# IRB 2000-5

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8090cc78e918ee6a

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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Bulletin No. 2000–5
January 31, 2000

Internal Revenue

bulletin
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

EXEMPT ORGANIZATIONS

Rev. Rul. 2000–5, page 436.
Application of section 368(a)(1)(A) to divisive mergers. This ruling holds that a state law merger will not qualify as a reorganization under section 368(a)(1)(A) of the
Code if the merger does not result in one corporation acquiring the assets of a target corporation and the target
corporation ceasing to exist.

T.D. 8859, page 429.

T.D. 8861, page 441.
Final regulations under section 6104(d) of the Code relate
to the disclosure requirements of private foundations.

ADMINISTRATIVE

Final regulations under section 42 of the Code amend various low-income housing tax credit regulations including
the procedures for compliance monitoring by the state
and local housing agencies, the requirements for making
carryover allocations, and the rules for the agencies’ correction of administrative errors or omissions. In addition,
the regulations require the independent verification of information on sources and uses of funds submitted by taxpayers to the agencies.

REG–103831–99, page 452.

T.D. 8860, page 437.

REG–116567–99, page 463.

Final regulations under section 988 of the Code relate to the
treatment of income and expenses from certain hyperinflationary, nonfunctional currency transactions and certain notional principal contracts.

Proposed regulations address when a currency will be
considered hyperinflationary under section 988 of the
Code. These regulations are intended to prevent distortions associated with the computation of income and ex-

Proposed regulations under section 752 of the Code relate
to the allocation of nonrecourse liabilities by a partnership. A
public hearing is scheduled for May 3, 2000.

REG–111119–99, page 455.
Proposed regulations under section 708 of the Code clarify
the tax consequences of partnership mergers and divisions.
A public hearing is scheduled for May 4, 2000.

(Continued on the next page )
Actions Relating to Court Decisions is on the page following the Introduction.
Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service

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ADMINISTRATIVE—continued
penses arising from section 988 transactions denominated in hyperinflationary currencies. A public hearing is
scheduled for May 17, 2000.

Rev. Proc. 2000–15, page 447.
Innocent spouse; equitable relief. Guidance is provided
for taxpayers seeking relief from federal tax liability under
section 6015(f) or 66(c) of the Code. Notice 98–61 modified and superseded.

Notice 2000–9, page 449.
Insurance companies; treatment of variable contracts, closing agreements. This notice reminds issuers
of variable contracts that diversification rules for investments in U.S. Treasury securities by separate accounts

January 31, 2000

are different for variable annuity contracts than for variable life insurance contracts. For a limited time, the notice
permits issuers of variable annuity contracts that did not
satisfy the diversification requirements under section
817(h) of the Code, but which would have satisfied the
more lenient diversification requirements for variable life
insurance contracts, to obtain a closing agreement
through a reduced payment amount.

Notice 2000–10, page 451.
Guidance Priority List. Public comments are requested
about items that should be included in the Guidance Priority List for 2000. All comments should be submitted by
February 14, 2000.

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The IRS Mission
Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities

and by applying the tax law with integrity and fairness to
all.

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 are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semiannual period, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

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Actions Relating to Court Decisions
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in certain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on unappealed issues decided adverse to the
government. Generally, an Action on Decision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirmative statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclusions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommendation of the Action on Decision to similar
cases where the facts are different. Moreover, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published ac-

quiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be helpful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court deciding the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as acquiescence, acquiescence in result only,
or nonacquiescence. Both “acquiescence” and “acquiescence in result only”
mean that the Service accepts the holding
of the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “acquiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. “Nonacquiescence” signifies that, although no further review

was sought, the Service does not agree
with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit
court of appeals, a “nonacquiescence” indicates that the Service will not follow
the holding on a nationwide basis. However, the Service will recognize the
precedential impact of the opinion on
cases arising within the venue of the deciding circuit.
The Actions on Decisions published in
the weekly Internal Revenue Bulletin are
consolidated semiannually and appear in
the first Bulletin for July and the Cumulative Bulletin for the first half of the
year. A semiannual consolidation also appears in the first Bulletin for the following January and in the Cumulative Bulletin for the last half of the year.
The Commissioner ACQUIESCES in
result only in the following decision:
McLeod v. United States,1
276 F. Supp. 213 (S.D. Ala. 1967)

1 Acquiescence in result only relating to whether minor children, listed as exemptions on taxpayer’s income tax return for 1964, were taxpayer’s dependents within

the meaning of I.R.C. section 152.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section.—42 Low-Income
Housing Credit
26 CFR 1.42–5: Monitoring compliance with lowincome housing credit requirements.

T.D. 8859
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Compliance Monitoring and
Miscellaneous Issues Relating to
the Low-Income Housing Credit
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations regarding the procedures
for compliance monitoring by state and
local housing agencies (Agencies) with
the requirements of the low-income housing credit; the requirements for making
carryover allocations; the rules for Agencies’ correction of administrative errors or
omissions; and the independent verification of information on sources and uses of
funds submitted by taxpayers to Agencies. These final regulations affect owners of low-income housing projects who
claim the credit and the Agencies who administer the credit.
DATES: Effective Dates: These regulations are effective January 1, 2001, except
that the amendments made to
§§1.42–5(c)(5) and (e)(3)(i), and 1.42–13
are effective January 14, 2000, and the
amendment made to §1.42–6(d)(4)(ii) is
effective January 1, 2000.
Applicability Dates: For dates of applicability of the amendments to §1.42–5,
see §1.42–5(h). For date of applicability
of the amendment made to §1.42–6, see
§1.42–12(c). For date of applicability of
the amendments made to §1.42–13, see
§1.42–13(d). For date of applicability of
§1.42–17, see §1.42–17(b).
FOR FURTHER INFORMATION CONTACT: Paul Handleman, (202) 622-3040
(not a toll-free number).
SUPPLEMENTARY INFORMATION:

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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 of
1995 (44 U.S.C. 3507) under control
number 1545-1357. Responses to these
collections of information are mandatory.
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.
For §1.42–5, the estimated annual burden per respondent varies from .5 hour to
3 hours for taxpayers and 250 to 5,000
hours for Agencies, with an estimated average of 1 hour for taxpayers and 1,500
hours for Agencies. For §1.42–13, the
estimated annual burden per respondent
varies from .5 hour to 10 hours for taxpayers and Agencies, with an estimated
average of 3.5 hours for taxpayers and 3
hours for Agencies. For §1.42–17, the
estimated annual burden per respondent
varies from .5 hour to 2 hours for taxpayers and .5 hour to 5 hours for Agencies,
with an estimated average of 1 hour for
taxpayers and 2 hours for Agencies.
Comments concerning the accuracy of
these burden estimates and suggestions
for reducing these burdens should be sent
to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer,
OP:FS: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
On January 8, 1999, the IRS published
proposed regulations (REG–114664–97,
1999–11 I.R.B. 21) in the Federal Register (64 FR 1143) inviting comments
under section 42. A public hearing was

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held May 27, 1999. Numerous comments
have been received. After consideration
of all the comments, the proposed regulations are adopted as revised by this Treasury Decision.
Public Comments
A. Compliance Monitoring
1. Inspection Requirement for New Buildings.
The proposed regulations require that,
by the end of the calendar year following
the year the last building in a project is
placed in service, the Agency conduct onsite inspections of the projects and review
the low-income certification, the documentation supporting such certification,
and the rent record for each tenant in the
project. Most commentators view the requirement for reviewing all tenant records
for all buildings in a project as unnecessary and burdensome. Most commentators suggest limiting inspections for new
buildings to 20 percent of the project’s
low-income units. Commentators also
suggest extending the time limit for inspecting new buildings to the end of the
calendar year following the first year of
the credit period or at least until a reasonable time after the Agency issues Form
8609, “Low-Income Housing Credit Allocation Certification.” This added flexibility would allow the Agency to combine a
physical inspection with a file review of
the first year of the credit period.
In response to the comments, the final
regulations reduce the inspection burden
for new buildings by requiring the
Agency to conduct on-site inspections of
all new buildings in the project and, for at
least 20 percent of the project’s low-income units, to inspect the units and review the low-income certifications, the
documentation supporting the certifications, and the rent records for the tenants
in those units. To allow the Agency sufficient time to review the tenant files for the
first year of the credit period, the final
regulations extend the time limit for inspecting new buildings to the end of the
second calendar year following the year
the last building in the project is placed in
service.
2. Three-year Inspection Requirement.
The proposed regulations require that,

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at least once every 3 years, each Agency
conduct on-site inspections of all buildings in each low-income housing project
and, for each tenant in at least 20 percent
of the project’s low-income units selected
by the Agency, review the low-income
certification, the documentation supporting such certification, and the rent record.
Most commentators agree with requiring physical inspections of the buildings
at least once every 3 years. However,
commentators recommend reviewing tenant income and rent records once every 5
years, which is one of the options under
the current compliance monitoring regulations (see §1.42–5(c)(2)(ii)(B) requiring
an Agency to review tenant files for 20
percent of the low-income housing projects each year). Commentators also recommend reviewing tenant files either onsite or at other locations, including desk
audits.
Although the physical inspection and
file review requirements for new buildings are relaxed in the final regulations,
the final regulations retain the 3-year inspection cycle for existing buildings. The
final regulations do not separate the physical inspection and file review cycles
(every 3 years for physical inspections
and every 5 years for file reviews) as suggested by commentators because it is administratively complete to do both during
the same year. The tenant income and
rent restrictions in section 42(g) are
equally important as the habitability standards for a low-income unit in section
42(i)(3)(B)(ii). The final regulations
adopt the suggestion that the file review
may be done wherever the tenant files are
maintained.
3. Health, Safety, and Building Code Inspections.
The proposed regulations require the
Agency to determine whether the project
is suitable for occupancy, taking into account local health, safety, and building
codes. Many commentators object to this
requirement as too costly and unadministerable because building codes vary considerably within states. Commentators
also asked for guidelines as to what constitutes an “inspection.” Some commentators propose defining an inspection as
looking at selected units in the building
and common areas for visible problems or
defects without applying the local health,
safety, and building codes standards. One

January 31, 2000

commentator suggests inspections based
on a complaint from the local jurisdiction
or from a tenant. Some commentators
suggest using a uniform physical standard
such as the uniform physical condition
standards for public housing established
by the Department of Housing and Urban
Development (HUD) in 24 CFR 5.703.
Section 42(i)(3)(B)(i) excludes from
the definition of a “low-income unit” a
unit that is not suitable for occupancy.
Under section 42(i)(3)(B)(ii), suitability
of a unit for occupancy shall be determined under regulations prescribed by the
Secretary taking into account local health,
safety, and building codes. Recognizing
that these codes vary considerably within
states, the final regulations require an
Agency to determine whether a low-income housing project satisfies these
codes, or satisfies the HUD uniform physical condition standards. The HUD standards are intended to ensure that housing
is decent, safe, sanitary, and in good repair. Though it would be appropriate that
an Agency use HUD’s inspection protocol
under 24 CFR 5.705, the final regulations
do not mandate use of HUD’s inspection
protocol because to do so could increase
costs to the Agencies as well as limit their
latitude in applying standards consistent
with their own operating procedures and
practices. The final regulations except a
building from the inspection requirement
if the building is financed by the Rural
Housing Service (RHS) under the section
515 program, the RHS inspects the building (under 7 CFR part 1930(c)), and the
RHS and Agency enter into a memorandum of understanding, or other similar
arrangement, under which the RHS
agrees to notify the Agency of the inspection results. Irrespective of the physical
inspection standard selected by the
Agency, a low-income housing project
under section 42 must continue to satisfy
local health, safety, and building codes.
The proposed regulations limit an
Agency’s delegation of the physical inspection of a project to only a state or
local government unit responsible for
making building code inspections. Commentators suggest expanding the delegation of inspections to professional firms.
The final regulations remove the delegation limitation and Agencies may delegate
the physical inspection requirement to
state or local governmental agencies,

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HUD, or private contractors.
4. Local Reports of Building Code Violations.
The proposed regulations require the
owner of a low-income housing project to
certify that for the preceding 12-month
period the state or local government unit
responsible for making building code inspections didnot issue a report of a violation for the project. If the governmental
unit issued a report of a violation, the
owner is required to attach a copy of the
report of the violation to the annual certification submitted to the Agency.
A commentator noted that the number
of violations attached to the annual owner
certification would be considerable because even the highest quality rental
housing operations do not have an inspection without a report or notice of some violation. Two commentators suggest attaching reports only for violations that
have not been corrected prior to filing the
annual owner certification or requiring
that owners only attach reports for
“major” violations. The commentators
suggest defining major violations as violations not corrected within 90 days of the
notice of violation or violations where the
cost to comply exceeds $2,500. A commentator suggests that Agencies be allowed to distinguish between minor technical violations and serious violations
(i.e., lack of heat or hot water, hazardous
conditions, and security) in reporting noncompliance.
Though a minor violation will not lead
to the disallowance or recapture of section
42 credits, a series of minor violations
may be the equivalent of a major violation
resulting in disallowance or recapture of
credits. Determining the difference between a major and minor violation is subjective. The final regulations do not exclude minor violations from the reporting
and recordkeeping requirement. However, to reduce the inspection violation
paperwork, the final regulations require
that the owner must either attach a statement summarizing the violations or a
copy of each violation report to the annual
owner certification submitted to the
Agency. The owner must state on the certification whether the violation has been
corrected. In addition, the final regulations require that the owner retain the
original violation report for the Agency’s
physical inspection. Retention of the

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original violation report is not required
once the Agency reviews the violation
and completes its inspection, unless the
violation remains uncorrected.
5. Correction of Noncompliance or Failure to Certify.
The final regulations adopt commentators’ suggestion to limit to a 3-year period
after the end of the correction period in
§1.42–5(e)(4) the requirement that Agencies file Form 8823, “Low-Income Housing Credit Agencies Report of Noncompliance,” with the IRS reporting the
correction of the noncompliance or failure
to certify.
6. Compliance Monitoring Effective
Dates.
Commentators suggest an effective
date of at least one year after the final regulations are published in the Federal Register. Commentators also recommend onsite inspections apply only to new
buildings allocated section 42 credits after
the effective date of the final regulations.
Because the amendments to the compliance monitoring regulations will require amendments to qualified allocation
plans, the final regulations relating to
compliance generally contain a January 1,
2001, effective date. Thus, the requirements to attach local health, safety, or
building code violations to the annual
owner certification and to inspect buildings and review tenant files for existing
projects are effective January 1, 2001.
The inspection requirement and tenant
file review for new buildings is effective
for buildings placed in service on or after
January 1, 2001.
7. Section 8 and Federal Civil Rights
Laws.
Two commentators state that insufficient controls are in place to ensure that
low-income housing projects adhere to
the requirement in section 42(h)(6)(B)(iv)
of nondiscrimination against Section 8
voucher or certificate holders. The commentators suggest that the IRS could help
compensate for lack of controls by working with HUD to ensure that Section 8
voucher or certificate holders are aware
of, and have access to, low-income housing projects. The commentators also suggest that Agencies provide regional HUD
offices a list of low-income housing projects in that state, with information that
would be helpful for prospective tenants.
One commentator suggests that the prohi-

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bition on discrimination based on Section
8 status be clarified to exclude policies
that bar Section 8 tenants but have no substantial business justification. For example, low-income housing projects should
not be permitted to exclude Section 8
voucher or certificate holders through a
rule that requires every applicant to have
income equal to at least three times the
total rent.
The commentators also suggest that the
Agencies should be required to develop a
plan for educating applicants and owners
of projects of the prohibition against discrimination on the basis of Section 8
voucher or certificate status. They recommend that the Agencies should be required to have a procedure for accepting
and processing complaints about discrimination against Section 8 voucher or certificate holders. They also recommend
that IRS and HUD should work together
to study the circumstances under which
Section 8 voucher or certificate holders
are, or are not, accessing projects.
Section 42(h)(6)(A) provides that no
credit shall be allowed by reason of section 42 with respect to any building for
the taxable year unless an extended lowincome housing commitment is in effect
as of the end of such taxable year. Section 42(h)(6)(B)(iv) defines the term “extended low-income housing commitment”
to include any agreement between the
taxpayer and the housing credit agency
that prohibits the refusal to lease to a
holder of a voucher or certificate of eligibility under section 8 of the United States
Housing Act of 1937 because of the status
of the prospective tenant as such a holder.
To help monitor compliance with section
42(h)(6)(B)(iv), the final regulations
amend the annual owner certification relating to the extended low-income housing commitment under §1.42–5(c)(1)(xi)
to require owners to certify that the owner
has not refused to lease a unit in the project to a Section 8 applicant because the
applicant holds a Section 8 voucher or
certificate.
The IRS has informed HUD of the
comments received about preventing discrimination based on Section 8 status.
Agencies should provide HUD with publicly available information on section 42
low-income housing projects if HUD requests it.
A commentator also suggests that the

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compliance monitoring regulations be
amended to acknowledge the authority of
Title VIII of the 1968 Civil Rights Act, as
well as HUD’s Title VIII regulations;
specify the civil rights obligations of the
Agencies; and specify what developers
and owners of projects must do to satisfy
their civil rights obligations.
To monitor for compliance with the
Fair Housing Act, the final regulations
amend the annual owner certification relating to the general public use requirement in §1.42–5(c)(1)(v) to require owners to certify that no finding of
discrimination under the Fair Housing Act
has occurred for the project (a finding of
discrimination includes an adverse final
decision by HUD, an adverse final decision by a substantially equivalent state or
local fair housing agency, or an adverse
judgment from a Federal court).
B. Sources and Uses of Funds
Section 42(m)(2)(A) requires Agencies
to limit the housing credit dollar amount
allocated to a project to only the amount
necessary for the financial feasibility of a
project and its viability as a qualified lowincome project through the credit period.
The proposed regulations require an
Agency to evaluate the housing credit
dollar amount at four times: (1) at application for the housing credit dollar
amount, (2) the allocation of the housing
credit dollar amount, (3) the date the
building is placed in service, and (4) after
the building is placed in service, but before the Agency issues the Form 8609.
Commentators recommend elimination of
the evaluation at the placed-in-service
date. In practice, Agencies currently evaluate the credit amount at the three other
times. The final regulations adopt the recommendation by deleting the fourth time
requirement and clarifying that the
placed-in-service evaluation may occur
not later than the date the Agency issues
the Form 8609.
Commentators are concerned that the
opinion by a certified public accountant,
based upon the accountant’s audit or examination, on the financial determinations
and certifications required in the proposed
regulations, could have significant cost implications, particularly for smaller developers. Commentators suggest limiting the
requirement to projects with 25 or more
units, or projects with total development
costs of $5 million or more.

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The third-party validation on financial
information was recommended in the report by the General Accounting Office
(GAO), “Tax Credits: Opportunities to
Improve Oversight of the Low-Income
Housing Program,” (GAO/GGD/RCED97–55), dated March 28, 1997. The GAO
report states on page 93 that an accounting firm with a tax credit speciality would
charge in the $5,000 to $7,500 range per
engagement for tax credit certifications
(opinion on total costs, eligible basis, and
tax credit amount) prepared on the basis
of an audit done in accordance with
AICPA audit standards even for projects
costing upwards of $5 million to $10 million. As a percentage of development
costs, the CPA tax credit certifications
represent a minimal cost for validating financial information. However, in recognition that the cost may be burdensome
for smaller developers, the final regulations limit the requirement for an audited
schedule of costs for projects with more
than 10 units.
Two commentators were concerned
that the meaning of the term “financial
determinations and certifications” is unclear. A CPA would not be able to evaluate what needs to be audited and whether
there are relevant and reliable criteria
against which the information can be
evaluated. To conduct an audit or attestation engagement, CPAs require that the
subject matter be defined and that such
subject matter be capable of evaluation
against reasonable criteria. Reasonable
criteria are essential so that CPAs using
the same criteria will be able to arrive at
similar conclusions.
Another concern expressed by commentators involved uncertainty as to
whether the CPA is being asked to report
on financial information that is only historical or whether the CPA is also being
asked to examine prospective financial information. CPAs can compile or examine
and report on certain types of prospective
financial information. However, such engagements generally are more costly than
audits of historical information because of
minimum presentation guidelines required by professional standards as well
as increased risk associated with futureoriented information. The commentators
believe that if an Agency were to require
CPAs to be associated with prospective financial information, the related costs to

January 31, 2000

the taxpayer may far exceed any perceived benefits to the Agency. Accordingly, the final regulations have been revised to specify that the CPA’s opinion
only relates to historical project costs.
C. Correction of Administrative Errors
and Omissions
Commentators recommend filing the
corrected allocation document with the
current year’s Form 8610, “Annual LowIncome Housing Credit Agencies Report,” instead of amending the Form 8610
for the year the allocation was made. Because the administrative errors covered by
the automatic approval provision will not
have an effect on the total amount of
credit the Agency allocated to the building(s) or project, commentators view an
amended Form 8610 as unnecessary.
Agency recordkeeping would be simplified if all corrected allocation documents
could be submitted with the current year’s
Form 8610. The final regulations adopt
this recommendation.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order
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. It is hereby certified that the collections of information in these regulations
will not have a significant economic impact on a substantial number of small entities. This certification is based upon the
fact that the burden on taxpayers is minimal and the burden on small entity Agencies is not significant. Accordingly, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act 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 Paul F. Handleman, Office of the
Assistant Chief Counsel (Passthroughs
and Special Industries), IRS. However,

432

other personnel from the IRS and Treasury Department participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.42–17 also issued under 26
U.S.C. 42(n); * * *
Par. 2. Section 1.42–5 is amended by:
1. Removing the word “Revenue” in
paragraph (b)(1)(iv) and adding “Omnibus Budget” in its place.
2. Adding paragraph (b)(3).
3. Revising paragraphs (c)(1)(v),
(c)(1)(vi), (c)(1)(xi), (c)(2)(ii), and
(c)(2)(iii).
4. Removing the word “project” in
paragraph (c)(1)(x) and adding “building”
in its place.
5. Removing the word “and” at the end
of paragraph (c)(1)(x).
6. Adding paragraph (c)(1)(xii).
7. Removing the language “paragraph
(c)(2)(ii)(A), (B), and (C) of this section”
from the first sentence in paragraph
(c)(4)(i) and adding “paragraph (c)(2)(ii)
of this section” in its place.
8. Removing the language “Farmers
Home Administration (FmHA)” in the
first sentence in paragraph (c)(4)(i) and
adding “Rural Housing Service (RHS),
formerly known as Farmers Home Administration,” in its place.
9. Removing the language “FmHA” in
paragraph (c)(4)(ii) and adding “RHS” in
its place in each place it appears.
10. Removing the language “An Agency
chooses the review requirement of paragraph (c)(2)(ii)(A) of this section and some
of the buildings selected for review are”
from the first sentence in the example in
paragraph (c)(4)(iii) and adding “An
Agency selects for review” in its place.
11. Removing the language “FmHA”
in paragraph (c)(4)(iii) Example and
adding “RHS” in its place in each place it
appears.
12. Adding paragraph (c)(5).

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13. Revising paragraph (d).
14.
Removing the language
“(c)(2)(ii)(A), (B), or (C) of this section
(whichever is applicable)” from paragraph (e)(2) and adding the language
“(c)(2)(ii) of this section” in its place.
15. Adding a sentence at the end of
paragraph (e)(3)(i).
16. Removing the language “paragraph (e)(3) of this section” in the third
sentence in paragraph (f)(1)(i) and adding
“paragraphs (c)(5) and (e)(3) of this section” in its place.
17. Adding three sentences at the end
of paragraph (h).
The revisions and additions read as follows:
§1.42–5 Monitoring compliance with
low-income housing credit requirements.
* * * * *
(b) * * *
(3) Inspection record retention provision. Under the inspection record retention provision, the owner of a low-income
housing project must be required to retain
the original local health, safety, or building code violation reports or notices that
were issued by the State or local government unit (as described in paragraph
(c)(1)(vi) of this section) for the Agency’s
inspection under paragraph (d) of this section. Retention of the original violation
reports or notices is not required once the
Agency reviews the violation reports or
notices and completes its inspection, unless the violation remains uncorrected.
(c) * * * (1) * * *
(v) All units in the project were for use
by the general public (as defined in
§1.42–9), including the requirement that
no finding of discrimination under the
Fair Housing Act, 42 U.S.C. 3601 – 3619,
occurred for the project. A finding of discrimination includes an adverse final decision by the Secretary of the Department
of Housing and Urban Development
(HUD), 24 CFR 180.680, an adverse final
decision by a substantially equivalent
state or local fair housing agency, 42
U.S.C. 3616a(a)(1), or an adverse judgment from a federal court;
(vi) The buildings and low-income
units in the project were suitable for occupancy, taking into account local health,
safety, and building codes (or other habitability standards), and the State or local
government unit responsible for making
local health, safety, or building code in-

2000–5 I.R.B.

spections did not issue a violation report
for any building or low-income unit in the
project. If a violation report or notice was
issued by the governmental unit, the
owner must attach a statement summarizing the violation report or notice or a copy
of the violation report or notice to the annual certification submitted to the Agency
under paragraph (c)(1) of this section. In
addition, the owner must state whether
the violation has been corrected;
* * * * *
(xi) An extended low-income housing
commitment as described in section
42(h)(6) was in effect (for buildings subject to section 7108(c)(1) of the Omnibus
Budget Reconciliation Act of 1989, 103
Stat. 2106, 2308 - 2311 (1989)), including
the requirement under section
42(h)(6)(B)(iv) that an owner cannot
refuse to lease a unit in the project to an
applicant because the applicant holds a
voucher or certificate of eligibility under
section 8 of the United States Housing
Act of 1937, 42 U.S.C. 1437f (for buildings subject to section 13142(b)(4) of the
Omnibus Budget Reconciliation Act of
1993, 107 Stat. 312, 438 – 439 (1993));
and
(xii) All low-income units in the project were used on a nontransient basis (except for transitional housing for the homeless
provided
under
section
42(i)(3)(B)(iii) or single-room-occupancy
units rented on a month-by-month basis
under section 42(i)(3)(B)(iv)).
(2) * * *
(ii) Require that with respect to each
low-income housing project—
(A) The Agency must conduct on-site
inspections of all buildings in the project
by the end of the second calendar year
following the year the last building in the
project is placed in service and, for at
least 20 percent of the project’s low-income units, inspect the units and review
the low-income certifications, the documentation supporting the certifications,
and the rent records for the tenants in
those units; and
(B) At least once every 3 years, the
Agency must conduct on-site inspections
of all buildings in the project and, for at
least 20 percent of the project’s low-income units, inspect the units and review
the low-income certifications, the documentation supporting the certifications,
and the rent records for the tenants in

433

those units; and
(iii) Require that the Agency randomly
select which low-income units and tenant
records are to be inspected and reviewed
by the Agency. The review of tenant
records may be undertaken wherever the
owner maintains or stores the records (either on-site or off-site). The units and
tenant records to be inspected and reviewed must be chosen in a manner that
will not give owners of low-income housing projects advance notice that a unit and
tenant records for a particular year will or
will not be inspected and reviewed. However, an Agency may give an owner reasonable notice that an inspection of the
building and low-income units or tenant
record review will occur so that the owner
may notify tenants of the inspection or assemble tenant records for review (for example, 30 days notice of inspection or review).
* * * * *
(5) Agency reports of compliance monitoring activities. The Agency must report its compliance monitoring activities
annually on Form 8610, “Annual Low-Income Housing Credit Agencies Report.”
(d) Inspection provision—(1) In general. Under the inspection provision, the
Agency must have the right to perform an
on-site inspection of any low-income
housing project at least through the end of
the compliance period of the buildings in
the project. The inspection provision of
this paragraph (d) is a separate requirement from any tenant file review under
paragraph (c)(2)(ii) of this section.
(2) Inspection standard. For the onsite inspections of buildings and low- income units required by paragraph
(c)(2)(ii) of this section, the Agency must
review any local health, safety, or building code violations reports or notices retained by the owner under paragraph
(b)(3) of this section and must determine—
(i) Whether the buildings and units are
suitable for occupancy, taking into account local health, safety, and building
codes (or other habitability standards); or
(ii) Whether the buildings and units
satisfy, as determined by the Agency, the
uniform physical condition standards for
public housing established by HUD (24
CFR 5.703). The HUD physical condition
standards do not supersede or preempt
local health, safety, and building codes. A

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low-income housing project under section
42 must continue to satisfy these codes
and, if the Agency becomes aware of any
violation of these codes, the Agency must
report the violation to the Service. However, provided the Agency determines by
inspection that the HUD standards are
met, the Agency is not required under this
paragraph (d)(2)(ii) to determine by inspection whether the project meets local
health, safety, and building codes.
(3) Exception from inspection provision. An Agency is not required to inspect a building under this paragraph (d)
if the building is financed by the RHS
under the section 515 program, the RHS
inspects the building (under 7 CFR part
1930), and the RHS and Agency enter
into a memorandum of understanding, or
other similar arrangement, under which
the RHS agrees to notify the Agency of
the inspection results.
(4) Delegation. An Agency may delegate inspection under this paragraph (d) to
an Authorized Delegate retained under
paragraph (f) of this section. Such Authorized Delegate, which may include HUD
or a HUD-approved inspector, must notify the Agency of the inspection results.
(e) * * *
(3) * * *
(i) * * * If the noncompliance or failure
to certify is corrected within 3 years after
the end of the correction period, the
Agency is required to file Form 8823 with
the Service reporting the correction of the
noncompliance or failure to certify.
* * * * *
(h) * * * In addition, the requirements
in paragraphs (b)(3) and (c)(1)(v), (vi),
and (xi) of this section (involving recordkeeping and annual owner certifications)
and paragraphs (c)(2)(ii)(B), (c)(2)(iii),
and (d) of this section (involving tenant
file reviews and physical inspections of
existing projects, and the physical inspection standard) are applicable January 1,
2001. The requirement in paragraph
(c)(2)(ii)(A) of this section (involving
tenant file reviews and physical inspections of new projects) is applicable for
buildings placed in service on or after
January 1, 2001. The requirements in
paragraph (c)(5) of this section (involving
Agency reporting of compliance monitoring activities to the Service) and paragraph (e)(3)(i) of this section (involving
Agency reporting of corrected noncom-

January 31, 2000

pliance or failure to certify within 3 years
after the end of the correction period) are
applicable January 14, 2000.
Par. 3. Section 1.42–6 is amended by:
1. In paragraph (c)(3), second sentence, remove the language “Annual
Low-Income Housing Credit Agencies
Report,” and add the language “ ‘Annual
Low-Income Housing Credit Agencies
Report,’ “ in its place.
2. In paragraph (d)(1), first sentence,
remove the language “Low-Income Housing Credit Allocation Certification,” and
add the language “ ‘Low-Income Housing
Credit Allocation Certification,’ “ in its
place.
3. Revising the first sentence in paragraph (d)(4)(ii).
§1.42–6 Buildings qualifying for carryover allocations.
* * * * *
(d) * * *
(4) * * *
(ii) Agency. The Agency must retain
the original carryover allocation document made under paragraph (d)(2) of this
section and file Schedule A (Form 8610),
“Carryover Allocation of the Low-Income
Housing Credit,” with the Agency’s Form
8610 for the year the allocation is made. *
**
* * * * *
Par. 4. Section 1.42–11 is amended by
revising the last sentence in paragraph
(b)(3)(ii)(A) to read as follows:
§1.42–11 Provision of services.
* * * * *
(b) * * *
(3) * * *
(ii) * * * (A) * * * For a building described in section 42(i)(3)(B)(iii) (relating
to transitional housing for the homeless)
or section 42(i)(3)(B)(iv) (relating to single-room occupancy), a supportive service includes any service provided to assist tenants in locating and retaining
permanent housing.
* * * * *
Par. 5. Section 1.42–12 is amended by
adding paragraph (c) to read as follows:
§1.42–12 Effective dates and transitional
rules.
* * * * *
(c) Carryover allocations. The rule set
forth in §1.42–6(d)(4)(ii) relating to the
requirement that state and local housing
agencies file Schedule A (Form 8610),
“Carryover Allocation of the Low-Income

434

Housing Credit,” is applicable for carryover allocations made after December 31,
1999.
Par. 6. Section 1.42–13 is amended by:
1. Revising the introductory text of
paragraph (b)(3)(iii).
2. Adding paragraphs (b)(3)(vi),
(b)(3)(vii), and (b)(3)(viii).
3. Adding a sentence at the end of
paragraph (d).
The revisions and additions read as follows:
§1.42–13 Rules necessary and appropriate; housing credit agencies’ correction
of administrative errors and omissions.
* * * * *
(b) * * *
(3) * * *
(iii) Secretary’s prior approval required. Except as provided in paragraph
(b)(3)(vi) of this section, an Agency must
obtain the Secretary’s prior approval to
correct an administrative error or omission, as described in paragraph (b)(2) of
this section, if the correction is not made
before the close of the calendar year of
the error or omission and the correction—
* * * * *
(vi) Secretary’s automatic approval.
The Secretary grants automatic approval
to correct an administrative error or omission described in paragraph (b)(2) of this
section if—
(A) The correction is not made before
the close of the calendar year of the error
or omission and the correction is a numerical change to the housing credit dollar
amount allocated for the building or multiple-building project;
(B) The administrative error or omission resulted in an allocation document
(the Form 8609, “Low-Income Housing
Credit Allocation Certification,” or the allocation document under the requirements
of section 42(h)(1)(E) or (F), and
§1.42–6(d)(2)) that either did not accurately reflect the number of buildings in a
project (for example, an allocation document for a 10-building project only references 8 buildings instead of 10 buildings),
or the correct information (other than the
amount of credit allocated on the allocation document);
(C) The administrative error or omission does not affect the Agency’s ranking
of the building(s) or project and the total
amount of credit the Agency allocated to
the building(s) or project; and

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(D) The Agency corrects the administrative error or omission by following the
procedures described in paragraph
(b)(3)(vii) of this section.
(vii) How Agency corrects errors or
omissions subject to automatic approval.
An Agency corrects an administrative
error or omission described in paragraph
(b)(3)(vi) of this section by—
(A) Amending the allocation document
described in paragraph (b)(3)(vi)(B) of
this section to correct the administrative
error or omission. The Agency will indicate on the amended allocation document
that it is making the “correction under
§1.42–13(b)(3)(vii).” If correcting the allocation document requires including any
additional B.I.N.(s) in the document, the
document must include any B.I.N.(s) already existing for buildings in the project.
If possible, the additional B.I.N.(s) should
be sequentially numbered from the existing B.I.N.(s);
(B) Amending, if applicable, the
Schedule A (Form 8610), “Carryover Allocation of the Low-Income Housing
Credit,” and attaching a copy of this
schedule to Form 8610, “Annual Low-Income Housing Credit Agencies Report,”
for the year the correction is made. The
Agency will indicate on the schedule that
it is making the “correction under
§1.42–13(b)(3)(vii).” For a carryover allocation made before January 1, 2000, the
Agency must complete Schedule A (Form
8610), and indicate on the schedule that it
is making the “correction under
§1.42–13(b)(3)(vii)”;
(C) Amending, if applicable, the Form
8609 and attaching the original of this
amended form to Form 8610 for the year
the correction is made. The Agency will
indicate on the Form 8609 that it is making
the
“correction
under
§1.42–13(b)(3)(vii)”; and
(D) Mailing or otherwise delivering a
copy of any amended allocation document and any amended Form 8609 to the
affected taxpayer.
(viii) Other approval procedures. The
Secretary may grant automatic approval to
correct other administrative errors or omissions as designated in one or more documents published either in the Federal Register or in the Internal Revenue Bulletin
(see §601.601(d)(2) of this chapter).
* * * * *
(d) * * * Paragraphs (b)(3)(vi), (vii),

2000–5 I.R.B.

and (viii) of this section are effective January 14, 2000.
Par. 7. Section 1.42–17 is added to
read as follows:
§1.42–17 Qualified allocation plan.
(a) Requirements—(1) In general.
[Reserved]
(2) Selection criteria. [Reserved]
(3) Agency evaluation. Section
42(m)(2)(A) requires that the housing
credit dollar amount allocated to a project
is not to exceed the amount the Agency
determines is necessary for the financial
feasibility of the project and its viability
as a qualified low-income housing project
throughout the credit period. In making
this determination, the Agency must consider—
(i) The sources and uses of funds and
the total financing planned for the project.
The taxpayer must certify to the Agency
the full extent of all federal, state, and
local subsidies that apply (or which the
taxpayer expects to apply) to the project.
The taxpayer must also certify to the
Agency all other sources of funds and all
development costs for the project. The
taxpayer’s certification should be sufficiently detailed to enable the Agency to
ascertain the nature of the costs that will
make up the total financing package, including subsidies and the anticipated syndication or placement proceeds to be
raised. Development cost information,
whether or not includible in eligible basis
under section 42(d), that should be provided to the Agency includes, but is not
limited to, site acquisition costs, construction contingency, general contractor’s
overhead and profit, architect’s and engineer’s fees, permit and survey fees, insurance premiums, real estate taxes during
construction, title and recording fees, construction period interest, financing fees,
organizational costs, rent-up and marketing costs, accounting and auditing costs,
working capital and operating deficit reserves, syndication and legal fees, and developer fees;
(ii) Any proceeds or receipts expected
to be generated by reason of tax benefits;
(iii) The percentage of the housing
credit dollar amount used for project costs
other than the costs of intermediaries.
This requirement should not be applied so
as to impede the development of projects
in hard-to-develop areas under section
42(d)(5)(C); and

435

(iv) The reasonableness of the developmental and operational costs of the project.
(4) Timing of Agency evaluation—(i)
In general. The financial determinations
and certifications required under paragraph (a)(3) of this section must be made
as of the following times—
(A) The time of the application for the
housing credit dollar amount;
(B) The time of the allocation of the
housing credit dollar amount; and
(C) The date the building is placed in
service.
(ii) Time limit for placed-in-service
evaluation. For purposes of paragraph
(a)(4)(i)(C) of this section, the evaluation
for when a building is placed in service
must be made not later than the date the
Agency issues the Form 8609, “Low-Income Housing Credit Allocation Certification.” The Agency must evaluate all
sources and uses of funds under paragraph (a)(3)(i) of this section paid, incurred, or committed by the taxpayer for
the project up until date the Agency issues
the Form 8609.
(5) Special rule for final determinations and certifications.
For the
Agency’s evaluation under paragraph
(a)(4)(i)(C) of this section, the taxpayer
must submit a schedule of project costs.
Such schedule is to be prepared on the
method of accounting used by the taxpayer for federal income tax purposes,
and must detail the project’s total costs as
well as those costs that may qualify for inclusion in eligible basis under section
42(d). For projects with more than 10
units, the schedule of project costs must
be accompanied by a Certified Public Accountant’s audit report on the schedule
(an Agency may require an audited schedule of project costs for projects with fewer
than 11 units). The CPA’s audit must be
conducted in accordance with generally
accepted auditing standards. The auditor’s report must be unqualified.
(6) Bond-financed projects. A project
qualifying under section 42(h)(4) is not entitled to any credit unless the governmental
unit that issued the bonds (or on behalf of
which the bonds were issued), or the
Agency responsible for issuing the Form(s)
8609 to the project, makes determinations
under rules similar to the rules in paragraphs (a)(3), (4), and (5) of this section.
(b) Effective date. This section is ef-

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fective January 1, 2001.
Part 602–OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 8. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 9. In §602.101, paragraph (b) is
amended by revising the entry for 1.42–5

and adding an entry for 1.42–17 to the
table in numerical order to read as follows:
§602.101 OMB Control numbers.
* * * * *
(b) * * *
Robert E. Wenzel,
Acting Commissioner
of Internal Revenue.

CFR part or section where
identified and described

Approved December 28, 1999.
Jonathan Talisman,
Acting Assistant Secretary of the
Treasury.
(Filed by the Office of the Federal Register on January 13, 2000, 8:45 a.m., and published in the issue
of the Federal Register for January 14, 2000, 65
F.R. 2323)

Current OMB
control No.

*****
1.42–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545-1357
1.42–17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545-1357
*****

Section 368(a)(1)(A).—
Definitions Relating to
Corporate Reorganizations
26 CFR 1.368–1: Purpose and scope of exception
of reorganization exchanges.

Application of section 368(a)(1)(A) to
divisive mergers. The ruling holds that a
state law merger will not qualify as a reorganization under section 368(a)(1)(A) of
the Code if the merger does not result in
one corporation acquiring the assets of a
target corporation and the target corporation ceasing to exist.

Rev. Rul. 2000–5
ISSUES:
Whether a transaction in which (1) a
target corporation “merges” under state
law with and into an acquiring corporation and the target corporation does not go
out of existence, or (2) a target corporation “merges” under state law with and
into two or more acquiring corporations
and the target corporation goes out of existence, qualifies as a reorganization
under § 368(a)(1)(A) of the Internal Revenue Code?
FACTS:
Situation (1). A target corporation
transfers some of its assets and liabilities

January 31, 2000

to an acquiring corporation, retains the remainder of its assets and liabilities, and
remains in existence following the transaction. The target corporation’s shareholders receive stock in the acquiring corporation in exchange for part of their
target corporation stock and they retain
their remaining target corporation stock.
The transaction qualifies as a merger
under state X corporate law.
Situation (2). A target corporation
transfers some of its assets and liabilities
to each of two acquiring corporations.
The target corporation liquidates and the
target corporation’s shareholders receive
stock in each of the two acquiring corporations in exchange for their target corporation stock. The transaction qualifies as
a merger under state X corporate law.
DISCUSSION:
The purpose of the reorganization provisions of the Code is to provide tax-free
treatment to certain exchanges incident to
readjustments of corporate structures
made in one of the specified ways described in the Code. Section 1.368–1(b)
of the Income Tax Regulations. In 1921,
Congress defined a reorganization as including “. . . a merger or consolidation
(including the acquisition by one corporation . . . of substantially all the properties
of another corporation).” In 1934, Congress separated this rule into two distinct
provisions. In the predecessor of current

436

§ 368(a)(1)(C), an “acquisition by one
corporation . . . of substantially all the
properties of another corporation” continued to be a reorganization where payment
was effectuated with the acquiror’s voting
stock. In the predecessor of current §
368(a)(1)(A), the terms “merger or consolidation” were qualified by requiring
that they be “statutory” mergers and consolidations. The word “statutory” was
added to the definition of a reorganization
so that the definition “will conform more
closely to the general requirements of
[state] corporation law.” See H. R. Rep.
No. 704, 73d Cong., 2 d Sess. 14 (1934).
Historically, corporate law merger
statutes have operated to ensure that “[a]
merger ordinarily is an absorption by one
corporation of the properties and franchises of another whose stock it has acquired. The merged corporation ceases to
exist, and the merging corporation alone
survives.” Cortland Specialty Co. v. Commissioner, 60 F.2d 937, 939 (2d Cir.
1932), cert. denied, 288 U.S. 599 (1933);
for other cases that describe mergers as requiring that the target corporation transfer
its assets and cease to exist, see, e.g., Vulcan Materials Company v. U.S., 446 F.2d
690, 694 (5th Cir. 1971), cert. denied, 404
U.S. 942 (1971); Fisher v. Commissioner,
108 F.2d 707, 709 (6th Cir. 1939), cert.
denied, 310 U.S. 627 (1939). Thus, unlike
§ 368(a)(1)(C), in which Congress included a “substantially all the properties”

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requirement, it was not necessary for Congress to explicitly include a similar requirement in § 368(a)(1)(A) because corporate law merger statutes contemplated
an acquisition of the target corporation’s
assets by the surviving corporation by operation of law.
Compliance with a corporate law
merger statute does not by itself qualify a
transaction as a reorganization. See, e.g.,
Southwest Natural Gas Co. v. Commissioner, 189 F.2d 332 (5th Cir. 1951), cert.
denied, 342 U.S. 860 (1951) (holding that
a state law merger was not a reorganization under § 368(a)(1)(A)); Roebling v.
Commissioner, 143 F.2d 810 (3d Cir.
1944), cert. denied, 323 U.S. 773 (1944)
(same holding). In addition to satisfying
the requirements of business purpose,
continuity of business enterprise and continuity of interest, in order to qualify as a
reorganization under § 368(a)(1)(A), a
transaction effectuated under a corporate
law merger statute must have the result
that one corporation acquires the assets of
the target corporation by operation of the
corporate law merger statute and the target corporation ceases to exist. The transactions described in Situations (1) and (2)
do not have the result that one corporation
acquires the assets of the target corporation by operation of the corporate law
merger statute and the target corporation
ceases to exist. Therefore, these transactions do not qualify as reorganizations
under § 368(a)(1)(A).
In contrast with the operation of corporate law merger statutes, a divisive transaction is one in which a corporation’s assets are divided among two or more
corporations. Section 355 provides taxfree treatment for certain divisive transactions, but only if a number of specific requirements are satisfied. Congress
intended that § 355 be the sole means
under which divisive transactions will be
afforded tax-free status and, thus, specifically required the liquidation of the acquired corporation in reorganizations
under both §§ 368(a)(1)(C) and
368(a)(1)(D) in order to prevent these reorganizations from being used in divisive
transactions that did not satisfy § 355.
See S. Rep. No. 1622, 83d Cong., 2d Sess.
274 (1954); S. Rep. No. 169, 98th Cong.,
2d Sess. 204 (1984). No specific liquidation requirement was necessary for statutory mergers because corporate law

2000–5 I.R.B.

merger statutes contemplated that only
one corporation survived a merger. The
transaction described in Situation (1) is
divisive because, after the transaction, the
target corporation’s assets and liabilities
are held by both the target corporation
and acquiring corporation and the target
corporation’s shareholders hold stock in
both the target corporation and acquiring
corporation. The transaction described in
Situation (2) is divisive because, after the
transaction, the target corporation’s assets
and liabilities are held by each of the two
acquiring corporations and the target corporation’s shareholders hold stock in each
of the two acquiring corporations.
HOLDING:
The transactions described in Situations (1) and (2) do not qualify as reorganizations under § 368(a)(1)(A). However,
the transactions described in Situations
(1) and (2) possibly may qualify for taxfree treatment under other provisions of
the Code.
DRAFTING INFORMATION:
The principal author of this revenue
ruling is Reginald Mombrun of the Office
of the Assistant Chief Counsel (Corporate). For further information regarding
this revenue ruling, contact Reginald
Mombrun on (202) 622-7750 (not a tollfree call).

Section 988.—Treatment of
Certain Foreign Currency
Transactions
26 CFR 1.988–2: Recognition and computation of
exchange gain or loss.

T.D. 8860
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1

Treatment of Income and
Expense From Certain
Hyperinflationary,
Nonfunctional Currency
Transactions and Certain
Notional Principal Contracts
437

AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations regarding the treatment
of income and deductions arising from
certain foreign currency transactions denominated in hyperinflationary currencies
and coordinates section 988 with the section 446 regulations pertaining to significant nonperiodic payments. These regulations are intended to prevent distortions
in computing income and deductions of
taxpayers who enter into certain transactions in hyperinflationary currencies, and
nonfunctional currency, notional principal
contracts with significant nonperiodic
payments.
DATES: These regulations are effective
February 14, 2000.
FOR FURTHER INFORMATION CONTACT: Roger M. Brown at (202) 6223830 (not a toll-free number) of the Office of the Associate Chief Counsel
(International) within the Office of the
Chief Counsel, Room 4554, 1111 Constitution Avenue, NW., Washington, DC.
20224.
SUPPLEMENTARY INFORMATION:
Background
On March 17, 1992, proposed regulations were published in the Federal Register at (57 F.R. 9217 [INTL–15–91,
1992–1 C.B. 1202]). The IRS received
two written comments on the proposed
regulations, which are discussed below.
No public hearing was held and no requests to speak were received. Having
considered the comments, the IRS and
Treasury Department adopt the proposed
regulations, as modified by this Treasury
decision.
Explanation of Provisions
I. Hyperinflationary Instruments
A. Proposed Regulations
The proposed regulations under
§1.988–2(b)(15) generally provided that
currency gain or loss on debt instruments
and demand deposits entered into or acquired when the currency in which the
item was denominated was hyperinflationary must be realized annually under a

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Page 438

mark-to-market methodology. For purposes of determining the character and
source (or allocation) of such currency
gain or loss, the gain or loss was generally
treated as an increase in, or a reduction of,
interest income or expense.
The proposed §1.988–2(b)(15) regulations excluded instruments described in
section 988(a)(3)(C) (relating to non-dollar, related-party loans where the rate of
interest is at least 10 percentage points
higher than the Federal mid-term rate)
from these rules. Proposed regulations
§1.988–2(d)(5) and (e)(7) generally provided that currency gain or loss realized
with respect to section 988 forward contracts, futures contracts, option contracts
and similar items (such as currency swap
contracts) entered into or acquired when
the currency in which such an item is denominated was hyperinflationary was recognized annually under a mark-to-market
methodology.
B. Discussion of Comments and Final
Regulations
1. Comments and the Treasury and IRS’s
responses
One of the comments responding to the
proposed regulations criticized the exclusion of loans described in section
988(a)(3)(C) from the rules of proposed
regulation §1.988–2(b)(15). The comment noted that it was inappropriate to
treat related-party loans differently from
loans between unrelated parties in this
context.
Proposed regulation §1.988–2(b)(15)
excluded loans subject to section
988(a)(3)(C) from the mark-to-market
rule of the proposed regulations because
the loans were already subject to mark-tomarket treatment under section
988(a)(3)(C), which was enacted to prevent manipulation of the section 904(a)
foreign tax credit limitation through related party loans with artificially high interest rates. See H. Conf. Rep. No. 841,
99th Cong., 2d Sess. 668 (1986). However, due to interest income’s U.S. source
treatment under section 988(a)(3)(C)(ii),
mark-to-market treatment under section
988(a)(3)(C),
rather
than
§1.988–2(b)(15), would be, in most cases,
more unfavorable to taxpayers.
Since the rules of proposed regulation
§1.988–2(b)(15) were consistent with the
approach of section 988(a)(3)(C) and prevented manipulation of the type Congress

January 31, 2000

addressed in that section, the IRS and
Treasury agree that transactions described
in section 988(a)(3)(C) should not be excluded from the mark-to-market rule of
the final regulations. The IRS and Treasury also have concluded that to the extent a debt instrument is subject to the
rules of §1.988–2(b)(15), the application
of section 988(a)(3)(C)’s resourcing rule
is not necessary. The final regulations reflect these changes.
The other comment identified the need
for coordinating the mark-to-market
regime for hyperinflationary instruments
under
proposed
regulation
§1.988–2(b)(15), and the mark-to-market
election under proposed regulation
§1.988–5(f) for all section 988 transactions. The final regulations do not include a rule coordinating these two markto-market regimes because the
mark-to-market election for all section
988 transactions is still in proposed form.
Accordingly, the IRS and Treasury have
decided that consideration of the proper
coordination is most appropriate when the
regulations relating to the general markto-market election for all section 988
transactions are finalized.
2. Other changes to the final regulations
(a) Source and Character of Gain or Loss
The proposed regulations provided that
any exchange gain or loss realized upon
marking to market a debt instrument or a
demand deposit under proposed regulation §1.988–2(b)(15)(i) was to be directly
allocable to the interest income or interest
expense from the debt instrument or deposit. Accordingly, the gain or loss reduced or increased the amount of interest
income or interest expense paid or accrued during that year with respect to that
instrument or deposit. Additionally, if realized exchange gain exceeded interest
expense of an issuer, or realized exchange
loss exceeded interest income of a holder
or depositor, the character and source of
such excess amount were to be determined under the general rules of
§§1.988–3 and 1.988–4.
The assumption underlying this proposed treatment was that in hyperinflationary conditions, high nominal interest
rates perform two functions: compensate
lenders for currency loss attributable to
the repayment of the principal with a devalued currency, and account for borrowers’ currency gain on the repayment of the

438

principal with a devalued currency. In instances, however, where hyperinflationary conditions are subsiding and a lender
would actually have currency gain on
principal repayment (and the borrower
would have currency loss on principal repayment), these assumptions are no
longer appropriate. For example, if a
lender has currency gain on the marking
to market (for currency fluctuations only)
of the principal of a debt instrument, high
nominal interest rates would not be compensating the lender for the decline in the
value of the principal as there would be a
gain on the principal.
Accordingly, the final regulations retain the source and character rule of the
proposed regulations (direct allocation of
the exchange gain or loss against interest
expense or income, respectively) when
hyperinflationary conditions result in exchange loss to lenders or exchange gain to
borrowers on the principal amount of a
debt instrument or deposit. However,
where a lender has exchange gain or a
borrower has exchange loss on the debt
instrument — which may occur as hyperinflationary conditions subside — the
final regulations clarify that the exchange
gain or loss is not allocated against interest expense or income. Rather, the exchange gain or loss is treated under the
normal currency character and source
rules of §§1.988–3 and 1.988–4. Thus,
for example, if an issuer has both interest
expense and currency loss, the currency
loss is sourced and characterized under
section 988 and does not affect the determination of interest expense.
(b) Synthetic, Non-hyperinflationary Currency Debt Instruments
The final regulations also make clear
that when a debt instrument has interest
and principal payments that are to be
made by reference to a non-hyperinflationary currency or item (commonly
known as interest and principal protection
features), the instrument is not marked to
market under the final section 988 regulations. This is because the instrument is, in
substance, a synthetic non-hyperinflationary instrument and does not experience
the distortions associated with a hyperinflationary instrument.
(c) Treatment of Hyperinflationary Contracts
Proposed regulation §1.988–2(d)(5)
generally provided that currency gain or

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loss on derivative contracts described in
§1.988–1(a)(2)(iii) and denominated in a
currency that was hyperinflationary at the
time the contract was entered into was to
be realized annually under a mark-to-market methodology. This proposed regulation was issued prior to promulgation of
the §1.446–4 regulations (published in the
Federal Register on July 18, 1994)
which requires that, to clearly reflect income, the timing of income, deduction,
gain or loss on a hedge must match the
timing of income, deduction, gain or loss
on the item being hedged. The final regulations modify proposed regulation
§1.988–2(d)(5) by providing that
§1.446–4, to the extent applicable, will
take precedence over proposed regulation
§1.988–2(d)(5). This is because the IRS
and Treasury believe that a clearer reflection of income is present where the income and deductions arising from an item
hedged under §1.446–4 is matched with
the income and deductions arising from
the hedge. See §1.446–4(b).
(d) Demand and Time Deposits
The proposed regulations applied the
mark-to-market rules to demand deposits
denominated in a currency that was hyperinflationary at the time the deposit was
entered into. Under the final regulations,
the mark-to-market rules apply to demand
and time deposits that provide for payments denominated in or by reference to a
currency which is hyperinflationary at the
time the taxpayer enters into or otherwise
acquires the deposit, or whose interest
rate reflects hyperinflationary conditions
in a country. Similar clarifications have
been made with respect to the definitions
of hyperinflationary debt instruments and
currency swap contracts.
3. Abusive transactions
The Treasury and the IRS are concerned about the use of hyperinflationary
currencies in transactions motivated by
tax considerations. Because the direction
of exchange rates is relatively predictable
in hyperinflation economies, some taxpayers have attempted to use such currencies in transactions lacking economic substance. See, e.g., Agro Science Co. v.
Commissioner, T.C. Memo. 1989–687,
aff’d, 927 F.2d 213 (5th Cir.), cert. denied,
502 U.S. 907 (1991). However, section
988 may be applied by the IRS in a manner that reflects the proper timing,
source, and character of income, gain,

2000–5 I.R.B.

loss, or expense arising from a transaction
whose form is not in accordance with its
economic substance. §§1.988–1(a)(11)
and 1.988–2(f); Agro Science Co. v.
Commissioner, supra. Accordingly, the
rules contained in this Treasury decision
will be applied within the framework of
these general economic substance principles.
II. Significant Non-periodic Payments
and Currency Swaps
The proposed regulations coordinated
section 988 with the section 446 regulations pertaining to significant nonperiodic
payments. The final regulations maintain
this coordination and clarify that exchange gain or loss may be realized on the
principal and interest components of a
significant nonperiodic payment.
III. Proposed Change to Base Period in
Notice of Proposed Rulemaking
In REG–116567–99 on page 463, the
IRS and Treasury are publishing a notice
of proposed rulemaking that proposes to
change the period during which inflation
rates are measured in the determination of
whether a currency is hyperinflationary
for purposes of section 988 (base period).
The effect of this change to §1.988–1(f)
(defining hyperinflationary currency for
purposes of section 988) is to take into account current year, hyperinflationary conditions, rather than determining whether a
currency is hyperinflationary based on the
three years prior to the current year. The
proposed change relates only to section
988 and not to the dollar approximate separate transactions method of §1.985–3
(DASTM). However, other sections, such
as §1.267(f)–1(e) (relating to application
of the loss disallowance rule of section
267(a)(1) as applied to related party, nonfunctional currency loans), which make
reference to the section 988 definition of
hyperinflation will be affected.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is not required.

439

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 businesses.
Drafting Information
The principal author of these regulations is Roger M. Brown of the Office of
the Associate Chief Counsel (International). However, other personnel from
the IRS and Treasury Department also
participated in their development.
* * * * *
Adoption of the Amendments to the
Regulations
Accordingly, 26 CFR part 1 is 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 1.988–0 in the Table of
Contents is amended by:
1. The entry for §1.988–2(b)(14)–(15) is
removed.
2. An entry for §1.988–2(b)(14) is added.
3. An entry for §1.988–2(b)(15) is added.
4. The entry for §1.988–2(d)(5) is revised.
5. The entry for §1.988–2(e)(7) is revised.
The revisions and additions read as follows:
§1.988–0 Taxation of gain or loss from a
section 988 transaction; Table of Contents.
* * * * *
§1.988–2 Recognition and computation of
exchange gain or loss.
* * * * *
(b) ***
(14) [Reserved]
(15) Debt instruments and deposits denominated in hyperinflationary currencies.
* * * * *
(d) ***
(5) Hyperinflationary contracts.
(e) ***
(7) Special rules for currency swap contracts in hyperinflationary currencies.
* * * * *

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Par. 3. Section 1.988–2 is amended
by:
1. Adding paragraphs (b)(14) and
(b)(15).
2. Adding paragraph (d)(5).
3. Adding paragraph (e)(3)(iv).
4. Adding paragraph (e)(7).
The additions read as follows:
§1.988–2 Recognition and computation
of exchange gain or loss.
* * * * *
(b) ***
(14) [Reserved]
(15) Debt instruments and deposits denominated in hyperinflationary currencies— (i) In general. If a taxpayer issues,
acquires, or otherwise enters into or holds
a hyperinflationary debt instrument (as
defined in paragraph (b)(15)(vi)(A) of
this section) or a hyperinflationary deposit (as defined in paragraph
(b)(15)(vi)(B) of this section) on which
interest is paid or accrued that is denominated in (or determined by reference to) a
nonfunctional currency of the taxpayer,
then the taxpayer shall realize exchange
gain or loss with respect to such instrument or deposit for its taxable year determined by reference to the change in exchange rates between—
(A) The later of the first day of the taxable year, or the date the instrument was
entered into (or an amount deposited);
and
(B) The earlier of the last day of the
taxable year, or the date the instrument (or
deposit) is disposed of or otherwise terminated.
(ii) Only exchange gain or loss is realized. No gain or loss is realized under
paragraph (b)(15)(i) by reason of factors
other than movement in exchange rates,
such as the creditworthiness of the debtor.
(iii) Special rule for synthetic, non-hyperinflationary
currency
debt
instruments—(A) General rule. Paragraph (b)(15)(i) does not apply to a debt
instrument that has interest and principal
payments that are to be made by reference
to a currency or item that does not reflect
hyperinflationary conditions in a country
(within the meaning of §1.988–1(f)).
(B) Example. Paragraph (b)(15)(iii)(A)
is illustrated by the following example:
Example. When the Turkish lira (TL) is a hyperinflationary currency, A, a U.S. corporation with the
U.S. dollar as its functional currency, makes a 5
year, 100,000 TL-denominated loan to B, an unrelated corporation, at a 10% interest rate when 1,000

January 31, 2000

TL equals $1. Under the terms of the debt instrument, B must pay interest annually to A in amount of
Turkish lira that is equal to $100. Also under the
terms of the debt instrument, B must pay A upon maturity of the debt instrument an amount of Turkish
lira that is equal to $1,000. Although the principal
and interest are payable in a hyperinflationary currency, the debt instrument is a synthetic dollar debt
instrument and is not subject to paragraph (b)(15)(i)
of this section.

(iv) Source and character of gain or
loss—(A) General rule for hyperinflationary conditions. The rules of this paragraph (b)(15)(iv)(A) shall apply to any
taxpayer that is either an issuer of (or
obligor under) a hyperinflationary debt
instrument or deposit and has currency
gain on such debt instrument or deposit,
or a holder of a hyperinflationary debt instrument or deposit and has currency loss
on such debt instrument or deposit. For
purposes of subtitle A of the Internal Revenue Code, any exchange gain or loss realized under paragraph (b)(15)(i) of this
section is directly allocable to the interest
expense or interest income, respectively,
from the debt instrument or deposit (computed under this paragraph (b)), and
therefore reduces or increases the amount
of interest income or interest expense paid
or accrued during that year with respect to
that instrument or deposit. With respect
to a debt instrument or deposit during a
taxable year, to the extent exchange gain
realized under paragraph (b)(15)(i) of this
section exceeds interest expense of an issuer, or exchange loss realized under
paragraph (b)(15)(i) of this section exceeds interest income of a holder or depositor, the character and source of such
excess amount shall be determined under
§§1.988–3 and 1.988–4.
(B) Special rule for subsiding hyperinflationary conditions. If the taxpayer is
an issuer of (or obligor under) a hyperinflationary debt instrument or deposit and
has currency loss, or if the taxpayer is a
holder of a hyperinflationary debt instrument or deposit and has currency gain,
then for purposes of subtitle A of the Internal Revenue Code, the character and
source of the currency gain or loss is determined under §§1.988–3 and 1.988–4.
Thus, if an issuer has both interest expense and currency loss, the currency loss
is sourced and characterized under section
988, and does not affect the determination
of interest expense.
(v) Adjustment to principal or basis.
Any exchange gain or loss realized under

440

paragraph (b)(15)(i) of this section is an
adjustment to the functional currency
principal amount of the issuer, functional
currency basis of the holder, or the functional currency amount of the deposit.
This adjusted amount or basis is used in
making subsequent computations of exchange gain or loss, computing the basis
of assets for purposes of allocating interest under §§1.861–9T through 1.861–12T,
and 1.882–5, or making other determinations that may be relevant for computing
taxable income or loss.
(vi) Definitions—(A) Hyperinflationary debt instrument. A hyperinflationary
debt instrument is a debt instrument that
provides for—
(1) Payments denominated in or determined by reference to a currency that is
hyperinflationary (as defined in
§1.988–1(f)) at the time the taxpayer enters into or otherwise acquires the debt instrument; or
(2) Payments denominated in or determined by reference to a currency that is
hyperinflationary (as defined in
§1.988–1(f)) during the taxable year, and
the terms of the instrument provide for the
adjustment of principal or interest payments in a manner that reflects hyperinflation. For example, a debt instrument
providing for a variable interest rate based
on local conditions and generally responding to changes in the local consumer price index will reflect hyperinflation.
(B) Hyperinflationary deposit. A hyperinflationary deposit is a demand or
time deposit or similar instrument issued
by a bank or other financial institution
that provides for—
(1) Payments denominated in or determined by reference to a currency that is
hyperinflationary (as defined in
§1.988–1(f)) at the time the taxpayer enters into or otherwise acquires the deposit;
or
(2) Payments denominated in or determined by reference to a currency that is
hyperinflationary (as defined in
§1.988–1(f)) during the taxable year, and
the terms of the deposit provide for the
adjustment of the deposit amount or interest payments in a manner that reflects hyperinflation.
(vii) Interaction with other provisions—
(A) Interest allocation rules. In determining the amount of interest expense, this

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paragraph (b)(15) applies before
§§1.861–9T through 1.861–12T, and
1.882–5.
(B) DASTM. With respect to a qualified
business unit that uses the United States
dollar approximate separate transactions
method of accounting described in
§1.985–3, paragraph (b)(15)(i) of this section does not apply.
(C) Interaction with section
988(a)(3)(C). Section 988(a)(3)(C) does
not apply to a debt instrument subject to
the rules of paragraph (b)(15)(i) of this section.
(D) Hedging rules. To the extent
§1.446–4 or 1.988–5 apply, the rules of
paragraph (b)(15)(i) of this section will not
apply. This paragraph (b)(15)(vii)(D) does
not apply if the application of §1.988–5 results in hyperinflationary debt instrument
or deposit described in paragraph
(b)(15)(vi)(A) or (B) of this section.
(viii) Effective date. This paragraph
(b)(15) applies to transactions entered
into after February 14, 2000.
* * * * *
(d) * * *
(5) Hyperinflationary contracts—(i)
In general. If a taxpayer acquires or otherwise enters into a hyperinflationary
contract (as defined in paragraph
(d)(5)(ii) of this section) that has payments to be made or received that are denominated in (or determined by reference
to) a nonfunctional currency of the taxpayer, then the taxpayer shall realize exchange gain or loss with respect to such
contract for its taxable year determined by
reference to the change in exchange rates
between—
(A) The later of the first day of the taxable year, or the date the contract was acquired or entered into; and
(B) The earlier of the last day of the
taxable year, or the date the contract is
disposed of or otherwise terminated.
(ii) Definition of hyperinflationary
contract. A hyperinflationary contract is
a contract described in paragraph (d)(1) of
this section that provides for payments
denominated in or determined by reference to a currency that is hyperinflationary (as defined in §1.988–1(f)) at the time
the taxpayer acquires or otherwise enters
into the contract.
(iii) Interaction with other provisions—
(A) DASTM. With respect to a qualified
business unit that uses the United States

2000–5 I.R.B.

dollar approximate separate transactions
method of accounting described in
§1.985–3, this paragraph (d)(5) does not
apply.
(B) Hedging rules. To the extent
§1.446–4 or 1.988–5 apply, this paragraph (d)(5) does not apply.
(C) Adjustment for subsequent transactions. Proper adjustments must be
made in the amount of any gain or loss
subsequently realized for gain or loss
taken into account by reason of this paragraph (d)(5).
(iv) Effective date. This paragraph (d)
(5) is applicable to transactions acquired
or otherwise entered into after February
14, 2000.
(e) ***
(3) ***
(iv) Coordination with §1.446–3(g)(4)
regarding swaps with significant nonperiodic payments.
The rules of
§1.446–3(g)(4) apply to any currency
swap with a significant nonperiodic payment. Section 1.446–3(g)(4) applies before this paragraph (e)(3). Thus, if
§1.446–3(g)(4) applies, currency gain or
loss may be realized on the loan. This
paragraph (e)(3)(iv) applies to transactions entered into after February 14, 2000.
* * * * *
(7) Special rules for currency swap
contracts
in
hyperinflationary
currencies—(i) In general. If a taxpayer
enters into a hyperinflationary currency
swap (as defined in paragraph (e)(7)(iv)
of this section), then the taxpayer realizes
exchange gain or loss for its taxable year
with respect to such instrument determined by reference to the change in exchange rates between —
(A) The later of the first day of the taxable year, or the date the instrument was
entered into (by the taxpayer); and
(B) The earlier of the last day of the
taxable year, or the date the instrument is
disposed of or otherwise terminated.
(ii) Adjustment to principal or basis.
Proper adjustments are made in the
amount of any gain or loss subsequently
realized for gain or loss taken into account by reason of this paragraph (e)(7).
(iii) Interaction with DASTM. With respect to a qualified business unit that uses
the United States dollar approximate separate transactions method of accounting
described in §1.985–3, this paragraph
(e)(7) does not apply.

441

(iv) Definition of hyperinflationary
currency swap contract. A hyperinflationary currency swap contract is a currency swap contract that provides for—
(A) Payments denominated in or determined by reference to a currency that is
hyperinflationary (as defined in
§1.988–1(f)) at the time the taxpayer enters into or otherwise acquires the currency swap; or
(B) Payments that are adjusted to take
into account the fact that the currency is
hyperinflationary (as defined in
§1.988–1(f)) during the current taxable
year. A currency swap contract that provides for periodic payments determined
by reference to a variable interest rate
based on local conditions and generally
responding to changes in the local consumer price index is an example of this
latter type of currency swap contract.
(v) Special effective date for nonfunctional hyperinflationary currency swap
contracts. Paragraph (e)(7) applies to
transactions entered into after February
14, 2000.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved December 13, 1999.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on January 12, 2000, 8:45 a.m., and published in the issue of
the Federal Register for January 13, 2000, 65 F.R.
2026)

Section 6104.—Publicity of
Information Required From
Certain Exempt Organizations
and Certain Trusts
26 CFR 1.6104(d)–1: Public inspection and
distribution of applications for tax exemption and
annual information returns of tax-exempt
organizations.

T.D. 8861
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 301 and 602

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Private Foundation Disclosure
Rules
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations that amend the regulations relating to the public disclosure requirements
described in section 6104(d) of the Internal
Revenue Code. These final regulations implement changes made by the Tax and
Trade Relief Extension Act of 1998, which
extended to private foundations the same
rules regarding public disclosure of annual
information returns that apply to other taxexempt organizations. These final regulations provide guidance for private foundations required to make copies of
applications for recognition of exemption
and annual information returns available
for public inspection and to comply with
requests for copies of those documents.
DATES: Effective Date: These regulations are effective March 13, 2000.
Applicability date. Except as provided
below, these regulations are applicable to
private foundations on or after March 13,
2000. These regulations are not applicable
to any private foundation annual information return the due date for which (determined with regard to any extension of time
for filing) is before March 13, 2000.
FOR FURTHER INFORMATION CONTACT: Michael B. Blumenfeld, (202)
622-6070 (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 of
1995 (44 U.S.C. 3507) under control
number 1545-1655. Responses to these
collections of information are mandatory.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it displays a valid control number assigned by
the Office of Management and Budget.
The estimated average annual burden
per respondent/recordkeeper is 30 minutes.
Comments on the accuracy of this bur-

January 31, 2000

den estimate and suggestions for reducing
the burden should be sent to the Internal
Revenue Service, Attn: IRS Reports
Clearance Officer, OP:FS: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 amends §§301.6104(d)–1
through 301.6104(d)–5 of the Procedure
and Administration Regulations (26 CFR
Part 301) relating to the section 6104(d)
public disclosure rules applicable to tax-exempt organizations (organizations described
in section 501(c) or (d) and exempt from
taxation under section 501(a)) and certain
nonexempt charitable trusts and nonexempt
private foundations referenced in section
6033(d). The amendments remove existing
§301.6104(d)–1 (relating to public inspection of private foundation annual information returns). The amendments also revise
§§301.6104(d)–2 through 301.6104(d)–5 to
apply the provisions to all tax-exempt organizations, nonexempt charitable trusts described in section 4947(a)(1) and nonexempt private foundations. In addition, the
amendments redesignate existing
§§301.6104(d)–2 through 301.6104(d)–5 as
§§301.6104(d)–0 through 301.6104(d)–3,
respectively.
Description of Current Law Disclosure
Requirements Applicable to Private
Foundations
Section 6104(d), as in effect prior to the
effective date of the Tax and Trade Relief
Extension Act of 1998 (Division J of H.R.
4328, the Omnibus Consolidated and
Emergency Supplemental Appropriations
Act, 1999)(Public Law 105-277, 112 Stat
2681) (with respect to private foundations),
requires a private foundation to make its
annual information returns available for
public inspection at its principal office during regular business hours for a period of
180 days after the foundation publishes notice of the availability of its return. A pri-

442

vate foundation must publish the notice not
later than the due date of the return (determined with regard to any extension of time
for filing) in a newspaper having general
circulation in the county in which the principal office of the foundation is located.
Section 6104(e), as in effect prior to the effective date of the Tax and Trade Relief Extension Act of 1998 (with respect to private
foundations), requires a private foundation
to allow public inspection of the foundation’s application for recognition of exemption at the foundation’s principal office
(and certain regional or district offices).
Section 6104(e) also requires a private
foundation to provide copies of its exemption application upon request. The requirement to provide copies of an exemption application upon request becomes effective,
however, only after the Secretary of the
Treasury issues final regulations applicable
to private foundations that describe how the
requirement is inapplicable if the private
foundation makes its exemption application
widely available or obtains an IRS determination that a particular request is part of a
harassment campaign.
Amendments Made by the Tax and Trade
Relief Extension Act of 1998
The Tax and Trade Relief Extension
Act of 1998 was enacted on October 21,
1998. Among its provisions, it amended
section 6104(e) of the Code to apply to
private foundations the same rules regarding public disclosure of annual information returns that apply to other tax-exempt
organizations. In addition, the Tax and
Trade Relief Extension Act of 1998 repealed existing section 6104(d), and redesignated section 6104(e), as amended,
as new section 6104(d). Section 6104(d),
as amended by the Tax and Trade Relief
Extension Act of 1998, requires each taxexempt organization, including one that is
a private foundation, to allow public inspection at its principal office (and at certain regional or district offices) and to
comply with requests, made either in person or in writing, for copies of the organization’s application for recognition of exemption and the organization’s three most
recent annual information returns. Congress also intended that nonexempt charitable trusts described in section
4947(a)(1) and nonexempt private foundations comply with the expanded public
disclosure requirements, just as the infor-

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Page 443

mation reporting requirements of section
6033, pursuant to section 6033(d), apply
to these entities. See Joint Committee on
Taxation, General Explanation of Tax
Legislation Enacted in 1998 (JCS–6–98),
November 24, 1998, at 242, fn. 102.
The Tax and Trade Relief Extension
Act of 1998 amendments apply to requests made after the later of December
31, 1998, or the 60th day after the Secretary of the Treasury issues final regulations referred to in section 6104(d)(4) (relating to when documents are made
widely available and when a particular request is considered part of a harassment
campaign). On April 9, 1999, the IRS
published T.D. 8818, 1999–17 I.R.B. 3, in
the Federal Register (64 FR 17279) final
regulations under section 6104(d) applicable to tax- exempt organizations other
than private foundations. Accordingly,
section 6104(d), as amended by the Tax
and Trade Relief Extension Act of 1998,
became effective with respect to tax-exempt organizations other than private
foundations on June 8, 1999.
On August 10, 1999, the IRS published
a notice of proposed rulemaking,
REG–121946–98, 1999–36 I.R.B. 403,
under section 6104(d) in the Federal
Register (64 FR 43324) that extends the
recently-published final regulations under
section 6104(d) to apply to private foundations and modifies those final regulations in several respects. The IRS received a few comments on the proposed
regulations. No public hearing on the
regulations was requested or held. After
consideration of all the comments, the
proposed regulations are adopted with
minor clarifying modifications by this
Treasury Decision. The provisions and
significant comments are discussed
below.
Explanation of the Provisions
These final regulations amend the final
regulations (T.D. 8818) under section
6104(d) that were published in the Federal
Register (64 FR 17279) on April 9, 1999
(the April 9, 1999 final regulations). The
amendments clarify that the term annual
information return includes any return that
is required to be filed under section 6033.
For a private foundation, these returns include Form 990-PF and Form 4720. The
amendments clarify that, unlike other taxexempt organizations, a private foundation

2000–5 I.R.B.

must disclose to the general public the
names and addresses of its contributors,
consistent with section 6104(d)(3). The
amendments also clarify that, for purposes
of section 6104(d), the terms tax-exempt
organization and private foundation include nonexempt private foundations and
nonexempt charitable trusts described in
section 4947(a)(1) that are subject to the information reporting requirements of section
6033. Finally, the amendments remove existing §301.6104(d)–1 and redesignate existing
§§301.6104–2
through
301.6104(d)–5, as §§301.6104(d)–0
through 301.6104(d)–3, respectively.
Until March 13, 2000, private foundations remain subject to section 6104(d)
and section 6104(e), as in effect prior to
the Tax and Trade Relief Extension Act of
1998, and existing §301.6104(d)–1.
Thereafter, private foundations are subject to the public inspection requirements
of section 6104(d), as in effect prior to the
Tax and Trade Relief Extension Act of
1998, and existing §301.6104(d)–1 with
respect to any annual information return
the due date (determined with regard to
any extension of time for filing) for which
is prior to March 13, 2000.
Summary of Comments
One commenter suggested another
method to satisfy the widely available exception to the requirement that a private
foundation provide a copy of its applicable
documents upon request. The commenter
would permit a private foundation to satisfy
the widely available exception by (1) filing
copies of its documents with a state agency
that, in turn, makes the documents available for public inspection, and (2) publishing a notice in a newspaper of general circulation stating where the documents are
available. The Tax and Trade Relief Extension Act of 1998 repealed the requirement
(in former section 6104(d)) that private
foundations publish notice of the availability of their annual information returns with
respect to annual information returns due
after the effective date of these final regulations. The Act extended the same public
disclosure requirements that apply to all
other tax-exempt organizations to private
foundations, including the widely available
exception. The proposed regulations specify that a private foundation satisfies the
widely available exception by posting its
documents on the World Wide Web as de-

443

scribed in the April 9, 1999 final regulations. After carefully considering this comment, the IRS and the Treasury Department
have concluded that providing copies of the
applicable documents to a state agency and
publishing notice would not make those
documents widely available. We reached
our conclusion because the method suggested by the commenter could impose a
substantial inconvenience to members of
the public. Therefore, the IRS and the
Treasury Department did not adopt this
suggestion.
A few commenters asked that these final
regulations not require private foundations
to disclose to the general public the identities of their contributors. Section 6104(d)
requires public disclosure of all the information contained on an exemption application and an annual information return filed
with the IRS, unless the information is
specifically excepted from disclosure.
Section 6104(d)(3) specifically excepts
from disclosure the names and addresses of
any contributor to an organization which is
not a private foundation. By its terms, this
exception does not apply to private foundations. The IRS and the Treasury Department believe the rule of the proposed regulation is consistent with the statute and
Congressional intent and, therefore, did not
change this provision.
One commenter asked that these final
regulations clarify how the disclosure requirements apply to a supporting organization described in section 509(a)(3).
Section 509(a) provides that an organization described in section 501(c)(3) is a
private foundation if it does not meet the
requirements of section 509(a)(1), (2),
(3), or (4). Therefore, an organization
that is described in section 501(c)(3) and
classified as a supporting organization
under section 509(a)(3) is not a private
foundation. The disclosure requirements
under section 6104(d) apply to supporting
organizations described in section
509(a)(3) in the same manner as they
apply to all other tax-exempt organizations that are not private foundations.
The proposed regulations define the terms
tax-exempt organization and private foundation consistent with the applicable
statutory provisions, and the IRS and the
Treasury Department have determined
that further regulatory clarification is not
necessary in this regard.
Another commenter expressed concern

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Page 444

that some private foundations may not have
copies of their exemption applications.
This commenter suggested that these final
regulations only require private foundations formed after 1990 to disclose their
exemption applications. Since July 15,
1987, a tax-exempt organization, including
one that is a private foundation, has been
required under section 6104 to make its exemption application available for public inspection. See section 10702(b) of the Omnibus Budget Reconciliation Act of 1987
(Public Law 100–203) and Notice 88–120
(1988–2 C.B. 454). Under the proposed
regulations, a private foundation that filed
its exemption application before July 15,
1987 is required to make available for public inspection a copy of its application only
if it had a copy of its application on July 15,
1987. Thus, these final regulations do not
change this provision of the proposed regulations.
One commenter stated that the applicable date in the proposed regulations, which
would eliminate the requirement that private foundations publish notice of the availability of their annual information returns,
is inconsistent with the effective date specified in the House Committee Report to the
Tax and Trade Relief Extension Act of
1998 (H.R. Rep. No. 105–817). This commenter requested that the final regulations
add a rule that prevents the IRS from asserting a late filing penalty against a private
foundation whose return is rejected by the
IRS because the foundation filed the return
on or after June 8, 1999 (the effective date
of the April 9, 1999 final regulations) without proof that it satisfied the publication of
notice requirement. Section 6104(d), as in
effect prior to the effective date of the Tax
and Trade Relief Extension Act of 1998,
provides that a private foundation must
publish a notice of the availability of its return not later than the due date of the return
(determined with regard to any extension of
time for filing). Section 1.6033–3(b) of the
regulations requires a private foundation to
attach a copy of the notice to its return.
The Tax and Trade Relief Extension Act
of 1998 repealed the publication of notice
requirement of section 6104(d) effective for
private foundation annual information returns due after the later of December 31,
1998 or 60 days after the Treasury Department issues final regulations that explain
how requested documents may be made
widely available or when requests for docu-

January 31, 2000

ments are part of a harassment campaign.
The April 9, 1999 final regulations do not
apply to private foundations and, therefore,
the issuance of those regulations did not
trigger the repeal of the publication of notice requirement. Indeed, the April 9, 1999
final regulations stated explicitly that, until
the IRS issues final regulations under section 6104(d) applicable to private foundations, private foundations continue to be
governed by the existing § 301.6104(d)–1
requirements relating to public disclosure
of private foundation annual information
returns
The IRS and the Treasury Department
believe the effective date of the repeal of
the publication of notice requirement stated
in the proposed regulations is consistent
with both the statute and the legislative history. Further, the IRS and the Treasury Department believe it is important to retain
one public disclosure standard for private
foundations until another is finally adopted.
Accordingly, the IRS and the Treasury Department did not modify these final regulations as suggested.
Finally, one commenter expressed concern that disclosure in some instances could
adversely affect the charitable operations of
some small operating private foundations
that advance unpopular causes or desire to
maintain a low profile. This commenter
suggested that the final regulations should
authorize the Secretary to grant a waiver
from some or all of the disclosure requirements if a small operating foundation establishes that, without the waiver, its charitable operations could be adversely affected
and it provides alternative methods of disclosure that enhance oversight and public
accountability. Section 6104(d), however,
does not authorize the Secretary to grant
waivers except in the case of a harassment
campaign determination. Moreover, all
tax-exempt organizations have the option
under the regulations of avoiding having to
comply with requests for copies of documents by making such documents widely
available on the Internet. Therefore, the
IRS and the Treasury Department did not
adopt this suggestion.
Effective Date

of information in these regulations will
not have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact that
the average time required to maintain and
disclose the information required under
these regulations is estimated to be 30
minutes for each private foundation. This
estimate is based on the assumption that,
on average, a private foundation will receive one request per year to inspect or
provide copies of its application for tax
exemption and its annual information returns. Approximately 0.1 percent of the
private foundations affected by these regulations will be subject to the reporting
requirements contained in the regulations.
It is estimated that annually, approximately 65 private foundations will make
their documents widely available by posting them on the Internet. In addition, it is
estimated that annually, approximately 3
private foundations will file an application for a determination that they are the
subject of a harassment campaign such
that a waiver of the obligation to provide
copies of their applications for tax exemption and their annual information returns
is in the public interest. The average time
required to complete, assemble and file an
application describing a harassment campaign is expected to be 5 hours. Because
applications for a harassment campaign
determination will be filed so infrequently, they will have no effect on the
average time needed to comply with the
requirements in these regulations. In addition, a private foundation is allowed in
these regulations to charge a reasonable
fee for providing copies to requesters.
Therefore, it is estimated that it will cost a
private foundation less than $10 per year
to comply with these regulations, which is
not a significant economic impact.
Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment on its
impact on small business.

These final regulations are applicable
to private foundations on March 13, 2000.

Drafting Information

Special Analyses

The principal author of these regulations is Michael B. Blumenfeld, Office of
Associate Chief Counsel (Employee Ben-

It is hereby certified that the collections

444

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Page 445

efits and Exempt Organizations), IRS.
Other personnel from the IRS and Treasury Department also participated in their
development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 301 and
602 are amended as follows:
PART 301–PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6104(d)–2 also issued
under 26 U.S.C. 6104(d)(3);
Section 301.6104(d)–3 also issued
under 26 U.S.C. 6104(d)(3); * * *
§301.6104(d)–1 [Removed]
Par. 2. Section 301.6104(d)–1 is removed.
§301.6104(d)–2 [Redesignated as
§301.6104(d)–0]
Par. 3. Section 301.6104(d)–2 is redesignated as §301.6104(d)–0.
Par. 4. Newly designated §301.6104(d)–0
is revised to read as follows:
§301.6104(d)–0 Table of contents.
This section lists the major captions
contained in §§301.6104(d)–1 through
301.6104(d)–3 as follows:
§301.6104(d)–1 Public inspection and
distribution of applications for tax
exemption and annual information
returns of tax-exempt organizations.
(a) In general.
(b) Definitions.
(1) Tax-exempt organization.
(2) Private foundation.
(3) Application for tax exemption.
(i) In general.
(ii) No prescribed application form.
(iii) Exceptions.
(iv) Local or subordinate organizations.
(4) Annual information return.
(i) In general.
(ii) Exceptions.
(iii) Returns more than 3 years old.
(iv) Local or subordinate organizations.
(5) Regional or district offices.
(i) In general.
(ii) Site not considered a regional or district office.

2000–5 I.R.B.

(c) Special rules relating to public inspection.
(1) Permissible conditions on public inspection.
(2) Organizations that do not maintain
permanent offices.
(d) Special rules relating to copies.
(1) Time and place for providing copies in
response to requests made in person.
(i) In general.
(ii) Unusual circumstances.
(iii) Agents for providing copies.
(2) Request for copies in writing.
(i) In general.
(ii) Time and manner of fulfilling written
requests.
(A) In general.
(B) Request for a copy of parts of document.
(C) Agents for providing copies.
(3) Fees for copies.
(i) In general.
(ii) Form of payment.
(A) Request made in person.
(B) Request made in writing.
(iii) Avoidance of unexpected fees.
(iv) Responding to inquiries of fees
charged.
(e) Documents to be provided by regional
and district offices.
(f) Documents to be provided by local and
subordinate organizations.
(1) Applications for tax exemption.
(2) Annual information returns.
(3) Failure to comply.
(g) Failure to comply with public inspection or copying requirements.
(h) Effective date.
(1) In general.
(2) Private foundation annual information
returns.
§301.6104(d)–2 Making applications
and returns widely available.
(a) In general.
(b) Widely available.
(1) In general.
(2) Internet posting.
(i) In general.
(ii) Transition rule.
(iii) Reliability and accuracy.
(c) Discretion to prescribe other methods
for making documents widely available.
(d) Notice requirement.
(e) Effective date.
§301.6104(d)–3 Tax-exempt
organization subject to harassment

445

campaign.
(a) In general.
(b) Harassment.
(c) Special rule for multiple requests from
a single individual or address.
(d) Harassment determination procedure.
(e) Effect of a harassment determination.
(f) Examples.
(g) Effective date.
§301.6104(d)–3 [Redesignated as
§301.6104(d)–1]
Par. 5. Section 301.6104(d)–3 is redesignated as §301.6104(d)–1.
Par. 6. Newly designated §301.6104(d)–1
is amended as follows:
1. Revise the section heading.
1a. Paragraph (a) is amended as follows:
a. Remove the language “, other than a
private foundation (as defined in paragraph (b)(2) of this section),” from the
first sentence.
b. Remove the language “, other than a
private foundation,” from the second sentence.
c.
Remove
the
language
“§§301.6104(d)–4 and 301.6104(d)–5”
from the fourth sentence and add
“§§301.6104(d)–2 and 301.6104(d)–3” in
its place.
2. In paragraph (b) introductory text, remove the language “§§301.6104(d)–4 and
301.6104(d)–5” and add “§§301.6104(d)–2
and 301.6104(d)–3” in its place.
3. In paragraph (b)(1), add a sentence
at the end of the paragraph.
4. In paragraph (b)(2), add the language “or a nonexempt charitable trust
described in section 4947(a)(1) or a
nonexempt private foundation subject to
the information reporting requirements of
section 6033 pursuant to section 6033(d)”
at the end of the sentence.
5. In paragraph (b)(3)(iii)(B), remove
the word “or” at the end of the paragraph.
6. Redesignate paragraph (b)(3)(iii)(C)
as paragraph (b)(3)(iii)(D) and add a new
paragraph (b)(3)(iii)(C).
7. In paragraph (b)(4)(i), remove the
last two sentences and add three sentences
in their place.
8. Paragraph (b)(4)(ii) is amended as
follows:
a. Remove the language “, and the return of a private foundation” from the first
sentence.
b. Revise the last sentence.
9. Revise paragraph (h).

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The revisions and additions read as follows:
§301.6104(d)–1 Public inspection and
distribution of applications for tax exemption and annual information returns of
tax-exempt organizations.
* * * * *
(b) * * *
(1) * * * The term tax-exempt organization also includes any nonexempt charitable trust described in section 4947(a)(1)
or nonexempt private foundation that is
subject to the reporting requirements of
section 6033 pursuant to section 6033(d).
* * * * *
(3)* * *
(iii) * * *
(C) In the case of a tax-exempt organization other than a private foundation, the
name and address of any contributor to
the organization; or
* * * * *
(4) * * * (i) * * * Returns filed pursuant to
section 6033 include Form 990, Return of
Organization Exempt From Income Tax,
Form 990-PF, Return of Private Foundation,
or any other version of Form 990 (such as
Forms 990-EZ or 990-BL, except Form 990T) and Form 1065. Each copy of a return
must include all information furnished to
the Internal Revenue Service on the return,
as well as all schedules, attachments and
supporting documents. For example, in the
case of a Form 990, the copy must include
Schedule A of Form 990 (containing supplementary information on section 501(c)(3)
organizations), and those parts of the return
that show compensation paid to specific persons (currently, Part V of Form 990 and
Parts I and II of Schedule A of Form 990).
(ii) * * * In the case of a tax-exempt organization other than a private foundation, the term annual information return
does not include the name and address of
any contributor to the organization.
* * * * *

(h) Effective date–(1) In general. For a
tax-exempt organization, other than a private foundation, this section is applicable
June 8, 1999. For a private foundation,
this section is applicable (except as provided in paragraph (h)(2) of this section)
beginning March 13, 2000.
(2) Private foundation annual information returns. This section does not apply
to any private foundation return the due
date for which (determined with regard to
any extension of time for filing) is before
the applicable date for private foundations
specified in paragraph (h)(1) of this section.
§301.6104(d)–4 [Redesignated as
§301.6104(d)–2]
Par. 7. Section 301.6104(d)–4 is redesignated as §301.6104(d)–2.
Par. 8. Newly designated §301.6104(d)–2
is amended as follows:
1. In paragraph (a), remove the language
“§301.6104(d)–3(a)” from each place it appears and add “§301.6104(d)–1(a)” in each
place, respectively.
2. Revise paragraph (e).
The revision reads as follows:
§301.6104(d)–2 M

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8090cc78e918ee6a. Public record. Not legal advice.