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Bulletin No. 1996–26

June 24, 1996

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

relate to the reporting of nonpayment withheld income

taxes.

T.D. 8666, page 4.

Final regulations under sections 62, 132, and 274 of the

Code relate to payment by employer of expenses for meals

and entertainment, club dues, and spousal travel.

Page 7.

Railroad retirement; rate determination; quarterly. The

Railroad Retirement Board has determined that the rate

of tax imposed by section 3221(c) of the Code shall be

thirty-four cents for the quarters beginning January 1

and April 1, 1996.

T.D. 8671, page 8.

Final regulations under section 6109 of the Code relate

to requirements for furnishing a taxpayer identifying

number (TIN) on returns, statements, or other documents. These regulations also provide procedures to

request a TIN for certain alien individuals who do not

have, or are not eligible to receive, a social security

number.

ADMINISTRATIVE

Announcement 96–60, page 17.

Publication 947, Practice Before the IRS and Power of

Attorney (revised April 1996), is now available.

PS–29–95, page 15.

Proposed regulations under section 42 of the Code

relate to the low-income housing credit. A public

hearing will be held on September 17, 1996.

Rev. Proc. 96–34, page 14.

This procedure provides that the Service will not rule on

the results of a state-created plan or arrangement that

enables participants to pay for the cost of a postsecondary education for themselves or a designated

beneficiary. Rev. Proc. 96–3 amplified.

EMPLOYMENT TAX

T.D. 8672, page 7.

Final regulations under section 6011 of the Code

Finding Lists begin on page 19.

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Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

With this in mind, it is the duty of the Service to

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of

view.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

law, to try to find the true meaning of the statutory

provision and not to adopt a strained construction in

the belief that he or she is ‘‘protecting the revenue.’’

The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

2

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining officers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great courtesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

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Introduction

The Internal Revenue Bulletin is the authoritative

instrument of the Commissioner of Internal Revenue for

announcing official rulings and procedures of the

Internal Revenue Service and for publishing Treasury

Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general

interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription basis. Bulletin contents of a permanent nature are

consolidated semiannually into Cumulative Bulletins,

which are sold on a single-copy basis.

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 procedures 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.

With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in

this part, none of these announcements are consolidated in the Cumulative Bulletins.

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly

and semiannual basis, and are published in the first

Bulletin of the succeeding quarterly and semi-annual

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, D.C. 20402.

3

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

Section 61.—Gross Income Defined

26 CFR 1.61–7: Interest.

The Service will not issue rulings or determination letters for state-created prepaid tuition

plans, including whether any contract under the

plan is a debt instrument and, if so, how interest

or original issue discount attributable to the

contract is treated for federal tax purposes. See

Rev. Proc. 96–34, page 14.

Section 115.—Income of States,

Municipalities, etc.

The Service will not issue rulings or determination letters for state-created prepaid tuition

plans, including whether the plan is an entity

separate from a state and, if so, how the plan is

treated for federal tax purposes. See Rev. Proc.

96–34, page 14.

Section 163.—Interest

26 CFR 1.163–7: Deduction for OID on

certain debt instruments.

The Service will not issue rulings or determination letters for state-created prepaid tuition

plans, including whether any contract under the

plan is a debt instrument and, if so, how original

issue discount attributable to the contract is

treated for federal tax purposes. See Rev. Proc.

96–34, page 14.

Section 274.—Disallowance of

Certain Entertainment, Etc., Expenses

26 CFR 1.274–1: Disallowance of certain

entertainment, gift and travel expenses.

T.D. 8666

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Payment by Employer of Expenses for

Meals and Entertainment, Club Dues,

and Spousal Travel.

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations

SUMMARY: This document contains

final regulations relating to reimbursement and other expense allowance arrangements for expenses of business

meals and entertainment that are dis-

allowed as a deduction under section

274(n), and working condition fringe

benefit treatment for expenses for club

dues and spousal travel that are disallowed as a deduction under sections

274(a)(3) and 274(m)(3). The final

regulations reflect changes to the law

made by the Omnibus Budget Reconciliation Act of 1993. The persons

affected by the final regulations are

persons who provide or receive the use

of business meals and entertainment,

club membership dues, or spousal

travel expenses.

EFFECTIVE DATE: These regulations

are effective May 30, 1996.

FOR FURTHER INFORMATION

CONTACT: Concerning regulations under sections 62 and 132, David N.

Pardys, (202) 622-6040; concerning

regulations under section 274, John T.

Sapienza, Jr., (202) 622-4920 (not tollfree numbers).

SUPPLEMENTARY INFORMATION:

Background

On December 16, 1994, a notice of

proposed rulemaking relating to payment by an employer of expenses for

business meals and entertainment, club

dues, and spousal travel was published

in the Federal Register (59 FR 64909

[IA–17–94; EE–36–94, 1995–1 C.B.

942]). A public hearing was held on

April 14, 1995.

Written comments responding to the

notice were received. After consideration of all the comments, the proposed

regulations are adopted as revised by

this Treasury decision. The significant

comments on the proposed regulations

and the principal revisions made in the

final regulations are discussed below.

Explanation of Provisions

This Treasury decision contains final

regulations to the Income Tax Regulations under sections 62(c), 132(d), and

274 of the Internal Revenue Code

(Code) to reflect changes made to

section 274 of the Code by sections

13209, 13210, and 13272 of OBRA

(107 Stat. 469, 542). The OBRA provisions amended section 274 of the

Code by (1) limiting the deductible

4

portion of meal and entertainment

expenses to 50 percent; (2) eliminating

the deduction for club dues; and (3)

restricting the deduction for spousal

travel. The amendments to the regulations under sections 62 and 132 of the

Code concern the income tax consequences to employees when their

employer’s (or third party payor’s)

deduction is disallowed by the amendments to section 274 of the Code.

Comments to the proposed regulations concerned whether payment of

expenses for club dues and spousal

travel by an employer exempt from

taxation under subtitle A of the Internal

Revenue Code were eligible for the

working condition fringe exclusion.

The final regulations provide that any

reference in the regulations to an

employer’s deduction disallowed by

sections 274(a)(3) or 274(m)(3) of the

Code will be treated as a reference to

the amount which would be disallowed

as a deduction to the employer if the

employer were not exempt from

taxation.

Other comments suggested that the

final regulation extend the section

274(e)(2) option of an employer to

avoid the section 274 disallowance for

payment of spousal travel to persons

who pay expenses described in section

274(e)(9). To achieve consistent results

for payments to independent contractors and employees with respect to

spousal travel, the final regulations

adopted this suggestion.

A number of comments requested

clarification of the term other individual in section 274(m)(3). In particular,

the comments asked that the term be

clarified so as not to preclude the

deduction for travel expenses of a

business associate accompanying the

taxpayer (or an officer or employee of

the taxpayer) on business travel. The

regulation was amended to reflect these

comments.

One comment concerned the person

to whom a fringe benefit is taxable.

The rules concerning to whom a fringe

benefit is taxable are set forth in

§1.61–21(a)(4). For rules concerning

volunteers, see §1.132–5(r).

Several comments involved the

amount of the employer’s disallowed

deduction when the expenses of a

spouse, dependent, or other individual

accompanying an employee on a non-

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commercial flight qualify as a working

condition fringe benefit. This issue is

under further consideration. In addition,

other comments requested clarification

of what constitutes a deductible expenditure for spousal travel under the

general rule of section 162(a). The

rules for deducting travel expenses of a

spouse are in §1.162–2(c).

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It has also been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

apply to these regulations, and, therefore, a Regulatory Flexibility Analysis

is not required. Pursuant to section

7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking

preceding these regulations was submitted to the Small Business Administration for comment on its impact on

small business.

Drafting Information

The principal authors of these regulations are David N. Pardys, Office of

the Associate Chief Counsel (Employee

Benefits and Exempt Organizations),

and John T. Sapienza, Jr., Office of the

Assistant Chief Counsel (Income Tax

and Accounting), IRS. Personnel from

other offices of the IRS and Treasury

Department also participated in their

development.

*

*

*

*

*

*

Amendments to the Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read, in part, as

follows:

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

Par. 2. In §1.62–2, paragraph (h)(1)

is amended by adding a second sentence at the end of the paragraph to

read as follows:

§1.62–2 Reimbursements and other

expense allowance arrangements.

*

*

*

*

*

*

(h) * * * (1) * * * If an arrangement

provides advances, allowances, or reimbursements for meal and entertainment

expenses and a portion of the payment

is treated as paid under a nonaccountable plan under paragraph (d)(2) of this

section due solely to section 274(n),

then notwithstanding paragraph (h)(2)(ii) of this section, these nondeductible

amounts are neither treated as gross

income nor subject to withholding and

payment of employment taxes.

*

*

*

*

*

*

Par. 3. In §1.132–5, paragraphs (s)

and (t) are added to read as follows:

§1.132–5 Working condition fringes.

*

*

*

*

*

*

(s) Application of section 274(a)(3)—(1) In general. If an employer’s

deduction under section 162(a) for dues

paid or incurred for membership in any

club organized for business, pleasure,

recreation, or other social purpose is

disallowed by section 274(a)(3), the

amount, if any, of an employee’s

working condition fringe benefit relating to an employer-provided membership in the club is determined without

regard to the application of section

274(a) to the employee. To be excludible as a working condition fringe

benefit, however, the amount must

otherwise qualify for deduction by the

employee under section 162(a). If an

employer treats the amount paid or

incurred for membership in any club

organized for business, pleasure, recreation, or other social purpose as compensation under section 274(e)(2), then

the expense is deductible by the

employer as compensation and no

amount may be excluded from the

employee’s gross income as a working

condition fringe benefit. See §1.274–

2(f)(2)(iii)(A).

(2) Treatment of tax-exempt employers. In the case of an employer

exempt from taxation under subtitle A

of the Internal Revenue Code, any

reference in this paragraph (s) to a

deduction disallowed by section 274(a)(3) shall be treated as a reference to the

amount which would be disallowed as

a deduction by section 274(a)(3) to the

employer if the employer were not

exempt from taxation under subtitle A

of the Internal Revenue Code.

5

(3) Examples. The following examples illustrate this paragraph (s):

Example 1. Assume that Company X provides

Employee B with a country club membership for

which it paid $20,000. B substantiates, within the

meaning of paragraph (c) of this section, that the

club was used 40 percent for business purposes.

The business use of the club (40 percent) may be

considered a working condition fringe benefit,

notwithstanding that the employer’s deduction

for the dues allocable to the business use is

disallowed by section 274(a)(3), if X does not

treat the club membership as compensation under

section 274(e)(2). Thus, B may exclude from

gross income $8,000 (40 percent of the club

dues, which reflects B’s business use). X must

report $12,000 as wages subject to withholding

and payment of employment taxes (60 percent of

the value of the club dues, which reflects B’s

personal use). B must include $12,000 in gross

income. X may deduct as compensation the

amount it paid for the club dues which reflects

B’s personal use provided the amount satisfies

the other requirements for a salary or compensation deduction under section 162.

Example 2. Assume the same facts as Example

1 except that Company X treats the $20,000 as

compensation to B under section 274(e)(2). No

portion of the $20,000 will be considered a

working condition fringe benefit because the

section 274(a)(3) disallowance will apply to B.

Therefore, B must include $20,000 in gross

income.

(t) Application of section 274(m)(3)—(1) In general. If an employer’s

deduction under section 162(a) for

amounts paid or incurred for the travel

expenses of a spouse, dependent, or

other individual accompanying an

employee is disallowed by section

274(m)(3), the amount, if any, of the

employee’s working condition fringe

benefit relating to the employerprovided travel is determined without

regard to the application of section

274(m)(3). To be excludible as a

working condition fringe benefit, however, the amount must otherwise

qualify for deduction by the employee

under section 162(a). The amount will

qualify for deduction and for exclusion

as a working condition fringe benefit if

it can be adequately shown that the

spouse’s, dependent’s, or other accompanying individual’s presence on the

employee’s business trip has a bona

fide business purpose and if the

employee substantiates the travel within

the meaning of paragraph (c) of this

section. If the travel does not qualify as

a working condition fringe benefit, the

employee must include in gross income

as a fringe benefit the value of the

employer’s payment of travel expenses

with respect to a spouse, dependent, or

other individual accompanying the

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employee on business travel. See

§§1.61–21(a)(4) and 1.162–2(c). If an

employer treats as compensation under

section 274(e)(2) the amount paid or

incurred for the travel expenses of a

spouse, dependent, or other individual

accompanying an employee, then the

expense is deductible by the employer

as compensation and no amount may

be excluded from the employee’s gross

income as a working condition fringe

benefit. See §1.274–2(f)(2)(iii)(A).

(2) Treatment of tax-exempt employers. In the case of an employer

exempt from taxation under subtitle A

of the Internal Revenue Code, any

reference in this paragraph (t) to a

deduction disallowed by section

274(m)(3) shall be treated as a reference to the amount which would be

disallowed as a deduction by section

274(m)(3) to the employer if the

employer were not exempt from taxation under subtitle A of the Internal

Revenue Code.

Par. 4. The last sentence of §1.274–1

is revised to read as follows:

§1.274–1 Disallowance of certain

entertainment, gift and travel

expenses.

* * * For specific provisions with

respect to the deductibility of expenditures: for an activity of a type generally

considered to constitute entertainment,

amusement, or recreation, and for a

facility used in connection with such an

activity, as well as certain travel

expenses of a spouse, etc., see §1.274–

2; for expenses for gifts, see §1.274–3;

for expenses for foreign travel, see

§1.274–4; for expenditures deductible

without regard to business activity, see

§1.274–6; and for treatment of personal

portion of entertainment facility, see

§1.274–7.

Par. 5. Section 1.274–2 is amended

as follows:

1. The section heading for §1.274–2

is revised.

2. In paragraph (c)(6), a second

sentence is added at the end of the

paragraph.

3. The paragraph heading for paragraph (f)(2)(i) is revised.

4. Paragraph (f)(2)(iii) is revised.

5. Paragraph (g) is added.

The revised and added provisions

read as follows:

§1.274–2 Disallowance of deductions

for certain expenses for

entertainment, amusement, recreation,

or travel.

*

*

*

*

*

*

(c) * * *

(6) * * * This paragraph (c)(6) applies to club dues paid or incurred

before January 1, 1987.

*

*

*

*

*

*

(f) * * *

(2) * * *

(i) Business meals and similar expenditures paid or incurred before

January 1, 1987— * * *

*

*

*

*

*

*

(iii) Certain entertainment and

travel expenses treated as compensation—(A) In general. Any expenditure

by a taxpayer for entertainment (or for

use of a facility in connection therewith) or for travel described in section

274(m)(3), if an employee is the

recipient of the entertainment or travel,

is not subject to the limitations on

allowability of deductions provided for

in paragraphs (a) through (e) of this

section to the extent that the expenditure is treated by the taxpayer—

(1) On the taxpayer’s income tax

return as originally filed, as compensation paid to the employee; and

(2) As wages to the employee for

purposes of withholding under chapter

24 (relating to collection of income tax

at source on wages).

(B) Expenses includible in income of

persons who are not employees. Any

expenditure by a taxpayer for entertainment (or for use of a facility in connection therewith), or for travel described in section 274(m)(3), is not

subject to the limitations on allowability of deductions provided for in

paragraphs (a) through (e) of this

section to the extent the expenditure is

includible in gross income as compensation for services rendered, or as a

prize or award under section 74, by a

recipient of the expenditure who is not

an employee of the taxpayer. The

preceding sentence shall not apply to

any amount paid or incurred by the

taxpayer if such amount is required to

be included (or would be so required

except that the amount is less that

$600) in any information return filed

by such taxpayer under part III of subchapter A of chapter 61 and is not so

included. See section 274(e)(9).

6

(C) Example. The following example

illustrates the provisions this paragraph

(f):

Example. If an employer rewards the employee

(and the employee’s spouse) with an expense

paid vacation trip, the expense is deductible by

the employer (if otherwise allowable under

section 162 and the regulations thereunder) to the

extent the employer treats the expenses as

compensation and as wages. On the other hand,

if a taxpayer owns a yacht which the taxpayer

uses for the entertainment of business customers,

the portion of salary paid to employee members

of the crew which is allocable to use of the yacht

for entertainment purposes (even though treated

on the taxpayer’s tax return as compensation and

treated as wages for withholding tax purposes)

would not come within this exception since the

members of the crew were not recipients of the

entertainment. If an expenditure of a type described in this subdivision properly constitutes a

dividend paid to a shareholder or if it constitutes

unreasonable compensation paid to an employee,

nothing in this exception prevents disallowance

of the expenditure to the taxpayer under other

provisions of the Internal Revenue Code.

*

*

*

*

*

*

(g) Additional provisions of section

274—travel of spouse, dependent or

others. Section 274(m)(3) provides that

no deduction shall be allowed under

this chapter (except section 217) for

travel expenses paid or incurred with

respect to a spouse, dependent, or other

individual accompanying the taxpayer

(or an officer or employee of the

taxpayer) on business travel, unless

certain conditions are met. As provided

in section 274(m)(3), the term other

individual does not include a business

associate (as defined in paragraph

(b)(2)(iii) of this section) who otherwise meets the requirements of sections

274(m)(3)(B) and (C).

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved March 26, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

May 29, 1996, 8:45 a.m., and published in the

issue of the Federal Register for May 30,

1996, 61 F.R. 27005)

Section 1275.—Other Definitions and

Special Rules

26 CFR 1.1275–4: Contingent payment debt

instruments.

The Service will not issue rulings or determination letters for state-created prepaid tuition

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plans, including whether any contract under the

plan is a debt instrument and, if so, how original

issue discount attributable to the contract is

treated for federal tax purposes. See Rev. Proc.

96–34, page 14.

Section 2501.—Imposition of tax

26 CFR 25.2501: Imposition of tax.

The Service will not issue rulings or determination letters for state-created prepaid tuition

plans, including whether any contract under the

plan is a debt instrument and, if so, how original

issue discount attributable to the contract is

treated for federal tax purposes. See Rev. Proc.

96–34, page 14.

Section 3221.—Rate of Tax

Determination of Quarterly Rate of

Excise Tax for Railroad Retirement

Supplemental Annuity Program

In accordance with directions in

Section 3221(c) of the Railroad Retirement Tax Act (26 U.S.C. Section

3221(c)), the Railroad Retirement

board has determined that the excise

tax imposed by such Section 3221(c)

on every employer, with respect to

having individuals in his employ, for

each work-hour for which compensation is paid by such employer for

services rendered to him during the

quarter beginning January 1, 1996,

shall be at the rate of 34 cents.

In accordance with directions in

Section 15(a) of the Railroad Retirement Act of 1974, the Railroad Retirement Board has determined that for the

quarter beginning January 1, 1996, 34.6

percent of the taxes collected under

Sections 3211(b) and 3221(c) of the

Railroad Retirement Tax Act shall be

credited to the Railroad Retirement

Account and 65.4 percent of the taxes

collected under such Sections 3211(b)

and 3221(c) plus 100 percent of the

taxes collected under Section 3221(d)

of the Railroad Retirement Tax Act

shall be credited to the Railroad

Retirement Supplemental Account.

Dated December 14, 1995.

Beatrice Ezerski,

Secretary to the Board.

(Filed by the Office of the Federal Register on

December 19, 1995, 8:45 a.m., and published

in the issue of the Federal Register for

December 20, 1995, 60 F.R. 65695)

In accordance with directions in

Section 3221(c) of the Railroad Retirement Tax Act (26 U.S.C., Section

3221(c)), the Railroad Retirement

Board has determined that the excise

tax imposed by such Section 3221(c)

on every employer, with respect to

having individuals in his employ, for

each work-hour for which compensation is paid by such employer for

services rendered to him during the

quarter beginning April 1, 1996, shall

be at the rate of 34 cents.

In accordance with directions in

Section 15(a) of the Railroad Retirement Act of 1974, the Railroad Retirement Board has determined that for the

quarter beginning April 1, 1996, 34.2

percent of the taxes collected under

Sections 3211(b) and 3221(c) of the

Railroad Retirement Tax Act shall be

credited to the Railroad Retirement

Account and 65.8 percent of the taxes

collected under such Sections 3211(b)

and 3221(c) plus 100 percent of the

taxes collected under Section 3221(d)

of the Railroad Retirement Tax Act

shall be credited to the Railroad

Retirement Supplemental Account.

Dated March 1, 1996.

Beatrice Ezerski,

Secretary to the Board.

(Filed by the Office of the Federal Register on

March 3, 1996, 8:45 a.m., and published in the

issue of the Federal Register for March 11,

1996, 61 F.R. 9737)

Section 6011.—General Requirement

of Return, Statement, or List

26 CFR 31.6011(a)–4: Returns of income tax

withheld.

T.D. 8672

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 31 and 602

Reporting of Nonpayroll Withheld Tax

Liabilities

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

taxes under section 6011 of the Internal

Revenue Code. The final regulations

require a person to file Form 945,

Annual Return of Withheld Federal

Income Tax, only for a calendar year in

which the person is required to withhold Federal income tax from nonpayroll payments.

EFFECTIVE DATE: These regulations

are effective May 30, 1996.

FOR FURTHER INFORMATION

CONTACT: Vincent G. Surabian,

202-622-6232 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1413. Responses to

this collection of information are required by the IRS to monitor compliance with the Federal tax rules

related to the reporting and deposit of

nonpayroll withheld income taxes.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

Estimates of the reporting burden in

these final regulations are reflected in

the burden of Form 945.

Comments concerning the accuracy

of this burden estimate and suggestions

for reducing this burden should be sent

to the Internal Revenue Service, Attn:

IRS Reports Clearance Officer, T:FP,

Washington, DC 20224, and to the

Office of Management and Budget,

Attn: Desk Officer for the Department

of the Treasury, Office of Information

and Regulatory Affairs, Washington,

DC 20503.

Books or records relating to this

collection of information must be retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

SUMMARY: This document contains

final regulations relating to the reporting of nonpayroll withheld income

7

On October 16, 1995, final and

temporary regulations (TD 8624 [1995–

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2 C.B. 258]) relating to the reporting of

nonpayroll withheld income taxes under section 6011 were published in the

Federal Register (60 FR 53509). A

notice of proposed rulemaking (IA–30–

95 [1995–2 C.B. 479]) crossreferencing the temporary regulations

was published in the Federal Register

for the same day (60 FR 53561).

The IRS received no written comments responding to the notice. Accordingly, the regulations proposed by

IA–30–95 are adopted as proposed with

a minor editorial change.

Explanation of Provisions

These final regulations remove the

requirement that, once a person files a

Form 945 for a calendar year, the

person must file a Form 945 every

subsequent year until the person files a

final return. Under these final regulations, a person must file a Form 945

only for a calendar year in which the

person is required to withhold Federal

income tax from nonpayroll payments.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

apply to these regulations, and, therefore, a Regulatory Flexibility Analysis

is not required. Pursuant to section

7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking

preceding these regulations was submitted to the Small Business Administration for comment on its impact on

small business.

Drafting Information

The principal author of these regulations is Vincent G. Surabian, Office of

the Assistant Chief Counsel (Income

Tax & Accounting). However, other

personnel from the IRS and Treasury

Department participated in their

development.

*

*

*

*

*

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 31 and

602 are amended as follows:

PART 31—EMPLOYMENT TAXES

AND COLLECTION OF INCOME

TAX AT SOURCE

Paragraph 1. The authority citation

for part 31 is amended by removing the

citation for ‘‘Section 31.6011(a)–4T’’

as follows:

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

Par 2. Section 31.6011(a)–4 is

amended by revising paragraph (b) to

read as follows:

§31.6011(a)–4 Returns of income tax

withheld.

*

*

*

*

*

*

(b) Withheld from nonpayroll payments. Every person required to withhold tax from nonpayroll payments for

calendar year 1994 must make a return

for calendar year 1994 and for any

subsequent calendar year in which the

person is required to withhold such tax

until the person makes a final return in

accordance with §31.6011(a)–6. Every

person not required to withhold tax

from nonpayroll payments for calendar

year 1994 must make a return for the

first calendar year after 1994 in which

the person is required to withhold such

tax and for any subsequent calendar

year in which the person is required to

withhold such tax until the person

makes a final return in accordance with

§31.6011(a)–6. Form 945, Annual Return of Withheld Federal Income Tax,

is the form prescribed for making the

return required under this paragraph

(b). Nonpayroll payments are—

(1) Certain gambling winnings

subject to withholding under section

3402(q);

(2) Retirement pay for services in

the Armed Forces of the United States

subject to withholding under section

3402;

(3) Certain annuities as described

in section 3402(o)(1)(B);

(4) Pensions, annuities, IRAs, and

certain other deferred income subject to

withholding under section 3405; and

(5) Reportable payments subject

to backup withholding under section

3406.

*

*

*

8

*

*

§31.6011(a)–4T [Removed]

Par. 3. Section 31.6011(a)–4T is

removed.

PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§602.101 [Amended]

Par. 5. Section 602.101, paragraph

(c) is amended in the table by removing the entry ‘‘31.6011(a)–4T . . . 1545–

1413’’.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved April 5, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

May 29, 1996, 8:45 a.m., and published in the

issue of the Federal Register for May 30,

1996, 61 F.R. 27007)

Section 6109.—Identifying Numbers

26 CFR 301.6109–1: Identifying numbers.

T.D. 8671

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 301 and 602

Taxpayer Identifying Numbers (TINs)

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations relating to requirements for furnishing a taxpayer identifying number on returns, statements, or

other documents. These regulations set

forth procedures for requesting a taxpayer identifying number for certain

alien individuals for whom a social

security number is not available. These

numbers are called ‘‘IRS individual

taxpayer identification numbers.’’

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These regulations also require foreign

persons to furnish a taxpayer identifying number on their tax returns.

DATES: These regulations are effective

May 29, 1996.

For dates of applicability of these

regulations, see §301.6109–1(h).

FOR FURTHER INFORMATION

CONTACT: Lilo A. Hester, (202)

874-1490 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

control number 1545–1461.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

The estimated annual burden for the

collection of information contained in

§301.6109–1(d) is reflected in the

burden of Form W–7.

Comments concerning the accuracy

of this burden estimate and suggestions

for reducing this burden should be sent

to the Internal Revenue Service, Attn:

IRS Reports Clearance Officer, PC:FP,

Washington, DC 20224, and to the

Office of Management and Budget,

Attn: Desk Officer for the Department

of the Treasury, Office of Information

and Regulatory Affairs, Washington,

DC 20503.

Books or records relating to this

collection of information must be retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

On June 8, 1995, the IRS published

in the Federal Register (60 FR 30211)

the withdrawal of the notice of proposed rulemaking published in the

Federal Register on September 27,

1990 at 55 FR 39427, a notice of

proposed rulemaking, and a notice of

public hearing relating to taxpayer

identifying numbers as contained in the

Income Tax Regulations (26 CFR part

301) under section 6109 of the Internal

Revenue Code (Code).

Written comments responding to the

notice of proposed rulemaking were

received, and a public hearing was held

on September 28, 1995. After consideration of all the comments, the proposed regulations under 6109 of the

Code are adopted as revised by this

Treasury decision. The comments and

revisions are discussed below.

Explanation of Provisions and

Revisions

A. Principal changes

Section 6109 of the Code generally

provides that, when required by regulations, a person must furnish a taxpayer

identifying number (TIN) for securing

proper identification of that person on

any return, statement, or other document made under the Code. The notice

of proposed rulemaking contains two

principal changes to the existing regulations. The first change is the introduction of a new IRS-issued TIN,

called an IRS individual taxpayer identification number (ITIN), for use by

alien individuals, whether resident or

nonresident, who currently do not have,

and are not eligible to obtain, social

security numbers. The Social Security

Administration generally limits its assignment of social security numbers to

individuals who are U.S. citizens and

alien individuals legally admitted to the

United States for permanent residence

or under other immigration categories

which authorize U.S. employment.

Therefore, this change is designed to

help taxpayers (who need a TIN but

cannot qualify for a social security

number) maintain compliance with TIN

requirements under the Code and regulations.

The second change is to modify the

existing rule set forth in §301.6109–

1(g) that currently excludes from the

general requirement of providing a

TIN, foreign persons that do not have

either (1) income effectively connected

with the conduct of a U.S. trade or

business or (2) a U.S. office or place of

business or a U.S. fiscal or paying

agent. Under these regulations, the

exclusion is modified to require that

any foreign person who makes a return

of tax (i.e., income, gift, and estate tax

9

returns, amended returns, or refund

claims, but excluding information returns) furnish its TIN on that return.

This change is intended to address the

IRS’ and Treasury’s concern that,

without TINs, taxpayers cannot be

identified efficiently and tax returns

cannot be processed effectively.

B. Comments

Regarding the assignment of ITINs

under §301.6109–1(d)(3)(iii) of the

proposed regulations, commentators

suggested that the IRS develop a

process whereby either (1) the Social

Security Administration (SSA) issues

the ITIN when the individual is not

eligible for a social security number, or

(2) the Immigration and Naturalization

Service (INS) (within the Department

of Justice) and the U.S. consulate

offices (within the Department of State)

issue the ITIN when issuing a U.S.

visa. These suggestions were not

adopted. The IRS is the most appropriate federal agency to assign the ITIN

because the number is intended for tax

use only. Having the IRS as the sole

issuer of ITINs will facilitate the

general public’s acceptance of the fact

that the assignment of an ITIN creates

no inference regarding the immigration

status of an alien individual or the right

of that individual to be legally

employed in the United States. Over

the past few years, the IRS has had

extensive discussions with the SSA, the

INS, and the State Department regarding the IRS’ development of a new

numbering system. These agencies concur that the IRS is the appropriate

initiator of a numbering system dedicated solely for tax purposes, and have

expressed a willingness to support the

IRS’ efforts to develop the system, to

disseminate information about obtaining an ITIN, and to otherwise facilitate

IRS’ assignment of the ITINs.

Regarding the IRS’ solicitation of

comments and suggestions regarding

the type of documents that could be

accepted to verify reliably a taxpayer’s

identity and foreign status, the commentators suggested passports and immigration documentation. This suggestion is already included partially in the

proposed regulations which state that

examples of acceptable documentary

evidence may include items such as

‘‘passport, driver’s license, birth certificate, identity card or U.S. visa.’’

However, the proposed regulations use

the term U.S. visa rather than the term

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immigration documentation. The term

immigration documentation is broader

in scope than the term U.S. visa, and

encompasses various identifying documents (including a U.S. visa) required

by U.S. immigration laws to support an

alien’s request for entry, and entry, into

the United States. As such, §301.6109–

1(d)(3)(iii) of the final regulations has

been revised to substitute the term

immigration documentation for the

term U.S. visa.

Regarding the role of acceptance

agents under §301.6109–1(d)(3)(iv) of

proposed regulations, some commentators suggested that acceptance agents

should only be required to provide the

necessary forms to the ITIN applicant

and to forward the completed forms,

together with copies of required documentation, to the IRS in order to avoid

being held responsible for applicant’s

errors or being considered as the applicant’s tax advisor. The adoption of

this suggestion was not necessary because, under the proposed regulations,

the precise role of an acceptance agent

is a matter to be decided by written

agreement between the particular person and the IRS. Under an agreement

with the IRS, an acceptance agent

could act as a conduit of information

between the IRS and the applicant as

suggested by the commentators or

could take a more active role in the

process by assuming responsibility for

reviewing the required documentation

and providing the necessary representations to the IRS for the issuance of a

number. In the latter case, the acceptance agent would generally not be

required to furnish any underlying

documentation to the IRS, except as

part of a verification process by which

the IRS may periodically verify the

agent’s compliance with the agreement.

Even in that case, the acceptance agent

would not be considered a tax return

preparer for purposes of section 7216 if

it acted within the terms of the

agreement with the IRS. In addition,

under this agreement, an acceptance

agent would not be responsible for an

ITIN applicant’s errors as long as the

acceptance agent exercises due diligence under the agreement. The IRS is

preparing further guidance on acceptance agent agreements.

The rule proposed in §301.6109–

1(b)(2)(iv) that would require foreign

persons to furnish a TIN when making

a return of tax has been restated to

clarify that making a return of tax

includes filing an amended return or a

claim for refund. In addition, regarding

this rule, commentators asked whether

Form SS–4, Application for Employer

Identification Number, is a return of

tax for this purpose. For purposes of

this rule, a return of tax includes

income, estate, and gift tax returns,

amended returns, or refund claims but

excludes information returns, statements or other documents. Form SS–4

is a statement or document but not a

return of tax; therefore, the foreign

persons described in §301.6109–1(b)(2)(iv) of the proposed regulations are

not required to obtain an ITIN in order

to sign a Form SS–4. For example, a

foreign individual signing Form SS–4

as a principal officer of a corporation

need not obtain an ITIN for the sole

purpose of signing the form. See for

comparison, however, §301.6109–1(d)(4)(ii) regarding the requirement to

furnish a previously-issued ITIN on

Form SS–4 when a foreign individual

is required to obtain an employer

identification number for such individual’s own business purposes. No further clarification is needed in these

regulations.

Regarding the proposed regulations

becoming effective for any return,

statement, or other document filed after

December 31, 1995, commentators suggested that the effective date be delayed. This suggestion was adopted.

Accordingly, the final regulations are

generally effective after May 29, 1996,

of publication in the Federal Register,

except that the requirement for an

estate to obtain an employer identification number applies on and after

January 1, 1984, and the requirement

for a foreign person as described in

§301.6109–1(b)(2)(iv) to furnish a TIN

on a tax return is effective for tax

returns filed after December 31, 1996.

The IRS will begin accepting applications for ITINs (Form W–7) on or after

July 1, 1996.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

apply to these regulations, and therefore, a Regulatory Flexibility Analysis

is not required. Pursuant to section

10

7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking

preceding these final regulations has

been submitted to the Chief Counsel

for Advocacy of the Small Business

Administration for comment on its

impact on small business.

Drafting Information

The principal author of these regulations is Lilo A. Hester of the Office of

Associate Chief Counsel (International), IRS. However, other personnel

from the IRS and Treasury Department

participated in their development.

*

*

*

*

*

*

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 301 and

602 are amended as follows:

PART 301—PROCEDURE AND

ADMINISTRATION

Paragraph 1. The authority citation

for part 301 is amended by adding an

entry in numerical order to read in part

as follows:

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

Section 301.6109–1 also issued under 26 U.S.C. 6109(a), (c), and (d).

***

Par. 2. Section §301.6109–1 is

amended as follows:

1. Paragraphs (a)(1), (b), (c), and

(d)(2) are revised.

2. Paragraphs (d)(3) and (4) are

added.

3. Paragraphs (f), (g), and (h) are

revised.

The revisions and additions read as

follows:

§301.6109–1 Identifying numbers.

(a) In general—(1) Taxpayer identifying numbers—(i) Types. There are

generally three types of taxpayer identifying numbers: social security numbers,

Internal Revenue Service (IRS) individual taxpayer identification numbers,

and employer identification numbers.

Social security numbers take the form

000-00-0000, IRS individual taxpayer

identification numbers take the form

000-00-0000 but begin with a specific

number designated by the IRS, and

employer identification numbers take

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the form 00-0000000. Both social

security numbers and IRS individual

taxpayer identification numbers identify

individual persons. For the definition of

social security number and employer

identification number, see §§301.7701–

11 and 301.7701–12, respectively. For

the definition of IRS individual taxpayer identification number, see paragraph (d)(3) of this section.

(ii) Uses. Except as otherwise

provided in applicable regulations under this title or on a return, statement,

or other document, and related instructions, taxpayer identifying numbers

must be used as follows:

(A) Except as otherwise provided in

paragraphs (a)(1)(ii)(B) and (D) of this

section, an individual required to furnish a taxpayer identifying number

must use a social security number.

(B) Except as otherwise provided in

paragraph (a)(1)(ii)(D) of this section,

an individual required to furnish a

taxpayer identifying number but who is

not eligible to obtain a social security

number, must use an IRS individual

taxpayer identification number.

(C) Any person other than an individual (such as corporations, partnerships, nonprofit associations, trusts,

estates, and similar nonindividual persons) that is required to furnish a

taxpayer identifying number must use

an employer identification number.

(D) An individual, whether U.S. or

foreign, who is an employer or who is

engaged in a trade or business as a sole

proprietor should use an employer

identification number as required by

returns, statements, or other documents

and their related instructions.

*

*

*

*

*

*

(b) Requirement to furnish one’s

own number—(1) U.S. persons. Every

U.S. person who makes under this title

a return, statement, or other document

must furnish its own taxpayer identifying number as required by the forms

and the accompanying instructions. A

U.S. person whose number must be

included on a document filed by

another person must give the taxpayer

identifying number so required to the

other person on request. For penalties

for failure to supply taxpayer identifying numbers, see sections 6721 through

6724. For provisions dealing specifically with the duty of employees with

respect to their social security numbers,

see §31.6011(b)–2(a) and (b) of this

chapter (Employment Tax Regulations).

For provisions dealing specifically with

the duty of employers with respect to

employer identification numbers, see

§31.6011(b)–1 of this chapter (Employment Tax Regulations).

(2) Foreign persons. The provisions

of paragraph (b)(1) of this section

regarding the furnishing of one’s own

number shall apply to the following

foreign persons—

(i) A foreign person that has income

effectively connected with the conduct

of a U.S. trade or business at any time

during the taxable year;

(ii) A foreign person that has a U.S.

office or place of business or a U.S.

fiscal or paying agent at any time

during the taxable year;

(iii) A nonresident alien treated as a

resident under section 6013(g) or (h);

and

(iv) Any other foreign person who,

with respect to taxes imposed under

this title (including income, estate, and

gift taxes), makes a return of tax, an

amended return, or a refund claim, but

excluding information returns, statements, or documents.

(c) Requirement to furnish another’s

number. Every person required under

this title to make a return, statement, or

other document must furnish such taxpayer identifying numbers of other U.S.

persons and foreign persons that are

described in paragraph (b)(2)(i), (ii), or

(iii) of this section as required by the

forms and the accompanying instructions. If the person making the return,

statement, or other document does not

know the taxpayer identifying number

of the other person, such person must

request the other person’s number. A

request should state that the identifying

number is required to be furnished

under authority of law. When the

person making the return, statement, or

other document does not know the

number of the other person, and has

complied with the request provision of

this paragraph, such person must sign

an affidavit on the transmittal document forwarding such returns, statements, or other documents to the

Internal Revenue Service, so stating. A

person required to file a taxpayer

identifying number shall correct any

errors in such filing when such person’s attention has been drawn to them.

(d) * * *

(2) Employer identification number.

Any person required to furnish an

employer identification number must

apply for one, if not done so pre-

11

viously, on Form SS–4. A Form SS–4

may be obtained from any office of the

Internal Revenue Service, U.S. consular

office abroad, or from an acceptance

agent described in paragraph (d)(3)(iv)

of this section. The person must make

such application far enough in advance

of the first required use of the

employer identification number to permit issuance of the number in time for

compliance with such requirement. The

form, together with any supplementary

statement, must be prepared and filed

in accordance with the form, accompanying instructions, and relevant regulations, and must set forth fully and

clearly the requested data.

(3) IRS individual taxpayer identification number—(i) Definition. The

term IRS individual taxpayer identification number means a taxpayer identifying number issued to an alien individual by the Internal Revenue Service,

upon application, for use in connection

with filing requirements under this title.

The term IRS individual taxpayer identification number does not refer to a

social security number or an account

number for use in employment for

wages. For purposes of this section, the

term alien individual means an individual who is not a citizen or national of

the United States.

(ii) General rule for obtaining number. Any individual who is not eligible

to obtain a social security number and

is required to furnish a taxpayer

identifying number must apply for an

IRS individual taxpayer identification

number on Form W–7, Application for

IRS Individual Taxpayer Identification

Number, or such other form as may be

prescribed by the Internal Revenue

Service. Form W–7 may be obtained

from any office of the Internal Revenue

Service, U.S. consular office abroad, or

any acceptance agent described in

paragraph (d)(3)(iv) of this section. The

individual shall furnish the information

required by the form and accompanying

instructions, including the individual’s

name, address, foreign tax identification number (if any), and specific

reason for obtaining an IRS individual

taxpayer identification number. The

individual must make such application

far enough in advance of the first

required use of the IRS individual

taxpayer identification number to permit issuance of the number in time for

compliance with such requirement. The

application form, together with any

supplementary statement and documentation, must be prepared and filed in

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accordance with the form, accompanying instructions, and relevant regulations, and must set forth fully and

clearly the requested data.

(iii) General rule for assigning number. Under procedures issued by the

Internal Revenue Service, an IRS individual taxpayer identification number

will be assigned to an individual upon

the basis of information reported on

Form W–7 (or such other form as may

be prescribed by the Internal Revenue

Service) and any such accompanying

documentation that may be required by

the Internal Revenue Service. An applicant for an IRS individual taxpayer

identification number must submit such

documentary evidence as the Internal

Revenue Service may prescribe in

order to establish alien status and

identity. Examples of acceptable documentary evidence for this purpose may

include items such as an original (or a

certified copy of the original) passport,

driver’s license, birth certificate, identity card, or immigration documentation.

(iv) Acceptance agents—(A) Agreements with acceptance agents. A person described in paragraph (d)(3)(iv)(B) of this section will be accepted by

the Internal Revenue Service to act as

an acceptance agent for purposes of the

regulations under this section upon

entering into an agreement with the

Internal Revenue Service, under which

the acceptance agent will be authorized

to act on behalf of taxpayers seeking to

obtain a taxpayer identifying number

from the Internal Revenue Service. The

agreement must contain such terms and

conditions as are necessary to insure

proper administration of the process by

which the Internal Revenue Service

issues taxpayer identifying numbers to

foreign persons, including proof of

their identity and foreign status. In

particular, the agreement may

contain—

(1) Procedures for providing Form

SS–4 and Form W–7, or such other

necessary form to applicants for obtaining a taxpayer identifying number;

application form together with a certification that the acceptance agent has

reviewed the required documentation

and that it has no actual knowledge or

reason to know that the documentation

is not complete or accurate;

(2) Procedures for providing assistance to applicants in completing the

application form or completing it for

them;

(3) Procedures for collecting, reviewing, and maintaining, in the normal course of business, a record of the

required documentation for assignment

of a taxpayer identifying number;

(4) Procedures for submitting the

application form and required documentation to the Internal Revenue

Service, or if permitted under the

agreement, submitting the application

form together with a certification that

the acceptance agent has reviewed the

required documentation and that it has

no actual knowledge or reason to know

that the documentation is not complete

or accurate;

(5) Procedures for assisting taxpayers with notification procedures described in paragraph (g)(2) of this

section in the event of change of

foreign status;

(6) Procedures for making all documentation or other records furnished by

persons applying for a taxpayer identifying number promptly available for

review by the Internal Revenue Service, upon request; and

(7) Provisions that the agreement

may be terminated in the event of a

material failure to comply with the

agreement, including failure to exercise

due diligence under the agreement.

(B) Persons who may be acceptance

agents. An acceptance agent may include any financial institution as defined in section 265(b)(5) or §1.165–

12(c)(1)(v) of this chapter, any college

or university that is an educational

organization as defined in §1.501(c)(3)–1(d)(3)(i) of this chapter, any federal agency as defined in section

6402(f) or any other person or categories of persons that may be authorized

by regulations or Internal Revenue

Service procedures. A person described

in this paragraph (d)(3)(iv)(B) that

seeks to qualify as an acceptance agent

must have an employer identification

number for use in any communication

with the Internal Revenue Service. In

addition, it must establish to the

satisfaction of the Internal Revenue

Service that it has adequate resources

and procedures in place to comply with

the terms of the agreement described in

paragraph (d)(3)(iv)(A) of this section.

(4) Coordination of taxpayer identifying numbers—(i) Social security

number. Any individual who is duly

assigned a social security number or

who is entitled to a social security

number will not be issued an IRS

individual taxpayer identification num-

12

ber. The individual can use the social

security number for all tax purposes

under this title, even though the individual is, or later becomes, a nonresident alien individual. Further, any

individual who has an application

pending with the Social Security Administration will be issued an IRS

individual taxpayer identification number only after the Social Security

Administration has notified the individual that a social security number cannot

be issued. Any alien individual duly

issued an IRS individual taxpayer

identification number who later becomes a U.S. citizen, or an alien

lawfully permitted to enter the United

States either for permanent residence or

under authority of law permitting U.S.

employment, will be required to obtain

a social security number. Any individual who has an IRS individual taxpayer

identification number and a social

security number, due to the circumstances described in the preceding

sentence, must notify the Internal Revenue Service of the acquisition of the

social security number and must use

the newly-issued social security number

as the taxpayer identifying number on

all future returns, statements, or other

documents filed under this title.

(ii) Employer identification number.

Any individual with both a social

security number (or an IRS individual

taxpayer identification number) and an

employer identification number may

use the social security number (or the

IRS individual taxpayer identification

number) for individual taxes, and the

employer identification number for

business taxes as required by returns,

statements, and other documents and

their related instructions. Any alien

individual duly assigned an IRS individual taxpayer identification number

who also is required to obtain an

employer identification number must

furnish the previously-assigned IRS

individual taxpayer identification number to the Internal Revenue Service on

Form SS–4 at the time of application

for the employer identification number.

Similarly, where an alien individual has

an employer identification number and

is required to obtain an IRS individual

taxpayer identification number, the individual must furnish the previouslyassigned employer identification number to the Internal Revenue Service on

Form W–7, or such other form as may

be prescribed by the Internal Revenue

Service, at the time of application for

the IRS individual taxpayer identification number.

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(f) Penalty. For penalties for failure

to supply taxpayer identifying numbers,

see sections 6721 through 6724.

(g) Special rules for taxpayer identifying numbers issued to foreign

persons—(1) General rule—(i) Social

security number. A social security

number is generally identified in the

records and database of the Internal

Revenue Service as a number belonging to a U.S. citizen or resident alien

individual. A person may establish a

different status for the number by

providing proof of foreign status with

the Internal Revenue Service under

such procedures as the Internal Revenue Service shall prescribe, including

the use of a form as the Internal

Revenue Service may specify. Upon

accepting an individual as a nonresident alien individual, the Internal Revenue Service will assign this status to

the individual’s social security number.

(ii) Employer identification number.

An employer identification number is

generally identified in the records and

database of the Internal Revenue Service as a number belonging to a U.S.

person. However, the Internal Revenue

Service may establish a separate class

of employer identification numbers

solely dedicated to foreign persons

which will be identified as such in the

records and database of the Internal

Revenue Service. A person may establish a different status for the number

either at the time of application or

subsequently by providing proof of

U.S. or foreign status with the Internal

Revenue Service under such procedures

as the Internal Revenue Service shall

prescribe, including the use of a form

as the Internal Revenue Service may

specify. The Internal Revenue Service

may require a person to apply for the

type of employer identification number

that reflects the status of that person as

a U.S. or foreign person.

(iii) IRS individual taxpayer identification number. An IRS individual

taxpayer identification number is generally identified in the records and

database of the Internal Revenue Service as a number belonging to a nonresident alien individual. If the Internal

Revenue Service determines at the time

of application or subsequently, that an

individual is not a nonresident alien

individual, the Internal Revenue Service may require that the individual

apply for a social security number. If a

social security number is not available,

the Internal Revenue Service may

accept that the individual use an IRS

individual taxpayer identification number, which the Internal Revenue Service will identify as a number belonging

to a U.S. resident alien.

(2) Change of foreign status. Once a

taxpayer identifying number is identified in the records and database of the

Internal Revenue Service as a number

belonging to a U.S. or foreign person,

the status of the number is permanent

until the circumstances of the taxpayer

change. A taxpayer whose status

changes (for example, a nonresident

alien individual with a social security

number becomes a U.S. resident alien)

must notify the Internal Revenue Service of the change of status under such

procedures as the Internal Revenue

Service shall prescribe, including the

use of a form as the Internal Revenue

Service may specify.

(3) Waiver of prohibition to disclose

taxpayer information when acceptance

agent acts. As part of its request for an

IRS individual taxpayer identification

number or submission of proof of

foreign status with respect to any

taxpayer identifying number, where the

foreign person acts through an acceptance agent, the foreign person will

agree to waive the limitations in

section 6103 regarding the disclosure

of certain taxpayer information. However, the waiver will apply only for

purposes of permitting the Internal

Revenue Service and the acceptance

agent to communicate with each other

regarding matters related to the assignment of a taxpayer identifying number

and change of foreign status.

(h) Effective date—(1) General rule.

Except as otherwise provided in this

paragraph (h), the provisions of this

section are generally effective for information that must be furnished after

April 15, 1974. However, the provisions relating to IRS individual taxpayer identification numbers apply after

May 29, 1996. An application for an

13

IRS individual taxpayer identification

number (Form W–7) may be filed at

any time on or after July 1, 1996.

(2) Special rules—(i) Employer

identification number of an estate. The

requirement under paragraph (a)(1)(ii)(C) of this section that an estate obtain

an employer identification number applies on and after January 1, 1984.

(ii) Taxpayer identifying numbers of

certain foreign persons. The requirement under paragraph (b)(2)(iv) of this

section that certain foreign persons

furnish a TIN on a return of tax is

effective for tax returns filed after

December 31, 1996.

PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par 3. The authority for part 602

continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 4. In §602.101, the table in

paragraph (c) is amended by revising

the entry for 301.6109–1 to read as

follows:

301.6109–1 . . . . . . . . . . . 1545–0003

1545–0295

1545–0367

1545–0387

1545–0957

1545–1461

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved May 20, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

May 23, 1996, 12:23 p.m., and published in

the issue of the Federal Register for May 29,

1996, 61 F.R. 26788)

Section 7701.—Definitions

26 CFR 301.7701–2: Associations.

The Service will not issue rulings or determination letters for state-created prepaid tuition

plans, including whether the plan is an entity

separate from a state and, if so, how the plan is

treated for federal tax purposes. See Rev. Proc.

96–34, page 14.

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Part III. Administrative, Procedural, and Miscellaneous

26 CFR 601.201: Rulings and determination

letters

(Also Part I, §§ 61, 115, 163, 1275, 2501,

7701; 1.61–7, 1.163–7, 1.1275–4, 25.2501–1,

301.7701–2)

study. This revenue procedure adds a

subparagraph for state-created prepaid

tuition plans.

treated for federal tax purposes. (Also

§§ 61, 163, 1275, 2501 and 7701)

SECTION 4. EFFECTIVE DATE

SECTION 3. PROCEDURE

Rev. Proc. 96–34

SECTION 1. PURPOSE

This revenue procedure amplifies

Rev. Proc. 96–3, 1996–1 I.R.B. 82,

which sets forth areas of the Internal

Revenue Code under the jurisdiction of

the Associate Chief Counsel (Domestic) in which the Internal Revenue

Service will not issue advance rulings

or determination letters.

SECTION 2. BACKGROUND

Rev. Proc 96–3, section 5, lists

specific areas in which rulings or

determination letters will not be issued

because the areas are under extensive

Rev. Proc. 96–3 is amplified by

adding to section 5 the following:

Section 115.—Income of states, municipalities, etc.—The results of transactions pursuant to a plan or arrangement

created by state statute a primary

objective of which is to enable participants to pay for the costs of a postsecondary education for themselves or

a designated beneficiary, including: (i)

whether the plan or arrangement, itself,

is an entity separate from a state and, if

so, how the plan or arrangement is

treated for federal tax purposes; and (ii)

whether any contract under the plan or

arrangement is a debt instrument and, if

so, how interest or original issue

discount attributable to the contract is

14

This revenue procedure applies to all

ruling requests, including any pending

in the National Office on June 11,

1996.

SECTION 5. EFFECT ON OTHER

REVENUE PROCEDURES

Rev. Proc. 96–3 is amplified.

DRAFTING INFORMATION

The principal author of this revenue

procedure is Craig Wojay of the Office

of Assistant Chief Counsel (Financial

Institutions and Products). For further

information regarding this revenue procedure, contact Mr. Wojay at (202)

622-3920 (not a toll-free number).

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Part IV. Items of General Interest

Notice of Proposed Rulemaking and

Notice of Public Hearing

SUPPLEMENTARY INFORMATION:

Background

Available Unit Rule

PS–29–95

AGENCY: Internal Revenue Service

(IRS), Treasury.

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

SUMMARY: This document contains

proposed regulations concerning the

low-income housing credit. The proposed regulations provide rules for

determining the treatment of lowincome housing units in a building that

are occupied by individuals whose

incomes increase above 140 percent of

the income limitation applicable under

section 42(g)(1). The proposed regulations affect owners of those buildings.

This document also provides notice of

public hearing on these proposed

regulations.

DATES: Written comments and outlines of topics to be discussed at the

public hearing scheduled for September

17, 1996, must be received by August

27, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (PS–29–95), Room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington, DC 20044. In the alternative,

submissions may be hand delivered

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

to: CC:DOM:CORP:R (PS–29–95),

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

Washington, DC. The public hearing

will be held in the NYU Classroom,

room 2615, Internal Revenue Building,

1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION

CONTACT: Concerning the regulations, David Selig, (202) 622-3040;

concerning submissions and the hearing, Christina Vasquez, (202) 622-7180

(not toll-free numbers).

This document contains proposed

amendments to the Income Tax Regulations (26 CFR Part 1) under section 42.

These amendments are proposed to

provide guidance under section

42(g)(2)(D), as amended by section

7108(e)(1) of the Omnibus Budget and

Reconciliation Act of 1989, and section

11701(a)(3)(A) and (a)(4) of the Omnibus Budget and Reconciliation Act of

1990. Section 42(g)(2)(D) provides

rules for determining the treatment of

low-income housing units that are

occupied by individuals whose incomes

rise above the income limitation applicable under section 42(g)(1).

The general rule in section 42(g)(2)(D)(i) provides that if the income of an

occupant of a low-income unit increases above the income limitation

applicable under section 42(g)(1), the

unit continues to be treated as a lowincome unit. This general rule only

applies if the occupant’s income initially met the income limitation and the

unit continues to be rent-restricted.

Section 42(g)(2)(D)(ii), however, provides an exception to the general rule

in section 42(g)(2)(D)(i). The unit

ceases being treated as a low-income

unit when two conditions occur. The

first condition is that the occupant’s

income increases above 140 percent of

the income limitation applicable under

section 42(g)(1), or above 170 percent

for a deep rent-skewed project described in section 142(d)(4)(B) (applicable income limitation). When this

occurs, the unit becomes an overincome unit. The second condition is

that a new resident, whose income

exceeds the applicable income limitation (nonqualified resident), occupies

any residential unit in the building of a

comparable or smaller size (comparable

unit).

Explanation of Provisions

All available units must be rented to

qualified residents

The heading of section 42(g)(2)(D)(ii) indicates that the next available

unit must be rented to a low-income

tenant to maintain the low-income

15

status of an over-income unit. Although

the heading of section 42(g)(2)(D)(ii)

refers to the next available unit, the

body of section 42(g)(2)(D)(ii) clarifies

that if any available comparable unit is

occupied by a nonqualified resident,

the over-income unit ceases to be

treated as a low-income unit. Therefore, all available comparable units in

the building, not only the next available unit, must be rented to qualified

residents to maintain the low-income

status of the over-income unit.

A current resident may move within

the same low-income building

The proposed regulations define a

qualified resident under the available

unit rule as any person whose income

does not exceed the applicable income

limitation or any current resident, regardless of the income level of the

current resident. Thus, a current resident may move to a different unit in

the same low-income building without

causing a violation of the available unit

rule even if the current resident’s

income exceeds the applicable income

limitation. When a current resident

moves to a different unit within the

same low-income building, the new

unit adopts the status of the vacated

unit.

Rule applies to each building

separately

The rules of section 42 generally

apply on a building-by-building basis.

For example, the amount of credit

allowable under section 42(a) is determined for each building in a qualified

low-income housing project. The recapture of credit under section 42(j) is

determined by examining the qualified

basis of each building. In addition,

section 42(g)(2)(D)(ii) uses the phrase

‘‘any residential rental unit in the

building’’ to identify residential rental

units that must be rented to qualified

residents to preserve the low-income

status of an over-income unit. The

proposed regulations provide, therefore,

that in a project containing more than

one low-income building, the available

unit rule applies separately to each

building.

1996 – 26 I.R.B.

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Effect of violation of available unit

rule

The proposed regulations further

provide that all over-income units in

the building lose their status as lowincome units if an owner violates the

available unit rule. A violation of the

rule occurs when a building has one or

more over-income units and the owner

of the building rents an available

comparable unit in the building to a

nonqualified resident.

Over-income unit counts toward

minimum set-aside requirement

The proposed regulations also clarify

whether an over-income unit counts

towards satisfying the applicable minimum set-aside requirement of section

42(g)(1). The available unit rule

provides that an over-income unit

maintains its status as a low-income

unit as long as the owner does not rent

an available comparable unit to a

nonqualified resident. Section 42(i)(3),

which defines a low-income unit, and

section 42(g)(2)(D), which contains

rules for increases in the income of

existing low-income tenants, work together to treat an over-income unit as a

low-income unit when determining

whether a project satisfies the applicable minimum set-aside requirement.

This treatment helps diminish any

incentive a project owner may have to

evict from a rent-restricted unit those

tenants who originally qualified as lowincome tenants. See 2 H.R. Conf. Rep.

No. 841, 99th Cong., 2d Sess. II–97

(1986), 1986–3 (Vol. 4) C.B. 97.

Therefore, the proposed regulations

provide that an over-income unit may

continue to be included in the numerator and the denominator of the ratio

used to determine whether a project

satisfies the applicable minimum setaside requirement of section 42(g)(1).

Relationship to tax-exempt bond

provisions

Financing arrangements using obligations that purport to be exempt facility

bonds under section 142 must meet the

requirements of sections 103 and 141

through 150 for interest on the obligations to be excluded from gross income

under section 103(a). The requirements

under section 142(d) may differ from

those under section 42. For example,

section 142(d)(1) is applied on a

1996 – 26 I.R.B.

project rather than on a building-bybuilding basis. The rules set forth in

these proposed regulations are not

intended as an interpretation of the

applicable rules under section 142.

The rules contained in the proposed

regulations are proposed to be effective

on the date final regulations are published in the Federal Register.

Special Analyses

It has been determined that this

notice of proposed rulemaking is not a

significant regulatory action as defined

in EO 12866. Therefore, a regulatory

assessment is not required. It also has

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed rulemaking will be submitted to the Chief

Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Comments and Public Hearing

Before these proposed regulations

are adopted as final regulations, consideration will be given to any written

comments (a signed original and eight

(8) copies) that are submitted timely to

the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled

for September 17, 1996, at 10 a.m. in

the NYU Classroom, Room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

Because of access restrictions, visitors

will not be admitted beyond the Internal Revenue Building lobby more than

15 minutes before the hearing starts.

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

apply to the hearing.

Persons that wish to present oral

comments at the hearing must submit

written comments and outlines of

topics to be discussed and the time

devoted to each topic (signed original

and eight (8) copies by August 27,

1996.

A period of 10 minutes will be

allotted to each person for making

comments.

An agenda showing the scheduling

of the speakers will be prepared after

16

the deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these regulations is David Selig, Office of the

Assistant Chief Counsel (Passthroughs

and Special Industries), IRS. However,

other personnel from the IRS and

Treasury Department participated in

their development.

*

*

*

*

*

*

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding a new

citation in numerical order to read as

follows:

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

Section 1.42–15 is also issued under 26

U.S.C. 42(n). * * *

Par. 2. Section 1.42–15 is added to

read as follows:

§1.42–15 Available unit rule.

(a) Definitions. The following definitions apply to this section:

Applicable income limitation means

the limitation applicable under section

42(g)(1) or, for deep rent-skewed projects described in section 142(d)(4)(B),

40 percent of area median gross

income.

Available unit rule means the rule in

section 42(g)(2)(D)(ii).

Comparable unit means a residential

unit in a low-income building that is

comparably sized or smaller than an

over-income unit or, for deep rentskewed projects described in section

142(d)(4)(B), any low-income unit.

Low-income resident means a person

whose income does not exceed the

applicable income limitation.

Low-income unit is defined by section 42(i)(3)(A).

New resident means a person who

currently is not living in the lowincome building.

Nonqualified resident means a new

resident whose income exceeds the

applicable income limitation.

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Over-income unit means a lowincome unit in which the income of the

occupants of the unit increases above

140 percent of the applicable income

limitation under section 42(g)(1), or

above 170 percent of the applicable

income limitation for deep rent-skewed

projects described in section

142(d)(4)(B).

Qualified resident means a lowincome resident or a current resident.

(b) General section 42(g)(2)(D)(i)

rule. Except as provided in paragraph

(c) of this section, notwithstanding an

increase in the income of the occupants

of a low-income unit above the applicable income limitation, if the income

of the occupants initially met the

applicable income limitation, and the

unit continues to be rent-restricted—

(1) The unit continues to be treated

as a low-income unit; and

(2) The unit continues to be included

in the numerator and the denominator

of the ratio used to determine whether

a project satisfies the applicable minimum set-aside requirement of section

42(g)(1).

(c) Exception. A unit ceases to be

treated as a low-income unit if it

becomes an over-income unit and a

nonqualified resident occupies any

comparable unit that is available or that

subsequently becomes available in the

same low-income building. Thus, to

continue treating the over-income unit

as a low-income unit, the owner of a

low-income building must rent to

qualified residents all comparable units

that are available or that subsequently

become available in the same building.

(d) Effect of current resident moving

within building. When a current resident moves to a different unit within

the building, the newly occupied unit

adopts the status of the vacated unit.

Thus, if a current resident, whose

income exceeds the applicable income

limitation, moves from an over-income

unit to a vacant unit in the same

building, the newly occupied unit is

treated as an over-income unit.

(e) Buildings accounted for separately. In a project containing more

than one low-income building, the

available unit rule applies separately to

each building.

(f) Result of violation of available

unit rule. If any comparable unit that

subsequently becomes available is

rented to a nonqualified resident, all

over-income units within the same

building lose their status as low-income

units.

(g) Examples. The following examples illustrate this section.

Example 1. This example illustrates a violation

of the available unit rule in a low-income

building containing three over-income units. On

January 1, 1997, a qualified low-income housing

project, consisting of one building containing ten

identically sized residential units, received a

housing credit dollar amount allocation from a

state housing credit agency for five low-income

units. To avoid recapture of credit, the Project

owner must maintain five of the units as lowincome units. The project satisfied the minimum

set-aside requirement of section 42(g)(1)(B).

Units 1, 2, 3, 4, and 5 were occupied by

individuals whose incomes did not exceed the

income limitation applicable under section

42(g)(1) (low-income residents). Units 6, 7, 8,

and 9 were occupied by market-rate tenants. Unit

10 was vacant. On November 21, 1997, the

annual incomes of the individuals in Units 1, 2,

and 3 increased above 140 percent of the income

limitation applicable under section 42(g)(1),

causing those units to become over-income units.

On November 30, 1997, Units 8 and 9 became

vacant. On December 1, 1997, the project owner

rented Units 8 and 9 to qualified residents at

rates meeting the rent restriction requirements of

section 42(g)(2). On December 31, 1997, the

Project owner rented Unit 10 to a market-rate

tenant. Because Unit 10, an available comparable

unit, was leased to a market-rate tenant, Units 1,

2, and 3 ceased to be treated as low-income

units. On that date, Units 4, 5, 8, and 9 were the

only remaining low-income units. Because the

Project owner did not maintain five of the

residential units as low-income units, the

qualified basis in the building is reduced, and

credit must be recaptured. If the project owner

had rented Unit 10 to a qualified resident, eight

of the units would be low-income units. Units 1,

2, and 3, the over-income units, could then be

rented to market-rate tenants because the building would still contain five low-income units.

Example 2. This example illustrates the

provisions of paragraph (d) of this section. A

low-income project consists of one six-floor

building. The residential units in the building are

17

identically sized. The building contains two overincome units on the sixth floor and two vacant

units on the first floor. The project owner,

desiring to maintain the over-income units as

low-income units, wants to rent the available

units to qualified residents. J, a resident of one

of the over-income units, wishes to occupy a unit

on the first floor. J’s income has recently

increased above the applicable income limitation.

The project owner permits J to move into one of

the units on the first floor. Despite the increase

in J’s income, J is a qualified resident under the

available unit rule because J is a current resident

of the building. The unit occupied by J becomes

an over-income unit under the available unit rule.

The over-income units in the building continue

to be treated as low-income units.

(h) Effective date. This section is

effective on the date final regulations

are published in the Federal Register.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

May 29, 1996, and published in the issue of

the Federal Register for May 30, 1996, 61 F.R.

27036)

Availability of Publication 947,

Practice Before the IRS and Power

of Attorney (Revised April 1996)

Announcement 96–60

The recently updated Publication 947

is now available from the Internal

Revenue Service.

The publication discusses who can

represent a taxpayer before the IRS and

what forms or documents are used to

authorize a person to represent a

taxpayer.

You can get a copy of this publication by calling 1-800-829-3776. You

can also write to the IRS Forms

Distribution Center nearest you. Check

your income tax package for the

address. Your local library or post

office also may have a copy.

If you have access to a personal

computer and modem, you also can get

the publication electronically. Check

your income tax package for details.

1996 – 26 I.R.B.

SEQ 0018 JOB IRS26-051-002 PAGE-0018 TERMS

REVISED 29JUL96 AT 22:06 BY LR DEPTH: 65.01 PICAS WIDTH 46 PICAS

COMPOSITE COLOR

778/20051/29JUL96/IRS26-051

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 applies to both A and B, the prior

ruling is modified because it corrects a

published position. (Compare with amplified and clarified, above).

Obsoleted describes a previously

published ruling that is not considered

determinative with respect to future

transactions. This term is most commonly used in a ruling that lists

previously published rulings that are

obsoleted because of changes in law or

regulations. A ruling may also be

obsoleted because the substance has

been included in regulations subsequently adopted.

Revoked describes situations where

the position in the previously published

ruling is not correct and the correct

position is being stated in the new

ruling.

Superseded describes a situation

where the new ruling does nothing

more than restate the substance and

situation of a previously published

ruling (or rulings). Thus, the term is

used to republish under the 1986 Code

and regulations the same position published under the 1939 Code and regulations. The term is also used when it is

desired to republish in a single ruling a

series of situations, names, etc., that

were previously published over a

period of time in separate rulings.

If the new ruling does more than

restate the substance of a prior ruling, a

combination of terms is used. For

example, modified and superseded describes a situation where the substance

of a previously published ruling is

being changed in part and is continued

without change in part and it is desired

to restate the valid portion of the

previously published ruling in a new

ruling that is self contained. In this

case the previously published ruling is

first modified and then, as modified, is

superseded.

Supplemented is used in situations in

which a list, such as a list of the names

of countries, is published in a ruling

and that list is expanded by adding

further names in subsequent rulings.

After the original ruling has been

supplemented several times, a new

ruling may be published that includes

the list in the original ruling and the

additions, and supersedes all prior

rulings in the series.

Suspended is used in rare situations

to show that the previous published

rulings will not be applied pending

some future action such as the issuance

of new or amended regulations, the

outcome of cases in litigation, or the

outcome of a Service study.

Abbreviations

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

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

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

The following abbreviations in current use and

formerly used will appear in material published

in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

18

SEQ 0019 JOB IRS26-052-002 PAGE-0019 FINDING LIST

REVISED 29JUL96 AT 22:06 BY LR DEPTH: 65.01 PICAS WIDTH 42.04 PICAS

COMPOSITE COLOR

778/20051/29JUL96/IRS26-052

Numerical Finding List1

Bulletins 1996–1 through 1996–25

Announcements:

96–1, 1996–2 I.R.B. 57

96–2, 1996–2 I.R.B. 57

96–3, 1996–2 I.R.B. 57

96–4, 1996–3 I.R.B. 50

96–5, 1996–4 I.R.B. 99

96–6, 1996–5 I.R.B. 43

96–7, 1996–5 I.R.B. 44

96–8, 1996–7 I.R.B. 56

96–9, 1996–8 I.R.B. 30

96–10, 1996–8 I.R.B. 30

96–11, 1996–9 I.R.B. 11

96–12, 1996–11 I.R.B. 30

96–13, 1996–12 I.R.B. 33

96–14, 1996–12 I.R.B. 35

96–15, 1996–11 I.R.B. 9

96–16, 1996–13 I.R.B. 22

96–17, 1996–13 I.R.B. 22

96–18, 1996–15 I.R.B. 15

96–19, 1996–15 I.R.B. 15

96–20, 1996–15 I.R.B. 15

96–21, 1996–15 I.R.B. 15

96–22, 1996–15 I.R.B. 16

96–23, 1996–18 I.R.B. 7

96–24, 1996–16 I.R.B. 35

96–25, 1996–17 I.R.B. 13

96–26, 1996–17 I.R.B. 13

96–27, 1996–17 I.R.B. 16

96–28, 1996–17 I.R.B. 16

96–29, 1996–17 I.R.B. 17

96–30, 1996–17 I.R.B. 17

96–31, 1996–17 I.R.B. 18

96–32, 1996–17 I.R.B. 18

96–33, 1996–18 I.R.B. 12

96–34, 1996–18 I.R.B. 13

96–35, 1996–18 I.R.B. 13

96–36, 1996–18 I.R.B. 13

96–37, 1996–18 I.R.B. 14

96–38, 1996–19 I.R.B. 84

96–39, 1996–19 I.R.B. 84

96–40, 1996–19 I.R.B. 85

96–41, 1996–20 I.R.B. 18

96–42, 1996–20 I.R.B. 18

96–43, 1996–20 I.R.B. 18

96–44, 1996–21 I.R.B. 10

96–45, 1996–21 I.R.B. 10

96–46, 1996–21 I.R.B. 10

96–47, 1996–22 I.R.B. 10

96–48, 1996–22 I.R.B. 10

96–49, 1996–22 I.R.B. 10

96–50, 1996–22 I.R.B. 11

96–51, 1996–22 I.R.B. 11

96–52, 1996–22 I.R.B. 12

96–53, 1996–23 I.R.B. 12

96–54, 1996–23 I.R.B. 12

96–55, 1996–23 I.R.B. 12

96–56, 1996–24 I.R.B. 29

Announcements—Continued

Proposed Regulations—Continued

96–57, 1996–25 I.R.B. 20

96–58, 1996–25 I.R.B. 21

96–59, 1996–25 I.R.B. 22

IA–41–93, 1996–11 I.R.B. 29

INTL–52–86, 1996–19 I.R.B. 26

INTL–62–90, 1996–19 I.R.B. 26

INTL–32–93, 1996–19 I.R.B. 26

INTL–52–94, 1996–19 I.R.B. 26

INTL–3–95, 1996–6 I.R.B. 29

INTL–9–95, 1996–5 I.R.B. 25

INTL–54–95, 1996–14 I.R.B. 39

PS–2–95, 1996–7 I.R.B. 50

PS–6–95, 1996–16 I.R.B. 27

PS–43–95, 1996–24 I.R.B. 20

PS–4–96, 1996–18 I.R.B. 5

PS–5–96, 1996–25 I.R.B. 17

Delegations Orders:

232 (Rev. 2), 1996–7 I.R.B. 49

236 (Rev. 2), 1996–21 I.R.B. 7

239 (Rev. 1), 1996–7 I.R.B. 49

247, 1996–21 I.R.B. 7

Notices:

96–2, 1996–2 I.R.B. 15

96–1, 1996–3 I.R.B. 30

96–4, 1996–4 I.R.B. 69

96–5, 1996–6 I.R.B. 22

96–6, 1996–5 I.R.B. 27

96–7, 1996–6 I.R.B. 22

96–8, 1996–6 I.R.B. 23

96–9, 1996–6 I.R.B. 26

96–10, 1996–7 I.R.B. 47

96–11, 1996–8 I.R.B. 19

96–12, 1996–10 I.R.B. 29

96–13, 1996–10 I.R.B. 29

96–14, 1996–12 I.R.B. 11

96–15, 1996–13 I.R.B. 19

96–16, 1996–13 I.R.B. 20

96–17, 1996–13 I.R.B. 20

96–18, 1996–14 I.R.B. 27

96–19, 1996–14 I.R.B. 28

96–20, 1996–14 I.R.B. 30

96–21, 1996–14 I.R.B. 30

96–22, 1996–14 I.R.B. 30

96–23, 1996–16 I.R.B. 23

96–24, 1996–16 I.R.B. 23

96–25, 1996–17 I.R.B. 11

96–26, 1996–18 I.R.B. 4

96–27, 1996–18 I.R.B. 4

96–28, 1996–19 I.R.B. 7

96–29, 1996–19 I.R.B. 7

96–30, 1996–20 I.R.B. 11

96–31, 1996–22 I.R.B. 7

96–32, 1996–22 I.R.B. 7

96–33, 1996–22 I.R.B. 8

96–34, 1996–24 I.R.B. 15

96–35, 1996–25 I.R.B. 8

Proposed Regulations:

DL–1–95, 1996–6 I.R.B. 28

EE–20–95, 1996–5 I.R.B. 15

EE–34–95, 1996–3 I.R.B. 49

EE–35–95, 1996–5 I.R.B. 19

EE–53–95, 1996–5 I.R.B. 23

EE–55–95, 1996–12 I.R.B. 12

EE–106–82, 1996–10 I.R.B. 31

EE–142–87, 1996–12 I.R.B. 13

EE–148–81, 1996–11 I.R.B. 29

GL–1–96, 1996–21 I.R.B. 7

IA–3–94, 1996–17 I.R.B. 12

IA–33–95, 1996–4 I.R.B. 99

See footnote at the end of list.

19

Revenue Procedures:

96–1, 1996–1 I.R.B. 8

96–2, 1996–1 I.R.B. 60

96–3, 1996–1 I.R.B. 82

96–4, 1996–1 I.R.B. 94

96–5, 1996–1 I.R.B. 129

96–6, 1996–1 I.R.B. 151

96–7, 1996–1 I.R.B. 185

96–8, 1996–1 I.R.B. 187

96–8A, 1996–9 I.R.B. 10

96–9, 1996–2 I.R.B. 15

96–10, 1996–2 I.R.B. 17

96–11, 1996–2 I.R.B. 18

96–12, 1996–3 I.R.B. 30

96–13, 1996–3 I.R.B. 31

96–14, 1996–3 I.R.B. 41

96–15, 1996–3 I.R.B. 41

96–16, 1996–3 I.R.B. 45

96–17, 1996–4 I.R.B. 69

96–18, 1996–4 I.R.B. 73

96–19, 1996–4 I.R.B. 80

96–20, 1996–4 I.R.B. 88

96–21, 1996–4 I.R.B. 96

96–22, 1996–5 I.R.B. 27

96–23, 1996–5 I.R.B. 27

96–24, 1996–5 I.R.B. 28

96–24A, 1996–15 I.R.B. 12

96–25, 1996–8 I.R.B. 19

96–26, 1996–8 I.R.B. 22

96–27, 1996–11 I.R.B. 27

96–28, 1996–14 I.R.B. 31

96–29, 1996–16 I.R.B. 24

96–30, 1996–19 I.R.B. 8

96–31, 1996–20 I.R.B. 11

96–32, 1996–20 I.R.B. 14

96–33, 1996–22 I.R.B. 8

96–35, 1996–25 I.R.B. 8

Revenue Rulings:

96–1, 1996–1 I.R.B. 7

96–2, 1996–2 I.R.B. 5

96–3, 1996–2 I.R.B. 14

96–6, 1996–2 I.R.B. 8

96–4, 1996–3 I.R.B. 16

96–5, 1996–3 I.R.B. 29

SEQ 0020 JOB IRS26-052-002 PAGE-0020 FINDING LIST

REVISED 29JUL96 AT 22:06 BY LR DEPTH: 65.01 PICAS WIDTH 32.08 PICAS

COMPOSITE COLOR

778/20051/29JUL96/IRS26-052

Numerical Finding List1—Continued

Bulletins 1996–1 through 1996–25

Revenue Rulings—Continued

96–7, 1996–3 I.R.B. 12

96–8, 1996–4 I.R.B. 62

96–9, 1996–4 I.R.B. 5

96–10, 1996–4 I.R.B. 27

96–11, 1996–4 I.R.B. 28

96–12, 1996–9 I.R.B. 4

96–13, 1996–10 I.R.B. 19

96–14, 1996–6 I.R.B. 20

96–15, 1996–11 I.R.B. 9

96–16, 1996–11 I.R.B. 4

96–17, 1996–13 I.R.B. 5

96–18, 1996–13 I.R.B. 4

96–19, 1996–14 I.R.B. 24

96–20, 1996–15 I.R.B. 5

96–21, 1996–15 I.R.B. 7

96–22, 1996–15 I.R.B. 9

96–23, 1996–15 I.R.B. 11

96–24, 1996–19 I.R.B. 5

96–25, 1996–19 I.R.B. 4

96–26, 1996–21 I.R.B. 9

96–27, 1996–24 I.R.B. 9

96–28, 1996–24 I.R.B. 11

96–29, 1996–24 I.R.B. 5

96–30, 1996–24 I.R.B. 4

96–31, 1996–25 I.R.B. 4

96–32, 1996–25 I.R.B. 5

Treasury Decisions—Continued

8652, 1996–11 I.R.B. 11

8653, 1996–12 I.R.B. 4

8654, 1996–11 I.R.B. 14

8655, 1996–12 I.R.B. 9

8656, 1996–13 I.R.B. 9

8657, 1996–14 I.R.B. 4

8658, 1996–14 I.R.B. 13

8659, 1996–16 I.R.B. 4

8660, 1996–17 I.R.B. 4

8661, 1996–17 I.R.B. 7

8662, 1996–23 I.R.B. 5

8663, 1996–23 I.R.B. 4

8664, 1996–20 I.R.B. 7

8665, 1996–21 I.R.B. 4

8667, 1996–20 I.R.B. 4

8668, 1996–22 I.R.B. 4

8669, 1996–23 I.R.B. 6

8670, 1996–24 I.R.B. 6

Treasury Decisions:

8630, 1996–3 I.R.B. 19

8631, 1996–3 I.R.B. 7

8632, 1996–4 I.R.B. 6

8633, 1996–4 I.R.B. 20

8634, 1996–3 I.R.B. 17

8635, 1996–3 I.R.B. 5

8636, 1996–4 I.R.B. 64

8637, 1996–4 I.R.B. 29

8638, 1996–5 I.R.B. 5

8639, 1996–5 I.R.B. 12

8640, 1996–2 I.R.B. 10

8641, 1996–6 I.R.B. 4

8642, 1996–7 I.R.B. 4

8643, 1996–11 I.R.B. 4

8644, 1996–7 I.R.B. 16

8645, 1996–8 I.R.B. 4

8646, 1996–8 I.R.B. 10

8647, 1996–9 I.R.B. 7

8648, 1996–10 I.R.B. 23

8649, 1996–9 I.R.B. 5

8650, 1996–10 I.R.B. 5

8651, 1996–11 I.R.B. 24

1A cumulative list of all Revenue Rulings,

Revenue Procedures, Treasury Decisions, etc.,

published in Internal Revenue Bulletins 1995–

27 through 1995–52 will be found in Internal

Revenue Bulletin 1996–1, dated January 2,

1996.

20

SEQ 0021 JOB IRS26-052-002 PAGE-0021 FINDING LIST

REVISED 29JUL96 AT 22:06 BY LR DEPTH: 65.01 PICAS WIDTH 41.11 PICAS

COMPOSITE COLOR

778/20051/29JUL96/IRS26-052

Finding List of Current Action on

Previously Published Items1

Revenue Procedures—Continued

Revenue Procedures—Continued

96–31, 1996–20 I.R.B. 11

Bulletins 1996–1 through 1996–25

92–85

Modified by

96–1, 1996–1 I.R.B. 8

95–66

Modified by

96–25, 1996–19 I.R.B. 4

*Denotes entry since last publication

Delegation Orders:

232 (Rev. 1)

Superseded by

232 (Rev. 2), 1996–7 I.R.B. 49

236 (Rev. 1)

Superseded by

236 (Rev. 2), 1996–21 I.R.B. 7*

239

Amended by

239 (Rev. 1), 1996–7 I.R.B. 49

93–16

Superseded by

96–11, 1996–2 I.R.B. 18

93–46

Superseded in part by

96–17, 1996–4 I.R.B. 69

Superseded by

96–18, 1996–4 I.R.B. 73

Revenue Procedures:

94–16

Modified by

96–29, 1996–16 I.R.B. 24

65–17

Modified by

96–14, 1996–3 I.R.B. 41

94–18

Superseded in part by

96–17, 1996–4 I.R.B. 69

66–49

Modified by

96–15, 1996–3 I.R.B. 41

Superseded by

96–18, 1996–4 I.R.B. 73

88–32

Obsoleted by

96–15, 1996–3 I.R.B. 41

88–33

Obsoleted by

96–15, 1996–3 I.R.B. 41

89–19

Superseded by

96–17, 1996–4 I.R.B. 69

89–48

Superseded in part by

96–17, 1996–4 I.R.B. 69

91–22

Modified by

96–1, 1996–1 I.R.B. 8

91–22

Amplified by

96–13, 1996–3 I.R.B. 31

95–7

Superseded by

96–7, 1996–1 I.R.B. 185

95–8

Superseded by

96–8, 1996–1 I.R.B. 187

95–13

Superseded by

96–20, 1996–4 I.R.B. 88

95–20

Superseded by

96–24, 1996–5 I.R.B. 28

95–50

Superseded by

96–3, 1996–1 I.R.B. 82

96–3

Amplified by

96–12, 1996–3 I.R.B. 30

Revenue Rulings:

94–59

Superseded in part by

96–17, 1996–4 I.R.B. 69

66–307

Obsoleted by

96–3, 1996–2 I.R.B. 14

Superseded by

96–18, 1996–4 I.R.B. 73

72–437

Modified by

96–13, 1996–3 I.R.B. 31

94–62

Modified by

96–29, 1996–16 I.R.B. 24

94–77

Superseded by

96–28, 1996–14 I.R.B. 31

95–1

Superseded by

96–1, 1996–1 I.R.B. 8

95–2

Superseded by

96–2, 1996–1 I.R.B. 60

78–294

Obsoleted by

8665, 1996–21 I.R.B. 4

80–80

Obsoleted by

96–3, 1996–2 I.R.B. 14

82–80

Modified by

96–14, 1996–3 I.R.B. 41

92–19

Supplemented in part

96–2, 1996–2 I.R.B. 5

95–3

Superseded by

96–3, 1996–1 I.R.B. 82

92–75

Clarified by

96–13, 1996–3 I.R.B. 31

91–24

Superseded by

96–14, 1996–3 I.R.B. 41

95–4

Superseded by

96–4, 1996–1 I.R.B. 94

95–10

Supplemented and superseded by

96–4, 1996–3 I.R.B. 16

91–26

Superseded by

96–13, 1996–3 I.R.B. 31

95–5

Superseded by

96–5, 1996–1 I.R.B. 129

95–11

Supplemented and superseded by

96–5, 1996–3 I.R.B. 29

92–20

Modified by

96–1, 1996–1 I.R.B. 8

95–6

Superseded by

96–6, 1996–1 I.R.B. 151

96–24

Modified and amplified by

96–24A, 1996–15 I.R.B. 12

91–23

Superseded by

96–13, 1996–3 I.R.B. 31

1A cumulative finding list for previously

published items mentioned in Internal Revenue

Bulletins 1995–27 through 1995–52 will be

found in Internal Revenue Bulletin 1996–1, dated

January 2, 1996.

21