Bulletin No. 2001–28

Internal Revenue

bulletin

Bulletin No. 2001–28

July 9, 2001

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. 2001-34, page 31.

Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term exempt rate. For

purposes of sections 382, 1274, 1288, and other sections

of the Code, tables set forth the rates for July 2001.

T.D. 8947, page 36.

This T.D. removes certain final regulations under section

6656 of the Code because amendments to the Code section

have made these regulation sections obsolete.

T.D. 8949, page 33.

Final regulations relate to the aggregation of stock ownership in a corporation of members of a consolidated group.

Section 1.1502–34 generally provides that for purposes of

the consolidated return regulations, the stock ownership of

all members of a consolidated group in another corporation

is aggregated in determining the application of certain Code

provisions. These regulations reflect a technical correction

enacted in the Community Renewal Tax Relief Act of 2000

that, in substance, provides that the stock aggregation rules

under regulation section 1.1502–34 shall apply for purposes of section 732(f) of the Code.

T.D. 8950, page 34.

Final regulations provide guidance as to the time for filing an

application for a tentative carryback adjustment by consoli-

dated groups and by certain new members of consolidated

groups. The amendments also extend the period of time for

filing an application for a tentative carryback adjustment for

the separate return year created by a corporation becoming

a new member of a consolidated group.

Rev. Proc. 2001–39, page 38.

This procedure modifies the definitions of capitation fee and

per-unit fee in Rev. Proc. 97–13 (1997–1 C.B. 632) to permit automatic increases of those fees according to a specified, objective, and external standard such as the Consumer

Price Index. Rev. Proc. 97–13 modified.

EMPLOYEE PLANS

T.D. 8948, page 27.

Final regulations clarify the circumstances under which an

employer is considered to have significantly reduced retiree

health coverage during the cost maintenance period defined

under section 420(c)(3) of the Code.

EXEMPT ORGANIZATIONS

Announcement 2001–72, page 39.

A list is provided of organizations now classified as private

foundations.

(Continued on the next page)

Finding Lists begin on page ii.

Department of the Treasury

Internal Revenue Service

ESTATE TAX

Announcement 2001–74, page 40.

This announcement contains revised filing locations for

some states for estate, gift, and generation-skipping transfer tax returns.

GIFT TAX

Announcement 2001–74, page 40.

This announcement contains revised filing locations for

some states for estate, gift, and generation-skipping transfer tax returns.

July 9, 2001

ADMINISTRATIVE

Announcement 2001-73, page 40.

This document contains a correction to Rev. Proc. 2000–39

(2000–41 I.R.B. 340) relating to business and traveling

expenses, and per diem allowances.

Announcement 2001-75, page 42.

This announcement describes the procedures for requesting

a waiver from electronic filing for partnerships that are

required to electronically file Form 1065, but do not have

the necessary software to file all forms and schedules.

2001–28 I.R.B.

The IRS Mission

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

and by applying the tax law with integrity and fairness to

all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription

basis. Bulletin contents are consolidated semiannually into

Cumulative Bulletins, which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements

of internal practices and procedures that affect the rights

and duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service on

the application of the law to the pivotal facts stated in the

revenue ruling. In those based on positions taken in rulings

to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature

are deleted to prevent unwarranted invasions of privacy and

to comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have

the force and effect of Treasury Department Regulations,

but they may be used as precedents. Unpublished rulings

will not be relied on, used, or cited as precedents by Service

personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances

are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions, and Subpart B, Legislation and Related

Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings

are issued by the Department of the Treasury’s Office of the

Assistant Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The first Bulletin for each month includes a cumulative index

for the matters published during the preceding months.

These monthly indexes are cumulated on a semiannual basis,

and are published in the first Bulletin of the succeeding semiannual period, respectively.

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

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

July 9, 2001

2001–28 I.R.B.

insert missing

children

Brianna

Winslow

and

David Gosnell

July 9, 2001

2001–28 I.R.B.

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

Section 42.—Low-Income

Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, page 31.

Section 280G.—Golden

Parachute Payments

Federal short-term, mid-term, and long-term

rates are set forth for the month of July 2001. See

Rev. Rul. 2001–34, page 31.

Section 382.—Limitation on Net

Operating Loss Carryforwards

and Certain Built-In Losses

Following Ownership Change

The adjusted applicable federal long-term rate is

set forth for the month of July 2001. See Rev. Rul.

2001–34, page 31.

Section 420.— Transfers of

Excess Pension Assets to

Retiree Health Accounts

26 CFR 1.420–1: Significant reduction in retiree

health coverage during the cost maintenance

period.

T.D. 8948

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Minimum Cost Requirement

Permitting the Transfer of

Excess Assets of a Defined

Benefit Pension Plan to a

Retiree Health Account

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

Income Tax Regulations relating to the

minimum cost requirement under section

420, which permits the transfer of excess

assets of a defined benefit pension plan to a

retiree health account. Pursuant to section

420(c)(3)(E), these regulations provide that

an employer who significantly reduces re-

2001–28 I.R.B.

tiree health coverage during the cost maintenance period does not satisfy the minimum cost requirement of section 420(c)(3).

In addition, these regulations clarify the circumstances under which an employer is

considered to have significantly reduced retiree health coverage during the cost maintenance period.

DATES: Effective Date: These regulations are effective June 19, 2001.

Applicability Date: These regulations

are applicable to transfers of excess pension assets occurring on or after December 18, 1999. See the Effective Date portion of this preamble.

FOR FURTHER INFORMATION CONTACT: Janet A. Laufer or Vernon S. Carter

(202) 622-6060 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations (26 CFR Part 1) under section 420

of the Internal Revenue Code of 1986

(Code). These regulations provide guidance concerning the minimum cost requirement under section 420. The Revenue Reconciliation Act of 1990 (Public

Law 101–508) (104 Stat. 1388), section

12011, added section 420 of the Code, a

temporary provision permitting certain

qualified transfers of excess pension assets from a non-multiemployer defined

benefit pension plan to a health benefits

account. A health benefits account is defined as an account established and maintained under section 401(h) of the Code

(401(h) account) that is part of the plan.1

1 Section 420(a)(1) and (2) provide that the trust that is

part of the plan is not treated as failing to satisfy the

qualification requirements of section 401(a) or (h) of

the Code, and no amount is includible in the gross

income of the employer maintaining the plan, solely by

reason of such transfer. Also, section 420(a)(3) provides that a qualified transfer is not treated as either an

employer reversion for purposes of section 4980 or a

prohibited transaction for purposes of section 4975.

In addition, Title I of the Employee Retirement Income Security Act of 1974 (88 Stat. 829), as amended

(ERISA), provides that a qualified transfer pursuant to

section 420 is not a prohibited transaction under

ERISA (ERISA section 408(b)(13)) or a prohibited reversion of assets to the employer (ERISA section

403(c)(1)). ERISA also provides certain notification

requirements with respect to such qualified transfers.

27

One of the conditions of a qualified section 420 transfer was that the employer

satisfy a maintenance of effort requirement in the form of a “minimum cost requirement” under which the employer

was required to maintain employer-provided retiree health expenditures for covered retirees, their spouses, and dependents at a minimum dollar level for a

5-year cost maintenance period, beginning with the taxable year in which the

qualified transfer occurs.

The Uruguay Round Agreements Act

(Public Law 103–465) (108 Stat. 4809)

(December 8, 1994) extended the availability of section 420 through December

31, 2000. In conjunction with the extension, Congress modified the maintenance

of effort rules for plans transferring assets

for retiree health benefits so that employers could take into account cost savings

realized in their health benefit plans. As a

result, the focus of the maintenance of effort requirement was shifted from health

costs to health benefits. Under this “benefit maintenance requirement,” which applied to qualified transfers made after December 8, 1994, an employer had to

maintain substantially the same level of

employer-provided retiree health coverage for the taxable year of the transfer and

the following 4 years. The level of coverage required to be maintained was based

on the coverage provided in the taxable

year immediately preceding the taxable

year of the transfer.

The Tax Relief Extension Act of 1999

(title V of H.R. 1180, the Ticket to Work

and Work Incentives Improvement Act of

1999) (Public Law 106 – 170,113 Stat.

1860) (TREA-99) extended section 420

through December 31, 2005. In conjunction with this extension, the minimum

cost requirement was reinstated as the applicable “maintenance of effort” provision (in lieu of requiring the maintenance

of the level of coverage) for qualified

transfers made after December 17, 1999.

Because the minimum cost requirement

relates to per capita cost, an employer

could satisfy the minimum cost requirement by maintaining the average cost

even though the employer defeats the purpose of the maintenance of effort requirement by reducing the number of people

covered by the health plan. In response to

July 9, 2001

concerns regarding this possibility,

TREA-99 also added section 420(c)

(3)(E), which requires the Secretary of the

Treasury to prescribe such regulations as

may be necessary to prevent an employer

who significantly reduces retiree health

coverage during the cost maintenance period from being treated as satisfying the

minimum cost requirement of section

420(c)(3). If the minimum cost requirement of section 420(c)(3) is not satisfied,

the transfer of assets from the pension

plan to the 401(h) account is not a “qualified transfer” to which the provisions of

section 420(a) apply.

On January 5, 2001, a notice of proposed rulemaking (REG – 116468 – 00,

2001–6 I.R.B. 522) was published in the

Federal Register (66 FR 1066). Written

comments were received on the proposed

regulations. A public hearing scheduled

for March 15, 2001, was canceled because no one had requested to speak (66

FR 13864). After consideration of all the

comments received on the proposed regulations, the regulations are adopted as

modified by this Treasury decision.

Explanation of Provisions

General Framework

Following the approach taken in the

proposed regulations, these regulations

provide that the minimum cost requirement of section 420(c)(3) is not met if

an employer significantly reduces retiree health coverage during the cost

maintenance period. Whether an employer has significantly reduced retiree

health coverage is determined by looking at the number of individuals (retirees, their spouses, and dependents)

who lose coverage during the cost maintenance period as a result of employer

actions, measured on both an annual

basis and a cumulative basis.

In determining whether an employer

has significantly reduced retiree health

coverage, the regulations provide that the

employer does not satisfy the minimum

cost requirement if the percentage decrease in the number of individuals provided with applicable health benefits that

is attributable to employer action exceeds

10 percent in any year, or if the sum of the

annual percentage decreases during the

cost maintenance period exceeds 20 percent.

July 9, 2001

Employer Action

The regulations retain the broad definition of employer action contained in the

proposed regulations. Thus, employer action includes not only plan amendments

but also situations in which other employer actions, such as the sale of all or

part of the employer’s business, operate in

conjunction with the existing plan terms

to have the indirect effect of ending an individual’s coverage.

The proposed regulations contained no

exceptions from the rule that treats individuals as losing health coverage by reason of employer action if those individuals’ coverage ends by reason of a sale of

all or part of the employer’s business,

even if the buyer provides coverage for

such individuals (on the implicit assumption that a buyer of less than an entire corporation rarely undertakes to provide such

coverage to retirees in these transactions).

The preamble to the proposed regulations

specifically requested comments as to (1)

the circumstances, if any, in which buyers

commonly provide the seller’s retirees,

and their spouses and dependents, with

health coverage following a corporate

transaction, and (2) in such cases, criteria

that should apply to the replacement coverage in determining whether to treat those

individuals as not having lost coverage.

Commentators disagreed with the assumption stated in the preamble to the

proposed regulations that a buyer acquiring a portion of a seller’s business rarely

undertakes to provide retiree health coverage to retirees in these transactions and

expressed concern about the approach

taken in the proposed regulations concerning individuals who lose retiree

health coverage in such situations. One

commentator stated that in the case of

business combinations involving organizations that contract with the United

States Government, the relevant procurement regulations encourage buyers to assume a seller’s obligations for retirees’

pension and retiree medical benefits.

Other commentators expressed a desire to

retain flexibility in structuring future

business dispositions so that a buyer or

transferee of a business could undertake

to provide retiree health coverage for the

seller’s employees.

Generally, commentators requested that

the regulations allow an employer who

sells or transfers a business to take into

28

account health coverage that a buyer or

transferee provides to retired employees

of the employer. Various approaches

were suggested, most of them centering

around allowing an employer to take

credit for retiree health benefits provided

by a buyer or transferee that are substantially similar to the benefits provided by

the employer.

In cases in which a buyer acquires the

entire employer sponsoring the pension

plan that is the subject of the maintenance

of effort requirement under section

420(c)(3)(E), no special rule is required,

because the buyer as the successor employer maintaining the plan is responsible

for continuing to satisfy the minimum

cost requirements of section 420(c)(3)

with respect to that transfer. However,

based upon comments received, these

final regulations include a special rule

that allows the employer responsible for

satisfying the maintenance of effort requirement of section 420(c)(3)(E) to take

credit for a buyer’s or transferee’s provision of retiree health benefits in certain

other situations.

Under the final regulations, an employer may, but is not required to, treat retiree health coverage as not having ended

for individuals whose coverage is provided by a buyer. In such a case, for the

year of the sale and future taxable years of

the cost maintenance period, the employer must apply the minimum cost requirement contained in section 420(c)(3)

by treating the individuals whose coverage is provided by the buyer as individuals to whom coverage for applicable

health benefits is provided during the year

(i.e., including all such individuals in the

denominator in the determination of applicable employer cost) and treating

amounts the buyer spends on health benefits for those individuals as qualified current retiree health liabilities. After the

buyer commences providing the retiree

health benefits, action of the buyer is attributed to the employer for purposes of

determining whether an individual’s coverage ends by reason of employer action.

Accordingly, if a buyer initially provides

retiree health benefits to individuals affected by the sale, but later amends its

plan to stop providing benefits to those individuals, the employer must treat those

individuals as having lost coverage by

reason of employer action.

2001–28 I.R.B.

These final regulations also add a definition of “sale” to clarify that the rule for

sales applies as well to other transfers of a

business. In the case of a transfer, the

transferee is treated as the buyer. Thus,

for example, the rule applies in a situation

in which an employer spins off all or part

of its business, and also applies when a

contractor that operates a governmentowned facility is replaced by another contractor and the replacement contractor

hires the employees of the prior contractor to operate the facility.

Effective Date

The proposed regulations provided that

the 10 percent annual limit would not

apply to a taxable year beginning before

February 5, 2001 (30 days after publication of the proposed regulations in the

Federal Register). However, under the

proposed regulations, the 20 percent cumulative limit applied with respect to cost

maintenance periods pertaining to any

transfers made on or after December 18,

1999. Thus, if an employer reduced coverage by more than 20 percent prior to issuance of the proposed regulations, the

employer would have failed the cumulative test.

Several commentators expressed concern about the proposed effective date of

transfers occurring on or after December

18, 1999. None of the comments indicated that any employers had in fact reduced coverage by more than 20 percent

prior to issuance of the proposed regulations, and one of the commentators stated

that as a practical matter, the issue of

retroactivity is moot. However, a number

of the commentators expressed concern

over retroactive effective dates in Treasury regulations as a matter of principle.

These final regulations, like the proposed regulations, provide that the 20 percent cumulative test will apply with respect to transfers of excess pension assets

occurring on or after December 18, 1999.

In order to address concerns raised by

commentators, however, the final regulations take into account any reinstatement

of coverage that occurs during the portion

of a cost maintenance period that precedes the first day of the first taxable year

beginning on or after January 1, 2002 (the

initial period). Thus, for purposes of the

cumulative test, if an employer reduced

retiree health coverage by more than 20

2001–28 I.R.B.

percent, the employer can, before the end

of the initial period, resume providing

coverage for individuals who lost coverage and treat those individuals as not having lost coverage. However, if an employer reduces retiree health coverage by

more than 20 percent during the initial period and does not “correct” by again providing coverage for individuals who lost

coverage, the employer would fail the cumulative test. Also, the annual test of

significant reduction applies only to taxable years beginning on or after January

1, 2002, which reflects a further delay

from the date in the proposed regulation.

Additional changes

The proposed regulations contained a

special rule that addresses situations in

which an employer adopts plan terms that

establish eligibility for health coverage

for some individuals, but provide that

those same individuals lose health coverage upon the occurrence of a particular

event or after a stated period of time. In

those cases, an individual is not counted

as having lost health coverage by reason

of employer action merely because that

individual’s coverage ends upon the occurrence of the event or after a certain period of time, such as when health benefits

are provided to employees retiring as a result of a plant closing only for the period

during which they receive severance pay

(see example 2 of the regulations). As a

result of the changes discussed above that

address “corrections” through restoration

of coverage during the initial period and

sale transactions, these final regulations

contain two modifications of the special

rule for contemporaneously-adopted plan

terms. First, the special rule is not available with respect to an amendment that

restores coverage before the end of the

initial period. Second, in the context of

an amendment of a buyer’s health plan to

provide retiree health coverage for a

seller’s employees, the special rule is

available only to the extent that any terms

that have the effect of ending an individual’s coverage are the same as the terms

of the plan maintained by the seller, and

only if the terms of the seller’s plan that

terminate coverage were adopted contemporaneously with the provision under

which the individual became eligible for

retiree health coverage under the seller’s

plan.

29

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order

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

chapter 5) does not apply to these regulations, and, because the regulations do not

impose a collection of information on

small entities, the Regulatory Flexibility

Act (5 U.S.C. chapter 6) does not apply.

Pursuant to section 7805(f) of the Code,

the notice of proposed rulemaking preceding these regulations was submitted to

the Chief Counsel for Advocacy of the

Small Business Administration for comment on its impact on small business.

Drafting Information

The principal authors of these regulations are Janet A. Laufer and Vernon S.

Carter, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and Treasury Department

participated in their development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is amended

as follows:

PART 1 – INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by adding a new entry

in numerical order to read in part as follows:

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

420(c)(3)(E)***

Par. 2. Section 1.420–1 is added under

the undesignated centerheading “Pension,

Profit-Sharing, Stock Bonus Plans, etc.”

to read as follows:

§1.420–1 Significant reduction in retiree

health coverage during the cost

maintenance period.

(a) In general. Notwithstanding section 420(c)(3)(A), the minimum cost requirements of section 420(c)(3) are not

met if the employer significantly reduces

retiree health coverage during the cost

maintenance period.

July 9, 2001

(b) Significant reduction—(1) In general. An employer significantly reduces

retiree health coverage during the cost

maintenance period if, for any taxable

year beginning on or after January 1,

2002, that is included in the cost maintenance period, either —

(i) The employer-initiated reduction

percentage for that taxable year exceeds

10 percent; or

(ii) The sum of the employer-initiated

reduction percentages for that taxable year

and all prior taxable years during the cost

maintenance period exceeds 20 percent.

(2) Employer-initiated reduction percentage. The employer-initiated reduction

percentage for any taxable year is the

fraction B/A, expressed as a percentage,

where:

A=

The total number of individuals

(retired employees plus their

spouses plus their dependents)

receiving coverage for applicable health benefits as of the day

before the first day of the taxable

year.

B=

The total number of individuals

included in A whose coverage

for applicable health benefits

ended during the taxable year by

reason of employer action.

(3) Special rules for taxable years beginning before January 1, 2002. The following rules apply for purposes of computing the amount in paragraph (b)(1)(ii)

of this section if any portion of the cost

maintenance period precedes the first day

of the first taxable year beginning on or

after January 1, 2002—

(i) Aggregation of taxable years. The

portion of the cost maintenance period

that precedes the first day of the first taxable year beginning on or after January 1,

2002 (the initial period), is treated as a

single taxable year and the employer-initiated reduction percentage for the initial

period is computed as set forth in paragraph (b)(2) of this section, except that

the words “initial period” apply instead of

“taxable year.”

(ii) Loss of coverage. If coverage for

applicable health benefits for an individual ends by reason of employer action at

any time during the initial period, an employer may treat that coverage as not having ended if the employer restores coverage for applicable health benefits to that

July 9, 2001

individual by the end of the initial period.

(4) Employer action—(i) General rule.

For purposes of paragraph (b)(2) of this

section, an individual’s coverage for applicable health benefits ends during a taxable year by reason of employer action, if

on any day within the taxable year, the individual’s eligibility for applicable health

benefits ends as a result of a plan amendment or any other action of the employer

(e.g., the sale of all or part of the employer’s business) that, in conjunction

with the plan terms, has the effect of ending the individual’s eligibility. An employer action is taken into account for this

purpose regardless of when the employer

action actually occurs (e.g., the date the

plan amendment is executed), except that

employer actions occurring before the

later of December 18, 1999, and the date

that is 5 years before the start of the cost

maintenance period are disregarded.

(ii) Special rule. Notwithstanding

paragraph (b)(4)(i) of this section, coverage for an individual will not be treated as

having ended by reason of employer action merely because such coverage ends

under the terms of the plan if those terms

were adopted contemporaneously with

the provision under which the individual

became eligible for retiree health coverage. This paragraph (b)(4)(ii) does not

apply with respect to plan terms adopted

contemporaneously with a plan amendment that restores coverage for applicable

health benefits before the end of the initial

period in accordance with paragraph

(b)(3)(ii) of this section.

(iii) Sale transactions. If a purchaser

provides coverage for retiree health benefits to one or more individuals whose coverage ends by reason of a sale of all or part

of the employer’s business, the employer

may treat the coverage of those individuals

as not having ended by reason of employer

action. In such a case, for the remainder of

the year of the sale and future taxable years

of the cost maintenance period —

(A) For purposes of computing the applicable employer cost under section

420(c)(3), those individuals are treated as

individuals to whom coverage for applicable health benefits was provided (for as

long as the purchaser provides retiree

health coverage to them), and any amounts

expended by the purchaser of the business

to provide for health benefits for those individuals are treated as paid by the employer;

30

(B) For purposes of determining

whether a subsequent termination of coverage is by reason of employer action

under this paragraph (b)(4), the purchaser

is treated as the employer. However, the

special rule in paragraph (b)(4)(ii) of this

section applies only to the extent that any

terms of the plan maintained by the purchaser that have the effect of ending retiree health coverage for an individual are

the same as terms of the plan maintained

by the employer that were adopted contemporaneously with the provision under

which the individual became eligible for

retiree health coverage under the plan

maintained by the employer.

(c) Definitions. The following definitions apply for purposes of this section:

(1) Applicable health benefits. Applicable health benefits means applicable

health benefits as defined in section

420(e)(1)(C).

(2) Cost maintenance period. Cost

maintenance period means the cost maintenance period as defined in section

420(c)(3)(D).

(3) Sale. A sale of all or part of an employer’s business means a sale or other

transfer in connection with which the employees of a trade or business of the employer become employees of another person. In the case of such a transfer, the

term purchaser means a transferee of the

trade or business.

(d) Examples. The following examples

illustrate the application of this section:

Example 1. (i) Employer W maintains a defined

benefit pension plan that includes a 401(h) account

and permits qualified transfers that satisfy section

420. The number of individuals receiving coverage

for applicable health benefits as of the day before

the first day of Year 1 is 100. In Year 1, Employer

W makes a qualified transfer under section 420.

There is no change in the number of individuals receiving health benefits during Year 1. As of the last

day of Year 2, applicable health benefits are provided to 99 individuals, because 2 individuals became eligible for coverage due to retirement and 3

individuals died in Year 2. During Year 3, Employer

W amends its health plan to eliminate coverage for 5

individuals, 1 new retiree becomes eligible for coverage and an additional 3 individuals are no longer

covered due to their own decision to drop coverage.

Thus, as of the last day of Year 3, applicable health

benefits are provided to 92 individuals. During Year

4, Employer W amends its health plan to eliminate

coverage under its health plan for 8 more individuals, so that as of the last day of Year 4, applicable

health benefits are provided to 84 individuals. During Year 5, Employer W amends its health plan to

eliminate coverage for 8 more individuals.

(ii) There is no significant reduction in retiree

health coverage in either Year 1 or Year 2, because

2001–28 I.R.B.

there is no reduction in health coverage as a result of

employer action in those years.

(iii) There is no significant reduction in Year 3.

The number of individuals whose health coverage

ended during Year 3 by reason of employer action

(amendment of the plan) is 5. Since the number of

individuals receiving coverage for applicable health

benefits as of the last day of Year 2 is 99, the employer-initiated reduction percentage for Year 3 is

5.05 percent (5/99), which is less than the 10 percent

annual limit.

(iv) There is no significant reduction in Year 4.

The number of individuals whose health coverage

ended during Year 4 by reason of employer action is

8. Since the number of individuals receiving coverage for applicable health benefits as of the last day

of Year 3 is 92, the employer-initiated reduction percentage for Year 4 is 8.70 percent (8/92), which is

less than the 10 percent annual limit. The sum of the

employer-initiated reduction percentages for Year 3

and Year 4 is 13.75 percent, which is less than the 20

percent cumulative limit.

(v) In Year 5, there is a significant reduction

under paragraph (b)(1)(ii) of this section. The number of individuals whose health coverage ended during Year 5 by reason of employer action (amendment of the plan) is 8. Since the number of

individuals receiving coverage for applicable health

benefits as of the last day of Year 4 is 84, the employer-initiated reduction percentage for Year 5 is

9.52 percent (8/84), which is less than the 10 percent

annual limit. However, the sum of the employer-initiated reduction percentages for Year 3, Year 4, and

Year 5 is 5.05 percent + 8.70 percent + 9.52 percent

= 23.27 percent, which exceeds the 20 percent cumulative limit.

Example 2. (i) Employer X, a calendar year taxpayer, maintains a defined benefit pension plan that

includes a 401(h) account and permits qualified

transfers that satisfy section 420. X also provides

lifetime health benefits to employees who retire from

Division A as a result of a plant shutdown, no health

benefits to employees who retire from Division B,

and lifetime health benefits to all employees who retire from Division C. In 2000, X amends its health

plan to provide coverage for employees who retire

from Division B as a result of a plant shutdown, but

only for the 2-year period coinciding with their severance pay. Also in 2000, X amends the health plan

to provide that employees who retire from Division

A as a result of a plant shutdown receive health coverage only for the 2-year period coinciding with their

severance pay. A plant shutdown that affects Division A and Division B employees occurs in 2000.

The number of individuals receiving coverage for applicable health benefits as of the last day of 2001 is

200. In 2002, Employer X makes a qualified transfer

under section 420. As of the last day of 2002, applicable health benefits are provided to 170 individuals,

because the 2-year period of benefits ends for 10 employees who retired from Division A and 20 employees who retired from Division B as a result of the

plant shutdown that occurred in 2000.

(ii) There is no significant reduction in retiree

health coverage in 2002. Coverage for the 10 retirees from Division A who lose coverage as a result

of the end of the 2-year period is treated as having

ended by reason of employer action, because coverage for those Division A retirees ended by reason of

a plan amendment made after December 17, 1999.

2001–28 I.R.B.

However, the terms of the health plan that limit coverage for employees who retired from Division B as

a result of the 2000 plant shutdown (to the 2-year

period) were adopted contemporaneously with the

provision under which those employees became eligible for retiree coverage under the health plan. Accordingly, under the rule provided in paragraph

(b)(4)(ii) of this section, coverage for those 20 retirees from Division B is not treated as having ended

by reason of employer action. Thus, the number of

individuals whose health benefits ended by reason

of employer action in 2002 is 10. Since the number

of individuals receiving coverage for applicable

health benefits as of the last day of 2001 is 200, the

employer-initiated reduction percentage for 2002 is

5 percent (10/200), which is less than the 10 percent

annual limit.

(e) Regulatory effective date. This section is applicable to transfers of excess

pension assets occurring on or after December 18, 1999.

David A. Mader,

Acting Deputy Commissioner

of Internal Revenue.

Approved June 12, 2001.

Mark A. Weinberger,

Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on June

14, 2001, at 2:45 p.m., and published in the issue of

the Federal Register for June 19, 2001, 66 FR

32897)

Section 467.—Certain Payments

for the Use of Property or

Services

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, on this page.

Section 468.—Special Rules for

Mining and Solid Waste

Reclamation and Closing Costs

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, on this page.

Section 482.—Allocation of

Income and Deductions Among

Taxpayers

Federal short-term, mid-term, and long-term

rates are set forth for the month of July 2001. See

Rev. Rul. 2001–34, on this page.

31

Section 483.—Interest on

Certain Deferred Payments

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, on this page.

Section 642.—Special Rules for

Credits and Deductions

Federal short-term, mid-term, and long-term

rates are set forth for the month of July 2001. See

Rev. Rul. 2001–34, on this page.

Section 807.—Rules for Certain

Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, on this page.

Section 846.—Discounted

Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, on this page.

Section 1274.—Determination

of Issue Price in the Case of

Certain Debt Instruments Issued

for Property

(Also sections 42, 280G, 382, 412, 467, 468, 482,

483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;

adjusted federal long-term rate, and

the long-term exempt rate. For purposes

of sections 382, 1274, 1288, and other

sections of the Code, tables set forth the

rates for July 2001.

Rev. Rul. 2001–34

This revenue ruling provides various

prescribed rates for federal income tax

purposes for July 2001 (the current

month). Table 1 contains the short-term,

mid-term, and long-term applicable federal rates (AFR) for the current month for

purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the

short-term, mid-term, and long-term adjusted applicable federal rates (adjusted

AFR) for the current month for purposes

of section 1288(b). Table 3 sets forth the ad-

July 9, 2001

justed federal long-term rate and the longterm tax-exempt rate described in section

382(f). Table 4 contains the appropriate percentages for determining the low-income

housing credit described in section 42(b)(2)

for buildings placed in service during the

current month. Table 5 contains the federal

rate for determining the present value of an

annuity, an interest for life or for a term of

years, or a remainder or a reversionary inter-

est for purposes of section 7520. Finally,

Table 6 contains the blended annual rate for

2001 for purposes of section 7872

REV. RUL. 2001–34 TABLE 1

Applicable Federal Rates (AFR) for July 2001

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

4.07%

4.48%

4.90%

5.31%

4.03%

4.43%

4.84%

5.24%

4.01%

4.41%

4.81%

5.21%

4.00%

4.39%

4.79%

5.18%

5.12%

5.65%

6.16%

6.69%

7.73%

9.06%

5.06%

5.57%

6.07%

6.58%

7.59%

8.86%

5.03%

5.53%

6.02%

6.53%

7.52%

8.76%

5.01%

5.51%

5.99%

6.49%

7.47%

8.70%

5.82%

6.41%

7.01%

7.60%

5.74%

6.31%

6.89%

7.46%

5.70%

6.26%

6.83%

7.39%

5.67%

6.23%

6.79%

7.35%

Short-Term

AFR

110% AFR

120% AFR

130% AFR

Mid-Term

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

Long-Term

AFR

110% AFR

120% AFR

130% AFR

REV. RUL. 2001–34 TABLE 2

Adjusted AFR for July 2001

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-term

adjusted AFR

3.16%

3.14%

3.13%

3.12%

Mid-term

adjusted AFR

3.87%

3.83%

3.81%

3.80%

Long-term

adjusted AFR

5.00%

4.94%

4.91%

4.89%

REV. RUL. 2001–34 TABLE 3

Rates Under Section 382 for July 2001

Adjusted federal long-term rate for the current month

5.00%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the

adjusted federal long-term rates for the current month and the prior two months.)

5.01%

July 9, 2001

32

2001–28 I.R.B.

REV. RUL. 2001–34 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for July 2001

Appropriate percentage for the 70% present value low-income housing credit

8.28%

Appropriate percentage for the 30% present value low-income housing credit

3.55%

REV. RUL. 2001–34 TABLE 5

Rate Under Section 7520 for July 2001

Applicable federal rate for determining the present value of an annuity, an interest for life or a term

of years, or a remainder or reversionary interest

6.2%

REV. RUL. 2001–34 TABLE 6

Blended Annual Rate for 2001

Section 7872(e)(2) blended annual rate for 2001

Section 1288.—Treatment of

Original Issue Discounts of TaxExempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, on page 31.

Section 1502.—Regulations

4.98%

special aggregate stock ownership rules

shall apply for purposes of section 732(f)

of the Code. These final regulations may

affect all consolidated groups.

DATES: Effective Date: June 19, 2001.

FOR FURTHER INFORMATION CONTACT: Frances L. Kelly or David H.

Kessler (202) 622-7770 (not a toll-free

number).

26 CFR 1.1502–34: Special aggregate stock

ownership rules.

SUPPLEMENTARY INFORMATION:

T.D. 8949

Background

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Special Aggregate Stock

Ownership Rules

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations relating to the aggregation of stock ownership in a corporation

of members of a consolidated group.

These regulations reflect a technical correction enacted in section 311(c) of the

Community Renewal Tax Relief Act of

2000 that, in substance, provides that the

2001–28 I.R.B.

This document contains amendments to

the Income Tax Regulations (26 CFR Part

1) under section 1502 of the Internal Revenue Code of 1986 (Code).Section

1.1502–34 generally provides that, for purposes of the consolidated return regulations,

the stock ownership of all members of a

consolidated group in another corporation is

aggregated in determining the application of

certain Code provisions, including section

332(b)(1), in a consolidated return year.

Section 538 of the Ticket to Work and

Work Incentives Improvement Act of

1999 (Public Law 106–170, 113 Stat.

1939) (the 1999 Act) enacted section

732(f) on December 17, 1999. With certain exceptions, section 732(f) generally

provides that if (1) a corporate partner of

a partnership receives a distribution from

that partnership of stock in another corpo-

33

ration, (2) the corporate partner has control of the distributed corporation immediately after the distribution or at any time

thereafter, and (3) the partnership’s adjusted basis in such stock immediately before the distribution exceeded the corporate partner’s adjusted basis in such stock

immediately after the distribution, then an

amount equal to such excess shall reduce

the basis of the property held by the distributed corporation at such time.

On December 21, 2000, Congress enacted section 311(c) of the Community

Renewal Tax Relief Act of 2000 (Public

Law 106–554, 114 Stat. 2763) (the 2000

Act), a technical correction to section 538

of the 1999 Act. Section 311(c) of the

2000 Act states “[t]he reference to section

332(b)(1) of the Internal Revenue Code of

1986 in Treasury Regulation section

1.1502–34 shall be deemed to include a

reference to section 732(f) of such Code.”

The Conference Report states that the rule

in the consolidated return regulations

(§1.1502–34) aggregating stock ownership for purposes of section 332 (relating

to a complete liquidation of a subsidiary

that is a controlled corporation) also applies for purposes of section 732(f) (relating to basis adjustments to assets of a controlled corporation received in a

partnership distribution). H.R. Conf.

Rep. No. 1033, 106th Cong., 2d Sess.

1022 (2000).

July 9, 2001

Section 311(d) of the 2000 Act provides that section 311(c) of the 2000 Act

takes effect as if included in the provisions of the 1999 Act to which it relates.

Thus, the effective date of section 311(c)

of the 2000 Act is the same as that for section 538(a) of the 1999 Act, which is contained in section 538(b) of the 1999 Act.

that prior notice and comment are unnecessary and contrary to the public interest.

For the same reason, good cause exists for

not delaying the effective date of this final

rule.

* * * * *

Adoption of Amendments to the

Regulations

Explanation of Provisions

These final regulations conform

§ 1.1502–34 to a technical correction enacted in section 311(c) of the 2000 Act

and add a regulation under section 732 reflecting that correction. These regulations

reflect this statutory provision clarifying

that the stock aggregation rules under

§ 1.1502–34 apply for purposes of section

732(f).

Because section 311(d) of the 2000 Act

provides that section 311(c) of the 2000

Act shall take effect as if it had been included in the provisions of the 1999 Act,

the effective date provisions of section

538(b) of the 1999 Act apply to these regulations. Section 538(b) generally provides that the amendments made by section 538(a) of the 1999 Act apply to

distributions made after July 14, 1999. In

the case of a corporation that was a partner in a partnership as of July 14, 1999,

the amendments made by section 538(a)

of the 1999 Act apply to distributions

made (or treated as made) to that partner

from that partnership after June 30, 2001.

In the case of any such distribution made

after December 17, 1999, and before July

1, 2001, the rule of the preceding sentence

does not apply unless that partner makes

an election to have the rule apply to the

distribution on the partner’s income tax

return for the year in which the distribution occurs.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. Because no notice

of proposed rulemaking is required for

this final regulation, the provisions of the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) do not apply.

This final rule merely conforms

§ 1.1502–34 to the statutory amendment

made by section 311(c) of the 2000 Act.

Pursuant to 5 U.S.C. 553, it is determined

July 9, 2001

Accordingly, 26 CFR part 1 is amended

as follows:

PART 1 — INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by adding entries in numerical order to read in part as follows:

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

Section 1.732–3 also issued under 26

U.S.C. 732(f). * * *

Section 1.1502–34 also issued under 26

U.S.C. 1502. * * *

Par. 2. Section 1.732–3 is added to read

as follows:

§ 1.732–3 Corresponding adjustment to

basis of assets of a distributed

corporation controlled by a corporate

partner.

The determination of whether a corporate partner has control of a distributed

corporation for purposes of section 732(f)

shall be made by applying the special aggregate stock ownership rules of

§ 1.1502–34.

T.D. 8950

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Guidance on Filing an

Application for a Tentative

Carryback Adjustment in a

Consolidated Return Context

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations relating to the filing of

an application for a tentative carryback

adjustment. These regulations provide

guidance as to the time for filing such application by a consolidated group and by

certain corporations for the separate return year created by their becoming a

member of a consolidated group. These

final regulations may affect all consolidated groups.

DATES: Effective Date: June 22, 2001.

Applicability Date: For dates of applicability, see §1.1502–78(e)(2)(v) of these

regulations.

FOR FURTHER INFORMATION CONTACT: Christopher M. Bass or Frances

L. Kelly (202) 622-7770 (not a toll-free

number).

§ 1.1502–34 [Amended]

SUPPLEMENTARY INFORMATION:

Par. 3. In §1.1502–34, the first sentence

is amended by adding “732(f),” immediately after “351(a),”.

Background

Robert E. Wenzel,

Deputy Commissioner of

Internal Revenue.

Approved June 8, 2001.

Mark A. Weinberger,

Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on June

13, 2001, at 8:45 a.m., and published in the issue of

the Federal Register for June 19, 2001, 66 FR

32901)

26 CFR 1.1502–78: Tentative carryback

adjustments.

34

This document contains amendments to

the Income Tax Regulations (26 CFR Part

1) under section 1502 of the Internal Revenue Code of 1986 (Code) relating to the

filing of an application for a tentative carryback adjustment. The amendments provide guidance as to the time for filing an

application for a tentative carryback adjustment by a consolidated group. The

amendments also extend the time for filing an application for a tentative carryback adjustment by certain corporations

for the separate return year created by

their becoming new members of a consolidated group.

On January 4, 2001, a temporary regulation (T.D. 8919, 2001–6 I.R.B. 505) was

published in the Federal Register (66 FR

713). On this same day, a notice of pro-

2001–28 I.R.B.

posed rulemaking (REG–119352–00,

2001–6 I.R.B. 525) cross-referencing the

temporary regulation and a notice of public hearing were published in the Federal

Register (66 FR 747). No comments or

requests to speak were received from the

public in response to the notice of proposed rulemaking. Accordingly, the public hearing scheduled for April 26, 2001

was canceled in the Federal Register (66

FR 19104) on April 13, 2001. The proposed regulation is adopted as amended

by this Treasury Decision, and the corresponding temporary regulation is removed.

Explanation of Provisions

The amendments adopted by this Treasury decision provide a general rule for all

corporations filing consolidated returns

stating that the provisions of section

6411(a) shall apply to determine the time

for filing an application for a tentative

carryback adjustment by a consolidated

group. In addition, the amendments provide a special rule for applications filed

by certain corporations that become new

members of a consolidated group, extending the period of time for filing an application for a tentative carryback adjustment resulting from losses or credits

arising in the new member’s last separate

return year. For these purposes, the separate return year is treated as ending on the

same date as the end of the current taxable

year of the consolidated group.

Until Form 1139 (Application for a

Tentative Carryback Adjustment) is modified to reflect the changes made by this

regulation, an application for a tentative

carryback adjustment filed under the special rule must include additional information in the form of a statement, “Filed

pursuant to Treas. Reg. section

1.1502–78(e)(2),” in red, at the top of the

current Form 1139. In addition, the Form

1139 must state, in red, the “year end” of

the consolidated group that the new member joins. In response to the changes

made by this regulation, IRS Service Centers developed a procedure to assist in

processing applications filed under

§1.1502–78(e)(2). This procedure requires that the additional information, as

set forth above, be included on the Form

1139. This procedure supplements existing guidelines for filing and processing

Form 1139.

2001–28 I.R.B.

The proposed regulation (66 FR 747)

was issued as §1.1502–78T(g). This final

regulation adopts the substance of the

proposed regulation and renumbers such

provision as §1.1502–78(e).

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. It is hereby certified

that this regulation will not impose a significant economic impact on a substantial

number of small entities because it affects

a relatively small number of corporations

and few, if any, of those corporations are

likely to be small businesses. Therefore,

a Regulatory Flexibility Analysis under

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

chapter 6) is not required. Pursuant to

section 7805(f) of the Code, the notice of

proposed rulemaking that preceded these

regulations was submitted to the Chief

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

impact on small business.

Drafting Information

The principal authors of these regulations are Christopher M. Bass and

Frances L. Kelly, Office of the Associate

Chief Counsel (Corporate). However,

other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is amended

as follows:

PART 1 — INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by removing the entries

for sections 1.1502–78(b) and

1.1502–78T and by adding an entry in numerical order to read in part as follows:

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

Section 1.1502–78 also issued under 26

U.S.C. 1502, 6402(k), and 6411(c). * * *

Par. 2. Section 1.1502–78 is amended by

adding paragraph (e) to read as follows:

§1.1502–78 Tentative carryback

adjustments.

35

*****

(e) Time for filing application—(1)

General rule. The provisions of section

6411(a) apply to the filing of an application for a tentative carryback adjustment

by a consolidated group.

(2) Special rule for new members—(i)

New member. A new member is a corporation that, in the preceding taxable year,

did not qualify as a member, as defined in

§1.1502–1(b), of the consolidated group

that it now joins.

(ii) End of taxable year. Solely for the

purpose of complying with the twelvemonth requirement for making an application for a tentative carryback adjustment under section 6411(a), the separate

return year of a qualified new member

shall be treated as ending on the same

date as the end of the current taxable year

of the consolidated group that the qualified new member joins.

(iii) Qualified new member. A new

member of a consolidated group qualifies

for purposes of the provisions of this

paragraph (e)(2) if, immediately prior to

becoming a new member, either—

(A) It was the common parent of a consolidated group; or

(B) It was not required to join in the filing of a consolidated return.

(iv) Examples. The provisions of this

paragraph (e)(2) may be illustrated by the

following examples:

Example 1. Individual A owns 100 percent of the

stock of X, a corporation that is not a member of a

consolidated group and files separate tax returns on

a calendar year basis. On January 31 of year 1, X

becomes a member of the Y consolidated group,

which also files returns on a calendar year basis. X

is a qualified new member as defined in paragraph

(e)(2)(iii)(B) of this section because, immediately

prior to becoming a new member of the Y consolidated group, X was not required to join in the filing

of a consolidated return. As a result of its becoming

a new member of Group Y, X’s separate return for

the short taxable year (January 1 of year 1 through

January 31 of year 1) is due September 15 of year 2

(with extensions). See §1.1502–76(c). Group Y’s

consolidated return is also due September 15 of year

2 (with extensions). See §1.1502–76(c). Solely for

the purpose of complying with the twelve-month requirement for making an application for a tentative

carryback adjustment under section 6411(a), X’s

taxable year for the separate return year is treated as

ending on December 31 of year 1. X’s application

for a tentative carryback adjustment is therefore due

on or before December 31 of year 2.

Example 2. Assume the same facts as in Example

1 except that immediately prior to becoming a new

member of Group Y, X was a member of the Z consolidated group. Because X was required to join in

the filing of the consolidated return for Group Z, X

July 9, 2001

is not a qualified new member as defined in paragraph (e)(2)(iii) of this section. X’s items for the

one-month period will be included in the consolidated return for Group Z. Group Z’s application for

a tentative carryback adjustment, if any, continues to

be due within 12 months of the end of its taxable

year, which is not affected by X’s change in status as

a new member of Group Y.

(v) Effective date. The provisions of

this paragraph (e)(2) apply for applications by new members of consolidated

groups for tentative carryback adjustments resulting from net operating losses,

net capital losses, or unused business

credits arising in separate return years of

new members that begin on or after January 1, 2001.

§1.1502–78T [Removed]

Par. 3. Section 1.1502–78T is removed.

Robert E. Wenzel,

Deputy Commissioner

of Internal Revenue.

Approved June 13, 2001.

Mark A. Weinberger,

Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on June

21, 2001, at 8:45 a.m., and published in the issue of

the Federal Register for June 22, 2001, 66 FR

33462)

Section 6302.—Mode or Time of

Collection

26 CFR 1.6302–1: Use of Government depositaries

in connection with corporation income and

estimated income taxes and certain taxes of taxexempt organizations.

T.D. 8947

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 31, 301, and

602

Penalties for Underpayments of

Deposits and Overstated

Deposit Claims

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations and removal

of final regulations.

July 9, 2001

SUMMARY: This document makes conforming amendments to certain final regulations to reflect the removal of final

regulations, relating to the penalty for underpayment of deposits of taxes and the

penalty for overstated deposit claims.

These regulations are obsolete due to

amendments to section 6656 of the Internal Revenue Code. The removal of these

regulations will not affect taxpayers.

DATES: The amendments and removal of

these regulations is effective June 15, 2001.

FOR FURTHER INFORMATION CONTACT: Robin M. Tuczak (202) 622-4940

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of

Provisions

This document removes two sections

from the Procedure and Administration

Regulations (26 CFR part 301) relating to

penalties for underpayment of Federal tax

deposits and overstated deposit claims

under section 6656 of the Internal Revenue Code.The Omnibus Budget Reconciliation Act of 1989, Public Law

101–239 (103 Stat. 2106, 1989) amended

section 6656, modifying the penalty rates

relating to a failure to make a Federal tax

deposit and removing the penalty relating

to overstatement of Federal tax deposits.

These changes have rendered

§§301.6656–1 and 301.6656–2 obsolete.

Section 301.6656–1 was revised and

§301.6656–2 was added by T.D. 7925

(1984–1 C.B. 261), published in the Federal Register for December 13, 1983

(LR–311–81, 1982–1 C.B. 570), 48 FR

5453). Section 301.6656–2 was added to

implement changes made by the Economic Recovery Tax Act of 1981, Public

Law 97–34 (95 Stat. 172, 1981). Section

301.6656–1 was revised to remove outdated provisions relating to deposits made

before January 1, 1970, based on the law

in effect for those deposits.

Section 301.6656–1 reflects that, at the

time it was revised, the penalty for underpayment of deposits was five percent of

the amount of the underpayment without

regard to the period during which the underpayment continued, absent reasonable

cause. The Omnibus Budget Reconciliation Act of 1986, Public Law 99–509 (100

Stat. 1874, 1986) amended section 6656

36

to impose a ten percent penalty for underpayment. The Omnibus Budget Reconciliation Act of 1989 further amended this

section to provide for a penalty that is

equal to an applicable percentage of the

amount of the underpayment based on the

duration of the underpayment. This regulation does not reflect the most recent

amendments to section 6656. Furthermore, all relevant information regarding

underpayment penalties is put forth in the

code section or in other published guidance. This regulation does not provide

any additional guidance regarding the

current underpayment penalties as set

forth in section 6656 and therefore may

be removed.

Section 301.6656–2 explains and expands upon former section 6656(b), Overstated Deposit Claims. The Omnibus

Budget Reconciliation Act of 1989 removed former section 6656(b), making

this regulation obsolete.

In addition, §301.6656–3 is redesignated

as §301.6656–1. Further, §§1.6302–1(d)

and 1.6302–2(d) of the Income Tax Regulations and §§31.6302–1(m)(1) and

31.6302(c)–4(a) of the Employment Tax

Regulations are revised to remove references to the removed regulations under section 6656.

Effect on other Documents

The final regulations §§301.6656–1

and 301.6656–2 published in the Federal

Register for December 13, 1983

(LR–311–81, 48 FR 5453), are removed

as of June 15, 2001.

Special Analyses

It has been determined that the removal

of these regulations is not a significant

regulatory action as defined in Executive

Order 12866. Therefore, a regulatory assessment is not required. Because this rule

merely removes regulatory provisions

made obsolete by statute, prior notice and

comment and a delayed effective date are

unnecessary and contrary to the public interest. 5 U.S.C. 553(b)(B) and (d) Because

no notice of proposed rulemaking is required, the Regulatory Flexibility Act (5

U.S.C. chapter 6) does not apply.

Drafting Information

The principal author of the removal of

the regulations is Robin M. Tuczak of the

2001–28 I.R.B.

Office of Associate Chief Counsel, Procedure and Administration (Administrative

Provisions and Judicial Practice Division).

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1, 31, 301,

and 602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as follows:

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

Par. 2. In §1.6302–1, paragraph (d) is

revised to read as follows:

§1.6302–1 Use of Government

depositaries in connection with

corporation income and estimated

income taxes and certain taxes of taxexempt organizations.

*****

(d) Failure to deposit. For provisions

relating to the penalty for failure to make

a deposit within the prescribed time, see

section 6656.

Par. 3. In §1.6302–2, paragraph (d) is

revised to read as follows:

§1.6302–2 Use of Government

depositaries for payment of tax withheld

on nonresident aliens and foreign

corporations.

*****

(d) Penalties for failure to make deposits. For provisions relating to the

penalty for failure to make a deposit within

the prescribed time, see section 6656.

*****

Par. 5. In §31.6302–1, paragraph

(m)(1) is revised to read as follows:

§31.6302–1 Federal tax deposit rules for

withheld income taxes and taxes under

the Federal Insurance Contributions Act

(FICA) attributable to payments made

after December 31, 1992.

*****

(m) * * *(1) Failure to deposit penalty.

For provisions relating to the penalty for

failure to make a deposit within the prescribed time, see section 6656.

*****

Par. 6. In §31.6302(c)–4, paragraph (a)

is revised to read as follows:

Robert E. Wenzel,

Deputy Commissioner

of Internal Revenue.

Approved June 1, 2001.

Mark A. Weinberger,

Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on June

14, 2001, at 8:45 a.m., and published in the issue of

the Federal Register for June 15, 2001, 66 FR

32541)

§31.6302(c)–4 Cross references.

(a) Failure to deposit. For provisions

relating to the penalty for failure to make

a deposit within the prescribed time, see

section 6656.

*****

PART 301—PROCEDURE AND

ADMINISTRATION

Par. 7. The authority citation for part

301 continues to read in part as follows:

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

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, page 31.

Section 7872.—Treatment of

Loans With Below-Market

Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of July 2001. See Rev. Rul. 2001–34, page 31.

§§301.6656–1 and 301.6656–2

[Removed]

Par. 8. Sections 301.6656–1 and

301.6656–2 are removed.

§301.6656–3 [Redesignated as

§301.6656–1]

Par. 9. Section 301.6656–3 is redesignated as new §301.6656–1.

PART 31—EMPLOYMENT TAXES

AND COLLECTION OF INCOME TAX

AT SOURCE

PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part

31 continues to read in part as follows:

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

Par. 10. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

2001–28 I.R.B.

Par. 11. In §602.101, paragraph (b) is

amended by removing the entries for

301.6656–1 and 301.6656–2 from the table.

37

July 9, 2001

Part III. Administrative, Procedural, and Miscellanous

26 CFR 601.601: Rules and regulations.

(Also Part I, §§ 103, 141, 145; 1.141–3, 1.145–2.)

Rev. Proc. 2001–39

SECTION 1. PURPOSE

This revenue procedure modifies the

definitions of capitation fee and per-unit

fee in Rev. Proc. 97–13, 1997–1 C.B. 632,

to permit an automatic increase of those

fees according to a specified, objective,

external standard that is not linked to the

output or efficiency of a facility (for example, the Consumer Price Index).

SECTION 2. BACKGROUND

.01 Rev. Proc. 97–13 sets forth conditions under which a management contract

does not result in private business use

under § 141(b) of the Internal Revenue

Code. The revenue procedure also applies to determinations of whether a management contract causes the test in

§ 145(a)(2)(B) to be met.

.02 Section 3 of Rev. Proc. 97–13 defines various terms, including capitation

fee, periodic fixed fee, and per-unit fee.

.03 Section 3.02 of Rev. Proc. 97–13

defines a capitation fee as a fixed periodic

amount for each person for whom the service provider or the qualified user assumes the responsibility to provide all

needed services for a specified period so

long as the quantity and type of services

actually provided to covered persons

varies substantially. A capitation fee may

include a variable component of up to 20

percent of the total capitation fee designed to protect the service provider

against risks such as catastrophic loss.

.04 Section 3.05 of Rev. Proc. 97–13

defines a periodic fixed fee as a stated

dollar amount for services rendered for a

specified period of time. The definition

of periodic fixed fee provides that the

stated dollar amount may automatically

increase according to a specified, objec-

July 9, 2001

tive, external standard that is not linked to

the output or efficiency of a facility.

.05 Section 3.06 of Rev. Proc. 97–13

defines a per-unit fee as a fee based on a

unit of service provided specified in the

contract or otherwise specifically determined by an independent third party, such

as the administrator of the Medicare program, or the qualified user.

.06 Neither the capitation fee definition

nor the per-unit fee definition expressly

contemplates an automatic increase based

on a specified, objective, external standard not linked to the output or efficiency

of the facility.

.07 This revenue procedure clarifies

that a capitation fee and a per-unit fee

may be determined using an automatic increase according to a specified, objective,

external standard that is not linked to the

output or efficiency of a facility (for example, the Consumer Price Index).

.02 Section 3.06 of Rev. Proc. 97–13 is

modified to add the following text at the

end:

SECTION 3. SCOPE

SECTION 6. EFFECT ON OTHER

DOCUMENTS

This revenue procedure applies when,

under a management contract, a service

provider provides management or other

services involving property financed

with proceeds of an issue of state or

local bonds subject to § 141 or

§ 145(a)(2)(B).

SECTION 4. MODIFICATIONS

.01 Section 3.02 of Rev. Proc. 97–13 is

modified to add the following text immediately before the last sentence:

A fixed periodic amount may include

an automatic increase according to a

specified, objective, external standard

that is not linked to the output or efficiency of a facility. For example, the

Consumer Price Index and similar

external indices that track increases in

prices in an area or increases in revenues or costs in an industry are objective, external standards.

38

A fee that is a stated dollar amount

specified in the contract does not fail to

be a per-unit fee as a result of a provision under which the fee may automatically increase according to a specified,

objective, external standard that is not

linked to the output or efficiency of a

facility. For example, the Consumer

Price Index and similar external indices

that track increases in prices in an area

or increases in revenues or costs in an

industry are objective, external standards.

SECTION 5. INQUIRIES

For further information regarding this

revenue procedure, contact David White

at (202) 622-3980 (not a toll-free call).

This revenue procedure modifies Rev.

Proc. 97–13, 1997–1 C.B. 632.

SECTION 7. EFFECTIVE DATE

This revenue procedure is effective for

any management contract entered into,

materially modified, or extended (other

than pursuant to a renewal option) on or

after July 9, 2001. In addition, an issuer

may apply this revenue procedure to any

management contract entered into prior to

July 9, 2001.

DRAFTING INFORMATION

The principal authors of this revenue

procedure are Mary Truchly and Rebecca

Harrigal, Office of Chief Counsel.

2001–28 I.R.B.

Part IV. Items of General Interest

Foundations Status of Certain

Organizations

Announcement 2001–72

The following organizations have

failed to establish or have been unable to

maintain their status as public charities

or as operating foundations. Accordingly, grantors and contributors may not,

after this date, rely on previous rulings

or designations in the Cumulative List of

Organizations (Publication 78), or on the

presumption arising from the filing of

notices under section 508(b) of the Code.

This listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3),

eligible to receive deductible contributions.

Former Public Charities. The following organizations (which have been

treated as organizations that are not private foundations described in section

509(a) of the Code) are now classified as

private foundations:

1st Generation Community Development

Corporation, Jefferson City, MO

Academy, Cedar Rapids, IA

Afro-American Military Historical A

Association, Inc., Kansas City, MO

Akwaaba, Inc., St. Louis, MO

American Research Center,

Mt. Pleasant, IA

Americharities, Eden Prairie, MN

Athletics for Disadvantaged and Disabled

Athletes, Inc., White Bear Lake, MN

Aware Committee, St. James, MO

Before and After School Services,

Spirit Lake, IA

Bernard Whittington Foundation,

St. Louis, MO

Black Belt Parents Association of

Missouri, Inc., St. Louis, MO

Brainerd South Housing Group, Inc.,

Brainerd, MN

Bridges Institute for Health Services

Research, St. Louis, MO

Central Lakes Snowmobile Club,

Watkins, MN

Cherryfest, Cherryville Community

Betterment Organization,

Cherryville, MO

Christian Ministry Center, Willmar, MN

Christian Teachers College St. John Under

the Rock Fund, Chambersburg, PA

2001–28 I.R.B.

Christopher Foundation, Burnsville, MN

Clay Central Everly Community School

District Foundation, Everly, IA

C.O.I.N. Betterment, Coin, IA

Committed by Choice Ministries,

Minneapolis, MN

Community Development University and

Entertainment Center, Inc., Boone, IA

Community Health Resources,

Woodbury, MN

Compass Institute, Springfield, MO

Computer Information Age Expo, Inc.,

St. Louis, MO

Concerned Citizens for the Emergency

Room & Spelman Hospital,

Smithville, MO

Council Bluffs Parenting Coalition, Inc.,

Council Bluffs, IA

Crossroads Ministries, Goldfield, IA

Do the Right Thing of Greater St. Louis,

Inc., St. Louis, MO

Doug Stanton Ministries International,

Big Lake, MN

Duluth Woodland Community Center,

Inc., Duluth, MN

Dutchmen Dutchgirl Athletic Booster

Club, Owensville, MO

Eden Prairie ABC Foundation,

Eden Prairie, MN

Education & Housing Equity Project,

Minneapolis, MN

Egbe Omo Oduduwa, Inc.,

Minneapolis, MN

Equipment Replacement Fund,

St. Louis, MO

Evangelical Human Care,

St. Paul, MN

Exchange Club Foundation of Brainerd,

Inc., Brainerd, MN

Family Life Skills Learning Center, Inc.,

Plano, IA

Family YMCA of Muscatine Endowment

Foundation, Muscatine, IA

Faribault Ice Arena Association,

Faribault, MN

Feed the Children, Inc.,

University City, MO

Foundation for Senior Housing Options,

Minneapolis, MN

Freedom Foundation, Inc.,

Lees Summit, MO

Friends of Decorah Public Library, Inc.,

Decorah, IA

Friends of Lacey-Keosauqua State Park,

Keosauqua, IA

Friends of the Green, Inc., Litchfield, CT

39

Friends of the Saint Paul Riverfront

Stadium, St. Paul, MN

Fully Reciprocal Theatre Company,

Minneapolis, MN

Gateway Center for Development and

Learning, Inc., St. Louis, MO

Great Northern Ball Association,

Minneapolis, MN

Hale Mahaolu Ehiku, Inc., Kahului, HI

Hopkins Varsity Basketball College

Scholarship Fund, Minnetonka, MN

House of Pain, Inc., Waterloo, IA

H.R. Services of St. Paul, St. Paul, MN

Hurricanes E.S.A., Edina, MN

Immaculate Heart of Mary Our Lady

Queen of Heaven, Minnetonka, MN

Interfaith Council of Greater Sun Lakes,

Inc., Sun Lakes, AZ

Interns, Inc., Pleasant Hill, CA

Iowa Citizens for the Arts Education,

Inc., Des Moines, IA

Jazz Partners, Des Moines, IA

Joplin Area Aids Resource Center, Inc.,

Joplin, MO

Juneteenth Historical Commemoration

Association, St. Louis, MO

Karaoke Kare of Missouri, Inc.,

Marthasville, MO

Keenes Creek Youth Organization,

Duluth, MN

Koshkonong Volunteer Fire Dept.,

Koshkonong, MO

Lakeville Area Historical Society,

Lakeville, MN

Lee County Rabbitary, Inc.,

Bishopville, SC

Legion of Friends, Carmel, CA

Library of Lives, Lees Summit, MO

L.O.V.E. Home, Inc., Hermantown, MN

LRC Partners Foundation, Inc.,

Troy, NY

Lubavitch of Iowa, Inc., Des Moines, IA

Luv-N-Care, Inc., Sedalia, MO

Mabel Youth, Inc., Mabel, MN

Macon County Crisis Center,

New Cambria, MO

Main Stage Productions, Inc.,

Kansas City, MO

Marathon Area Historical Society,

Marathon, IA

Marquette Learning Institute,

St. Louis, MO

Matoska Neighborhood Association,

White Bear Lake, MN

Midwest Tarlton Institute of Marine

Education, Bloomington, MN

July 9, 2001

Minnesota Aviation History and

Education Center, Inc., St. Paul, MN

Mission-A Catholic Worker Community,

St. Cloud, MN

Missouri Black Bass Unlimited, Inc.,

Clinton, MO

Mt. Pleasant Neighborhood,

St. Louis, MO

National Native American War Memorial

Complex, Incorporated,

Chapter Oak, IA

Network for Prep., Inc., Bettendorf, IA

New Harmony Care Center, Inc.,

Richfield, MN

Nguzo Saba Community Studio,

St. Paul, MN

Nisswa Enhanced Reading Foundation,

Nisswa, MN

North Lilbourn Development, Inc.,

Lilbourn, MO

Northland Opera Theater Experience,

Duluth, MN

Northside Economic Development

Council, Inc., Minneapolis, MN

One Small Step, St. Paul, MN

Parents Together Network, Inc.,

Marion, IA

Patch, Ballwin, MO

Paths Unlimited, Minneapolis, MN

People Place, Minneapolis, MN

Philip & Adeline Woods Memorial Fund,

Yanceyville, NC

Pilot Grove Community Athletic

Association, Pilot Grove, MO

Playground, Inc., Buffalo, MO

Port Morris Neighborhood Development

Corporation, Bronx, NY

Presbyterian Homes-Wedum Affordable

Housing, Inc., Arden Hills, MN

Quite Light Opera Company,

St. Joseph, MN

Ralls County Community 2000, Inc.,

Perry, MO

Recover America, Inc., Joplin, MO

Recovery Road, Inc., St. Paul, MN

Red Wing Public Schools Foundation,

Red Wing, MN

Responsible Adults & Youths, Ofallon, MO

R.O.F. Reins of Freedom, Avon, MN

Roots Program, St. Paul, MN

Save Iowas Civil War Monument

Foundation, W. Branch, IA

Shelly Dorgan Memorial Scholarship

Fund, Minneapolis, MN

Simien Foundation for Seniors, Inc.,

Kansas City, MO

Southern California Allstars,

Garden Grove, CA

July 9, 2001

Southwest Missouri Youth Baseball Club,

Carl Junction, MO

Special Needs Association, Cresco, IA

Springfield Community Theatre Group,

Springfield, MN

St. Andrews Assisted Living Services,

St. Louis, MO

St. Charles Basketball Club,

St. Charles, MO

St. James Opera House Restoration

Project, Inc., St. James, MN

St. Louis Northside Coaches Association,

St. Louis, MO

Starving Artists Entertainment Group,

Inc., Edina, MN

Stewartsville Community Betterment

Association, Stewartsville, MO

Stoddard County Inter-Agency Council,

Dexter, MO

Suburban Documentation Project,

St. Paul, MN

Summit Psych Care, Pleasant Hill, MO

Teen Pregnancy Prevention Action

Council, Alexandria, MN

Tom Peterson Memorial Foundation,

Sioux City, IA

Trees for Tomorrow, Newton, IA

Tumwater Hardball Association,

Tumwater, WA

Twin Cities Business Foundation,

St. Paul, MN

United Neighborhoods of Jennings, Inc.,

Jennings, MO

Urban Hope Ministries, Inc.,

Minneapolis, MN

Voce Magna, Blaine, MN

West End Elderly Housing Corporation,

Saint Louis, MO

Wild Rice Electric Trust, Mahnomen, MN

Willow Springs Medical Assistance

Program, Willow Springs, MO

Winterset Fire Fighters Association, Inc.,

Winterset, IA

Youth Gospel Music Conference, Inc.,

St. Louis, MO

If an organization listed above submits

information that warrants the renewal of

its classification as a public charity or as a

private operating foundation, the Internal

Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors

and contributors may thereafter rely upon

such ruling or determination letter as provided in section 1.509(a)–7 of the Income

Tax Regulations. It is not the practice of

the Service to announce such revised clas-

40

sification of foundation status in the Internal Revenue Bulletin.

Rev. Proc. 2000–39, Business

and Traveling Expenses;

Correction

Announcement 2001–73

This document contains a correction to

Rev. Proc. 2000–39 (2000–41 I.R.B. 340)

published on October 10, 2000, relating

to business and traveling expenses, and

per diem allowances.

Under SECTION 5. HIGH-LOW SUBSTANTIATION METHOD, .01 General

rule., toward the end of the paragraph on

page 343 of the Internal Revenue Bulletin,

the text below in brackets is missing.

…substantiated for each calendar day is

equal [to the lesser of the per diem allowance for such day or the amount computed at the rate set forth in section 5.02 of

this revenue procedure for the locality of

travel for such day (or partial day, see section 6.04 of this revenue procedure). Except as provided in section 5.06 of this revenue procedure, this high-low substantiation

method may be used in lieu of the per diem

substantiation method provided in section

4.01 of this revenue procedure, but may not

be used in lieu of the meals] only substantiation method provided in section 4.02 or 4.03

of this revenue procedure.

New Filing Locations for Estate,

Gift, and Generation-Skipping

Transfer Tax Returns

Announcement 2001–74

Beginning with returns filed on or after

January 1, 2001, the filing locations for

some states have changed for the following tax returns:

Form 706, United States Estate (and

Generation-Skipping Transfer) Tax Return

Form 706–CE, Certificate of Payment

of Foreign Death Tax

Form 706–GS(D), Generation-Skipping Transfer Tax Return for Distributions

Form 706–GS(D–1), Notification of

Distribution From a Generation-Skipping Trust

2001–28 I.R.B.

Form 706–GS(T), Generation-Skipping Transfer Tax Return for Terminations

Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return

Form 709–A, United States Short Form

Gift Tax Return

Send these forms to the applicable IRS

address listed below. Note that all returns

filed in 2002 and thereafter, except those

with a foreign, APO, or FPO address, will

be filed at the Cincinnati Service Center.

For estates of decedents domiciled in, donees residing in, and

settlors (now or at the time of death) residing in

Use the following Internal Revenue

Service address —

For returns filed

During 2001

Beginning

January 1, 2002

New York (New York City and counties of

Nassau, Rockland, Suffolk, and Westchester)

Brookhaven

Service Center

Holtsville, NY 00501

USPS:

Cincinnati, OH

45999

New York (all other counties), Connecticut, Maine,

Massachusetts, New Hampshire, Rhode Island, Vermont

Andover, MA 05501

Florida, Georgia

Atlanta, GA 39901

Courier service:

201 W. Rivercenter

Blvd.

Covington, KY

41015

Arkansas, Delaware, District of Columbia, Hawaii, Indiana, Iowa,

Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi,

Missouri, New Jersey, North Carolina, Ohio, Pennsylvania,

South Carolina, Texas, West Virginia, Wisconsin

Cincinnati, OH

45999

Kansas, New Mexico, Oklahoma

Austin, TX 73301

Alaska, Arizona, California (counties of Alpine, Amador, Butte,

Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Glenn,

Humboldt, Lake, Lassen, Marin, Mendocino, Modoc, Napa, Nevada,

Placer, Plumas, Sacramento, San Joaquin, Shasta, Sierra, Siskiyou,

Solona, Sonoma, Sutter, Tehama, Trinity, Yolo, and Yuba), Colorado,

Idaho, Montana, Nebraska, Nevada, North Dakota, Oregon,

South Dakota, Utah, Washington, Wyoming

Ogden, UT 84201

California (all other counties)

Fresno, CA 93888

Illinois

Kansas City, MO

64999

Alabama, Tennessee

Memphis, TN

37501

Virginia

Philadelphia, PA

19255

American Samoa, Guam, the U.S. Virgin Islands, Puerto Rico,

a foreign address, or have an APO or FPO address

Philadelphia, PA

19255

Philadelphia, PA

19255

Important

Any return filed before the date this announcement is published in the Internal Revenue Bulletin will be considered correctly filed if

it was filed in accordance with the instructions for that return at the time it was filed. Do not file a duplicate of a return that has already been filed solely because the filing location has changed.

2001–28 I.R.B.

41

July 9, 2001

Waivers for Form 1065

Electronic Filing Due to

Unavailability of the Necessary

Software

Announcement 2001–75

Section 6011(e)(2) of the Internal Revenue Code and section 301.6011–3(a) of

the Regulations on Procedure and Administration require partnerships with more

than 100 partners to file their partnership

returns (Form 1065 series) on magnetic

media. The regulations define “magnetic

media” to include electronic filing, if

electronic filing is required by the Internal

Revenue Service (“Service”).

Partnership

Name

Federal Tax

Identification

Number

Taxpayers may mail or fax the waiver request to the following:

Mail to:

Internal Revenue Service

P.O. Box 420

Memphis, TN 38101-0420

Attn: Electronic Filing Unit,

Stop 2711

or

Fax to:

901-546-2544

Requests from the partnerships’ tax advisor/preparer do not have to be accompanied by a valid power of attorney. If

a valid power of attorney is not on file,

the Service will address questions

about the waiver to the partnership.

Also, partnerships need not file Form

8800 before submitting a waiver request under this procedure. However,

approval of a waiver request will not

relieve the partnership of a failure to

file penalty for returns filed after the

original due date without a valid extension.

To complete the waiver request process,

taxpayers must attach a signed waiver

request to the Form 1065 return at the

time it is filed. The signed waiver request must include the following information:

1. A notation in large red letters at the

top of page 1 of the Form 1065 return,

July 9, 2001

The Service has become aware that some

partnerships cannot file electronically because the necessary software for some required forms is unavailable. This announcement describes how partnerships

required to file electronically under section 6011(e)(2) may request a section

6724(a) reasonable cause waiver for failing to file electronically.

The forms that may be attached to the

Form 8453-P are listed later in this announcement. This announcement is not

applicable to other types of waiver requests (i.e. economic hardship). Announcement 2001–101 describes how to

request waivers from filing electronically

under section 6011(e) for other reasons.

This announcement is applicable only

to waiver requests made by taxpayers

who are required to file forms and

schedules that are not supported by

electronic filing software and who cannot file those forms and schedules as

paper attachments to the Form 8453-P.

Taxpayers are required to submit a waiver

request to the Memphis Submission Processing Center by October 1, 2001. To

initiate a waiver request, the following information must be submitted for each

partnership:

Number Of K-1’s

Name Of

Software Being

Used

“Waiver Request: IRC Section

6011(e)(2)”;

2. The Waiver Request Attached must

contain:

a) A notation at the top “Waiver Request: IRC Section 6011(e)(2)”;

b) The name, federal tax identification

number, and mailing address of the

partnership;

c) The taxable year for which the

waiver is requested;

d) A detailed statement which lists:

(i) What steps the partnership has

taken in an attempt to meet its

requirement to file its return

electronically,

(ii) Why the steps were unsuccessful,

(iii) What steps the partnership

will take to assure its ability

to electronically file its partnership return for the next tax

year.

e) A statement signed by the Tax Matters Partner, as defined in section

6231(a)(7) of the Code, stating:

“Under penalties of perjury, I declare

that the information contained in this

waiver request is true, correct and complete to the best of my knowledge and belief.”

Failure to complete the entire process will

result in the Service denying the waiver

42

Waiver Request Procedures

Unavailable

Forms And

Schedules

request and assessing the penalty for failure to file electronically.

Service Determination

Within 30 days after receipt of the initial

waiver request, the Service will notify the

partnership if the Service is denying the

waiver request. Partnerships may not appeal a denial of a waiver request at any

time. After verifying that a listed form is

unavailable and may not be filed with the

Form 8453-P, the Service will process initial waiver requests to prevent the assessment of the penalty for failure to file

eletronically. However, the Service must

also receive the required waiver request

attached to the filed Form 1065 to ensure

the penalty will not be subsequently assessed. If the Service processes an initial

waiver request and a form listed in the initial waiver request becomes available before the partnership files its Form 1065,

the Service will not deny the waiver request based on the subsequent availability

of the form.

The Service will not grant waiver requests

for the following forms that may be attached to the 8453-P, allowing the rest of

the return to be filed electronically:

Schedule A (Form 5713), Schedule A

(Form 8847), Schedule B (Form 5713),

Schedule C (Form 5713), Schedule J

(Form 5471), Schedule M (Form 5471),

2001–28 I.R.B.

Schedule N (Form 5471), Schedule O

(Form 5471), Form T, Form 982, Form

4255, Form 5471, Form 6478, Form

8283, Form 8582-CR, Form 8594, Form

8820, Form 8861, Form 8866, Form

8873.

Failure to File Penalty

It is not the Service’s intent to assess

penalties for failure to file electronically

because the necessary software is not

available and the partnership cannot file

the forms with the Form 8453-P. However, penalties may inadvertently be as-

2001–28 I.R.B.

sessed. If a filer receives an improper

penalty notice, the filer should request an

abatement of the penalties by sending a

letter to the IRS at the address provided in

this annoucement. Filers must include the

information requested in the CP Notice

162 assessing the penalty.

ing requests to abate late-filing penalties

assessed on partnership returns.

For questions concerning a request for

waiver or a late filing penalty of an electronic Form 1065, contact the Memphis

Submission Processing Center at 901546-2690 (not a toll-free call).

Late Filing Penalties

The electronic postmark is not available

for the current tax year for electronic

Forms 1065. However, the IRS will accept the transmitter’s date and time acknowledgement for purposes of evaluat-

43

July 9, 2001

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.

PHC—Personal Holding Company.

ER—Employer.

PO—Possession of the U.S.

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

Bulletin.

ERISA—Employee Retirement Income Security

PR—Partner.

Act.

PRS—Partnership.

EX—Executor.

PTE—Prohibited Transaction Exemption.

A—Individual.

F—Fiduciary.

Acq.—Acquiescence.

Pub. L.—Public Law.

FC—Foreign Country.

B—Individual.

REIT—Real Estate Investment Trust.

FICA—Federal Insurance Contributions Act.

BE—Beneficiary.

Rev. Proc.—Revenue Procedure.

FISC—Foreign International Sales Company.

BK—Bank.

FPH—Foreign Personal Holding Company.

B.T.A.—Board of Tax Appeals.

F.R.—Federal Register.

C—Individual.

FUTA—Federal Unemployment Tax Act.

C.B.—Cumulative Bulletin.

FX—Foreign Corporation.

CFR—Code of Federal Regulations.

G.C.M.—Chief Counsel’s Memorandum.

CI—City.

GE—Grantee.

COOP—Cooperative.

GP—General Partner.

Ct.D.—Court Decision.

GR—Grantor.

CY—County.

IC—Insurance Company.

D—Decedent.

I.R.B.—Internal Revenue Bulletin.

T.I.R.—Technical Information Release.

DC—Dummy Corporation.

LE—Lessee.

TP—Taxpayer.

DE—Donee.

LP—Limited Partner.

TR—Trust.

Del. Order—Delegation Order.

LR—Lessor.

TT—Trustee.

DISC—Domestic International Sales Corporation.

M—Minor.

U.S.C.—United States Code.

DR—Donor.

Nonacq.—Nonacquiescence.

X—Corporation.

E—Estate.

O—Organization.

Y—Corporation.

EE—Employee.

P—Parent Corporation.

Z—Corporation.

July 9, 2001

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

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

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

i

2001–28 I.R.B.

Numerical Finding List1

Bulletin 2001–27

Announcements:

2001–69, 2001–27 I.R.B. 23

2001–70, 2001–27 I.R.B. 23

2001–71, 2001–27 I.R.B. 26

Notices:

2001–39, 2001–27 I.R.B. 3

2001–41, 2001–27 I.R.B. 2

Proposed Regulations:

REG–106917–99, 2001–27 I.R.B. 4

Railroad Retirement Quarterly Rates:

2001–27, I.R.B. 1

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 2001–1 through 2001–26

is in Internal Revenue Bulletin 2001–27, dated July

2, 2001.

2001–28 I.R.B.

ii

July 9, 2001

Finding List of Current Actions on

Previously Published Items1

Bulletin 2001–27

Proposed Regulations:

REG–107186–00

Corrected by

Ann. 2001–71, 2001–27 I.R.B. 26

Revenue Rulings:

57–589

Obsoleted by

REG–106917–99, 2001–27 I.R.B. 4

65–316

Obsoleted by

REG–106917–99, 2001–27 I.R.B. 4

68–125

Obsoleted by

REG–106917–99, 2001–27 I.R.B. 4

69–563

Obsoleted by

REG–106917–99, 2001–27 I.R.B. 4

74–326

Obsoleted by

REG–106917–99, 2001–27 I.R.B. 4

78–179

Obsoleted by

REG–106917–99, 2001–27 I.R.B. 4

1 A cumulative list of current actions on previously

published items in Internal Revenue Bulletins

2001–1 through 2001–26 is in Internal Revenue

Bulletin 2001–27, dated July 2, 2001.

July 9, 2001

iii

2001–28 I.R.B.

insert missing

children

Tyler Wright

and

Hannah

Zaccaglini

2001–28 I.R.B.

July 9, 2001

insert missing

children

Brittani Dolbear

and

Jolene Dechert

July 9, 2001

2001–28 I.R.B.

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