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Bulletin No. 2000–3
January 18, 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
ESTATE TAX
Rev. Rul. 2000–3, page 297.
Rev. Rul. 2000–2, page 305.
LIFO; price indexes; department stores. The November 1999 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail
inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference
to, November 30, 1999.
T.D. 8856, page 298.
This document contains changes delaying the effective
date for final regulations (T.D. 8734, 1997–2 C.B. 109)
under sections 1441, 1442, and 1443 of the Code relating to the withholding of income tax on certain U.S. source
income payments to foreign persons.
Notice 2000–4, page 313.
Like-kind exchange and involuntary conversion of
MACRS property. Guidance is provided about the depreciation of property subject to section 168 of the Code (MACRS
property) that is acquired in a like-kind exchange under section 1031 or as a result of an involuntary conversion under
section 1033. The Service and the Department of the Treasury intend to issue regulations under section 168 that will
address these transactions. Taxpayers should follow this notice until these regulations are issued. Public comments to
aid in development of the regulations are requested by
March 31, 2000. Rev. Proc. 99–49 modified and amplified.
Qualified terminable interest property (QTIP) elections. This ruling holds that an executor may elect undersection 2056(b)(7) of the Code to treat an individual retirement account and a testamentary trust as QTIP under
certain conditions. Rev. Rul. 89–89 obsoleted.
ADMINISTRATIVE
T.D. 8854, page 306.
REG–116704–99, page 325.
Temporary and proposed regulations under section 6103
of the Code authorize the Service to disclose return information to the Department of Agriculture to structure, prepare, and conduct the Census of Agriculture.
REG–101492–98, page 326.
Proposed regulations under sections 7508 and 7508A of
the Code relate to relief for service in a combat zone and
for presidentially declared disasters.
Rev. Proc. 2000–11, page 309.
Changes in accounting periods; automatic consent.
This procedure provides procedures by which certain corporations may obtain automatic approval to change their
(Continued on the page following the Introduction)
Finding Lists begin on page ii.
Department of the Treasury
Internal Revenue Service
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.
ADMINISTRATIVE—continued
Notice 2000–5, page 314.
annual accounting periods under section 442 of the
Code. Rev. Procs. 92–13, 92–13A, and 94–12 modified,
amplified, and superseded.
Estimated taxes; penalties. Penalty relief is available for
certain corporate taxpayers whose December 15, 1999,
estimated tax installment was affected by section 571 of
the Tax Relief Extension Act of 1999.
Announcement 2000–4, page 317.
Notice 2000–6, page 315.
Arbitration. Pursuant to section 7123(b)(2) of the Code,
Appeals is conducting a 2-year test of a binding arbitration
procedure. This announcement contains procedures that
taxpayers may use to request binding arbitration for factual issues that are already in the Appeals administrative
process and which are not docketed in any court. A public
hearing is scheduled for April 5, 2000.
Information reporting; barter exchanges. Pending the
issuance of new regulations, a barter exchange is not required under section 6045 of the Code to report exchanges involving property or services with a fair market
value of less than $1.00. Public comment is also invited
on information reporting issues under section 6045 relating to barter exchanges in connection with the regulations.
2000–3 I.R.B.
January 18, 2000
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 167.—Depreciation
26 CFR 1.446–1: General rule for methods of
accounting.
26 CFR 1.167(e)-1: Change in method.
Is a change in the method of computing depreciation for property subject to section 168 of the
Code (MACRS property) that is acquired in a section 1031 like-kind exchange or section 1033 involuntary conversion a change in method of accounting? See Notice 2000–4, page 313.
Is a change in the method of computing depreciation for property subject to section 168 of the
Code (MACRS property) that is acquired in a section 1031 like-kind exchange or section 1033 involuntary conversion a change in method of accounting? See Notice 2000–4, page 313.
Section 442.—Change of
Annual Accounting Period
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472-1: Last-in, first-out inventories.
26 CFR 1.442–1: Change of annual accounting
period.
What procedures apply for certain corporations
to obtain automatic approval to change their annual accounting periods under section 442 of the
Code? See Rev. Proc. 2000–11, page 309.
LIFO; price indexes; department
stores. The November 1999 Bureau of
Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or with
reference to, November 30, 1999.
Section 446.—General Rule for
Methods of Accounting
The following Department Store Inventory Price Indexes for November
1999 were issued by the Bureau of
Labor Statistics. The indexes are accepted by the Internal Revenue Service,
under section 1.472–1(k) of the Income
Tax Regulations and Rev. Proc. 86–46,
1986–2 C.B. 739, for appropriate application to inventories of department
stores employing the retail inventory
and last-in, first-out inventory methods
for tax years ended on, or with reference
to, November 30, 1999.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of departments, (b) three special combinations of the major groups - soft goods,
durable goods, and miscellaneous
goods, and (c) a store total, which covers all departments, including some not
listed separately, except for the following: candy, food, liquor, tobacco, and
contract departments.
Rev. Rul. 2000–3
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Groups
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
Nov.
1998
Piece Goods - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -544.5
Domestics and Draperies - - - - - - - - - - - - - - - - - - - - - -635.9
Women’s and Children’s Shoes - - - - - - - - - - - - - - - - - -685.8
Men’s Shoes - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -916.9
Infants’ Wear - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -638.3
Women’s Underwear - - - - - - - - - - - - - - - - - - - - - - - - -570.4
Women’s Hosiery - - - - - - - - - - - - - - - - - - - - - - - - - - -308.4
Women’s and Girls’ Accessories - - - - - - - - - - - - - - - - -546.5
Women’s Outerwear and Girls’ Wear - - - - - - - - - - - - - -417.0
Men’s Clothing - - - - - - - - - - - - - - - - - - - - - - - - - - - -619.5
Men’s Furnishings - - - - - - - - - - - - - - - - - - - - - - - - - -608.4
Boys’ Clothing and Furnishings - - - - - - - - - - - - - - - - - -519.0
Jewelry - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -977.1
Notions - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -766.3
Toilet Articles and Drugs - - - - - - - - - - - - - - - - - - - - - -945.3
Furniture and Bedding - - - - - - - - - - - - - - - - - - - - - - - -686.8
Floor Coverings - - - - - - - - - - - - - - - - - - - - - - - - - - - -602.2
Housewares - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -811.3
Major Appliances - - - - - - - - - - - - - - - - - - - - - - - - - - -238.9
Radio and Television - - - - - - - - - - - - - - - - - - - - - - - - - 70.1
Recreation and Education2 - - - - - - - - - - - - - - - - - - - - -102.2
Home Improvements2 - - - - - - - - - - - - - - - - - - - - - - - -129.6
Auto Accessories2 - - - - - - - - - - - - - - - - - - - - - - - - - -107.9
2000–3 I.R.B.
297
Nov.
1999
514.3
622.0
651.4
875.1
647.6
571.9
328.9
539.6
410.3
617.4
627.6
510.2
950.5
764.6
983.6
689.7
602.1
789.3
235.5
63.5
96.1
129.2
107.6
Percent Change
from Nov. 1998
to Nov. 19991
-5.5
-2.2
-5.0
-4.6
1.5
0.3
6.6
-1.3
-1.6
-0.3
3.2
-1.7
-2.7
-0.2
4.1
0.4
0.0
-2.7
-1.4
-9.4
-6.0
-0.3
-0.3
January 18, 2000
Groups 1 - 15: Soft Goods - - - - - - - - - - - - - - - - - - - - - - - - - -610.0
Groups 16 - 20: Durable Goods - - - - - - - - - - - - - - - - - - - - - - -460.4
Groups 21 - 23: Misc. Goods2 - - - - - - - - - - - - - - - - - - - - - - - -106.9
606.9
446.9
102.7
-0.5
-2.9
-3.9
Store Total3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -554.9
547.2
-1.4
1 Absence of a minus sign before percentage change in this column signifies price increase.
2 Indexes on a January 1986=100 base.
3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,
tobacco, and contract departments.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Alan J. Tomsic of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information regarding this revenue ruling, contact Mr.
Tomsic on (202) 622-4970 (not a toll-free
call).
Section 706.—Taxable Year of
Partner and Partnership
If property subject to section 168 of the Code
(MACRS property) is acquired in replacement of involuntarily converted MACRS property to which
section 1033 applies, how is the depreciation allowable determined for the acquired MACRS property?
See Notice 2000–4, page 313.
Section 1441.—Withholding of
Tax on Nonresident Aliens and
Foreign Corporations
26 CFR 1.1441–1: Requirement for withholding of
tax on nonresident aliens, foreign partnerships, and
foreign corporations.
26 CFR 1.706–1T: Taxable years of certain
partnerships.
What procedures apply for certain corporations
to obtain automatic approval to change their annual
accounting periods under section 442 of the Code?
See Rev. Proc. 2000–11, page 309.
Section 898.—Taxable Year of
Certain Foreign Corporations
What procedures apply for certain corporations
to obtain automatic approval to change their annual
accounting periods under section 442 of the Code?
See Rev. Proc. 2000–11, page 309.
Section 1031.—Exchange of
Property Held for Productive
Use or Investment
26 CFR 1.1031(a)–1: Property held for productive
use in trade or business or for investment.
If property subject to section 168 of the Code
(MACRS property) is acquired in an exchange of
MACRS property for like-kind MACRS property to
which section 1031 applies, how is the depreciation
allowable determined for the acquired MACRS
property? See Notice 2000–4, page 313.
Section 1033.—Involuntary
Conversions
26 CFR 1.1033(a)–1: Involuntary conversion;
nonrecognition of gain.
January 18, 2000
T.D. 8856
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, 35a, 301,
502, 503, 509, 513, 514, 516,
517, 520, 521, and 602.
General Revision of Regulations
Relating to Withholding of Tax
on Certain U.S. Source Income
Paid to Foreign Persons and
Related Collection, Refunds,
and Credits; Revision of
Information Reporting and
Backup Withholding
Regulations; and Removal of
Regulations Under Parts 1 and
35a and of Certain Regulations
Under Income Tax Treaties
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule; delay of effective
date.
SUMMARY: This document contains
changes delaying the effective date to final
regulations (TD 8734, 1997–2 C.B. 109),
which were published in the Federal Register of October 14, 1997, relating to the
298
withholding of income tax on certain U.S.
source income payments to foreign persons. The Department of the Treasury and
the IRS believe it is in the best interest of
tax administration to delay the effective
date of the final withholding regulations to
ensure that both taxpayers and the government can complete changes necessary to
implement the new withholding regime.
As extended by this document, the final
withholding regulations will apply to payments made after December 31, 2000.
DATES: Effective Dates: The amendments
in this final rule are effective January 1,
2001. As of December 31, 1999, the effective date of the final regulations published
at 62 FR 53387 (TD 8734), October 14,
1997, and delayed by TD 8804 (63 FR
72183, December 31, 1998), is delayed
from January 1, 2000, until January 1,
2001; however, the effective date of the addition of §§31.9999–0 and 35a.9999–0 and
the removal of §35a.9999–0T remains October 14, 1997.
FOR FURTHER INFORMATION CONTACT: Laurie Hatten-Boyd, (202) 6223840 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the subject of this amendment provide guidance
under sections 1441, 1442, and 1443 of
the Internal Revenue Code (Code) on
certain U.S. source income paid to foreign persons, the related tax deposit and
reporting requirements under section
1461 of the Code, and the related
changes under sections 163(f), 165(j),
871, 881, 1462, 1463, 3401, 3406, 6041,
6041A, 6042, 6045, 6049, 6050A,
6050N, 6109, 6114, 6402, 6413, and
6724 of the Code.
Need for Changes
On April 29, 1999, in Notice 99–25
2000–3 I.R.B.
(1999–20 I.R.B. 1), the IRS and Treasury announced their decision to extend
the effective date of the final regulations. When originally published in the
Federal Register on October 14, 1997
(62 FR 53387), the final regulations
were applicable to payments made after
December 31, 1998 and, generally,
granted withholding agents until after
December 31, 1999, to obtain the new
withholding certificates (Forms W8BEN, W-8ECI, W-8EXP, and W8IMY) and statements required under
those regulations. On April 13, 1998, in
Notice 98–16 (1998–15 I.R.B. 12), the
IRS and Treasury announced the decision to extend the effective date of the
final regulations to January 1, 2000 and
to provide correlative extensions to the
transition rules for obtaining new withholding certificates and statements.
Those extensions were published on December 31, 1998 at 63 FR 72183 as TD
8804. This amendment serves to make
the final regulations applicable to payments made after December 31, 2000
and to require mandatory use of the new
withholding certificates and statements
for payments made after that date.
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) does not apply to
these regulations. Finally, it has been
determined that the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply to these regulations because the
regulations do not impose a collection of
information on small entities. Pursuant
to 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations (61 FR 17614) was submitted to
the Small Business Administration for
comment on its impact on small business.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, under the authority of 26
U.S.C. 7805, 26 CFR parts 1, 31, and 301
2000–3 I.R.B.
are amended by making the following
correcting amendments:
PART 1—INCOME TAXES
Par. 1. The authority citation for part 1
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.871–14, paragraph (h) is
revised to read as follows:
§1.871–14 Rules relating to repeal of tax
on interest of nonresident alien individuals and foreign corporations received
from certain portfolio debt investments.
*****
(h) Effective date—(1) In general.
This section shall apply to payments of
interest made after December 31, 2000.
(2) Transition rule. For purposes of
this section, the validity of a Form W-8
that was valid on January 1, 1998, under
the regulations in effect prior to January
1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and expired, or will
expire, at any time during 1998, is extended until December 31, 1998. The
validity of a Form W-8 that is valid on
or after January 1, 1999 remains valid
until its validity expires under the
regualtions in effect prior to January 1,
2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) but in no event will
such a form remain valid after December 31, 2000. The rule in this paragraph
(h)(2), however, does not apply to extend the validity period of a Form W-8
that expired solely by reason of changes
in the circumstances of the person
whose name is on the certificate.
Notwithstanding the first three sentences of this paragraph (h)(2), a withholding agent or payor may choose to
not take advantage of the transition rule
in this paragraph (h)(2) with respect to
one or more withholding certificates
valid under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999)
and, therefore, may choose to obtain
withholding certificates conforming to
the requirements described in this section (new withholding certificates). For
purposes of this section, a new withholding certificate is deemed to satisfy
the documentation requirement under
the regulations in effect prior to January
1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999). Further, a new
299
withholding certificate remains valid for
the
period
specified
in
§1.1441–1(e)(4)(ii), regardless of when
the certificate is obtained.
Par. 3. In §1.1441–1, as revised at 62
FR 53424 (TD 8734) and amended at 63
FR 72183 (TD 8804), paragraph (f) is revised to read as follows:
§1.1441–1 Requirement for the deduction
and withholding of tax on payments to
foreign persons.
*****
(f) Effective date—(1) In general.
This section applies to payments made
after December 31, 2000.
(2) Transition rules—(i) Special rules
for existing documentation. For purposes
of paragraphs (d)(3) and (e)(2)(i) of this
section, the validity of a withholding certificate (namely, Form W–8, 8233, 1001,
4224, or 1078 , or a statement described
in §1.1441–5 in effect prior to January 1,
2001 (see §1.1441–5 as contained in 26
CFR part 1, revised April 1, 1999)) that
was valid on January 1, 1998 under the
regulations in effect prior to January 1,
2001 (see 26 CFR parts 1 and 35a, revised
April 1, 1999) and expired, or will expire,
at any time during 1998, is extended until
December 31, 1998. The validity of a
withholding certificate that is valid on or
after January 1, 1999, remains valid until
its validity expires under the regulations
in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised April 1,
1999) but in no event will such withholding certificate remain valid after December 31, 2001. The rule in this paragraph
(f)(2)(i), however, does not apply to extend the validity period of a withholding
certificate that expires solely by reason of
changes in the circumstances of the person whose name is on the certificate.
Notwithstanding the first three sentences
of this paragraph (f)(2)(i), a withholding
agent may choose to not take advantage
of the transition rule in this paragraph
(f)(2)(i) with respect to one or more withholding certificates valid under the regulations in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised
April 1, 1999) and, therefore, to require
withholding certificates conforming to the
requirements described in this section
(new withholding certificates). For purposes of this section, a new withholding
certificate is deemed to satisfy the documentation requirement under the regula-
January 18, 2000
tions in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised
April 1, 1999). Further, a new withholding certificate remains valid for the period
specified in paragraph (e)(4)(ii) of this
section, regardless of when the certificate
is obtained.
(ii) Lack of documentation for past
years. A taxpayer may elect to apply the
provisions of paragraphs (b)(7)(i)(B), (ii),
and (iii) of this section, dealing with liability for failure to obtain documentation
timely, to all of its open tax years, including tax years that are currently under examination by the IRS. The election is
made by simply taking action under those
provisions in the same manner as the taxpayer would take action for payments
made after December 31, 2000.
Par. 4. In §1.1441–4, as amended at 62
FR 53424 (TD 8734) and at 63 FR 72183
(TD 8804), paragraph (g) is revised to
read as follows:
§1.1441–4 Exemptions from withholding
for certain effectively connected income
and other amounts.
*****
(g) Effective date—(1) General rule.
This section applies to payments made
after December 31, 2000.
(2) Transition rules. The validity of a
Form 4224 or 8233 that was valid on
January 1, 1998, under the regulations in
effect prior to January 1, 2001 (see 26
CFR part 1, revised April 1, 1999) and
expired, or will expire, at any time during 1998, is extended until December
31, 1998. The validity of a Form 4224
or 8233 that is valid on or after January
1, 1999, remains valid until its validity
expires under the regulations in effect
prior to January 1, 2001 (see 26 CFR
part 1, revised April 1, 1999) but in no
event will such form remain valid after
December 31, 2000. The rule in this
paragraph (g)(2), however, does not
apply to extend the validity period of a
Form 4224 or 8223 that expires solely
by reason of changes in the circumstances of the person whose name is on
the certificate. Notwithstanding the first
three sentences of this paragraph (g)(2) ,
a withholding agent may choose to not
take advantage of the transition rule in
this paragraph (g)(2) with respect to one
or more withholding certificates valid
under the regulations in effect prior to
January 1, 2001 (see 26 CFR part 1, re-
January 18, 2000
vised April 1, 1999) and, therefore, to
require withholding certificates conforming to the requirements described in
this section (new withholding certificates). For purposes of this section, a
new withholding certificate is deemed to
satisfy the documentation requirement
under the regulations in effect prior to
January 1, 2001 (see 26 CFR part 1, revised April 1, 1999). Further, a new
withholding certificate remains valid for
the
period
specified
in
§1.1441–1(e)(4)(ii), regardless of when
the certificate is obtained.
Par. 5. In §1.1441–5, as revised at 62
FR 53424 (TD 8734) and amended at 63
FR 72183 (TD 8804), paragraph (g) is revised to read as follows:
§1.1441–5 Withholding on payments to
partnerships, trusts, and estates.
*****
(g) Effective date—(1) General rule.
This section applies to payments made
after December 31, 2000.
(2) Transition rules. The validity of
a withholding certificate that was valid
onJanuary 1, 1998, under the regulations
in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised April 1,
1999) and expired, or will expire, at any
time during 1998, is extended until December 31, 1998. The validity of a
withholding certificate that is valid on
or after January 1, 1999, remains valid
until its validity expires under the regulations in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised
April 1, 1999) but in no event will such
a withholding certificate remain valid
after December 31, 2000. The rule in
this paragraph (g)(2), however, does not
apply to extend the validity period of a
withholding certificate that expires
solely by reason of changes in the circumstances of the person whose name is
on the certificate. Notwithstanding the
first three sentences of this paragraph
(g)(2) , a withholding agent may choose
to not take advantage of the transition
rule in this paragraph (g)(2) with respect
to one or more withholding certificates
valid under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999)
and, therefore, to require withholding
certificates conforming to the requirements described in this section (new
withholding certificates). For purposes
300
of this section, a new withholding certificate is deemed to satisfy the documentation requirement under the regulations in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised
April 1, 1999). Further, a new withholding certificate remains valid for the period specified in §1.1441–1(e)(4)(ii), regardless of when the certificate is
obtained.
Par. 6. In §1.1441–6, as revised at 62
FR 53424 (TD 8734) and amended at 63
FR 72183 (TD 8804), paragraph (g) is revised to read as follows:
§1.1441–6 Claim of reduced withholding
under an income tax treaty.
*****
(g) Effective date—(1) General rule.
This section applies to payments made
after December 31, 2000.
(2) Transition rules. For purposes of
this section, the validity of a Form 1001
or 8233 that was valid on January 1, 1998,
under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999) and expired,
or will expire, at any time during 1998, is
extended until December 31, 1998. The
validity of a Form 1001 or 8233 is valid
on or after January 1, 1999, remains valid
until its validity expires under the regulations in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised
April 1, 1999) but in no event will such a
form remain valid after December 31,
2000. The rule in this paragraph (g)(2),
however, does not apply to extend the validity period of a Form 1001 or 8233 that
expires solely by reason of changes in the
circumstances of the person whose name
is on the certificate or in interpretation of
the law under the regulations under
§1.894–1T(d). Notwithstanding the first
three sentences of this paragraph (g)(2), a
withholding agent may choose to not take
advantage of the transition rule in this
paragraph (g)(2) with respect to one or
more withholding certificates valid under
the regulations in effect prior to January
1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and, therefore, to require withholding certificates conforming
to the requirements described in this section (new withholding certificates). For
purposes of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to January 1, 2001
2000–3 I.R.B.
(see 26 CFR parts 1 and 35a, revised
April 1, 1999). Further, a new withholding certificate remains valid for the period
specified in §1.1441–1(e)(4)(ii), regardless of when the certificate is obtained.
Par. 7. In §1.1441–8 as redesignated
and amended at 62 FR 53464 and
amended at 63 FR 72138 (TD 8804),
paragraph (f) is revised to read as follows:
§1.1441–8 Exemption from withholding
for payments to foreign governments, international organizations, foreign central
banks of issue, and the Bank for International Settlements.
*****
(f) Effective date—(1) In general.
This section applies to payments made
after December 31, 2000.
(2) Transition rules. For purposes of
this section, the validity of a Form 8709
that was valid on January 1, 1998, under
the regulations in effect prior to January
1, 2001 (see 26 CFR part 1, revised April
1, 1999) and expired, or will expire, at
any time during 1998, is extended until
December 31, 1998. The validity of a
Form 8709 that is valid on or after January 1, 1999, remains valid until its validity expires under the regulations in effect
prior to January 1, 2001 (see 26 CFR part
1, revised April 1, 1999) but in no event
shall such a form remain valid after December 31, 2000. The rule in this paragraph (f)(2), however, does not apply to
extend the validity period of a Form 8709
that expires solely by reason of changes in
the circumstances of the person whose
name is on the certificate. Notwithstanding the first three sentences of this paragraph (f)(2), a withholding agent may
choose to not take advantage of the transition rule in this paragraph (f)(2) with respect to one or more withholding certificates valid under the regulations in effect
prior to January 1, 2001 (see 26 CFR part
1, revised April 1, 1999) and, therefore, to
require withholding certificates conforming to the requirements described in this
section (new withholding certificates).
For purposes of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to January 1, 2001
(see 26 CFR part 1, revised April 1,
1999). Further, a new withholding certificate remains valid for the period specified
in §1.1441–1(e)(4)(ii), regardless of when
the certificate is obtained.
2000–3 I.R.B.
Par. 8. In §1.1441–9, paragraph (d) is
revised to read as follows:
§1.1441–9 Exemption from withholding
on exempt income of a foreign tax-exempt
organization, including foreign private
foundations.
*****
(d) Effective date—(1) In general.
This section applies to payments made
after December 31, 2000.
(2) Transition rules. For purposes of
this section, the validity of a Form W-8,
1001, or 4224 or a statement that was
valid on January 1, 1998, under the regulations in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised
April 1, 1999) and expired, or will expire,
at any time during 1998, is extended until
December 31, 1998. The validity of a
Form W-8, 1001, or 4224 or a statement
that is valid on or after January 1, 1999
remains valid until its validity expires
under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999) but in no event
shall such form or statement remain valid
after December 31, 2000. The rule in this
paragraph (d)(2), however, does not apply
to extend the validity period of a Form W8, 1001, or 4224 or a statement that expires solely by reason of changes in the
circumstances of the person whose name
is on the certificate. Notwithstanding the
first three sentences of this paragraph
(d)(2), a withholding agent may choose to
not take advantage of the transition rule in
this paragraph (d)(2) with respect to one
or more withholding certificates valid
under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999) and, therefore,
to require withholding certificates conforming to the requirements described in
this section (new withholding certificates). For purposes of this section, a new
withholding certificate is deemed to satisfy the documentation requirement under
the regulations in effect prior to January
1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999). Further, a new withholding certificate remains valid for the
period specified in §1.1441–1(e)(4)(ii),
regardless of when the certificate is obtained.
Par. 9. In §1.1443–1, as revised at 62
FR 53424 (TD 8734) and amended at 63
FR 72183), paragraph (c) is revised to
read as follows:
301
§1.1443–1 Foreign tax-exempt organizations.
*****
(c) Effective date—(1) In general.
This section applies to payments made
after December 31, 2000.
(2) Transition rules. For purposes of
this section, the validity of an affidavit or
opinion of counsel described in §
1.1443–1(b)(4)(i) in effect prior to January 1, 2001 (see § 1.1443–1(b)(4)(i) as
contained in 26 CFR part 1, revised April
1, 1999) is extended until December 31,
2000. However, a withholding agent may
chose to not take advantage of the transition rule in this paragraph (c)(2) with respect to one or more withholding certificates valid under the regulations in effect
prior to January 1, 2001 (see CFR part 1,
revised April 1, 1999) and, therefore, to
require withholding certificates conforming to the requirements described in this
section (new withholding certificates).
For purposes of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to January 1, 2001
( see 26 CFR part 1, revised April 1,
1999). Further, a new withholding certificate remains valid for the period specified
in § 1.1441–1(e)(4)(ii), regardless of
when the certificate is obtained.
Par. 10. In §1.6042–3, as amended at
62 FR 53424 (TD 8734) and amended at
63 FR 72183 (TD 8804), paragraph (b)(5)
is revised to read as follows:
§1.6042–3 Dividends subject to reporting.
*****
(b) * * *
(5) Effective date—(i) General rule.
The provisions of this paragraph (b) apply
to payments made after December 31,
2000.
(ii) Transition rules. The validity of a
withholding certificate (namely, Form W8 or other form upon which the payor is
permitted to rely to hold the payee as a
foreign person) that was valid on January
1, 1998, under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999)
and expired, or will expire, at any time
during 1998, is extended until December
31, 1998. The validity of a withholding
certificate that is valid on or after January
1, 1999, remains valid until its validity
expires under the regulations in effect
January 18, 2000
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999) but
in no event shall such withholding certificate remain valid after December 31,
2000. The rule in this paragraph
(b)(5)(ii), however, does not apply to extend the validity period of a withholding
certificate that expires solely by reason of
changes in the circumstances of the person whose name is on the certificate.
Notwithstanding the first three sentences
of this paragraph (b)(5)(ii), a payor may
choose not to take advantage of the transition rule in this paragraph (b)(5)(ii) with
respect to one or more withholding certificates valid under the regulations in effect prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999)
and, therefore, to require withholding certificates conforming to the requirements
described in this section (new withholding certificates). For purposes of this section, a new withholding certificate is
deemed to satisfy the documentation requirement under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999).
Further, a new withholding certificate remains valid for the period specified in
§1.1441–1(e)(4)(ii), regardless of when
the certificate is obtained.
*****
Par. 11. In §1.6045–1, as amended at
62 FR 53424 (TD 8734) and amended at
63 FR 72183 (TD 8804), paragraph (g)(5)
is revised to read as follows:
§1.6045–1 Returns of information of brokers and barter exchanges.
*****
(g) * * *
(5) Effective date—(i) General rule.
The provisions of this paragraph (g) apply
to payments made after December 31,
2000.
(ii) Transition rules. The validity of a
withholding certificate (namely, Form W8 or other form upon which the payor is
permitted to rely to hold the payee as a
foreign person) that was valid on January
1, 1998, under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999)
and expired, or will expire, at any time
January 18, 2000
during 1998, is extended until December
31, 1998. The validity of a withholding
certificate that is valid on or after January
1, 1999, remains valid until its validity
expires under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999) but
in no event shall such a withholding certificate remain valid after December 31,
2000. The rule in this paragraph (g)(5)(ii),
however, does not apply to extend the validity period of a form that expires in
1998 solely by reason of changes in the
circumstances of the person whose name
is on the certificate. Notwithstanding the
first three sentences of this paragraph
(g)(5)(ii), a payor may choose not to take
advantage of the transition rule in this
paragraph (g)(5)(ii) with respect to one or
more withholding certificates valid under
the regulations in effect prior to January
1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and, therefore, to require withholding certificates conforming
to the requirements described in this section (new withholding certificates). For
purposes of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised
April 1, 1999). Further, a new withholding certificate remains valid for the period
specified in §1.1441–1(e)(4)(ii), regardless of when the certificate is obtained.
*****
Par. 12. In §1.6049–5, as amended at
62 FR 53424 (TD 8734) and amended at
63 FR 72183 (TD 8804), paragraph (g) is
revised to read as follows:
§1.6049–5 Interest and original issue
discount subject to reporting after December 31, 1982.
*****
(g) Effective date—(1) General rule.
The provisions of paragraphs (b)(6)
through (15), (c), (d), and (e) of this section apply to payments made after December 31, 2000.
(2) Transition rules. The validity of a
withholding certificate (namely, Form W8 or other form upon which the payor is
permitted to rely to hold the payee as a
302
foreign person) that was valid on January
1, 1998, under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999)
and expired, or will expire, at any time
during 1998, is extended until December
31, 1998. The validity of a withholding
certificate that is valid on or after January
1, 1999, remains valid until its validity
expires under the regulations in effect
prior to January 1, 2001 (see 26 CFR
parts 1 and 35a, revised April 1, 1999) but
in no event shall such a withholding certificate remain valid after December 31,
2000. The rule in this paragraph (g)(2),
however, does not apply to extend the validity period of a withholding certificate
that expires solely by reason of changes in
the circumstances of the person whose
name is on the certificate. Notwithstanding the first three sentences of this paragraph (g)(2), a payor may choose not to
take advantage of the transition rule in
this paragraph (g)(2) with respect to one
or more withholding certificates valid
under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999) and, therefore,
may require withholding certificates conforming to the requirements described in
this section (new withholding certificates). For purposes of this section, a new
withholding certificate is deemed to satisfy the documentation requirement under
the regulations in effect prior to January
1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999). Further, a new withholding certificate remains valid for the
period specified in §1.1441–1(e)(4)(ii),
regardless of when the certificate is obtained.
Parts 1, 31, and 301 [Amended]
Par. 13. In the list below, for each section indicated in the left column (which
was added, revised, or amended at 62 FR
53387 (TD 8734) and further amended at
63 FR 72138 (TD 8804), remove the language in the middle column and add the
language in the right column:
2000–3 I.R.B.
Section
Remove
Add
1.871–14(c)(3)(ii),
Example, first and
sixth sentences
October 12, 2000
October 12, 2001
1.871–14(c)(3)(ii),
Example, sixth sentence
December 31, 2000
December 31, 2001
1.871–14(c)(3)(ii),
Example, sixth sentence
June 15, 2004
June 15, 2005
1.871–14(c)(3)(ii),
Example, seventh sentence
June 15, 2004
June 15, 2005
1.1441–1(b)(4)(xix)
January 1, 2000
January 1, 2001
1.1441–1(b)(4)(xix)
April 1, 1998
April 1, 1999
1.1441–1(b)(7)(v),
Example 1, first, fourth,
and eighth sentences
June 15, 2000
June 15, 2001
1.1441–1(b)(7)(v),
Example 1, third and
ninth sentences
September 30, 2002
September 30, 2003
1.1441–1(b)(7)(v),
Example 1, ninth
sentence
March 15, 2001
March 15, 2002
1.1441–1(b)(7)(v),
Example 2, first,
fourth, and seventh
sentences
June 15, 2000
June 15, 2001
1.1441–1(b)(7)(v),
Example 2, third and
seventh sentences
September 30, 2002
September 30, 2003
1.1441–1(b)(7)(v),
Example 2, seventh and
ninth sentences
March 15, 2001
March 15, 2002
1.1441–1(c)(6)(ii)(B)
January 1, 2000
January 1, 2001
1.1441–1(c)(6)(ii)(B)
April 1, 1998
April 1, 1999
1.1441–1(e)(4)(ii)(A)
September 30, 2000
September 30, 2001
1.1441–1(e)(4)(ii)(A)
December 31, 2003
December 31, 2004
1.1441–2(b)(3)(iv)
December 31, 1999
December 31, 2000
1.1441–2(f)
December 31, 1999
December 31, 2000
1.1441–3(h)
December 31, 1999
December 31, 2000
1.1441–7(g)
December 31, 1999
December 31, 2000
1.1461–1(i)
December 31, 1999
December 31, 2000
1.1461–2(a)(4),
Example 1(i), second
sentence
December 2000
December 2001
1.1461–2(a)(4),
Example 1(i), third
sentence
February 10, 2001
February 10, 2002
1.1461–2(a)(4),
Example 1(ii), first,
second, and last
sentences
2000
2001
2000–3 I.R.B.
303
January 18, 2000
Section
Remove
Add
1.1461–2(a)(4),
Example 1(ii), first
sentence
March 15, 2001
March 15, 2002
1.1461–2(a)(4),
Example 1(ii), third
sentence
2001
2002
1.1461–2(a)(4),
Example 2, second and
last sentences
2001
2002
1.1461–2(a)(4),
Example 2, second
sentence
June 2001
June 2002
1.1461–2(a)(4),
Example 2, third
sentence
July 15, 2001
July 15, 2002
1.1461–2(a)(4),
Example 2, third
sentence
2000
2001
1.1461–2(a)(4),
Example 2, last sentence
March 15, 2002
March 15, 2003
1.1461–2(a)(4), Example 3,
last sentence
February 15, 2001
February 15, 2002
1.1461–2(a)(4), Example 3,
last sentence
March 15, 2001
March 15, 2002
1.1461–2(d)
December 31, 1999
December 31, 2000
1.1462–1(c)
December 31, 1999
December 31, 2000
1.1463–1(b)
December 31, 1999
December 31, 2000
1.6041–4(d)
December 31, 1999
December 31, 2000
1.6041A–1(d)(3)(v)
December 31, 1999
December 31, 2000
1.6045–1(d)(6)(ii)(B)
December 31, 1999
December 31, 2000
1.6049–4(d)(3)(ii)(B)
December 31, 1999
December 31, 2000
1.6049–5(c)(4)(v)
January 1, 2000
January 1, 2001
1.6050N–1(e), last sentence
December 31, 1999
December 31, 2000
31.3401(a)(6)–1(e),
paragraph heading
January 1, 2000
January 1, 2001
31.3401(a)(6)–1(e),
first sentence
January 1, 2000
January 1, 2001
31.3401(a)(6)–1(f),
paragraph heading
December 31, 1999
December 31, 2000
31.3401(a)(6)–1(f),
first sentence
December 31, 1999
December 31, 2000
31.3406(g)–1(e),
first sentence
December 31, 1999
December 31, 2000
31.3406(h)–2(d),
penultimate sentence
December 31, 1999
December 31, 2000
31.9999–0
January 1, 2000
January 1, 2001
301.6114–1(b)(4)(ii)(C),
introductory text
December 31, 1999
December 31, 2000
January 18, 2000
304
2000–3 I.R.B.
Section
Remove
Add
301.6114–1(b)(4)(ii)(D)
December 31, 1999
December 31, 2000
301.6724–1(g)(2) Q–11
January 1, 2000
January 1, 2001
301.6724–1(g)(2) Q–11
April 1, 1998
April 1, 1999
301.6724–1(g)(2) A–11
January 1, 2000
January 1, 2001
301.6724–1(g)(2) A–11
April 1, 1998
April 1, 1999
301.6724–1(g)(3), first
sentence
December 31, 1999
December 31, 2000
301.6724–1(g)(3), last
sentence
January 1, 2000
January 1, 2001
301.6724–1(g)(3), last
sentence
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
April 1, 1998
April 1, 1999
Approved December 21, 1999.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury Tax Policy.
(Filed by the Office of the Federal Register on December 29, 1999, 8:45 a.m., and published in the
issue of the Federal Register for December 30, 1999,
64 F.R. 73408)
Section 1502.—Regulations
26 CFR 1.1502–76: Taxable year of members of
group.
What procedures apply for certain corporations
to obtain automatic approval to change their annual
accounting periods under section 442 of the Code?
See Rev. Proc. 2000–11, page 309.
Section 2056.— Bequests, Etc.,
to Surviving Spouse
26 CFR 20.2056(a)–1: Qualified terminable interest
property elections.
Qualified terminable interest property (QTIP) elections. This ruling holds
that an executor may elect under section
2056(b)(7) of the Code to treat an individual retirement account and a testamentary
trust as QTIP under certain conditions.
Rev. Rul. 89–89 obsoleted.
Rev. Rul. 2000–2
ISSUE
May
an
executor
2000–3 I.R.B.
elect
under
§ 2056(b)(7) of the Internal Revenue
Code to treat an individual retirement account (IRA) and a trust as qualified terminable interest property (QTIP) if the
trustee of the trust is the named beneficiary of decedent’s IRA and the surviving
spouse can compel the trustee to withdraw from the IRA an amount equal to all
the income earned on the IRA assets at
least annually and to distribute that
amount to the spouse?
FACTS
A died in 1999 at the age of 55, survived
by spouse, B, who was 50 years old. Prior
to death, A established an IRA described in
§ 408(a). The IRA is invested only in productive assets. A named the trustee of a testamentary trust established under A’s will
as the beneficiary of all amounts payable
from the IRA after A’s death. A copy of the
testamentary trust and a list of the trust beneficiaries were provided to the custodian of
A’s IRA within nine months after A’s death.
As of the date of A’s death, the testamentary trust was irrevocable and was a valid
trust under the laws of the state of A’s
domicile. The IRA was includible in A’s
gross estate under § 2039.
Under the terms of the testatmentary
trust, all trust income is payable annually to
B, and no one has the power to appoint trust
principal to any person other than B. A’s
children, who are all younger than B, are
the sole remainder beneficiaries of the trust.
No other person has a beneficial interest in
the trust. Under the terms of the trust, B has
the power, exercisable annually, to compel
the trustee to withdraw from the IRA an
amount equal to the income earned on the
assets held by the IRA during the year and
to distribute that amount through the trust
to B. The IRA document contains no prohi-
305
bition on withdrawal from the IRA of
amounts in excess of the annual minimum
required distributions under § 408(a)(6).
In accordance with the terms of the
IRA instrument, the trustee of the testamentary trust elects, in order to satisfy §
408(a)(6), to receive annual minimum required distributions using the exception to
the five year rule in § 401(a)(9)(B)(iii) for
distributions over a distribution period
equal to a designated beneficiary’s life expectancy. Because B’s life expectancy is
the shortest of all the potential beneficiaries of the testamentary trust’s interest in
the IRA (including remainder beneficiaries), the distribution period for purposes
of § 401(a)(9)(B)(iii) is B’s life expectancy. Because B is not the sole beneficiary of the testamentary trust’s interest
in the IRA, the trustee elected to have the
annual minimum required distributions
from the IRA to the testamentary trust
begin no later than December 31 of the
year immediately following the year of
A’s death. The amount of the annual minimum required distribution for each year
is calculated by dividing the account balance of the IRA as of the December 31
immediately preceding the year by the remaining distribution period. On B’s
death, any undistributed balance of the
IRA will be distributed to the testamentary trust over the remaining distribution
period.
LAW AND ANALYSIS
Section 2056(a) provides that the value
of the taxable estate is, except as limited
by § 2056(b), determined by deducting
from the value of the gross estate an
amount equal to the value of any interest
in property that passes from the decedent
to the surviving spouse.
January 18, 2000
Under § 2056(b)(1), if an interest passing to the surviving spouse will terminate,
no deduction is allowed with respect to the
interest if, after termination of the spouse’s
interest, an interest in the property passes
or has passed from the decedent to any person other than the surviving spouse (or the
estate of the spouse).
Section 2056(b)(7) provides that QTIP,
for purposes of § 2056(a), is treated as
passing to the surviving spouse and no part
of the property shall be treated as passing
to any person other than the surviving
spouse. Section 2056(b)(7)(B)(i) defines
QTIP as property that passes from the
decedent, in which the surviving spouse
has a qualifying income interest for life,
and to which an election applies. Under §
2056(b)(7)(B)(ii), the surviving spouse has
a qualifying income interest for life if (I)
the surviving spouse is entitled to all the income from the property, payable annually
or at more frequent intervals, or has a
usufruct interest for life in the property, and
(II) no person has a power to appoint any
part of the property to any person other
than the surviving spouse.
Section 20.2056(b)–7(d)(2) of the Estate Tax Regulations provides that the
principles of § 20.2056(b)–5(f), relating
to whether the spouse is entitled for life
to all of the income from the entire interest, apply in determining whether the
surviving spouse is entitled for life to all
of the income from the property for
QTIP purposes.
Section 20.2056(b)–5(f)(1) provides
that, if an interest is transferred in trust,
the surviving spouse is entitled for life
to all of the income from the entire interest, if the effect of the trust is to give
the surviving spouse substantially that
degree of beneficial enjoyment of the
trust property during the surviving
spouse’s life which the principles of the
law of trusts accord to a person who is
unqualifiedly designated as the life beneficiary of a trust.
Section 20.2056(b)–5(f)(8) provides
that the terms “entitled for life” and
“payable annually or at more frequent
intervals” require that under the terms of
the trust the income referred to must be
currently (at least annually) distributable
to the spouse or that the spouse must
have such command over the income so
that it is virtually the spouse’s. Thus,
the surviving spouse will be entitled for
January 18, 2000
life to all of the income from the interest, payable annually, if, under the terms
of the trust instrument, the spouse has
the right exercisable annually (or more
frequently) to require distribution to the
spouse of the trust income, and otherwise the trust income is to be accumulated and added to corpus.
In the present situation, the IRA is
payable to a trust the terms of which entitle B to receive all trust income, payable
annually. In addition, no one has a power
to appoint any part of the property in the
trust or the IRA to any person other than
B. Therefore, whether A’s executor can
elect to treat the trust and the IRA as
QTIP depends on whether B is entitled to
all the income for life from the IRA,
payable annually.
Under the terms of the testamentary
trust, B is given the power, exercisable annually, to compel the trustee to withdraw
from the IRA an amount equal to all the income earned on the assets held in the IRA
and pay that amount to B. If B exercises
this power, the trustee must withdraw from
the IRA the greater of the amount of income earned on the IRA assets during the
year or the annual minimum required distribution. Nothing in the IRA instrument
prohibits the trustee from withdrawing
such amount from the IRA. If B does not
exercise this power, the trustee must withdraw from the IRA only the annual minimum required distribution.
B’s power to compel the trustee’s action meets the standard set forth in §
20.2056(b)–5(f)(8) for the surviving
spouse to be entitled to all the income
for life payable annually. Thus, B has
a qualifying income interest for life
within the meaning of § 2056(b)(7) in
both the IRA and the testamentary
trust. Furthermore, B has a qualifying
income interest for life in the IRA and
the testamentary trust for purposes of
§§ 2519 and 2044. Because the trust is
a conduit for payments equal to income from the IRA to B, A’s executor
needs to make the QTIP election under
§ 2056(b)(7) for both the IRA and the
testamentary trust.
The result would be the same if the
terms of the testamentary trust require
the trustee to withdraw from the IRA annually an amount equal to all the income
earned on the IRA assets and pay that
amount to the surviving spouse.
306
HOLDING
An executor may elect under §
2056(b)(7) to treat an IRA and a trust as
QTIP when the trustee of the trust is the
named beneficiary of the decedent’s
IRA, the surviving spouse can compel
the trustee to withdraw from the IRA an
amount equal to all the income earned
on the IRA assets at least annually and
to distribute that amount to the spouse,
and no person has a power to appoint
any part of the trust property to any person other than the spouse.
EFFECT ON OTHER REVENUE
RULING(S)
Rev. Rul. 89–89, 1989–2 C.B. 231, is
obsoleted.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Donna L. Mucha of the Office
of
Assistant
Chief
Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue ruling contact Donna L. Mucha
on (202) 622-3120 (not a toll-free call).
Section 6103.—Confidentiality
and Disclosure of Returns and
Return Information
26 CFR 301.6103(j)(5)–1T: Disclosures of return
information to officers and employees of the
Department of Agriculture for certain statistical
purposes and related activities (temporary).
T.D. 8854
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
Disclosures of Return
Information to Officers and
Employees of the Department
of Agriculture for Certain
Statistical Purposes and
Related Activities
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulation.
2000–3 I.R.B.
SUMMARY: This document provides a
temporary regulation relating to the disclosure of return information to officers
and employees of the Department of Agriculture for certain statistical purposes and
related activities. The temporary regulation would permit the IRS to disclose return information to the Department of
Agriculture to structure, prepare, and conduct the Census of Agriculture. The text
of this temporary regulation also serves as
the text of the proposed regulation
REG–116704–99 published on page 325.
DATES: This regulation is effective January 4, 2000.
Applicability Date: For dates of applicability of this regulation, see,
§301.6103(j)(5)– 1T(d).
FOR FURTHER INFORMATION CONTACT: Jennifer S. McGinty, (202) 6224570 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 6103(j) of the Internal Revenue Code (Code) provides for the disclosure of tax information for statistical
purposes. Prior to the Census of Agriculture Act of 1997 (Public Law 105113), the Bureau of Census had responsibility for preparing the Census of
Agriculture. Section 6103(j)(1) authorized the Bureau of Census to receive
tax information as prescribed in the regulations in structuring censuses. Treasury regulations implemented such authority with respect to the Census of
Agriculture. The Census of Agriculture
Act transferred responsibility for that
Census from the Bureau of Census to
the Department of Agriculture. In 1998,
the Tax and Trade Relief Extension Act
of 1998 (Public Law 105-277) added
section 6103(j)(5) to provide disclosure
authority for the Department of Agriculture to receive tax information to structure, prepare, and conduct the Census of
Agriculture. By letter dated May 21,
1999, the Secretary of Agriculture requested that the regulations be amended
so that the Department of Agriculture
can begin to receive return information
for purposes of the Census of Agriculture. This document contains a temporary regulation which authorizes the IRS
to disclose return information to the De-
2000–3 I.R.B.
partment of Agriculture for purposes of
the Census of Agriculture.
Explanation of Provisions
This temporary regulation will allow
the IRS to disclose return information to
the Department of Agriculture for purposes of the Census of Agriculture.
The disclosure of the specific items of
return information identified in this regulation is necessary in order for the Department of Agriculture to accurately identify,
locate, and classify, as well as properly
process, information from agricultural
businesses to be surveyed for the statutorily mandated Census of Agriculture.
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) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6)
refer to the Special Analyses section of
the preamble to the cross reference notice
of proposed rulemaking published in the
Proposed Rules section in this issue of the
(Federal Register). Pursuant to section
7805(f) of the Code, this temporary regulation will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment on its
impact on small businesses.
Drafting Information
The principal author of this regulation
is Jennifer S. McGinty, Office of the Assistant Chief Counsel (Disclosure Litigation), IRS. However, other personnel
from the IRS and Treasury Department
participated in its development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
Part 301—Procedure and Administration
Paragraph 1. The authority citation for
part 301 is amended by adding an entry in
numerical order to read as follows:
307
Authority: 26 U.S.C. 7805 * * *
Section 301.6103(j)(5)–1T also issued
under 26 U.S.C. 6103(j)(5);* * *
Par. 2. Section 301.6103(j)(5)–1T is
added to read as follows:
§301.6103(j)(5)–1T Disclosures of return
information to officers and employees of
the Department of Agriculture for certain
statistical purposes and related activities
(temporary).
(a) General rule. Pursuant to the provisions of section 6103(j)(5) of the Internal
Revenue Code (Code) and subject to the
requirements of paragraph (c) of this section, officers or employees of the Internal
Revenue Service (IRS) will disclose return information to officers and employees of the Department of Agriculture to
the extent, and for such purposes as may
be, provided by paragraph (b) of this section.
(b) Disclosure of return information to
officers and employees of the Department
of Agriculture
(1) Officers or employees of the IRS
will disclose the following return information for individuals, partnerships, and
corporations with agricultural activity, as
determined generally by industry code
classification or the filing of returns for
such activity, to officers and employees of
the Department of Agriculture for purposes of, but only to the extent necessary
in, structuring, preparing, and conducting,
as authorized by chapter 55 of title 7,
United States Code, the Census of Agriculture.
(2) From Form 1040/Schedule F—
(i) Taxpayer Identity Information (as
defined in section 6103(b)(6) of
the Code);
(ii) Spouse’s SSN;
(iii) Annual Accounting Period;
(iv) Principal Business Activity
(PBA) Code;
(v) Sales of livestock and produce
raised;
(vi) Taxable cooperative distributions;
(vii) Income from custom hire and
machine work;
(viii) Gross income;
(ix) Master File Tax (MFT) Code;
(x) Document Locator Number
(DLN);
(xi) Cycle Posted;
(xii) Final return indicator; and
(xiii) Part year return indicator.
January 18, 2000
(3) From Form 943—
(i) Taxpayer Identity Information;
(ii) Annual Accounting Period;
(iii) Total wages subject to Medicare
taxes;
(iv) Master File Tax (MFT) Code;
(v) Document Locator Number
(DLN);
(vi) Cycle Posted;
(vii) Final return indicator; and
(viii) Part year return indicator.
(4) From Form 1120 series—
(i) Taxpayer Identity Information;
(ii) Annual Accounting Period;
(iii) Gross receipts less returns and
allowances;
(iv) PBA code;
(v) Parent corporation Employer
Identification Number, and related Name and PBA Code for
entities with agricultural activity;
(vi) Master File Tax (MFT) Code;
(vii) Document Locator Number
(DLN);
(viii) Cycle posted;
(ix) Final return indicator;
(x) Part year return indicator; and
(xi) Consolidated return indicator.
(5) From Form 851—
(i) Subsidiary Taxpayer Identity Information;
(ii) Annual Accounting Period;
(iii) Subsidiary PBA Code;
(iv) Parent Taxpayer Identity Information;
(v) Parent PBA Code;
(vi) Master File Tax (MFT) Code;
(vii) Document Locator Number
January 18, 2000
(DLN); and
(viii) Cycle Posted.
(6) From Form 1065 series—
(i) Taxpayer Identity Information;
(ii) Annual Accounting Period;
(iii) PBA Code;
(iv) Gross receipts less returns and
allowances;
(v) Net farm profit (loss);
(vi) Master File Tax (MFT) Code;
(vii) Document Locator Number
(DLN);
(viii) Cycle Posted;
(ix) Final return indicator; and
(x) Part year return indicator.
(c) Procedures and Restrictions
(1) Disclosure of return information by
officers or employees of the IRS as provided by paragraph (b) of this section will
be made only upon written request designating, by name and title, the officers and
employees of the Department of Agriculture to whom such disclosure is authorized, to the Commissioner of Internal
Revenue by the Secretary of the Department of Agriculture and describing—
(i) The particular return information
to be disclosed;
(ii)The taxable period or date to
which such return information relates; and
(iii) The particular purpose for which
the return information is to be
used.
(2) No such officer or employee to
whom return information is disclosed pursuant to the provisions of paragraph (b) of
this section shall disclose such return in-
308
formation to any person, other than the
taxpayer to whom such return information
relates or other officers or employees of
the Department of Agriculture whose duties or responsibilities require such disclosure for a purpose described in paragraph
(b) of this section, except in a form that
cannot be associated with, or otherwise
identify, directly or indirectly, a particular
taxpayer. If the IRS determines that the
Department of Agriculture, or any officer
or employee thereof, has failed to, or does
not, satisfy the requirements of section
6103(p)(4) of the Code or regulations or
published procedures thereunder, the IRS
may take such actions as are deemed necessary to ensure that such requirements are
or will be satisfied, including suspension
of disclosures of return information otherwise authorized by section 6103(j)(5) and
paragraph (b) of this section, until the IRS
determines that such requirements have
been or will be satisfied.
(d) Effective date: This section is applicable from January 4, 2000 through
January 3, 2003.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved December 13, 1999.
Jonathan Talisman,
Acting Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on January 3, 2000, 8:45 a.m., and published in the issue of
the Federal Register for January 4, 2000, 65 F.R.
215)
2000–3 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, sections 442, 706, 898, 1502; 1.442–1,
1.706–1T, 1.1502–76.)
SECTION 9. EFFECT ON OTHER
DOCUMENTS
SECTION 1. PURPOSE
Rev. Proc. 2000–11
CONTENTS
SECTION 1. PURPOSE
SECTION 2. BACKGROUND
SECTION 3. SIGNIFICANT CHANGES
SECTION 4. SCOPE
.01 Applicability.
.02 Inapplicability.
.03 Nonautomatic changes.
.04 Examples.
SECTION 5. TERMS AND
CONDITIONS OF CHANGE
.01 In general.
.02 Short period.
.03 Short period tax return.
.04 Subsequent year tax returns.
.05 Book conformity.
.06 Net operating losses.
.07 General business credits.
.08 Concurrent change for related entities.
SECTION 6. MANNER OF
EFFECTING THE CHANGE
.01 Consent.
.02 Filing requirements.
(1) Where to file.
(2) When to file.
(3) Label.
(4) Signature requirements.
(5) No user fee.
(6) Consolidated application.
SECTION 7. REVIEW OF
APPLICATION
.01 Service Center review.
.02 Review of examining officials.
SECTION 8. EFFECTIVE DATE AND
TRANSITION RULE
.01Effective date.
.02Transition rule.
2000–3 I.R.B.
This revenue procedure provides procedures by which certain corporations
may obtain automatic approval to change
their annual accounting periods under §
442 of the Internal Revenue Code. This
revenue procedure modifies, amplifies,
and supersedes Rev. Proc. 92–13, 1992–1
C.B. 665. A corporation complying with
all the applicable provisions of this revenue procedure has obtained the consent
of the Commissioner of the Internal Revenue Service to change its annual accounting period under § 442 and the Income Tax Regulations thereunder.
counting period, the taxable income for
the short period must be placed on an annual basis by multiplying the income by
12 and dividing the result by the number
of months in the short period. Unless §§
443(b)(2) and 1.443–1(b)(2) apply, the
tax for the short period is the same part of
the tax computed on an annual basis as
the number of months in the short period
is of 12 months.
.05 Sections 1.852–3(e) and
1.857–2(a)(4) provide that the taxable income of a regulated investment company
(RIC) and a real estate investment trust
(REIT) are computed without regard to §
443(b). Thus, taxable income for a period
of less than 12 months is not placed on an
annual basis even though such short taxable year results from a change of annual
accounting period.
SECTION 2. BACKGROUND
SECTION 3. SIGNIFICANT CHANGES
.01 Section 1.442–1(a)(1) of the Income Tax Regulations provides that if a
taxpayer wishes to change its annual accounting period (as defined in § 441(c))
and adopt a new taxable year (as defined
in § 441(b)), it must obtain prior approval
from the Commissioner.
.02 Section 1.442–1(b)(1) provides that
in order to secure prior approval of a
change of a taxpayer’s annual accounting
period, the taxpayer must file an application on Form 1128, Application to Adopt,
Change, or Retain a Tax Year, with the
Commissioner on or before the 15th day
of the second calendar month following
the close of the short taxable year required to effect the change. Section
1.442–1(b)(1) also provides that approval
will not be granted unless the taxpayer
and the Commissioner agree to the terms,
conditions, and adjustments under which
the change will be effected.
.03 Section 1.442–1(c) provides a special rule whereby certain corporations
may change their annual accounting periods without the prior approval of the
Commissioner. Rev. Proc. 92–13 also
provided procedures whereby certain corporations that did not satisfy the conditions of § 1.442–1(c) could obtain expeditious approval of a change of their annual
accounting period.
.04 Section 1.443–1(b)(1)(i) provides
that if a return is made for a short period
resulting from a change of an annual ac-
309
Significant changes to Rev. Proc. 92–13
made by this revenue procedure include:
.01 Section 4.01(2) provides that this
revenue procedure applies to a corporation that wants to change from a
52–53–week taxable year to a taxable
year that ends with reference to the same
month, and vice versa;
.02 Section 4.01(3) adds a provision
whereby a controlled foreign corporation
(CFC) may revoke its one-month deferral
election under § 898(c)(1)(B) and automatically change its taxable year to the
majority United States shareholder year
(as defined in § 898(c)(1)(C));
.03 Section 4.02(1) provides certain exceptions to the 6-year waiting period between automatic period changes, such as
for changes to or from a 52-53-week taxable year referencing the same month;
.04 Section 4.02(2) adds three exceptions to the scope restrictions applicable to an automatic period change for a
corporation that is a member of a partnership or a beneficiary of a trust or estate;
.05 Section 4.02(3) adds two exceptions to the scope restrictions applicable
to an automatic period change for a corporation that is a shareholder of a foreign
sales corporation (FSC) or an interest
charge domestic international sales corporation (IC-DISC);
.06 Section 4.02(6) eliminates the prohibition of an automatic period change for
January 18, 2000
a corporation making an S corporation
election effective for the taxable year immediately following a change in accounting period, provided the corporation is
changing to a permitted S corporation taxable year;
.07 Section 4.02(14) modifies the scope
restriction for a cooperative association
with a loss in the short period required to
effect the change to allow an otherwise
automatic change if the patrons of the cooperative association remain substantially
the same before and after the accounting
period change; and
.08 Section 5.06 deletes the requirement that a net operating loss (NOL) in
the short period required to effect the
change must be deducted ratably over 6
years. Further, section 5.06 increases
(from $10,000 to $50,000) the exception
to the general rule proscribing a carryback
of a short period NOL.
SECTION 4. SCOPE
.01 Applicability. (1) In general. This
revenue procedure applies to a corporation requesting consent to change its annual accounting period. The common
parent of a consolidated group may
change the group’s annual accounting period under this revenue procedure if every
member of the consolidated group meets
all the requirements and complies with all
the conditions of this revenue procedure.
(2) 52-53-week year. Notwithstanding
section 4.02 of this revenue procedure,
this revenue procedure applies to a corporation (including a member of a consolidated group) that wants to change from a
52-53-week taxable year to a taxable year
that ends with reference to the same
month, and vice versa.
(3) Section 898 election. Notwithstanding section 4.02 of this revenue procedure, this revenue procedure applies to
a CFC (as defined in § 957) that wants to
revoke its one-month deferral election
under § 898(c)(1)(B) and change its taxable year to the majority U.S. shareholder
year (as defined in § 898(c)(1)(C)).
.02 Inapplicability. This revenue procedure does not apply to a corporation
that:
(1) has changed its annual accounting period at any time within the 6 calendar years ending with the calendar year
that includes the beginning of the short
period required to effect the change. For
January 18, 2000
this purpose, the following changes will
not be considered a change in annual accounting period:
(a) a change in accounting period
by a subsidiary to its common parent’s
taxable year in order to comply with the
common taxable year requirement of §
1.1502–76(a)(1). See § 1.442–1(d);
(b) any prior change in accounting
period by a majority-owned, newly acquired subsidiary that wants to change to
the taxable year of its domestic or foreign
parent with which it does not file consolidated tax returns in order to file consolidated financial statements, provided the
change is made within 12 months of the
acquisition. For purposes of this subsection, “majority-owned” means ownership
that satisfies the test of § 1504(a)(2), substituting “more than 50 percent” for “at
least 80 percent;”
(c) a change from a 52-53-week
taxable year to a taxable year that ends
with reference to the same month, and
vice versa;
(2) is a member of a partnership or a
beneficiary of a trust or an estate (collectively referred to as “pass-through entities”) as of the end of the short period.
However, an interest in a pass-through entity will be disregarded for this purpose if
any of the following conditions are met:
(a) the partnership in which the
corporation is a majority interest partner
(i.e., a partner having an interest in the
partnership’s profits and capital of more
than 50 percent) would be required to
change its taxable year pursuant to §
706(b) to the new taxable year of the corporation. See section 5.08 of this revenue
procedure for a special term and condition
related to this exception;
(b) the new taxable year of the
corporation would result in no change in
or less deferral (as described in §
1.706–1T(a)(2)) from the pass-through
entity than the present taxable year of the
corporation. If the pass-through entity is
a partnership, the corporation should
compare the existing deferral period (between the partnership’s and the corporation’s current taxable years) with the new
deferral period (between the taxable year
of the partnership that would be required
under § 706 and the corporation’s new
taxable year). See section 4.04 of this
revenue procedure for an example of this
rule; or
310
(c) for pass-through entities not
qualifying for the exceptions in either section 4.02(a) or 4.02(b) of this revenue
procedure, the pass-through entity in
which the corporation has an interest has
been in existence for at least 3 taxable
years and the interest is de minimis. For
this purpose, an interest in a pass-through
entity is de minimis only if:
(i) for each of the prior 3 taxable years of the corporation, the amount
of income (including ordinary income or
loss, capital gains or losses, rents, royalties, interest, or dividends) from such
pass-through entity is less than or equal
to (A) 5 percent of the corporation’s
gross receipts (or, in the case of a member of a consolidated group, the consolidated group’s gross receipts) for those
taxable years, and (B) $500,000; and
(ii) the amount of income from
all such pass-through entities in the
aggregate is less than or equal to the
amounts described in (A) and (B) above.
See section 4.04 of this revenue procedure for an example of this rule;
(3) is a shareholder of a FSC or ICDISC, as of the end of the short period.
However, an interest in a FSC or IC-DISC
is disregarded if either of the following
conditions is met:
(a) the FSC or IC-DISC in which the
corporation is the principal shareholder
(i.e., the shareholder with the highest percentage of voting power as defined in §
441(h)) would be required to change its
taxable year pursuant to §§
1.921–1T(b)(4) and (b)(6) to the new taxable year of the corporation. See section
5.08 of this revenue procedure for a special term and condition related to this exception; or
(b) the new taxable year of the corporation would result in no change in or
less deferral of income (as determined
under the principles of § 1.706–1T(a)(2))
from the FSC or IC-DISC than the present
taxable year of the corporation;
(4) is a FSC or an IC-DISC. See §
1.921-1T(b)(4) for rules regarding automatic changes of the annual accounting
period of a FSC or IC-DISC to the taxable
year of its principal shareholder;
(5) is an S corporation (as defined in
§ 1361). See Rev. Proc. 87–32 for procedures to follow for certain automatic
changes in the annual accounting period
of an S corporation;
2000–3 I.R.B.
(6) attempts to make an S corporation election for the taxable year immediately following the short period, unless
the change is to a permitted S corporation
year. For this purpose, a “permitted S
corporation year” includes a calendar
year, a taxable year permitted under §
444, or an ownership taxable year or natural business year (as defined in Rev.
Proc. 87–32, 1987–2 C.B. 396);
(7) is a personal service corporation
(as defined in § 441(i)). See Rev. Proc.
87–32 for procedures to follow for certain
automatic changes in the annual accounting period of a personal service corporation;
(8) is a CFC (as defined in § 957) or
a foreign personal holding company
(FPHC) (as defined in § 552);
(9) is a shareholder of a CFC or
FPHC. However, an interest in a CFC or
FPHC is disregarded if the shareholder is
the majority U.S. shareholder (i.e., the
shareholder that meets the ownership requirement of § 898(b)(2)(A)) and the
CFC or FPHC would be required to
change its taxable year to the new taxable
year of the shareholder. See section 5.08
of this revenue procedure for a special
term and condition related to this exception;
(10) is a tax-exempt organization,
other than an organization exempt from
federal income tax under § 521, 526, 527,
or 528. See Rev. Proc. 85–58, 1985–2
C.B. 740, for procedures to follow in
changing an annual accounting period for
a tax-exempt organization not meeting the
scope of this revenue procedure;
(11) is a direct or indirect shareholder of a passive foreign investment
company (PFIC) that is a qualified electing fund (within the meaning of § 1295)
with respect to the shareholder;
(12) is a PFIC that U.S. persons
(who own directly or indirectly, in the aggregate, 10 percent or more of the company) elected under § 1295 to treat as a
qualified electing fund;
(13) is a corporation which has in effect an election under § 936; or
(14) is a cooperative association
(within the meaning of § 1381(a)) with a
loss in the short period required to effect
the change of annual accounting period,
unless all the patrons of the cooperative
association are substantially the same in
the year before the change of annual ac-
2000–3 I.R.B.
counting period, in the short period required to effect the change, and in the
year following the change. For purposes
of this subsection, “substantially the
same” means that ownership of more than
90 percent of the cooperative association’s stock is owned by the same members.
.03 Nonautomatic changes. Corporations that are unable to use the automatic
provisions of this revenue procedure must
secure prior approval from the Commissioner for a change in an accounting period pursuant to § 442 and the regulations
thereunder.
.04 Examples.
(1) Example 1. (i) Corporations V, W,
X, Y, and Z hold equal 20 percent interests in the capital and profits of partnership ABC. V and W are calendar year
taxpayers. X and Y have a taxable year
ending June 30, and Z has a taxable year
ending September 30. ABC does not
have a business purpose for a particular
taxable year, and thus, pursuant to §
1.706–1T, ABC is required to use a taxable year ending June 30 because that taxable year results in the least aggregate deferral of income to its partners. Z
currently has a 3-month deferral period
(the number of months from the end of
ABC’s taxable year to the end of Z’s taxable year). Z wants to change its taxable
year to a calendar year.
(ii) If Z changes its taxable year to a
calendar year, ABC would be required to
change its taxable year under § 706 to its
majority interest taxable year, which is
the calendar year. As a result of Z’s new
taxable year and ABC’s new taxable year,
Z’s deferral period would be eliminated.
Because Z’s new taxable year would reduce Z’s deferral, Z may disregard its interest in ABC under section 4.02(2)(b) of
this revenue procedure.
(2) Example 2. (i) Corporation X, a
calendar year taxpayer, wants to change
its tax year to a year ending June 30. X
has interests in five partnerships, ABC,
DEF, GHI, JKL, and MNO. All of the
partnerships have been in existence for
over three taxable years. X’s interests in
each of ABC and DEF is greater than 50
percent. X’s interest in GHI, JKL, and
MNO is 15 percent, 10 percent, and 5 percent, respectively. GHI uses the majority
interest taxable year ending May 31 and
JKL and MNO each use their respective
311
majority interest taxable year ending December 31. X’s distributive share of income/(loss) from JKL for the prior three
taxable years is $300,000, $(100,000),
and $200,000, respectively, and from
MNO is $300,000, $200,000, and
$100,000, respectively. X’s gross receipts
for each of those same taxable years was
$15,000,000.
(ii) X’s interests in its pass-through
entities will be disregarded only if each
pass-through entity satisfies one of the exceptions enumerated under section
4.02(2) of this revenue procedure. In the
instant case, X’s interests in ABC and
DEF each meet the exception in section
4.02(2)(a) because X is the majority interest partner in each partnership. X’s interest in GHI meets the exception in section
4.02(2)(b) because X’s new taxable year
would result in less deferral than its old
taxable year (the deferral between May 31
and June 30 of 1 month as compared to
the deferral between May 31 and December 31 of 7 months).
Because X is
not the majority interest partner in JKL
and MNO and because its new taxable
year would not result in less deferral from
these partnerships, X’s interests in JKL
and MNO may be disregarded only if they
satisfy the de minimis exception in section 4.02(2)(c). Although the income
from JKL and MNO for each of the prior
three taxable years is less than 5 percent
of X’s gross receipts and $500,000, the income for year 1 from JKL and MNO, in
the aggregate ($300,000 and $300,000),
exceeds the $500,000 amount specified in
section 4.02(2)(c)(ii). Consequently, JKL
and MNO fail to satisfy the de minimis
exception in section 4.02(2)(c). Because
X’s interests in all of its pass-through entities will not be disregarded, X is not
within the scope of this revenue procedure.
SECTION 5. TERMS AND
CONDITIONS OF CHANGE
.01 In general. A change in annual accounting period filed under this revenue
procedure must be made pursuant to the
terms and conditions provided in this revenue procedure.
.02 Short period. The short period required to effect the change of annual accounting period must begin with the day
following the close of the old taxable year
and end with the day preceding the first
January 18, 2000
day of the new taxable year.
.03 Short period tax return. The corporation or consolidated group must file a
federal income tax return for the short period by the due date of that return, including extensions pursuant to § 1.443–1(a).
The corporation’s taxable income (or the
consolidated group’s consolidated taxable
income) for the short period must be annualized, except in the case of a RIC or a
REIT, and the tax must be computed in
accordance with the provisions of §§
443(b) and 1.443–1(b). However, for
changes to or from a 52-53-week taxable
year, see special rules in §
1.441–2T(c)(5).
.04 Subsequent year tax returns. Returns
for subsequent taxable years must be made
on the basis of a full 12 months (or on a 5253-week basis) ending on the last day of the
new taxable year, unless the corporation or
consolidated group secures the approval of
the Commissioner to change its new taxable year.
.05 Book conformity. The books of the
corporation or consolidated group must be
closed as of the last day of the new taxable
year. The corporation or consolidated
group must compute its income and keep
its books and records (including financial
statements and reports to creditors) on the
basis of the new taxable year.
.06 Net operating losses. If the corporation (or consolidated group) has a NOL
(or consolidated NOL) in the short period
required to effect the change, the NOL
may not be carried back but must be carried over in accordance with the provisions of § 172 beginning with the first
taxable year after the short period. However, the short period NOL (or consolidated NOL) is carried back or carried
over in accordance with § 172 if it is either: (a) $50,000 or less, or (b) results
from a short period of 9 months or longer
and is less than the NOL (or the consolidated NOL) for a full 12-month period
beginning with the first day of the short
period.
.07 General business credits. If there is
an unused general business credit or any
other unused credit for the short period,
the corporation or consolidated group
must carry that unused credit forward. An
unused credit from the short period may
not be carried back.
.08 Concurrent change for related entities. If a corporation’s interest in a pass-
January 18, 2000
through entity, FSC, IC-DISC, CFC, or
FPHC is disregarded pursuant to sections
4.02(2)(a), 4.02(3)(a), or 4.02(8) of this
revenue procedure because the entity is
required to change its taxable year to the
corporation’s new taxable year, the entity
must change its taxable year concurrently
with the corporation’s change in taxable
year, notwithstanding the testing date provisions in §§ 706(b)(4)(A)(ii) and
898(c)(1)(C)(ii).
SECTION 6. MANNER OF
EFFECTING THE CHANGE
.01 Consent. Approval is hereby granted
to any corporation or consolidated group
within the scope of this revenue procedure to change its annual accounting period, provided the corporation or consolidated group complies with all the
applicable provisions of this revenue procedure. Approval is granted beginning
with the short period required to effect the
change. A corporation or consolidated
group granted approval under this revenue procedure to change its annual accounting period is deemed to have established a business purpose for the change
to the satisfaction of the Secretary.
.02 Filing requirements. (1) Where to
file. Any corporation (including the common parent of a consolidated group) that
decides to change its annual accounting
period pursuant to the provisions of this
revenue procedure must complete and file
a current Form 1128 with the Director, Internal Revenue Service Center, Attention:
ENTITY CONTROL, where the corporation or consolidated group files its federal
income tax return. No copies of Form
1128 are required to be sent to the National Office.
(2) When to file. A Form 1128 filed
pursuant to this revenue procedure will be
considered timely filed for purposes of §
1.442–1(b)(1) only if it is filed on or before the time (including extensions) for
filing the return for the short period required to effect such change.
(3) Label. In order to assist in the
processing of the change in annual accounting period, reference to this revenue
procedure must be made a part of the
Form 1128 by either typing or legibly
printing the following statement at the top
of page 1 of the Form 1128: “FILED
UNDER REV. PROC. 2000–11.” For a
CFC that is revoking a § 898(c)(1)(B)
312
election under section 4.01(3) of this revenue procedure, the label at the top of
page 1 of the Form 1128 should read
“REVOCATION OF § 898(c)(1)(B)
ELECTION FILED UNDER REV.
PROC. 2000–11.”
(4) Signature requirements. The
Form 1128 must be signed on behalf of
the corporation requesting the change of
annual accounting period by an individual
with authority to bind the corporation in
such matters. If the corporation is a member of a consolidated group, the Form
1128 must be signed by a duly authorized
officer of the common parent. If an agent
is authorized to represent the corporation
or consolidated group before the Service,
to receive the original or a copy of correspondence concerning the application, or
to perform any other act(s) regarding the
application on behalf of the corporation or
consolidated group, a power of attorney
reflecting such authorization(s) should be
attached to the application. A corporation
or consolidated group’s representative
without a power of attorney to represent
the corporation or consolidated group will
not be given any information about the
application.
(5) No user fee. A user fee is not required for an application filed under this
revenue procedure and, except as provided in section 7.01 of this revenue procedure, the receipt of an application filed
under this revenue procedure may not be
acknowledged.
(6) Consolidated application. A common parent may file a single application to
change the annual accounting period of its
consolidated group. The common parent
corporation must clearly indicate that the
Form 1128 is filed on behalf of the common parent and all its subsidiaries, and the
common parent must answer all relevant
questions on the Form 1128 for each member of the consolidated group.
SECTION 7. REVIEW OF
APPLICATION
.01 Service Center review. A Service
Center may deny a change of annual accounting period under this revenue procedure only if: (a) the Form 1128 is not filed
timely, or (b) the corporation or consolidated group fails to meet the scope or
terms and conditions of this revenue procedure. If the change is denied, the Service Center will return the Form 1128
2000–3 I.R.B.
with an explanation for the denial.
.02 Review of examining officials. The
appropriate examining official may ascertain if the change in annual accounting
period was made in compliance with all
the applicable provisions of this revenue
procedure. Corporations or consolidated
groups changing their annual accounting
period pursuant to this revenue procedure
without complying with or satisfying all
the terms and conditions of this revenue
procedure ordinarily will be deemed to
have initiated the change in annual accounting period without the consent of the
Commissioner.
priate modifications to the application to
comply with the applicable provisions of
this revenue procedure. In addition, any
user fee that was submitted with the application will be refunded to the corporation
or consolidated group.
SECTION 8. EFFECTIVE DATE AND
TRANSITION RULE
The principal authors of this revenue
procedure are Roy A. Hirschhorn and
Martin Scully, Jr. of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact
Roy A. Hirschhorn or Martin Scully, Jr.
on (202) 622-4960 (not a toll-free call).
.01 Effective date. This revenue procedure generally is effective for all
changes in annual accounting periods for
which the short period ends on or after
January 18, 2000. However, if the time
period set forth in section 6.02(2) of this
revenue procedure for filing a Form 1128
with respect to a short period has not yet
expired, a corporation or consolidated
group meeting the scope of this revenue
procedure may elect early application of
the procedure by providing the notification set forth in section 6.02(3) on the top
of page 1 of Form 1128 and by satisfying
the other procedural requirements of section 6.
.02 Transition rule. If a corporation or
consolidated group within the scope of
this revenue procedure filed an application with the National Office to make a
change in annual accounting period and
the application is pending with the National Office on January 18, 2000, the
corporation or consolidated group may
make the change under this revenue procedure. However, the National Office
will process the application in accordance
with the authority under which it was
filed, unless prior to the later of March 3,
2000, or the issuance of the letter ruling
granting or denying consent to the
change, the corporation or consolidated
group notifies the National Office that it
wants to make the change under this revenue procedure. If the corporation or
consolidated group timely notifies the National Office that it wants to make the
change under this revenue procedure, the
National Office will require the corporation or consolidated group to make appro-
2000–3 I.R.B.
SECTION 9. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 92–13, Rev. Proc. 92–13A,
1992–1 C.B. 668, and Rev. Proc. 94–12,
1994–1 C.B. 565, are modified, amplified, and superseded.
DRAFTING INFORMATION
Exchange of MACRS Property
for MACRS Property
Notice 2000–4
This notice provides guidance about
the depreciation of property subject to §
168 of the Internal Revenue Code
(MACRS property) that is acquired in a
like-kind exchange under § 1031 or as a
result of an involuntary conversion under
§ 1033. The Internal Revenue Service
and the Department of Treasury intend to
issue regulations under § 168 that will address these transactions. Taxpayers
should follow this notice until these regulations are issued. Public comments to
aid in the development of the regulations
are requested by March 31, 2000.
BACKGROUND
Section 167 allows as a depreciation
deduction a reasonable allowance for the
exhaustion, wear and tear of property
used a trade or business or held for the
production of income. The depreciation
allowable for depreciable tangible property placed in service after 1986 generally
is determined under § 168 (MACRS).
Section 1031(a)(1) provides that no
gain or loss is recognized on the exchange
of property held for productive use in a
313
trade or business or for investment if the
property is exchanged solely for property
of like kind that is to be held either for
productive use in a trade or business or
for investment.
Section 1033(a)(1) provides that if
property (as a result of its destruction in
whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted into property similar or
related in service or use to the property so
converted, no gain is recognized.
The basis of property acquired in a
transaction to which § 1031 or § 1033 applies generally is the same as the property
surrendered in the transaction less any
cash received plus any gain recognized.
However, there is no guidance as to how
to depreciate the basis of the acquired
property under § 168.
APPLICATION
For purposes of determining the depreciation allowable for MACRS property
acquired in an exchange of MACRS property for like-kind property to which §
1031 applies, or acquired in replacement
of involuntarily converted MACRS property to which § 1033 applies, the acquired
MACRS property should be treated in the
same manner as the exchanged or involuntarily converted MACRS property with
respect to so much of the taxpayer’s basis
in the acquired MACRS property as does
not exceed the taxpayer’s adjusted basis
in the exchanged or involuntarily converted MACRS property. Thus, the acquired MACRS property is depreciated
over the remaining recovery period of,
and using the same depreciation method
and convention as that of, the exchanged
or involuntarily converted MACRS property. Any excess of the basis in the acquired MACRS property over the adjusted basis in the exchanged or
involuntarily converted MACRS property
is treated as newly purchased MACRS
property.
For acquired MACRS property placed
in service on or after January 3, 2000, in a
like-kind exchange of MACRS property
under § 1031 or as a result of an involuntary conversion of MACRS property
under § 1033, a taxpayer must follow the
principles set out in this notice.
For acquired MACRS property placed
in service before January 3, 2000, in a
January 18, 2000
like-kind exchange of, or as a result of an
involuntary conversion of, MACRS property, the Service is aware that taxpayers
are depreciating this acquired property either (i) in the manner set out in this notice
consistent with §1.168–5(f) of the proposed Income Tax Regulations, published
in the Federal Register on February 16,
1984 (49 Fed. Reg. 5940), under former §
168 (ACRS); or (ii) as newly purchased
MACRS property. The Service will allow
a taxpayer to continue to use its present
method of depreciating the acquired property and will treat these methods as allowable methods of depreciation. However, a
taxpayer presently treating the acquired
property as newly purchased MACRS
property may change to treating the property under the principles in this notice,
provided the property has been treated by
the taxpayer as acquired in a § 1031 likekind exchange or § 1033 involuntary conversion and the change is made for the
first or second taxable year ending after
January 3, 2000.
CHANGE IN METHOD OF
ACCOUNTING
A change from treating MACRS property acquired in a § 1031 like-kind exchange or § 1033 involuntary conversion
as newly purchased MACRS property to
treating the property under the principles
of this notice is a change in method of accounting to which the provisions of § 446
and § 481 and the regulations thereunder
apply. A taxpayer changing its method of
accounting for the acquired MACRS
property must follow the automatic
change in accounting method provisions
of Rev. Proc. 99–49, 1999–52 I.R.B. 725,
provided the taxpayer makes the change
in method of accounting for the first or
second taxable year ending after January
3, 2000, and takes into account any necessary § 481(a) adjustment in accordance
with the provisions of Rev. Proc. 99–49.
The scope limitations in section 4.02 of
Rev. Proc. 99–49 do not apply to the taxpayer. However, if the taxpayer is under
examination, before an appeals office, or
before a federal court, the taxpayer must
provide a copy of the Form 3115, Application for Change in Accounting Method,
to the examining agent(s), appeals officer,
or counsel for the government, as appropriate, at the same time that the taxpayer
files the copy of the Form 3115 with the
January 18, 2000
national office. The Form 3115 must contain the name(s) and telephone number(s)
of the examining agent(s), appeals officer,
or counsel for the government, as appropriate.
REQUEST FOR COMMENTS
The Service and the Treasury Department intend to issue regulations under §
168 to address the depreciation of
MACRS property acquired in a § 1031
like-kind exchange or § 1033 involuntary
conversion. Before issuing proposed regulations, the Service and the Treasury Department invite comments from the public
to aid in the development of these regulations. Comments should be submitted in
writing by March 31, 2000, to:
Internal Revenue Service
EXCHANGE OF MACRS PROPERTY FOR MACRS PROPERTY
CC:DOM:P&SI:6, Room 5112
P.O. Box 7604
Benjamin Franklin Station
Washington, DC 20044
Alternatively, comments may be submitted
electronically via:
http://www.irs.gov/prod/tax_regs/comments.html (the Service Internet site).
EFFECT ON OTHER DOCUMENTS
Rev. Proc. 99–49 is modified and amplified to include this automatic accounting method change in the Appendix.
DRAFTING INFORMATION
The principal author of this notice is
Alan H. Cooper of the Office of Assistant
Chief Counsel (Passthroughs and Special
Industries). For further information regarding this notice contact Mr. Cooper at
(202) 622-3110 (not a toll-free call).
Penalty Relief for Certain
Taxpayers Affected by Section
571 of the Tax Relief Extension
Act of 1999
Notice 2000–5
PURPOSE
This notice informs taxpayers of
penalty relief available for certain corporate taxpayers whose December 15, 1999,
314
estimated tax installment is affected by §
571 of the Tax Relief Extension Act of
1999, P.L. 106–170 (“the Act”). The notice provides specific procedures for these
taxpayers to follow in order to qualify for
the penalty relief.
BACKGROUND
Section 571 of the Act amends § 6655
of the Internal Revenue Code by adding
new subsection (e)(5). This subsection
provides that any dividend that is received
from a closely-held real estate investment
trust by any person that owns (after application of § 856(d)(5)) 10 percent or more
(by vote or value) of the stock or beneficial interests in the trust will be taken into
account in computing annualized income
tax installments under § 6655(e)(2) in a
manner similar to the manner under
which partnership income inclusions are
taken into account. The statute also references attribution under § 856(l)(3)(B).
This reference is erroneous and presumably will be the subject of a technical correction. For the purposes of § 6655(e)(5),
the term “closely-held real estate investment trust” means a real estate investment
trust with respect to which five or fewer
persons own (after application of §
856(d)(5)) 50 percent or more (by vote or
value) of the stock or beneficial interests
in the trust. The amendment made by §
571 of the Act applies to estimated tax
payments due on or after December 15,
1999.
RETROACTIVE EFFECT OF SECTION
571 OF THE ACT
The President signed the Act into law
on December 17, 1999. As a result, § 571
of the Act retroactively applies to estimated tax installment payments due on
December 15, 1999, by those corporate
taxpayers that employ the annualization
method to calculate quarterly estimated
tax installment payments. Those taxpayers may have used the law in effect on
December 15, 1999, to calculate their estimated tax installment due on that date.
The retroactive application of § 571 of the
Act may result in those taxpayers underpaying their installment due on December
15, 1999. If so, those taxpayers may be
subject to an addition to tax under § 6655
of the Code.
PENALTY RELIEF
2000–3 I.R.B.
In a situation in which the amendment
made by § 571 of the Act creates or increases an underpayment for the quarterly
estimated tax installment due on December 15, 1999, the Service will not assess
or will abate any addition to tax resulting
from the change in law to the extent that
the taxpayer, on or before January 13,
2000, makes a deposit sufficient to satisfy
such underpayment using either Form
8109, Federal Tax Deposit Coupon, or the
Electronic Federal Tax Payment System
(EFTPS) if the taxpayer is required to deposit electronically or chooses to do so
voluntarily. The taxpayer must designate
that the deposit is for the taxpayer’s estimated tax installment due December 15,
1999. Further, the taxpayer’s 1999 Form
2220, Underpayment of Estimated Tax by
Corporations, should clearly state across
the top “Penalty Relief Under Notice
2000–5.”
If a taxpayer that makes a deposit as
described above and receives a notice imposing an addition to tax based on an underpayment of the estimated tax for the
installment due on December 15, 1999,
and the underpayment relates to the
change to the law by § 571 of the Act, the
taxpayer should contact the IRS office issuing the notice and request abatement of
the addition to tax based on the provisions
in this notice.
DRAFTING INFORMATION
The principal author of this notice is
Robert A. Desilets, Jr. of the Office of Assistant Chief Counsel (Income Tax and
Accounting). For further information regarding this notice contact Robert A. Desilets, Jr. at (202) 622-4910 (not a toll-free
call).
Returns of Information of
Brokers and Barter Exchanges
Notice 2000–6
PURPOSE
This notice provides that, pending the
issuance of new regulations by the Internal Revenue Service (Service) and the
Treasury Department, a barter exchange
is not required under § 6045 of the Internal Revenue Code to report exchanges in-
2000–3 I.R.B.
volving property or services with a fair
market value of less than $1.00. This notice also invites comments on information
reporting issues under § 6045 relating to
barter exchanges in connection with the
new regulations.
BACKGROUND
Section 6045 and the regulations thereunder generally require a barter exchange
to make a return of information with respect to exchanges of personal property or
services through the barter exchange during the calendar year among its members
or clients or between such persons and the
barter exchange. Section 1.6045-1(a)(4)
of the Income Tax Regulations defines a
barter exchange generally to include any
person with members or clients that contract either with each other or with such
person to trade or barter property or services either directly or through such person. However, a barter exchange through
which there are fewer than 100 exchanges
during the calendar year generally is exempt from reporting for, or making a return of information with respect to, exchanges during such calendar year.
Section 1.6045–1(e)(2)(ii).
Section 1.6045–1(f)(2) generally requires a barter exchange to make returns
of information on a transactional basis.
Under this provision, the barter exchange
must show on Form 1099–B, Proceeds
From Broker and Barter Exchange Transactions, the name, address, and taxpayer
identification number of each member or
client providing property or services in
the exchange, the property or services
provided, the amount received by the
member or client for such property or services, the date on which the exchange occurred, and such other information required by Form 1099, in the form,
manner, and number of copies required by
Form 1099. However, as to each corporate member or client (as defined in the
regulations) providing property or services in an exchange for which a return of
information is required, the regulations
allow the barter exchange to report based
on an aggregate basis, rather than on a
transactional basis, for the reporting period.
The Treasury Department and the Service have become aware of a growing
number of barter exchanges that, through
the use of electronic or Internet services,
315
engage in millions of transactions daily
involving property or services with very
low fair market values. In these situations, the barter exchange reporting requirements under § 6045 may impose
burdens on the barter exchange that outweigh the benefits of the information collected on Forms 1099–B. Accordingly,
the Treasury Department and the Service
are studying barter exchange issues with a
view to proposing new regulations regarding the information reporting responsibilities of the exchanges.
DE MINIMIS EXCEPTION
A barter exchange is not required to
provide an information return with respect to an exchange of property or services if the fair market value of the property or services received in that exchange
is less than $1.00.
This exception applies with respect to
information returns that would otherwise
be due on or after January 5, 2000, and
before new regulations are issued addressing the information reporting responsibilities of barter exchanges. With
respect to information returns that were
due before January 5, 2000, the Service
will not impose penalties under §§ 6721
and 6722 on a barter exchange for its failure to file the returns or furnish payee
statements with respect to exchanges that
meet the criteria of the de minimis exception above.
REQUEST FOR COMMENTS
The Treasury Department and the Service invite comments on this notice and
on other information reporting issues relating to barter exchanges in connection
with the future regulations. In particular,
comments are requested concerning other
means of reducing the reporting burden
on barter exchanges, such as:
(1) Whether the regulations should provide an exception to the reporting requirements for cases in which the fair
market value of property or services received by the member or client falls
below a de minimis transactional
threshold (such as that described in this
notice) but only if the total fair market
value of property or services received
by the member or client during a calendar year does not exceed an aggregate
threshold.
(2) Whether the regulations should
January 18, 2000
allow annual aggregate reporting with
respect to amounts received by noncorporate members or clients.
(3) Whether the regulations should
specifically require annual aggregate
reporting, rather than transactional reporting, with respect to transactions involving certain types of property or services.
(4) Whether the regulations should
apply special rules to certain bartering
transactions involving the provision of
electronic or Internet services.
Further, the Treasury Department and the
Service welcome information and comments on additional tax issues associated
with electronic commerce transactions.
January 18, 2000
Written comments should be submitted
by April 4, 2000. Written comments
should be sent to:
Internal Revenue Service
Attn: CC:DOM:CORP:R
Room 5228 (IT&A:Br2)
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044.
or hand delivered between the hours of 8
a.m. and 5 p.m. to:
Courier’s Desk
Internal Revenue Service
Attn: CC:DOM:CORP:R
(Notice 2000–6)
Room 5228 (IT&A:Br2)
1111 Constitution Avenue, NW
316
Washington, D.C.
Alternatively, taxpayers may submit comments electronically via e-mail to the following address:
Sharon.Y.Horn@M1.IRSCOUNSEL.TR
EAS.GOV
All comments will be available for public
inspection and copying in their entirety.
DRAFTING INFORMATION
The principal author of this notice is
Edwin B. Cleverdon of the Office of Assistant Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Mr. Cleverdon
at (202) 622-4920 (not a toll-free call).
2000–3 I.R.B.
Part IV. Items of General Interest
Test of Arbitration Procedure for
Appeals
Announcement 2000–4
SUMMARY: The Internal Revenue Service Office of Appeals (Appeals) is conducting a two-year test of a binding arbitration procedure. This procedure allows
taxpayers to request binding arbitration
for factual issues that are already in the
Appeals administrative process. Under
the procedure, the taxpayer and Appeals
must first attempt to negotiate a settlement. If those negotiations are unsuccessful, the taxpayer and Appeals may
jointly request binding arbitration. Binding arbitration will only be used to resolve
factual disputes. This procedure is effective for requests for arbitration made during the two-year test period beginning on
January 18, 2000, the date this Announcement is published in the Internal Revenue
Bulletin.
BACKGROUND: Section 3465 of the Internal Revenue Service Restructuring and
Reform Act of 1998, Pub. L. 105-206, 112
Stat. 685, creates new section 7123(b)(2) of
the Internal Revenue Code which provides
that the Secretary shall establish a pilot program under which a taxpayer and Appeals
may jointly request binding arbitration on
certain unresolved issues. This procedure
is effective for requests for arbitration made
during the two-year test period, as described above.
PUBLIC HEARING: This document contains a notice of a public hearing on the arbitration procedure set forth in this announcement. A public hearing will be held
at 10:00 a.m. on April 5, 2000 in the IRS
Auditorium, Seventh Floor, 7400 Corridor,
Internal Revenue Building, 1111 Constitution Ave., NW, Washington, DC.
SUPPLEMENTARY INFORMATION:
Written comments on the announcement
should be delivered or mailed by May 5,
2000 to:
Internal Revenue Service
National Director of Appeals
Attn.: C:AP:ADR&CS, Suite 4200E
1099 14th Street, N.W.
Washington, D.C. 20005
or
electronically
via:
2000–3 I.R.B.
http://www.irs.gov/prod/tax_regs/comments.html (the Service Internet site).
Requests to speak at the public hearing
and outlines of oral comments should be
delivered or mailed by March 20, 2000 to
these same addresses. Each speaker (or
group of speakers representing a single entity) will be limited to 10 minutes for an
oral presentation exclusive of the time consumed by questions from the government
panel and answers to these questions.
Because of controlled access restrictions, persons attending the hearing will
not be permitted beyond the lobby of the
Internal Revenue Service building until
9:45 a.m.
An agenda showing the scheduling of
the speakers will be made after outlines are
received from the persons testifying.
Copies of the agenda will be available free
of charge at the hearing.
FOR FURTHER INFORMATION CONTACT: Thomas Carter Louthan, Director,
Office of Alternative Dispute Resolution
and Customer Service, National Office
Appeals, (202) 694-1842 (not a toll-free
number), or Gary Slayen, analyst, Office
of Alternative Dispute Resolution and
Customer Service, National Office Appeals, (202) 694-1837 (not a toll-free
number).
TEST OF ARBITRATION PROCEDURE
FOR APPEALS
Summary:
Appeals is conducting a two-year test of
an arbitration procedure. This procedure
is effective for arbitration requests made
during the two-year test period beginning
on January 18, 2000, the date this Announcement is published in the Internal
Revenue Bulletin.
Under the test, arbitration:
• is optional;
• must be agreed to in a formal agreement executed by the taxpayer and
the Assistant Regional Director of
Appeals-Large Case or successor
(ARDA-LC);
• will bind the parties to the findings
made by the arbitrator with respect to
the issues to be resolved.
Overview:
317
Section 3465 of the Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, 112 Stat. 685 creates new section 7123(b)(2) of the Internal
Revenue Code, which provides that the
Secretary shall establish a pilot program
under which a taxpayer and Appeals may
jointly request binding arbitration on any
issue unresolved at the conclusion of: (A)
Appeals procedures, or (B) unsuccessful attempts to enter into a closing agreement
under section 7121 or a compromise under
section 7122. The Administrative Dispute
Resolution (ADR) Act of 1996, Pub. L. No.
104-320, 110 Stat. 3870, also encourages
federal agencies to use all alternative dispute resolution techniques in the federal administrative process (including binding arbitration where warranted) to resolve
disputes. See 5 U.S.C. § 575, Authorization
of arbitration.
Arbitration is an optional process for resolving factual issues that are currently in
the Appeals process. A factual issue is eligible for this process if it is susceptible to
being resolved solely upon a finding of
fact, and where any interpretation of law,
regulation, ruling or other legal authority is
agreed to by the parties. The taxpayer and
Appeals must agree to be bound by, and not
appeal, the findings of the arbitrator. The
arbitrator and either party must communicate through an administrator unless both
parties are present. This includes communications regarding requests for and transfers of documentation and information.
The administrator will be from Appeals,
Office of Alternative Dispute Resolution
and Customer Service (ADR&CS), or the
organization providing the arbitrator. The
arbitrator and the administrator will discuss
with the parties the rules and procedures
concerning the arbitration process and will
inform the parties that there can be no ex
parte communication between either party
and the arbitrator.
Scope of Arbitration:
The arbitration procedure will attempt to
resolve issues while a case is in Appeals.
This procedure may be used only after
Appeals settlement discussions are unsuccessful, and when all other issues are resolved but for the specific factual issue(s)
for which arbitration is being requested.
January 18, 2000
Arbitration is available:
• Only for factual issues (such as valuation and reasonable compensation);
and
• Whether the case involves a sole factual issue or multiple issues, where
the factual issue to be arbitrated can
be severed.
In addition, arbitration will not be available for:
• Cases where arbitration is not appropriate under either 5 U.S.C. §572,
General authority, or 5 U.S.C. §575,
Authorization of arbitration;
• Issues involving the substantiation of
expenses under I.R.C. §162, Trade or
Business Expenses, or §274, Disallowance of Certain Entertainment,
Etc., Expenses;
• An issue designated for litigation or
docketed in any court [for the Chief
Counsel arbitration program involving issues in docketed cases, see
Chief Counsel Directives Manual
(CCDM) (35)3(17)1];
• An Industry Specialization Program
(ISP) issue or an Appeals Coordinated Issue (ACI) [ISP issues are
listed in Exhibit 8.7.1–1 and ACI issues are listed in section 8.7.1–3 of
the Internal Revenue Manual]; or
• An issue for which the taxpayer has
filed a request for competent authority assistance, or an issue for which
the taxpayer intends to seek competent authority assistance. Arbitration
is also not available for an issue for
which the taxpayer has requested the
simultaneous Appeals/Competent
Authority procedure described in section 8 of Revenue Procedure 96–13,
1996–1 C.B. 616 or subsequent revenue procedure. If a taxpayer enters
into a settlement with Appeals (including an Appeals settlement
through the arbitration process), and
then requests competent authority assistance, the U.S. competent authority will endeavor only to obtain a correlative adjustment with the treaty
country and will not take any actions
that would otherwise amend the settlement. See section 7.05 of Revenue
Procedure 96–13.
Arbitration Process:
1. Arbitration is optional. A taxpayer or
Appeals may request arbitration after
January 18, 2000
both parties agree to arbitrate. A taxpayer should send their written request to
the Team Chief/Appeals Officer who has
responsibility for the case. A written recommendation for action on the request
will be prepared by this Team Chief/Appeals Officer. The request and recommendation will be forwarded to the immediate supervisor for approval/disapproval.
That decision will be reviewed by the supervisor’s manager and forwarded to the
ARDA–LC for final determination. The
National Director of Appeals, Office of
ADR&CS will be consulted before making a final determination.
Generally, the ARDA-LC will make a
final determination within 30 calendar
days of the date the Team Chief/Appeals
Officer received the taxpayer’s request.
Upon making the final determination, the
ARDA-LC will promptly inform
ADR&CS and the Appeals Team Chief or
Appeals Associate Chief and Appeals Officer. The Team Chief or Appeals Officer
will then promptly inform the taxpayer of
the final determination.
Request approved - ADR&CS will
schedule an administrative conference
to discuss the arbitration process with
the taxpayer.
Request denied - Although no formal
appeal procedure exists for the denial
of an arbitration request, a taxpayer
may request a conference with the
ARDA-LC to discuss the denial.
2. Agreement to arbitrate. The taxpayer and Appeals will enter into a written arbitration agreement. See Exhibit 1,
below, for a model arbitration agreement.
This agreement will be negotiated at an
administrative conference provided by
ADR&CS. The agreement should be as
concise as possible. The agreement
should focus the arbitrator on the prescribed tasks of finding facts, preventing
ex parte contact between the arbitrator
and the parties, and limiting or describing
the kind of information the arbitrator is
permitted to consider. The agreement
may indicate the tax treatment of the arbitrator’s findings or clarify any issues
which may arise in calculating any deficiency or overpayment resulting from the
arbitrator’s fact finding.
The following sections describe some
terms and considerations that the taxpayer
and Appeals should take into account in
preparing this agreement.
318
3. Participants. The parties to the arbitration process will be the taxpayer and
their authorized representative and Appeals. During the test of this program,
Appeals reserves the right to have an observer attend any arbitration. The purpose
for this is to familiarize Appeals personnel with the arbitration process. If a taxpayer does not accept observers in this
test, the taxpayer will be excluded from
the test. Appeals also reserves the right to
have District Counsel assist in the arbitration. Taxpayers or their representative
may also have an observer attend any arbitration session.
The arbitration agreement will set forth
the initial list of participants and observers for each party and may limit the
number, identity, or participation of such
participants. The parties are encouraged
to include persons with information and
expertise that will be useful to the arbitrator. The parties must notify the administrator, in a signed writing not later than
two weeks before the arbitration session,
of any change to the initial list of participants and observers contained in the
Agreement to Arbitrate. The parties and
arbitrator, by signed agreement, may
modify the list of participants and observers at any time up to and including the
date of the arbitration session. The administrator will promptly and simultaneously forward each party’s final and complete list to the other party and the
arbitrator. See Exhibit 2, below, for a
Model Participants List.
4. Selection of arbitrators, in general.
The taxpayer and Appeals will select an
arbitrator at an administrative conference
provided by ADR&CS. The test of the arbitration procedure described herein seeks
to use both non-IRS and Appeals personnel as arbitrators. See sections 5, 6, and
7, below. The parties may, by mutual
agreement, use any local or national organization that provides a roster of neutrals
in selecting an arbitrator. In the event
such local or national organization provides an arbitrator, this organization may
also provide the administrator for the arbitration, or the administrator may be provided by ADR&CS.
In obtaining the services of an arbitrator, the IRS will follow all applicable provisions of the Federal Acquisition Regulation. An arbitrator shall have no official,
financial, or personal conflict of interest
2000–3 I.R.B.
with respect to the parties, unless such interest is fully disclosed in writing to the
taxpayer and the ARDA-LC and they
agree that the arbitrator may serve. See 5
U.S.C. § 573.
5. Appeals personnel as arbitrators,
conflict statement, and expenses. The
taxpayer and the ARDA-LC (in consultation with the Appeals Team Chief or Appeals Associate Chief and Appeals Officer) may select an Appeals representative
to be the arbitrator at an administrative
conference provided by ADR&CS. The
Appeals arbitrator shall be from another
Appeals region, or from National Office
Appeals. The ARDA-LC from the region
in which the case is located will coordinate with the ARDA-LC from the region
in which the proposed arbitrator is located. For cases assigned to an Appeals
Officer, the Appeals arbitrator may be
from another Appeals office. National
Office Appeals will pay all expenses associated with an Appeals arbitrator.
Due to the inherent conflict that results
because the Appeals arbitrator is an employee of the IRS, Appeals will provide to
the taxpayer a statement confirming the
employee’s proposed service as an arbitrator, that the person is a current employee of the IRS, and that a conflict results from that arbitrator’s continued
status as an IRS employee. The written
agreement to arbitrate shall include this
statement.
6. Non-Internal Revenue Service arbitrator, expenses. The taxpayer and the
ARDA-LC may agree on an arbitrator
from outside the IRS. If a non-IRS arbitrator is selected, the taxpayer and National Office Appeals will equally share
compensation, expenses, and related fees
and costs of the arbitrator, as well as any
reasonable costs for the services of an
outside administrator subject to applicable rules and regulations for Government
procurement. The arbitrator will be a
contractor subject to the disclosure restrictions of I.R.C § 6103(n).
7. Criteria for selection of arbitrators.
Criteria for selecting an arbitrator will include some or all of the following: completion of arbitration training, previous
arbitration experience, a substantive
knowledge of tax law and knowledge of
industry practices. Criteria may also include the projected travel costs, hourly
fees and other expenses, which will be
2000–3 I.R.B.
considered subject to rules and regulations for Government procurement. The
arbitrator’s qualifications and potential
conflicts of interest should be thoroughly
reviewed prior to selection. The arbitrator
should agree to look solely to each party
for one-half of his or her compensation,
expenses and related reasonable fees and
costs, subject to the applicable rules and
regulations for Government procurement.
8. Issues covered. The agreement to
arbitrate will specify the factual issue(s)
that the parties have agreed to arbitrate.
Each party will prepare a summary of
their position for consideration by the arbitrator. The parties should submit their
summaries to the administrator no later
than two weeks before the scheduled arbitration session.
The parties will set forth their agreement as to any legal guidance the arbitrator must consider, and may also set forth
the tax or other treatment of the arbitrator’s findings or clarify any other issues
resulting from the arbitrator’s fact finding. If appropriate, the parties may require the arbitrator to find a specific value
within a range agreed to by the parties.
The arbitrator will look solely to the legal
guidance provided by the parties. If the
arbitrator desires further legal guidance,
both parties must agree in writing to the
guidance.
9. Site, date, agenda. The agreement
to arbitrate should specify that the arbitrator may request hearings as necessary.
The agreement must prohibit ex parte
contacts between the arbitrator and either
party. In addition, the agreement must
specify that no party, witness, agent or
other person shall have contact with the
arbitrator without the express approval of
the taxpayer and Appeals. The agreement
must provide that the time and place of
any hearing will be determined at an administrative conference between the parties and an administrator who will be
from either ADR&CS or the organization
providing the arbitrator.
10. Confidentiality. The arbitration
process is confidential. Therefore, all information concerning any dispute resolution communication is confidential and
may not be disclosed by any party or arbitrator except as provided under 5 U.S.C §
574. A dispute resolution communication
includes all oral or written communications prepared for the purposes of a dis-
319
pute resolution proceeding [see 5 U.S.C.
§ 571(5)].
In executing the arbitration agreement,
the taxpayer consents to the disclosure by
the IRS of the taxpayer’s returns and return information incident to the arbitration to any participant or observer for the
taxpayer identified in the initial list of
participants and observers and to any participants and observers for the taxpayer
identified in writing by the taxpayer subsequent to execution of the agreement to
arbitrate. (See section 3 above.) If the arbitration agreement is executed by a person pursuant to a power of attorney executed by the taxpayer, that power of
attorney must clearly express the taxpayer’s grant of authority to consent to
disclose the taxpayer’s returns and return
information by the IRS to third parties,
and a copy of that power of attorney must
be attached to the agreement.
IRS and Treasury employees, including
the administrator, who participate or observe in any way in the arbitration process
and any person under contract to the IRS
as described in I.R.C. § 6103(n), including the administrator, that the IRS invites
to participate or observe, will be subject
to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C. §§ 6103, 7213, and 7431.
11. Section 7214(a)(8) disclosure.
Under I.R.C. § 7214(a)(8), IRS employees who have knowledge or information
of the violation of any revenue law of the
United States must report in writing such
knowledge or information to the Secretary. The agreement to arbitrate will state
this duty and the parties will acknowledge
it.
12. Disqualification. The arbitrator
will be disqualified from representing the
taxpayer in any pending or future action
that involves the transactions or issues
that are the particular subject matter of the
arbitration. This disqualification extends
to representing any other parties involved
in the transactions or issues that are the
particular subject matter of the arbitration. Moreover, the arbitrator’s firm will
be disqualified from representing the taxpayer or any other parties involved in the
transactions or issues that are the particular subject matter of the arbitration in an
action that involves the transactions or
issues that are the particular subject matter of the arbitration.
January 18, 2000
The arbitrator’s firm will not be disqualified from representing the taxpayer
or any other parties in any future action
that involves the same transactions or issues that are the particular subject matter
of the arbitration, provided that: (i) the
arbitrator disclosed the potential of such
representation prior to the parties’ acceptance of the arbitrator; (ii) such action relates to a taxable year that is different
from the taxable year under arbitration;
(iii) the firm’s internal controls preclude
the arbitrator from any form of participation in the matter; and (iv) the firm does
not allocate to the arbitrator any part of
the fee therefrom. In the event the arbitrator has been selected prior to learning
the identity of any party involved in the
arbitration, requirement (i) will be
deemed satisfied if the arbitrator promptly
notifies the parties of the potential representation.
Although the arbitrator may not receive
a direct allocation of the fee from the taxpayer (or other party) in the matter for
which the internal controls are in effect,
the arbitrator will not be prohibited from
receiving a salary, partnership share, or
corporate distribution established by prior
independent agreement. The arbitrator
and the firm are not disqualified from representing the taxpayer or any other parties
involved in the arbitration in any matters
unrelated to the transactions or issues that
January 18, 2000
are the particular subject matter of the arbitration.
These procedures only apply to representations on matters before the IRS. The
provisions of this section 12 are in addition to any other applicable disqualification provisions including, for example,
the rules of the American Bar Association
Model Code of Professional Conduct and
the applicable canons of ethics.
13. Withdrawal. With the consent of
the parties, the arbitrator may suspend the
arbitration process to allow the parties to
reach a final Appeals settlement at any
time prior to the scheduled arbitration session.
14. Arbitrator’s report. At the conclusion of the arbitration process, the arbitrator will prepare a brief written report and
submit a copy to the administrator. See
Exhibit 3 below, for a model arbitrator’s
report. The report will not provide any
findings or reasoning that represents an
interpretation of the law. The arbitrator is
limited to the task of finding facts. Neither party may appeal the finding(s) of the
arbitrator nor contest the finding(s) in any
judicial proceeding, including but not
limited to the Tax Court, United States
Court of Federal Claims or a federal district or appellate court.
15. Appeals procedures apply. If the
arbitrator renders a decision on all or
some issues through the arbitration
320
process, Appeals will use established procedures to close the case, including preparation of a specific matters closing agreement (Form 906). See Statement of
Procedural Rules, 26 C.F.R. § 601.106.
Delegation Order 236 (Rev. 3) may apply
to settlements resulting from the arbitration process. Each party enters this agreement in reliance on the other party’s
agreement to be bound by the decision of
the arbitrator.
16. Precedential Use. The findings by
the arbitrator will neither be binding on
nor otherwise control the parties for taxable years not covered by the arbitration.
Except as provided in the agreement to arbitrate, the arbitration findings may not be
used as precedent by any party.
17. Effective Date. These procedures
are effective for requests for arbitration
made during the two-year test period beginning on January 18, 2000, the date this
Announcement is published in the Internal Revenue Bulletin.
For further information contact:
Thomas Carter Louthan, Director, Office
of Alternative Dispute Resolution and
Customer Service, National Office Appeals, (202) 694-1842 (not a toll-free
number), or Gary Slayen, Office of Alternative Dispute Resolution and Customer
Service, National Office Appeals, (202)
694-1837 (not a toll-free number).
2000–3 I.R.B.
Exhibit 1:
Model Agreement to Arbitrate
1.
The Arbitration Process. Arbitration is optional and will be used to assist [NAME OF TAXPAYER] and the Internal
Revenue Service (IRS) - Appeals (the PARTIES) in resolving certain factual issues that are currently in the Appeals
administrative process. A factual issue is eligible for this process if it is susceptible to being resolved solely upon a finding of fact, and where any interpretation of law, regulation, ruling or other legal authority is agreed to by the PARTIES.
The PARTIES to this agreement (see section 2 below) will submit the issue(s) for arbitration (see section 4 below) and
agree to be bound by the Arbitrator’s findings on these issues. There can be no ex parte communication between either
PARTY, any third party, witness, agent, or other person regarding the issue(s) for arbitration, with the arbitrator. All
communication between the arbitrator and either PARTY, including requesting and transferring documentation and
information, will be made through an administrator who will be either the Appeals Office of Alternative Dispute
Resolution and Customer Service (ADR&CS) or the organization providing the arbitrator. The administrator will inform
and discuss with the PARTIES the rules and procedures pertaining to the arbitration process.
2.
Participants. The participants in the arbitration session will be:
Taxpayer:
For Taxpayer:
For IRS:
Assistant Regional Director of Appeals - Large Case (ARDA-LC)
Appeals Associate Chief
Appeals Team Chief
Appeals Officer
Other
Appeals reserves the right to have an observer attend any arbitration. The purpose for this is to familiarize Appeals personnel with the arbitration process. Taxpayers or their representatives may also have an observer attend the arbitration.
All participants and observers who will attend the arbitration on behalf of or at the request of a PARTY, including witnesses and attorneys, must be set forth in the list of participants and observers of section 2 of the Agreement to Arbitrate.
If a PARTY subsequently modifies their list, then, no later than two weeks before the arbitration session, such PARTY
will submit to the administrator a complete and final list of participants and observers who will attend the arbitration
session. The list must identify, for each participant or observer, their position with the PARTY or other affiliation (e.g.,
a member of the XYZ law firm, counsel to the taxpayer), and their address, telephone and fax numbers. See Exhibit 2.
The administrator will submit each PARTY’s list to the other PARTY and to the arbitrator. The PARTIES and the arbitrator by mutual agreement may modify the list of participants and observers in writing at any time up to and including
the date of the arbitration session.
3.
Selection of Arbitrator, Costs. [NAME OF TAXPAYER] and [NAME], Assistant Regional Director of AppealsLarge Case (ARDA-LC) or successor, by mutual agreement, will select an arbitrator, and can use any local or national organization that provides a roster of neutrals in selecting an arbitrator. The arbitrator may be a non-IRS individual
or an Appeals arbitrator. An arbitrator shall have no official, financial, or personal conflict of interest with respect to the
PARTIES, unless such interest is fully disclosed in writing to the PARTIES, and the PARTIES agree that the arbitrator
may serve. See 5 U.S.C. § 573.
The costs of a non-IRS arbitrator will be shared equally by the taxpayer and National Office Appeals, subject to applicable rules
and regulations for Government procurement. If an Appeals arbitrator is selected, National Office Appeals will pay all expenses
associated with the arbitrator.
A conflict results when an Appeals employee acts as an arbitrator. In such a case, Appeals will provide to the taxpayer a statement
confirming the employee’s proposed service as an arbitrator, that the person is a current employee of the IRS and that a conflict
results from that arbitrator’s continued status as an IRS employee. This statement shall be acknowledged by the taxpayer.
2000–3 I.R.B.
321
January 18, 2000
4.
Issues to be Arbitrated. The PARTIES agree that the following issue(s) submitted for determination by the arbitrator are
factual in nature and do not require the arbitrator to interpret any law, regulation, ruling or other legal authority:
#1)
#2)
#3)
5.
Guidance for Arbitrator. The arbitrator is not permitted to contact either PARTY, nor any participant, nor any other individual or other entity, in connection with this arbitration unless in the presence of both PARTIES.
Although the arbitrator is not permitted to make any findings of law or provide reasoning that represents an interpretation of the law, it may be necessary for the arbitrator to refer to the law in determining a factual issue. The arbitrator
shall look solely to the legal guidance provided by the PARTIES. Any legal guidance for the arbitrator is agreed to by
the PARTIES as follows:
When legal guidance provided by the PARTIES is in conflict, the arbitrator, where practicable, will ignore the guidance
and decide the factual issue. If it is not practicable to set aside the PARTIES’ guidance, then during the arbitration session or a hearing, the PARTIES will attempt to agree on the guidance needed to resolve the issue. If no agreement can
be reached and the guidance is necessary to decide the matter, then the matter cannot be arbitrated. If any legal guidance for the arbitrator was overlooked, the PARTIES may agree upon further legal guidance and the manner in which it
is to be communicated to the arbitrator.
The PARTIES may also require the arbitrator to make certain findings, such as a specific value within a range agreed to
by the PARTIES. The PARTIES should provide any further guidance for the arbitrator, and may also set forth the tax
or other treatment of the arbitrator’s findings or clarify any other issues resulting from the arbitrator’s fact-finding.
6.
Submission of Materials. Each PARTY agrees to provide a summary of their position including any evidence relevant
and necessary for the arbitrator to understand and determine the issue(s). The PARTIES will submit their summary and
any evidence to the administrator by two weeks before the arbitration session. The arbitrator may order a PARTY to
produce a summary of their documents and other evidence which the PARTY intends to present in support of its position and may order a PARTY to produce other documents, exhibits or evidence deemed necessary or appropriate. Any
and all information and materials that a PARTY provides must be provided to the administrator who will simultaneously forward such to the Arbitrator and the other PARTY.
a.
The PARTIES agree that the arbitrator shall have the right to interview the following persons:
b.
,
and no other persons, except upon joint agreement of both PARTIES. The PARTIES shall specify the form
and content of the questions to be asked by the arbitrator. The PARTIES shall specify the dates of the interview(s). Any such interviews shall be held in the presence of both PARTIES, or their counsel, unless either
PARTY waives in writing their right to be present.
The PARTIES agree that the arbitrator shall have the right to inspect the following documents or other information:
,
and no other evidentiary material, except upon agreement of both PARTIES. Such inspection shall occur only
after reasonable opportunity is given to both PARTIES to be present. If relevant, describe any agreed access by
the arbitrator to such documentation, including the location at which such access is to be made available.
January 18, 2000
322
2000–3 I.R.B.
c.
The PARTIES agree that the methodology to be used by the arbitrator in deciding any issue described in section 4 must follow these principles:
d.
The PARTIES agree to clarify issues that may arise in calculating any deficiency or overpayment resulting
from the arbitrator’s findings and agree to the tax treatment of the arbitrator’s findings as follows:
e.
The PARTIES agree that the time and location of any hearing, or postponement for good cause, shall be determined by agreement between the PARTIES. If the PARTIES cannot agree, then the determination shall be
made by the administrator.
,
,
7.
Contact with Arbitrator. The PARTIES agree that there shall be no ex parte communication between the arbitrator and
either PARTY or witness or agent for a PARTY. In addition, the arbitrator may not have contact with any other individuals concerning the arbitration matter without the express approval of the PARTIES. Any contact with the arbitrator
by either PARTY must be in the presence of the other PARTY and such contact must be arranged by the administrator.
8.
Proposed Schedule. Subject to the approval of the arbitrator, the arbitration session will be conducted according to the
following schedule:
Submission of
Materials to arbitrator:
A DATE WHICH IS NOT LATER THAN TWO
WEEKS BEFORE THE DATE OF
ARBITRATION SESSION
Arbitration:
MONTH
DATE
, YEAR
9.
Place of Arbitration. The PARTIES should attempt to select a site at or near the arbitrator’s office, [NAME OF
TAXPAYER’s] office, or an Appeals office.
10.
Confidentiality IRS and Treasury employees who participate in any way in the arbitration process and any person under
contract to the IRS pursuant to I.R.C. § 6103(n), including the arbitrator, that the IRS invites to participate will be subject to the confidentiality and disclosure provisions of the Internal Revenue Code, including I.R.C. §§ 6103, 7213, and
7431. See also 5 U.S.C. § 574.
[NAME OF TAXPAYER] consents to the disclosure by the IRS of the taxpayer’s returns and return information incident to the arbitration to any participant or observer for the taxpayer identified in the initial list of participants and
observers in section 2 above and to any participant or observer for [NAME OF TAXPAYER] identified in writing by
the taxpayer subsequent to execution of the agreement to arbitrate. If the arbitration agreement is executed by a person pursuant to a power of attorney executed by [NAME OF TAXPAYER], that power of attorney must clearly express
the grant of authority by [NAME OF TAXPAYER] to consent to disclose the returns and return information of [NAME
OF TAXPAYER] by the IRS to third parties, and a copy of that power of attorney must be attached to this agreement.
11.
I.R.C. Section 7214 (a)(8) Disclosure. The PARTIES acknowledge that IRS and all other Treasury employees involved
in this arbitration, such as an Appeals arbitrator, are bound by I.R.C. § 7214 (a)(8) and must report information concerning violations of any revenue law to the Secretary.
12.
Record. A PARTY desiring a stenographic record shall make arrangements and shall bear costs. The PARTIES agree
that any stenographic record or other recording of the arbitration proceeding shall remain confidential as described in
section 10 of this agreement.
13.
Withdrawal and Postponement. By mutual agreement of the PARTIES, the arbitrator, through the administrator, may
allow the PARTIES to withdraw from the arbitration process in order to reach a final Appeals settlement any time before
the scheduled arbitration session. Established Appeals procedures apply to any resolution reached by the PARTIES. The
arbitrator may grant postponements for good cause after a hearing before both PARTIES.
2000–3 I.R.B.
323
January 18, 2000
14.
Report by Arbitrator. The arbitrator’s report will identify each issue described in section 4, and will explain the findings for each issue and any methodology referred to in section 6.c. that was utilized in reaching such findings.
15.
Arbitrator’s Decision is Final. The PARTIES agree to be bound by the arbitrator’s findings and to incorporate these
findings into an Appeals closing agreement that the PARTIES will execute. Delegation Order 236 (Rev. 3) may be
applied to settlements resulting from the arbitration process. Neither
PARTY may appeal the findings of the arbitrator nor contest the finding(s) in any judicial proceeding, including but not
limited to the United States Tax Court, United States Court of Federal Claims, or a federal district or federal appellate
court. Each PARTY enters this agreement in reliance on the other PARTY’S agreement to be bound by the decision of
the arbitrator.
16.
Precedential Use. The findings by the arbitrator will not be binding on, or otherwise control, the PARTIES for taxable
years not covered by the arbitration. Except as provided in the agreement to arbitrate, the arbitration findings may not
be used as precedent by any PARTY.
INTERNAL REVENUE SERVICE,
APPEALS
By: _____________________
Assistant Regional Director
of Appeals-Large Case
NAME OF TAXPAYER
Date :___________________
Date: ____________________
By: _____________________
NAME
Title
Exhibit 2
Model Arbitration List of Participants and Observers
Case Name: ___________________________________
Submitted By: _________________________________
Date: ________________________________________
Please list below all participants and observers attending the arbitration including witnesses, agents or other individuals,
and attorneys, and indicate any observers with an asterisk next to their names. This form must be sent to the administrator no later
than two weeks before the arbitration session. The administrator will promptly forward each party’s list to the other party and to
the arbitrator.
NAME &
POSITION OR
TELEPHONE
AFFILIATION
ADDRESS
FAX No.
January 18, 2000
324
2000–3 I.R.B.
Exhibit 3:
Model Arbitrator’s Report
The PARTIES below agreed to arbitrate their dispute on MONTH, DATE, YEAR.
The arbitrator made the following findings:
ISSUE:
FINDING:
ISSUE:
FINDING:
ISSUE:
FINDING:
Settlement documents will be prepared under established Appeals procedures.
DATED this
day of
, 200X
/s/ Arbitrator
/s/ PARTY
/s/ PARTY
Notice of Proposed Rulemaking
by Cross Reference to
Temporary Regulation
Disclosures of Return
Information to Officers and
Employees of the Department of
Agriculture for Certain
Statistical Purposes and Related
Activities
REG–116704–99
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations.
SUMMARY: This document provides a
proposed regulation relating to the disclosure of return information to officers
and employees of the Department of
Agriculture for certain statistical purposes and related activities. The proposed regulation would permit the IRS
to disclose return information to the Department of Agriculture to structure,
2000–3 I.R.B.
prepare, and conduct the Census of
Agriculture. The text of the temporary
regulation T.D. 8854, published on page
306, also serves as the text of this proposed regulation.
4570; concerning submissions of comments, Guy Traynor (202) 622-7180 (not
toll-free numbers).
DATES: Written and electronic comments and requests for a public hearing
must be received by April 3, 2000.
Background
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–116704–99),
room 5226 Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand delivered Monday through Friday between the
hours of 8 a.m. and 5 p.m.
to : CC:DOM:CORP:R (REG–116704–99),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW; Washington, DC. Alternatively, taxpayers may submit comments electronically via the Internet
by selecting the “Tax Regs” option on the
IRS Home Page, or by submitting comments
directly to the IRS Internet site:
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Jennifer S. McGinty, (202) 622-
325
SUPPLEMENTARY INFORMATION:
Temporary regulations in T.D. 8854
amend the Procedure and Administration
Regulations (26 CFR part 301) relating to
section 6103(j)(5). The temporary regulations contain rules relating to the disclosure of return information to officers and
employees of the Department of Agriculture for certain statistical purposes and related activities.
The text of these temporary regulations
also serves as the text of these proposed
regulations. The preamble to the temporary
regulations explains the temporary regulations and these proposed regulations.
Explanation of Provisions
This proposed regulation will allow the
IRS to disclose return information to the
Department of Agriculture to structure,
prepare, and conduct the Census of Agriculture.
January 18, 2000
The disclosure of the specific items of
return information identified in this regulation is necessary in order for the Department of Agriculture to accurately identify,
locate, and classify, as well as properly
process, information from agricultural
businesses to be surveyed for the statutorily mandated Census of Agriculture.
Special Analyses
It has been determined that this notice
of proposed rulemaking 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) does not apply to these
regulations, and because these regulations
do not impose a collection of information
on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, this proposed regulation will be
submitted to the Chief Counsel for Advocacy for the Small Business Administration for comment on its impact on small
businesses.
Comments and Requests for a Public
Hearing
Before this proposed regulation is
adopted as a final regulation, consideration will be given to any electronic and
written comments (a signed original and
eight (8) copies) that are submitted timely
to the Service. Additionally, the Service
and Treasury Department specifically request comments on the clarity of the proposed regulation and how it can be made
easier to understand. All comments will
be available for public inspection and
copying. A public hearing may be scheduled if requested in writing by a person
that timely submits comments. If a public
hearing is scheduled, notice of the date,
time, and place for the hearing will be
published in the Federal Register.
Drafting Information
The principal author of this regulation
is Jennifer S. McGinty, Office of the Assistant Chief Counsel (Disclosure Litigation), IRS. However, other personnel
from the IRS and Treasury Department
participated in its development.
* * * * *
January 18, 2000
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6103(j)(5)–1 also issued
under 26 U.S.C. 6103(j)(5). * * *
Par. 2. Section 301.6103(j)(5)–1 is
added to read as follows:
§ 301.6103(j)(5)–1. Disclosures of return information to officers and employees of the Department of Agriculture for certain statistical purposes and
related activities.
[The text of this proposed regulation is the
same as the text of §301.6103(j)(5)–1T
published elsewhere in T.D. 8854]
***
Charles O. Rossotti,
Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on January 3, 2000, 8:45 a.m., and published in the issue of
the Federal Register for January 4, 2000, 65 F.R.
263)
Notice of Proposed Rulemaking
Relief for Service in Combat
Zone and for Presidentially
Declared Disaster
REG–101492–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations relating to the postponement of certain tax-related deadlines
due either to service in a combat zone or a
Presidentially declared disaster. The proposed regulations reflect changes to the
law made by the Taxpayer Relief Act of
1997. The proposed regulations affect
taxpayers serving in a combat zone and
taxpayers affected by a Presidentially declared disaster.
326
DATES: Written or electronically generated
comments and requests for a public hearing
must be received by March 30, 2000.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–101492– 98),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–101492–98), Courier’s Desk, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Beverly A. Baughman, (202) 622-4940; concerning the hearing and submissions of
written comments, Guy Traynor (202)
622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Regulations on Procedure and Administration (26 CFR part
301) under section 7508 of the Internal
Revenue Code (Code), relating to postponement of certain acts by reason of service in a combat zone, and section 7508A,
relating to postponement of certain tax-related deadlines by reason of a Presidentially declared disaster. Section 7508A
was added to the Code by section 911 of
the Taxpayer Relief Act of 1997, Public
Law 105–34 (111 Stat. 788 (1997)), effective for any period for performing an act
that had not expired before August 5,
1997.
In general, section 7508 provides that the
time individuals serve in a Acombat zone@
plus 180 days will be disregarded in determining whether acts listed in section
7508(a)(1), such as filing returns, paying
taxes, filing certain petitions with the Tax
Court, filing a claim for credit or refund,
bringing suit, and assessing tax, are performed within the time prescribed. Under
section 7508(a)(1)(K), the Secretary has the
authority to provide by regulation other acts
to which section 7508 will apply.
2000–3 I.R.B.
Section 7508A provides that, in the
case of a taxpayer determined by the Secretary to be affected by a Presidentially
declared disaster, the Secretary may postpone certain tax-related deadlines for up
to 90 days. The deadlines that may be
postponed are determined by cross-reference to section 7508(a)(1). Pursuant to
section 7508A(b), the provision does not
apply for purposes of determining interest
on any overpayment or underpayment (if
the underpayment arose prior to the disaster). See also H.R. Rep. No. 148, 105th
Cong., 1st Sess. 397 (1997).
Explanation of Provisions
Under section 7508, the proposed regulations provide that, in addition to the acts
described in section 7508(a)(1), the IRS
may postpone other acts specified in revenue rulings, revenue procedures, notices,
or other guidance published in the Internal
Revenue Bulletin.
Under section 7508A, the proposed regulations provide that, for any tax, penalty,
additional amount, or addition to the tax of
an affected taxpayer in a Presidentially declared disaster area, the IRS may disregard
up to 90 days in determining whether certain tax-related deadlines described in section 7508(a)(1) were satisfied and the
amount of any credit or refund. The proposed regulations apply to taxpayer deadlines, such as the time for filing returns
and paying taxes relating to most income
taxes (including domestic service employment taxes), estate taxes, and gift taxes;
filing certain court documents, including
petitions filed in United States Tax Court
for redetermination of a deficiency; and
filing claims for refund. In addition, under
the authority in section 7508(a)(1)(K), the
proposed regulations provide that for purposes of section 7508A, the IRS may disregard up to 90 days in determining
whether the deadlines for filing returns
and paying taxes relating to certain excise
taxes and employment taxes have been
met. Although the proposed regulations
do not apply to deadlines for depositing
federal taxes pursuant to section 6302 and
the underlying regulations, it is anticipated
that the failure to deposit penalty under
section 6656 will be waived in appropriate
circumstances, and thus section 7508A relief will not be necessary.
The proposed regulations also provide
for the postponement of certain govern-
2000–3 I.R.B.
ment deadlines, such as the time for making assessments, taking collection action,
and bringing suit. However, the IRS and
Treasury Department anticipate that the authority to postpone government deadlines
will only be used in limited circumstances
when it is determined that such a postponement is necessary and appropriate.
The proposed regulations provide that
an affected taxpayer is 1) any individual
whose principal residence is located in a
covered disaster area; 2) any business
whose principal place of business is located in a covered disaster area; 3) any individual who is a relief worker affiliated
with a recognized government or philanthropic organization and who is assisting
in a covered disaster area; 4) any individual whose principal residence or any business whose principal place of business is
located outside the disaster area, but
whose tax records necessary to meet certain tax-related deadlines are maintained
in a location, such as a practitioner=s office, in a covered disaster area; 5) any estate or trust whose tax records necessary
to meet certain tax-related deadlines are
maintained in a location, such as a practitioner=s office, in a covered disaster area;
6) any individual who files a joint return
with an affected taxpayer; or 7)
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