These synopses are intended only as aids to the reader in

Bulletin No. 1997–3

January 21, 1997

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be relied

upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 97–4, page 6.

Low-income housing tax credit. This ruling clarifies

that section 502(e)(3) of the Tax Reform Act of 1986

does not prevent a taxpayer from claiming a low-income

housing tax credit under section 42 of the Code for a

building’s credit period beginning after 1995.

T.D. 8688, page 7.

Final regulations under section 108 of the Code relate to

the time and manner of making certain elections under

the Omnibus Budget Reconciliation Act of 1993.

T.D. 8689, page 9.

Final and temporary regulations under section 6695 of

the Code relate to the methods of signing returns,

statements, or other documents.

T.D. 8692, page 4.

Final and temporary regulations under section 25 of the

Code relate to the reissuance of mortgage credit certificates.

Finding Lists begin on page 17.

REG–209762–95, page 12.

Proposed regulations under section 1245 of the Code

relate to the allocation of depreciation recapture among

partners in a partnership. A public hearing will be held

on March 27, 1997.

Notice 97–12, page 11.

Electing Small Business Trust (ESBT) election. This

notice provides the time and manner for the trustee to

elect to be treated as an ESBT. This notice also provides

that only the trustee need consent to the S corporation

election on Form 2553.

Announcement 97–4, page 14.

Invalid and late S corporation elections. In order to

obtain relief for invalid and late S corporation elections,

taxpayers must generally request a private letter ruling.

However, if an S corporation election is untimely made

for the 1996 taxable year, there is a special transition

rule for seeking late election relief.

ADMINISTRATIVE

Announcement 97–5, page 15.

New Form 8832, Entity Classification Election, is now

available.

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

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

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

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

provision and not to adopt a strained construction in

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

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

2

Introduction

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

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

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

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

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

single-copy basis.

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

cautioned against reaching the same conclusions in

other cases unless the facts and circumstances are

substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

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

substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published rulings

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

are not published; however, statements of internal

practices and procedures that affect the rights and

duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

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

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

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

stated in the revenue ruling. In those based on positions

taken in rulings to taxpayers or technical advice to

Service field offices, identifying details and information

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

requirements.

Part IV.—Items of General Interest.

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

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

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

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

as precedents by Service personnel in the disposition of

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

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual period,

respectively.

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

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

3

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

Section 25.—Interest on Certain

Home Mortgages

26 CFR 1.25–3: Qualified mortgage credit certificate.

T.D. 8692

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Reissuance of Mortgage Credit

Certificates

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final regulations relating to the reissuance

of mortgage credit certificates. Changes

to the applicable law were made by the

Tax Reform Act of 1984. The regulations provide guidance to issuers and

holders of mortgage credit certificates.

EFFECTIVE DATE: These regulations

are effective December 17, 1996.

FOR FURTHER INFORMATION CONTACT: L. Michael Wachtel, (202) 622–

3980 (not a toll-free number).

SUPPLEMENTARY

INFORMATION:

Background

This document adds final regulations

to the Income Tax Regulations (26 CFR

part 1) to provide guidance under section 25(e)(4) of the Internal Revenue

Code (Code) with respect to the reissuance of mortgage credit certificates. Section 25(e)(4) was added to the Code by

section 612 of the Tax Reform Act of

1984, 98 Stat. 494, 905.

On December 22, 1993, temporary

regulations (TD 8502) relating to refinancing under section 25(e)(4) were

published in the Federal Register (58

FR 67689). A notice of proposed

rulemaking (REG–209574–92, previously FI–47–92) cross-referencing the

temporary regulations was published in

the Federal Register for the same day

(58 FR 67744).

Written comments responding to these

notices were received. There were no

requests to appear in response to publication of a notice of a hearing in the

Federal Register (61 FR 15204). Therefore, no public hearing was held. After

consideration of all the comments, the

proposed regulations under section

25(e)(4) are adopted as revised by this

Treasury decision, and the corresponding temporary regulations are removed.

The comments and revisions are discussed below.

Explanation of provisions and summary

of comments

The temporary regulations permit the

reissuance of a mortgage credit certificate on or after December 22, 1992, but

no later than 1 year after the date of the

refinancing. Commentators thought this

unnecessarily limited eligibility for the

reissuance of a certificate and limited

the flexibility of State and local governments. The final regulations, reflecting

the goal of giving State and local governments maximum flexibility to administer mortgage credit certificate programs, remove these limits. A State or

local government may reissue a certificate to any person who refinanced a

mortgage for which a mortgage credit

certificate was issued and who meets the

other requirements for a reissued certificate. The credit for prior years is available to the extent that the certificate

holder may file a claim for refund.

The temporary regulations provide

that the certified mortgage indebtedness

amount on the reissued certificate cannot exceed the remaining balance of the

certified mortgage indebtedness amount

on the existing certificate. Commentators suggested that the final regulations

permit the indebtedness amount on the

reissued certificate to include costs such

as closing costs of the refinancing loan.

This recommendation was not implemented in the final regulations because

section 25(e)(4) of the Code limits the

amount of the reissued certificate to the

outstanding balance of the existing certificate.

The temporary regulations provide

that the reissued certificate may not

result in an increase in the credit that

would otherwise have been allowable to

the holder under the existing certificate

for any taxable year. In the case of a

series of refinancings, the amount allowable on the refinanced loan would be

the amount allowable on the original

loan, rather than the immediately preceding refinanced loan.

A holder of a mortgage credit certificate who refinances a fixed rate loan

can determine the amount of interest

that would have been paid for any

taxable year on the refinanced loan from

4

an amortization schedule that projects

interest and principal payments over the

life of the loan. By applying the mortgage credit rate to the amount of interest, the holder can calculate the amount

of tax credit that would have been

allowable for the taxable year.

The amount of tax credit that would

have been allowable for a taxable year

is not as easily calculated by a holder of

a mortgage credit certificate who refinances a variable rate loan because the

holder cannot project an amortization

schedule for the refinanced loan. Instead, each year the holder must calculate the amount of interest that would

have been paid on the refinanced loan

under the interest rate in effect for that

year and then calculate the tax credit

that would have been allowable. This

procedure was described as burdensome

by various commentators.

The final regulations continue to reflect the statutory requirement that the

reissued certificate not result in an increase in the credit that would otherwise

have been allowable to the certificate

holder under the existing certificate for

any taxable year. The final regulations,

however, permit a certificate holder who

refinances a variable rate loan with

either a variable rate loan or a fixed rate

loan to determine the amount of credit

that would have been allowable by

using an alternative method instead of

calculating the amount based on the

actual interest that would have been

paid on the refinanced loan. Under the

alternative method, the credit that would

have been allowable is computed using

an amortization schedule of a hypothetical self-amortizing loan with level payments projected to the final maturity

date of the refinanced loan. The interest

rate of the hypothetical loan is the

annual percentage rate (APR) of the

refinancing loan determined for purposes of the Federal Truth in Lending

Act. The principal of the hypothetical

loan is the remaining outstanding balance of the certified mortgage indebtedness specified on the existing certificate.

A certificate holder who refinances a

variable rate loan may use the alternative method or may compute the actual

amount of credit that would have been

allowable. However, the method chosen

must be consistently applied by the

holder beginning with the first taxable

year for which the tax credit based upon

the reissued certificate is claimed.

The temporary regulations do not address whether a refinancing loan is a

financing that is subject to the recapture

provisions of section 143(m) if the refinanced loan was not subject to recapture. The final regulations provide that

the refinancing loan underlying a reissued mortgage credit certificate that replaces a mortgage credit certificate issued on or before December 31, 1990,

is not a federally subsidized indebtedness that is subject to the recapture

provisions of section 143(m) of the

Code.

Commentators asked for clarification

of whether additional volume cap was

required in order to reissue a mortgage

credit certificate and whether additional

reporting was required by the issuer of a

reissued mortgage certificate. Reissuance

of a mortgage credit certificate relates to

refinancing by a mortgage credit certificate holder of a mortgage loan on the

holder’s principal residence. Volume cap

was required to be obtained in connection with the program under which the

original certificate had been issued. Because the reissued certificate is replacing

the existing certificate, it is treated as

issued in connection with the original

program, and additional volume cap is

unnecessary for the reissuance. For similar reasons, no additional reporting is

required by an issuer of a reissued

mortgage credit certificate.

Adoption of Amendments to the

Regulations

Special Analyses

(a) through (g)(1)(ii) [Reserved] For

further guidance, see § 1.25–3T(a)

through (g)(1)(ii).

(g)(1)(iii) Reissued certificate exception. See paragraph (p) of this section

for rules regarding the exception in the

case of refinancing existing mortgages.

(g)(2) through (o) [Reserved] For further guidance, see § 1.25–3T(g)(2)

through (o).

(p) Reissued certificates for certain

refinancings—(1) In general. If the issuer of a qualified mortgage credit certificate reissues a certificate in place of

an existing mortgage credit certificate to

the holder of that existing certificate, the

reissued certificate is treated as satisfying the requirements of this section. The

period for which the reissued certificate

is in effect begins with the date of the

refinancing (that is, the date on which

interest begins accruing on the refinancing loan).

(2) Meaning of existing certificate.

For purposes of this paragraph (p), a

mortgage credit certificate is an existing

certificate only if it satisfies the requirements of this section. An existing certifi-

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

also has been determined that section

553(b) of the Administrative Procedures

Act (5 U.S.C. chapter 5) does not apply

to these regulations, and because the

notice of proposed rulemaking preceding

the regulations was issued prior to

March 29, 1996, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not

apply. Pursuant to section 7805(f) of the

Internal Revenue Code, the notice of

proposed rule making preceding these

regulations was submitted to the Chief

Counsel for Advocacy of the Small

Business Administration for comment on

its impact on small business.

Drafting Information

The principal author of these regulations is L. Michael Wachtel, Office of

the Assistant Chief Counsel (Financial

Institutions and Products), IRS. However, other personnel from the IRS and

Treasury Department participated in

their development.

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by removing the entry

‘‘1.25–1T–1.25–8T’’ and adding entries

in numerical order to read as follows:

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

Section 1.25–1T also issued under 26

U.S.C. 25.

Section 1.25–2T also issued under 26

U.S.C. 25.

Section 1.25–3 also issued under 26

U.S.C. 25.

Section 1.25–3T also issued under 26

U.S.C. 25.

Section 1.25–4T also issued under 26

U.S.C. 25.

Section 1.25–5T also issued under 26

U.S.C. 25.

Section 1.25–6T also issued under 26

U.S.C. 25.

Section 1.25–7T also issued under 26

U.S.C. 25.

Section 1.25–8T also issued under 26

U.S.C. 25. * * *

Par. 2. Section 1.25–3 is added to

read as follows:

§ 1.25–3 Qualified mortgage credit certificate.

5

cate may be the original certificate, a

certificate issued to a transferee under

§ 1.25–3T(h)(2)(ii), or a certificate previously reissued under this paragraph

(p).

(3) Limitations on reissued certificate. An issuer may reissue a mortgage

credit certificate only if all of the following requirements are satisfied:

(i) The reissued certificate is issued

to the holder of an existing certificate

with respect to the same property to

which the existing certificate relates.

(ii) The reissued certificate entirely

replaces the existing certificate (that is,

the holder cannot retain the existing

certificate with respect to any portion of

the outstanding balance of the certified

mortgage indebtedness specified on the

existing certificate).

(iii) The certified mortgage indebtedness specified on the reissued certificate

does not exceed the remaining outstanding balance of the certified mortgage

indebtedness specified on the existing

certificate.

(iv) The reissued certificate does not

increase the certificate credit rate specified in the existing certificate.

(v) The reissued certificate does not

result in an increase in the tax credit

that would otherwise have been allowable to the holder under the existing

certificate for any taxable year. The

holder of a reissued certificate determines the amount of tax credit that

would otherwise have been allowable by

multiplying the interest that was scheduled to have been paid on the refinanced

loan by the certificate rate of the existing certificate. In the case of a series of

refinancings, the tax credit that would

otherwise have been allowable is determined from the amount of interest that

was scheduled to have been paid on the

original loan and the certificate rate of

the original certificate.

(A) In the case of a refinanced loan

that is a fixed interest rate loan, the

interest that was scheduled to be paid on

the refinanced loan is determined using

the scheduled interest method described

in paragraph (p)(3)(v)(C) of this section.

(B) In the case of a refinanced loan

that is not a fixed interest rate loan, the

interest that was scheduled to be paid on

the refinanced loan is determined using

either the scheduled interest method described in paragraph (p)(3)(v)(C) of this

section or the hypothetical interest

method described in paragraph

(p)(3)(v)(D) of this section.

(C) The scheduled interest method

determines the amount of interest for

each taxable year that was scheduled to

have been paid in the taxable year based

on the terms of the refinanced loan

including any changes in the interest

rate that would have been required by

the terms of the refinanced loan and any

payments of principal that would have

been required by the terms of the refinanced loan (other than repayments required as a result of any refinancing of

the loan).

(D) The hypothetical interest method

(which is available only for refinanced

loans that are not fixed interest rate

loans) determines the amount of interest

treated as having been scheduled to be

paid for a taxable year by constructing

an amortization schedule for a hypothetical self-amortizing loan with level

payments. The hypothetical loan must

have a principal amount equal to the

remaining outstanding balance of the

certified mortgage indebtedness specified on the existing certificate, a maturity equal to that of the refinanced loan,

and interest equal to the annual percentage rate (APR) of the refinancing loan

that is required to be calculated for the

Federal Truth in Lending Act.

(E) A holder must consistently apply

the scheduled interest method or the

hypothetical interest method for all taxable years beginning with the first taxable year the tax credit is claimed by

the holder based upon the reissued certificate.

(4) Examples. The following examples illustrate the application of paragraph (p)(3)(v) of this section:

Example 1. A holder of an existing certificate

that meets the requirements of this section seeks to

refinance the mortgage on the property to which

the existing certificate relates. The final payment

on the holder’s existing mortgage is due on

December 31, 2000; the final payment on the new

mortgage would not be due until January 31,

2004. The holder requests that the issuer provide

to the holder a reissued mortgage credit certificate

in place of the existing certificate. The requested

certificate would have the same certificate credit

rate as the existing certificate. For each calendar

year through the year 2000, the credit that would

be allowable to the holder with respect to the new

mortgage under the requested certificate would not

exceed the credit allowable for that year under the

existing certificate. The requested certificate, however, would allow the holder credits for the years

2001 through 2004, years for which, due to the

earlier scheduled retirement of the existing mortgage, no credit would be allowable under the

existing certificate. Under paragraph (p)(3)(v) of

this section, the issuer may not reissue the certificate as requested because, under the existing

certificate, no credit would be allowable for the

years 2001 through 2004. The issuer may, however, provide a reissued certificate that limits the

amount of the credit allowable in each year to the

amount allowable under the existing certificate.

Because the existing certificate would allow no

credit after December 31, 2000, the reissued

certificate could expire on December 31, 2000.

Example 2. (a) The facts are the same as

Example 1 except that the existing mortgage loan

has a variable rate of interest and the refinancing

loan will have a fixed rate of interest. To determine whether the limit under paragraph (p)(3)(v)

of this section is met for any taxable year, the

holder must calculate the amount of credit that

otherwise would have been allowable absent the

refinancing. This requires a determination of the

amount of interest that would have been payable

on the refinanced loan for the taxable year. The

holder may determine this amount by—

(1) Applying the terms of the refinanced loan,

including the variable interest rate or rates, for the

taxable year as though the refinanced loan continued to exist; or

(2) Obtaining the amount of interest, and calculating the amount of credit that would have been

available, from the schedule of equal payments

that fully amortize a hypothetical loan with the

principal amount equal to the remaining outstanding balance of the certified mortgage indebtedness

specified on the existing certificate, the interest

equal to the annual percentage rate (APR) of the

refinancing loan, and the maturity equal to that of

the refinanced loan.

(b) The holder must apply the same method for

each taxable year the tax credit is claimed based

upon the reissued mortgage credit certificate.

(5) Coordination

with

section

143(m)(3). A refinancing loan underlying a reissued mortgage credit certificate

that replaces a mortgage credit certificate issued on or before December 31,

1990, is not a federally subsidized indebtedness for the purposes of section

143(m)(3) of the Internal Revenue Code.

§ 1.25–3T [Amended}

Par. 3. Section 1.25–3T is amended

by removing paragraphs (g)(1)(iii) and

(p).

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved November 27, 1996.

Donald C. Lubick,

Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on

December 16, 1996, 8:45 a.m., and published in

the issue of the Federal Register for December 17,

1996, 61 F.R. 66212)

Section 42.—Low-Income Housing

Credit

Low-income housing tax credit. This

revenue ruling clarifies that section

502(e)(3) of the Tax Reform Act of

1986 does not prevent a taxpayer from

claiming a low-income housing tax

credit under section 42 of the Code for

6

a building’s credit period beginning after

1995.

Rev. Rul. 97–4

ISSUE

Does § 502(e)(3) of the Tax Reform

Act of 1986 (Act) prevent a taxpayer

from claiming a low-income housing tax

credit under § 42 of the Internal Revenue Code for a building whose credit

period begins after 1995?

FACTS

On January 1, 1995, taxpayer, T,

purchased a residential rental building

(Building) from seller, S. S was allowed

the transition-rule benefits under Act

§ 502(a). T intends to substantially rehabilitate the Building and qualify the

Building for a low-income housing tax

credit under § 42. The credit period for

the Building will begin in 1996.

LAW AND ANALYSIS

Act § 502 contains a transition rule

for taxpayers investing in certain lowincome housing properties that exempts

them from the passive-loss rules under

§ 469. The rule applies for investments

made after 1983 in housing property

constructed or acquired pursuant to a

binding written contract entered into by

August 16, 1986. If a binding contract

existed by that date, taxpayers who

purchased an interest in the property by

the close of 1986 (1988 if the interest

was held through certain partnerships),

and who had not contributed more than

50 percent of their capital obligation,

could qualify for the transition rule.

These taxpayers could claim passive

losses on new low-income housing investments for a limited period of time if

the properties were placed in service

prior to January 1, 1989. After 1995, the

transition-rule benefits of Act § 502 are

no longer available to any taxpayer.

Section 42 provides a tax credit for

investment in qualified low-income

buildings placed in service after December 31, 1986.

A taxpayer may not claim a § 42

credit before the start of a building’s

10-year credit period. Section 42(f) provides that the 10-year credit period for a

building begins with the taxable year the

building is placed in service, or, at the

election of the taxpayer, the succeeding

taxable year.

Act § 502 and § 42 can apply to the

same type of property. To prevent a

taxpayer from obtaining a simultaneous

tax benefit under both sections, Act

§ 502(e)(3) provides that no lowincome housing credit under § 42 is

available ‘‘with respect to any project

with respect to which any person has

been allowed any benefit under [Act

§ 502].’’

The transition-rule benefits under Act

§ 502 are not available to S in 1996 and

future years. Thus, no simultaneous tax

benefit under Act § 502 and § 42 is

available after that date. Therefore, Act

§ 502(e)(3) does not prohibit T from

claiming a § 42 low-income housing

credit for the Building whose credit

period begins after 1995.

HOLDING

Act § 502(e)(3) does not prevent a

taxpayer from claiming a low-income

housing tax credit under § 42 for a

building whose credit period begins after 1995.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Christopher J. Wilson of the

Office of Assistant Chief Counsel

(Passthroughs and Special Industries).

For further information regarding this

revenue ruling contact Mr. Wilson on

(202) 622–3040 (not a toll-free call).

Section 108.—Income From

Discharge of Indebtedness

26 CFR 1.108(c)–1: Time and manner for making

election under the Omnibus Budget Reconciliation

Act of 1993.

T.D. 8688

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Certain Elections Under the

Omnibus Budget Reconciliation Act

of 1993

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the time and

manner of making certain elections under the Omnibus Budget Reconciliation

Act of 1993. These regulations provide

guidance to persons making the elections.

EFFECTIVE DATE: December 12,

1996.

FOR FURTHER INFORMATION CONTACT: George Bradley, 202–622–4920

(not a toll-free number).

SUPPLEMENTARY

INFORMATION:

Paperwork Reduction Act

The collections of information contained in these final regulations have

been reviewed and approved by the

Office of Management and Budget in

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

number 1545–1421. Responses to these

collections of information are required

to obtain the benefits of the particular

election that is the subject of the collection.

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

respond to, a collection of information

unless the collection of information displays a valid control number.

The estimated annual burden per respondent varies from 15 minutes to 45

minutes, depending on individual circumstances, with an estimated average

of 30 minutes.

Comments concerning the accuracy of

this burden estimate and suggestions for

reducing this burden should be sent to

the Internal Revenue Service, Attn:

IRS Reports Clearance Officer, T:FP,

Washington, DC 20224, and to the Office of Management and Budget, Attn:

Desk Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503.

Books or records relating to this collection of information must be retained

as long as their contents may become

material in the administration of any

internal revenue law. Generally, tax returns and tax return information are

confidential, as required by 26 U.S.C.

6103.

Background

This document contains final regulations relating to elections under the

following sections of the Internal Revenue Code of 1986 (Code) and the

Omnibus Budget Reconciliation Act of

1993 (Pub. L. 103–66, 107 Stat. 312)

(Act):

Act

Code

Section

Section

13114

1044(a)

13150

108(c)(3)(C)

13206(d)

163(d)(4)(B)(iii)

13225

6655(e)(2)(C)

7

On December 27, 1993, the Federal

Register published temporary regulations (T.D. 8509 [1994–1 C.B. 24]) and

a cross-reference notice of proposed

rulemaking (IA–62–93 [1994–1 C.B.

803]), 58 FR 68300 and 58 FR 68336,

respectively, relating to these elections.

Three written comments responding to

the regulations were submitted. Since

none of the commentators requested a

public hearing, one was not held. After

consideration of the comments, the proposed regulations are adopted as final

regulations subject to modifications to

proposed § 1.108(c)–1, and the corresponding temporary regulations are removed. The comments and a description

of the modifications to proposed

§ 1.108(c)–1 are discussed below.

Summary of Comments and

Modifications

All three comments related to the

election under section 163(d)(4)(B)(iii),

which allows a taxpayer to take all or a

portion of certain net capital gains,

attributable to dispositions of property

held for investment, into account as

investment income. As a consequence,

the capital gains affected by this election are not eligible for the maximum

capital gain rate of 28 percent. The

election must be made on Form 4952,

Investment Interest Expense Deduction,

on or before the due date (including

extensions) of the income tax return for

the taxable year in which the net capital

gain is recognized.

The commentators questioned the authority of the IRS to require a formal

election, stated that a formal election

will add to the complexity of filing

individual income tax returns, and suggested that taxpayers be allowed to

freely change the manner in which they

treat long-term capital gains, as long as

the taxable year is open. These comments were given careful consideration.

However, they have not been incorporated into these final regulations. The

IRS and the Treasury Department believe that the requirement of a formal

election is supported by the language of

section 163(d)(4)(B)(iii), is not unduly

burdensome, and provides taxpayers

with flexibility, since the election is

revocable.

The final regulations modify the requirements for making the election for

discharge of qualified real property business indebtedness under section 108(c).

Under the previous temporary regulations a taxpayer was required to make

the election with the taxpayer’s income

tax return for the taxable year in which

the discharge occurred, but was permitted to file an election with an amended

return or claim for credit or refund if

the taxpayer established reasonable

cause for failure to file the election with

the original return. The final regulations

require the taxpayer to make the election on the timely-filed (including extensions) Federal income tax return for the

taxable year in which the taxpayer has

discharge of indebtedness income that is

excludible under section 108(a). Therefore, a taxpayer that fails to make the

election on that return must request the

Commissioner’s consent to file a late

election under § 301.9100–3T or any

regulations that supersede § 301.9100–

3T.

Special Analyses

It has been determined that these

regulations are not significant rules as

defined in Executive Order 12866. It

also has been determined that section

553(b) of the Administrative Procedure

Act (5 U.S.C. chapter 5) does not apply

to these regulations, and because the

notice of proposed rulemaking preceding

the regulations was issued prior to

March 29, 1996, a Regulatory Flexibility Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, the notice of proposed rulemaking

preceding these regulations was submitted to the Small Business Administration

for comment on its impact on small

business.

Drafting Information

The principal author of these regulations is George Bradley, Office of Assistant Chief Counsel (Income Tax and

Accounting), Internal Revenue Service.

However, personnel from other offices

of the Internal Revenue Service and the

Treasury Department participated in

their development.

*

*

*

*

*

Adoption of Amendments to the

Regulations

Accordingly, parts 1 and 602 of title

26 of the Code of Federal Regulations

are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by removing the entry

for section 1.108(c)–1T and by adding

an entry in numerical order to read as

follows:

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

Section 1.108(c)–1 also issued under

the authority of 26 U.S.C. 108(d)(9);

***

§ 1.108(c)–1T [Removed]

Par. 2. Section 1.108(c)–1T is removed.

§ 1.163(d)–1T [Removed]

Par. 3. Section 1.163(d)–1T is removed.

§ 1.1044(a)–1T [Removed]

Par. 4. Section 1.1044(a)–1T is removed.

§ 1.6655(e)–1T [Removed]

Par. 5. Section 1.6655(e)–1T is removed.

Par. 6. Section 1.108(c)–1 is added to

read as follows:

§ 1.108(c)–1 Time and manner for

making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 108(c)(3)(C),

as added by section 13150 of the Omnibus Budget Reconciliation Act of 1993

(Public Law 103–66, 107 Stat. 446),

allows certain noncorporate taxpayers to

elect to treat certain indebtedness described in section 108(c)(3) that is discharged after December 31, 1992, as

qualified real property business indebtedness. This discharged indebtedness is

excluded from gross income to the extent allowed by section 108.

(b) Time and manner for making

election. The election described in this

section must be made on the timelyfiled (including extensions) Federal income tax return for the taxable year in

which the taxpayer has discharge of

indebtedness income that is excludible

from gross income under section 108(a).

The election is to be made on a completed Form 982, in accordance with

that Form and its instructions.

(c) Revocability of election. The election described in this section is revocable with the consent of the Commissioner.

(d) Effective date. The rules set forth

in this section are effective December

27, 1993.

Par. 7. Section 1.163(d)–1 is added to

read as follows:

§ 1.163(d)–1 Time and manner for

making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 163(d)(4)(B)(iii), as added by section 13206(d) of

8

the Omnibus Budget Reconciliation Act

of 1993 (Public Law 103–66, 107 Stat.

467), allows an electing taxpayer to take

all or a portion of certain net capital

gains, attributable to dispositions of

property held for investment, into account as investment income. As a consequence, the capital gains affected by this

election are not eligible for the maximum capital gain rate of 28 percent.

The election may be made for net

capital gains recognized by noncorporate

taxpayers during any taxable year beginning after December 31, 1992.

(b) Time and manner for making the

election. The election under section

163(d)(4)(B)(iii) must be made on or

before the due date (including extensions) of the income tax return for the

taxable year in which the net capital

gain is recognized. The election is to be

made on Form 4952, Investment Interest

Expense Deduction, in accordance with

the Form and its instructions.

(c) Revocability of election. The election described in this section is revocable with the consent of the Commissioner.

(d) Effective date. The rules set forth

in this section are effective December

12, 1996.

Par. 8. Section 1.1044(a)–1 is added

to read as follows:

§ 1.1044(a)–1 Time and manner for

making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 1044(a), as

added by section 13114 of the Omnibus

Budget Reconciliation Act of 1993

(Public Law 103–66, 107 Stat. 430),

generally allows individuals and C corporations that sell publicly traded securities after August 9, 1993, to elect not to

recognize certain gain from the sale if

the taxpayer purchases common stock or

a partnership interest in a specialized

small business investment company

(SSBIC) within the 60-day period beginning on the date the publicly traded

securities are sold.

(b) Time and manner for making the

election. The election under section

1044(a) must be made on or before the

due date (including extensions) for the

income tax return for the year in which

the publicly traded securities are sold.

The election is to be made by reporting

the entire gain from the sale of publicly

traded securities on Schedule D of the

income tax return in accordance with

instructions for Schedule D, and by

attaching a statement to Schedule D

showing —

(1) How the nonrecognized gain

was calculated;

(2) The SSBIC in which common

stock or a partnership interest was purchased;

(3) The date the SSBIC stock or

partnership interest was purchased; and

(4) The basis of the SSBIC stock

or partnership interest.

(c) Revocability of election. The election described in this section is revocable with the consent of the Commissioner.

(d) Effective date. The rules set forth

in this section are effective December

12, 1996.

Par. 9. Section 1.6655(e)–1 is added

to read as follows.

§ 1.6655(e)–1 Time and manner for

making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 6655(e)(2)(C), as added by section 13225 of the

Omnibus Budget Reconciliation Act of

1993 (Public Law 103–66, 107 Stat.

486), allows a corporate taxpayer to

make an annual election to use a different annualization period to determine

annualized income for purposes of paying any required installment of estimated income tax for a taxable year

beginning after December 31, 1993.

(b) Time and manner for making the

election. An election under section

6655(e)(2)(C) must be made on or before the date required for the payment

of the first required installment for the

taxable year. For a calendar or fiscal

year corporation, Form 8842, Election to

Use Different Annualization Periods for

Corporate Estimated Tax, must be filed

by the 15th day of the 4th month of the

taxable year for which the election is to

apply. Form 8842 must be filed with the

Internal Revenue Service Center where

the corporation files its income tax

return.

(c) Revocability of election. The election described in this section is irrevocable.

(d) Effective date. The rules set forth

in this section are effective December

12, 1996.

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK

REDUCTION ACT

Authority: 26 U.S.C. 7805.

Par. 11. In § 602.101, paragraph (c)

is amended as follows:

1. The following entries are removed

from the table:

§ 602.101 OMB Control numbers.

*

*

*

*

*

Section 6695.—Other Assessable

Penalties With Respect To the

Preparation of Income Tax Returns

for Other Persons

26 CFR 1.6695–1: Other assessable penalties with

respect to the preparation of income tax returns

for other persons.

(Also Sec. 6061; 301.6061–1)

T.D. 8689

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

(c) * * *

CFR part or section

where identified and

described

Current OMB

control no.

*

*

*

1.108(c)–1T. . . . . . . . .

*

*

*

1.163(d)–1T . . . . . . . .

*

*

*

1.1044(a)–1T. . . . . . . .

*

*

*

1.6655(e)–1T. . . . . . . .

*

*

*

*

*

1545–1421

*

*

1545–1421

*

*

1545–1421

*

*

1545–1421

*

*

Methods of Signing

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

2. The following entries are added in

numerical order to the table:

SUMMARY: This document contains final regulations relating to the methods

of signing returns, statements, or other

documents. The final regulations clarify

that the IRS may prescribe a method

other than pen and ink for signing any

return, statement, or other document.

This clarification will facilitate the IRS’

implementation of paperless filings.

§ 602.101 OMB Control numbers.

EFFECTIVE DATE: These regulations

are effective on December 12, 1996.

*

*

*

*

*

(c) * * *

CFR part or section

where identified and

described

Current OMB

control no.

*

*

*

1.108(c)–1 . . . . . . . . . .

*

*

*

1.163(d)–1. . . . . . . . . .

*

*

*

1.1044(a)–1 . . . . . . . . .

*

*

*

1.6655(e)–1 . . . . . . . . .

*

*

*

*

*

1545–1421

*

*

1545–1421

*

*

1545–1421

*

*

1545–1421

*

*

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved November 1, 1996.

Donald C. Lubick,

Acting, Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on

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

the issue of the Federal Register for December 12,

1996, 61 F.R. 65321)

Par. 10. The authority citation for

part 602 continues to read as follows:

9

FOR FURTHER INFORMATION CONTACT: Celia Gabrysh (202) 622–4940

(not a toll-free number).

SUPPLEMENTARY

INFORMATION:

Background

This document contains amendments

to the Income Tax Regulations (26 CFR

part 1) and the Procedure and Administration Regulations (26 CFR part 301)

that relate to signing returns, statements,

and other documents. Section 6061 provides in part that ‘‘. . . any return, statement, or other document required to be

made under any provision of the internal

revenue laws or regulations shall be

signed in accordance with forms or

regulations prescribed by the Secretary.’’

Traditionally, the IRS has accepted pento-paper signatures. The IRS will prescribe additional methods of signing to

be used for electronically filed returns

and other documents.

The final regulations clarify that the

IRS may prescribe the specific method

of signing any return, statement, or

other document. The final regulations

also provide that the IRS may require a

return preparer to use a method of

signing other than a pen-to-paper signa-

ture or a facsimile signature stamp when

signing a return, statement, or other

document.

On July 21, 1995, temporary regulations (T.D. 8603 [1995–2 C.B. 281])

relating to the signing of returns, statements, and other documents were published in the Federal Register (60 FR

37589). A notice of proposed rulemaking (IA–10–95 [1995–2 C.B. 478])

cross-referencing the temporary regulations was published in the Federal

Register for the same day (60 FR

37621).

One comment responding to this notice was received. A public hearing was

held on November 2, 1995. After consideration of the comment, the proposed

regulations under sections 6061 and

6695 are adopted without change by this

Treasury decision, and the corresponding temporary regulations are removed.

The comment is discussed below.

Summary of Comments

The commentator suggested that the

IRS prescribe by regulation any new

method of signing any return, statement,

or other document to allow the public to

comment on the method’s feasibility.

Also, the commentator suggested that a

regulation would constitute substantial

authority and would provide broader

public exposure.

The final regulations did not adopt

the commentator’s suggestion. The final

regulations retain the full range of options for prescribing new methods of

signing: forms, instructions, or other

appropriate guidance. The final regulations provide the IRS with the flexibility

to address the particular circumstances

of any method of signing. The IRS will

continue to inform the public about

methods of signing.

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 553(b) of the Administrative

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

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

chapter 6) do not apply to these regulations, and therefore, a Regulatory Flexibility Analysis is not required. Pursuant

to section 7805(f) of the Internal Revenue Code, the notice of proposed

rulemaking preceding these regulations

was submitted to the Chief Counsel for

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

small business.

Drafting Information

The principal author of these regulations is Celia Gabrysh, Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel

from the IRS and Treasury Department

participated in their development.

*

*

*

*

*

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301

are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as

follows:

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

Par. 2. Section 1.6695–1 is amended

by revising the first sentence of paragraph (b)(1) to read as follows:

§ 1.6695–1 Other assessable penalties

with respect to the preparation of income tax returns for other persons.

*

*

*

*

*

(b) * * * (1) Unless the Secretary has

prescribed another method of signing

pursuant to § 301.6061–1(b) on or after

July 21, 1995, an individual who is an

income tax return preparer with respect

to a return of tax under subtitle A of the

Internal Revenue Code (Code) or claim

for refund of tax under subtitle A of the

Code shall manually sign the return or

claim for refund (which may be a

photocopy) in the appropriate space provided on the return or claim for refund

after it is completed and before it is

10

presented to the taxpayer (or nontaxable

entity) for signature. * * *

*

*

*

*

*

§ 1.6695–1T [Removed]

Par. 3. Section 1.6695–1T is removed.

PART 301—PROCEDURE AND ADMINISTRATION

Par. 4. The authority citation for part

301 is amended by removing the entry

for § 301.6061–1T and adding an entry

in numerical order to read as follows:

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

Section 301.6061–1 also issued under

26 U.S.C. 6061; * * *

Par. 5. Section 301.6061–1 is revised

to read as follows:

§ 301.6061–1 Signing of returns and

other documents.

(a) In general. For provisions concerning the signing of returns and other

documents, see the regulations relating

to the particular tax.

(b) Method of signing. The Secretary

may prescribe in forms, instructions, or

other appropriate guidance the method

of signing any return, statement, or

other document required to be made

under any provision of the internal revenue laws or regulations.

(c) Effective dates. The rule in paragraph (a) is effective December 12,

1996. The rule in paragraph (b) is

effective on July 21, 1995.

§ 301.6061–1T [Removed]

Par. 6. Section 301.6061–1T is removed.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved November 1, 1996.

Donald C. Lubick,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

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

the issue of the Federal Register for December 12,

1996, 61 F.R. 65319)

Part III. Administrative, Procedural, and Miscellaneous

Electing Small Business Trusts

Notice 97–12

PURPOSE

Section 1302 of the Small Business

Job Protection Act of 1996, Pub. L. No.

104–188, 110 Stat. 1755 (1996) (the

Act) amended § 1361 of the Internal

Revenue Code to permit an Electing

Small Business Trust (ESBT) to be a

shareholder of an S corporation. The

Department of Treasury and the Internal

Revenue Service intend to issue regulations to provide guidance on the application of § 1302 of the Act. This notice

provides guidance in advance of the

issuance of regulations regarding the

ESBT election and the ESBT’s consent

to the S corporation election.

ESBT ELECTION

The trustee of the ESBT must make

the ESBT election pursuant to

§ 1361(e)(3) by signing and filing with

the service center with which the corporation files its income tax return a

statement that—

(1) Contains the name, address, and

taxpayer identification number of all

potential current beneficiaries, the trust,

and the corporation;

(2) Identifies the election as an election made under section 1361(e)(3);

(3) Specifies the date on which the

election is to become effective (not

earlier than 15 days and two months

before the date on which the election is

filed);

(4) Specifies the date (or dates) on

which the stock of the corporation was

transferred to the trust; and

(5) Provides all information and representations necessary to show that:

(A) All potential current beneficiaries meet the shareholder requirements

of section 1361(b)(1); and

(B) The trust meets the definitional

requirements of an ESBT under section

1361(e).

The trustee of the ESBT must file the

ESBT election within the time requirements prescribed in regulation section

1.1361–1(j)(6)(iii) for filing Qualified

Subchapter S Trust (QSST) elections

(generally within the 16-day-and-2month period beginning on the day that

the stock is transferred to the trust). The

trustee may attach the ESBT election to

the Form 2553 in the case of newly

electing S corporations.

ESBT CONSENT TO S

CORPORATION ELECTION

Section 1362(a) provides that all

shareholders must consent to the S corporation election. Section 1361(c)(2)(B)

generally provides that all potential current beneficiaries of the ESBT are

treated as shareholders for purposes of

determining whether the corporation has

eligible shareholders and whether the

number of shareholders does not exceed

75, as provided by § 1361(b)(1). For

purposes of the ESBT’s consent to the S

corporation election under § 1362(a),

however, because the ESBT is taxed on

the S corporation’s income and the

trustee makes the ESBT election, only

the trustee need consent to the S corporation election.

PAPERWORK REDUCTION ACT

The collection of information con-

11

tained in this notice has been reviewed

and approved by the Office of Management and Budget in accordance with the

Paperwork Reduction Act (44 U.S.C.

3507) under control number 1545–1523.

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

respond to, a collection of information

unless the collection of information displays a valid control number.

The collections of information in this

notice are in the section headed ESBT

Election. This information is required by

the IRS to assure compliance with the

new provisions of the Small Business

Job Protection Act of 1996. The likely

respondents are business or other forprofit institutions.

The estimated total reporting burden

is 5,000 hours.

The estimated average burden per

respondent is one hour. The estimated

number of respondents is 5,000.

The estimated frequency of responses

is once.

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

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

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

DRAFTING INFORMATION

The principal author of this notice is

Steven R. Schneider of the Office of

Assistant Chief Counsel (Passthroughs

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

Steven R. Schneider at (202) 622–3060

(not a toll-free call).

Part IV. Items of General Interest

Notice of Proposed Rulemaking

and Notice of Public Hearing

and the hearing, Evangelista Lee, (202)

622–7190 (not a toll-free number).

Allocations of Depreciation

Recapture Among Partners in a

Partnership

SUPPLEMENTARY

INFORMATION:

REG–209762–95

This document proposes to change the

current Income Tax Regulations (26

CFR part 1) relating to the characterization and allocation of depreciation recapture among partners in a partnership.

Section 1245 of the Internal Revenue

Code requires taxpayers to recharacterize as ordinary income some or all of

the gain on the disposition of certain

types of business properties. The amount

recharacterized as ordinary income (recapture gain) is the lesser of: (a) the

gain realized on disposition, or (b) the

total deductions allowed or allowable

for depreciation or amortization from

the property. Section 1.1245–1(e)(2) of

the Income Tax Regulations currently

provides that each partner’s share of

recapture gain will generally be determined in accordance with the provisions

of section 704. The regulations also

provide that, if the partnership agreement provides for the allocation of total

gain from the property but does not

provide for the allocation of recapture

gain, recapture gain is allocated in the

same manner as total gain.

The current regulations create some

uncertainty because it is unclear how

recapture gain is allocated under section

704. The allocation of recapture gain

cannot have substantial economic effect

because classifying a portion of the gain

as recapture gain merely changes the tax

character of the gain. In addition, by

allowing the partnership to allocate recapture gain in the same manner as total

gain, the current regulations increase the

possibility that a partner may receive an

allocation of recapture gain in excess of

the partner’s share of depreciation from

the property. For example, if a partner

acquires an interest in a partnership that

has fully depreciated the property and

the property is subsequently sold at a

gain, the partner may be allocated a

portion of the total gain and a portion of

the recapture gain, even though the

partner did not receive any depreciation

deductions from the property. This mismatch between depreciation allocations

and recapture allocations should be

minimized because recapture gain is

intended to offset the earlier depreciation deductions taken from the property

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 allocation of depreciation recapture among

partners in a partnership. The proposed

regulations amend existing regulations

to require that any gain characterized as

depreciation recapture must be allocated

to each partner in an amount equal to

the lesser of the partner’s share of total

gain from the sale of the property or the

partner’s share of depreciation from the

property. The proposed regulations affect partnerships and their partners. This

document also contains a notice of public hearing on the proposed regulations.

DATES: Written comments must be received by March 6, 1997. Outlines of

oral comments and requests to speak at

the public hearing scheduled for March

27, 1997, at 10 a.m., must be received

by March 6, 1997.

ADDRESSES: Send submissions to

CC:DOM:CORP:R [REG–209762–95],

room 5226, Internal Revenue Service,

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

hand delivered between the hours of 8

a.m. and 5 p.m. to: CC:DOM:CORP:R

[REG–209762–95], 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 3313,

Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION

CONTACT: Concerning the regulations, Daniel J. Coburn or Deborah

Harrington, (202) 622–3050 (not a tollfree number); concerning submissions

1997–3

I.R.B.

Background

12

and should therefore be allocated to the

extent possible to the partner that received those depreciation deductions. Finally, the current regulations do not

provide guidance on the allocation of

recapture gain from contributed property

subject to section 704(c). In the legislative history of the 1984 amendment to

section 704(c), Congress suggested that

Treasury and the Service issue regulations governing the allocation of recapture gain inherent in property contributed to a partnership. See H.R. Rep. No.

861, 98th Cong., 2d Sess. 857 (1984);

see also Staff of the Joint Comm. on

Taxation, 98th Cong., 2d Sess., General

Explanation of the Revenue Provisions

of the Deficit Reduction Act of 1984 214

(Comm. Print 1984). In the 1994 preamble to the section 704(c) final regulations, Treasury and the Service indicated

that this issue would be considered in a

separate regulations project. 59 Fed.

Reg. 66,726 (1994).

Explanation of Provisions

The proposed regulations provide

guidance on allocating recapture gain

among partners, including recapture gain

attributable to contributed property. The

proposed regulations provide that a partner’s share of recapture gain is equal to

the lesser of (1) the partner’s share of

total gain arising from the disposition of

the property, or (2) the partner’s share

of depreciation or amortization from the

property. This rule seeks to insure, to

the extent possible, that a partner recognizes recapture on the disposition of

property in an amount equal to the

depreciation or amortization deductions

previously taken by the partner on the

property. If recapture gain remains unallocated under the general rule, the remaining unallocated gain is allocated

among those partners whose shares of

total gain on the disposition of the

property exceed their shares of depreciation or amortization with respect to the

property. Recapture gain may be unallocated under the general rule if, for

example, the total gain allocated to a

partner on the sale of the property is

less than the amount of depreciation

previously allocated to that partner.

The proposed regulations provide special rules for determining a partner’s

share of depreciation or amortization

from contributed property subject to

section 704(c). The proposed regulations

provide that a contributing partner’s

share of depreciation or amortization

includes depreciation or amortization allowed or allowable prior to contribution.

In addition, the proposed regulations

provide that curative and remedial allocations generally reduce the contributing

partner’s share of depreciation or amortization and increase the noncontributing

partners’ shares of depreciation or amortization.

Treasury and the Service request comments on whether these special rules can

be incorporated into accounting systems

that track section 704(c) allocations for

partnerships with multiple section 704(c)

properties.

Persons that wish to present oral

comments at the hearing must submit

written comments by March 6, 1997,

and submit an outline of the topics to be

discussed and the time to be devoted to

each topic (signed original and eight (8)

copies) by March 6, 1997.

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

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Proposed Effective Date

Drafting Information

These amendments are proposed to

apply to properties acquired by a partnership on or after the date the regulations are published as final regulations

in the Federal Register.

The principal authors of these regulations are Daniel J. Coburn and Deborah

Harrington, Office of Assistant Chief

Counsel (Passthroughs and Special Industries), IRS. However, other personnel

from the IRS and Treasury Department

participated in their development.

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, and, because the regulations

do not impose a collection of information on small entities, the Regulatory

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

not apply. Pursuant to section 7805(f) of

the Internal Revenue Code, this notice

of proposed rulemaking will be submitted to the Chief Counsel for Advocacy

of the Small Business Administration for

comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8)

copies) that are timely submitted to the

IRS. All comments will be available for

public inspection and copying.

A public hearing has been scheduled

for March 27, 1997, at 10:00 a.m. in

room 3313 of the Internal Revenue

Building, 1111 Constitution Avenue,

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

admitted beyond the Internal Revenue

Building lobby more than 15 minutes

before the hearing starts.

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

apply to the hearing.

*

*

*

*

*

PART 1 — INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read, in part, as

follows:

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

Par. 2. Section 1.704–3 is amended as

follows:

1. Paragraphs (a)(9) and (a)(10) are

redesignated as paragraphs (a)(10) and

(a)(11), respectively.

2. New paragraph (a)(9) is added.

The addition reads as follows:

§ 1.704–3 Contributed property.

(a) * * *

(9) Contributing and noncontributing

partners’ recapture shares. For special

rules applicable to the allocation of

recapture gain with respect to property

contributed by a partner to a partnership,

see § § 1.1245–1(e)(2) and 1.1250–1(f).

*

*

*

*

*

Par. 3. Section 1.1245–1 is amended

by revising paragraph (e)(2) to read as

follows:

§ 1.1245–1 General rule for treatment

of gain from dispositions of certain

depreciable property.

*

*

*

*

*

(e) * * *

(2)(i) Unless paragraph (e)(3) of this

section applies, a partner’s distributive

share of gain recognized under section

1245(a)(1) by the partnership is equal to

the lesser of the partner’s share of the

13

total gain from the disposition of the

property or the partner’s share of the

depreciation or amortization with respect

to the property. Any gain recognized

under section 1245(a)(1) by the partnership that is not allocated under the first

sentence of this paragraph is allocated

among the partners whose shares of

total gain exceed their shares of depreciation or amortization with respect to

the property and is allocated to those

partners in proportion to (but not in

excess of) their shares of the total gain

(including gain recognized under section

1245(a)(1)) from the disposition of the

property.

(ii) A partner’s share of depreciation

or amortization with respect to property

equals the total amount of allowed or

allowable depreciation or amortization

previously allocated to that partner with

respect to the property. If a partner

transfers a partnership interest, a share

of depreciation or amortization must be

allocated to the transferee partner as it

would have been allocated to the

transferor partner. If the partner transfers

a portion of the partnership interest, a

share of depreciation or amortization

proportionate to the interest transferred

must be allocated to the transferee partner.

(iii)(A) A partner’s share of depreciation or amortization with respect to

property contributed by the partner includes the amount of depreciation or

amortization allowed or allowable to the

partner for the period prior to the property’s contribution.

(B) The partners’ shares of depreciation or amortization with respect to

property contributed by a partner must

be adjusted to account for any curative

allocations. (See § 1.704–3(c) for a description of the curative allocation

method). The contributing partner’s

share of depreciation or amortization

with respect to the contributed property

is decreased (but not below zero) by the

amount of any curative allocation of

ordinary income to the contributing partner with respect to the contributed property and by the amount of any curative

allocation of deduction or loss (other

than capital loss) allocated to the noncontributing partners with respect to the

contributed property. A noncontributing

partner’s share of depreciation or amortization with respect to the contributed

property is increased by the noncontributing partner’s share of any curative

allocation of ordinary income to the

contributing partner with respect to the

contributed property and by the amount

1997–3

I.R.B.

of any curative allocation of deduction

or loss (other than capital loss) allocated

to the noncontributing partner with respect to the contributed property. The

partners’ shares of depreciation or amortization with respect to property from

which curative allocations of depreciation or amortization are taken is determined without regard to those curative

allocations.

(C) The partners’ shares of depreciation or amortization with respect to

property contributed by a partner must

be adjusted to account for any remedial

allocations. (See § 1.704–3(d) for a description of the remedial allocation

method). The contributing partner’s

share of depreciation or amortization

with respect to the contributed property

is decreased (but not below zero) by the

amount of any remedial allocation of

ordinary income to the contributing partner with respect to the contributed property. A noncontributing partner’s share

of depreciation or amortization with respect to the contributed property is

increased by the amount of any remedial

allocation of depreciation or amortization to the noncontributing partner with

respect to the contributed property.

(D) The principles of this paragraph

(e)(2)(iii) apply in determining the effect

of remedial or curative allocations on a

partner’s share of depreciation or amortization with respect to property for

which differences between book value

and adjusted tax basis are created when

a partnership revalues partnership property pursuant to § 1.704–1(b)(2)(iv)(f).

(iv) Examples. The application of this

paragraph (e)(2) may be illustrated by

the following examples:

Example 1. Recapture allocations. (i) Facts. A

and B each contribute $5,000 cash to form AB, a

general partnership. The partnership agreement

provides that depreciation deductions will be allocated 90 percent to A and 10 percent to B, and, on

the sale of depreciable property, A will first be

allocated gain to the extent necessary to equalize

A’s and B’s capital accounts. Any remaining gain

will be allocated 50 percent to A and 50 percent to

B. In its first year of operations, AB purchases

depreciable equipment for $5,000. AB depreciates

the equipment over its 5-year recovery period and

elects to use the straight-line method. In its first

year of operations, AB’s operating income equals

its expenses (other than depreciation).

(ii) Year 1. In its first year of operations, AB

has $1,000 of depreciation from the partnership

equipment. (To simplify this example, the partnership’s depreciation deductions are determined

without regard to any first-year depreciation conventions.) In accordance with the partnership

agreement, AB allocates 90 percent ($900) of the

depreciation to A and 10 percent ($100) of the

depreciation to B. At the end of the year, AB sells

the equipment for $5,200, recognizing $1,200 of

gain ($5,200 amount realized less $4,000 adjusted

1997–3

I.R.B.

tax basis). In accordance with the partnership

agreement, the first $800 of gain is allocated to A

to equalize the partners’ capital accounts, and the

remaining $400 of gain is allocated $200 to A and

$200 to B.

(iii) Recapture allocations. $1,000 of the gain

from the sale of the equipment is treated as gain

recognized under section 1245(a)(1). Under paragraph (e)(2)(i) of this section, each partner’s share

of this section 1245 gain is the lesser of the

partner’s share of total gain recognized on the sale

of the equipment or the partner’s share of total

depreciation with respect to the equipment. Thus,

A’s share of the section 1245 gain is $900 (the

lesser of A’s share of total gain ($1,000) and A’s

share of depreciation ($900)) and B’s share of the

section 1245 gain is $100 (the lesser of B’s share

of total gain ($200) and B’s share of depreciation

($100)). Accordingly, $900 of the $1,000 of total

gain allocated to A will be treated as ordinary

income and $100 of the $200 of total gain

allocated to B will be treated as ordinary income.

Example 2. Recapture allocation limited by

gain share. Assume the same facts as in Example

1, except that the partnership agreement provides

that gains and losses from the sale of depreciable

property will be allocated equally between the

partners. On the sale of the equipment, the

partnership’s total gain of $1,200 is allocated $600

to A and $600 to B. Under paragraph (e)(2)(i) of

this section, A’s share of the section 1245 gain is

limited to $600 (the amount of total gain allocated

to A) even though A’s share of the total depreciation from the equipment was $900. The remaining

$400 of section 1245 gain must be allocated to B.

Accordingly, all $600 of total gain allocated to A

is treated as ordinary income and $400 of the

$600 of total gain allocated to B is treated as

ordinary income.

Example 3. Determination of partners’ shares of

depreciation with respect to contributed property.

(i) Facts. C and D form partnership CD as equal

partners. C contributes depreciable personal property C1 with an adjusted tax basis of $800 and a

fair market value of $2,800. D contributes $2,800

cash. Prior to contributing C1, C claimed $200 of

depreciation from C1. At the time of contribution,

C1 has four years remaining on its 5-year recovery

period and is depreciable under the straight-line

method. At the time CD is formed, it purchases

depreciable personal property D1 for $2,800,

which is depreciable over seven years under the

straight-line method. (To simplify the example, all

depreciation is determined without regard to any

first-year depreciation conventions).

(ii) Traditional method. C and D will each be

allocated $350 of the total of $700 of book

depreciation from C1 in year 1. Under the traditional method of making section 704(c) allocations, C will not be allocated any tax depreciation

from C1 and D will be allocated the entire $200

of tax depreciation from C1. C and D will each be

allocated $200 of book and tax depreciation from

D1. As a result, after the first year of partnership

operations, C’s share of depreciation with respect

to C1 is $200 (the depreciation taken by C prior to

contribution) and D’s share of depreciation with

respect to C1 is $200 (the amount of tax depreciation allocated to D). C and D each have a $200

share of depreciation with respect to D1.

(iii) Effect of curative allocations. If the partnership elects to make curative allocations under

§ 1.704–3(c) using depreciation from D1, the

results in year 1 will be the same as under the

traditional method, except that $150 of the $200

of tax depreciation from D1 that would have been

allocated to C under the traditional method will be

allocated to D as additional depreciation with

14

respect to C1. As a result, after the first year of

partnership operations, C’s share of depreciation

with respect to C1 will be reduced to $50 (the

total depreciation taken by C prior to contribution

($200) decreased by the amount of the curative

allocation to D ($150)). C’s share of depreciation

with respect to D1 will still be $200 and D’s share

of depreciation with respect to C1 will be $350

(the depreciation allocated to D under the traditional method ($200) increased by the amount of

the curative allocation to D ($150)). D’s share of

depreciation with respect to D1 will still be $200.

(iv) Effect of remedial allocations. If the partnership elects the remedial allocation method for

making section 704(c) allocations under § 1.704–

3(d), there will be $600 of total book depreciation

from C1 in year 1. (Under the remedial allocation

method, the amount by which C1’s book basis

($2,800) exceeds its tax basis ($800) is depreciated over a 5-year life, rather than a 4-year life). C

and D will each be allocated one-half ($300) of

the total book depreciation. As under the traditional method, C will be allocated $0 of tax

depreciation from C1 and D will be allocated $200

of tax depreciation from C1. Because the ceiling

rule would cause a disparity of $100 between D’s

book and tax allocations of depreciation, D will

also receive a $100 remedial allocation of depreciation with respect to C1, and C will receive a

$100 remedial allocation of income with respect to

C1. As a result, after the first year of partnership

operations, D’s share of depreciation with respect

to C1 is $300 (the depreciation allocated to D

under the traditional method ($200) increased by

the amount of the remedial allocation ($100)). C’s

share of depreciation with respect to C1 is $100

(the total depreciation taken by C prior to contribution ($200) decreased by the amount of the

remedial allocation of income ($100)). As under

the traditional method, C and D each have a $200

share of depreciation with respect to D1.

(v) Effective date. This paragraph

(e)(2) is effective for properties acquired

by the partnership on or after the date

the regulations are published as final

regulations in the Federal Register.

*

*

*

*

*

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

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

the issue of the Federal Register for December 12,

1996, 61 F.R. 65371)

Inadvertent Invalid S Elections and

Late S Elections

Announcement 97–4

This announcement informs taxpayers

of a recently enacted Internal Revenue

Code provision that allows the Internal

Revenue Service (IRS) to treat a late

subchapter S election as timely made

and to waive the defects in an inadvertent invalid S election.

Section 1305 of the Small Business

Job Protection Act, Pub. L. No. 104–

188, 110 Stat. 1755, enacted August 20,

1996, amends §§ 1362(b) and (f) of the

Internal Revenue Code, effective for

taxable years beginning after December

31, 1982.

I. LATE SUBCHAPTER S

ELECTIONS

A small business corporation must

elect to be an S corporation no later

than the 15th day of the third month of

the taxable year for which the election

is effective. Under prior law, the IRS

did not have the authority to validate a

late election.

New § 1362(b)(5) of the Code allows

the Secretary to treat an election to be

an S corporation as timely filed if either

the election is made after the date

prescribed or no such election was

made, provided the Secretary determines

there was reasonable cause for the failure to timely file the S election.

Generally, in order to obtain relief

under § 1362(b)(5) of the Code, a taxpayer must receive a private letter ruling

from the IRS. The procedural requirements for requesting a ruling are described in Revenue Procedure 97–1,

1997–1 I.R.B.

However, a special transition rule for

seeking relief under § 1362(b)(5) is provided for untimely S corporation elections made for a taxable year beginning

in 1996. Under this rule, taxpayers who

did not file an S corporation election in

a timely fashion for the 1996 taxable

year may seek relief under § 1362(b)(5)

of the Code by submitting on or before

February 15, 1997, an S corporation

election to the applicable service center

as well as a letter explaining the reasonable cause for the untimely S corporation election.

Any taxpayer who is not eligible for

the relief under the special transition

rule described above may request relief

by applying for a private letter ruling.

II. INADVERTENT INVALID S

CORPORATION ELECTIONS

Under prior law, if the IRS determined that a corporation’s subchapter S

election was inadvertently terminated,

the IRS could waive the effect of the

terminating event for any period if the

corporation timely corrected the event

and if the shareholders agreed to be

treated as if the election had been in

effect for that period. Such waivers

generally are obtained through the issuance of a private letter ruling. Prior law

did not grant the IRS the ability to

waive the effect of an inadvertent invalid subchapter S election.

New § 1362(f) of the Code applies

the inadvertent termination relief rules

in situations where an election by a

corporation to be treated as a small

business corporation was invalid due to

a failure to meet the requirements of an

S corporation found in § 1361(b) or to

obtain all of the shareholder consents.

Generally, in order to obtain relief for

inadvertent invalid elections, the corporation must request a private letter ruling from the IRS. Sections 1.1362–4(c)

through (f) of the Income Tax Regulations provide rules for corporations requesting inadvertent termination relief

under § 1362(f). These rules will also

apply to corporations requesting inadvertent invalid election relief.

In situations where taxpayers fail to

obtain all of the necessary shareholder

consents on Form 2553, section 1.1362–

6(b)(3)(iii) provides rules for obtaining

§ 1362(f) relief from the district director or director of the service center with

which the corporation files its income

tax return.

III. PAPERWORK REDUCTION ACT

The collection of information contained in this announcement has been

reviewed and approved by the Office of

Management and Budget in accordance

with the Paperwork Reduction Act (44

U.S.C. 3507) under control number

1545–1524.

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

respond to, a collection of information

unless the collection of information displays a valid control number.

The collection of information in this

announcement is in part I. LATE

SUBCHAPTER S ELECTIONS. This

information is required to be submitted

to the applicable service center in order

to obtain late S corporation election

relief. This information will be used to

determine if the reasonable cause requirement in § 1362(b)(5) has been met.

The collection of information is required

to obtain a benefit. The likely respondents are business or other for-profit

institutions.

The estimated total annual reporting

burden is 800 hours.

The estimated annual burden per respondent is 1 hour. The estimated number of respondents is 800.

This announcement provides for a

15

single response that must be completed

by February 15, 1997.

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

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

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

The principal author of this announcement is Mark D. Harris of the Office of

Assistant Chief Counsel (Passthroughs

and Special Industries). For further information regarding this announcement

contact Mr. Harris at (202) 622–3050

(not a toll-free call).

New Form 8832, Entity

Classification Election, Now

Available

Announcement 97–5

Final regulations under section 7701

of the Internal Revenue Code became

effective on January 1, 1997. The new

regulations allow certain business entities to choose their classification for

Federal tax purposes under an elective

regime. Under the regulations, any business entity that is not required to be

treated as a corporation is an ‘‘eligible

entity’’ that may choose its classification. In order to provide most eligible

entities with the classification they

would choose without requiring them to

file an election, the regulations provide

default classification rules. For example,

under the default rules, a domestic eligible entity will be treated as a partnership if it has two or more members, and

disregarded as an entity separate from

its owner if it has a single owner.

Form 8832 was developed for eligible

entities that choose not to be classified

under the default rules or that wish to

change their previous classification. The

IRS will use the information entered on

Form 8832 to establish the entity’s filing

and reporting requirements for Federal

tax purposes.

Form 8832 is available electronically

through the IRS Home Page on the

World Wide Web (http://www.irs.

ustreas.gov) or by modem directly to

703–321–8020 (not a toll-free number).

You may also order Form 8832 by

calling 1–800–TAX–FORM (1–800–

829–3676).

1997–3

I.R.B.

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as ‘‘rulings’’)

that have an effect on previous rulings

use the following defined terms to describe the effect:

Amplified describes a situation where

no change is being made in a prior

published position, but the prior position

is being extended to apply to a variation

of the fact situation set forth therein.

Thus, if an earlier ruling held that a

principle applied to A, and the new

ruling holds that the same principle also

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

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

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

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it

applies to both A and B, the prior ruling

Abbreviations

The following abbreviations in current use and

formerly used will appear in material published in

the Bulletin.

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

and clarified, above).

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

used in a ruling that lists previously

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

A ruling may also be obsoleted because

the substance has been included in regulations subsequently adopted.

Revoked describes situations where

the position in the previously published

ruling is not correct and the correct

position is being stated in the new

ruling.

Superseded describes a situation

where the new ruling does nothing more

than restate the substance and situation

of a previously published ruling (or

rulings). Thus, the term is used to

republish under the 1986 Code and

regulations the same position published

under the 1939 Code and regulations.

The term is also used when it is desired

to republish in a single ruling a series of

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

separate rulings. If the new ruling does

more than restate the substance of a

prior ruling, a combination of terms is

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

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

continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names

of countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be

published that includes the list in the

original ruling and the additions, and

supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

ER—Employer.

PR—Partner.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

Del. Order—Delegation Order.

M—Minor.

DISC—Domestic International Sales Corporation.

Nonacq.—Nonacquiescence.

DR—Donor.

O—Organization.

E—Estate.

P—Parent Corporation.

X—Corporation.

EE—Employee.

PHC—Personal Holding Company.

Y—Corporation.

E.O.—Executive Order.

PO—Possession of the U.S.

Z—Corporation.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

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

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

I.R.B.—Internal Revenue Bulletin.

TFR—Transferor.

LE—Lessee.

T.I.R.—Technical Information Release.

LP—Limited Partner.

TP—Taxpayer.

LR—Lessor.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

16

Numerical Finding List1

Bulletin 1997–1 through 1997–2

Announcements:

97–1, 1997–2 I.R.B. 63

97–2, 1997–2 I.R.B. 63

97–3, 1997–2 I.R.B. 63

Notices:

97–1, 1997–2 I.R.B. 22

97–2, 1997–2 I.R.B. 22

97–3, 1997–1 I.R.B. 8

97–4, 1997–2 I.R.B. 24

97–5, 1997–2 I.R.B. 25

97–6, 1997–2 I.R.B. 26

97–7, 1997–1 I.R.B. 8

97–9, 1997–2 I.R.B. 35

97–10, 1997–2 I.R.B. 41

97–11, 1997–2 I.R.B. 50

Revenue Procedures:

97–1, 1997–1 I.R.B. 11

97–2, 1997–1 I.R.B. 64

97–3, 1997–1 I.R.B. 84

97–4, 1997–1 I.R.B. 96

97–5, 1997–1 I.R.B. 132

97–6, 1997–1 I.R.B. 153

97–7, 1997–1 I.R.B. 185

97–8, 1997–1 I.R.B. 187

97–9, 1997–2 I.R.B. 56

97–10, 1997–2 I.R.B. 59

Revenue Rulings:

97–1, 1997–2 I.R.B. 10

97–2, 1997–2 I.R.B. 7

97–3, 1997–2 I.R.B. 5

Tresury Decisions:

8697, 1997–2 I.R.B. 11

1

A cumulative list of all Revenue Rulings, Revenue Procedures, Treasury Decisions, etc., published in Internal Revenue Bulletins 1996–27

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

17

Finding List of Current Action on

Previously Published Items1

Bulletin 1997–1 through 1997–2

*Denotes entry since last publication

Revenue Procedures:

92–20

Modified by

97–1, 1997–1 I.R.B. 11

Revenue Rulings—Continued

96–43

Superseded by

97–3, 1997–1 I.R.B. 84

96–56

Superseded by

97–3, 1997–1 I.R.B. 84

92–20

Modified by

97–10, 1997–2 I.R.B. 59

92–90

Superseded by

97–1, 1997–1 I.R.B. 11

96–1

Superseded by

97–1, 1997–1 I.R.B. 11

96–2

Superseded by

97–2, 1997–1 I.R.B. 64

96–3

Superseded by

97–3, 1997–1 I.R.B. 84

96–4

Superseded by

97–4, 1997–1 I.R.B. 96

96–5

Superseded by

97–5, 1997–1 I.R.B. 132

96–6

Superseded by

97–6, 1997–1 I.R.B. 153

96–7

Superseded by

97–7, 1997–1 I.R.B. 185

96–8

Superseded by

97–8, 1997–1 I.R.B. 187

Revenue Rulings:

92–19

Supplemented in part by

97–2, 1997–2 I.R.B. 7

96–12

Superseded by

97–3, 1997–1 I.R.B. 84

96–13

Modified by

97–1, 1997–1 I.R.B. 11

96–22

Superseded by

97–3, 1997–1 I.R.B. 84

96–34

Superseded by

97–3, 1997–1 I.R.B. 84

96–39

Superseded by

97–3, 1997–1 I.R.B. 84

1

A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

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

1997.

18