Bulletin No. 1997–47

Bulletin No. 1997–47

November 24, 1997

Internal Revenue

bulletin

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 97–47, page 4.

LIFO; price indexes; department stores. The September

1997 Bureau of Labor Statistics price indexes are accepted

for use by department stores employing the retail inventory

and last-in, first-out inventory methods for valuing inventories

for tax years ended on, or with reference to, September 30,

1997.

ESTATE TAX

Notice 97–63, page 6.

This notice asks for public comment on the alternatives for

proposed regulations under section 2056 of the Code in

light of the opinion of the Supreme Court of the United

States in Commissioner v. Estate of Hubert. The proposed

regulations would provide guidance on when there is a “material limitation” on the right to income when income is used

to pay estate administration expenses.

REG–114000–97, page 13.

Proposed regulations under section 1441 of the Code provide guidance regarding the obligation to withhold on interest paid with respect to obligations in the case of the sale of

obligations between interest payment dates. A public hearing will be held on January 26, 1998.

EMPLOYMENT TAX

REG–107872–97, page 11.

Proposed regulations under section 1441 of the Code relate

to the submission of Form W–8, Certificate of Foreign Status.

Notice 97–64, page 7.

Designation of classes of capital gain dividends by

RICs or REITs. This notice describes temporary regulations

that will be published permitting RICs and REITs to designate

different classes of capital gain dividends in accordance with

section 1(h) of the Code as amended by the Taxpayer Relief

Act of 1997.

EXEMPT ORGANIZATIONS

Announcement 97–115, page 17.

Comments are requested from the public on proposals to

modify the filing requirements for Form 990, Return of Organization Exempt From Income Tax, and Form 990–EZ, Short

Form Return of Organization Exempt From Income Tax.

Finding Lists begin on page 20.

Department of the Treasury

Internal Revenue Service

ADMINISTRATIVE

Rev. Proc. 97–53, page 10.

Delete section 355 No Rule. This procedure modifies the

“No Rule” revenue procedure, Rev. Proc. 97–3, 1997–1

I.R.B. 85, by deleting section 5.17. The provision concerns

certain transactions under section 355(a)(1) of the Code.

Announcement 97–111, page 15.

This announcement describes the method by which taxpayers can enter a new IRS process designed to settle IRS-related disputes that are connected with Bankruptcy Court

proceedings in order to reduce Bankruptcy Court litigation.

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 355.—Distribution of

Stock and Securities of a

Controlled Corporation

26 CFR 1.355–2: Limitations.

The revenue procedure modifies the “No Rule”

revenue procedure, Rev. Proc. 97–3, 1997–1 I.R.B.

85, to delete certain transactions under § 355 of the

Code. See Rev. Proc. 97–53, page 10.

Section 472.—Last-in, First-out

Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department

stores. The September 1997 Bureau of

Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in,

first-out inventory methods for valuing

inventories for tax years ended on, or with

reference to, September 30, 1997.

Rev. Rul. 97–47

The following Department Store Inventory Price Indexes for September 1997

were issued by the Bureau of Labor Statistics on October 16, 1997. The indexes

are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income

Tax Regulations and Rev. Proc. 86–46,

1986–2 C.B. 739, for appropriate application to inventories of department stores

employing the retail inventory and last-in,

first-out inventory methods for tax years

ended on, or with reference to, September

30, 1997.

The Department Store Inventory Price

Indexes are prepared on a national basis

and include (a) 23 major groups of departments, (b) three special combinations of

the major groups - soft goods, durable

goods, and miscellaneous goods, and (c) a

store total, which covers all departments,

including some not listed separately, except for the following: candy, foods,

liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups

1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Domestics and Draperie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21. Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23. Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Groups 21 – 23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sept.

1996

534.8

644.1

647.9

916.1

631.9

536.0

289.0

557.1

407.2

612.0

573.6

489.8

1040.3

795.2

895.9

675.6

589.9

810.0

247.1

77.2

111.4

125.9

107.0

596.8

469.0

112.6

552.2

Sept.

1997

521.1

646.6

652.0

902.9

623.3

557.8

304.3

544.1

422.2

620.2

603.1

498.7

1009.5

842.0

904.6

662.7

583.2

816.8

243.4

74.9

108.9

131.7

108.3

606.4

465.3

111.8

556.7

Percent Change

from Sept. 1996

to Sept. 19971

–2.6

0.4

0.6

–1.4

–1.4

4.1

5.3

–2.3

3.7

1.3

5.1

1.8

–3.0

5.9

1.0

–1.9

–1.1

0.8

–1.5

–3.0

–2.2

4.6

1.2

1.6

–0.8

–0.7

0.8

1Absence of a minus sign before percentage change in this column signifies price increase.

2Indexes on a January 1986=100 base.

3The store total index covers all departments, including some not listed separately, except for the following: candy, foods, liquor, to-

bacco, and contract departments.

November 24, 1997

4

1997–47 I.R.B.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Stan Michaels of the Office of

Assistant Chief Counsel (Income Tax and

Accounting). For further information regarding this revenue ruling, contact Mr.

Michaels on (202) 622-4970 (not a tollfree call).

1997–47 I.R.B.

Section 7121.—Closing

Agreements

26 CFR 301.7121–1: Closing agreements.

What is the method by which taxpayers can enter

a new IRS process designed to settle IRS-related

disputes that are connected with Bankruptcy Court

proceedings in order to reduce Bankruptcy Court litigation? See Announcement 97–111, page 15.

5

November 24, 1997

Part III. Administrative, Procedural, and Miscellaneous

Material Limitation on Surviving

Spouse’s Right to Income

Notice 97–63

PURPOSE

This notice invites public comment concerning alternatives for proposed regulations that are being considered in light of

the opinion of the Supreme Court of the

United States in Commissioner v. Estate of

Hubert, 520 U.S. — (1997), 1997–32

I.R.B. 8. The proposed regulations would

amend § 20.2056(b)–4(a) of the Estate Tax

Regulations by providing guidance regarding when there is a “material limitation”

on a surviving spouse’s right to the income

from property when the income is used to

pay estate administration expenses.

BACKGROUND

Under § 2056(a) of the Internal Revenue Code, a marital deduction is allowed

to a decedent’s estate for property passing

from the decedent to the surviving

spouse. Under § 2056(b)(5) and (b)(7), a

marital deduction is allowed for property

passing in trust for the benefit of the

spouse if the trust satisfies certain requirements, including the requirement that the

spouse be entitled to all of the income for

life.

Under § 2056(b)(4)(B), where the interest or property passing to the surviving

spouse is encumbered, the encumbrance

is taken into account in determining the

amount of the allowable marital deduction. Section 20.2056(b)–4(a), which implements § 2056(b)(4)(B), provides that

the marital deduction may be taken only

for the net value of the interest passing to

the surviving spouse. In determining the

value of the interest, account must be

taken of the effect of any material limitations on the spouse’s right to the income

from the property. The regulation indicates that this rule may apply in the case

of a bequest of property in trust for the

benefit of the spouse, when income from

the property is used to pay estate administration expenses prior to distribution. The

same rule applies in the case of a charitable bequest. Section 20.2055–2(e)(1)(i).

However, the regulation provides no definitive guidance on when the use of in-

November 24, 1997

come would rise to the level of a material

limitation.

The facts in Estate of Hubert are similar

to the following common fact pattern.

The decedent’s will provides for a residuary bequest to a trust for the benefit of

the spouse (the marital trust). This bequest qualifies for the marital deduction.

The will provides that estate administration expenses are to be paid from the

residuary estate. Further, the will (or state

law) permits the executor to use income

(otherwise payable to the marital trust) to

pay administration expenses, and the executor does so. The issue before the

Supreme Court in Estate of Hubert was

whether, for purposes of § 20.2056(b)–

4(a), the executor’s use of income to pay

estate administration expenses was a material limitation on the surviving spouse’s

right to the income from the bequest,

which would reduce the marital deduction.

The Commissioner argued that the payment of administration expenses from income is, per se, a material limitation on

the surviving spouse’s right to income for

purposes of § 20.2056(b)–4(a), and therefore, the value of any marital bequest

should be reduced dollar for dollar by the

amount of income used to pay administration expenses. The Court agreed that the

value of the marital bequest should be reduced if the use of income to pay administration expenses is a material limitation

on the spouse’s right to income. The

Court found, however, that the regulation

does not define material limitation and

that the Commissioner had not argued

that the use of income in this case was a

material limitation. Thus, the Court held

for the taxpayer.

In the absence of a regulatory definition of material limitation, the plurality

opinion suggested a test for materiality

that applies present value principles to

date of death estimates of income and expenditures. The concurring opinion suggested two additional tests using date of

death estimates of income; one of these

tests also applies present value principles.

The number of alternatives that exist to

define material limitation, as pointed out

by the Court in Estate of Hubert, underscores the need to provide guidance regarding when the use of income to pay

expenses constitutes a material limitation

6

on a spouse’s or charity’s right to income.

The Internal Revenue Service and the

Treasury Department intend to promulgate regulations that provide guidance in

this area, and this notice solicits comments on the alternative approaches outlined below.

ALTERNATIVE APPROACHES

One test for materiality under consideration would attempt to distinguish between administration expenses that are

properly charged to principal and those

that are properly charged to income.

Under this test, there would be a material

limitation on a surviving spouse’s right to

income from property if income were used

to pay an estate administration expense

that is properly charged to principal. Expenses that are properly charged to principal would be those expenses described in

§ 20.2053–3 as well as other expenses

commonly incurred in the administration

and settlement of a decedent’s estate.

Such expenses would include, for example, attorneys’ fees, appraisers’ fees, brokers’ commissions on the sale of property,

and estate and inheritance taxes.

Expenses that are properly charged to

income (and thus not material limitations

on income) would be expenses incurred in

the production of income during the period of administration including expenses

of collecting and disbursing income and

current taxes on income.

The regulation’s designation of expenses as properly charged to principal or

income would be determinative for purposes of § 20.2056(b)–4(a). Therefore, an

expense could be characterized as properly charged to principal even though applicable local law or the governing instrument permitted or directed an executor to

charge the expense to income. To the extent that income is used to pay an expense

that is properly charged to principal, the

payment from income would be treated as

having the same effect for purposes of the

marital deduction as a payment made

from principal. That is, in determining

the marital deduction, the value of the

property interest passing to the spouse

would be reduced by an amount equal to

the amount of that administration expense

paid from income.

1997–47 I.R.B.

This test for materiality is intended to

reflect reasonable estate administration

practices and would generally be simple

to apply.

Another approach under consideration

is a test for materiality that provides for a

de minimis safe harbor amount of income

that may be used to pay administration

expenses without constituting a material

limitation on the surviving spouse’s right

to income. The safe harbor amount could

be a cumulative amount determined by a

percentage of gross income derived from

the property during the period of administration, or a specified dollar amount, or

some combination thereof. If more than

the safe harbor amount of income were

used to pay administration expenses, the

marital deduction would be reduced dollar for dollar by the excess over the safe

harbor amount of income so used.

The safe harbor approach provides a

“bright line” material limitation test.

However, if the safe harbor amount were

based on the cumulative amount of income derived from the property during

administration, the safe harbor amount

would have to be recomputed yearly to reflect additional income earned during the

year, which might make the test difficult

to apply.

An additional approach would be to

adopt a regulation stating that any use of

income for the payment of administration

expenses constitutes a material limitation

on the spouse’s right to income.

whether post-death interest accruing on

deferred federal estate tax should be

treated as properly charged to principal.

Rev. Rul. 93–48, 1993–2 C.B. 270, holds

that post-death interest accruing on deferred federal estate tax payable from a

testamentary transfer does not ordinarily

reduce the date of death value of the

transfer.

Comments and suggestions are requested by February 4, 1998. An original

and eight copies of written comments

should be sent to:

Internal Revenue Service

Attn: CC:DOM:CORP:R

Room 5431 (P&SI: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 5431 (P&SI:Br4)

1111 Constitution Ave., NW

Washington, DC

Alternatively, comments may be submitted electronically via the Service’s Internet site at:

http://www.irs.ustreas.gov/prod/tax_re

gs/comments.html

All comments will be available for public

inspection and copying in their entirety.

DRAFTING INFORMATION

REQUEST FOR COMMENTS

The Service and Treasury invite comments on the tests for materiality described above and also welcome any suggestions for alternative approaches to the

issue. In addition, the Service and Treasury are interested in receiving comments

on (1) whether the test for materiality

under § 20.2056(b)–4(a) should be a

quantitative test based on a comparison of

the relative size of the income and the expenses charged to income; (2) whether

materiality should be determined based

on projections as of the date of death

rather than on the facts that develop afterwards; and (3) whether present value

principles should be applied and, if so,

how the practical difficulties of a present

value computation can be overcome.

The Service and Treasury are also interested in receiving comments on

1997–47 I.R.B.

The principal author of this notice is

Deborah Ryan of the Office of Assistant

Chief Counsel (Passthroughs and Special

Industries). For further information regarding this notice contact Ms. Ryan on

(202) 622-3090 (not a toll-free call).

Temporary Regulations To Be

Issued Under Section 1(h) of the

Internal Revenue Code (Applying

Section 1(h) to Capital Gain

Dividends of RICs and REITs).

Notice 97–64

SECTION 1. PURPOSE

This notice describes temporary regulations that will be issued under § 1(h) of

the Internal Revenue Code, effective for

7

taxable years ending on or after May 7,

1997, and provides guidance that regulated investment companies (“RICs”),

real estate investment trusts (“REITs”),

and their shareholders must use in applying § 1(h) until further guidance is issued.

SEC. 2. BACKGROUND

For individuals, estates, and trusts,

§ 1(h), as amended by the Taxpayer Relief

Act of 1997 (the “1997 Act”), Pub. L. No.

105–34, 111 Stat. 788, imposes differing

rates of tax on various transactions giving

rise to long-term capital gains or losses.

For transactions taken into account during

taxable years ending on or after May 7,

1997, a taxpayer’s long-term capital gains

and losses are separated into three tax rate

groups: a 20-percent group, a 25-percent

group, and a 28-percent group. See Notice 97–59, 1997–45 I.R.B. 7.

The Secretary has authority to issue

regulations concerning the application of

section 1(h) to long-term gains from sales

or exchanges by (or of interests in) passthrough entities, including RICs and

REITs.

To the extent that a RIC or a REIT has

net capital gain for a taxable year, dividends that it pays during the year (or that

it is deemed to pay during the year under

§ 855, § 858, or § 860) may be designated

by it as capital gain dividends. In general,

a capital gain dividend is treated by the

shareholders as a gain from the sale or exchange of a capital asset held for more

than one year.

SEC. 3. BASIC DESIGNATION RULE

Subject to the limitations in section 5,

if a RIC or REIT designates a dividend as

a capital gain dividend for a taxable year

ending on or after May 7, 1997, it may

also designate the dividend as a 20% rate

gain distribution, an unrecaptured section

1250 gain distribution, or a 28% rate gain

distribution. If no additional designation

is made regarding a capital gain dividend,

it is a 28% rate gain distribution. If a dividend was designated as a capital gain

dividend in a written notice mailed to

shareholders on or before December 31,

1997, the additional designations permitted by this paragraph may be effected by a

written notice, mailed to all shareholders

not later than February 2, 1998.

If any capital gain dividend is received

on or after May 7, 1997, but is treated

November 24, 1997

under § 855, § 858, or § 860 as being paid

during a taxable year that ends on or before that date, the dividend is a 28% rate

gain distribution.

For purposes of this notice, a designation of undistributed capital gains under §

852(b)(3)(D) or § 857(b)(3)(D) is considered to be the designation of a dividend as

a capital gain dividend.

SEC. 4. SHAREHOLDER

TREATMENT OF CAPITAL

GAIN DIVIDENDS

A capital gain dividend received from a

RIC or REIT in a taxable year of the

shareholder ending on or after May 7,

1997, is treated as follows:

.01 A 20% rate gain distribution is an

amount of long-term capital gain in the

20-percent group;

.02 An unrecaptured section 1250 gain

distribution is an amount of long-term

capital gain in the 25-percent group; and

.03 A 28% rate gain distribution is an

amount of long-term capital gain in the

28-percent group.

SEC. 5. LIMITATIONS ON

DESIGNATIONS OF CAPITAL

GAIN DIVIDENDS

Additional designations of capital gain

dividends for a taxable year are effective

only to the extent that they do not exceed

the limitations stated below and only to

the extent that they comply with the principles of Rev. Rul. 89–81, 1989–1 C.B.

226, which requires that distributions

made to different classes of shares not be

composed disproportionately of dividends

of a particular type. Designations of capital gain dividends must also comply with

§ 852(b)(3)(C) or § 857(b)(3)(C) (as appropriate), which make designations ineffective to the extent they exceed the net

capital gain for the year.

Subject to a deferral adjustment or bifurcation adjustment discussed in section

6, a RIC or REIT determines the maximum amounts which may be designated

in each class of capital gains dividends by

performing the computation required by

§ 1(h) as if the RIC or REIT were an individual whose ordinary income is subject

to a marginal tax rate of at least 28 percent. Then, the maximum distributable

20% rate gain is equal to the amount multiplied by 20% in performing that computation and the maximum distributable un-

November 24, 1997

recaptured section 1250 gain is equal to

the amount multiplied by 25% in performing that computation. The maximum

distributable 28% rate gain is the net capital gain minus the amount of unrecaptured

section 1250 gain distributions and 20%

rate gain distributions that have been

properly designated. For example, if a

RIC has net capital gain in the tax year of

$100, of which $60 would be multiplied

by 20% and $5 would be multiplied by

25% in performing the computations required by § 1(h), then the maximum distributable 20% rate gain is $60 and the

maximum unrecaptured section 1250 gain

is $5. If the RIC properly designates the

maximum permissible unrecaptured section 1250 gain distribution and 20% rate

gain distribution, then the RIC’s maximum distributable 28% rate gain is $35;

i.e., the net capital gain of $100 less the

properly designated unrecaptured section

1250 gain distribution of $5 and 20% rate

gain distribution of $60.

SEC. 6. DEFERRAL ADJUSTMENT

AND BIFURCATION ADJUSTMENT

The adjustment (a deferral adjustment)

required by § 852(b)(3)(C) and § 1.852–

11(e) for a RIC with post-October capital

losses or by § 857(b)(3)(C) for a fiscal

year REIT with post-December capital

losses must be made before calculating

the limitations on the various classes of

capital gain dividends for the RIC’s or

REIT’s taxable year. The deferral adjustment is disregarded in determining the

group in which any deferred gain or loss

belongs, however, if the group depends on

whether an item of gain or loss is taken

into account before May 7, 1997, after

July 28, 1997, or between those dates. For

example, if a RIC’s sale of a capital asset

held for 19 months occurs before May 7,

1997, but is treated under § 852(b)(3)(C)

and § 1.852–11(e) as arising after that

date, the sale gives rise to capital gain in

the 28-percent group.

A RIC or REIT must make the bifurcation adjustment described in the next

paragraph if: (1) its taxable year is not the

period used to determine capital gain net

income for purposes of the excise tax imposed by § 4982 or § 4981 (that is, it is a

RIC with a taxable year that does not end

on October 31 and that has not made an

election under § 4982(e)(4) or it is a REIT

whose taxable year is not the calendar

8

year); (2) it has a net capital gain during

the pre-November (for a RIC) or pre-January (for a REIT) portion of its taxable

year; and (3) it is not required to make the

deferral adjustment.

If a RIC or REIT is required to make a

bifurcation adjustment, it must calculate

the maximum distributable 20% rate gain

and the maximum distributable unrecaptured section 1250 gain separately for the

pre-November (pre-January for REITs)

portion of the year and for the post-October (post-December for REITs) portion of

the year, as if the two portions of the year

were separate taxable years. Then, the

maximum distributable 20% rate gain and

the maximum distributable unrecaptured

section 1250 gain for the taxable year

equals the sum of the maximum distributable amounts for gains in that group determined for each portion of the year.

SEC. 7. EXAMPLES

(1) Example 1. RIC X’s taxable year ends on

July 31. RIC X has only the following capital gains

and losses for the periods indicated:

8/1 to 10/31/97

gain

Long-term capital gain or loss

stock held 19 months

300

stock held 13 months

200

Short-term capital gain or

loss

100

11/1 to 7/31/98

Long-term capital gain or loss

stock held 19 months

200

stock held 13 months

200

Short-term capital gain or

loss

0

loss

net

(150)

(100)

150

100

0

100

(50)

(300)

150

(100)

(100)

(100)

Because X has a taxable year ending in July and a

post-October net capital loss of $50, it is required by

§ 852(b)(3)(C) and § 1.852-11(e) to make a deferral

adjustment and so does not make a bifurcation adjustment. X must disregard the capital gains and

losses for the post-October period in computing its

net capital gains for purposes of designating capital

gain dividends for its taxable year ending July 31,

1998. X must also disregard those gains and losses

for purposes of calculating the various maximum

distributable amounts of gain. For this taxable year,

therefore, X may designate up to $250 as capital gain

dividends, of which up to $150 may be designated as

20% rate gain distributions. The amount that may be

designated as 28% rate gain distributions (or is a

28% rate gain distribution if designated only as a

capital gain dividend) is $250 minus any amounts

properly designated as 20% rate gain distributions.

X must take the post-October capital gains and

losses into account on August 1, 1998 (the first day

of the next taxable year), to determine its net capital

gain and various maximum distributable amounts of

gain for the taxable year beginning on that date.

(2) Example 2. RIC Y’s taxable year ends on July

31. RIC Y has only the following capital gains and

losses for the periods indicated:

1997–47 I.R.B.

8/1 to 10/31/97

gain

Long-term capital gain or loss

stock held 19 months

300

stock held 13 months

200

Short-term capital gain or

loss

100

11/1/97 to 7/31/98

Long-term capital gain or loss

stock held 19 months

200

stock held 13 months

200

Short-term capital gain or

loss

0

loss

net

(150)

(100)

150

100

0

100

(50)

(300)

150

(100)

0

0

Because Y does not have a post-October capital loss

for its taxable year ending July 31, 1998, it does not

make a deferral adjustment. Because Y has a taxable

year ending in July and a pre-November net capital

gain, it must make a bifurcation adjustment. Y must

determine the maximum distributable amounts of

20% rate gain and unrecaptured section 1250 gain

separately for the pre-November and the post-October portion of its taxable year ending July 31, 1998.

The sum of these amounts determines the various

maximum distributable amounts of gain for the entire taxable year. For the pre-November period, Y’s

maximum distributable 20% rate gain is $150. For

the post-October portion of the year, Y’s maximum

distributable 20% rate gain is $50. Y’s net capital

gain for the entire year is $300. For this taxable

year, therefore, Y may designate up to $300 of capital gain dividends, of which up to $200 may be designated as 20% rate gain distributions. The amount

that may be designated as 28% rate gain distributions (or that will be deemed a 28% rate gain distribution if designated only as a capital gain dividend) is

$300 minus any amounts properly designated as

20% rate gain distributions.

SEC. 8. SECTION 1202 GAIN

In the future, RICs may recognize gain

from the sale or exchange of qualified

small business stock held for more than 5

years that may be distributed to shareholders subject to certain limitations provided by § 1202(g). It is expected that the

temporary regulations will provide guidance on how RICs may designate dividends as “section 1202 gain distributions.” This guidance is expected to

provide that: (1) section 1202 gain distributions will be designated separately for

different issuers of qualified small business stock; (2) the exclusion from income

permitted by § 1202 will be determined at

the shareholder level not the RIC level;

and (3) the maximum distributable section 1202 gain for each issuer will be calculated separately from limitations on all

other classes of capital gain dividends but

in the aggregate will not exceed the RIC’s

net capital gain.

1997–47 I.R.B.

SEC. 9. USE OF SUBSTITUTE FORMS

1099–DIV FOR 1997

The rules set forth in this section and in

section 10 previously have been published in Announcement 97–109,

1997–45 I.R.B. 12.

RICs, REITs, brokers, and others reporting capital gain distributions on the

1997 Form 1099–DIV must provide additional information with their statements to

recipients. Payers must continue to report

the total capital gain distributions in box

1c. Payers should also advise recipients

that they cannot report capital gain distributions on Form 1040, line 13, as stated

in the official 1997 Form 1099–DIV.

Rather, they must report the distributions

on Schedule D (Form 1040), line 13, column (f).

In addition, payers must provide to recipients information sufficient to determine the following:

.01 The amount of 28% rate gain distributions. Payers should advise recipients

to report this amount on Schedule D

(Form 1040), line 13, column (g).

.02 The amount of unrecaptured section

1250 gain distributions. Payers should

advise recipients to report this amount on

Schedule D (Form 1040), line 25.

Payers may provide this additional information to recipients on a substitute

statement or on a separate statement.

Payers are not required to report the additional information to the IRS.

SEC. 10 USE OF SUBSTITUTE

FORMS 2439 FOR 1996–1997

RICs and other filers completing the

1996 Form 2439 for fiscal years ending

after May 6, 1997, must provide additional information with their notices to

shareholders. Filers must continue to report the total undistributed long-term capital gains for the year on line 1 of Form

2439. Filers should also advise individual

shareholders that they cannot report the

amount on line 1 on Schedule D (Form

1040), Part II, line 12, as stated in the official 1996 Form 2439 instructions.

Rather, they must report the amount on

line 1 on the 1997 Schedule D (Form

1040), line 11, Column (f).

In addition, filers must provide to

9

shareholders information sufficient to determine the following:

.01 The amount of 28% rate gain included on line 1 of Form 2439. Filers

should advise recipients to report this

amount on Schedule D (Form 1040), line

11, column (g).

.02 The amount of unrecaptured section

1250 gain included on line 1 of Form

2439. Filers should advise recipients to

report this amount on Schedule D (Form

1040), line 25.

Filers may provide this additional information to shareholders on a substitute

statement or on a separate statement. Filers are not required to report this additional information on Forms 2439 filed

with the IRS.

SEC. 11. SUBMISSION OF

COMMENTS

Comment are requested on the subject

matter of this notice and, additionally, on

the proper treatment of a loss on the sale

of a RIC or REIT share held for six

months or less that is recharacterized

under § 852(b)(4)(A) or § 857(b)(7) as a

long-term capital loss. Taxpayers may

submit comments to: CC:DOM:CORP:R

(OGI–117972–97), Room 5226, Internal

Revenue Service, POB 7604, Ben

Franklin Station, Washington, DC 20022.

Submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (OGI–117972–97),

Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW,

Washington, DC. Alternatively, taxpayers may submit comments electronically

via the Internet by selecting the “Tax

Regs” option of the IRS Home Page, or

by submitting comments directly to the

IRS Internet site at http://www.irs.ustreas.gov/prod/ tax_regs/comments.html.

Comments will be available for public inspection.

SEC. 12 PAPERWORK REDUCTION

ACT

The collections of information contained in this notice have been reviewed

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

Paperwork Reduction Act (44 U.S.C.

3507) under control number 1545–1565.

November 24, 1997

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

OMB control number.

The collections of information in this

notice are in sections 3, 9 and 10. This information is required to permit RIC and

REIT shareholders to properly report income following the amendment of § 1(h)

by the 1997 Act. The information collected will be used by RIC and REIT

shareholders reporting income. The collection of information is mandatory. The

likely respondents are businesses and

other for-profit institutions.

The burden for the collections of information in section 3 is as follows:

The estimated total annual reporting

and/or recordkeeping burden is 1500

hours.

The estimated annual burden per respondent varies from 1/4 hour to 10

hours, depending on individual circumstances, with an estimated average of 1/2

hour. The estimated number of respondents is 3,000.

The estimated annual frequency of responses is annually.

The burden for the collection of information in sections 9 and 10 is reflected in

the burden for Form 1099–DIV and Form

2439.

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

November 24, 1997

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by 26 U.S.C. 6103.

DRAFTING INFORMATION

The principal author of this notice is

Kenneth Christman of the Office of Assistant Chief Counsel (Financial Institutions

and Products). For further information

regarding this notice contact Kenneth

Christman on (202) 622-3950 (not a tollfree call).

26 CFR 601.201: Rulings and determination

letters.

(Also Part I, §§ 355; 1.355–2.)

Rev. Proc. 97–53

SECTION 1. PURPOSE

This revenue procedure modifies Rev.

Proc. 97–3, 1997–1 I.R.B. 85, (January 6,

1997), which sets forth provisions of the

Internal Revenue Code under the jurisdiction of the Associate Chief Counsel (Domestic) and the Associate Chief Counsel

(Employee Benefits and Exempt Organizations) relating to matters where the Service will not issue advance rulings or determination letters.

10

SECTION 2. BACKGROUND

Section 5 of Rev. Proc. 97–3 lists areas

under extensive study in which rulings or

determination letters will not be issued

until the Service resolves the issue through

publication of a revenue ruling, revenue

procedure, regulations, or otherwise. Section 5.17 of Rev. Proc. 97–3 provides that

rulings or determination letters will not be

issued under § 355(a)(1) of the Code with

respect to certain distributions until the

Service resolves issues related to these

distributions. The no rule position of section 5.17 was originally set forth in Rev.

Proc. 96–39, 1996–2 C.B. 300, which was

superseded by Rev. Proc. 97–3.

SECTION 3. PROCEDURE

Rev. Proc. 97–3 is modified by deleting

section 5.17.

SECTION 4. EFFECTIVE DATE

This revenue procedure is effective on

November 10, 1997, the date it is made

available to the public.

DRAFTING INFORMATION

The principal author of this revenue

procedure is Dean P. Lekos of the Office

of Assistant Chief Counsel (Corporate).

For further information regarding this

revenue procedure, contact Mr. Lekos on

(202) 622-7550 (not a toll-free call).

1997–47 I.R.B.

Part IV. Items of General Interest

Notice of Proposed Rulemaking

Electronic Transmission of Form

W–8

REG–107872–97

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations relating to the submission of Form W–8, a withholding certificate, needed for purposes of chapters 3

and 61 of the Internal Revenue Code

(Code) and other withholding or reporting

provisions of the Code, such as section

3402, 3405, or 3406. The proposed regulations provide guidance to withholding

agents and payors who wish to establish

an electronic system for use by beneficial

owners or payees in furnishing Form

W–8. The proposed regulations state the

general requirements that such an electronic system must satisfy so that a withholding agent or payor may rely on a

Form W–8 transmitted through such a

system. These regulations affect withholding agents and payors that establish

electronic systems and beneficial owners

and payees who use these systems.

DATES: Written comments and requests

for a public hearing must be received by

January 12, 1998.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–107872–97),

room 5228, Internal Revenue Service,

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

hand delivered between the hours of 8

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

(REG–107872–97), Courier’s Desk, Internal Revenue Service, 1111 Constitution

Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments

electronically via the Internet by selecting

the “Tax Regs” option on the IRS Home

Page, or by submitting comments directly

to the IRS Internet site at www.irs.ustreas.gov/prod/tax_regs/comments.html.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Lilo

1997–47 I.R.B.

Hester, 202-622-3840; concerning submissions, Evangelista Lee, 202-622-8452

(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

amendments to the Income Tax Regulations (26 CFR part 1) under section 1441

of the Internal Revenue Code (Code).

These amendments are proposed to provide general procedures for withholding

agents and payors to establish acceptable

electronic systems.

T.D. 8734, 1997–44 I.R.B. 5 adds

§1.1441–1(e)(4)(iv) which authorizes the

electronic transmission of a Form W–8

described in §1.1441–1(e)(1)(i). In addition, by cross-reference contained in

§1.6049–5(c)(2) (published as a final rule

in T.D. 8734), the regulation authorizes

electronic transmission of a Form W–8

furnished for purposes of chapter 61 of

the Code (i.e., information reporting) or

for purposes of another income tax withholding provision of the Code, such as

section 3406.

Pursuant to chapter 3 (or, in certain

cases, chapter 61) of the Code, a beneficial owner or a payee (i.e., a person who

receives a payment) must furnish a withholding certificate to a withholding agent

or payor in order to establish its status as a

foreign person and entitlement to a reduced rate of withholding. By establishing foreign status, and other relevant

characteristics, a beneficial owner or

payee may be entitled to a reduction or

exemption in the amount of withholding

under chapter 3 of the Code or an exemption from information reporting under

chapter 61 of the Code or from backup

withholding under section 3406. The receipt of a withholding certificate affects

the amount of tax that the withholding

agent or payor may be required to withhold from the payment, and the type and

form of information that it must provide

to the IRS. The regulations under sections 1441 and 1443 specifically identify

Form W–8 (or an acceptable substitute

form) as the required form of the withholding certificate.

These proposed regulations apply to

electronic transmission of Forms W–8.

11

The regulations do not apply to Form

8233 for use by individuals who claim a

reduced rate of withholding under an income tax convention for services performed in the United States. See

§1.1441–4(b)(2). In addition, the regulations do not apply to documentary evidence (described in §1.6049–5(c)(1)) that

may be substituted for the Form W–8

with respect to certain payments made to

accounts maintained outside of the United

States. However, the IRS and Treasury

invite comments on any computer technology (e.g., imaging) that could make

electronic transmission of documentary

evidence possible.

Explanation of Provisions

1. Type and Design of System

Determined by Withholding Agent or

Payor Subject to Specific Requirements.

Under the proposed regulations, a withholding agent or payor may choose to establish an electronic system to receive or

transmit Forms W–8 (or such other form

as the IRS may prescribe), including a

payor or withholding agent that is an intermediary. The withholding agent or

payor may determine the type of system

(such as telephone or computer) available

for that purpose. The system must, however, (1) reliably identify the user, (2) ensure that the information received is the

information sent, and (3) document occasions of user access that result in a submission, renewal, or modification of the

withholding certificate. The proposed

regulations envision that implementation

of these specific requirements necessitates a direct relationship between the

withholding agent or payor and the beneficial owner or payee. The proposed regulations reserve on applicable standards

for systems used by intermediaries to

transmit forms received from another

payor or withholding agent. The IRS and

Treasury recognize the importance of allowing the electronic transmission of

Forms W–8 through one or more intermediaries (i.e., persons not acting for their

own account). Therefore, comments are

solicited regarding the logistical operation

of an electronic transmission system for

use by an intermediary satisfying the IRS

requirements that the integrity, accuracy,

November 24, 1997

and reliability of the original electronic

transmission through an intermediary system is adequately protected.

2. Relationship Between Paper and

Electronic Withholding Certificate.

The electronic transmission must contain exactly the same information as the

paper Form W–8 (or such other form as

the IRS may prescribe). Any guidance,

such as regulations or instructions, that

applies to the paper Form W–8 also applies to electronically transmitted forms.

3. Electronic Filing Optional.

Section 1.1441–1(e)(4)(iv) authorizing

the use of electronic systems was promulgated to assist in reducing burdens (in

terms of cost and time) on withholding

agents, payors, payees, and beneficial

owners. The use of an electronic system

for the transmission of Form W–8 is

merely an alternative to the use of a paper

form. Electronic transmission of Form

W–8 is not mandatory. A withholding

agent or payor may not mandate the use

of electronic systems to receive or transmit the forms. Thus, a payee or beneficial

owner may furnish a Form W–8 to the

withholding agent or payor on paper.

4. Signature Under Penalties of Perjury.

Section 6061 generally provides that

any return, statement, or other document

required to be made under any provision

of the internal revenue laws or regulations

shall be signed in accordance with forms

or regulations prescribed by the Secretary.

Section 301.6061–1(b) provides that the

Secretary may prescribe in forms, instructions, or other appropriate guidance the

method of signing any return, statement,

or other document required to be made

under any provision of the internal revenue laws or regulations. Section 6065

provides that, except as provided by the

Secretary, any return, statement or other

document shall contain or be verified by a

written declaration that it is made under

the penalties of perjury. These requirements apply to a Form W–8 (or such other

form as the Internal Revenue Service may

prescribe), including one that is filed electronically, as provided in §1.1441–1(e)(2)(ii), (3)(ii), (3)(iii), and (3)(v), and

§1.1441– 5(c)(2)(iv) and (3)(iii) of the

final regulations. The proposed regula-

November 24, 1997

tions, therefore, include guidance on the

perjury statement and the signature requirements for Forms W–8 that are filed

electronically.

5. IRS Requests for Electronic Data.

Upon request by the IRS in the course

of an examination, a withholding agent or

payor must supply a hard copy of the information contained on the electronically

transmitted Form W–8 and a statement

that, to the best of the withholding agent’s

knowledge, the electronic Form W–8 was

furnished by the person whose name is on

the form. The printout of the Form W–8

information must be provided to the IRS

in English.

Proposed Effective Date

These regulations are proposed to become effective January 1, 1999.

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 proposed regulations do not impose a

collection of information on small entities,

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

chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of

proposed rulemaking will be submitted to

the Small Business Administration for

comment on its impact on small business.

Comments and Requests for a Public

Hearing

Before these proposed regulations are

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

that are submitted timely (in the manner

described in the ADDRESSES portion of

this preamble) to the IRS. All comments

will be available for public inspection and

copying.

A public hearing may be scheduled if

requested in writing by any person that

submits written comments. If a public

hearing is scheduled, notice of the date,

time, and place for the hearing will be

published in the Federal Register.

12

Drafting Information

The principal author of these regulations is Lilo A. Hester, Office of the Associate Chief Counsel (International), IRS.

However, other personnel from the IRS

and Treasury Department participated in

their development.

*

*

*

*

*

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as follows:

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

Par. 2. In §1.1441–1, paragraph

(e)(4)(iv) is revised to read as follows:

§1.1441–1 Requirement for the

deduction and withholding of tax on

payments to foreign persons.

* * * * *

(e) * * *

(4) * * *

(iv) Electronic transmission of information—(A) In general. A withholding

agent may establish a system for beneficial

owners or payees to furnish electronically

Forms W–8 (or such other form as the Internal Revenue Service may prescribe).

The system also may enable the withholding agent to electronically transmit Forms

W–8 to another person. The system must

meet the requirements described in paragraph (e)(4)(iv)(B) of this section.

(B) Requirements—(1) In general.

The electronic system must ensure that

the information received is the information sent, and must document all occasions of user access that result in the submission, renewal, or modification of a

Form W–8. In addition, the design and

operation of the electronic system, including access procedures, must make it reasonably certain that the person accessing

the system and furnishing Form W–8 is

the person named in the form.

(2) Same information as paper Form

W–8. The electronic transmission must

provide the withholding agent or payor

with exactly the same information as the

paper Form W–8.

(3) Perjury statement and signature requirements. The electronic transmission

1997–47 I.R.B.

must be signed by way of an electronic signature by the person whose name is on the

Form W–8 and the signature must be under

penalties of perjury in the manner described in this paragraph (e)(4)(iv)(B)(3).

(i) Perjury statement. The perjury

statement must contain the language that

appears on the paper Form W–8. The

electronic system must inform the person

whose name is on the Form W–8 that the

person must make the declaration contained in the perjury statement and that

the declaration is made by signing the

Form W–8. The instructions and the language of the perjury statement must immediately follow the person’s certifying

statements and immediately precede the

person’s electronic signature.

(ii) Electronic signature. The act of the

electronic signature must be effected by

the person whose name is on the electronic Form W–8. The signature must

also authenticate and verify the submission. For this purpose, the terms authenticate and verify have the same meanings as

they do when applied to a written signature on a paper Form W–8. An electronic

signature can be in any form that satisfies

the foregoing requirements. The electronic signature must be the final entry in

the person’s Form W–8 submission.

(4) Requests for electronic Forms W–8

data. Upon request by the Internal Revenue Service during an examination, the

withholding agent must supply a hard

copy of the electronic Form W–8 and a

statement that, to the best of the withholding agent’s knowledge, the electronic

Form W–8 was filed by the person whose

name is on the form. The hard copy of the

electronic Form W–8 must provide exactly the same information as, but need

not be a facsimile of, the paper Form W–8.

(C) Special requirements for transmission of Forms W–8 by an intermediary.

[Reserved].

*

*

*

*

*

Michael P. Dolan,

Acting Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on October 6, 1997, 8:45 a.m., and published in the issue of

the Federal Register for October 14, 1997, 62 F.R.

53504)

1997–47 I.R.B.

Notice of Proposed Rulemaking

and Notice of Public Hearing

Withholding on Interest in the

Case of Sales of Obligations

Between Interest Payment Dates

REG–114000–97

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This notice of proposed

rulemaking provides guidance regarding

the obligation to withhold on interest paid

with respect to obligations in the case of

the sale of obligations between interest

payment dates. These regulations would

affect United States and foreign withholding agents and recipients. This document

also provides notice of a public hearing

on these proposed regulations.

DATES: Comments and outlines of oral

comments to be presented at the public

hearing scheduled for January 26, 1998,

at 10 a.m. must be received by January 5,

1998.

ADDRESSES: Send submission to:

CC:DOM:CORP:R (REG–114000–97),

room 5226, Internal Revenue Service,

POB 7604, Ben Franklin Station, Washington, DC 20224. Submissions may be

hand delivered between the hours of 8

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

(Reg–114000–97), Courier desk, Internal

Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively,

taxpayers may submit comments electronically via the internet by selecting the “Tax

Regs” option on the IRS Home Page, or

by submitting comments directly to the

IRS internet site at http://www.irs.ustreas.gov/ prod/tax_regs/comments.html.

The hearing scheduled for January 26,

1998, will be held in the Commissioner’s

Conference Room, room 3313, Internal

Revenue Service, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Lilo

Hester at (202) 622-3840 (not a toll-free

number); concerning submissions and the

hearing, Evangelista Lee, (202) 622-7180

(not a toll-free number).

13

SUPPLEMENTARY INFORMATION

Background

In T.D. 8734, 1997–44 I.R.B. 5, the

IRS and Treasury published final withholding and reporting regulations under

chapter 3 of the Internal Revenue Code

(Code) and other sections of the Code.

Section 1.1441–3(b)(2) of the final regulations provides that no withholding is required upon interest accrued on the date

of a sale of debt obligations when the sale

occurs between two interest payment

dates, even though the amount is treated

as interest under §1.61–7(c) or (d) and is

subject to tax under section 871 or 881.

In contrast, §1.1441–2(b)(3) of the final

regulations provides that withholding is

required on amounts of original issue discount in the event of a sale of an original

issue discount obligation or a payment on

such an obligation, subject to certain exceptions. The IRS and Treasury believe

that, in view of these provisions, the exemption from withholding on non-OID

amounts is no longer justified. A withholding agent that pays amounts to a foreign person in connection with the sale of

an obligation between interest payments

dates is in the same position as a withholding agent that pays amounts to a foreign person in connection with the sale of

an original issue discount obligation. The

withholding exemption for sale of debt

obligations between interest payment

dates provides an easy avenue for the

avoidance of the documentation requirements imposed under sections 871(h) and

881(c) for purposes of qualifying interest

on registered debt obligations as portfolio

interest. For this reason, and in order to

create parity with the tax treatment of

original issue discount obligations under

chapter 3 of the Code, it is no longer appropriate to continue this exemption.

Under §1.1441–2(b)(3), a withholding

agent must withhold on an amount of

original issue discount to the extent that it

has actual knowledge of the proportion of

the amount of the payment that is taxable

to the beneficial owner under section

871(a)(1)(C) or 881(a)(3)(A). A withholding agent has actual knowledge if it

knows how long the beneficial owner has

held the obligation, the terms of the obligation, and the extent to which the benefi-

November 24, 1997

cial owner purchased the obligation at a

premium. A withholding agent is treated

as having knowledge if the information is

reasonably available. Special rules are

provided for withholding agents with

which the beneficial owner does not maintain a direct account relationship. Further,

the regulations under §1.1441–2(b)(3)

dealing with original issue discount provide that, in the case of an obligation that

would qualify as portfolio interest if documentation were provided to the withholding agent, withholding is required on the

entire amount of stated interest, if any, and

original issue discount, if no such documentation is provided, irrespective of

whether the withholding agent has knowledge of the portion of the payment representing taxable original issue discount.

For this purpose, the withholding agent

may rely upon the IRS “List of Original

issue Discount Instruments” contained in

IRS Publication 1212 (available from the

IRS Distribution Centers).

In response to comments, the provisions

in §1.1441–3(b)(1) are proposed to be

modified to reduce the amount upon

which withholding is required. No obligation to withhold is imposed under current

law on the payment of stated interest on an

obligation that was purchased between interest payment dates. Under §1.61–7(c),

interest received on the interest payment

date is treated as a return of basis to the

extent it represents accrued unpaid interest

as of the date of purchase as reflected in

the new holder’s basis for the obligation.

Therefore, when the new holder receives a

payment of the stated interest, the holder’s

tax liability is limited to the amount of interest accrued after the date of purchase

(subject to additional adjustments reflecting possible acquisition premiums or market discounts). Because of the difficulty

for a withholding agent to determine the

amount accrued to the holder and other

adjustments affecting the actual amount

taxable to the holder, withholding on the

entire amount of stated interest is required

under the current withholding regulations

under §1.1441–3(b)(1).

Commentators have asked that the

withholding agent be permitted to withhold on the amount that it knows is taxable. The final withholding regulations

did not modify the proposed regulations

on this point because the Treasury and

IRS consider that withholding on the en-

November 24, 1997

tire amount is justified if withholding on `

sales of obligations between interest payment dates is not required.

However, because these proposed regulations require withholding, the regulations

permit a withholding agent to adjust the

amount of withholding at the time of payment of stated interest to account for earlier withholding.

passed. Copies of the agenda will be

available free of charge at the hearing.

*

*

*

*

*

Proposed Amendments to the Regulations

Accordingly, CFR part 1 is proposed to

be amended as follows:

PART 1—INCOME TAXES

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regulations, and because the 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, this notice of proposed

rulemaking will be submitted to the Chief

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

impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any comments that

are submitted timely to the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled

for January 26, 1998, at 10 a.m. in the

Commissioner’s Conference Room, room

3313, Internal Revenue Building, 1111

Constitution Ave, NW, Washington, DC.

Because of access restrictions, visitors

will not be admitted beyond the Internal

Revenue Building lobby more than 15

minutes before the hearing starts.

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

apply to the hearing.

Persons who wish to present oral comments at the hearing must submit comments and an outline of the topics to be

discussed and the time to be devoted to

each topic by January 5, 1998.

A period of 10 minutes will be allotted

to each person for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

14

Paragraph 1. The authority for part 1

continues to read in part as follows:

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

Par. 2. In §1.1441–3, paragraph (b) is

revised to read as follows:

§1.1441–3 Determination of amount to

be withheld

*

*

*

*

*

(b) Withholding on payments on certain obligations—(1) Withholding at time

of payment of interest. When making a

payment on an interest-bearing obligation, a withholding agent must withhold

under §1.1441–1 upon the gross amount

of stated interest payable on the interest

payment date, regardless of whether the

payment constitutes a return of capital or

the payment of income within the meaning of section 61, unless the withholding

agent has knowledge of the actual amount

of interest paid. For this purpose, the

withholding agent may rely on information provided by the issuer (or its paying

agent), on a representation from the beneficial owner, or on information that the

withholding agent has in its records. To

the extent an amount was withheld on an

amount of capital rather than interest, see

rules for adjustments, refunds, or credits

under §1.1441–1(b)(8).

(2) No withholding between interest

payment dates—(i) General rule. A withholding agent is not required to withhold

under §1.1441–1 upon interest accrued on

the date of a sale of debt obligations when

that sale occurs between two interest payment dates (even though the amount is

treated as interest under §1.61–7(c) or (d)

and is subject to tax under section 871(a)

or 881(a)), unless the withholding agent

has knowledge of the amount paid as interest. For purposes of this paragraph

(b)(2)(i), a withholding agent is treated as

having knowledge in the same manner as

a withholding agent has knowledge for

1997–47 I.R.B.

purposes of §1.1441–2(b)(3)(ii), dealing

with withholding on original issue discount. In addition, notwithstanding lack

of knowledge (within the meaning of

§1.1441–2(b)(3)(ii)), withholding is required on the entire amount of stated interest paid with respect to the obligation

as determined as of the date of original

issue if the withholding agent, pursuant to

the provisions in §1.1441–1(b)(3), treats

the payment as made to a foreign payee

because it cannot associate the payment

with required documentation and the

amount would qualify as portfolio interest. See §1.1441–1(b)(8) for adjustments

to any amount that has been overwithheld

as a result of this provision.

(ii) Applicable rules. Any exemption

from withholding pursuant to paragraph

(b)(2)(i) of this section applies without a

requirement that documentation be furnished to the withholding agent. However, documentation may have to be furnished for purposes of the information

reporting provisions under section 6049

and backup withholding under section

3406. See §1.6045–1(c) for reporting requirements by brokers with respect to

sale proceeds. Any exemption from withholding under paragraph (b)(2)(i) of this

section is not a determination that the accrued interest is not fixed or determinable

annual or periodical income. See §1.61–

7(c) regarding the character of payments

received by the acquirer of an obligation

subsequent to such acquisition (that is, as

a return of capital or interest accrued after

the acquisition).

*

*

*

*

*

Michael P. Dolan,

Acting Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on October 6, 1997, 8:45 a.m., and published in the issue of

the Federal Register for October 14, 1997, 62 F.R.

53503)

Test of Bankruptcy Appeals

Process

Announcement 97–111

TABLE OF CONTENTS

.01 Purpose

.02 Disputes Eligible for Bankruptcy

Appeals Process

.03 How the Bankruptcy Appeals

Process Works

SECTION. 3. ENTRY INTO THE

PROCESS

.01 Requirements to Enter the Bankruptcy Appeals Process

.02 Contacting the IRS for Information

or Entry

.03 Documentation Requirements

SECTION. 4. PROCESSING A

BANKRUPTCY DISPUTE

.01 Special Procedures Function

Process

.02 Appeals Process

SECTION 5. NO USER FEE

SECTION 6. EFFECTIVE DATE

SECTION 1. SUMMARY

This Announcement describes a process

for quickly resolving certain IRS-related

disputes connected with a taxpayer’s

Bankruptcy Case. This administrative

process does not alter existing Bankruptcy

Court jurisdiction or procedures. With

this process, the IRS offers an administrative method to eliminate litigation by resolving IRS-related bankruptcy disputes

that are raised by debtors (or debtors’ estates) against the Service in Bankruptcy

Court. Debtors can be individuals, corporations, trusts, or partnerships. This

process combines two Internal Revenue

Service functions to review these disputes:

the Office of Special Procedures within

the Collection Division, and the Office of

Appeals. The process in this announcement is effective during the six month to

one-year test period beginning on November 6, 1997, the date this announcement is

released to the public. The test will be

conducted in four Internal Revenue Service Districts: Houston, Indiana, New

England (Massachusetts Bankruptcy

courts only), and Southwest (Arizona

Bankruptcy Courts only).

SECTION 2. PURPOSE AND SCOPE

1997–47 I.R.B.

.02 Disputes Eligible for Consideration

Under the Bankruptcy Procedures

DRAFTING INFORMATION

SECTION. 1. SUMMARY

SECTION. 2. PURPOSE AND SCOPE

sponse to the growing volume of bankruptcy cases nationwide. It is intended to

alleviate Service-related litigation in U.S.

Bankruptcy Courts (established under

Title 28 U.S.C. § 151) and to provide

debtors with a fast and effective means to

resolve their disputes. These procedures

provide for a thorough review of the

debtor’s dispute with the Service and

offer an expedited appeal of any adverse

determination. Service representatives

will have substantial authority to settle

disputes under these procedures as well as

the authority to make all appropriate

changes to taxpayer accounts. If a bankruptcy dispute is also eligible for the Collection Appeals Program (CAP – see IRS

Publication 1660), taxpayers are requested to use this bankruptcy process instead because it is specifically designed to

resolve bankruptcy disputes.

.01 Purpose

This process is being tested as a re-

15

The following issues may be considered under the Bankruptcy Appeals

Process:

❖ Dischargeability determinations

–other than when the Service asserts

lack of dischargeability under

B.C. § 523 (a)(1)(C) for willful

evasion of taxes

❖ Proof of Claim and administrative

claim issues

❖ Automatic stay violation issues

❖ Setoff and refund issues

❖ Preferences

This process is designed to resolve disputes between the Service and a debtor or

a debtor’s estate at the earliest possible

date after the debtor has commenced the

bankruptcy proceeding. Only the debtor

or the debtor’s estate may seek resolution

of the issue with the Service by following

the procedures set forth in this announcement. The Bankruptcy Appeals Process is

not available to third parties, such as competing creditors, creditors’ committees,

responsible persons of the debtor, or other

interested parties because of potential disclosure of taxpayer information that is

protected by I.R.C. § 6103. These third

parties can address their concerns, including those regarding any settlement between the debtor or the debtor’s estate and

the Service, through existing Bankruptcy

Court procedures.

November 24, 1997

.03 The Bankruptcy Appeals Process

Disputes will be reviewed initially by

the Office of Special Procedures within

the Collection Division (SPf). SPf will

evaluate the merits of the debtor’s position and make a determination of the

IRS’s position. If this decision is adverse

to the debtor, SPf will review the determination at the debtor’s request. If the final

decision of SPf is adverse to the debtor,

the debtor may appeal the decision to the

Office of Appeals. The Office of Appeals

will then review the matter and make an

independent decision. Where appropriate, Appeals may offer a settlement in

order to avoid litigation. During processing of the dispute, the debtor will have an

opportunity to confer with IRS representatives. However, due to the volume of

bankruptcy disputes, it is anticipated that

all conferences will be conducted over the

telephone. The processing for disputes

should be about 15 days if no appeal is

needed, and will generally be 30 days if

an appeal is requested.

SECTION 3. ENTERING THE

PROCESS

.01 Requirements to Enter the

Bankruptcy Appeals Process

In order to enter the Bankruptcy Appeals Process, a debtor must have filed a

petition in Bankruptcy Court in one of the

test districts and the bankruptcy case must

be open at the time this Process is initiated (except in limited circumstances

where the bankruptcy case has been

closed out but the debtor believes that

Service actions are inconsistent with

Bankruptcy Court orders). A debtor may

begin the process even though the debtor

has begun contesting the dispute in Bankruptcy Court by filing an adversary proceeding or objecting to the Service’s

proof of claim. If the issue has already

been litigated before the Bankruptcy

Court, however, the Bankruptcy Appeals

Process is not available. SPf will advise

the debtor whether the debtor may begin

the Bankruptcy Appeals Process or must

wait until other Service functions complete their work.

.02 Contacting the IRS for Information or Entry into the Bankruptcy

Appeals Process

Information about the Bankruptcy Appeals Process will be provided by the Office of Appeals. The Appeals site on the

World Wide Web contains a reprint of this

Announcement and may contain other

useful information. The address is:

http://www.irs.ustreas.gov/prod/ind_info/

appeals/index.html

Appeals can also be contacted directly at

each test site with inquiries about this

Process. The Appeals office phone and

FAX numbers are:

Boston: (617) 565-7900

FAX: (617) 565-8775

Houston: (281) 721-7241

FAX: (281) 721-7220

Indianapolis: (317) 226-6540

FAX: (317) 226-5340

Phoenix: (602) 207-8114

FAX: (602) 207-8116

To enter this Process, a debtor must generally contact, either in writing or by telephone, the Office of Special Procedures in the

test district where the debtor filed the bankruptcy petition. These Special Procedures offices will not be able to provide general information about the Bankruptcy Appeals Process. They will only assist with entering the Process and will only provide information

that directly relates to entering the Process. The offices are:

Houston District:

IRS Insolvency

ATTN: ADR

1919 Smith

Stop 5020 HOU

Houston, TX 77002

Telephone: (713) 209-3883

Indiana District:

IRS Insolvency

ATTN: ADR

P.O. Box 44211, Stop 41

Indianapolis, IN 46244

Telephone: (317) 226-6273

New England District

(Massachusetts Bankruptcy Courts):

IRS Insolvency

ATTN: ADR

PO Box 9112

Stop 20800

John F. Kennedy Building

Boston, MA 02203

Telephone: (617) 565-1589

Southwest District

(Arizona Bankruptcy Courts):

IRS Insolvency

ATTN: ADR

210 E. Earll Drive

Stop 5012

Phoenix, Arizona 85012

Telephone: (602) 207-8546

November 24, 1997

16

1997–47 I.R.B.

.03 Required Documentation

Debtors must provide copies of their

Bankruptcy Court documents to begin the

Bankruptcy Appeals Process. Income tax

returns that have not been filed and are

past due must be filed before the Bankruptcy Appeals Process can consider the

dispute, if evaluation of the dispute requires their review. The returns may be

filed with SPf. The debtor must also present any other documents or information

pertinent to the Service’s review of the

dispute upon beginning the Bankruptcy

Appeals Process. Within two workdays of

meeting all documentation requirements,

SPf will begin its review of the dispute.

SECTION 4. PROCESSING A

BANKRUPTCY DISPUTE

.01 SPf Procedures

SPf will complete its initial review

within ten workdays. Additional time

will be provided, when necessary, if SPf

must request documents from within the

Service (such as a return) or ask the

debtor to provide additional documentation. The IRS may cease processing the

debtor’s dispute if the debtor fails to provide necessary documentation. If the IRS

ceases case processing because the debtor

failed to provide necessary documentation, the debtor may begin the Process

again as described under Section 3.02 if

the debtor submits the necessary documentation.

If SPf agrees with the debtor’s position

on the dispute, SPf will determine what

actions are necessary to correct the matter

and will commence these actions immediately and complete them within 30 workdays. If SPf disagrees with the debtor,

SPf will contact the debtor and inform the

debtor of SPf’s determination. At this

time, the debtor will be offered the right

to request that SPf review its decision. If

the debtor requests it, this review will be

completed within five workdays. If, after

reviewing its decision, SPf agrees with

the debtor, any actions to correct the matter will be commenced immediately and

will be completed within 30 workdays.

If the second review by SPf does not

support the debtor, SPf will immediately

advise the debtor by letter. The letter will

include an appeal request form which the

debtor must complete and mail back to

SPf within 10 workdays in order to obtain

1997–47 I.R.B.

an appeal. If the request is timely mailed,

the case will be forwarded to Appeals.

Slayen at (202) 401-6155 (not a toll-free

number).

.02 Appeals Procedures

In order for a dispute to reach Appeals

under the Bankruptcy Appeals Process, the

dispute must have received a second review by SPf under the Bankruptcy Appeals

Process (as described in Section 4.01).

The second review by SPf must have

reached a determination that is adverse to

the debtor’s interest, and the debtor must

have requested Appeals’ consideration.

Case processing times by Appeals will

be as follows (except as extended by

agreement):

• For dischargeability determinations,

within 45 workdays of receipt in Appeals

• For all other issues specified in Section 2.02, within 10 workdays of receipt

in Appeals.

After reaching a decision, Appeals will

send a letter to the debtor describing the

decision. The letter will state whether or

not Appeals agrees with the debtor’s position and will describe any actions that will

be taken to correct the matter. Any corrective actions will be commenced by SPf

within three workdays after Appeals

reaches a decision and will be completed

within 30 workdays. In the event of a decision that is adverse to the debtor, no further administrative recourse is available

to the debtor through the IRS.

SECTION 5. NO USER FEE

There is no user fee for this Process.

SECTION 6. EFFECTIVE DATE

These procedures are effective for disputes of which SPf is notified during the

six months to one-year test period beginning on November 6, 1997, the date this

announcement is released to the public.

At the end of the test period, the Service

will evaluate the Process and determine

whether to extend the test or to adopt the

Process on a nationwide basis, and

whether the Process may consider additional issues.

DRAFTING INFORMATION

The principal author of this announcement is Gary Slayen, analyst for the Office of Field Services, National Office

Appeals. For further information regarding this announcement, please contact Mr.

17

Request for Public Comments

on Proposals to Modify Filing

Requirements for Exempt

Organizations Forms 990 and

990–EZ

Announcement 97–115

The Internal Revenue Service invites

comments from interested members of the

public on proposals it is considering to

modify the requirements for filing Form

990, Return of Organization Exempt

From Income Tax, and Form 990–EZ,

Short Form Return of Organization Exempt From Income Tax. The comments

will be considered before final decisions

on the proposals are made.

Tax-exempt organizations, other than

private foundations, are, with certain exceptions for churches and other organizations, required to file Form 990 unless the

organization’s gross receipts do not normally exceed $25,000. An organization

may file Form 990–EZ instead of Form

990 if its gross receipts during the year

were less than $100,000, and its total assets at the end of the year were less than

$250,000. Among the proposals being

considered by the Service is raising the

threshold for Form 990 (for example, to

$40,000 or $100,000), and a commensurate increase in the gross receipts and total

asset thresholds for filing Form 990–EZ.

The Service invites comments from

tax-exempt organizations, as well as other

interested parties such as entities and individuals who use information reported on

Form 990 as to how to reduce the burden

on tax-exempt organizations while recognizing the continuing need for information as to the existence and operations of

such organizations. In addition, the Service invites suggestions for less burdensome alternative methods of periodic reporting by organizations excepted from

filing Form 990 that would provide the

Service with information necessary to

maintain and update computer lists of exempt organizations.

The Service requests that written comments be submitted by February 23, 1998.

Send submissions to CP:E:EO:P:1 (Announcement 97–115), Room 6033, Inter-

November 24, 1997

nal Revenue Service, 1111 Constitution

Ave., NW, Washington, DC 20224. Submissions may be hand-delivered between

the hours of 8 a.m. and 5 p.m. to

CP:E:EO:P:1, (Announcement 97–115),

Room 6033, Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW,

November 24, 1997

Washington, DC. Alternatively, parties

may submit comments electronically via

the Internet by selecting the “Tax Regs in

English” option of the IRS Home Page or

by submitting comments directly to the

IRS Internet site at http://www.irs.ustreas.gov/prod/tax_regs/comments.html.

18

The principal author of this announcement is David Flavin of the Exempt Organizations Division, Projects Branch 1.

For further information regarding this announcement contact Mr. Flavin on (202)

622-7922 (not a toll-free call).

1997–47 I.R.B.

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus,

if an earlier ruling held that a principle

applied to A, and the new ruling holds

that the same principle also applies to B,

the earlier ruling is amplified. (Compare

with modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

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

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling is

modified because it corrects a published

position. (Compare with amplified and

clarified, above).

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

in a ruling that lists previously published

rulings that are obsoleted because of

changes in law or regulations. A ruling

may also be obsoleted because the substance has been included in regulations

subsequently adopted.

Revoked describes situations where the

position in the previously published ruling is not correct and the correct position

is being stated in the new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a period of time in separate rulings. If the

new ruling does more than restate the

substance of a prior ruling, a combination

of terms is used. For example, modified

and superseded describes a situation

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

is continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be published that includes the list in the original

ruling and the additions, and supersedes

all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

Abbreviations

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedral Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

The following abbreviations in current use and formerly used will appear in material published in the

Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

1997–47 I.R.B.

19

November 24, 1997

Numerical Finding List1

Bulletins 1997–27 through 1997–46

Announcements:

97–61, 1997–29 I.R.B. 13

97–67, 1997–27 I.R.B. 37

97–68, 1997–28 I.R.B. 13

97–69, 1997–28 I.R.B. 13

97–70, 1997–29 I.R.B. 14

97–71, 1997–29 I.R.B. 15

97–72, 1997–29 I.R.B. 15

97–73, 1997–30 I.R.B. 86

97–74, 1997–31 I.R.B. 16

97–75, 1997–32 I.R.B. 28

97–76, 1997–32 I.R.B. 28

97–77, 1997–33 I.R.B. 58

97–78, 1997–34 I.R.B. 11

97–79, 1997–35 I.R.B. 8

97–80, 1997–34 I.R.B. 12

97–81, 1997–34 I.R.B. 12

97–82, 1997–34 I.R.B. 12

97–83, 1997–34 I.R.B. 13

97–84, 1997–34 I.R.B. 13

97–85, 1997–35 I.R.B. 8

97–86, 1997–35 I.R.B. 9

97–87, 1997–35 I.R.B. 9

97–88, 1997–35 I.R.B. 9

97–89, 1997–36 I.R.B. 10

97–90, 1997–36 I.R.B. 10

97–91, 1997–37 I.R.B. 25

97–92, 1997–37 I.R.B. 26

97–93, 1997–36 I.R.B. 11

97–94, 1997–36 I.R.B. 12

97–95, 1997–36 I.R.B. 12

97–96, 1997–39 I.R.B. 15

97–97, 1997–38 I.R.B. 22

97–98, 1997–39 I.R.B. 15

97–99, 1997–40 I.R.B. 7

97–100, 1997–40 I.R.B. 8

97–101, 1997–41 I.R.B. 13

97–102, 1997–41 I.R.B. 15

97–103, 1997–41 I.R.B. 16

97–104, 1997–42 I.R.B. 39

97–105, 1997–42 I.R.B. 40

97–106, 1997–45 I.R.B. 11

97–107, 1997–43 I.R.B. 25

97–108, 1997–43 I.R.B. 25

97–109, 1997–45 I.R.B. 12

97–110, 1997–45 I.R.B. 14

97–112, 1997–46 I.R.B. 20

97–113, 1997–46 I.R.B. 21

97–114, 1997–46 I.R.B. 21

Court Decisions:

2061, 1997–31 I.R.B. 5

2062, 1997–32 I.R.B. 8

Delegation Orders:

97 (Rev. 34), 1997–41 I.R.B. 14

172 (Rev. 5), 1997–28 I.R.B. 6

Notices:

97–37, 1997–27 I.R.B. 4

97–38, 1997–27 I.R.B. 8

97–39, 1997–27 I.R.B. 8

97–40, 1997–28 I.R.B. 6

97–41, 1997–28 I.R.B. 6

Notices–Continued

Revenue Rulings—Continued

97–42, 1997–29 I.R.B. 12

97–43, 1997–30 I.R.B. 9

97–44, 1997–31 I.R.B. 15

97–45, 1997–33 I.R.B. 7

97–46, 1997–34 I.R.B. 10

97–47, 1997–35 I.R.B. 5

97–48, 1997–35 I.R.B. 5

97–49, 1997–36 I.R.B. 8

97–50, 1997–37 I.R.B. 21

97–51, 1997–38 I.R.B. 20

97–52, 1997–38 I.R.B. 20

97–53, 1997–40 I.R.B. 6

97–54, 1997–41 I.R.B. 7

97–55, 1997–40 I.R.B. 6

97–56, 1997–43 I.R.B. 19

97–57, 1997–43 I.R.B. 19

97–58, 1997–45 I.R.B. 7

97–59, 1997–45 I.R.B. 7

97–60, 1997–46 I.R.B. 8

97–34, 1997–34 I.R.B. 14

97–35, 1997–35 I.R.B. 4

97–36, 1997–36 I.R.B. 5

97–37, 1997–37 I.R.B. 15

97–38, 1997–38 I.R.B. 14

97–39, 1997–39 I.R.B. 4

97–40, 1997–39 I.R.B. 8

97–41, 1997–40 I.R.B. 4

97–42, 1997–41 I.R.B. 4

97–43, 1997–42 I.R.B. 8

97–44, 1997–45 I.R.B. 5

97–45, 1997–46 I.R.B. 4

97–46, 1997–46 I.R.B. 7

Railroad Retirement Quarterly Rate:

1997–28 I.R.B. 5

Public Laws

105–35, 1997–43 I.R.B. 13

Proposed Regulations:

REG–104893–97, 1997–29 I.R.B. 13

REG–105160–97, 1997–37 I.R.B. 22

REG–106043–97, 1997–37 I.R.B. 24

REG–107644–97, 1997–32 I.R.B. 24

REG–208151–91, 1997–38 I.R.B. 21

REG–246250–96, 1997–42 I.R.B. 30

Treasury Decisions:

8722, 1997–29 I.R.B. 4

8723, 1997–30 I.R.B. 4

8724, 1997–36 I.R.B. 4

8725, 1997–37 I.R.B. 16

8726, 1997–34 I.R.B. 7

8727, 1997–34 I.R.B. 5

8728, 1997–37 I.R.B. 4

8729, 1997–38 I.R.B. 4

8730, 1997–38 I.R.B. 16

8731, 1997–42 I.R.B. 6

8732, 1997–42 I.R.B. 4

8733, 1997–43 I.R.B. 8

8734, 1997–44 I.R.B. 5

8735, 1997–43 I.R.B. 4

Revenue Procedures:

97–32, 1997–27 I.R.B. 9

97–32A, 1997–34 I.R.B. 10

97–33, 1997–30 I.R.B. 10

97–34, 1997–30 I.R.B. 14

97–35, 1997–33 I.R.B. 11

97–36, 1997–33 I.R.B. 14

97–37, 1997–33 I.R.B. 18

97–38, 1997–33 I.R.B. 43

97–39, 1997–33 I.R.B. 48

97–40, 1997–33 I.R.B. 50

97–41, 1997–33 I.R.B. 5

97–42, 1997–33 I.R.B. 57

97–43, 1997–39 I.R.B. 12

97–44, 1997–41 I.R.B. 8

97–45, 1997–41 I.R.B. 10

97–46, 1997–42 I.R.B. 10

97–47, 1997–42 I.R.B. 19

97–48, 1997–43 I.R.B. 19

97–49, 1997–43 I.R.B. 22

97–50, 1997–45 I.R.B. 8

97–51, 1997–45 I.R.B. 9

97–52, 1997–46 I.R.B. 17

Revenue Rulings:

97–27, 1997–27 I.R.B. 4

97–28, 1997–28 I.R.B. 4

97–29, 1997–28 I.R.B. 4

97–30, 1997–31 I.R.B. 12

97–31, 1997–32 I.R.B. 4

97–32, 1997–33 I.R.B. 4

97–33, 1997–34 I.R.B. 4

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 1997–1 through 1997–26

will be found in Internal Revenue Bulletin 1997–27,

dated July 7, 1997.

November 24, 1997

20

1997–47 I.R.B.

Finding List of Current Action on

Previously Published Items1

Bulletins 1997–27 through 1997–46

*Denotes entry since last publication

Revenue Procedures:

82–36

Modified and superseded by

97–49, 1997–43 I.R.B. 22

96–36

Superseded by

97–34, 1997–30 I.R.B. 14

96–42

Superseded by

97–27, 1997–27 I.R.B. 9

97–32

Modified and amplified by

97–32A, 1997–34 I.R.B. 10

Revenue Rulings:

73–67

Revoked by

97–46, 1997–46 I.R.B. 7

89–42

Supplemented by

97–31, 1997–32 I.R.B. 4

93–76

Clarified, modified, partially

obsoleted, and superceded by

97–39, 1997–39 I.R.B 4

94–7

Clarified, modified, partially

obsoleted, and superceded by

97–39, 1997–39 I.R.B 4

1 A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

1997–1 through 1997–26 will be found in Internal

Revenue Bulletin 1997–27, dated July 7, 1997.

1997–47 I.R.B.

21

November 24, 1997

Notes

November 24, 1997

22

1997–47 I.R.B.

INTERNAL REVENUE BULLETIN

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