 31 of the following calendar

year. Forms W–2 and W–3 filed by the

predecessor with SSA for employees

who are not employed by the successor

are due the last day of February of the

following calendar year. If the successor

assumes the predecessor’s obligation to

furnish Forms W–2 to the acquired

employees for a calendar year, the successor must assume the predecessor’s

entire Form W–2 reporting obligation.

Thus, Forms W–2 furnished by the

successor to the acquired employees

must include the wages paid and the

taxes withheld by both the predecessor

and the successor. The successor must

include on the Forms W–2 any amount

reportable by the predecessor, including

‘‘Other compensation’’ or uncollected

employee tax on tips, if applicable.

Forms W–2 must be furnished by the

successor to its employees (both the

acquired employees and any other employees of the successor) by January 31

of the following calendar year. Forms

W–2 and W–3 must be filed by the

successor with SSA by the last day of

February of the following calendar year.

(2) Expedited Forms W–2. If, under the circumstances described in section 1.01, the predecessor is required to

file a final Form 941, the predecessor

must furnish Forms W–2 to the employees who are not employed by the successor on an expedited basis. Forms

W–2 and W–3 filed with SSA by the

predecessor must also be filed on an

expedited basis. The successor is not

required to either furnish Forms W–2 to

the acquired employees or to file the

Forms W–2 and W–3 with SSA on an

expedited basis.

.03 Form 941 filed by predecessor.

To the extent the wages paid and the

taxes withheld by the predecessor are to

be included in the Forms W–2 furnished

to the acquired employees by the successor, there will be a difference between the amounts shown on the predecessor’s Form W–3 and its Form 941.

When the predecessor files its Form

941, it should attach a statement explaining the discrepancy and include the

name, address, and identification number of the successor and a reference to

this revenue procedure. This Form 941

cannot be filed electronically. See Rev.

Proc. 96–19, 1996–4 I.R.B. 80, section

3.03.

.04 Form 941 filed by successor.

There will be a corresponding difference

between the amounts shown on the

successor’s Form W–3 and its Form

941. When the successor files its Form

941, it should also attach a statement to

its Form 941 explaining the discrepancy,

and include the name, address, and

identification number of the predecessor

and a reference to this revenue procedure. This Form 941 cannot be filed

electronically. See Rev. Proc. 96–19,

1996–4 I.R.B. 80, section 3.03. For

instructions relating to annual wage

limitations, see § 31.3121(a)(1)–1.

.05 Forms W–4. The predecessor

must transfer to the successor all current

Forms W–4 that were provided to the

predecessor by the acquired employees.

The successor must keep the transferred

Forms W–4 on file and deduct and

withhold from the wages it pays to the

acquired employees according to the

information supplied on those forms

until an employee submits a revised

26

form. The successor employer must submit to the Service, in accordance with

§ 31.3402(f)(2)–1(g), copies of the

Forms W–4 received by the predecessor

during the current calendar quarter and

the preceding calendar quarter.

.06 Transfer of Forms W–4 furnished

electronically. If the predecessor and

successor both maintain an electronic

system for use by employees in filing

Forms W–4, and the systems are compatible, the predecessor may electronically transfer the Forms W–4 of the

acquired employees to the successor.

The successor may also choose to acquire and maintain the predecessor’s

system. If these options do not apply,

the transferred employees must provide

the successor with a new Form W–4,

either electronically or on paper, as

prescribed by the successor.

.07 Forms W–5. The predecessor

must transfer to the successor all Forms

W–5 for the current year that were

provided to the predecessor by the acquired employees.

SECTION 6. EFFECT ON OTHER

REVENUE PROCEDURES

Rev. Proc. 84–77 is modified and

superseded.

SECTION 7. EFFECTIVE DATE

This revenue procedure is effective

January 1, 1997.

SECTION 8. PAPERWORK

REDUCTION ACT

The collections of information contained in this revenue procedure have

been reviewed and approved by the

Office of Management and Budget in

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

number 1545–1510.

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

respond to, a collection of information

unless the collection of information displays a valid control number.

The collections of information in this

revenue procedure are in sections 5.03

and 5.04. This information is required to

explain the discrepancy between the

amounts reported on Forms 941 and

W–3 filed by both the predecessor and

successor who use the Alternate Procedure. This information will be used to

assist the IRS in reconciling Forms 941

and W–3. The collections of information

are required to use the Alternate Procedure. The likely respondents are business or other for-profit institutions.

The estimated total annual reporting

burden is 110,700 hours.

The estimated annual burden per respondent is 12 minutes. The estimated

number of respondents is 553,500.

The estimated annual frequency of

responses is on occasion.

Books or records relating to a collection of information must be retained as

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

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

SECTION 9. DRAFTING

INFORMATION

The principal author of this revenue

procedure is Jean M. Casey of the Office of the Associate Chief Counsel

(Employee Benefits and Exempt Organizations). For further information regarding this revenue procedure, contact Ms.

Casey on (202) 622–6040 (not a tollfree call).

26 CFR 601.602: Tax forms and instructions.

(Also Part I, Sections 6012, 6061; 1.6012–5,

1.6061–1.)

Rev. Proc. 96–61

CONTENTS

SECTION 1 PURPOSE

SECTION 2 BACKGROUND AND

CHANGES

SECTION 3 ELECTRONIC FILING

PARTICIPANTS—DEFINITIONS

SECTION 4 ACCEPTANCE IN THE

ELECTRONIC FILING PROGRAM

SECTION 5 RESPONSIBILITIES OF

AN ELECTRONIC FILER

SECTION 6 PENALTIES

SECTION 7 FORM 8453, U.S. INDIVIDUAL INCOME TAX DECLARATION FOR ELECTRONIC FILING

SECTION 8 INFORMATION AN

ELECTRONIC FILER MUST PROVIDE TO THE TAXPAYER

SECTION 9 DIRECT DEPOSIT OF

REFUNDS

SECTION 10 REFUND ANTICIPATION LOANS

SECTION 11 BALANCE DUE RETURNS

SECTION 12 ADVERTISING STANDARDS FOR ELECTRONIC FILERS AND FINANCIAL INSTITUTIONS

SECTION 13 MONITORING AND

SUSPENSION OF AN ELECTRONIC FILER

SECTION 14 ADMINISTRATIVE REVIEW PROCESS FOR DENIAL OF

PARTICIPATION IN THE ELECTRONIC FILING PROGRAM

SECTION 15 ADMINISTRATIVE REVIEW PROCESS FOR SUSPENSION FROM THE ELECTRONIC

FILING PROGRAM

SECTION 16 VITA AND TCE SPONSORED ELECTRONIC FILING

SECTION 17 EMPLOYER SPONSORED ELECTRONIC FILING

SECTION 18 EFFECT ON OTHER

DOCUMENTS

SECTION 19 EFFECTIVE DATE

SECTION 20 INTERNAL REVENUE

SERVICE OFFICE CONTACT

SECTION 21 PAPERWORK REDUCTION ACT

SECTION 1. PURPOSE

This revenue procedure informs those

who participate in the 1997 Electronic

Filing Program for Form 1040 and Form

1040A, U.S. Individual Income Tax Return, and Form 1040EZ, Income Tax

Return for Single and Joint Filers With

No Dependents, of their obligations to

the Internal Revenue Service, taxpayers,

and other participants. This revenue procedure updates Rev. Proc. 95–49,

1995–2 C.B. 419.

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, an electronically filed Form

1040, Form 1040A, or Form 1040EZ is

a composite return consisting of electronically transmitted data and certain

paper documents. The nonelectronic portion of the return consists of Form 8453,

U.S. Individual Income Tax Declaration

for Electronic Filing, and other paper

documents that cannot be electronically

transmitted. Form 8453 must be received by the Service before any electronically filed return is complete (see

section 5.08 of this revenue procedure).

An electronically filed return must contain the same information that a return

filed completely on paper contains. See

27

section 7 of this revenue procedure for

procedures for completing Form 8453.

.03 The Service will periodically issue a publication that lists the forms and

schedules associated with a Form 1040

that can be electronically transmitted.

.04 A Form 1040, a Form 1040A, or

a Form 1040EZ cannot be electronically

filed after October 15, 1997, notwithstanding the fact that the taxpayer has

been granted an extension to file a

return beyond that date.

.05 An amended tax return cannot be

electronically filed. 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.

.06 A tax return that has a foreign

address for the taxpayer cannot be electronically filed. Army/Air Force (APO)

and Fleet (FPO) post offices are not

considered foreign addresses.

.07 A tax return for a decedent cannot be electronically filed. The decedent’s

spouse or personal representative must

file a paper tax return for the decedent.

.08 This revenue procedure updates

Rev. Proc. 95–49, which applied to the

Electronic Filing Program for the 1996

filing season. The updates include

changes in the Electronic Filing Program for the 1997 filing season, clarifications of prior Electronic Filing Program statements, and additional guidance derived from other Service documents that relate to the Electronic Filing

Program. Some of the updates are:

(1) in certain circumstances, a letter may be submitted in lieu of a revised

Form 8633 (section 4.04);

(2) the application period to submit

a new application for an applicant that

purchases an Electronic Filer on or after

November 1, 1996, is 30 days after the

date of the purchase (section 4.05(2));

(3) the time period to submit a

revised Form 8633 is extended to 30

days (section 4.06);

(4) a Principal for a firm or organization is defined (section 4.10);

(5) certain Responsible Officials

may be listed on a maximum of ten or

twenty Forms 8633 (sections 4.12);

(6) an Electronic Filer’s foreign location no longer has to have an APO or

FPO address and additional information

is required on Form 8633 for a foreign

location (section 4.14);

(7) a nonparticipating ERO may be

dropped from the Electronic Filing Program (section 4.16);

(8) a fee for the electronic transmission of a tax return may not be

computed using any amount from the

return (section 5.05);

(9) the time period for an Electronic Filer to notify the Service that it

is discontinuing its participation in the

Electronic Filing Program is extended to

30 days (section 5.07);

(10) the duties of a Transmitter are

clarified (section 5.16);

(11) an ERO must advise taxpayers

that refund information is available on

TeleTax (section 8.05);

(12) information an Electronic

Filer must provide regarding a taxpayer’s address of record is clarified (section 8.06);

(13) the effect of suspending a

Principal or a Responsible Official, on

entities that listed the Principal or Responsible Official on their Forms 8633,

is clarified (section 13.02);

(14) the two-year periods for denial and suspension are modified and

clarified (sections 13.10 and 13.11);

(15) the time and method to respond to a proposed letter of denial and

a denial letter are clarified (sections

14.03 and 14.06); and

(16) the time and method to respond to a proposed suspension letter

and a suspension letter are clarified

(sections 15.02 and 15.05).

SECTION 3. ELECTRONIC FILING

PARTICIPANTS—DEFINITIONS

.01 After acceptance into the Electronic Filing Program, as described in

section 4 of this revenue procedure, a

participant is referred to as an ‘‘Electronic Filer.’’

.02 An Electronic Filer is categorized

as follows:

(1) ELECTRONIC

RETURN

ORIGINATOR. An ‘‘Electronic Return

Originator’’ (ERO) is: (a) an ‘‘Electronic

Return Preparer’’ who prepares tax returns, including Forms 8453, for taxpayers who intend to have their returns

electronically filed; and/or (b) an ‘‘Electronic Return Collector’’ who accepts

completed tax returns, including Forms

8453, from taxpayers who intend to

have their returns electronically filed.

(2) SERVICE BUREAU. A ‘‘Service Bureau’’ receives tax return information on any media from an ERO,

formats the return information, and either forwards the return information to a

Transmitter or sends back the return

information to the ERO. A Service Bureau may or may not process Forms

8453 and send them to the appropriate

service center.

(3) SOFTWARE DEVELOPER. A

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

returns according to the Service’s electronic return specifications; and/or (b)

transmitting electronic returns directly to

the Service. A Software Developer may

also sell its software.

(4) TRANSMITTER. A ‘‘Transmitter’’ transmits the electronic portion of a

return directly to the IRS Data Communications Subsystem. An entity that provides a ‘‘bump-up’’ service is a Transmitter. A bump-up service provider

increases the transmission rate or line

speed of formatted or reformatted information that is being sent to the Service

via a public switched telephone network.

For example, a bump-up service provider may increase the transmission rate

or line speed of information from 4800

bits per second (BPS) to 9600 BPS.

Service specifications for electronic filing require an asynchronous speed of

300 BPS to 38,400 BPS or a

bisynchronous speed of 4800 BPS to

19,200 BPS.

.03 The Electronic Filer categories

are not mutually exclusive. For example,

an ERO can, at the same time, be

considered a Transmitter, Software Developer, or Service Bureau depending on

the function(s) performed.

.04 An electronic filing controlled office: (1) is an office in which an

Electronic Filer has an ownership interest; (2) uses hardware, software, and

transmission services supplied by an

Electronic Filer; (3) receives income tax

returns for electronic filing; and (4) has

direct contact with taxpayers. At a minimum, direct contact includes verifying

dollar amounts, routing transit numbers,

and depositor account numbers on

Forms 8453. A controlled office may or

may not be open all year.

.05 An Electronic Filer may have a

drop-off collection point(s). The activity

at a drop-off collection point is limited

solely to receiving a return or return

information that a taxpayer wants to

have electronically filed and collecting a

fee for electronically filing that return.

No returns may be prepared at the

drop-off collection point. An Electronic

Filer need not have an ownership interest in the drop-off collection point.

SECTION 4. ACCEPTANCE IN THE

ELECTRONIC FILING PROGRAM

.01 Except as provided in sections

4.02 through 4.04 of this revenue procedure, an Electronic Filer that has ac-

28

tively participated in the 1996 Electronic

Filing Program does not have to reapply

to participate in the 1997 Electronic

Filing Program. However, an Electronic

Filer that intends to function as a Transmitter or a Software Developer in the

1997 Electronic Filing Program must

first successfully complete the testing

described in section 4.08 of this revenue

procedure. In addition, section 4.15 of

this revenue procedure provides for the

Service’s issuance of credentials necessary for participation in the 1997 Electronic Filing Program.

.02 Applicants and Electronic Filers

must file a new Form 8633, Application

to Participate in the Electronic Filing

Program, with completed fingerprint

cards for the appropriate individuals if:

(1) the applicant has never actively

participated in the Electronic Filing Program;

(2) the applicant is an Electronic

Filer that has actively participated in the

Electronic Filing Program and wants to

operate an electronic filing business at a

new location;

(3) the applicant has previously

been denied participation in the Electronic Filing Program; or

(4) the applicant has been suspended from the Electronic Filing Program.

.03 To participate in the 1997 Electronic Filing Program, an Electronic

Filer in the 1996 Electronic Filing Program must submit a revised Form 8633,

signed by all Principals and the Responsible Official, with completed fingerprint

cards for the appropriate individuals if:

(1) the Electronic Filer functioned

solely as a Software Developer during

the 1996 Electronic Filing Program and

intends to function as an ERO, Service

Bureau, or Transmitter during the 1997

Electronic Filing Program;

(2) there is an additional principal,

such as a partner or a corporate officer,

that must be listed on Form 8633, line 8

(formerly line 1k(1)), ‘‘Principals of

Your Firm or Organization’’;

(3) there is a ‘‘Principal’’ listed on

Form 8633, line 8, that should be deleted; or

(4) the ‘‘Responsible Official’’ on

Form 8633, line 9 (formerly line 1k(2)),

changes.

.04 To participate in the 1997 Electronic Filing Program, an Electronic

Filer in the 1996 Electronic Filing Program must submit either a revised Form

8633, or a letter containing the same

information contained in a revised Form

8633, if there is any revision to the

following information:

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

(2) the business or mailing address;

(3) the contact representative or the

alternate contact representative’s name

or telephone number;

(4) the Electronic Filer’s form of

organization, as described on Form

8633, line 1k;

(5) the electronic functions performed by an Electronic Filer, other

than an Electronic Filer that functions

solely as a Software Developer; or

(6) the number or location(s) of

drop-off collection points.

A Form 8633 or letter submitted under

this section should only include the

information requested on lines 1a

through 1i of Form 8633 and the information being revised. A Principal or a

Responsible Official must sign the Form

8633 or the letter.

.05 Applicants described in section

4.02 of this revenue procedure must

submit new applications within the following time periods:

(1) except as provided in section

4.05(2) of this revenue procedure, the

application period begins on August 1,

1996, and ends on December 2, 1996;

and

(2) if an applicant purchases an

Electronic Filer on or after November 1,

1996, a new application must be submitted within 30 days after the date of the

purchase.

.06 Revised applications described in

sections 4.03 and 4.04 of this revenue

procedure must be submitted within 30

days of the change(s) reflected on the

revised Form 8633 or in the letter.

.07 Applicants and Electronic Filers

described in sections 4.02 through 4.04

of this revenue procedure must file

Form 8633 (or a letter containing the

same information as provided in section

4.04 of this revenue procedure) with the

service center that accepts electronically

filed returns from the applicant’s state.

.08 Applicants and Electronic Filers

described in sections 4.01 through 4.03

of this revenue procedure that intend to

function as a Transmitter or a Software

Developer in the 1997 Electronic Filing

Program must first successfully complete the necessary testing at the appropriate service center(s).

.09 Each individual listed as a Principal or a Responsible Official must:

(1) be a United States citizen or an

alien lawfully admitted for permanent

residence as described in 8 U.S.C.

§ 1101(a)(20) (1994);

(2) have attained the age of 21 as

of the date of application;

(3) submit with Form 8633 one

standard fingerprint card with a full set

of fingerprints taken by a law enforcement agency, except as provided in

section 4.10 of this revenue procedure;

(4) pass a suitability check that

includes a credit check and a fingerprint

check; and

(5) if applying to be an ERO, meet

state and local licensing and/or bonding

requirements in connection with the

preparation of tax returns and the collection of prepared returns that taxpayers

intend to have electronically filed. However, if the state and local licensing

and/or bonding requirements apply to a

business entity, the individual(s) must

demonstrate that the business entity

meets the requirements.

.10 A Principal for a firm or organization includes the following:

(1) Sole Proprietorship. The sole

proprietor is the Principal for a sole

proprietorship.

(2) Partnership. Each partner who

has a five percent (5%) or more interest

in the partnership is a Principal of the

partnership. If no partner has at least a

5% or more interest in the partnership,

the Principal is an individual authorized

to act for the partnership in legal and/or

tax matters (at least one such individual

must be listed on Form 8633).

(3) Corporation. The President,

Vice-President, Secretary, and Treasurer

of the corporation are each a Principal

of the corporation.

(4) Other. The Principal for a forprofit entity that is not a sole proprietorship, partnership, or corporation, is an

individual authorized to act for the entity in legal and/or tax matters (at least

one such individual must be listed on

Form 8633).

.11 A Responsible Official is the individual who oversees the daily operations

of an Electronic Filer’s office. As set

forth in section 4.12 of this revenue

procedure, a Responsible Official may

be responsible for more than one office.

.12 A Responsible Official is categorized as follows:

(1) TIER I RESPONSIBLE OFFICIAL. A ‘‘Tier I Responsible Official’’

is a Responsible Official who does not

meet the definition of a ‘‘Tier II Responsible Official.’’ A Tier I Responsible

Official should be able to physically

visit on a daily basis each office for

29

which he or she is listed as a Responsible Official. A Tier I Responsible

Official may be listed on a maximum of

ten applications (Forms 8633).

(2) TIER II RESPONSIBLE OFFICIAL. A ‘‘Tier II Responsible Official’’

is an individual who has participated in

the Electronic Filing Program as a Responsible Official during at least the two

most recent filing seasons and who has

never been suspended from participation

in the Electronic Filing Program. A Tier

II Responsible Official should be able to

physically visit on a daily basis any

office for which he or she is listed as a

Responsible Official. A Tier II Responsible Official may be listed on a maximum of twenty applications (Forms

8633).

.13 An individual may choose to submit evidence of the individual’s professional status in lieu of one standard

fingerprint card if the individual is:

(1) an attorney in good standing of

the bar of the highest court of any State,

possession, territory, Commonwealth, or

the District of Columbia, and is not

currently under suspension or disbarment from practice before the Service;

(2) a certified public accountant

who is duly qualified to practice as a

certified public accountant in any State,

possession, territory, Commonwealth, or

the District of Columbia and is not

currently under suspension or disbarment from practice before the Service;

(3) an enrolled agent pursuant to

part 10 of 31 C.F.R. Subtitle A;

(4) an officer of a publicly held

corporation; or

(5) a banking official who is

bonded and has been fingerprinted

within the last two years.

.14 If an Electronic Filer has a foreign location, the following information

is required on any new or revised Form

8633:

(1) the complete name of the contact representative at the foreign location;

(2) the complete mailing address

for the foreign location (including city,

country, and postal code);

(3) the complete business address

for the foreign location (including city,

country, and postal code);

(4) the complete loca

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