# Bulletin No. 1997–51

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A9996777f76461d2b

## Record

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

## Text

Internal Revenue

bulletin

Bulletin No. 1997–51
December 22, 1997

HIGHLIGHTS
OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX

EXEMPT ORGANIZATIONS

Rev. Proc. 97–55, page 22.

Announcement 97–123, page 28.

Advance rulings on production payments. This procedure sets forth the conditions under which the Service will
consider issuing an advance ruling that a right to mineral is a
production payment as defined in section 1.636–3(a) of the
Income Tax Regulations.

EMPLOYEE PLANS
T.D. 8738, page 4.
REG–243025–96, page 25.

A list is provided of organizations now classified as private
foundations.

ADMINISTRATIVE
T.D. 8737, page 11.
REG–252936–96, page 27.
Final, temporary, and proposed regulations under section
7623 of the Code relate to the rewards for information regarding violations of the Internal Revenue laws.

Temporary and proposed regulations under section 125 of
the Code provide guidance on the circumstances under
which a cafeteria plan participant may revoke an existing
election and make a new election during a period of coverage.

T.D. 8739, page 8.
REG–103330–97, page 24.

Notice 97–74, page 18.

Notice 97–65, page 14.

Weighted average interest rate update. Guidelines are
set for determining for December 1997, the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for purposes of
the full funding limitation of section 412(c)(7) of the Code as
amended by the Omnibus Budget Reconciliation Act of 1987
and by the Uruguay Round Agreements Act (GATT).

Notice 97–75, page 18.
Minimum distributions; age 701⁄2; SBJPA. This notice
sets forth additional guidance with respect to the amendments to the minimum distribution rules of section 401(a)(9)
of the Code made by section 1404 of the Small Business
Job Protection Act of 1996.

Finding Lists begin on page 31.

Department of the Treasury
Internal Revenue Service

Final, temporary, and proposed regulations under section
6109 of the Code relate to the IRS Adoption Taxpayer
Identification Number. A public hearing on the proposed regulations will be held on March 4, 1998.
Due diligence; paid preparers; earned income credit.
Paid preparers of 1997 federal income tax returns and
claims for refund that involve the Earned Income Tax Credit
are informed of the due diligence requirements that apply
for purposes of the penalty under section 6695(g) of the
Code, as added by the Taxpayer Relief Act of 1997.

Notice 97–73, page 16.
Information reporting; Hope Scholarship Credit; Lifetime Learning Credit. Educational institutions are informed of the information reporting requirements for 1998
under section 6050S of the Code, as added by the Taxpayer
Relief Act of 1997, in connection with the Hope Scholarship
Credit and Lifetime Learning Credit.

Mission of the Service
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, efficiency, and fairness.

The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-

Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.

Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.

At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.

2

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.

Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin of the
succeeding quarterly and semiannual period, respectively.

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

3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 25A.—Hope and
Lifetime Learning Credits
What information reporting requirements apply
to educational institutions for 1998 under § 6050S of
the Code, as added by the Taxpayer Relief Act of
1997, in connection with the Hope Scholarship
Credit and the Lifetime Learning Credit. See Notice
97–73, page 16.

Section 125.—Cafeteria Plans
26 CFR 1.125–4T: Permitted election changes
(temporary).

T.D. 8738
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Tax Treatment of Cafeteria
Plans
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Temporary regulations
SUMMARY: This document contains
temporary regulations that clarify the circumstances under which an employer
may permit a cafeteria plan participant to
revoke an existing election and make a
new election during a period of coverage.
The text of these temporary regulations
also serves as the text of the proposed regulations set forth in the REG–243025–96,
page 25.
DATES: These regulations are effective
on December 31, 1998.
FOR FURTHER INFORMATION CONTACT: Sharon Cohen, (202) 622-6080
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Income Tax Regulations (26 CFR part
1) under section 125. These temporary
regulations provide guidance relating to
the circumstances under which a cafeteria
plan participant may revoke an existing
election and make a new election during a
period of coverage.

December 22, 1997

Explanation of Provisions
A “cafeteria plan” under section 125 allows an employee to choose between cash
and certain nontaxable benefits, such as
accident or health coverage. Section 125
generally permits the employee to choose
the nontaxable benefit (rather than the
available cash) without the employee having to include the available cash in gross
income. The temporary regulations:
• Permit a cafeteria plan to allow an
employee, during a plan year, to
change his or her health coverage
election to conform with the new
special enrollment rights provided
under the Health Insurance Portability and Accountability Act of 1996
(HIPAA), and
• Permit a cafeteria plan to allow a
change in coverage election for a variety of other changes in status.
These regulations are designed to provide
clear, administrable guidelines for determining when changes can be made in
cafeteria plan elections during a plan year.
These regulations are effective for plan
years beginning after December 31, 1998.
However, taxpayers may rely on the guidance in the temporary regulations (or on
the existing proposed regulations) for
prior periods.
Summary
Section 125 generally provides that an
employee in a cafeteria plan will not have
an amount included in gross income
solely because the employee may choose
among two or more benefits consisting of
cash and “qualified benefits.” A qualified
benefit generally is any benefit that is excludable from gross income because of an
express provision of the Code, including
coverage under an employer-provided accident or health plan under sections 105
and 106, group-term life insurance under
section 79, elective contributions under a
qualified cash or deferred arrangement
within the meaning of section 401(k), dependent care assistance under section
129, and adoption assistance under section 137.1 Under §§1.125–1 and 1.125–2
1The following are not qualified benefits: products advertised, marketed, or offered as long-term
care insurance; medical savings accounts under sec-

4

of the existing proposed regulations,2 an
employee is permitted to make an election
between cash and qualified benefits before the beginning of the period of coverage (which generally is the plan year of
the cafeteria plan); changes in the election
during the plan year are permitted only in
limited circumstances.
The temporary regulations clarify the
circumstances under which a cafeteria
plan may permit an employee to change
his or her cafeteria plan election with respect to accident or health coverage or
group-term life insurance coverage during
the plan year. Proposed regulations are
also being published that cross-reference
these temporary regulations, and that replace the change in family status provisions in Q&A–6 of proposed §1.125–2
with respect to accident or health plans
and group-term life insurance.
HIPAA Special Enrollment Rules.
The temporary regulations conform the
cafeteria plan rules to the new special enrollment rights provided under HIPAA
(which generally require group health plans
to permit individuals to be enrolled for coverage following the loss of other health
coverage, or if a person becomes the spouse
or dependent of an employee through birth,
marriage, adoption, or placement for adoption).3 Under the regulations, if an employee has a right to enroll in an employer’s
group health plan or to add coverage for a
family member under HIPAA, the employee can make a conforming election
under the cafeteria plan. This allows required contributions for such health coverage to be paid on a pre-tax basis.
Changes in Status.
The temporary regulations include
rules for other events, called “changes in
tion 106(b); qualified scholarships under section
117; educational assistance programs under section
127; and fringe benefits under section 132.
2 Published as proposed rules at 49 FR 19321
(May 7, 1984) and 54 FR 9460 (March 7, 1989), respectively.
3See section 9801(f). Similar provisions are set
forth in section 701(f) of the Employee Retirement
Income Security Act of 1974 (ERISA), and section
2701(f) of the Public Health Service Act. Regulations under these provisions are set forth in Treas.
Reg. §54.9801–6T; 29 C.F.R. §2590.701–6; and 45
C.F.R. §146.117.

1997–51 I.R.B.

status,” under which a cafeteria plan may
allow an employee to change his or her
election during the plan year. The events
that constitute changes in status under the
regulations are changes in legal marital
status, number of dependents, employment status, work schedule, and residence
or worksite, and cases where the dependent satisfies or ceases to satisfy the requirements for unmarried dependents.
The regulations permit a cafeteria plan
to allow a change of election during the
plan year if a change in status occurs that
affects eligibility for coverage and the
election change corresponds with the effect on eligibility. For example, if under
the terms of an accident or health plan a
child of an employee loses eligibility for
coverage upon graduation from college,
the cafeteria plan may allow the employee
to cease payment for the child’s coverage
when the child graduates and coverage
ceases.
Certain of these changes in status (marriage, birth, adoption, and placement for
adoption) overlap with the special enrollment events under HIPAA. The regulations include examples that clarify the relationship between HIPAA’s special
enrollment rights and these change in status rules. In addition, if a change in status
occurs that entitles an employee or family
member to “COBRA” continuation coverage (or coverage under a similar State
program) with respect to the employer’s
plan, the regulations permit payments for
the continuation coverage to be made on a
pre-tax basis under a cafeteria plan.
Other Events.
The regulations allow a corresponding
cafeteria plan change if a plan receives a
court order, such as a qualified medical
child support order under section 609 of
ERISA. In addition, if an employee,
spouse, or dependent becomes entitled to
Medicare or Medicaid, a cafeteria plan
can permit a corresponding election
change.
Elective Contributions Under a Qualified
Cash or Deferred Arrangement.

temporary regulations (which apply to
other qualified benefits), govern changes
in elections under a qualified cash or deferred arrangement (within the meaning
of section 401(k)) or with respect to employee after-tax contributions subject to
section 401(m).
Scope of Temporary Regulations and Reliance on Proposed Regulations.
The temporary regulations do not address certain provisions concerning cafeteria plan election changes that are included
in the existing proposed regulations.
Guidance on these provisions is reserved
at paragraphs (f)–(i) of the temporary regulations.
For example, future guidance under the
significant cost change provision (reserved at paragraph (g) of the temporary
regulations), rather than the change in status rules, would determine whether an
employee who switches from full-time to
part-time employment and who remains
eligible under the employer’s health plan
could make an election change if the parttime employee is required to pay significantly higher amounts for the coverage.
The temporary regulations also reserve
guidance with respect to provisions set
forth in the existing proposed regulations
that permit an election change in the case
of a significant change in coverage
(which includes a significant change in
the health coverage of the employee or
spouse attributable to the spouse’s employment4). Other matters not addressed
in the temporary regulations include the
application of the cafeteria plan election
change rules to qualified benefits other
than accident or health coverage and
group-term life insurance coverage (for
example, dependent care assistance programs), and special rules concerning
changes in elections by employees taking
leave under the Family and Medical
Leave Act of 1993 (Public Law 103-3)5.
Pending further guidance, taxpayers can
continue to rely on the existing proposed
regulations6 concerning these and other
4See the second-to-last sentence in Q&A-6(c) of

The temporary regulations, in provisions similar to those of the existing proposed regulations (proposed §1.125–2(f)),
make clear that the rules of section 401(k)
and (m), rather than the rules in these

1997–51 I.R.B.

proposed §1.125–2.
5See §1.125–3, published as a proposed rule at 60
FR 66229 (December 21, 1995).
6See also §1.125–2T, published at 51 FR 4312
(January 29, 1986), which describes benefits that
may be offered under a cafeteria plan.

5

matters not addressed in the temporary
regulations.7
The temporary regulations are effective
for plan years beginning after December
31, 1998. Prior to that date, however, taxpayers can rely on the guidance provided
in the temporary regulations (as well as
on the guidance provided in the existing
proposed regulations that relates to matters addressed in the temporary regulations) in order to comply with the provisions of section 125.
Special Analyses
It has been determined that this Treasury Decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not
apply to these regulations, and because the
regulation does not impose a collection of
information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section
7805(f) of the Internal Revenue Code,
these temporary regulations will be submitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal authors of these regulations are Catherine Fuller and Sharon
Cohen, Office of the Associate Chief
Counsel (Employee Benefits and Exempt
Organizations). However, other personnel from the IRS and Treasury Department participated in their development.
*

*

*

*

*

Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority for part 1
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. §1.125–4T is added to read as
follows:
7See the preambles to proposed §§1.125–1 and
1.125–2 and Q&A-8 of proposed §1.125–3.

December 22, 1997

§1.125–4T Permitted election changes
(temporary).
(a) Election changes. A cafeteria plan
may permit an employee to revoke an
election during a period of coverage and
to make a new election only as provided
in paragraphs (b) through (i) of this section. See paragraph (j) of this section for
special provisions relating to qualified
cash or deferred arrangements.
(b) Special enrollment rights. A cafeteria plan may permit an employee to revoke an election for accident or health
coverage during a period of coverage and
make a new election that corresponds
with the special enrollment rights provided in section 9801(f), whether or not
the change in election is permitted under
paragraph (c) of this section.
(c) Changes in status for accident or
health coverage and group-term life. (1)
In general. A cafeteria plan may permit
an employee to revoke an election for accident or health coverage or group-term
life insurance coverage during a period of
coverage and make a new election for the
remaining portion of the period if, under
the facts and circumstances—
(i) A change in status occurs; and
(ii) The election change satisfies the
consistency requirement in paragraph
(c)(3) of this section (consistency rule for
accident or health coverage) or (c)(4) of
this section (consistency rule for groupterm life insurance coverage).
(2) Change in status events. The following events are changes in status for
purposes of this paragraph (c):
(i) Legal marital status. Events that
change an employee’s legal marital status,
including marriage, death of spouse, divorce, legal separation, or annulment;
(ii) Number of dependents. Events that
change an employee’s number of dependents (as defined in section 152), including birth, adoption, placement for adoption (as defined in regulations under
section 9801), or death of a dependent;
(iii) Employment status. A termination
or commencement of employment by the
employee, spouse, or dependent;
(iv) Work schedule. A reduction or increase in hours of employment by the employee, spouse, or dependent, including a
switch between part-time and full-time, a
strike or lockout, or commencement or return from an unpaid leave of absence;

December 22, 1997

(v) Dependent satisfies or ceases to
satisfy the requirements for unmarried dependents. An event that causes an employee’s dependent to satisfy or cease to
satisfy the requirements for coverage due
to attainment of age, student status, or any
similar circumstance as provided in the
accident or health plan under which the
employee receives coverage; and
(vi) Residence or Worksite. A change
in the place of residence or work of the
employee, spouse, or dependent.
(3) Consistency rule for accident or
health coverage. (i) General rule. (A)
An employee s revocation of a cafeteria
plan election during a period of coverage
and new election for the remaining portion of the period (referred to below as an
“election change”) is consistent with a
change in status if, and only if —
(1) The change in status results in the
employee, spouse, or dependent gaining
or losing eligibility for accident or health
coverage under either the cafeteria plan or
an accident or health plan of the spouse’s
or dependent’s employer; and
(2) The election change corresponds
with that gain or loss of coverage.
(B) A change in status results in an employee, spouse, or dependent gaining (or
losing) eligibility for coverage under a
plan only if the individual becomes eligible (or ineligible) to participate in the
plan. A cafeteria plan may treat an individual as gaining (or losing) eligibility for
coverage if the individual becomes eligible (or ineligible) for a particular benefit
package option under a plan (e.g., a
change in status results in an individual
becoming eligible for a managed care option or an indemnity option). If, as a result
of a change in status, the individual gains
eligibility for elective coverage under a
plan of the spouse’s or dependent’s employer, the consistency rule of this paragraph (c)(3)(i) is satisfied only if the individual elects the coverage under the
spouse’s or dependent’s employer. See the
Examples in paragraph (k) of this section
for illustrations of the consistency rule.
(ii) Exception for COBRA. Notwithstanding paragraph (c)(3)(i) of this section, if the employee, spouse, or dependent becomes eligible for continuation
coverage under the employer’s group
health plan as provided in section 4980B
or any similar State law, the employee

6

may elect to increase payments under the
employer’s cafeteria plan in order to pay
for the continuation coverage.
(4) Consistency rule for group-term
life insurance coverage. Except as provided in this paragraph (c)(4), the provisions of paragraph (c)(3)(i) of this section
apply to group-term life insurance coverage. In the case of marriage, birth, adoption, or placement for adoption, a cafeteria plan can allow an election change to
increase (but not to reduce) the amount of
the employee’s life insurance coverage.
In the case of divorce, legal separation,
annulment, or death of a spouse or dependent, a cafeteria plan may allow an election change to reduce (but not to increase)
the amount of the employee s life insurance coverage.
(d) Judgment, decree, or order. This
paragraph (d) applies to a judgment, decree, or order (“order”) resulting from a
divorce, legal separation, annulment, or
change in legal custody (including a qualified medical child support order defined
in section 609 of the Employee Retirement Income Security Act of 1974) that
requires accident or health coverage for
an employee’s child. Notwithstanding the
provisions of paragraph (c) of this section, a cafeteria plan may—
(1) Change the employee s election to
provide coverage for the child if the order
requires coverage under the employee’s
plan; or
(2) Permit the employee to make an
election change to cancel coverage for the
child if the order requires the former
spouse to provide coverage.
(e) Entitlement to Medicare or Medicaid. If an employee, spouse, or dependent
who is enrolled in an accident or health
plan of the employer becomes entitled to
coverage (i.e., enrolled) under Part A or
Part B of Title XVIII of the Social Security Act (Medicare) or Title XIX of the
Social Security Act (Medicaid), other
than coverage consisting solely of benefits under section 1928 of the Social Security Act (the program for distribution of
pediatric vaccines), a cafeteria plan may
permit the employee to make an election
change to cancel coverage of that employee, spouse or dependent under the accident or health plan.
(f) Changes in status for other qualified benefits. [Reserved].

1997–51 I.R.B.

(g) Significant coverage or cost
changes. [Reserved].
(1) Employer’s plan. [Reserved].
(2) Plan of spouse’s or dependent’s
employer. [Reserved].
(h) Cessation of required contributions. [Reserved].
(i) Special requirements concerning
the Family and Medical Leave Act. [Reserved].
(j) Elective contributions under a qualified cash or deferred arrangement. The
provisions of this section do not apply
with respect to elective contributions
under a qualified cash or deferred
arrangement (within the meaning of section 401(k)) or employee contributions
subject to section 401(m). Thus, a cafeteria plan may permit an employee to modify or revoke elections in accordance with
sections 401(k) and 401(m) and the regulations thereunder.
(k) Examples. The following examples
illustrate the rules of this section. In each
case involving an accident or health plan,
assume that the plan is subject to section
9801(f) (providing for special enrollment
rights under certain group health plans).
Example 1. (i) Employer M provides health coverage for its employees under which employees may
elect either employee-only coverage or family coverage. M also maintains a calendar year cafeteria
plan under which qualified benefits, including health
coverage, are funded through salary reduction. M’s
employee, A, elects employee-only health coverage
before the beginning of the calendar year. During
the year, A adopts a child, C. Within 30 days thereafter, A wants to revoke A’s election for employeeonly health coverage and obtain family health coverage, as of the date of C’s adoption. A satisfies the
conditions for special enrollment of an employee
with a new dependent under section 9801(f)(2), so
that A may enroll in family coverage under M’s accident or health plan in order to provide coverage for
C, effective as of the date of C’s adoption.
(ii) In this Example 1, M’s cafeteria plan may
permit A to change the employee s salary reduction
election to family coverage for salary not yet currently available. The increased salary reduction
could reflect the cost of family coverage from the
date of adoption. (The adoption of C is also a
change in status, and the election of family coverage is consistent with that change in status. Thus,
under the change in status provisions of paragraph
(c) of this section, M’s cafeteria plan could permit A
to elect family coverage prospectively in order to
cover C for the remaining portion of the coverage
period.)
Example 2. (i) The employer plans and permissible coverage are the same as in Example 1. Before
the beginning of the calendar year, Employee A
elects employee-only health coverage under M’s
cafeteria plan. A marries B during the plan year. B’s
employer, N, offers health coverage to N’s employ-

1997–51 I.R.B.

ees, and, prior to the marriage, B had elected employee-only coverage. A wants to revoke the election for employee-only coverage, and is considering
electing family health coverage under M’s plan or
obtaining family health coverage under N’s plan.
(ii) In this Example 2, A’s marriage to B is a
change in status. Two possible election changes by
A would be consistent with the change in status: to
cover A and B by electing family health coverage
under M’s plan, or to cancel coverage under M’s
plan (with B electing family health coverage under
N’s plan in order to cover A and B). Thus, M’s cafeteria plan may permit A to make either change in
election. (M’s cafeteria plan could also permit A to
change A’s salary reduction election to reflect the
change to family coverage under M’s group health
plan in accordance with paragraph (b) of this section
because the marriage would also create special enrollment rights under section 9801(f), pursuant to
which an election of family coverage under M’s plan
would be required to be effective no later than the
first day of the first calendar month beginning after
the completed request for enrollment is received by
the plan.)
Example 3. (i) Employee G, a single parent,
elects family health coverage under a calendar year
cafeteria plan maintained by Employer O. G and
G’s 21-year old child, H, are covered under O’s
health plan. During the year, H graduates from college. Under the terms of the health plan, dependents
over the age of 19 must be full-time students to receive coverage. G wants to revoke G’s election for
family health coverage and obtain employee-only
coverage under O’s cafeteria plan.
(ii) In this Example 3, H’s loss of eligibility for
coverage under the terms of the health plan is a
change in status. A revocation of G s election for
family coverage and new election of employee-only
coverage is consistent with the change in status.
Thus, O’s cafeteria plan may permit G to elect employee-only coverage.
Example 4. (i) Employee J is married to K and
they have one child, S. A calendar year cafeteria
plan maintained by Employer P allows employees to
elect no health coverage, employee-only coverage,
employee-plus-one-dependent coverage, or family
coverage. Under the plan, before the beginning of
the calendar year, J elects family health coverage for
J, K, and S. J and K divorce during the year and,
under the terms of P s accident or health plan, K
loses eligibility for P’s health coverage. S does not
lose eligibility for health coverage under P s plan
upon the divorce. J now wants to revoke J’s election
under the cafeteria plan and elect no coverage.
(ii) In this Example 4, the divorce is a change in
status. A change in the cafeteria plan election to cancel health coverage for K is consistent with that
change in status. However, the divorce does not affect J’s or S’s eligibility for health coverage. Therefore, an election change to cancel J’s or S’s health
coverage is not consistent with the change in status.
The cafeteria plan, however, may permit J to elect
employee-plus-one-dependent health coverage.
Example 5. (i) The facts are the same as Example 4, except that, before the beginning of the year,
Employee J elected employee-only health coverage
(rather than family coverage). Pursuant to J’s divorce agreement with K, P’s health plan receives a
qualified medical child support order (as defined in
section 609 of the Employee Retirement Income Se-

7

curity Act) during the plan year. The order requires
P’s health plan to cover S.
(ii) In this Example 5, P’s cafeteria plan may
change J’s election from employee-only health coverage to employee-plus-one-dependent coverage in
order to cover S.
Example 6. (i) Before the beginning of the coverage period, Employee L elects to participate in a
cafeteria plan maintained by L’s Employer, Q. However, in order to change the election during the coverage period so as to cancel coverage, and by prior
understanding with Q, L terminates employment and
resumes employment one week later.
(ii) In this Example 6, under the facts and circumstances, in which a principal purpose of the termination of employment was to alter the election and reinstatement of employment was understood at the time
of termination, L does not have a change in status.
However, L’s termination of employment would constitute a change in status, permitting a cancellation of
coverage during the period of unemployment, if L’s
original cafeteria plan election was reinstated upon
resumption of employment (for example, because of
a cafeteria plan provision requiring an employee who
resumes employment within 30 days, without any
other intervening event that would permit a change in
election, to return to the election in effect prior to termination of employment).
Example 7. (i) Employer R maintains a calendar
year cafeteria plan under which full-time employees
may elect coverage under one of three benefit package options provided under an accident or health
plan: an indemnity option or either of two HMO options for employees that work in the respective service areas of the two HMOs. Employee T, who
works in the service area of HMO #1, elects the
HMO #1 option. During the year, T is transferred to
another work location which is outside the HMO #1
service area and inside the HMO #2 service area.
(ii) In this Example 7, the transfer is a change in
status and, under the consistency rule, the cafeteria
plan may permit T to make an election change to either the indemnity option or HMO #2, or to cancel
accident or health coverage.
Example 8. (i) A calendar year cafeteria plan
maintained by Employer S allows employees to
elect coverage under an accident or health plan providing indemnity coverage and under a flexible
spending arrangement (FSA). Prior to the beginning
of the calendar year, Employee U elects employeeonly indemnity coverage, and coverage under the
FSA for up to $600 of reimbursements for the year
to be funded by salary reduction contributions of
$600 during the year. U’s spouse, V, has employeeonly coverage under an accident or health plan
maintained by V’s employer. During the year, V terminates employment and loses coverage under that
plan. U now wants to elect family coverage under
S’s accident or health plan and increase U’s FSA
election.
(ii) In this Example 8, V’s termination of employment is a change in status. The cafeteria plan may
permit U to elect family coverage under S’s accident
or health plan, and to increase U’s FSA coverage.
Example 9. (i) Employer T provides group-term
life insurance coverage as described under section
79. Under T’s plan, an employee may elect life insurance coverage in an amount up to the lesser of his
or her salary or $50,000. T also maintains a calendar
year cafeteria plan under which qualified benefits,

December 22, 1997

including the group-term life insurance coverage,
are funded through salary reduction. Before the beginning of the calendar year, Employee W elects
$10,000 of life insurance coverage, with W’s
spouse, X, as the beneficiary. During the year, a
child is placed for adoption with W and X. W wants
to increase W’s election for life insurance coverage
to $50,000 (without changing the designation of X
as the beneficiary).
(ii) In this Example 9, the placement of a child
for adoption with W is a change in status. The increase in coverage is consistent with the change in
status. Thus, W’s cafeteria plan may permit W to increase W’s life insurance coverage.

the process of adopting children and wish
to claim certain tax benefits with respect
to those children. The text of these temporary regulations also serves as the text
of REG–103330–97, page 24.

(l) Effective Date. This section is applicable for plan years beginning after
December 31, 1998.

SUPPLEMENTARY INFORMATION:

Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on November 6, 1997, 8:45 a.m., and published in the
issue of the Federal Register for November 7, 1997,
62 F.R. 60165)

Section 6109.—Identifying
Numbers
26 CFR 301.6109–1: Identifying numbers.

T.D. 8739
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 301 and 602
IRS Adoption Taxpayer
Identification Numbers
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains
final and temporary regulations under
section 6109 relating to taxpayer identifying numbers. The final regulations include a cross reference to the temporary
regulations, which provide rules for obtaining and using IRS adoption taxpayer
identification numbers. The temporary
regulations assist individuals who are in

December 22, 1997

DATES: These regulations are effective
November 24, 1997.
FOR FURTHER INFORMATION CONTACT: Michael L. Gompertz, (202) 6224910 (not a toll-free number).

Paperwork Reduction Act
These final and temporary regulations
are being issued without prior notice and
public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For
this reason, the collection of information
contained in these regulations has been
reviewed and, pending receipt and evaluation of public comments, approved by
the Office of Management and Budget
under control number 1545–1564. Responses to this collection of information
are required to obtain a taxpayer identification number.
For further information concerning this
collection of information, and where to
submit comments on the collection of information and the accuracy of the estimated burden, and suggestions for reducing this burden, please refer to the
preamble to the cross-referencing notice
of REG–103330–97.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
Books or records relating to this collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Regulations on Procedure and Administration (26 CFR Part 301) relating to
identifying numbers under section 6109.
Section 6109(a)(1) provides that any person required to make a return, statement,
or other document must include in the

8

document such identifying number as
may be prescribed for securing proper
identification of the person. Section
6109(a)(2) provides that any person with
respect to whom a return, statement, or
other document is required to be made by
another person or whose identifying number must be shown on a return of another
person, must furnish to the other person
such identifying number as may be prescribed for securing the person’s proper
identification. Section 6109(d) provides
that an individual must use a social security number as the individual’s taxpayer
identification number unless the Secretary
prescribes otherwise by regulations.
Currently, there are three types of taxpayer identification numbers (TINs) assigned to individuals: (1) a social security
number (SSN), (2) an IRS individual taxpayer identification number (ITIN) assigned to an alien individual who is ineligible to obtain an SSN, and (3) an
employer identification number (EIN) assigned to an individual who is engaged in
a trade or business as a sole proprietor.
An SSN is assigned by the Social Security
Administration. An ITIN or an EIN is assigned by the IRS.
Section 1615 of the Small Business Job
Protection Act of 1996 (Public Law 104–
188, 110 Stat. 1755, 1853 (1996)) added
sections 21(e)(10) and 151(e) to deny the
dependent care credit and the deduction
for the dependency exemption if the TIN
(as defined by section 6109 and the regulations thereunder) of the dependent is not
included on the return claiming the credit
or deduction. Sections 21(e)(10) and
151(e) generally are effective for tax returns due (without regard to extensions)
after September 18, 1996.
In addition, section 101 of the Taxpayer
Relief Act of 1997 (Public Law 105–34,
111 Stat. 788, 796 (1997)) added section
24 to the Code to provide a child tax
credit for each qualifying child, effective
for taxable years beginning after December 31, 1997. Pursuant to section 24(e),
the taxpayer will be denied the credit if
the qualifying child’s TIN is not included
on the return claiming the credit.
In most cases, taxpayers can meet the
TIN requirements of sections 21, 24, and
151 by including a child’s SSN on the return claiming the credit or deduction. In
the case of adoption, however, a child
may not have an SSN or, if the child does

1997–51 I.R.B.

have an SSN, the taxpayer adopting the
child (the prospective adoptive parent)
may be unable to obtain the SSN because
of confidentiality laws. See H.R. Rep.
No. 542, 104th Cong., 2d Sess. 20 (1996);
S. Rep. No. 412, 103d Cong., 2d Sess.
163 (1994).
Explanation of Provisions
These temporary regulations authorize
the IRS to assign a new form of taxpayer
identification number, the IRS adoption
taxpayer identification number (ATIN), to
a child who is in the process of being
adopted (a prospective adoptive child).
The regulations are effective for income
tax returns due (without regard to extension) on or after April 15, 1998.
The temporary regulations provide that
an ATIN is a temporary taxpayer identification number that expires two years after
the date of issuance. However, upon application, the IRS may grant an extension
of the ATIN. A prospective adoptive parent may apply for an ATIN for a child if:
(1) the prospective adoptive parent is eligible to claim a personal exemption under
section 151 with respect to the child; (2)
the child is placed with the prospective
adoptive parent for legal adoption by an
authorized placement agency (as defined
in §1.152–2(c)); (3) the Social Security
Administration will not assign the
prospective adoptive parent an SSN for
the child (for example, because the adoption is not final); and (4) the prospective
adoptive parent has used all reasonable
means to obtain the child’s assigned SSN,
if any, but has been unsuccessful in obtaining this number (for example, because
the birth parent who obtained the number
is not legally required to disclose the number to the prospective adoptive parent).
The temporary regulations provide that
an application for an ATIN must be made
on the Form W–7A, Application for Taxpayer Identification Number for Pending
Adoptions, or such other form prescribed
by the IRS. The ATIN application must
be accompanied by documentary evidence to establish that an authorized
placement agency placed the child in the
prospective adoptive parent’s household
for legal adoption by the parent. Such
documentary evidence may include: a
copy of a placement agreement entered
into between the prospective adoptive parent and an authorized placement agency;

1997–51 I.R.B.

an affidavit signed by the adoption attorney or government official who placed the
child for legal adoption pursuant to state
law; a document authorizing the release of
a newborn child from a hospital to a
prospective adoptive parent for adoption;
or a court document ordering or approving
the placement of a child for adoption.
When an adoption becomes final, the
adoptive parent must apply for an SSN for
the child. Once obtained, the SSN, rather
than the ATIN, must be used as the child’s
TIN on all future returns, statements, or
other documents required by the Code.
An ATIN may be used by the prospective adoptive parents to meet the TIN requirements of sections 21(e)(10), 24(e),
and 151(e), relating to the dependent care
credit, the child tax credit, and the dependency exemption, respectively. Also, as
may be prescribed by forms, instructions,
or otherwise, an ATIN may be used to
meet the TIN requirements under sections
23(f) and 137(e), relating to qualified
adoption expenses. The ATIN may not be
used to meet the TIN requirement of section 32. See section 32(l).
The ATIN procedures do not apply to
adoptions involving alien children. Generally, the Social Security Administration
will assign an SSN to an alien child if all
the requirements for assigning a number
are met. When the Social Security Administration cannot assign an SSN, the child
generally will be eligible for an ITIN.
In addition to adoptions involving alien
children, there are two other types of
adoptions to which the ATIN procedures
may not apply. If the child placed for
adoption is a foster child or is otherwise
in the custody of a government agency or
court (because, for example, the birth parents’ rights were previously terminated
for abuse or neglect), the government
agency or court will generally obtain an
SSN for the child and can make the SSN
available to the prospective adoptive parent. Also, the prospective adoptive parent
may be able to obtain the child’s SSN
from the birth parents (or other person) in
the case of an adoption by the child’s relatives or an adoption in which the adoptive
parent and birth parent share information
about the child and themselves.
Taxpayers are invited to comment on
two issues partially addressed by the temporary regulations. First, comments are
requested regarding what types of docu-

9

ments are available to establish that a
child has been placed in the prospective
adoptive parent’s household for legal
adoption. Also, comments are requested
as to whether certain types of adoptions
(in addition to foreign adoptions) should
be completely excluded from the ATIN
process. In particular, comments are requested regarding whether a prospective
adoptive parent is always able to obtain a
prospective adoptive child’s SSN if the
child is a foster child or is otherwise in the
custody of a government agency or court.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and because
the regulation does not impose a collection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Only individuals may receive ATINs under this Treasury decision, and an individual is not a
small entity as defined in the Regulatory
Flexibility Act. See 5 U.S.C. 601(6).
Pursuant to section 7805(f) of the Internal Revenue Code, these regulations will
be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small
business.
Drafting Information
The principal author of these regulations is Michael L. Gompertz of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). However, other personnel from the IRS and Treasury Department
participated in their development.
*

*

*

*

*

Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 301 and
602 are amended as follows:
PART 301—PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by adding entries in
numerical order to read as follows:

December 22, 1997

Authority: 26 U.S.C. 7805 * * *
Section 301.6109–1T also issued under
26 U.S.C. 6109;
Section 301.6109–3T also issued under
26 U.S.C. 6109; * * *
Par. 2 Section 301.6109–1 is amended
by adding paragraph (h)(2)(iii) to read as
follows:
§301.6109–1 Identifying numbers.
*

*

*

*

*

(h) * * *
(2) * * *
(iii) Paragraphs (a)(1)(i), (a)(1)(ii)(A),
and (a)(1)(ii)(B) of this section do not
apply after November 24, 1997. For further guidance after November 24,1997,
see §301.6109–1T(a)(1)(i), (a)(1)(ii) introductory text, and (a)(1)(ii)(A) and (B).
Par. 3. Sections 301.6109–1T is added
to read as follows:
§301.6109–1T Identifying numbers
(temporary).
(a) In general—(1) Taxpayer identifying numbers—(i) Principal types. There
are four principal types of taxpayer identifying numbers: social security numbers,
Internal Revenue Service (IRS) individual
taxpayer identification numbers, employer identification numbers, and IRS
adoption taxpayer identification numbers.
Social security numbers take the form
000-00-0000. IRS individual taxpayer
identification numbers and IRS adoption
taxpayer identification numbers also take
the form 000-00-0000 but include a specific number or specific numbers designated by the IRS. Employer identification numbers take the form 00-0000000.
(ii) Uses. Social security numbers, IRS
individual taxpayer identification numbers, and IRS adoption taxpayer identification numbers are used to identify individual persons. For the definition of
social security number and employer
identification number, see §§301.7701–11
and 301.7701–12, respectively. For the
definition of IRS individual taxpayer
identification number, see §301.6109–1
(d)(3). For the definition of IRS adoption
taxpayer identification number, see
§301.6109–3T. Except as otherwise provided in applicable regulations under this
title or on a return, statement, or other
document, and related instructions, taxpayer identifying numbers must be used
as follows—

December 22, 1997

(A) Except as otherwise provided in
§301.6109–1(a)(1)(ii)(D), paragraph
(a)(1)(ii)(B) of this section, and
§301.6109–3T, an individual required to
furnish a taxpayer identifying number
must use a social security number.
(B) Except as otherwise provided in
§301.6109–1(a)(1)(ii)(D) and §301.6109–
3T, an individual required to furnish a
taxpayer identifying number but who is
not eligible to obtain a social security
number must use an IRS individual taxpayer identification number.
(a)(1)(ii)(C) through (g) [Reserved].
For further guidance, see §301.6109–
1(a)(1)(ii)(C) through (g).
(h) Effective date. Paragraphs (a)(1)(i),
(a)(1)(ii) introductory text, (a)(1)(ii)(A),
and (a)(1)(ii)(B) of this section are applicable after November 24, 1997. For further guidance, prior to November 24,
1997, see §301.6109–1(a)(1)(i), (a)(1)(ii)(A) and (a)(1)(ii)(B).
Par. 4. Section 301.6109-3T is added
to read as follows:
§301.6109–3T IRS adoption taxpayer
identification numbers (temporary).
(a) In general—(1) Definition. An IRS
Adoption Taxpayer Identification Number
(ATIN) is a temporary taxpayer identifying number assigned by the Internal Revenue Service (IRS) to a child (other than
an alien individual as defined in
§301.6109–1(d)(3)(i)) who has been
placed, by an authorized placement
agency, in the household of a prospective
adoptive parent for legal adoption. An
ATIN is assigned to the child upon application for use in connection with filing requirements under this title. When an
adoption becomes final, the adoptive parent must apply for a social security number for the child. After the social security
number is assigned, that number, rather
than the ATIN, must be used as the child’s
taxpayer identification number on all returns, statements, or other documents required under this title.
(2) Expiration and extension. An ATIN
automatically expires two years after the
number is assigned. However, upon request, the IRS may grant an extension if
the IRS determines the extension is warranted.
(b) Definitions. The following definitions apply for purposes of this section—

10

(1) Authorized placement agency has
the same meaning as in §1.152–2(c) of
this chapter;
(2) Prospective adoptive child or child
refers to a child who has not been
adopted, but who has been placed in the
household of a prospective adoptive parent for legal adoption by an authorized
placement agency; and
(3) Prospective adoptive parent or parent refers to an individual in whose
household a prospective adoptive child is
placed by an authorized placement
agency for legal adoption.
(c) General rule for obtaining a number—(1) Who may apply. A prospective
adoptive parent may apply for an ATIN
for a child if—
(i) The prospective adoptive parent is
eligible to claim a personal exemption
under section 151 with respect to the
child;
(ii) An authorized placement agency
places the child with the prospective
adoptive parent for legal adoption;
(iii) The Social Security Administration
will not process an application for an SSN
by the prospective adoptive parent on behalf of the child (for example, because the
adoption is not final); and
(iv) The prospective adoptive parent
has used all reasonable means to obtain
the child’s assigned social security number, if any, but has been unsuccessful in
obtaining this number (for example, because the birth parent who obtained the
number is not legally required to disclose
the number to the prospective adoptive
parent).
(2) Procedure for obtaining an ATIN.
If the requirements of paragraph (c)(1) of
this section are satisfied, the prospective
adoptive parent may apply for an ATIN
for a child on Form W–7A, Application
for Taxpayer Identification Number for
Pending Adoptions (or such other form as
may be prescribed by the IRS). An application for an ATIN should be made far
enough in advance of the first intended
use of the ATIN to permit issuance of the
ATIN in time for such use. An application for an ATIN must include the information required by the form and accompanying instructions, including the name
and address of each prospective adoptive
parent and the child’s name and date of
birth. In addition, the application must include such documentary evidence as the
IRS may prescribe to establish that a child

1997–51 I.R.B.

was placed in the prospective adoptive
parent’s household by an authorized
placement agency for legal adoption. Examples of acceptable documentary evidence establishing placement for legal
adoption by an authorized placement
agency may include—
(i) A copy of a placement agreement
entered into between the prospective
adoptive parent and an authorized placement agency;
(ii) An affidavit signed by the adoption
attorney or government official who
placed the child for legal adoption pursuant to state law;
(iii) A document authorizing the release
of a newborn child from a hospital to a
prospective adoptive parent for adoption;
and
(iv) A court document ordering or approving the placement of a child for adoption.
(d) Effective date. The provisions of
this section apply to income tax returns
due (without regard to extension) on or
after April 15, 1998.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 5. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 6. Section 602.101(c) is amended
by adding an entry in numerical order to
the table to read as follows:
§602.101 OMB Control numbers.
*

*

*

*

*

(c) * * *
CFR part or section
where identified
and described
*

*

Current OMB
control Number

*

*

*

301.6109–3T . . . . . . . . . . . . . 1545–1564
*

Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on November 21, 1997, 8:45 a.m., and published in the
issue of the Federal Register for November 24,
1997, 62 F.R. 62518)

Section 6721.—Failure To File
Correct Information Returns
26 CFR 301.6721–1: Failure to file correct
information returns.
What information reporting requirements apply
to educational institutions for 1998 under § 6050S of
the Code, as added by the Taxpayer Relief Act of
1997, in connection with the Hope Scholarship
Credit and the Lifetime Learning Credit. See Notice
97–73, page 16.

Section 6722.—Failure To
Furnish Correct Payee
Statements
26 CFR 301.6722–1: Failure to furnish correct
payee statements.
What information reporting requirements apply
to educational institutions for 1998 under § 6050S of
the Code, as added by the Taxpayer Relief Act of
1997, in connection with the Hope Scholarship
Credit and the Lifetime Learning Credit. See Notice
97–73, page 16.

Section 7623.—Expenses of
Detection of Underpayments
and Fraud, Etc.
26 CFR 301.7623–1: Rewards for information
relating to violations of Internal Revenue laws.

T.D. 8737
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 301 and 602
Rewards for Information
Relating to Violations of Internal
Revenue Laws
AGENCY: Internal Revenue Service
(IRS), Treasury.

Michael P. Dolan,
Acting Commissioner of
Internal Revenue.

ACTION: Final and temporary regulations.

*

*

Approved October 24, 1997.

1997–51 I.R.B.

DATE: These regulations are effective
October 14, 1997.
For dates of applicability, see
§301.7623–1T(g).
FOR FURTHER INFORMATION CONTACT: Judith A. Lintz (202) 622-4940
(not a toll-free number).
SUPPLEMENTARY INFORMATION:

*

*

for information that relates to violations
of the internal revenue laws. The regulations reflect changes to the law made by
the Taxpayer Bill of Rights 2 and affect
persons that are eligible to receive an informant’s reward.
The text of these regulations also serves
as the text of the proposed regulations set
forth in REG–252936–96, page 27.

SUMMARY: This document contains
temporary regulations relating to rewards

11

Paperwork Reduction Act
These regulations are being issued
without prior notice and public procedure
pursuant to the Administrative Procedure
Act (5 U.S.C. 553). For this reason, the
collections of information contained in
these regulations have been reviewed and,
pending receipt and evaluation of public
comments, approved by the Office of
Management and Budget under control
number 1545–1534. Responses to the
collection of information are voluntary
with respect to the provision of information relating to violations of the internal
revenue laws, but are required to obtain a
benefit with respect to filing a claim for
reward.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it displays a valid control number assigned by
the Office of Management and Budget.
For further information concerning
these collections of information, and
where to submit comments on the collections of information and the accuracy of
the estimated burden, and suggestions for
reducing this burden, please refer to the
preamble to the cross-referencing notice
of proposed rulemaking published in
REG–252936–96.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and

December 22, 1997

tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Procedure and Administration Regulations (26 CFR part 301) under section
7623 relating to rewards for information
that relates to violations of the internal
revenue laws. This section was amended
by section 1209 of the Taxpayer Bill of
Rights 2 (TBOR 2) (Public Law 104–168,
110 Stat. 1452 (1996)).
Explanation of Provisions
Section 7623 provides the Secretary
with the authority, by regulation, to pay
rewards for information that relates to violations of the internal revenue laws.
Section 1209 of TBOR 2 amended section
7623 to clarify that rewards may be paid
for information relating to civil, as well as
criminal, violations. TBOR 2 also provided that the rewards are to be paid out
of the proceeds of amounts (other than interest) collected by reason of the information. These temporary regulations reflect
those amendments.
In addition, these temporary regulations
incorporate and update §301.7623– 1. For
example, the regulations increase the limit
on awards from 10% to 15% and provide
new titles and addresses to which persons
should submit information relating to violations of the internal revenue laws.
Special Analyses
It has been determined that this Treasury Decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It 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.
It is hereby certified that the regulations in this document will not have a significant economic impact on a substantial
number of small entities. This certification is based on a determination that in the
past approximately 10,000 persons have
filed claims for reward on an annual
basis. Of these persons, almost all have
been individuals. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is
not required.

December 22, 1997

Pursuant to section 7805(f) of the Internal Revenue Code, this Treasury Decision
will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comments on its impact on
small businesses.
Drafting Information
The principal author of these regulations is Judith A. Lintz, Office of Assistant Chief Counsel (Income Tax & Accounting), Internal Revenue Service.
However, other personnel from the IRS
and Treasury Department participated in
their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 301 and
602 are amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. §301.7623–1 is amended by
adding paragraph (g) to read as follows:
§301.7623-1 Rewards for information
relating to violations of internal revenue
laws.
*

*

*

*

*

(g) Effective date. This section is applicable with respect to rewards paid on
or before January 29, 1997. See
§301.7623–1T for rewards paid after January 29, 1997.
Par. 3. Section 301.7623–1T is added
to read as follows:
§301.7623–1T Rewards for information
relating to violations of internal revenue
laws (temporary).
(a) In general. In cases where rewards
are not otherwise provided for by law, a
district or service center director may approve a reward, in a suitable amount, for
information that leads to the detection of
underpayments of tax, or the detection and
bringing to trial and punishment of persons guilty of violating the internal revenue laws or conniving at the same. The
rewards provided for by section 7623 and

12

this section will be paid from the proceeds
of amounts (other than interest) collected
by reason of the information provided.
(b) Eligibility to file claim for reward—
(1) In general. Any person, other than
certain present or former federal employees described in paragraph (b)(2) of this
section, that submits, in the manner described in paragraph (d) of this section,
information relating to the violation of an
internal revenue law is eligible to file a
claim for reward under section 7623 and
this section.
(2) Federal employees. No person who
was an officer or employee of the Department of the Treasury at the time the individual came into possession of information
relating to violations of the internal revenue laws, or at the time the individual divulged such information, is eligible for a
reward under section 7623 and this section.
Any other current or former federal employee is eligible to file a claim for reward
if the information provided came to the individual’s knowledge other than in the
course of the individual’s official duties.
(3) Deceased informants. A claim for
reward may be filed by an executor, administrator, or other legal representative
on behalf of a deceased informant if, prior
to the informant’s death, the informant
was eligible to file a claim for such reward under section 7623 and this section.
Certified copies of the letters testamentary, letters of administration, or other
similar evidence must be attached to the
claim for reward on behalf of a deceased
informant in order to show the authority
of the legal representative to file the
claim.
(c) Amount and payment of reward. All
relevant factors, including the value of the
information furnished in relation to the
facts developed by the investigation of the
violation, will be taken into account by a
district or service center director in determining whether a reward will be paid,
and, if so, the amount of the reward. The
amount of a reward will represent what
the district or service center director
deems to be adequate compensation in the
particular case, generally not to exceed
fifteen percent of the amounts (other than
interest) collected by reason of the information. Payment of a reward will be
made as promptly as the circumstances of
the case permit, but not until the taxes,
penalties, or fines involved have been col-

1997–51 I.R.B.

lected. However, if the informant waives
any claim for reward with respect to an
uncollected portion of the taxes, penalties,
or fines involved, the claim may be immediately processed. Partial reward payments, without waiver of the uncollected
portion of the taxes, penalties, or fines involved, may be made when a criminal
fine has been collected prior to completion of the civil aspects of a case, and also
when there are multiple tax years involved and the deficiency for one or more
of the years has been paid in full. No person is authorized under these regulations
to make any offer, or promise, or otherwise to bind a district or service center director with respect to the payment of any
reward or the amount of the reward.
(d) Submission of information. A person that desires to claim a reward under
section 7623 and this section may submit
information relating to violations of the
internal revenue laws, in person, to the office of a district director, preferably to a
representative of the Criminal Investigation Division. Such information may also
be submitted in writing to the Commissioner of Internal Revenue, Attention: Assistant Commissioner (Criminal Investigation), 1111 Constitution Avenue, NW,
Washington, DC 20224, to any district director, Attention: Chief, Criminal Investigation Division, or to any service center
director. If the information is submitted

1997–51 I.R.B.

in person, either orally or in writing, the
name and official title of the person to
whom it is submitted and the date on
which it is submitted must be included in
the formal claim for reward.
(e) Identification of informant. No
unauthorized person will be advised of
the identity of an informant.
(f) Filing claim for reward. An informant that intends to claim a reward under
section 7623 and this section should notify
the person to whom the information is submitted of such intention, and must file a
formal claim on Form 211, Application for
Reward for Original Information, signed
by the informant in the informant’s true
name, as soon as practicable after the submission of the information. If other than
the informant’s true name was used in furnishing the information, satisfactory proof
of identity as that of the informant must be
included with the claim for reward.
(g) Effective date. This section is applicable with respect to rewards paid after
January 29, 1997. See §301.7623–1 for
rewards paid on or before January 29,
1997.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:

13

Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, paragraph (c) is
amended by adding anentry in numerical
order to the table to read as follows:
§602.101 OMB Control numbers.
*

*

*

*

*

(c) * * *
CFR part or section
where identified
and described

Current OMB
control Number

* * * * *
301.7623–1T . . . . . . . . .1545–1534
*

*

*

*

*

Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
Approved August 26, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register
on October 10, 1997, 8:45 a.m., and published in the issue of the Federal Register
for October 14, 1997, 62 F.R. 53230)

December 22, 1997

Part III. Administrative, Procedural, and Miscellaneous
Income Tax Return Preparer
Penalties—1997 Federal
Income Tax Returns Due
Diligence Requirements for
Earned Income Credit (EIC)
Notice 97–65
PURPOSE
This notice sets forth due diligence requirements that paid preparers of federal
income tax returns or claims for refund
(preparers) that involve the Earned Income Tax Credit (EIC) must meet to
avoid imposition of the penalty under §
6695(g) of the Internal Revenue Code for
1997 returns and claims for refund. The
Treasury Department intends to issue
temporary regulations under § 6695(g)
that will incorporate the requirements set
forth in this notice and that will apply to
1997 returns and claims for refund.
However, these regulations may impose
different due diligence requirements for
returns and claims for taxable years beginning after 1997. Comments are requested regarding possible alternatives
for meeting the due diligence requirements in the future.
BACKGROUND
Section 6695(g), as added by section
1085(a)(2) of the Taxpayer Relief Act of
1997, Pub. L. No. 105–34, 111 Stat. 788
(August 5, 1997), imposes a $100 penalty
on a preparer with respect to any return or
claim for refund for each failure to comply with the due diligence requirements
imposed by regulations with respect to
determining a taxpayer’s eligibility for
the EIC or the amount of any allowable
EIC. This new penalty is effective for
taxable years beginning after December
31, 1996, and is in addition to any other
penalty imposed under present law.
DUE DILIGENCE REQUIREMENTS
FOR 1997
For each 1997 income tax return or
claim for refund involving the EIC, a preparer will be liable for the § 6695(g)
penalty unless all of the following due
diligence requirements are met:

December 22, 1997

(1) The preparer must either (a) complete the “Earned Income Credit (EIC) Eligibility Checklist” (attached to this notice) or (b) otherwise record in the
preparer’s paper or electronic files the information that would be necessary to
complete the Checklist (“alternate eligibility record”). The preparer’s completion of the Checklist or alternate eligibility record must be based on information
provided by the taxpayer to the preparer
or otherwise reasonably obtained by the
preparer. The alternate eligibility record
may consist of one or more documents
containing the required information.
(2) The preparer must either (a) complete the “Earned Income Credit Worksheet” in the 1997 Form 1040 instructions, or (b) otherwise record in the
preparer’s paper or electronic files the
preparer’s EIC computation, including the
method and information used to make that
computation (“alternate computation
record”). The preparer’s completion of
the Worksheet or alternate computation
record must be based on information provided by the taxpayer to the preparer or
otherwise reasonably obtained by the preparer. The alternate computation record
may consist of one or more documents
containing the required information.
(3) The preparer must not know or have
reason to know that any information used
by the preparer in determining the taxpayer’s eligibility for the EIC or in computing the EIC is incorrect. The preparer
may not ignore the implications of information furnished to, or known by, the preparer, and must make reasonable inquiries
if the information furnished to, or known
by, the preparer appears to be incorrect,
inconsistent, or incomplete;
(4) The preparer must retain (a) the
completed Checklist (or alternate eligibility record); (b) a copy of the Worksheet
(or alternate computation record); and (c)
a record of how and when the information
was obtained by the preparer, including
the identity of any person furnishing such
information. These items must be retained for three years after the June 30th
following the date the return was presented to the taxpayer for signature, and
may be retained on magnetic media consistent with Rev. Proc. 81–46, 1981–2

14

C.B. 621, or in an electronic storage
media system consistent with Rev. Proc.
97–22, 1997–13 I.R.B. 9.
The § 6695(g) penalty will not be applied with respect to a particular return or
claim for refund if the preparer can
demonstrate to the satisfaction of the Service that, considering all the facts and circumstances, the preparer’s normal office
procedures are reasonably designed and
routinely followed to ensure compliance
with the 1997 due diligence requirements,
and the failure to meet the 1997 due diligence requirements with respect to the return or claim for refund in question was
isolated and inadvertent.
REQUEST FOR COMMENTS ON
FUTURE GUIDANCE
The Service and Treasury Department
invite public comment on the due diligence requirements in § 6695(g) for tax
years after 1997. Comments are requested by May 15, 1998. An original
and eight copies of written comments
should be sent to:
Internal Revenue Service
Attn: CC:DOM:CORP:R
Room 5228 (IT&A:Br4)
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044,
or hand delivered between the hours of
8:00 a.m. and 5:00 p.m. to:
Courier’s Desk
Internal Revenue Service
Attn: CC:DOM:CORP:R
Room 5228 (IT&A:Br4)
1111 Constitution Ave., 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 http://www.irs.ustreas.
gov./prod/tax_regs/comments.html (the
IRS Internet site). All comments will be
available for public inspection and copying in their entirety.
PAPERWORK REDUCTION ACT
The collections of information contained in this notice have been reviewed

1997–51 I.R.B.

and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545–1570.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
The collections of information in this
notice are contained under the heading
“DUE DILIGENCE REQUIREMENTS
FOR 1997” in this notice. This information is required to implement § 6695(g),
and verify that preparers have exercised
due diligence in preparing any return or
claim for refund for taxable year 1997
that involves the EIC. The likely recordkeepers are preparers.
In 1998, the estimated total annual
recordkeeping burden will be 160,000
hours.
The estimated annual burden per
recordkeeper will vary from 0 minutes to
16 minutes, depending on individual circumstances, with an estimated average of
8 minutes.
The estimated number of recordkeepers
is 1,200,000.
Books or records relating to the collection of information in this notice must be
retained for three years after the June 30th
following the date the return was presented to the taxpayer for signature. Generally, tax returns and tax return information are confidential, as required by 26
U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this notice is
Celia Gabrysh, Office of Assistant Chief
Counsel (Income Tax and Accounting).
For further information regarding this notice, contact Celia Gabrysh at (202) 6224940 (not a toll-free number).
EARNED INCOME CREDIT (EIC)
ELIGIBILITY CHECKLIST
For use by income tax return preparers
in preparing 1997 tax returns and claims
for refund
Taxpayer may claim the earned income
credit if all the following questions are
answered YES:
1. Do the taxpayer, spouse, and qualifying
child each have a social security number?

1997–51 I.R.B.

___ YES ___ NO

___ YES ___ NO

2. Is the taxpayer’s total taxable and nontaxable earned income at least $1 but less
than:
* $9,770 if the taxpayer does not have a
qualifying child?
* $25,760 if the taxpayer has one qualifying child?
* $29,290 if the taxpayer has more than
one qualifying child?
___ YES ___ NO

(b) Answer YES if the qualifying child
is also a qualifying child for one or more
other persons and the taxpayer’s modified
AGI is higher than each other person’s.
Answer YES if the child is a qualifying
child only for the taxpayer.
___ YES ___ NO

3. Is the taxpayer’s modified AGI less
than:
* $9,770 if the taxpayer does not have a
qualifying child?
* $25,760 if the taxpayer has one qualifying child?
* $29,290 if the taxpayer has more than
one qualifying child?
___ YES ___ NO
4. Is the taxpayer’s investment income
$2,250 or less?
___ YES ___ NO
5. Is the taxpayer’s filing status one of
the following: married filing jointly, head
of household, qualifying widow(er), or
single?
___ YES ___ NO
6. If the taxpayer is a nonresident alien, is
the filing status married filing jointly? (If
taxpayer is not a nonresident alien, answer YES).
___ YES ___ NO
7. Answer YES if the taxpayer (and
spouse if filing a joint return) is not a
qualifying child of another person.
___ YES ___ NO
8. Answer YES if the taxpayer (and
spouse if filing a joint return) is not filing
Form 2555 or Form 2555–EZ to exclude
from gross income any income earned in
foreign countries or to deduct or exclude a
foreign housing amount.
___ YES ___ NO
STOP: If the taxpayer has a qualifying
child, answer question 9 and skip 10. If
the taxpayer does not have a qualifying
child, skip 9 and answer 10.
9. (a) Does the child meet the age, relationship, and residence tests for a qualifying child? See Form 1040 instructions for
Line 56a.

15

(c) If the qualifying child is married, is
the taxpayer claiming the child as a dependent? (If the qualifying child is not
married, answer YES.)
___ YES ___ NO
OR
10. (a) Was the taxpayer’s main home
(and the spouse’s if filing a joint return) in
the United States for more than half the
year? Military personnel on extended active duty outside the United States are
considered to be living in the United
States.
___ YES ___ NO
(b) Was the taxpayer (or spouse, if filing a joint return) at least age 25 but under
65 at the end of 1997?
___ YES ___ NO
(c) No one can claim the taxpayer (or
spouse if filing a joint return) as a dependent on their return. If the taxpayer (and
spouse if filing a joint return) is not eligible to be a dependent on anyone else’s return, answer YES. If taxpayer (or spouse
if filing a joint return) is eligible to be
claimed as a dependent on someone else’s
return, answer NO.
___ YES ___ NO
*PERSONS WITH A QUALIFYING
CHILD: If the taxpayer answered YES to
questions 1 through 9(a), (b), and (c), the
taxpayer can claim the credit. Remember
to fill out Schedule EIC and attach it to
the taxpayer’s Form 1040 or 1040A.
*PERSONS WITHOUT A QUALIFYING CHILD: If the taxpayer answered
YES to questions 1 through 8 and 10(a),
(b), and (c), taxpayer can claim the credit.
IF THE TAXPAYER ANSWERED NO
TO ANY QUESTION, TAXPAYER IS
NOT ELIGIBLE FOR THE CREDIT.

December 22, 1997

Returns Relating to Higher
Education Tuition and Related
Expenses
Notice 97–73
PURPOSE
This notice describes the information
reporting requirements for 1998 under
§ 6050S of the Internal Revenue Code (as
enacted by the Taxpayer Relief Act of
1997, Pub. L. No. 105–34, § 201(c), 111
Stat. 804 (the Act)) that apply to certain
educational institutions in connection with
the Hope Scholarship Credit and the Lifetime Learning Credit. The Treasury Department intends to issue regulations on
the information reporting required under §
6050S. Pending the issuance of those regulations, this notice describes who must
report information, and the nature of the
information that will be required to be reported under § 6050S for 1998.
BACKGROUND
A. The Hope Scholarship and Lifetime
Learning Credits.
Section 201(a) of the Act, 111 Stat.
799, added § 25A to the Code. Section
25A allows certain taxpayers who pay
qualified tuition and related expenses to
an eligible educational institution to claim
a Hope Scholarship Credit or a Lifetime
Learning Credit against their federal income tax liability. The Hope Scholarship
Credit is available for qualified tuition
and related expenses paid after December
31, 1997, in taxable years ending after
that date for education furnished in academic periods beginning after December 31,
1997. The Lifetime Learning Credit is
available for qualified tuition and related
expenses paid after June 30, 1998, in taxable years ending after that date for education furnished in academic periods beginning after June 30, 1998. The term
“academic period” includes a semester,
trimester, quarter, or any other period designated as a period of instructional time
by the educational institution. For this
purpose, an academic period begins on
the first day of classes, and does not include periods of student orientation,
counseling, or vacation.
For a taxpayer to be eligible for the
Hope Scholarship Credit or the Lifetime
Learning Credit, qualified tuition and re-

December 22, 1997

lated expenses must be paid by the taxpayer to an eligible educational institution for the taxpayer, the taxpayer’s
spouse or any dependents. Payments by
a taxpayer’s dependents are to be treated
as having been made by the taxpayer.
The Hope Scholarship Credit is available
only for the qualified tuition and related
expenses of students enrolled at least
half-time in the first two years of postsecondary education and can be claimed
in no more than two years for each
student.
Qualified tuition and related expenses
are the tuition and fees an individual is required to pay in order to be enrolled at or
attend an eligible educational institution.
Amounts paid for any course or other education involving sports, games, or hobbies are not eligible for the credit, unless
the course or other education is part of the
student’s degree program. Charges and
fees associated with room, board, student
activities, athletics, insurance, books,
equipment, transportation, and similar
personal, living, or family expenses are
not qualified tuition and related expenses.
An eligible educational institution is a
college, university, vocational school, or
other postsecondary educational institution that is described in section 481 of the
Higher Education Act of 1965 (20 U.S.C.
1088) and, therefore, is eligible to participate in the student aid programs administered by the Department of Education.
This category includes virtually all accredited public, nonprofit, and proprietary
postsecondary institutions.
Notice 97–60, 1997–46 I.R.B. 8, provides additional information about the
Hope Scholarship Credit and the Lifetime
Learning Credit.
B. Information Reporting Relating to
Qualified Tuition and Related
Expenses.
Section 6050S(a) requires eligible educational institutions that receive payments
of qualified tuition and related expenses
or make reimbursements or refunds of
qualified tuition and related expenses to
submit an annual information report to the
Service with respect to each student on
whose behalf the payments are received
or the reimbursements or refunds are
made. Section 6050S(a) also requires
each person engaged in a trade or business who makes a reimbursement or re-

16

fund of qualified tuition and related expenses to submit an annual information
report to the Service with respect to each
student on whose behalf the reimbursements or refunds are paid. The terms “eligible educational institution” and “qualified tuition and related expenses” have
the same meanings for purposes of
§ 6050S as they do for purposes of the
Hope Scholarship Credit and the Lifetime
Learning Credit.
Section 6050S(b) provides that the return of information must be in the form
prescribed by the Secretary and contain:
(1) the name, address, and taxpayer
identification number (TIN) of the individual with respect to whom the qualified
tuition and related expenses were received or the reimbursement or refund
was paid,
(2) the name, address, and TIN of any
individual certified by the individual
named in the first item as the taxpayer
who will claim that individual as a dependent for purposes of the deduction under
§ 151 for any taxable year ending with or
within the year for which the information
return is filed,
(3) the aggregate amount of payments
of qualified tuition and related expenses
received by the eligible educational institution or the aggregate amount of reimbursements or refunds (or similar
amounts) paid during the calendar year
with respect to the individual named in
the first item, and
(4) such other information as the Secretary may prescribe.
Section 6050S(d) provides that every
person required to make an information return under § 6050S(a) shall furnish to each
individual whose name is required to be included in the return a written statement
showing the name, address, and phone
number of the reporting person’s information contact, and the aggregate amounts required to be included in the return.
DISCUSSION
A. Who Must File for 1998.
For 1998, an eligible educational institution that receives payments of qualified
tuition and related expenses in 1998 must
file an information return with the Service
with respect to each student on whose behalf payments were received. An eligible
educational institution that makes reim-

1997–51 I.R.B.

bursements or refunds of tuition or related
expenses to a student during 1998, that
equal or exceed payments of qualified tuition or related expenses received on behalf of that student during 1998, is not required to file an information return or
furnish a statement with respect to that
student for 1998.
An institution is not required to provide
a report with respect to a student whose
tuition and related expenses were waived
in their entirety or paid entirely with
scholarships because it will have received
no payments of qualified tuition and related expenses on behalf of such a student.
Persons, other than eligible educational institutions, engaged in a trade or
business and making reimbursements or
refunds of qualified tuition and related
expenses will not be required to file information returns or furnish statements of
reimbursements or refunds for 1998.
For purposes of providing these information reports, an eligible educational institution should provide reports on students who are enrolled in the institution
for any academic term beginning in 1998.
An institution should determine its enrollment for each term as of any of the following three dates:
(a) 30 days after the first day of the
academic term;
(b) a date during the term on which
enrollment data must be collected for
purposes of the Integrated Postsecondary Education Data System administered by the Department of Education; or
(c) a date during the term on which
the institution must report enrollment data to the State, the institution’s governing board or some other
external governing body.
An institution should provide a single information report for each student on
whose behalf qualified tuition and related
expenses have been received in 1998 even
if the institution receives more than one
payment on that student’s behalf during
1998.
B. Information Required for 1998.
Eligible educational institutions required under this notice to file information returns for 1998 must properly complete Form 1098–T, Tuition Payments, for
each student with respect to whom information reporting is required. For 1998, a

1997–51 I.R.B.

properly completed Form 1098–T filed
with the Service must include:
(1) the name, address, and TIN of the
eligible educational institution,
(2) the name, address, and TIN of the
individual with respect to whom payments of qualified tuition and related expenses were received during 1998,
(3) an indication as to whether the individual named in the second item was
enrolled for at least half the full-time academic workload during any academic period commencing in 1998, and
(4) an indication as to whether the individual named in the second item was enrolled exclusively in a program or programs leading to a graduate-level degree,
graduate-level certificate, or other recognized graduate-level educational credential.
For purposes of section 25A and the reporting required under § 6050S, a student
will be considered to be enrolled at least
half-time if the student is enrolled for at
least half the full-time academic workload
for the course of study the student is pursuing as determined under the standards
of the institution where the student is enrolled. The institution’s standard for a
full-time workload must equal or exceed
the standards established by the Department of Education under the Higher Education Act and set forth in 34 C.F.R.
§ 674.2(b).
Although in the future institutions will
be required to provide the additional information specified in § 6050S (e.g., the
amount of qualified tuition and related expenses received and/or reimbursed), the
IRS will not impose penalties on an institution that does not provide this information for 1998.
C. When To File
The information returns required under
§ 6050S for 1998 must be sent to the Service by March 1, 1999.
D. Manner of Filing
Eligible educational institutions may
file the information returns required by
§ 6050S for 1998 on paper or by magnetic
media. Additional guidance will be issued providing further information on
how to file returns by magnetic media. In
addition, the Service is exploring electronic filing options and will issue further
guidance when such options become
available.

17

E. Statements To Be Provided to
Students
Each eligible educational institution
must provide each student with respect to
whom an information return is filed a
statement containing the same information that is provided to the Service on the
information return required by § 6050S.
In addition, the statement provided to the
student must contain the phone number
of the individual serving as information
contact at the eligible educational institution that made the return. The statement
with respect to qualified tuition and related expenses paid in 1998 must be provided to the student by February 1, 1999.
The statement may be a copy of Form
1098–T or an acceptable substitute statement.
F. Collecting Information
The Service is developing an optional
Form W–9S for use in collecting information for the purpose of complying with
§ 6050S. Eligible educational institutions
will be able to use the form to collect a
student’s name, address, and TIN. The
form is being designed so that it can also
be used to collect any information necessary to meet the information reporting requirements associated with the student
loan interest deduction provided by new
§ 221. Eligible educational institutions
will be able to collect information from
students for 1998 information reporting
purposes on a paper or an electronic version of Form W–9S (or an acceptable substitute). The eligible educational institution also may collect the necessary
information by using its own forms and
procedures.
Eligible educational institutions that
are also federal, state or local government
agencies are required to provide certain
disclosures under the Privacy Act when
collecting social security numbers from
individuals. See 5 U.S.C. § 552a. The
Form W–9S will contain a Privacy Act
disclosure statement.
G. Waiver of Penalties.
The Treasury Department intends to
issue regulations under § 6050S providing guidance on how institutions are to
comply with the requirements of the
statute. Until the regulations are adopted,
no penalties will be imposed under

December 22, 1997

§§ 6721 and 6722 for failure to file correct information returns with the Service
or to furnish correct statements to the individuals with respect to whom information reporting is required under § 6050S.
Furthermore, even after the regulations
are adopted, no penalties will be imposed
under §§ 6721 and 6722 for failure to file
correct information returns or furnish
correct written statements for 1998 as required by § 6050S if the institution made
a good faith effort to file information returns and furnish statements in accordance with this notice.
DRAFTING INFORMATION
The principal author of this notice is
John McGreevy of the Office of the Assistant Chief Counsel (Income Tax & Accounting). For further information regarding this notice contact him on (202)
622-4910 (not a toll-free call).

Weighted Average Interest Rate
Update
Notice 97–74
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current liability for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103–465
(GATT).
The average yield on the 30-year Treasury Constant Maturities for November
1997 is 6.11 percent.
The following rates were determined
for the plan years beginning in the month
shown below.

number). Ms. Prestia’s number is (202)
622-7377 (also not a toll-free number).

Minimum Distribution
Requirements
Notice 97–75
I. PURPOSE
This notice provides guidance relating
to the amendments to the minimum distribution requirements of § 401(a)(9) of
the Internal Revenue Code (“Code”)
made by § 1404 of the Small Business
Job Protection Act of 1996, Pub. L.
104–188 (“SBJPA”). Specifically, this
notice:
• Answers questions regarding the actuarial increase that must be provided
under a defined benefit plan for an employee who retires after age 701⁄2, and the
interaction of this actuarial increase with
§ 411.
• Coordinates the § 401(a)(4) nondiscrimination requirements with the
§ 401(a)(9) requirement that certain preretirement distribution options be available to an employee at age 701⁄2.
• Permits plans to allow participants
who commenced distributions under preSBJPA § 401(a)(9) to stop receiving those
distributions, and provides guidance on
the applicable notice and spousal consent
requirements.
• Clarifies the extent to which distributions made after 1996 to an employee
who has attained age 701⁄2 will be considered eligible rollover distributions under
§ 402(c)(4)(B).
• Gives relief from the direct rollover
requirements of § 401(a)(31), the written
explanation requirement under § 402(f)
and the mandatory 20-percent withhold-

Month

Year

Weighted
Average

December

1997

6.79

Drafting Information
The principal author of this notice is
Donna Prestia of the Employee Plans Division. For further information regarding this
notice, call (202) 622-6076 between 2:30
and 3:30 p.m. Eastern time (not a toll-free

December 22, 1997

90% to 107%
Permissible
Range

90% to 110%
Permissible
Range

6.11 to 7.26

6.11 to 7.47

ing requirement under § 3405(c) for certain distributions made in 1997.
• Provides an optional rule under
which an employee’s required beginning
date under pre-SBJPA § 401(a)(9) may be
retained.

18

II. BACKGROUND
Section 401(a)(9) provides that, in
order for a plan to be qualified under
§ 401(a), distributions of each employee’s
interest in the plan must commence no
later than the “required beginning date”
for the employee. Prior to the amendments made by the SBJPA, § 401(a)(9)(C)
generally defined the required beginning
date for an employee as the April 1 of the
calendar year following the calendar year
in which the employee attained age 701⁄2.
This meant that an employee who attained
age 701⁄2 was required to commence receiving distributions from the plan during
the following year, even if the employee
had not retired from employment with the
employer maintaining the plan.
Section 1404(a) of the SBJPA
amended § 401(a)(9) of the Code to provide that, in the case of an employee who
is not a 5-percent owner, the required beginning date for minimum distributions
from a qualified plan is April 1 of the
calendar year following the later of the
calendar year in which the employee attains age 70 1⁄2 or the calendar year in
which the employee retires. In the case
of an employee who is a 5-percent
owner, the required beginning date continues to be the April 1 of the calendar
year following the calendar year in
which the employee attains age 701⁄2. An
employee is treated as a 5-percent owner
for purposes of § 401(a)(9) as amended
by the SBJPA if such employee is a 5percent owner (as defined in § 416) with
respect to the plan year ending with or
within the calendar year in which such
owner attains age 70 1⁄2. Once an employee is a 5-percent owner described in
the preceding sentence, distributions
must continue to such employee even if
such employee ceases to own more than
5 percent of the employer in a subsequent year.
Section 1404(a) of the SBJPA also
amended § 401(a)(9) of the Code to provide that an employee’s accrued benefit
shall be actuarially increased to take into
account the period after age 701⁄2 in which
the employee was not receiving any benefits under the plan. The amendments to
§ 401(a)(9) of the Code apply to years beginning after December 31, 1996.
The amendments retain the existing
rules relating to the determination of the
required beginning date for distributions

1997–51 I.R.B.

from an individual retirement account or
individual retirement annuity under
§ 408, and the determination of the required beginning date for church plans
and government plans.
Notice 96–67, 1996–2 C.B. 235, provides guidance on the application of the
amendments to § 401(a)(9)(C) made by
the SBJPA to employees who attained age
701⁄2 in 1996 but did not retire by the end
of 1996.
Announcement 97–24, 1997–11 I.R.B.
24, provides that an employer may offer
employees (other than 5-percent owners)
who attain age 701⁄2 after 1995 and have
not retired, an option to defer commencement of benefit distributions under
a qualified plan rather than to begin receiving benefits from the plan by April 1,
1997, even if the plan has not yet been
amended to provide for the option.
Announcement 97–70, 1997–29 I.R.B.
14, provides transition relief for a plan
under which certain distributions required under the terms of the plan were
not made to an employee (other than a 5percent owner) who attained age 701⁄2 in
1996 and who did not retire from employment with the employer maintaining
the plan by the end of 1996.
Section 1.411(d)–4, Q&A 10, of the
proposed Income Tax Regulations, 62
F.R. 35752 (July 2, 1997), would provide
relief from § 411(d)(6) for certain plan
amendments that eliminate preretirement
distributions commencing at age 701⁄2.
Rev. Proc. 97–41, 1997–33 I.R.B. 51,
provides guidance to sponsors of plans
that are qualified under § 401(a) with respect to the date by which they must
adopt amendments to comply with
changes in the law, including a remedial
amendment period for amendments to
reflect changes to the qualification requirements made by the SBJPA.
This notice provides guidance on additional issues relating to the amendments to § 401(a)(9)(C) made by the
SBJPA.
III. QUESTIONS AND ANSWERS
(1) ACTUARIAL INCREASE FOR
DEFINED BENEFIT PLANS
Q–1: If an employee retires in a calendar year after the calendar year in which
the employee attains age 701⁄2, for what
period must the employee’s accrued bene-

1997–51 I.R.B.

fit under a defined benefit plan be actuarially increased?
A–1: (a) Actuarial increase starting
date. Under § 401(a)(9)(C)(iii), in the
case of an employee (other than a 5-percent owner) who retires in a calendar
year after the calendar year in which the
employee attains age 70 1⁄2 , the employee’s accrued benefit under a defined
benefit plan must be actuarially increased
in order to take into account the period
after age 701⁄2 in which the employee is
not receiving benefits under the plan. If
an employee retires at age 701⁄2, then, in
order to satisfy § 401(a)(9), the distribution of the employee’s benefits is required to begin no later than the April 1
following the calendar year in which the
employee attains age 701⁄2. Thus, if an
employee retires after the calendar year
in which the employee attains age 701⁄2,
the actuarial increase required to satisfy
§ 401(a)(9) to reflect the delay in payment must be provided for the period
starting on the April 1 following the calendar year in which the employee attains
age 701⁄2. In the case of an employee who
attained age 701⁄2 prior to 1996, the starting date for the period of actuarial increase is January 1, 1997.
(b) Actuarial increase ending date. The
period for which the actuarial increase must
be provided ends on the date on which benefits commence after retirement in an
amount sufficient to satisfy § 401(a)(9).
(c) Nonapplication to defined benefit
plans using optional rule. If, pursuant to
the optional rule of Q&A–10, minimum
distributions under a plan to an employee
commence no later than April 1 of the calendar year following the calendar year in
which the employee attains age 701⁄2, in an
amount sufficient to satisfy § 401(a)(9) as
in effect prior to amendment by the
SBJPA, no actuarial increase is required
under § 401(a)(9)(C)(iii).
(d) Nonapplication to defined contribution plans. The actuarial increase required under this Q&A–1 does not apply
to defined contribution plans.
Q–2: What amount of actuarial increase is required under § 401(a)(9)(C)(iii)?
A–2: In order to satisfy § 401(a)(9)(C)(iii), the retirement benefits payable
with respect to an employee as of the end
of the period for actuarial increases (described in Q&A–1) must be no less than:

19

the actuarial equivalent of the employee’s
retirement benefits that would have been
payable as of the date the actuarial increase must commence under Q&A–1
(i.e., the later of the April 1 following the
calendar year in which the employee attained 701⁄2 or January 1, 1997) if benefits
had commenced on that date; plus the actuarial equivalent of any additional benefits accrued after that date; reduced by the
actuarial equivalent of any distributions
made with respect to the employee’s retirement benefits after that date. Actuarial
equivalence is determined using the plan’s
assumptions for determining actuarial
equivalence for purposes of satisfying
§ 411.
Q–3: How does the actuarial increase
required under § 401(a)(9)(C)(iii) relate
to the actuarial increase required under
§ 411?
A–3: As reflected in § 1.411(c)–1(f)(2)
of the proposed Income Tax Regulations,
in order for an employee’s accrued benefit
to be nonforfeitable as required by § 411,
a defined benefit plan must make an actuarial adjustment to an accrued benefit the
payment of which is deferred past normal
retirement age. The only exception to this
rule is that generally no actuarial adjustment is required to reflect the period during which a benefit is suspended as permitted under section 203(a)(3)(B) of the
Employee Retirement Income Security
Act of 1974 (ERISA). The actuarial increase required under § 401(a)(9) of the
Code for the period described in Q&A–1
is generally the same as, and not in addition to, the actuarial increase required for
that same period under § 411 to reflect
any delay in the payment of retirement
benefits after normal retirement age.
However, unlike the actuarial increase required under § 411, the actuarial increase
required under § 401(a)(9)(C) must be
provided even during the period during
which an employee is in section
203(a)(3)(B) service.
Q–4: To what extent may additional
accruals required under § 411(b)(1)(H) be
reduced by actuarial increases required
under § 401(a)(9)(C)(iii)?
A–4: For purposes of § 411(b)(1)(H)–
(iii)(II), the actuarial increase required
under § 401(a)(9)(C)(iii) will be treated as
an adjustment attributable to the delay in
distribution of benefits after the attainment
of normal retirement age. Accordingly, to

December 22, 1997

the extent permitted under § 411(b)(1)(H),
the actuarial increase required under
§ 401(a)(9)(C)(iii) may reduce the benefit
accrual otherwise required under § 411(b)–
(1)(H)(i). However, the rule in the last
sentence of § 1.411(b)–2(b)(4)(iii)(B) of
the proposed Income Tax Regulations regarding the actuarial adjustment in the case
of a plan that suspends benefits in accordance with § 203(a)(3)(B) of ERISA and
the regulations thereunder is not applicable
to the calculation of additional accruals for
the period of time for which actuarial increases are required under § 401(a)(9)(C)(iii).
(2) COORDINATION OF SECTION
401(a)(4) AND SECTION
401(a)(9) FOR CERTAIN
PRERETIREMENT AGE 701⁄2
DISTRIBUTION OPTIONS
Q–5: Are there special rules that coordinate the implementation of the SBJPA
changes to § 401(a)(9) with the nondiscriminatory current and effective availability requirements of § 1.401(a)(4)–4 of
the Income Tax Regulations?
A–5: (a) Aggregation of optional
forms of benefit. Solely for purposes of
determining whether a plan satisfies the
nondiscriminatory current and effective
availability requirements of § 1.401(a)(4)–4, a preretirement age 701⁄2 distribution option that is only available to required group members is permitted to be
aggregated with another optional form of
benefit that provides for commencement
in the retirement period and the two optional forms of benefit may be treated as a
single optional form of benefit. This aggregation treatment is permitted only if
the other optional form of benefit is the
same optional form of benefit as the preretirement age 701⁄2 distribution option except for the difference in the timing of the
commencement of payments.
(b) Interim minimum distributions. In
the case of a defined contribution plan, if
a preretirement age 701⁄2 distribution option is available only to required group
members and provides for payment of installment payments equal to the minimum
amount (calculated in accordance with a
method specified in the plan) necessary to
satisfy § 401(a)(9) (before or after amendment by the SBJPA) with payment commencing during the 701⁄2 period and ending by the end of the retirement period,

December 22, 1997

and this form of payment does not apply
to benefit payments after the end of the
retirement period, this preretirement distribution option is treated as satisfying the
requirements of § 1.401(a)(4)–4.
(c) Definitions. The following definitions apply only for purposes of this
Q&A–5:
(i) 701⁄2 period. The 701⁄2 period is the
period beginning on January 1 of the year
in which the employee attains age 701⁄2
and ending on the April 1 of the following
year.
(ii) Retirement period. The retirement
period is the period beginning on January
1 of the year in which the employee retires from employment with the employer
maintaining the plan and ending on April
1 of the following year.
(iii) Preretirement age 701⁄2 distribution
option. A preretirement age 701⁄2 distribution option is an optional form of benefit
under which benefits payable in a particular distribution form (including any modifications that may be elected after benefit
commencement) commence during the
701⁄2 period prior to the employee’s retirement from employment with the employer maintaining the plan.
(iv) Required group member. An employee who is a 5-percent owner for purposes of section 401(a)(9) is a required
group member. If a plan is amended to
eliminate a preretirement age 701⁄2 distribution option with respect to all employees
(other than 5-percent owners) who attain
age 701⁄2 after a specified calendar year,
and the plan satisfied § 1.401(a)(4)–4
with respect to availability of the preretirement age 701⁄2 distribution option immediately before the amendment, then
employees who attained age 701⁄2 in or before the specified calendar year are also
required group members with respect to
the preretirement age 701⁄2 distribution option under the plan even if the employees
are not 5-percent owners for purposes of
section 401(a)(9).
(3) ISSUES RELATING TO
EMPLOYEES WHO ATTAINED
AGE 701⁄2 BEFORE JANUARY 1,
1997
Q–6: For purposes of § 401(a)(9)(C)
after amendment by the SBJPA, what is
the required beginning date for an employee (other than a 5-percent owner)
who attained age 701⁄2 before 1997, but

20

did not retire from employment with the
employer maintaining the plan before
January 1, 1997?
A–6: For purposes of determining the
amount of minimum distributions required after December 31, 1996, the required beginning date for an employee
who did not retire from employment
with the employer maintaining the plan
before January 1, 1997 is determined
under § 401(a)(9)(C), as amended by the
SBJPA. Accordingly, as described in
Q&A–2 of Notice 96–67, in the case of
an employee (other than a 5-percent
owner) who attained age 701⁄2 in 1996
and retired from employment with the
employer maintaining the plan on or
after January 1, 1997, the required beginning date is April 1 of the calendar
year following the year in which the employee retires from employment with the
employer maintaining the plan. Furthermore, an employee (other than a 5-percent owner) who attained age 701⁄2 prior
to 1996, and retires from employment
with the employer maintaining the plan
on or after January 1, 1997, has a required beginning date for purposes of determining minimum distributions that are
required on or after January 1, 1997 that
is different from the required beginning
date for the employee for purposes of determining minimum distributions that
were required prior to January 1, 1997.
Thus, for example, an employee (other
than a 5-percent owner) who attained age
701⁄2 in 1995, and retired from employment with the employer maintaining the
plan in 1997, has a required beginning
date of April 1, 1998. See Q&A–10 of
this notice for a special rule permitting
an employee’s required beginning date
determined without regard to the SBJPA
amendments to be treated as the required
beginning date for purposes of determining the minimum distributions required
after January 1, 1997.
Q–7: May a plan permit an employee
who attained age 701⁄2 before 1997 but did
not retire from employment with the employer maintaining the plan before January 1, 1997 to elect to stop current distributions?
A–7: (a) Election to stop permitted. An
employee who attained age 701⁄2 before
1997, but did not retire from employment
with the employer maintaining the plan
before January 1, 1997 has a new required

1997–51 I.R.B.

beginning date as described in Q&A–6.
Accordingly, distributions are not required to be made to that employee after
December 31, 1996 and prior to the employee’s new required beginning date in
order to satisfy § 401(a)(9). A plan may
provide that such an employee may affirmatively elect to stop distributions at any
time until the employee retires, subject to
the terms of an applicable qualified domestic relations order (QDRO), within
the meaning of § 414(p).
(b) Compliance with sections 401(a)(11) and 417. An employee’s election to
stop and recommence distributions under
paragraph (a) of this Q&A–7 is subject to
the requirements of §§ 401(a)(11) and
417, if the plan is otherwise subject to
those rules. However, a plan that permits
an employee to stop distributions in accordance with paragraph (a) of this
Q&A–7 and that complies with either of
the alternatives set forth in Q&A–8, will
not violate § 401(a)(11) and § 417 on account of the employee’s cessation and
recommencement of those distributions.
Q–8: What special alternatives are
available for a plan that is subject to
§ 401(a)(11) and § 417 in order to satisfy
those sections with respect to an employee who, pursuant to Q&A–7, elects to
stop and recommence distributions?
A–8 (a): In general. A plan will not violate § 401(a)(11) and § 417 on account
of an employee’s cessation and recommencement of distributions in accordance
with Q&A–7(a) if the plan operationally
complies with either paragraph (b) or (c)
of this Q&A–8, the plan is amended
within the remedial amendment period for
the plan for SBJPA changes to reflect that
operational compliance, and the distributions stop prior to the end of that remedial
amendment period.
(b) No new annuity starting date upon
recommencement.
(i) Under this alternative, the plan provides that there is no new annuity starting
date under § 417 upon recommencement
of benefits. In such case, no spousal consent is required for an employee to elect
to stop distributions pursuant to Q&A–
7(a). Moreover, no spousal consent is required when payments recommence to the
employee if:
(A) payments recommence to the employee with the same beneficiary and in a

1997–51 I.R.B.

form of benefit that is the same but for the
cessation of distributions,
(B) the individual who was the employee’s spouse on the annuity starting
date executed a general consent within the
meaning of § 1.401(a)–20, A–31 of the
Income Tax Regulations, or
(C) the individual who was the employee’s spouse on the annuity starting
date executed a specific consent to waive
a QJSA within the meaning of § 1.401(a)–
20, A–31, and the employee is not married to that individual when benefits
recommence.
(ii) However, in order to comply with
this paragraph (b), consent of the individual who was the employee’s spouse on the
annuity starting date is required prior to
recommencement if the employee
chooses to recommence benefits either in
a different form than the form in which
they were being distributed prior to the
cessation of distributions or with a different beneficiary and if:
(A) the original form was a qualified
joint and survivor annuity (QJSA) within
the meaning of § 417(b), or
(B) the individual who was the employee’s spouse on the annuity starting
date originally executed a specific consent to waive a QJSA within the meaning
of § 1.401(a)–20, A–31, of the Income
Tax Regulations, and the employee is still
married to that individual when benefits
recommence.
(c) New annuity starting date upon
recommencement. Under this alternative,
the plan provides that there is a new annuity starting date under § 417 upon recommencement of benefits. In such case, no
spousal consent is required for an employee to elect to stop distributions pursuant to Q&A–7(a), except where such
distributions are being paid in the form of
a qualified joint and survivor annuity
(QJSA) within the meaning of § 417(b).
Where such distributions are being paid in
the form of a QJSA, in order to comply
with this paragraph (c), the person who
was the employee’s spouse on the original
annuity starting date must consent to the
election to stop distributions under Q&A–
7(a) and the spouse’s consent must acknowledge the effect of the election. Because there is a new annuity starting date
upon recommencement of benefits, the
plan, in order to satisfy this paragraph (c),
must comply with all of the requirements

21

of § 417 upon such recommencement, including payment of a qualified preretirement survivor annuity (QPSA) if the employee dies before the new annuity
starting date.
(4) ISSUES RELATING TO
ELIGIBILITY FOR ROLLOVERS
Q–9: If distributions are made under a
plan to an employee (other than a 5-percent owner) who did not retire before January 1, 1997 from employment with the
employer maintaining the plan, is any
portion of a distribution made after attainment of age 701⁄2 a required distribution
under § 401(a)(9) for purposes of
§ 402(c)(4)(B)?
A–9: (a) General rule. Section 402(c)–
(4)(B) provides that a distribution is not
an eligible rollover distribution to the extent that it is required under § 401(a)(9).
As noted in Q&A–6, for purposes of determining the amount of minimum distributions that are required after December
31, 1996, the required beginning date for
an employee who did not retire before
January 1, 1997 from employment with
the employer maintaining the plan is redetermined under § 401(a)(9)(C), as
amended by the SBJPA. Therefore,
whether or not a plan allows an employee
who attained age 701⁄2 before January 1,
1997, but did not retire from employment
with the employer maintaining the plan
before that date, to stop receiving distributions in accordance with Q&A–7, a distribution to such an employee prior to the
year the employee retires is not a required
distribution under § 401(a)(9). Such a
distribution is an eligible rollover distribution unless it is excepted for some other
reason. An exception is provided under
§ 402(c)(4)(A) for a series of substantially
equal periodic payments made for the life
(or life expectancy) of the employee or
the joint lives (or joint life expectancy) of
the employee and the employee’s designated beneficiary, or for a specified period of 10 years or more. If an employee’s benefit is being distributed in a
series of annual payments that would
equal the required minimum distribution
determined in accordance with Q&A F–1
of § 1.401(a)(9)–1 of the proposed Income Tax Regulations, then the series of
payments will be considered a series of
substantially equal payments over the life
(or life expectancy) of the employee or

December 22, 1997

the joint lives (or joint life expectancy) of
the employee and the employee’s designated beneficiary, or for a specified period of 10 years or more, in accordance
with Q&A–5 of § 1.402(c)–2 of the Income Tax Regulations. Therefore, payments under such a series of payments are
not eligible rollover distributions.
(b) Treatment of 1996 distributions for
employees who attained age 701⁄2 in 1996.
As provided in Q&A–3 of Notice 96–67,
if a distribution is made during 1996 to an
employee who attained age 701⁄2 in 1996,
whether that distribution is a required distribution under § 401(a)(9) is determined
by applying § 401(a)(9) as in effect prior
to amendment by the SBJPA.
(c) Transition rule for 1997 distributions. A plan will not fail to satisfy
§ 401(a)(31) merely because the plan administrator or payor did not offer an employee (other than a 5-percent owner),
who has attained age 701⁄2 but has not retired from employment with the employer
maintaining the plan, a direct rollover option with respect to the eligible rollover
distributions described in this paragraph
(c). A distribution is described in this
paragraph (c) if it is paid in calendar year
1997 and, under pre-SBJPA § 401(a)(9),
the distribution would not have been an
eligible rollover distribution because it
would have been a required minimum distribution. In addition, with respect to
such a distribution, a plan will not be required to satisfy the written explanation
requirement under § 402(f) or the mandatory 20-percent withholding requirement
under § 3405(c).
(5) PLANS MAINTAINING
PRE-SBJPA REQUIRED
BEGINNING DATE
Q–10: Will a plan

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A9996777f76461d2b. Public record. Not legal advice.