# Bulletin No. 1999–10 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A7068918c1f4449df ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Internal Revenue bulletin Bulletin No. 1999–10 March 8, 1999 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX ADMINISTRATIVE Rev. Rul. 99–10, page 10. Notice 99–13, page 26. Insurance companies; interest rate tables. Prevailing state assumed interest rates are provided for the determination of reserves under section 807 of the Code for contracts issued in 1998 and 1999. Rev. Rul. 92–19 supplemented in part. The “differential earnings rate” under section 809 of the Code is tentatively determined for 1998 together with the “recomputed differential rate” for 1997. Rev. Rul. 99–11, page 18. Determination of issue price in the case of certain debt instruments issued for property. This ruling provides various prescribed rates for federal income tax purposes for March 1999. REG–209619–93, page 28. Proposed regulations under section 468 of the Code relate to the designation of the person required to report the income earned on qualified settlement funds and certain other funds, trusts, and escrow accounts, and other related rules. A public hearing is scheduled for May 12, 1999. REG–116826–97, page 40. Rev. Rul. 99–13, page 4. Election in respect of losses attributable to a disaster. This ruling lists the areas declared by the President to qualify as major disaster areas during 1998 under the Disaster Relief and Emergency Assistance Act. Proposed regulations under section 221 of the Code relate to the deduction for interest paid on qualified education loans. The service will publish the time and date of the public hearing in an announcement in the Federal Register. REG–104924–98, page 47. T.D. 8808, page 21. REG–106564–98, page 53. Temporary, proposed, and final regulations under sections 6221 through 6233 of the Code relate to the unified partnership audit procedure added to the Code by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). A public hearing is scheduled for April 14, 1999. T.D. 8811, page 19. REG–121806–97, page 46. Temporary, proposed, and final regulations under section 6103 of the Code relate to additions to, and deletions from, the list of items of information disclosed to the Bureau of the Census for use in certain statistical programs. EXEMPT ORGANIZATIONS Announcement 99–19, page 63. A list is given of organizations now classified as private foundations. Finding Lists begin on page 66. Department of the Treasury Internal Revenue Service Proposed regulations under section 475 of the Code are set forth for dealers in commodities and traders in securities or commodities regarding the election to use the mark-to-market method of accounting for their businesses. A public hearing is scheduled for June 3, 1999. REG–110524–98, page 55. Proposed amendments to the regulations under section 453 of the Code relate to the taxation of capital gains on installment sales of depreciable real property. REG–113744–98, page 59. Proposed regulations under section 1296 of the Code relate to the new mark-to-market election for stock of a passive foreign investment company (PFIC). Mission of the Service and by applying the tax law with integrity and fairness to all. Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities 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. dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986. It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions, and Subpart B, Legislation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforcement). Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Part IV.—Items of General Interest. 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, court decisions, rulings, and proce- The first Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a quarterly and semiannual basis, and are published in the first Bulletin of the succeeding quarterly and semiannual period, respectively. The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. 3 Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 42.—Low-Income Housing Credit The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 165.—Losses 26 CFR 1.165–11: Election in respect of losses attributable to a disaster. Insurance companies; interest rate tables. Prevailing state assumed interest rates are provided for the determination of the reserves under section 807 of the Code for contracts issued in 1998 and 1999. Rev. Rul. 92–19 supplemented in part. Rev. Rul. 99–13 Under § 165(i) of the Internal Revenue Code, if a taxpayer suffers a loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121–5204c (1988 & Supp. V 1993) (the Act), the taxpayer may elect to claim a deduction for that loss on the taxpayer’s federal income tax return for the taxable year immediately preceding the taxable year in which the disaster occurred. Section 1.165–11(e) of the Income Tax Regulations provides that the election to deduct a disaster loss for the preceding year must be made by filing a return, an amended return, or a claim for refund on or before the later of (1) the due date of the taxpayer’s income tax return (determined without regard to any extension of time to file the return) for the taxable year in which the disaster actually occurred, or (2) the due date of the taxpayer’s income tax return (determined with regard to any extension of time to file the return) for the taxable year immediately preceding the taxable year in which the disaster actually occurred. The provisions of § 165(i) apply only to losses that are otherwise deductible under § 165(a). An individual taxpayer may deduct losses if they are incurred in a trade or business, if they are incurred in a transaction entered into for profit, or if they are casualty losses under § 165(c)(3). The President has determined that during 1998 the areas listed below have been adversely affected by disasters of sufficient severity and magnitude to warrant assistance by the Federal Government under the Act. DRAFTING INFORMATION The principal author of this revenue ruling is Timothy Sheppard of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Sheppard on (202) 622-4960 (not a tollfree call). Disaster Areas in 1998 Type of Disaster Date of Disaster Alabama Counties of Barbour, Butler, Coffee, Conecuh, Covington, Crenshaw, Dale, Escambia, Geneva, Henry, Houston, and Randolph Severe storms and flooding March 7-21, 1998 Counties of Covington, Cullman, Jefferson, St. Clair, Tuscaloosa, and Walke Severe storms and tornadoes April 8-20, 1998 Counties of Baldwin, Butler, Choctaw, Clarke, Coffee, Conecuh, Covington, Crenshaw, Escambia, Geneva, Lowndes, Mobile, Monroe, and Washington Hurricane Georges September 25October 6, 1998 Severe winter storms and flooding February 2April 30, 1998 Severe winter storms, high winds, and flooding January 28February 6, 1998 California Counties of Alameda, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, Fresno, Glenn, Humboldt, Kern, Lake, Los Angeles, Marin, Mendocino, Merced, Monterey, Napa, Orange, Riverside, Sacramento, San Benito, San Bernadino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Ventura, Yolo, and Yuba Delaware County of Sussex March 8, 1999 4 1999–10 I.R.B. Florida Counties of Alachua, Baker, Bay, Bradford, Brevard, Broward, Calhoun, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hernando, Highlands, Hillsborough, Holmes, Jackson, Lafayette, Lake, Levy, Liberty, Madison, Manatee, Marion, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Santa Rosa, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia, Walton, and Washington Severe storms, high winds, tornadoes, and flooding December 25, 1997April 24, 1998 Counties of Broward, Dade, and Monroe Severe storms, high winds, tornadoes, and flooding February 2-4, 1998 Counties of Alachua, Baker, Bay, Bradford, Brevard, Broward, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, Dade, DeSoto, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Indian River, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Martin, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Santa Rosa, Sarasota, St. Johns, St. Lucie, Seminole, Sumter, Suwannee, Taylor, Union, Volusia, Wakulla, Walton, and Washington Extreme fire hazards May 25-July 22, 1998 Counties of Bay, Dixie, Franklin, Gulf, Taylor, and Wakulla Hurricane Earl September 3, 1998 Counties of Bay, Calhoun, Columbia, Escambia, Franklin, Gadsden, Gulf, Holmes, Jackson, Jefferson, Liberty, Monroe, Okaloosa, Santa Rosa, Suwannee, Walton, and Washington Hurricane Georges September 25October 7, 1998 Counties of Monroe and Palm Beach Tropical Storm Mitch November 4-5, 1998 Severe storms and flooding February 14May 11, 1998 Severe storms, tornadoes and flooding June 11-Jully7, 1998 Georgia Counties of Appling, Atkinson, Bacon, Baldwin, Baker, Barrow, Bartow, Ben Hill, Berrien, Bibb, Bleckley, Brantley, Brooks, Bryan, Bulloch, Burke, Butts, Calhoun, Candler, Carroll, Charlton, Chatham, Cherokee, Clay, Clayton, Clinch, Cobb, Coffee, Colquitt, Columbia, Cook, Crawford, Crisp, Dade, Dawson, DeCatur, Dekalb, Dodge, Dooly, Dougherty, Douglas, Early, Echols, Effingham, Emanuel, Evans, Floyd, Forsyth, Fulton, Glynn, Gordon, Grady, Gwinnett, Habersham, Hall, Haralson, Heard, Henry, Houston, Irwin, Jeff Davis, Jefferson, Jenkins, Johnson, Jones, Lamar, Lanier, Laurens, Lee, Liberty, Lincoln, Long, Lowndes, Lumpkin, Macon, McIntosh, Miller, Mitchell, Monroe, Montgomery, Murray, Muscogee, Newton, Paulding, Peach, Pickens, Pike, Pulaski, Quitman, Rabun, Randolph, Richmond, Rockdale, Screven, Seminole, Spalding, Stewart, Sumter, Talbot, Tattnall, Telfair, Terrell, Thomas, Tift, Toombs, Towns, Treutlen, Turner, Twiggs, Union, Walker, Ware, Wayne, Webster, Wheeler, White, Wilcox, Wilkinson, and Worth Indiana Counties of Benton, Jasper, Lake, LaPorte, Newton, Porter, Pulaski, Saint Joseph, and Starke 1999–10 I.R.B. 5 March 8, 1999 Counties of Benton, Clay, Crawford, Fayette, Franklin, Gibson, Greene, Howard, Knox, Lawrence, Madison, Miami, Monroe, Montgomery, Orange, Owen, Parke, Pike, Putnam, Rush, Sullivan, Union, Vigo, Wayne, and Warren Iowa Counties of Adair, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Buchanan, Buena Vista, Butler, Calhoun, Carroll, Cass, Cedar, Cerro Gordo, Chickasaw, Clarke, Clay, Clayton, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dickinson, Emmet, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Howard, Humboldt, Iowa, Jasper, Jefferson, Johnson, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills, Monona, Montgomery, Muscatine, Osceola, Page, Palo Alto, Pocahontas, Polk, Pottawattamie, Poweshiek, Ringgold, Sac, Shelby, Story, Tama, Taylor, Union, Wapello, Warren, Washington, Webster, Winnebago, Winneshiek, and Wright Kansas Counties of Bourbon, Cherokee, Douglas, Franklin, Jackson, Jefferson, Johnson, Leavenworth, Linn, Seward, Wabaunsee, and Wyandotte Counties of Butler, Chase, Coffey, Cowley, Douglas, Franklin, Greenwood, Harper, Harvey, Johnson, Leavenworth, Lyon, Marion, Neosho, Saline, Sedgwick, Sumner, Wilson, Woodson, and Wyandotte Kentucky Counties of Adair, Bath, Boyle, Breathitt, Carter, Casey, Clark, Clay, Clinton, Elliott, Estill, Fleming, Garrard, Greenup, Jackson, Johnson, Knox, Laurel, Lawrence, Lee, Lewis, Lincoln, Madison, Magoffin, McCreary, Menifee, Mercer, Montgomery, Morgan, Nicholas, Owsley, Powell, Pulaski, Robertson, Rockcastle, Rowan, Russell, Wayne, Whitley, and Wolfe Counties of Adair, Barren, Bell, Breathitt, Casey, Clay, Floyd, Johnson, Knott, Knox, Lawrence, Lee, Leslie, Letcher, Magoffin, Metcalfe, Owsley, Perry, Pike, Warren, and Whitley Louisiana Parishes of Acadia, Ascension, Assumption, Baptist, Cameron, Evangeline, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. James, St. John, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebone, Vermilion, and Washington Maine Counties of Androscoggin, Aroostook, Cumberland, Franklin, Hancock, Kennebec, Knox, Lincoln, Penobscot, Piscataquis, Oxford, Sagadahoc, Somerset, Waldo, Washington, and York Counties of Androscoggin, Franklin, Kennebec, Oxford, Somerset, and York March 8, 1999 6 Severe storms, tornadoes, and flooding June 11-July 7, 1998 Severe storms, tornadoes, and flooding June 14, 1998July 15, 1998 Severe storms, flooding, and tornadoes October 1-8, 1998 Severe storms and flooding October 30November 15, 1998 Severe winter storm February 4-6, 1998 Severe storms, tornadoes, and flooding April 16May 10, 1998 Tropical Storm Frances and Hurricane Georges September 9October 4, 1998 Severe ice storms, rain, and heavy winds January 5-25, 1998 Severe storms and flooding June 13-July 1, 1998 1999–10 I.R.B. Marshall Islands Ailinglaplap, Ailuk, Arno, Aur, Bikini, Ebeye, Ebon, Enewetak, Jabat, Jaluit, Kili, Kwajalein, Lae, Lib, Likiep, Majuro, Maloelap, Mejit, Mili, Namorik, Namu, Ujae, Utrik, Wotho, and Wotje Severe drought January 17-June 30, 1998 Massachusetts Counties of Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk, and Worcester Heavy rains and flooding June 13-July 6, 1998 Michigan Counties of Bay, Clinton, Gratiot, Ionia, Kent, Mason, Montcalm, Newaygo, Oceana, Ottawa, Saginaw, and Shiawassee Severe storms and straight-line winds May 31, 1998 County of Muskegon Severe storms and straight-line winds May 29-31, 1998 Counties of Macomb and Wayne Severe storms and high winds July 21-22, 1998 Severe drought January 25June 30, 1998 Severe storms and tornadoes March 29, 1998 Severe storms, straight-line winds, and tornadoes May 15June 28, 1998 Hurricane Georges September 25October 5, 1998 Severe storms and flooding July 10-31, 1998 Severe storms and flooding October 4-11, 1998 Severe ice storms, rain, and high winds January 7-25, 1998 Micronesia State of Chuuk: Eot, Ettal, Etten, Fanapanges, Fefen, Fonanu, Fono, Houk, Kuttu, Lekinioch, Losap, Makur, Moch, Murillo, Nama, Namoluk, Nomwin, Oneop, Onou, Onoun, Paata, Parem, Piherach, Piis-Emwar, Piis-Paneu, Pollap, Polle, Polowat, Romanum, Ruo, Satowan, Siis, Ta, Tetiw, Tol, Tomatam, Tonoas, Udot, Uman, Unanu, Weno, and Wonei. State of Phonpei: the areas of Kipingamarangi, Mwoakilloa, Nukuoro, Oroluk, Pakin, Pingelap, and Sapwuahfik. State of Yap: Eauripik, Elato, Fais, Faraulap, Ifalik, Lamotrek, Ngulu, Satawal, Sorol, Ulithi, Wolei, and Yap Proper. Minnesota Counties of Blue Earth, Brown, Cottonwood, LaSueur, Nicollet, Nobles, and Rice Counties of Anoka, Blue Earth, Carver, Dakota, Faribault, Fillmore, Freeborn, Goodhue, Hennepin, Houston, Jackson, Mower, Olmsted, Ramsey, Rice, Scott, Wabasha, Washington, and Winona Mississippi Counties of Covington, Forrest, George, Greene, Hancock, Harrison, Jackson, Jasper, Jefferson Davis, Jones, Lamar, Marion, Pearl River, Perry, Pike, Stone, and Wayne Missouri Counties of Jackson and St. Louis; and City of St. Louis Counties of Andrew, Barton, Caldwell, Carroll, Cedar, Chariton, Clay, Dade, DeKalb, Jackson, Linn, Livingston, Macon, Miller, Moniteau, Morgan, Platte, Polk, and Ray New Hampshire Counties of Belknap, Carroll, Cheshire, Coos, Grafton, Hillsborough, Merrimack, Stafford, and Sullivan 1999–10 I.R.B. 7 March 8, 1999 Counties of Belknap, Carroll, Grafton, Hillsborough, Merrimack, Rockingham, and Sullivan Severe storms and flooding July 12-July 2, 1998 Severe winter coastal storm, high winds, and flooding February 4-9, 1998 Severe winter and ice storms, high winds, and flooding January 5-17, 1998 Counties of Broome, Chenango, Otsego, Rensselaer, Saratoga, and Wyoming Severe thunderstorms and tornadoes May 31-June 2, 1998 Counties of Allegany, Cattaraugus, Clinton, Delaware, Erie, Essex, Franklin, Genesee, Livingston, Monroe, Steuben, Sullivan, Tioga, Tompkins, and Wyoming Severe storms and flooding June 25-July 10, 1998 Counties of Cayuga, Fulton, Herkimer, Madison, Monroe, Nassau, Oneida, Onondaga, Ontario, Orleans, and Wayne Severe storms and high winds September 7, 1998 North Carolina Counties of Ashe, Avery, Dare, Haywood, Madison, Mitchell, Robeson, Transylvania, Watauga, and Yancey Severe storms and flooding January 7February 12, 1998 Counties of Durham, Edgecombe, Lenoir, Nash, Rockingham, Wake, and Wayne Severe storms, tornadoes, and flooding March 20April 1, 1998 Counties of Beaufort, Bertie, Bladen, Brunswick, Camden, Carteret, Chowan, Columbus, Craven, Cumberland, Currituck, Dare, Duplin, Greene, Hyde, Jones, Lenoir, Martin, New Hanover, Onslow, Pamlico, Pasquotank, Pender, Perquimans, Pitt, Robeson, Sampson, Tyrrell, Washington, and Wayne Hurricane Bonnie August 25September 1, 1998 Flooding ground saturation, and severe storms March 2-July 18, 1998 Typhoon Paka and associated torrential rains December 16-17, 1998 Severe storms, flooding, and tornadoes June 24-July 5, 1998 Oregon County of Crook Flooding May 28-June 3, 1998 Pennsylvania Counties of Allegheny, Beaver, Berks, Pike, Susquehanna, Somerset, and Wyoming Severe storms, tornadoes and flooding May 31-June 2, 1998 New Jersey Counties of Atlantic, Cape May, and Ocean New York Counties of Clinton, Essex, Franklin, Genessee, Jefferson, Lewis, Monroe, Niagara, Saratoga, and St. Lawrence North Dakota Counties of Barnes, Benson, Cass, Dickey, LaMoure, Nelson, Pembina, Pierce, Ramsey, Ransom, Richland, Rolette, Sargent, Stutsman, Towner, Walsh; and Indian Reservations of the Spirit Lake Sioux Tribe and the Turtle Mountain Band of Chippewa Northern Mariana Islands Island of Rota Ohio Counties of Athens, Belmont, Coshocton, Franklin, Guernsey, Harrison, Holmes, Jackson, Jefferson, Knox, Meigs, Monroe, Morgan, Morrow, Muskingum, Noble, Ottawa, Perry, Pickaway, Richland, Sandusky, Tuscarawas, and Washington March 8, 1999 8 1999–10 I.R.B. Puerto Rico All municipios Hurricane Georges September 20October 27, 1998 South Carolina County of Horry Hurricane Bonnie August 25September 1, 1998 South Dakota Counties of Brown, Clark, Codington, Day, Hanson, Marshall, McCook, Roberts, and Spink Flooding, severe storms, and tornadoes April 25-June 22, 1998 Severe storms and flooding January 6February 12, 1998 Counties of Anderson, Blount, Bradley, Campbell, Carroll, Cheatham, Claiborne, Crockett, Davidson, Dickson, Dyer, Gibson, Giles, Grainger, Hamblen, Hancock, Hardin, Hawkins, Humphreys, Jackson, Jefferson, Knox, Lauderdale, Lawrence, Loudon, Macon, Madison, Maury, Monroe, Morgan, Pickett, Polk, Rhea, Roane, Robertson, Scott, Sevier, Shelby, Sumner, Union, Wayne, Williamson, and Wilson Severe storms, tornadoes, and flooding April 16-May 18, 1998 Counties of Lawrence and Lewis Flooding and severe storms July 13-July 28, 1998 Tropical Storm Charley August 22-31, 1998 Counties of Brazoria, Galveston, Harris, Jefferson, and Matagorda Severe storms and flooding associated with Tropical Storm Frances September 9October 5, 1998 Counties of Austin, Atascosa, Bastrop, Bexar, Blanco, Brazoria, Burleson, Caldwell, Calhoun, Colorado, Comal, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Grimes, Guadalupe, Harris, Hays, Jackson, Jefferson, Jim Wells, Karnes, Kendall, Lavaca, Liberty, Matagorda, Medina, Montgomery, Nueces, Polk, Refugio, San Jacinto, San Patricio, Travis, Trinity, Victoria, Walker, Waller, Wharton, and Wilson Severe storms, flooding, and tornadoes October 17November 15, 1998 U.S. Virgin Islands Islands of St. Croix, St. John, St. Thomas, and Water Island Hurricane Georges September 19-22, 1998 Vermont Counties of Addison, Chittenden, Franklin, Grand Isle, Orange, and Windsor Severe ice storms, rain, high winds, and flooding January 6-16, 1998 Severe storms and flooding June 17-August 17, 1998 Tennessee Counties of Bledsoe, Bradley, Campbell, Cannon, Carter, Chester, Clay, Cocke, Crockett, Cumberland, DeKalb, Fentress, Gibson, Greene, Grundy, Hawkins, Haywood, Jackson, Jefferson, Johnson, Madison, Meigs, Morgan, Overton, Pickett, Polk, Putnam, Rhea, Roane, Scott, Sequatchie, Sevier, Sullivan, Tipton, Unicoi, Van Buren, Warren, Washington, and White Texas Counties of Edwards, Kimble, Kinney, Maverick, Real, Uvalde, Val Verde, and Webb Counties of Addison, Caledonia, Chittenden, Essex, Franklin, Lamoille, Orange, Orleans, Rutland, Washington, and Windsor 1999–10 I.R.B. 9 March 8, 1999 Virginia Cities of Chesapeake, Norfolk, Portsmouth, Suffolk, and Virginia Beach Washington Counties of Ferry and Stevens City of Kelso (Cowlitz County), specifically the Aldercrest-Banyon subdivision West Virginia Counties of Braxton, Cabell, Calhoun, Clay, Doddridge, Gilmer, Harrison, Jackson, Kanawha, Lewis, Marion, Marshall, Ohio, Pleasants, Ritchie, Roane, Tyler, Webster, Wetzel, Wirt, and Wood Wisconsin Counties of Buffalo, Clark, Crawford, Dunn, Grant, Jackson, La Crosse, Monroe, Pepin, Pierce, Richland, St. Croix, Trempealeau, and Vernon Counties of Milwaukee, Racine, Rock, Sheboygan, and Waukesha Section 280G.—Golden Parachute Payments Federal short-term, mid-term, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change The adjusted federal long-term rate is set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 412.—Minimum Funding Standards The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Hurricane Bonnie August 25September 1, 1998 Severe storms and flooding May 26-29, 1998 Landslide March 6-November 19, 1998 Severe storms, flooding, and tornadoes June 26-July 27, 1998 Severe storms, straight-line winds, tornadoes, heavy rain, and flooding June 18-30, 1998 Severe storms and flooding August 5-15, 1998 Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 482.—Allocation of Income and Deductions Among Taxpayers Federal short-term, mid-term, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 483.—Interest on Certain Deferred Payments The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 467.—Certain Payments for the Use of Property or Services Section 642.—Special Rules for Credits and Deductions The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Federal short-term, mid-term, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. March 8, 1999 10 Section 807.—Rules for Certain Reserves The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Insurance companies; interest rate tables. Prevailing state assumed interest rates are provided for the determination of reserves under section 807 of the Code for contracts issued in 1998 and 1999. Rev. Rul. 92–19 supplemented in part. Rev. Rul. 99–10 For purposes of § 807(d)(4) of the Internal Revenue Code, for taxable years beginning after December 31, 1997, this ruling supplements the schedules of prevailing state assumed interest rates set forth in Rev. Rul. 92–19, 1992–1 C.B. 227. This information is to be used by insurance companies in computing their reserves for (1) life insurance and supplementary total and permanent disability benefits, (2) individual annuities and pure endowments, and (3) group annuities and pure endowments. As § 807(d)(2)(B) requires that the interest rate used to compute these reserves be the greater of (1) the applicable federal interest rate, or (2) the prevailing state assumed interest rate, 1999–10 I.R.B. the table of applicable federal interest rates in Rev. Rul. 92–19 is also supplemented. Following are supplements to schedules A, B, C, and D to Part III of Rev. Rul. 92–19, providing prevailing state assumed interest rates for insurance products with different features issued in 1998 and 1999, and a supplement to the table in Part IV of Rev. Rul. 92–19, providing the applicable federal interest rate under § 807(d) for 1998 and 1999. This ruling does not supplement Parts I and II of Rev. Rul. 92–19. This is the seventh supplement to the interest rates provided in Rev. Rul. 92–19. Earlier supplements were published in Rev. Rul. 93–58, 1993–2 C.B. 241 (inter- est rates for insurance products issued in 1992 and 1993), Rev. Rul. 94–11, 1994–1 C.B. 196 (1993 and 1994), Rev. Rul. 95–4, 1995–1 C.B. 141 (1994 and 1995), Rev. Rul. 96–2, 1996–1 C.B. 141 (1995 and 1996), Rev. Rul. 97–2, 1997–1 C.B. 8 (1996 and 1997), and Rev. Rul. 98–2, 1998–2 I.R.B. 15 (1997 and 1998). Part III. Prevailing State Assumed Interest Rates — Products Issued in Years After 1982.* Schedule A STATUTORY VALUATION INTEREST RATES BASED ON THE 1980 AMENDMENTS TO THE NAIC STANDARD VALUATION LAW A. Life insurance valuation: Guarantee Duration (years) Calendar Year of Issue 1999 10 or fewer 5.00** More than 10 but not more than 20 4.75** More than 20 4.50** Source: Rates calculated from the monthly averages, ending June 30, 1998, of Moody’s Corporate Bond Yield Average — Monthly Average Corporates. ** As the applicable federal interest rate for 1999 of 6.30 percent exceeds this prevailing state assumed interest rate, the interest rate to be used for this product under § 807 is 6.30 percent. * The terms used in the schedules in this ruling and in Part III of Rev. Rul. 92–19 are those used in the Standard Valuation Law; the terms are defined in Rev. Rul. 92–19. Part III, Schedule B STATUTORY VALUATION INTEREST RATES BASED ON THE 1980 AMENDMENTS TO THE NAIC STANDARD VALUATION LAW B. Single premium immediate annuities and annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options: Calendar Year of Issue 1998 Valuation Interest Rate 6.25* Source: Rates calculated from the monthly averages, ending June 30, 1998, of Moody’s Corporate Bond Yield Average — Monthly Average Corporates. The terms used in this schedule are those used in the Standard Valuation Law as defined in Rev. Rul. 92–19. *As this prevailing state assumed interest does not exceed the applicable federal interest rate for 1998 of 6.31 percent, the applicable federal interest rate of 6.31 percent is to be used for this product under § 807. 1999–10 I.R.B. 11 March 8, 1999 Part III, Schedule C16 – 1998 STATUTORY VALUATION INTEREST RATES BASED ON NAIC STANDARD VALUATION LAW FOR 1998 CALENDAR YEAR BUSINESS GOVERNED BY THE 1980 AMENDMENTS C. Valuation interest rates for other annuities and guaranteed interest contracts that are valued on an issue year basis: Cash Settlement Options? Future Interest Guarantee? Yes Yes Yes No No Yes or No Guarantee Duration (years) Valuation Interest Rate For Plan Type A B C 5 or fewer 6.25* 5.50* 5.00* More than 5, but not more than 10 6.00* 5.50* 5.00* More than 10, but not more than 20 5.75* 5.00* 4.75* More than 20 4.75* 4.50* 4.50* 5 or fewer 6.50 5.75* 5.25* More than 5, but not more than 10 6.25* 5.75* 5.25* More than 10, but not more than 20 6.00* 5.25* 5.00* More than 20 5.00* 4.75* 4.75* 5 or fewer 6.25* More than 5, but not more than 10 6.00* More than 10, but not more than 20 5.75* More than 20 4.75* NOT APPLICABLE Source: Rates calculated from the monthly averages, ending June 30, 1998 of Moody’s Corporate Bond Yield Average — Monthly Average Corporates. *As the applicable federal interest rate for 1998 of 6.31 percent exceeds this prevailing state assumed interest rate, the interest rate to be used for this product under § 807 is 6.31 percent. Part III, Schedule D16 – 1998 STATUTORY VALUATION INTEREST RATES BASED ON NAIC STANDARD VALUATION LAW FOR 1998 CALENDAR YEAR BUSINESS GOVERNED BY THE 1980 AMENDMENTS D. Valuation interest rates for other annuities and guaranteed interest contracts that are contracts with cash settlement options and that are valued on a change in fund basis: Cash Settlement Options? Yes Yes Future Interest Guarantee? Yes No Guarantee Duration (years) Valuation Interest Rate For Plan Type A B C 5 or fewer 7.00 6.50 5.25* More than 5, but not more than 10 6.75 6.50 5.25* More than 10, but not more than 20 6.25* 6.00* 5.00* More than 20 5.50* 5.50* 4.75* 5 or fewer 7.00 6.75 5.50* More than 5, but not more than 10 7.00 6.75 5.50* More than 10, but not more than 20 6.50 6.25* 5.25* More than 20 5.75* 5.75* 4.75* Source: Rates calculated from the monthly averages, ending June 30, 1998, of Moody’s Corporate Bond Yield Average — Monthly Average Corporates. *As the applicable federal interest rate for 1998 of 6.31 percent exceeds this prevailing state assumed interest rate, the interest rate to be used for this product under § 807 is 6.31 percent. March 8, 1999 12 1999–10 I.R.B. Part IV. Applicable Federal Interest Rates. EFFECT ON OTHER REVENUE RULINGS TABLE OF APPLICABLE FEDERAL INTEREST RATES FOR PURPOSES OF § 807 Rev. Rul. 92–19 is supplemented by the addition to Part III of that ruling of prevailing state assumed interest rates under § 807 for certain insurance products issued in 1998 and 1999 and is further supplemented by an addition to the table in Part IV of Rev. Rul. 92–19 listing applicable federal interest rates. Parts I and II of Rev. Rul. 92–19 are not affected by this ruling. Year Interest Rate 1998 1999 6.31 6.30 Sources: Rev. Rul. 97–50, 1997–49 C.B. 5 for the 1998 rate and Rev. Rul. 98–57, 1998–49 I.R.B. 4 for the 1999 rate. 1999–10 I.R.B. 13 DRAFTING INFORMATIONThe principal author of this revenue ruling is Ann H. Logan of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling contact her on (202) 622-3970 (not a toll-free call). March 8, 1999 March 8, 1999 14 1999–10 I.R.B. 1999–10 I.R.B. 15 March 8, 1999 March 8, 1999 16 1999–10 I.R.B. 1999–10 I.R.B. 17 March 8, 1999 Section 846.—Discounted Unpaid Losses Defined The adjusted applicable federal short-term, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 1274.—Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property (Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.) Determination of issue price in the case of certain debt instruments issued for property. This ruling provides various prescribed rates for federal income tax purposes for March 1999. Rev. Rul. 99–11 This revenue ruling provides various prescribed rates for federal income tax purposes for March 1999 (the current month.) Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. REV. RUL. 99–11 TABLE 1 Applicable Federal Rates (AFR) for March 1999 Period for Compounding Annual Semiannual Quarterly Monthly Short-Term AFR 110% AFR 120% AFR 130% AFR 4.67% 5.14% 5.62% 6.10% 4.62% 5.08% 5.54% 6.01% 4.59% 5.05% 5.50% 5.97% 4.58% 5.03% 5.48% 5.94% Mid-Term AFR 110% AFR 120% AFR 130% AFR 150% AFR 175% AFR 4.83% 5.32% 5.80% 6.30% 7.29% 8.52% 4.77% 5.25% 5.72% 6.20% 7.16% 8.35% 4.74% 5.22% 5.68% 6.15% 7.10% 8.26% 4.72% 5.19% 5.65% 6.12% 7.06% 8.21% Long-Term AFR 110% AFR 120% AFR 130% AFR 5.30% 5.83% 6.38% 6.92% 5.23% 5.75% 6.28% 6.80% 5.20% 5.71% 6.23% 6.74% 5.17% 5.68% 6.20% 6.71% REV. RUL. 99–11 TABLE 2 Adjusted AFR for March 1999 Period for Compounding Annual Semiannual Quarterly Monthly Short-term adjusted AFR 3.09% 3.07% 3.06% 3.05% Mid-term adjusted AFR 3.77% 3.74% 3.72% 3.71% Long-term adjusted AFR 4.68% 4.63% 4.60% 4.59% March 8, 1999 18 1999–10 I.R.B. REV. RUL. 99–11 TABLE 3 Rates Under Section 382 for March 1999 Adjusted federal long-term rate for the current month 4.68% Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.71% REV. RUL. 99–11 TABLE 4 Appropriate Percentages Under Section 42(b)(2) for March 1999 Appropriate percentage for the 70% present value low-income housing credit 8.18% Appropriate percentage for the 30% present value low-income housing credit 3.51% REV. RUL. 99–11 TABLE 5 Rate Under Section 7520 for March 1999 Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest Section 1288.—Treatment of Original Issue Discount on Tax-Exempt Obligations The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 6103.—Confidentiality and Disclosure of Returns and Return Information 26 CFR 6103.301.6103(j)(1)–1: Department of Commerce T.D. 8811 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 Disclosure of Return Information to the Bureau of the Census AGENCY: Internal Revenue Service (IRS), Treasury. 1999–10 I.R.B. ACTION: Final and temporary regulations. SUMMARY: This document contains final and temporary regulations relating to additions to, and deletions from, the list of items of information disclosed to the Bureau of the Census for use in certain statistical programs. These regulations provide guidance to IRS personnel responsible for disclosing the information. The text of the temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in REG– 121806–97, on page 46. DATES: Effective Date: These regulations are effective January 25, 1999. Applicability Date: For dates of applicability, see §301.6103(j)(1)–1T(e) of these regulations. FOR FURTHER INFORMATION CONTACT: Jamie Bernstein, (202) 622-4570 (not a toll-free number). 19 5.8% SUPPLEMENTARY INFORMATION: Background Under section 6103(j)(1) of the Internal Revenue Code, upon written request from the Secretary of Commerce, the Secretary is to furnish to the Bureau of the Census (“Bureau”) tax return information that is prescribed by Treasury regulations for the purpose of structuring censuses and national economic accounts and conducting related statistical activities. Section 301.6103(j)(1)–1 of the regulations provides an itemized description of the return information authorized to be disclosed for this purpose. Periodically, the disclosure regulations are amended to reflect the changing needs of the Bureau for data for its statutorily authorized statistical activities. This document adopts temporary regulations that authorize IRS personnel to disclose the additional items of return information that have been requested by the Secretary of Commerce. The temporary March 8, 1999 regulations also delete certain items of return information that are enumerated in the existing regulations but that the Secretary of Commerce has indicated are no longer needed. Except for §301.6103(j)(1)–1T(b)(3), (b)(6)(i)(A) and (b)(6)(iii), the text of the temporary regulations is the same as 26 CFR 301.6103(j)(1)–1. The changes made by §301.6103(j)(1)–1T(b)(3), (b)(6)(i)(A) and (b)(6)(iii) are discussed below. Explanation of Provisions The request by the Secretary of Commerce for additional items of return information has indicated several areas in which changes to existing Bureau access to tax return information either would improve present statistical programs or are necessary to implement new programs. To reduce small businesses’ direct reporting burden in quinquennial economic censuses and current economic surveys, and to improve the quality of the data received, the Bureau needs certain items of information set forth in tax returns. These items include total expenses or deductions, beginning- and end-of-year inventories, net gain from sales of business property, other income, and total income. The Secretary of Commerce also has requested identity information of parent corporations as shown on corporate tax returns. This information will enable the Bureau to collect data for various economic surveys at the subsidiary or division level rather than at the establishment level. Restructuring data collection in accordance with such new organizational linkages will reduce the burden on individual business establishments to estimate data relating to their affiliates, enhance the quality of the data collected, and provide the Bureau with an efficient sampling frame for surveys collecting certain data, such as capital expenditures, that are typically not available at the establishment level. To eliminate the follow-up contact of corporate taxpayers presently required under the Quarterly Financial Report (QFR) program in order to establish S corporation status, the Bureau needs the document code and district office code from corporate returns. Another improvement to the QFR program would be ef- March 8, 1999 fected by the requested disclosure of parent corporation identity information, because subsidiaries could then be linked before a sample was selected and would be relieved of the separate Census reporting requirements. Finally, the Bureau seeks to enhance the quality and reduce the size of sample frames under the QFR program by identifying inactive corporations so that they can be excluded from the universe subject to sampling. This requires that certain items of corporate employment tax information (employer identification number, tax period, total compensation, and taxable wages and tips), available to the Bureau under the existing regulations for economic census purposes, be available to the Bureau as well for QFR purposes. The Secretary of Commerce has advised that the Bureau no longer uses certain items of information listed in the existing regulations: sales of livestock and produce raised, Schedule E information filed with the Form 1120 series, and, with respect to the QFR program, net income or loss. Accordingly, the temporary regulations have deleted these items from the enumeration of return information to be disclosed to the Bureau. The transfer of the Census of Agriculture to the Department of Agriculture under the Census of Agriculture Act of 1997 (Public Law 105–113) has also obviated the need for the Secretary of Commerce to receive certain items of information. These items are: Schedule F filed with the Form 1040 series, net farm profits, agricultural activity code, and answers to material participation questions. These items have been deleted in the temporary regulations. For simplification and consistency, the term “loss” is not expressly stated in these regulations as an alternative to “income” or “gain,” but it is the intent of the Secretary to interpret “income” or “gain” as including negative or loss figures and to provide any such figures to the Bureau. cedure Act (5 U.S.C. chapter 5) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) see the Special Analyses section of the preamble to the cross reference notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Special Analyses (b)(3)[Reserved]. For further guidance, see §301.6103(j)(1)–1T(b)(3). It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Pro- 20 Drafting Information The principal author of these regulations is Douglas Giblen, Office of the Associate Chief Counsel (International) (formerly of the Office of Assistant Chief Counsel (Disclosure Litigation)). However, other personnel from the IRS and Treasury Department participated in their development. * * * * * Adoption of Amendments to the Regulations Accordingly, 26 CFR Part 301 is amended as follows: PART 301—PROCEDURE AND ADMINISTRATION Paragraph 1. The authority citation for part 301 is amended by adding an entry in numerical order to read as follows: Authority: 26 U.S.C. 7805 * * * Section 301.6103(j)(1)–1T also issued under 26 U.S.C. 6103(j)(1);* * * Par. 2. Section 301.6103(j)(1)–1 is amended by revising paragraphs (b)(3) and (b)(6)(i)(A) to read as follows: §301.6103(j)(1)–1 Disclosures of return information to officers and employees of the Department of Commerce for certain statistical purposes and related activities. * * * * * * * * * * (b)(6)(i)(A)[Reserved]. For further guidance, see §301.6103(j)(1)–1T(b)(6)(i)(A). * * * * * 1999–10 I.R.B. Par. 3. Section 301.6103(j)(1)–1T is added to read as follows: §301.6103(j)(1)–1T Disclosure of return information to officers and employees of the Department of Commerce for certain statistical purposes and related activities (temporary). (a) through (b)(2)[Reserved]. For further guidance, see §301.6103(j)(1)–1(a) through (b)(2). (b)(3) Officers or employees of the Internal Revenue Service will disclose the following business related return information reflected on the return of a taxpayer to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, conducting and preparing, as authorized by chapter 5 of title 13, United States Code, demographic, economic, and agricultural statistics programs, censuses, and surveys. The “return of a taxpayer” includes, but is not limited to, Form 941; Form 990 series; Form 1040 series and Schedules C and SE; Form 1065 and all attending schedules and Form 8825; Form 1120 series and all attending schedules and Form 8825; Form 851; Form 1096; and other business returns, schedules and forms that the Internal Revenue Service may issue— (i) Taxpayer identity information (as defined in section 6103(b)(6)) including parent corporation, shareholder, partner, and employer identity information; (ii) Gross income, profits, or receipts; (iii) Returns and allowances; (iv) Cost of labor, salaries, and wages; (v) Total expenses or deductions; (vi) Total assets; (vii) Beginning- and end-of-year inventory; (viii) Royalty income; (ix) Interest income, including portfolio interest; (x) Rental income, including gross rents; (xi) Tax-exempt interest income; (xii) Net gain from sales of business property; (xiii) Other income; (xiv) Total income; (xv) Percentage of stock owned by each shareholder; (xvi) Percentage of capital ownership of each partner; (xvii) End-of-year code; (xviii) Months actively operated; 1999–10 I.R.B. (xix) Principal industrial activity code, including the business description; (xx) Total number of documents and the total amount reported on the Form 1096 transmitting Forms 1099-MISC; (xxi) Form 941 indicator and business address on Schedule C; and (xxii) Consolidated return indicator. (b)(4) and (5)[Reserved]. For further guidance, see §301.6103(j)(1)–1(b)(4) and (5). (b)(6)(i) Officers or employees of the Internal Revenue Service will disclose the following return information (but not including return information described in section 6103(o)(2)) reflected on the return of a corporation with respect to the tax imposed by Chapter 1 to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, developing and preparing, as authorized by law, the Quarterly Financial Report— (A) From the business master files of the Internal Revenue Service— (1) Taxpayer identity information (as defined in section 6103(b)(6)), including parent corporation identity information; (2) Document code; (3) District office code; (4) Consolidated return and final return indicators; (5) Principal industrial activity code; (6) Partial year indicator; (7) Annual accounting period; (8) Gross receipts less returns and allowances; and (9) Total assets. (b)(6)(i)(B) and (ii)[Reserved]. For further guidance, see §301.6103(j)(1)– 1(b)(6)(i)(B) and (ii). (iii) Information from an employment tax return disclosed pursuant to §301.6103(j)(1)–1(b)(2)(iii)(A), (B), (D), (I) and (J) may be used by officers and employees of the Bureau of the Census for the purpose described in and subject to the limitations of this paragraph (b)(6). (c) and (d) [Reserved]. For further guidance, see §301.6103(j)(1)–1(c) and (d). (e) Effective date. This section is applicable to the Bureau of the Census on January 25, 1999, through January 22, 2002. Robert E. Wenzel, Deputy Commissioner of Internal Revenue. 21 Approved December 29, 1998. Donald C. Lubick, Assistant Secretary of the Treasury. (Filed by the Office of the Federal Register on January 22, 1999, 8:45 a.m., and published in the issue of the Federal Register for January 25, 1999, 64 F.R. 3669) Section 6221.—Tax Treatment Determined at Partnership Level 26 CFR 6221–1T: Tax treatment determined at partnership level (Temporary) T.D. 8808 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 Modifications and Additions to the Unified Partnership Audit Procedures AGENCY: Internal Revenue Service, Treasury. ACTION: Final and temporary regulations. SUMMARY: This document contains final and temporary regulations relating to the unified partnership audit procedures added to the Internal Revenue Code by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). The unified partnership audit procedures generally provide administrative rules for the auditing of partnership items at the partnership level. These regulations modify the existing unified partnership audit procedures to comply with the Taxpayer Relief Act of 1997 (1997 Act) and the Internal Revenue Service Restructuring and Reform Act of 1998 (1998 Act), and add new regulations to administer the new unified partnership audit provisions added by the 1997 Act. In general, the text of these temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in REG–106564–98, on page 53. DATES: Effective Date: These regulations are effective January 26, 1999. March 8, 1999 FOR FURTHER INFORMATION CONTACT: Robert G. Honigman, (202) 6223050 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background This document contains temporary amendments to the Procedure and Administration Regulations (26 CFR Part 301) relating to the unified partnership audit procedures found in sections 6221 through 6233 of the Internal Revenue Code (Code) and final regulations pertaining to the applicable dates of §301.6231(a)(7)– 1T(p)(2) and §301.6231(a)(7)–1T(r)(1). Sections 1231 through 1243 of the Taxpayer Relief Act of 1997, Public Law 105–34, 111 Stat. 788, modified some of the existing procedures and added certain new rules. Section 3507 of the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105–206, 112 Stat. 685, modified section 6231. This document modifies existing regulations that, because of the 1997 Act or the 1998 Act, no longer reflect current law. Explanation of Provisions Penalties Determined At The Partnership Level Before the 1997 Act, the Internal Revenue Service (Service) could impose penalties on a partner only through the application of the deficiency procedures after the completion of a partnership level proceeding. Forcing the Service to open deficiency proceedings against the individual partners was inconsistent with the efficiency goal of the unified partnership audit rules. The 1997 Act cured this problem by providing that, for partnerships under audit for taxable years ending after August 5, 1997, partnership level proceedings include the determination of applicable penalties at the partnership level. Partners now may raise any partner level defenses to the imposition of penalties only in a subsequent refund action. Consistent with these statutory changes, the temporary regulations mandate that the partnership’s penalty defenses are to be resolved during the partnership proceeding. Nevertheless, any individual defenses that a partner may have to the imposition of a penalty may March 8, 1999 be brought by the partner in a refund action subsequent to the partnership level determination. In order to minimize the burden on individual partners to defend themselves by bringing their own refund suits, the temporary regulations incorporate a large number of defenses at the partnership level. The majority of a partner’s defenses to the imposition of penalties are not specific to a particular partner, but can be determined by reference to the activities of the partnership. The applicability of these defenses may be resolved at the partnership level during the partnership proceeding. In addition, the temporary regulations modify the computational adjustment rules to allow the Service to assess penalties under those procedures. Partial Settlements The period for assessing tax with respect to partnership items generally is the longer of the periods provided by section 6229 or section 6501. For partnership items that convert to nonpartnership items, section 6229(f) provides that the period for assessing tax shall not expire before the date which is one year after the date that the items became nonpartnership items. Section 6231(b)(1)(C) provides that the partnership items of a partner for a partnership taxable year become nonpartnership items as of the date the partner enters into a settlement agreement with the Service with respect to such items. In some audits, however, the taxpayer and the Service will enter into a settlement agreement regarding some, but not all, of the taxpayer’s partnership items. The 1997 Act added a special rule for these partial settlement agreements in section 6229(f)(2), providing that the period for assessing any tax attributable to the settled items is determined as if the partial settlement had not been executed. Thus, the limitations period applicable to the last partnership item to be resolved for the partnership’s taxable year under audit is controlling with respect to all disputed partnership items (including settled items) for such partnership taxable year. The temporary regulations state that the one year period for assessing partnership items that convert to nonpartnership items applicable to settlement agreements under section 6231(b)(1)(C) does not apply to partial settlement agreements under sec- 22 tion 6229(f)(2). Moreover, the temporary regulations clarify that the partner remains subject to the unified audit procedures regarding the nonsettled items. Tax Matters Partner As A Debtor In Bankruptcy Section 6229(b)(1)(B) provides that the statute of limitations under section 6229 is extended with respect to all partners in the partnership by an agreement entered into between the tax matters partner (TMP) and the Service. Treas. Reg. §301.6231(a)(7)–1(l)(1)(iv) (1996) and Temp. Treas. Reg. §301.6231(c)–7T(a) (1987), however, provide that upon the filing of a petition naming a partner as a debtor in a bankruptcy proceeding, the partner/debtor’s partnership items convert to nonpartnership items, and if the partner/debtor was the TMP, that status terminates. These rules were promulgated to avoid the complications that the automatic stay provision contained in 11 U.S.C. 362(a)(8) would have on a unified partnership audit. As a result, if a TMP executed a consent to extend the statute of limitations during a period when the TMP was a debtor in a bankruptcy proceeding, the consent would not be binding on the other partners. Under the regulations, the person signing the agreement was ineligible to act as the TMP and extend the statute as to all partners. To resolve the uncertainty under prior law in the situation where a TMP executes an agreement extending the statute of limitations as to all partners while, unknown to the Service, the TMP is a debtor in a bankruptcy proceeding, the 1997 Act provides that the Service may rely on the executed statute extension agreement unless it is notified of the TMP’s bankruptcy proceeding. If the Service is not notified of the TMP’s bankruptcy proceeding, statute extensions granted by the TMP are binding on all partners in the partnership. The temporary regulations provide a mechanism for the TMP, or other partners, to provide notice to the Service that the TMP is a debtor in a bankruptcy proceeding and therefore is ineligible to serve as TMP and extend the statute under section 6229. This mechanism is derived from existing regulations that provide guidance on how to notify the Service of information concerning a partnership’s partners. 1999–10 I.R.B. Small Partnership Exception The 1997 Act amended the small partnership exception to the unified partnership audit procedures found in section 6231. Formerly, in order to qualify for the small partnership exception, the partnership had to have 10 or fewer partners at all times during the tax year, each of whom was a natural person (other than a nonresident alien) or an estate, and for which each partner’s share of each partnership item was the same as that partner’s share of every other partnership item. The 1997 Act amended the small partnership exception by allowing partnerships to qualify for the exception even if they have a C corporation for a partner or specially allocate some partnership items. The temporary regulations modify the existing regulations interpreting the small partnership exception to take account of this change in the law. Effective Date These final and temporary regulations are applicable January 26, 1999. In accordance with section 7805(e)(2), the temporary regulations contained herein shall expire January 25, 2002. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 533(b) of the Administrative Procedures Act (5 U.S.C. chapter 5) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) refer to the Special Analyses section of the preamble to the cross reference notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register. Pursuant to section 7805(f) of the Internal Revenue Code, these final and temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Drafting Information The principal authors of these temporary regulations are Robert G. Honigman, Office of the Assistant Chief Counsel 1999–10 I.R.B. (Passthroughs & Special Industries), and William A. Heard, Office of the Assistant Chief Counsel (Field Service). However, other personnel from the Service and Treasury Department participated in their development. * * * * * Adoption of Amendments to the Regulations Accordingly, 26 CFR part 301 is amended as follows: PART 301—PROCEDURE AND ADMINISTRATION Paragraph 1. The authority citation for part 301 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Amend §301.6221–1T by: 1. Redesignating paragraph (c) as paragraph (e). 2. Adding new paragraphs (c) and (d). The additions read as follows: §301.6221–1T Tax treatment determined at partnership level (temporary). * * * * * (c) Penalties determined at partnership level (partnership taxable years ending after August 5, 1997). Any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item, shall be determined at the partnership level. Partner level defenses to such items can only be asserted through refund actions following assessment and payment. Assessment of any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item shall be made based on partnership level determinations. Partnership level determinations include all the legal and factual determinations that underlie the determination of any penalty, addition to tax, or additional amount, other than partner level defenses specified in paragraph (d) of this section. (d) Partner level defenses. Partner level defenses to any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item, may not be asserted in the partnership level proceeding, but may be asserted through separate refund actions following assessment and payment. See section 6230(c)(4). 23 Partner level defenses are limited to those that are personal to the partner or are dependant upon the partner’s separate return, and cannot be determined at the partnership level. Examples of these determinations are: whether any applicable threshold underpayment of tax has been met with respect to the partner or whether the partner has met the criteria of section 6664(b)(penalties applicable only where return is filed), or section 6664(c)(1)(reasonable cause exception) subject to partnership level determinations as to the applicability of section 6664(c)(2). * * * * * Par. 3. Amend §301.6223(c)–1T by adding a sentence to the end of paragraph (c) to read as follows: §301.6223(c)–1T Additional information regarding partners furnished to the Service (temporary). * * * * * (c) * * * Furthermore, reference to a prior general notification to the Service that a partner who would otherwise be the tax matters partner is a debtor in a bankruptcy proceeding or has had a receiver appointed for him in a receivership proceeding is not sufficient unless a copy of the notification document referred to is attached to the statement. * * * * * Par. 4. Amend §301.6224(c)–3T by: 1. Revising the section heading. 2. Revising paragraphs (b), (c)(3)(ii), and (d), Example (1). The revisions read as follows: §301.6224(c)–3T Consistent settlement terms (temporary). * * * * * (b) Requirements for consistent settlement terms—(1) In general. Consistent settlement terms are those based on the same determinations with respect to partnership items. However, consistent settlement terms also may include partnership level determinations of any penalty, addition to tax, or additional amount that relates to partnership items. Settlements with respect to partnership items shall be self-contained; thus, a concession by one party with respect to a partnership item March 8, 1999 may not be based upon a concession by another party with respect to any item that is not a partnership item other than any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item. Consistent agreements, whether comprehensive or partial, must be identical to the original settlement (that is, the settlement upon which the offered settlement terms are based). A consistent agreement must mirror the original settlement and may not be limited to selected items from the original settlement. Once a partner has settled a partnership item, or penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item, that partner may not subsequently request settlement terms consistent with a settlement that contains the previously settled item. The requirement for consistent settlement terms applies only if— (i) The items were partnership items (and any related penalty, addition to tax, or additional amount) for the partner entering into the original settlement immediately before the original settlement; and (ii) The items are partnership items (and any related penalty, addition to tax, or additional amount) for the partner requesting the consistent settlement at the time the partner files the request. (2) Effect of consistent agreement. Consistent settlement terms are reflected in a consistent agreement. A consistent agreement is not a settlement agreement which gives rise to further consistent settlement rights because it is required to be given without volitional agreement of the Secretary. Therefore, a consistent agreement required to be offered to a requesting taxpayer is not a settlement agreement under section 6224(c)(2) of the Internal Revenue Code, or paragraph (c)(3) of this section which starts a new period for requesting consistent settlement terms. For all other purposes of the Internal Revenue Code, however, (e.g., binding effect under section 6224(c)(1), and conversion to nonpartnership items under section 6231(b)(1)(C)) a consistent agreement is treated as a settlement agreement. (c) * * * (3) * * * (ii) The 60th day after the day on which the settlement agreement was entered into. (d) * * * March 8, 1999 Example (1). The Service seeks to disallow a $100,000 loss reported by Partnership P. The Service agrees to a settlement with X, a partner in P, in which the Service allows 60 percent of the loss, accepts the treatment of all other partnership items on the partnership return, and imposes a penalty for negligence related to the loss disallowance. Partner Y, which owns a 10 percent interest in the partnership, requests settlement terms which are consistent with the settlement made between X and the Service. The items are partnership items (and a related penalty) for X immediately before X enters into the settlement agreement and are partnership items (and a related penalty) for Y at the time of the request. The Service must offer Y settlement terms allowing a $6,000 loss, a negligence penalty on the $4,000 disallowance, and otherwise reflecting the treatment of partnership items on the partnership return. * * * * * Par. 5. Add §301.6229(b)–2T to read as follows: §301.6229(b)–2T Special rule with respect to debtors in Title 11 cases (temporary). (a) In general. Notwithstanding any other law or rule of law, if an agreement is entered into under section 6229(b)(1)(B), and the agreement is signed by a person who would be the tax matters partner but for the fact that, at the time that the agreement is executed, the person is a debtor in a bankruptcy proceeding under Title 11 of the United States Code, such agreement shall be binding on all partners in the partnership unless the Service has been notified of the bankruptcy proceeding in accordance with paragraph (b) of this section. (b) Procedures for notifying the Service of a partner’s bankruptcy proceeding. (1) The Service shall be notified of the bankruptcy proceeding of the tax matters partner in accordance with the procedures set forth in §301.6223(c)–1T. (2) In addition to the information specified in §301.6223(c)–1T, notification that a person is (or was) a debtor in a bankruptcy proceeding shall include the date the bankruptcy proceeding was filed, the name and address of the court in which the bankruptcy proceeding exists (or took place), the caption of the bankruptcy proceeding (including the docket number or other identification number used by the court), and the status of the proceeding as of the date of notification. Par. 6. Add §301.6229(f)–1T to read as follows: 24 §301.6229(f)–1T Special rule for partial settlement agreements (temporary). (a) In general. If a partner enters into a settlement agreement with the Service with respect to the treatment of some of the partnership items in dispute for a partnership taxable year, but other partnership items for such year remain in dispute, the period of limitations for assessing any tax attributable to the settled items shall be determined as if such agreement had not been entered into. (b) Other items remaining in dispute. Pursuant to section 6226(c), a partner is a party to a partnership level judicial proceeding with respect to partnership items. When a partner settles partnership items, the settled partnership items convert to nonpartnership items under section 6231(b)(1)(C) and will not be subject to any future or pending partnership level proceeding pursuant to section 6226(d)(1). The remaining unsettled partnership items, however, will remain subject to determination under partnership level administrative and judicial procedures. Consequently, any remaining unsettled items will be deemed to remain in dispute. Thus, the period for assessing settled items will be governed by the period for assessing the remaining unsettled items. Par. 7. Amend §301.6231(a)(1)–1T by: 1. Revising the first two sentences of paragraph (a)(1). 2. Removing paragraph (a)(3). 3. Redesignating paragraph (a)(4) as paragraph (a)(3). The revision reads as follows: §301.6231(a)(1)–1T Exception for small partnerships (temporary). (a) * * * (1) “10 or fewer.” The “10 or fewer” limitation described in section 6231(a)(1)(B)(i) is applied to the number of natural persons (other than nonresident aliens), C corporations, and estates of deceased partners that were partners at any one time during the partnership taxable year. Thus, for example, a partnership that at no time during the taxable year had more than 10 partners may be treated as a small partnership even if, because of transfers of interests in the partnership, 11 or more natural persons, C corporations, or estates of deceased partners owned in- 1999–10 I.R.B. terests in the partnership for some portion of the taxable year. * * * * * * * * Par. 8. Amend §301.6231(a)(6)–1T by: 1. Revising paragraph (a). 2. Removing paragraph (c). The revision reads as follows: §301.6231(a)(6)–1T Computational adjustments (temporary). (a) In general. A change in the tax liability of a partner to properly reflect the treatment of a partnership item under subchapter C of chapter 63 of the Internal Revenue Code is made through a computational adjustment. A computational adjustment includes a change in tax liability that reflects a change in an affected item where that change is necessary to properly reflect the treatment of a partnership item, or any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item. However, if a change in a partner’s tax liability cannot be made without making one or more partner level determinations, that portion of the change in tax liability attributable to the partner level determinations shall be made under the provisions of subchapter B of chapter 63 of the Internal Revenue Code (relating to deficiency procedures), except for any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item. (1) Changes in a partner’s tax liability with respect to affected items that do not require partner level determinations (such as the threshold amount of medical deductions under section 213 that changes as the result of determinations made at the partnership level) are computational adjustments that are directly assessed. When making computational adjustments, the Service may assume that amounts the partner reported on the partner ’s individual return include all amounts reported to the partner by the partnership, absent contrary notice to the Service (for example, a “Notice of Inconsistent Treatment”). Such an assumption by the Service does not constitute a partner level determination. Moreover, substituting redetermined partnership items for the partner’s previously reported partnership items (including partnership items included in carryover amounts) does not constitute a partner level determination 1999–10 I.R.B. where the Service otherwise accepts all nonpartnership items (including, for example, nonpartnership item components of carryover amounts) as reported. (2) Changes in a partner’s tax liability with respect to affected items that require partner level determinations (such as a partner’s at-risk amount to the extent it depends upon the source from which the partner obtained the funds that the partner contributed to the partnership) are computational adjustments subject to deficiency procedures. Nevertheless, any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item may be directly assessed following a partnership proceeding, based on determinations in that proceeding, regardless of whether partner level determinations are required. * * * * * Par. 9. Amend §301.6231(a)(7)–1 by adding a sentence at the end of paragraphs (p)(2) and (r)(1) to read as follows: §301.6231(a)(7)–1 Designation or selection of tax matters partner. * * * * * (p) * * * (2) * * * For regulations applicable on or after January 26, 1999 (reflecting statutory changes made effective July 22, 1998) and before January 25, 2002, see §301.6231(a)(7)–1T(p)(2). * * * * * (r) * * * (1) * * * For regulations applicable on or after January 26, 1999 (reflecting statutory changes made effective July 22, 1998) and before January 25, 2002, see §301.6231(a)(7)–1T(r)(1). largest-profits-interest rule of §301.6231(a)(7)–1(m)(2), the Commissioner will select a partner (including a general or limited partner) as the tax matters partner in accordance with the criteria set forth in §301.6231(a)(7)–1(q). The Commissioner will notify, within 30 days of the selection, the partner selected, the partnership, and all partners required to receive notice under section 6223(a), effective as of the date specified in the notice. For regulations applicable before July 22, 1998, see §301.6231(a)(7)–1(p)(2). (p)(3) through (q) [Reserved]. For further guidance, see §301.6231(a)(7)– 1(p)(3) through (q). (r) Notification of partnership—(1) In general. If the Commissioner selects a tax matters partner under the provisions of §301.6231(a)(7)–1(p)(1) or (3)(i), the Commissioner will notify, within 30 days of the selection, the partner selected, the partnership, and all partners required to receive notice under section 6223(a), effective as of the date specified in the notice. For regulations applicable before July 22, 1998, see §301.6231(a)(7)– 1(r)(1). (r)(2) [Reserved]. For further guidance, see §301.6231(a)(7)–1(r)(2). Robert E. Wenzel, Deputy Commissioner of Internal Revenue Service. Approved December 30, 1998. Donald C. Lubick, Assistant Secretary of the Treasury. (Filed by the Office of the Federal Register on January 25, 1999, 8:45 a.m., and published in the issue of the Federal Register for January 26, 1999, 64 F.R. 3837) * * * * * Par. 10. Add §301.6231(a)(7)–1T to read as follows: §301.6231(a)(7)–1T Designation or selection of tax matters partner (temporary). (a) through (p)(1) [Reserved]. For further guidance, see §301.6231(a)(7)–1(a) through (p)(1). (p)(2) When each general partner is deemed to have no profits interest in the partnership. If it is impracticable under §301.6231(a)(7)–1(o)(2) to apply the 25 Section 7520.—Valuation Tables The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. Section 7872.—Treatment of Loans With Below-Market Interest Rates The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18. March 8, 1999 Part III. Administrative, Procedural, and Miscellaneous Differential Earnings Rate for Mutual Life Insurance Companies Notice 99–13 This notice publishes a tentative determination under § 809 of the Internal Revenue Code of the “differential earnings rate” for 1998 and the rate that is used to calculate the “recomputed differential earnings amount” for 1997. (The latter rate is referred to in this notice as the “recomputed differential earnings rate” for 1997.) These rates are used by mutual life insurance companies to calculate their federal income tax liability for taxable years beginning in 1998. BACKGROUND Section 809(a) provides that, in the case of any mutual life insurance company, the amount of the deduction allowable under § 808 for policyholder dividends is reduced (but not below zero) by the “differential earnings amount.” Any excess of the differential earnings amount over the amount of the deduction allowable under § 808 is taken into account as a reduction in the closing balance of reserves under subsections (a) and (b) of § 807. The “differential earnings amount” for any taxable year is the amount equal to the product of (a) the life insurance company’s average equity base for the taxable year multiplied by (b) the “differential earnings rate” for that taxable year. The “differential earnings rate” for the taxable year is the excess of (a) the “imputed earnings rate” for the taxable year over (b) the “average mutual earnings rate” for the second calendar year preceding the calendar year in which the taxable year begins. The “imputed earnings rate” for any taxable year is the amount that bears the same ratio to 16.5 percent as the “current stock earnings rate” for the taxable year bears to the “base period stock earnings rate.” Section 809(f) provides that, in the case of any mutual life insurance company, if the “recomputed differential earnings amount” for any taxable year exceeds the differential earnings amount for that taxable year, the excess is included in life in- March 8, 1999 surance gross income for the succeeding taxable year. If the differential earnings amount for any taxable year exceeds the recomputed differential earnings amount for that taxable year, the excess is allowed as a life insurance deduction for the succeeding taxable year. The “recomputed differential earnings amount” for any taxable year is an amount calculated in the same manner as the differential earnings amount for that taxable year, except that the average mutual earnings rate for the calendar year in which the taxable year begins is substituted for the average mutual earnings rate for the second calendar year preceding the calendar year in which the taxable year begins. The stock earnings rates and mutual earnings rates taken into account under § 809 generally are determined by dividing statement gain from operations by the average equity base. For this purpose, the term “statement gain from operations” means “the net gain or loss from operations required to be set forth in the annual statement, determined without regard to Federal income taxes, and . . . properly adjusted for realized capital gains and losses. . . .” See § 809(g)(1). The term “equity base” is defined as an amount determined in the manner prescribed by regulations equal to surplus and capital increased by the amount of nonadmitted financial assets, the excess of statutory reserves over the amount of tax reserves, the sum of certain other reserves, and 50 percent of any policyholder dividends (or other similar liability) payable in the following taxable year. See § 809(b)(2), (3), (4), (5) and (6). Section 1.809–10 of the Income Tax Regulations provides that the equity base includes both the asset valuation reserve and the interest maintenance reserve for taxable years ending after December 31, 1991. Section 1.809–9(a) of the regulations provides that neither the differential earnings rate under § 809(c) nor the recomputed differential earnings rate that is used in computing the recomputed differential earnings amount under § 809(f)(3) may be less than zero. Rev. Rul. 99–3, 1999–3 I.R.B. 4, provides that a life insurance subsidiary of a mutual holding company is not a mutual 26 life insurance company for which the deduction for policyholder dividends is reduced pursuant to §§ 808(c)(2) and 809. As described above, the differential earnings rate for 1998 and the recomputed differential earnings rate for 1997 affect the income and deductions reported by mutual life insurance companies on their federal income tax returns for the 1998 taxable year. Data necessary to determine the tentative differential earnings rate for 1998 and the tentative recomputed differential earnings rate for 1997 have been compiled from returns filed by mutual life insurance companies and certain stock life insurance companies. The Internal Revenue Service is currently examining these returns. This examination will not be completed before the March 15, 1999, due date for filing 1998 calendar year returns. NOTICE OF TENTATIVE RATES This notice publishes a tentative determination of the differential earnings rate for 1998 and of the recomputed differential earnings rate for 1997. This notice also publishes a tentative determination of the rates on which the calculation of the differential earnings rate for 1998 and the recomputed differential earnings rate for 1997 are based. The final determination of these rates is expected to be published before September 1, 1999. The tentative determination of the differential earnings rate for 1998 and the tentative determination of the recomputed differential earnings rate for 1997 that are published in this notice should be used by mutual life insurance companies to calculate the amount of tax liability for taxable years beginning in 1998 (in the case of companies that file returns before publication of the final determination of these rates) or to calculate the amount of estimated unpaid tax liability for taxable years beginning in 1998 (in the case of companies that are allowed an extension of time to file returns). Companies that file returns before publication of the final determination of these rates should file amended returns after the final determination of these rates is published. If there is a failure to pay tax for a taxable year beginning in 1998 and the failure is attribut- 1999–10 I.R.B. able to a difference between (a) the tentative determination of the differential earnings rate for 1998 and recomputed differential earnings rate for 1997 and (b) the final determination of these rates, then any such failure through September 15, 1999, will be treated as due to reasonable cause and will not give rise to any addition to tax under § 6651. The tentative determination of the rates is set forth in Table 1. formation regarding this notice, contact Ms. Hossofsky on (202) 622-3477 (not a toll-free call). DRAFTING INFORMATION The principal author of this notice is Katherine A. Hossofsky of the Office of the Assistant Chief Counsel (Financial Institutions and Products). For further in- Notice 99–13 Table 1 Tentative Determination of Rates To Be Used For Taxable Years Beginning in 1998 Differential earnings rate for 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.081 Recomputed differential earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . 0 Imputed earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.813 Imputed earnings rate for 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.193 Base period stock earnings rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.221 Current stock earnings rate for 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.882 Stock earnings rate for 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.087 Stock earnings rate for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.238 Stock earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.321 Average mutual earnings rate for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 16.112 Average mutual earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 15.566 1999–10 I.R.B. 27 March 8, 1999 Part IV. Items of General Interest Notice of Proposed Rulemaking and Notice of Public Hearing 2615, Internal Revenue Building, 1111 Constitution Avenue, Washington, DC. Escrow Funds and Other Similar Funds FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Michael L. Gompertz of the Office of Assistant Chief Counsel (Income Tax & Accounting), (202) 622-4910; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Michael Slaughter, (202) 622-7190 (not toll-free numbers). REG–209619–93 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains proposed regulations relating to the designation of the person required to report the income earned on qualified settlement funds and certain other funds, trusts, and escrow accounts, and other related rules. The proposed regulations would affect qualified settlement funds, qualified escrow accounts and qualified trusts established in connection with deferred like-kind exchanges, escrow accounts established in connection with sales of property, disputed ownership funds, and parties to these escrow accounts, trusts, and funds. This document also provides notice of a public hearing on these proposed regulations. DATES: Written comments must be received by May 3, 1999. Requests to speak and outlines of topics to be discussed at the public hearing scheduled for May 12, 1999, at 10 a.m., must be received by April 21, 1999. ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–209619–93), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–209619–93), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically via the INTERNET by selecting the “Tax Regs” option on the IRS Home Page, or by submitting comments directly to the IRS INTERNET site at http://www.irs.ustreas.gov/prod/tax_regs/comments.html. The public hearing will be held in Room March 8, 1999 SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224. Comments on the collections of information should be received by April 1, 1999. Comments are specifically requested concerning: Whether the proposed collections of information are necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; The accuracy of the estimated burden associated with the proposed collections of information (see below); How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the proposed collections of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. 28 The collections of information in this proposed regulation are in §§1.468B– 1(k)(2), 1.468B–1(k)(3)(iv), 1.468B– 6(e)(1), 1.468B–6(f), 1.468B–7(d), 1.468B–8(f), 1.468B–8(g)(1), 1.468B– 9(c)(1), and 1.468B–9(f)(3). The collections of information in §§1.468B–1(k)(3)(iv), 1.468B–6(e)(1), 1.468B–7(d), 1.468B–8(g)(1), and 1.468B–9(c)(1) are satisfied by including the required information on Forms 1099, 1041, 1120, or 1120-SF. The burden for these requirements is reflected in the burden estimates for these forms. The other collections of information in this proposed regulation (in §§1.468B– 1(k)(2), 1.468B–6(f), 1.468B–8(f), and 1.468B–9(f)(3)) are discussed below. The collection of information in §1.468B–1(k)(2) is an election statement attached to a tax return filed for a qualified settlement fund (QSF). The statement notifies the IRS that the transferor to the QSF has elected grantor trust treatment for the QSF. This collection is required to obtain a benefit. The collections of information in §§1.468B–6(f) and 1.468B–8(f) are statements that third parties must provide to an escrow holder, trustee, or administrator to enable the escrow holder, trustee, or administrator to properly report the income of an escrow account or trust on Form 1099. These collections are mandatory. The collection of information in §1.468B–9(f)(3) is a statement that a transferor must provide with respect to the transfer of cash or property to a disputed ownership fund. This collection is mandatory. The likely respondents are individuals, business or other for-profit institutions, small businesses or organizations, nonprofit institutions, and government entities. Estimated total annual reporting burden: 4,650 hours. Estimated average annual burden per respondent: .5 hours. Estimated number of respondents: 9,300. Estimated annual frequency of responses: on occasion. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the col- 1999–10 I.R.B. lection of information displays a valid control number assigned by the Office of Management and Budget. Books and records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background This notice contains proposed amendments to the Income Tax Regulations (26 CFR Part 1) under section 468B of the Internal Revenue Code. Section 468B was added to the Code by section 1807(a)(7)(A) of the Tax Reform Act of 1986 (Public Law 99-514, 100 Stat. 2814) and was amended by section 1018(f) of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100–647, 102 Stat. 3582). Section 468B(g) provides that nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. Section 468B(g) further provides that the Secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor trust or otherwise. On December 23, 1992, final regulations (TD 8459, 1993–1 C.B. 68) under section 468B(g) were published in the Federal Register (57 F.R. 60983). The regulations provide guidance concerning qualified settlement funds, but do not address other types of funds, escrow accounts, or trusts subject to current taxation under section 468B(g). Section 1.468B–1(c) defines a qualified settlement fund (QSF) as a fund, account, or trust meeting three requirements. A QSF is a separate taxpayer subject to tax on its modified gross income. QSF classification is not elective. The preamble to the QSF regulations (see 1993–1 C.B. 69) states that the IRS and the Treasury Department rejected an elective approach because it would result in inconsistent tax treatment for similar funds, claimants, or transferors, and accompanying complexity. The preamble to the QSF regulations also states (see 1993–1 C.B. 73) that future regulations will address the tax treat- 1999–10 I.R.B. ment of funds, accounts, or trusts other than QSFs, specifically, escrow accounts used in the sale of property and section 1031 qualified escrow accounts. Section 1031(a)(3) was added to the Internal Revenue Code by section 77 of the Tax Reform Act of 1984 (Public Law 98369, 98 Stat. 595). On May 1, 1991, final regulations (TD 8346, 1991–1 C.B. 150) under section 1031(a)(3) were published in the Federal Register (56 F.R. 19933). These regulations were amended by final regulations (TD 8535, 1994–1 C.B. 202) published in the Federal Register for April 20, 1994 (59 F.R. 18747). The regulations provide four safe harbors, the use of any of which will result in a determination that the taxpayer (i.e., the party transferring the property in the exchange) is not in actual or constructive receipt of money or other property for purposes of section 1031. In particular, the regulations provide that the taxpayer is not in actual or constructive receipt of money or other property held in a qualified escrow account or qualified trust. Section 1.1031(k)–1(g)(3) defines qualified escrow account and qualified trust. The regulations under section 1031(a)(3) do not address the taxation of income earned on a qualified escrow or qualified trust. The preamble to these regulations (see 1991–1 C.B. 154) states that this issue will be addressed in future regulations. Explanation of Provisions 1. Election to Treat a QSF as a Grantor Trust Under §1.468B–1(k) of the Proposed Regulations. The proposed regulations provide that if there is only one transferor to a QSF, the transferor is allowed to make an election that results in the QSF being treated as a grantor trust all of which is treated as owned by the transferor. In general, the election is made on a statement attached to the first Form 1041 filed on behalf of the QSF. The transferor may make a grantor trust election whether or not the requirements are otherwise satisfied for classification of the QSF as a grantor trust. In general, grantor trust treatment for a QSF is available under the proposed regulations only if the QSF is established after the date final regulations are published in the Federal Register. However, the pro- 29 posed regulations provide a narrow exception applicable to any QSF established by the U.S. government on or before the date final regulations are published if the QSF would otherwise have been classified as a grantor trust in the absence of the QSF regulations (see Rev. Rul. 77–230 (1977–2 C.B. 214)). Under the exception, such a QSF will be automatically treated as a grantor trust for all taxable years and a grantor trust election is thus unnecessary. If a QSF is established after the date final regulations are published, a grantor trust election will be required in order for the QSF to be treated as a grantor trust. This rule applies whether or not the U.S. government is the grantor. 2. Section 1031 Qualified Escrow Accounts and Qualified Trusts Under §1.468B–6 of the Proposed Regulations. In general, the proposed regulations treat the assets of a qualified escrow account or qualified trust established in connection with a deferred exchange under section 1031(a)(3) as owned by the taxpayer, i.e., the party that transfers the relinquished property. Thus, the taxpayer is taxable on the income earned on these assets. However, if the transferee or the qualified intermediary has all the beneficial use and enjoyment of the assets of a qualified escrow account or qualified trust, then the assets of the escrow account or trust are treated as owned by the transferee or qualified intermediary, and the income earned on the assets is taxable to the transferee or qualified intermediary. Further, the proposed regulations require the escrow holder of a qualified escrow account or trustee of a qualified trust to report the income of the escrow account or trust on Forms 1099 to the extent the information reporting provisions of the Code otherwise require the filing of Forms 1099. In general, the taxpayer is treated as the payee of the income of the escrow account or trust unless the parties to the transaction provide a statement to the escrow holder or trustee indicating that the transferee or qualified intermediary is the payee. Such a statement must be provided if the transferee or qualified intermediary has all the beneficial use and enjoyment of the assets of the escrow account or trust. March 8, 1999 The proposed regulations provide that the escrow holder or trustee is not liable for penalties under sections 6721 and 6722 if the escrow holder or trustee relies on an incorrect statement provided to the escrow holder or trustee (see above) or relies on the parties’ failure to provide such a statement. The proposed regulations also provide that if the transferee or the qualified intermediary has all the beneficial use and enjoyment of the assets of a qualified escrow account or trust, the deferred exchange may involve a below-market loan of these assets from the taxpayer to the transferee or qualified intermediary subject to the provisions of section 7872. 3. Pre-closing Escrows Under §1.468B–7 of the Proposed Regulations. A pre-closing escrow is an escrow account, trust, or fund that satisfies five requirements. First, it must be established in connection with a sale or exchange of real or personal property. Second, it must be funded with a down payment, earnest money, or similar payment prior to the sale or exchange of the property (as determined for federal income tax purposes). Third, its assets must be used to secure the purchaser’s obligation to pay the purchase price (in the case of an exchange of property, the term purchaser means the transferee of the property and the term purchase price means the required consideration for the property). Fourth, its assets (including income earned thereon) must be paid to the purchaser or otherwise used for the purchaser’s benefit, for example, as a credit against the purchase price. Fifth, it must not be a qualified escrow or qualified trust established in connection with a deferred section 1031 exchange. The proposed regulations treat the assets of a pre-closing escrow as owned by the purchaser for federal income tax purposes. Thus, the income earned on the assets is taxable to the purchaser. The escrow holder, trustee, or other person responsible for administering a pre-closing escrow must report the income of the escrow on Forms 1099 to the extent the information reporting provisions of the Code otherwise require the filing of Forms 1099. March 8, 1999 4. Contingent At-closing Escrows Under §1.468B–8 of the Proposed Regulations. The proposed regulations provide rules for taxing the income of a contingent atclosing escrow, which is an escrow account, trust, or fund satisfying three requirements. First, a contingent at-closing escrow must be established in connection with the sale or exchange of real or personal property used in a trade or business or held for investment (other than an exchange to which section 354, 355, or 356 applies). Second, the assets of the escrow must be distributable to the purchaser or seller based on bona fide contingencies that will be resolved after the sale or exchange (as determined for federal income tax purposes). (If a contingent at-closing escrow is established in connection with an exchange of property, rather than a sale, the term purchaser refers to the transferee of the property and the term seller refers to the transferor of the property.) Thus, for example, the agreement between the parties may provide that all or a portion of the assets of the escrow are distributable to the purchaser if specified liabilities associated with the property arise within a specified period of time after closing or if certain earnings targets are not met by a specified date. Third, the escrow must not be a qualified escrow account or qualified trust established in connection with a deferred section 1031 exchange. Prior to the date (called the determination date) on which the specified events occur or fail to occur, thereby fixing the amounts payable from the escrow to the purchaser and seller, the proposed regulations provide that the assets of the escrow are treated as owned by the purchaser, and the income earned on the assets is thus taxable to the purchaser. Beginning on the determination date, the proposed regulations provide that the purchaser and the seller are taxable on the income of the escrow corresponding to their respective ownership interests in each asset of the escrow. Further, the proposed regulations require the purchaser and seller to provide the escrow holder, trustee, or other administrator of the escrow with a statement within 30 days of the determination date indicating what these ownership interests are. Also, the escrow holder, trustee, or other adminis- 30 trator is required to prepare Forms 1099 to report the income of a contingent atclosing escrow to the extent the information reporting provisions of the Code otherwise require the filing of Forms 1099. In preparing the Forms 1099, the escrow holder, trustee, or other administrator may rely on the statement (discussed above) provided to the administrator within 30 days of the determination date. Also, if the statement is not provided, the escrow holder, trustee, or other administrator may rely on the parties’ failure to provide a statement and continue to treat the purchaser as the owner. The administrator’s ability to rely on a statement, or its absence, protects the administrator from liability for penalties under sections 6721 and 6722. 5. Disputed Ownership Funds Under §1.468B–9 of the Proposed Regulations. A disputed ownership fund (DOF) is an escrow account, trust, or fund other than a QSF that satisfies three requirements. First, a DOF must be established to hold money or property subject to conflicting claims of ownership. Second, a DOF must be subject to the continuing jurisdiction of a court of law or equity. Third, money or property cannot be paid or distributed from a DOF to a claimant without court approval. An interpleader fund may qualify as a DOF. In general, a DOF is taxed under the proposed regulations as if it were a qualified settlement fund if all the DOF’s assets are passive investment assets, for example, cash or cash equivalents, stock, and debt obligations. However, if the DOF holds assets other than passive investment assets (for example, real estate or business property the ownership of which is in dispute), the DOF is taxed as if it were a C corporation. The claimants to the fund may, however, submit a letter ruling request proposing an alternative method of taxation if they believe that there is a more appropriate method of taxing a DOF than under the rules stated above. In addition to providing rules for the taxation of the income of a DOF, the proposed regulations also provide rules concerning the transfer of property to and from a DOF. In particular, a transfer of property to a DOF is not a sale or other 1999–10 I.R.B. disposition by the transferor under section 1001(a) if the transferor claims ownership of the transferred property. Also, a DOF is not allowed a deduction for a distribution of disputed property to a claimant and the distribution is not a taxable event to the DOF. 6. Request for Comments Comments are requested on the appropriate tax treatment of a fund, account, or trust that meets the requirements for more than one type of entity subject to the proposed regulations. Comments are also requested on the appropriate tax treatment of a fund, account, or trust that changes over time so that a different portion of the proposed regulations would apply to it. For example, an escrow initially may meet the requirements for a contingent atclosing escrow, but may subsequently satisfy the requirements for a DOF. This could occur if a dispute were to arise between the purchaser and the seller concerning their respective interests in the escrow after the determination date and the administrator of the DOF files an interpleader action to resolve the dispute. Comments are also requested concerning the appropriate tax treatment of a contingent-at-closing escrow if multiple contingencies are specified in the agreement between the purchaser and the seller. The proposed regulations provide that (1) the income of a contingent at-closing escrow is taxable entirely to the purchaser prior to the determination date, and (2) the determination date is the date on which (or by which) the last of the contingent events has either occurred or failed to occur. Therefore, if multiple contingencies are provided for in the agreement between the parties and some, but not all, of the contingencies have been resolved, the proposed regulations provide that the income of the escrow is taxable entirely to the purchaser (because the determination date has not yet occurred) regardless of the effect of the contingencies that have been resolved. The purchaser is thus taxed on all the income earned on the escrow even though it may be known (based on the resolution of one or more contingencies) that a fixed portion of the escrowed assets will be distributed to the seller. The proposed rule is simple and easy to administer because it treats the escrow in a unitary manner and avoids the need for 1999–10 I.R.B. multiple determination dates. Arguably, however, a more complex approach should be adopted involving a separate determination date for each contingency. Under the more complex approach, as each contingency is resolved, a new determination would be made concerning the taxation of the fund’s income. The income earned on the fund’s assets would be taxable to the purchaser and seller in accordance with their ownership interests as determined on each determination date as each separate contingency is resolved. Comments are also requested on the requirement that the assets of a contingent at-closing escrow must be distributable to the purchaser or seller based on bona fide contingencies that are resolved after the sale or exchange. Issues may arise as to whether a particular contingency is bona fide in at least two ways: whether the outcome is sufficiently in doubt and whether the effect of the outcome on the fund is significant. A contingency may not be bona fide if the parties can reasonably be expected to know the outcome, e.g., a contingency based on whether, in ten years, the consumer price index will be at least equal to the consumer price index today. In addition, a contingency may not be bona fide if the effect on the fund is minimal even though the outcome is uncertain. Finally, comments are requested regarding whether there are other types of funds for which rules under section 468B are required. posed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. An initial regulatory flexibility analysis has been prepared for the collections of information contained in this notice of proposed rulemaking under 5 U.S.C. 603. The analysis is set forth below. 7. Proposed Effective Date. Under §1.468B–1(k), the transferor to a QSF may elect to have the QSF treated as a grantor trust all of which is treated as owned by the transferor (grantor trust election). If the transferor makes the grantor trust election, the administrator of the QSF must file Form 1041 rather than the QSF income tax return, Form 1120-SF. Approximately 900 QSF returns are filed each year. Only a small number of these returns are filed for newly created QSFs. Because a grantor trust election may be made only for the year in which a QSF is established, and may only be made for a QSF that has one transferor, the IRS and Treasury Department believe that a very small number of grantor trust elections will be made each year. Because of the availability of the grantor trust election, the proposed regulations provide a choice of filing Form 1041 or Form 1120-SF in certain situa- In general, the regulations are proposed to be applicable for QSFs, qualified escrow accounts and qualified trusts, pre-closing escrows, contingent at-closing escrows, and DOFs established after the date final regulations are published in the Federal Register. However, the proposed regulations contain transition rules. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of pro- 31 Initial Regulatory Flexibility Act Analysis The objective of the proposed regulations is to ensure that the income of certain escrow accounts, trusts, and funds is subject to current taxation by identifying the proper party or parties subject to tax and by requiring appropriate information reporting for the income of the escrow account, trust, or fund. Section 468B(g) provides the legal basis for the requirements of the proposed regulations. The IRS and Treasury Department are not aware of any federal rules that may duplicate, overlap, or conflict with the proposed regulations. An explanation is provided below of the burdens on small entities resulting from the requirements of the proposed regulations. Also, a description is provided of alternative rules that were considered by the IRS and the Treasury Department but rejected as too burdensome. 1. Grantor Trust Election Under §1.468B–1(k). March 8, 1999 tions. Small entities may choose the filing requirement that is less burdensome. The alternative to the proposed regulations is to retain the current rules for QSFs and not provide qualifying taxpayers with the opportunity to make a grantor trust election. 2. Qualified Escrow Accounts and Qualified Trusts Established in Connection with Deferred Exchanges; Pre-closing Escrows; and Contingent At-closing Escrows. Sections 1.468B–6(e)(1), 1.468B–7(d), and 1.468B–8(g)(1) require specified escrow holders, trustees, and administrators to file Forms 1099 with the IRS and furnish payee statements in accordance with the information reporting requirements of subpart B, Part III, subchapter A, chapter 61, Subtitle F of the Internal Revenue Code. Also, §1.468B–6(f) requires the parties to a qualified escrow account or qualified trust to provide a statement to the escrow holder or trustee if the qualified intermediary or transferee has all the beneficial use and enjoyment of the assets of the escrow account or trust. This statement facilitates the filing of Forms 1099 by the escrow holder or trustee. Similarly, §1.468B–8(f) requires the parties to a contingent at-closing escrow to provide statements to the escrow holder or other administrator. These statements facilitate the filing of Forms 1099 by the escrow holder or other administrator. The IRS and Treasury Department estimate that annually there are approximately 16,000 deferred exchange transactions involving the creation of a qualified escrow account or qualified trust; approximately 200,000 transactions involving the creation of a pre-closing escrow; and approximately 10,000 transactions involving the creation of a contingent atclosing escrow. As an alternative to the proposed regulations, the IRS and the Treasury Department considered, but rejected as too burdensome, a rule that would have required the filing of grantor trust returns (Form 1041) for qualified escrow accounts and qualified trusts, pre-closing escrows, and contingent at-closing escrows. Instead of requiring grantor trust returns, the proposed regulations require the filing of Forms 1099. This is less burdensome on March 8, 1999 small entities because, unlike Form 1041, Form 1099 is simple, does not require a signature, and requires only the reporting of gross income. Further, the IRS and the Treasury Department considered an alternative rule for contingent at-closing escrows under which the income of the escrow for the period before the determination date would have been taxable to the purchaser or the seller depending on the required tax treatment by the purchaser and seller of the principal amount deposited into the escrow. This alternative rule would not have provided certainty, would have required a difficult legal analysis (namely, the determination of the required tax treatment of the principal amount deposited into the escrow), and would have required the purchaser and seller to provide a signed statement to the administrator of the escrow identifying the party to whom the administrator should report the income for the period before the determination date. Under the proposed regulations, the income of the escrow is always taxable to the purchaser for the period before the determination date, thereby eliminating the need for a signed statement to be provided to the administrator and the need to determine the required tax treatment of the principal amount deposited into the escrow. This rule is simpler than the alternative. lations, the IRS and the Treasury Department considered, but rejected as too burdensome, a rule that would have required all DOFs to file corporate income tax returns (Form 1120) regardless of the nature of the assets held by the DOF. This alternative was rejected because it was concluded that a QSF return (Form 1120-SF) is more appropriate than a corporate income tax return if all the assets of the DOF are passive investment assets. The proposed regulations thus impose less of an administrative burden on small entities than would have resulted from the alternative rule as Form 1120-SF is generally easier to prepare than Form 1120. Only DOFs that hold assets other than passive investment assets will be required to file Form 1120 under the proposed regulations. In addition, the proposed regulations provide taxpayers with the additional flexibility of being able to request an alternative method of taxation if that method is more appropriate than QSF or C corporation treatment as provided under the general rule. There are no known alternative rules that are less burdensome to small entities but that accomplish the purpose of the statute. The IRS and Treasury Department request comments from small entities concerning possible alternatives to these rules. 3. Disputed Ownership Funds (DOFs). Comments and Public Hearing Section 1.468B–9(c)(1) of the proposed regulations generally provides that a DOF is taxable as a QSF if all its assets are passive investment assets or taxable as a C corporation in all other cases. However, the regulations also provide that if there is a more appropriate method of taxing a DOF, the claimants to the fund may request a private letter ruling to permit the use of that method. Section 1.468B–9(f)(3) of the proposed regulations requires that a transferor provide a statement to the administrator of a DOF that itemizes the cash or property transferred to the DOF during the calendar year. The statement must also indicate the DOF’s basis and holding period in the property. The IRS and the Treasury Department estimate that annually there are approximately 5,000 transactions involving the creation of a disputed ownership fund. As an alternative to the proposed regu- Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely (in the manner described in the ADDRESSES portion of the preamble) to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing is scheduled for May 12, 1999, at 10 a.m. in Room 2615, Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the 10th Street entrance, located between Constitution and Pennsylvania Avenues, NW. In addition, all visitors must present photo identification to enter the building. Because of access re- 32 1999–10 I.R.B. strictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this preamble. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written comments by May 3, 1999, and submit an outline of the topics to be discussed and the time devoted to each topic (signed original and eight (8) copies) by April 21, 1999. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. Drafting Information The principal author of these proposed regulations is Michael L. Gompertz of the Office of Assistant Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and Treasury Department participated in their development. * * * * * Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order to read as follows: Authority: 26 U.S.C. 7805 * * * Section 1.468B–6 also issued under 26 U.S.C. 468B. Section 1.468B–7 also issued under 26 U.S.C. 468B. Section 1.468B–8 also issued under 26 U.S.C. 468B. Section 1.468B–9 also issued under 26 U.S.C. 468B. * * * Par. 2. Section 1.468B-0 is amended as follows: 1. The introductory text is revised. 2. The entry for §1.468B–1, paragraph (k), is redesignated as paragraph (l). 1999–10 I.R.B. 3. A new entry for §1.468B–1, paragraph (k), is added. 4. The section heading in the entry for §1.468B–5 is revised. 5. New entries are added for §§1.468B–5, paragraph (c), 1.468B–6, 1.468B–7, 1.468B–8, and 1.468B–9. 6. The revised and added provisions read as follows: §1.468B–0 Table of contents. This section lists the table of contents for §§1.468B–1 through 1.468B–9. §1.468B–1 Qualified settlement funds. * * * * * (k) Election to treat a qualified settlement fund as a subpart E trust. (1) In general. (2) Manner of making grantor trust election. (i) In general. (ii) Requirements for election statement. (3) Effect of making the election. * * * * * §1.468B–5 Effective dates and transition rules applicable to qualified settlement funds. * * * * * (c) Grantor trust elections under §1.468B–1(k). (1) In general. (2) Qualified settlement funds established by the U.S. government on or before the date of publication of final regulations in the Federal Register. §1.468B–6 Qualified escrow accounts and qualified trusts used in deferred exchanges of like-kind property under section 1031(a)(3). (a) Scope. (b) Definitions. (c) Income of qualified escrow account or qualified trust. (1) In general. (2) Transferee or qualified intermediary has all the beneficial use and enjoyment of assets of a qualified escrow account or qualified trust. (d) Application of section 7872. (e) Reporting obligations of the escrow holder or trustee. (1) In general. 33 (2) Person treated as payee. (3) Relief from penalties for fil [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A7068918c1f4449df. Public record. Not legal advice.