# These synopses are intended only as aids to the reader in > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3Aba850a866d6496a8 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Bulletin No. 2003–4 January 27, 2003 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. SPECIAL ANNOUNCEMENT Announcement 2003–3, page 361. This announcement lists the names of the neutrals that have been qualified by the Service and Chief Counsel to serve as arbitrators for contingent liability transaction cases proceeding under Rev. Proc. 2002–67, 2003–43 I.R.B. 733. Rev. Proc. 2003–11, page 311. This procedure describes the Service’s Offshore Voluntary Compliance Initiative for taxpayers that have underreported their United States income tax liability through financial arrangements that in any manner rely on the use of offshore payment cards or offshore financial arrangements. EMPLOYEE PLANS INCOME TAX Rev. Rul. 2003–9, page 303. LIFO; price indexes; department stores. The November 2002 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, firstout inventory methods for valuing inventories for tax years ended on, or with reference to, November 30, 2002. Rev. Rul. 2003–14, page 302. Cost-share payments; SWCA. The Soil and Water Conservation Assistance Program (SWCA) is substantially similar to the type of programs described in sections 126(a)(1) through (8) within the meaning of section 126(a)(9) of the Code. All or a portion of cost-share payments received under the SWCA program is eligible for exclusion from gross income to the extent permitted by section 126. Rev. Rul. 2003–15, page 302. Cost-share payments; AMA. The Agricultural Management Assistance Program (AMA) is substantially similar to the type of programs described in sections 126(a)(1) through (8) within the meaning of section 126(a)(9) of the Code. All or a portion of costshare payments received under the AMA program is eligible for exclusion from gross income to the extent permitted by section 126. Notice 2003–7, page 310. Weighted average interest rate update. The weighted average interest rate for January 2003 and the resulting permissible range of interest rates used to calculate current liability for purposes of the full funding limitation of section 412(c)(7) of the Code are set forth. Rev. Proc. 2003–13, page 317. Deemed IRAs; section 602 of EGTRRA. This procedure describes the application of section 408(q) of the Code for deemed IRAs as added by section 602 of the Economic Growth and Tax Relief Reconciliation Act for plan years after December 31, 2002. Rev. Proc. 2003–16, page 359. Section 644 of EGTRRA; 60-day rollover requirement; waiver. This document describes a procedure for obtaining a waiver of the 60-day rollover requirement under sections 402(c)(3) and 408(d)(3) of the Code for distributions after December 31, 2001. EXEMPT ORGANIZATIONS Rev. Rul. 2003–13, page 305. Transfers of assets. This ruling describes the responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) of the Code when it transfers all of its assets to one or more public charities described in sections 509(a)(1), 509(a)(2), or 509(a)(3). (Continued on the next page) Finding Lists begin on page ii. EXEMPT ORGANIZATIONS—CONT. Rev. Proc. 2003–12, page 316. This procedure clarifies that an entity described in section 501(c)(3) of the Code can also meet the requirements of section 115(1). It also provides information on drafting dissolution clauses in the articles of organization of a section 501(c)(3) entity that requests a letter ruling that its income is excluded from gross income under section 115(1). ADMINISTRATIVE Notice 2003–8, page 310. This notice advises that until further notice from the Service, no information reporting will be required under section 6045 of the Code with regard to securities futures contracts. Rev. Proc. 2003–11, page 311. This procedure describes the Service’s Offshore Voluntary Compliance Initiative for taxpayers that have underreported their United States income tax liability through financial arrangements that in any manner rely on the use of offshore payment cards or offshore financial arrangements. Rev. Proc. 2003–14, page 319. Indian tribal government trusts for minors. This procedure provides a safe harbor under which the Service will treat an Indian tribe as the grantor and owner of a trust for the receipt of gaming revenues under the Indian Gaming Regulatory Act (25 U.S.C. sections 2701–2721) (IGRA) for the benefit of minors or legal incompetents. Beneficiaries of an IGRA trust will not be required to include amounts in gross income when transferred to, or earned by, the IGRA trust under the economic benefit doctrine. Comments are requested on the application of the economic benefit doctrine to IGRA trusts that are not within the scope of this revenue procedure and the type of trust provisions that preclude the application of the economic benefit doctrine. Rev. Proc. 2003–3 amplified. Rev. Proc. 2003–15, page 321. This procedure provides issuers of qualified mortgage bonds, as defined in section 143(a) of the Code, and issuers of mortgage credit certificates, as defined in section 25(c), with a list of qualified census tracts for each state and the District of Columbia. The qualified census tracts are based on data from the 2000 census. Rev. Proc. 93–38 obsoleted. January 27, 2003 2003–4 I.R.B. The IRS Mission Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest. It is published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin contents are consolidated semiannually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and 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 Other Related Items, and Subpart B, Legislation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements. The first Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the first Bulletin of the succeeding semiannual period, respectively. The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. 2003–4 I.R.B. January 27, 2003 Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 25.—Interest on Certain Home Mortgages Rev. Rul. 2003–14 26 CFR 1.25–3T: Qualified mortgage credit certifi- ISSUE cate. The qualified census tracts for the states and the District of Columbia are set forth for use in determining the portion of loans required to be placed in targeted areas under section 143(h). See Rev. Proc. 2003–15, page 321. Section 61.—Gross Income Defined 26 CFR 1.61–1: Gross income. Beneficiaries of trusts for the receipt of gaming revenues under the Indian Gaming Regulatory Act for the benefit of minors or legal incompetents that conform to the procedures of this revenue procedure will not be required to include amounts in gross income when transferred to, or earned by, the trust under the economic benefit doctrine. Rather, beneficiaries will include amounts in income when actually or constructively received. See Rev. Proc. 2003–14, page 319. Section 103.—Interest on State and Local Bonds 26 CFR 1.103–1: Interest upon obligations of a State, Territory, etc. The qualified census tracts for the states and the District of Columbia are set forth for use in determining the portion of loans required to be placed in targeted areas under section 143(h). See Rev. Proc. 2003–15, page 321. Section 126.—Certain CostSharing Payments 26 CFR 16A.126–1: Certain cost-sharing payments — In general (Temporary). Cost-share payments; SWCA. The Soil and Water Conservation Assistance Program (SWCA) is substantially similar to the type of programs described in sections 126(a)(1) through (8) within the meaning of section 126(a)(9) of the Code. All or a portion of cost-share payments received under the SWCA program is eligible for exclusion from gross income to the extent permitted by section 126. 2003–4 I.R.B. Is the Soil and Water Conservation Assistance (SWCA) program substantially similar to the type of programs described in § 126(a)(1) through (8) of the Internal Revenue Code, so that the SWCA program is within the scope of § 126(a)(9) and, thereby, cost-share payments received under the SWCA program are eligible for exclusion from gross income to the extent permitted by § 126? FACTS The SWCA program, authorized under the provisions of Title II of the Agricultural Risk Protection Act of 2000, Pub. L. No. 106–224, 114 Stat. 358, is a voluntary program that provides payments to farmers and ranchers to implement measures needed to conserve and improve soil, water, and related natural resources and to comply with federal and state environmental laws. A farmer or rancher who participates in the SWCA program enters into a 5 to 10 year cost-share agreement with the Department of Agriculture pursuant to which the farmer or rancher agrees to implement specific eligible conservation practices in return for cost-share payments in the amount of 75 percent of the cost of an eligible practice. The total maximum payment per participant cannot exceed $50,000. The Secretary of Agriculture has determined that cost-share payments under the SWCA program are primarily for the purpose of conservation. grams described in §§ 126(a)(1) through (8). See § 16A.126–1(d)(3) of the temporary Income Tax Regulations for the definition of “small watershed.” Once the Commissioner has determined that a program is substantially similar to the types of programs described in § 126(a)(1) through (8), taxpayers receiving cost-share payments under that program must determine what portion of the cost-share payments is excludable from gross income under § 126. See § 126(b)(1), and § 16A.126–1 relating to the partial exclusion for certain cost-share payments to determine what portion of the cost-share payments is excludable from gross income under § 126. HOLDING The SWCA program is substantially similar to the type of programs described in §§ 126(a)(1) through (8) within the meaning of § 126(a)(9). All or a portion of costshare payments received under the SWCA program is eligible for exclusion from gross income to the extent permitted by § 126. See § 126(b)(1) and § 16A.126–1 to determine what portion, if any, of the cost-share payments is excludable from gross income under § 126. DRAFTING INFORMATION The principal author of this revenue ruling is Nicole R. Cimino of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Ms. Cimino at (202) 622–3120 (not a toll-free call). LAW AND ANALYSIS Under § 126(a), gross income does not include the excludable portion of payments received under certain conservation programs set forth in § 126(a)(1) through (8). Under § 126(a)(9), a program affecting “small watersheds” that is administered by the Secretary of Agriculture also is eligible for § 126 treatment if the Commissioner determines that the program is substantially similar to the type of pro- 302 26 CFR 16A.126–1: Certain cost-sharing payments — In general (Temporary). Cost-share payments; AMA. The Agricultural Management Assistance Program (AMA) is substantially similar to the type of programs described in sections 126(a)(1) through (8) within the meaning of section 126(a)(9) of the Code. All or a portion of cost-share payments received under the AMA program is eligible for exclu- January 27, 2003 sion from gross income to the extent permitted by section 126. Rev. Rul. 2003–15 ISSUE Is the Agricultural Management Assistance (AMA) program substantially similar to the type of programs described in § 126 (a)(1) through (8) of the Internal Revenue Code, so that the AMA program is within the scope of § 126(a)(9) and, thereby, cost-share payments received under the AMA program are eligible for exclusion from gross income to the extent permitted by § 126? grams described in §§ 126(a)(1) through (8). See § 16A.126–1(d)(3) of the temporary Income Tax Regulations for the definition of “small watershed.” Once the Commissioner has determined that a program is substantially similar to the types of programs described in § 126(a)(1) through (8), taxpayers receiving cost-share payments under that program must determine what portion of the cost-share payments is excludable from gross income under § 126. See § 126(b)(1), and § 16A.126–1 relating to the partial exclusion for certain cost-share payments to determine what portion of the cost-share payments is excludable from gross income under § 126. FACTS HOLDING The AMA program, authorized under the provisions of Title I of the Agricultural Risk Protection Act of 2000, Pub. L. No. 106– 224, 114 Stat. 358, is a voluntary program that provides cost-share assistance to agricultural producers to address threats to soil, water, and related natural resources by incorporating certain conservation practices into their farming operations. An agricultural producer who participates in the AMA program enters into a 5 to 10 year cost-share agreement with the Department of Agriculture pursuant to which the agricultural producer agrees to implement eligible conservation practices in return for cost-share payments in the amount of 75 percent of the cost of the eligible practice, with a limit of $50,000 per person for any fiscal year. The total cost-share payments paid per person over the course of the contract cannot exceed $150,000. The Secretary of Agriculture has determined that cost-share payments under the AMA program are primarily for the purpose of conservation. The AMA program is substantially similar to the type of programs described in §§ 126(a)(1) through (8) within the meaning of § 126(a)(9). All or a portion of costshare payments received under the AMA program is eligible for exclusion from gross income to the extent permitted by § 126. See § 126(b)(1) and § 16A.126–1 to determine what portion, if any, of the cost-share payments is excludable from gross income under § 126. LAW AND ANALYSIS Under § 126(a), gross income does not include the excludable portion of payments received under certain conservation programs set forth in § 126(a)(1) through (8). Under § 126(a)(9), a program affecting “small watersheds” that is administered by the Secretary of Agriculture also is eligible for § 126 treatment if the Commissioner determines that the program is substantially similar to the type of pro- January 27, 2003 DRAFTING INFORMATION The principal author of this revenue ruling is Nicole R. Cimino of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Ms. Cimino at (202) 622–3120 (not a toll-free call). Section 402.—Taxability of Beneficiary of Employees’ Trust Pursuant to section 644 of the Economic Growth and Tax Relief Reconciliation Act of 2001, a revenue procedure provides a method for obtaining a waiver from the 60-day rollover requirement of section 402(c)(3)(A) of the Internal Revenue Code. See Rev. Proc. 2003–16, page 359. Section 408.—Individual Retirement Accounts Pursuant to section 644 of the Economic Growth and Tax Relief Reconciliation Act of 2001, a revenue procedure provides a method for obtaining a waiver from the 60-day rollover requirement of section 408(d)(3)(A) and (D) of the Internal Revenue Code. See Rev. Proc. 2003–16, page 359. Section 451.—General Rule for Taxable Year of Inclusion 26 CFR 1.451–1: General rule for taxable year of inclusion. Beneficiaries of trusts for the receipt of gaming revenues under the Indian Gaming Regulatory Act for the benefit of minors or legal incompetents that conform to the procedures of this revenue procedure will not be required to include amounts in gross income when transferred to, or earned by, the trust under the economic benefit doctrine. Rather, beneficiaries will include amounts in income when actually or constructively received. See Rev. Proc. 2003–14, page 319. Section 472.—Last-in, First-out Inventories 26 CFR 1.472–1: Last-in, first-out inventories. Section 143.—Mortgage Revenue Bonds: Qualified Mortgage Bond and Qualified Veterans’ Mortgage Bond LIFO; price indexes; department stores. The November 2002 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, November 30, 2002. 26 CFR 6a.103A–2: Qualified mortgage bond. Rev. Rul. 2003–9 The qualified census tracts for the states and the District of Columbia are set forth for use in determining the portion of loans required to be placed in targeted areas under section 143(h). See Rev. Proc. 2003–15, page 321. The following Department Store Inventory Price Indexes for November 2002 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86– 46, 1986–2 C.B. 739, for appropriate ap- 303 2003–4 I.R.B. plication to inventories of department stores employing the retail inventory and lastin, first-out inventory methods for tax years ended on, or with reference to, November 30, 2002. The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups — soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments. BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (January 1941 = 100, unless otherwise noted) Nov. 2001 Nov. 2002 Percent Change from Nov. 2001 to Nov. 20021 Piece Goods .............................................................................. Domestics and Draperies .......................................................... Women’s and Children’s Shoes ............................................... Men’s Shoes.............................................................................. Infants’ Wear............................................................................. Women’s Underwear................................................................. Women’s Hosiery...................................................................... Women’s and Girls’ Accessories.............................................. Women’s Outerwear and Girls’ Wear ...................................... Men’s Clothing ......................................................................... Men’s Furnishings .................................................................... Boys’ Clothing and Furnishings............................................... Jewelry ...................................................................................... Notions ...................................................................................... Toilet Articles and Drugs.......................................................... Furniture and Bedding .............................................................. Floor Coverings ........................................................................ Housewares ............................................................................... Major Appliances ...................................................................... Radio and Television ................................................................ Recreation and Education2 ....................................................... Home Improvements2 ............................................................... Auto Accessories2 ..................................................................... 492.1 597.2 659.0 877.2 641.4 574.5 355.0 562.2 385.3 582.7 625.4 490.1 907.3 806.5 979.8 629.5 627.3 762.5 226.5 52.3 88.4 124.2 110.4 473.3 571.3 652.4 899.2 622.7 551.8 345.3 559.1 373.5 572.1 603.6 461.3 871.7 793.1 972.5 622.2 600.6 738.6 221.6 47.5 84.6 125.2 111.7 -3.8 -4.3 -1.0 2.5 -2.9 -4.0 -2.7 -0.6 -3.1 -1.8 -3.5 -5.9 -3.9 -1.7 -0.7 -1.2 -4.3 -3.1 -2.2 -9.2 -4.3 0.8 1.2 Groups 1 – 15: Soft Goods................................................................... Groups 16 – 20: Durable Goods .......................................................... Groups 21 – 23: Misc. Goods2 ............................................................. 592.1 418.8 97.6 575.9 404.5 95.4 -2.7 -3.4 -2.3 Store Total3................................................................................ 528.0 513.0 -2.8 Groups 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 1 Absence of a minus sign before the percentage change in this column signifies a price increase. Indexes on a January 1986=100 base. 3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments. 2 DRAFTING INFORMATION The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and 2003–4 I.R.B. Accounting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622–7718 (not a tollfree call). 304 January 27, 2003 Section 507.—Termination of Private Foundation Status 26 CFR 1.507–1, 1.507–2, 1.507–3, 1.507–4, 1.507–7: Special rules; Transfers to publicly supported organizations; Liability in case of transfers. (Also §§ 4940, 4941, 4942, 4943, 4944, 4945; 53.4940–1, 53.4941(a)–1, 53.4942(a)–3.) Transfers of assets. This ruling describes the responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) of the Code when it transfers all of its assets to one or more public charities described in sections 509(a)(1), 509(a)(2), or 509(a)(3). Rev. Rul. 2003–13 ISSUES If a private foundation distributes all of its net assets to one or more public charities described in § 509(a)(1), § 509(a)(2) or § 509(a)(3) of the Internal Revenue Code under the facts described below: 1. Has the private foundation terminated its foundation status and is the private foundation liable for tax under § 507(c)? 2. What are the consequences of the distribution under: (a) § 4940; (b) § 4941; (c) § 4942; (d) § 4943; (e) § 4944; and (f) § 4945? FACTS Each of the following situations assumes that: (i) the private foundation has not committed either willful repeated acts (or failures to act), or a willful and flagrant act (or failure to act), giving rise to liability for tax under chapter 42; (ii) the private foundation is not an operating foundation within the meaning of § 4942(j)(3); (iii) the transferee organizations are not controlled (directly or indirectly) by the private foundation or by one or more disqualified persons with respect to the private foundation; (iv) the private foundation has not previously terminated (or had terminated) its private foundation status; (v) the transferee organization is a public charity described in § 509(a)(1), § 509(a)(2), or § 509(a)(3) that retains its public charity January 27, 2003 classification for at least three years following the date of the distribution; (vi) the private foundation does not impose any material restrictions as described in § 1.507– 2(a)(8)(i) on the transferred assets, and (vii) the private foundation retains sufficient income or assets to pay any chapter 42 taxes, such as the tax imposed under § 4940 for the portion of the taxable year prior to the distribution, and pays such taxes when due. Situation 1. P is recognized as exempt from federal income tax under § 501(c)(3) and is classified as a private foundation under § 509(a). Pursuant to a plan of dissolution, P distributes all its net assets to X. X is recognized as exempt from federal income tax under § 501(c)(3) and is not a private foundation because X is described in § 509(a)(1) (i.e. an organization described in § 170(b)(1)(A) (other than clauses (vii) and (viii))). X has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding the distribution. After P distributes all its net assets, P files articles of dissolution with the appropriate state authority. Situation 2. The facts are the same as Situation 1, except that X has been in existence for fewer than 60 calendar months immediately preceding the distribution, and was not formed as a result of a consolidation of other organizations described in § 509(a)(1) that would have been in existence for a continuous period of 60 calendar months prior to the distribution had they continued in existence. Situation 3. The facts are the same as Situation 1, except that X is an organization described in § 509(a)(2). Situation 4. The facts are the same as Situation 1, except that X is an organization described in § 509(a)(3). LAW Section 507(a) provides that, except as provided in § 507(b), the status of any organization as a private foundation shall be terminated only if (1) such organization notifies the Secretary of its intent to accomplish such termination, or (2) with respect to such organization, there have been either willful repeated acts (or failures to act), or a willful and flagrant act (or failure to act), giving rise to a liability for tax under chapter 42, and the Secretary notifies such organization that it is liable for the tax imposed by § 507(c). Under § 507(a)(1) and (2), the organization’s private foundation 305 status is terminated when the organization pays the tax imposed by § 507(c) or the entire amount of such tax is abated under § 507(g). Section 507(b)(1)(A) provides that the private foundation status of any organization, with respect to which there have not been either willful repeated acts (or failures to act) or a willful and flagrant act (or failure to act) giving rise to a liability for tax under chapter 42, shall be terminated, if the private foundation distributes all its net assets to one or more organizations described in § 170(b)(1)(A) (other than clauses (vii) and (viii)) each of which has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding such distribution. Section 507(c) imposes a tax on each organization whose private foundation status is voluntarily or involuntarily terminated under § 507(a). The tax imposed is the lower of (1) the amount that the private foundation substantiates by adequate records or other corroborating evidence as the aggregate tax benefit resulting from the § 501(c)(3) status of such foundation, or (2) the value of the net assets of the foundation. Section 1.507–1(b)(1) provides that in order to terminate its private foundation status under § 507(a)(1), an organization must submit a statement to the Manager, Exempt Organizations Determinations, Tax Exempt and Government Entities Division (TE/GE), of its intent to terminate its private foundation status under § 507(a)(1). Such statement must set forth in detail the computation and amount of tax imposed under § 507(c). Unless the organization requests abatement of such tax pursuant to § 507(g), full payment of such tax must be made at the time the statement is filed under § 507(a)(1). An organization may request the abatement of all of the tax imposed under § 507(c), or may pay any part thereof and request abatement of the unpaid portion of the amount of tax assessed. If the organization requests abatement of the tax imposed under § 507(c) and such request is denied, the organization must pay such tax in full upon notification by the Service that such tax will not be abated. Section 1.507–1(b)(7) provides that a transfer of all the assets of a private foundation does not result in a termination of the transferor private foundation under § 507(a), unless the transferor private foun- 2003–4 I.R.B. dation elects to terminate pursuant to § 507(a)(1), or § 507(a)(2) is applicable. Section 1.507–2(a)(1) provides that under § 507(b)(1)(A), a private foundation, may terminate its private foundation status by distributing all its net assets to one or more organizations described in § 170(b)(1)(A) (other than clauses (vii) and (viii)) each of which has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding such distribution. As § 507(a) does not apply to such a termination, a private foundation that makes such a termination is not required to give the notification described in § 507(a)(1). A private foundation that terminates its private foundation status under § 507(b)(1)(A) does not incur tax under § 507(c) and, therefore, no abatement of such tax under § 507(g) is required. Section 1.507–2(a)(4) provides that an organization that terminates its private foundation status pursuant to § 507(b)(1)(A) will remain subject to the provisions of chapter 42 until it distributes all its net assets to distributee organizations described in § 507(b)(1)(A). Section 1.507–2(a)(7) provides that a private foundation will meet the requirement that it “distribute all of its net assets” within the meaning of § 507(b)(1)(A) only if it transfers all its right, title, and interest in and to all its net assets to one or more organizations referred to in § 507(b)(1)(A). Section 1.507–2(a)(8)(i) provides, in part, that to effectuate a transfer of “all of its right, title, and interest in and to all of net assets,” a transferor private foundation may not impose any material restriction or condition that prevents the transferee organization from freely and effectively employing the transferred assets, or the income derived therefrom, in furtherance of its exempt purposes. Section 1.507–3(e) provides that if a private foundation transfers all or part of its assets to one or more organizations described in § 509(a)(1), (2), or (3) and, within a period of 3 years from the date of such transfers, one or more of the transferee organizations lose their § 509(a)(1), (2), or (3) status and become private foundations, then the transfer will be treated as a transfer described in § 507(b)(2) and the provisions of § 1.507–3(a) shall be treated as applying to such transferee from the date any such transfer was made to it. 2003–4 I.R.B. Section 1.507–4(b) provides that private foundations that make transfers described in § 507(b)(1)(A) or (2) are not subject to the tax imposed under § 507(c) with respect to such transfers unless the provisions of § 507(a) become applicable. Section 1.507–7(a) provides that the value of net assets for purposes of § 507(c) shall be determined at whichever time such value is higher: (1) the first day action is taken by the organization that culminates in its ceasing to be a private foundation, or (2) the date it ceases to be a private foundation. Section 1.507–7(b)(1) provides that in the case of a termination under § 507(a)(1), the date of action referred to in § 1.507– 7(a)(1) shall be the date the terminating foundation gives the notification described in § 507(a)(1). Section 4940(a) generally imposes an excise tax on a private foundation’s net investment income for the taxable year. Section 4940(c)(1) defines net investment income as the amount by which the sum of the gross investment income and the capital gain net income exceeds the deductions allowed under 4940(c)(3). Section 53.4940–1(f)(1) provides that a distribution of property for purposes described in § 170(c)(1) or (2)(B) that is a qualifying distribution under § 4942 shall not be treated as a sale or disposition of property. Section 4941(a)(1) imposes a tax on each act of self-dealing between a disqualified person and a private foundation. Section 53.4946–1(a)(8) provides that, for purposes of § 4941, the term “disqualified person” shall not include any organization described in § 501(c)(3) (other than an organization described in § 509(a)(4)). Section 4942(a) generally imposes a tax on the undistributed income of a private foundation (other than an operating foundation under § 4942(j)(3)) for any taxable year, that has not been distributed before the first day of the second (or any succeeding) taxable year following such taxable year. Section 4942(c) defines “undistributed income” for any taxable year as the amount by which the distributable amount for such taxable year exceeds the qualifying distributions made out of such distributable amount for such taxable year. Section 4942(d) defines “distributable amount” as the amount equal to the sum of 306 the minimum investment return, plus certain other amounts, reduced by the sum of the taxes imposed on such private foundation for the taxable year under subtitle A and § 4940. Section 4942(g)(1)(A) defines “qualifying distribution” as any amount (including that portion of reasonable and necessary administrative expenses) paid to accomplish one or more purposes described in § 170(c)(2)(B) other than a contribution to (i) an organization controlled directly or indirectly by the foundation or by one or more disqualified persons with respect to the foundation, unless certain requirements are satisfied, or (ii) any private foundation that is not an operating foundation under § 4942(j)(3), unless certain requirements are satisfied. Section 53.4942(a)–3(a)(3) provides, in part, that control of a donee organization is determined without regard to any conditions imposed upon the donee as part of the distribution or any other restrictions accompanying the distribution as to the manner the distribution is to be used, unless such conditions or restrictions are described in § 1.507–2(a)(8). Section 4943(a)(1) imposes a tax on the “excess business holdings” (as defined in § 4943(c)) of any private foundation in a business enterprise. Section 4944(a)(1) imposes a tax on any amount invested by a private foundation in a manner that jeopardizes the carrying out of any of the foundation’s exempt purposes. Section 4945 imposes a tax on any “taxable expenditure” (as defined in § 4945(d)) made by a private foundation. Section 4945(d)(4)(A) states that the term “taxable expenditure” includes any amount paid or incurred by a private foundation as a grant to an organization unless the organization is described in paragraph (1), (2), or (3) of § 509(a) or is an exempt operating foundation (as defined in § 4940(d)(2)). Section 4945(h) provides that the expenditure responsibility referred to in § 4945(d)(4) means a private foundation is responsible to exert all reasonable efforts and to establish adequate procedures to (1) see that the grant is spent solely for the purpose for which made, (2) obtain full and complete reports from the grantee on how the funds are spent, and (3) make full and detailed reports with respect to such expenditures to the Secretary. January 27, 2003 Section 4946 provides that the term ‘disqualified person’ includes a substantial contributor to a private foundation. In Rev. Rul. 75–289, 1975–2 C.B. 215, a private foundation defined in § 509 distributed all its net assets to an organization, described in § 170(b)(1)(A)(vi), that had been in existence for only 20 months. The organization was formed as a result of a consolidation of two organizations each of which would have been an organization described in § 170(b)(1)(A)(vi) and in existence for a continuous period of 60 calendar months before the distribution had they continued in existence. The ruling held that the private foundation had terminated its private foundation status under § 507(b)(1)(A). ANALYSIS SECTION 507 Under § 507(b)(1)(A), an organization’s status as a private foundation is terminated if the organization distributes all its net assets to one or more organizations described in § 509(a)(1) (i.e., organizations described in § 170(b)(1)(A) (other than in clauses (vii) and (viii))) each of which has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding the distribution. An organization that terminates its private foundation status under § 507(b)(1)(A) is not required to give notice under § 507(a)(1) and is not subject to the tax described in § 507(c). See § 1.507– 2(a)(1). If a private foundation distributes all its net assets to one or more public charities, at least one of which is described in § 509(a)(1) and has been so described for fewer than 60 calendar months immediately preceding the distribution or is described in §§ 509(a)(2) or (3), then the rules of § 507(b)(1)(A) do not apply. In this case, the distributions do not cause the private foundation to terminate its private foundation status. See § 1.507–1(b)(7). The private foundation may choose to terminate its private foundation status by submitting a statement of its intent to terminate its private foundation status under § 507(a)(1) to the Manager, Exempt Organizations Determinations, Tax Exempt and Government Entities Division (TE/GE). See § 1.507–1(b)(1). Such statement must set January 27, 2003 forth in detail the computation and amount of tax imposed under § 507(c). See § 1.507– 1(b)(1). If the private foundation has no net assets on the day it provides notice (e.g., it provides notice at least one day after it distributes all its net assets), the tax imposed by § 507(c) will be zero. See § 507(a)(1) and § 507(c); and §§ 1.507– 7(a) and (b). A submission of a Form 990–PF marked “Final” does not constitute notice of termination of private foundation status under § 507(a)(1). See § 1.507– 1(b)(1). In Situation 1, P transfers all its net assets to X, which is described in § 509(a)(1) and has been so described for a continuous period of at least 60 calendar months immediately preceding the distribution. Accordingly, the distribution is subject to the rules of § 507(b)(1)(A), rather than the rules of § 507(a)(1). See § 507(b)(1)(A) and § 1.507–2(a)(1). Because the distribution is described in § 507(b)(1)(A), P’s status as a private foundation is terminated upon the distribution and P is not subject to the tax described in § 507(c). See § 1.507–2(a)(1) and § 1.507– 4(b). P is not required to give notice under § 507(a)(1) to terminate its private foundation status. In Situation 2, X is an organization described in § 509(a)(1) that has been in existence and so described for fewer than 60 calendar months immediately preceding the distribution. In Situation 3, X is an organization described in § 509(a)(2). In Situation 4, X is an organization described in § 509(a)(3). Accordingly, the distributions in Situations 2, 3, and 4 are not subject to the rules of § 507(b)(1)(A). See § 507(b) (1)(A) and § 1.507–2(a)(1). Because the distributions in Situations 2, 3, and 4 are not described in § 507(b)(1)(A), P’s status as a private foundation is not terminated unless it gives notice under § 507(a)(1). See § 1.507–1(b)(1) and § 1.507–1(b)(7). If P does not provide notice and does not terminate, P is not subject to the tax under § 507(c). If P chooses to provide notice, and therefore terminates, it is subject to the tax under § 507(c) on the date it provides notice; however, if P has no net assets on the day it provides notice (e.g., it provides notice at least one day after it distributes all its net assets), the tax imposed by § 507(c) will be 307 zero. See § 507(a)(1) and § 507(c); and §§ 1.507–7(a) and (b). SECTION 4940 In Situations 1, 2, 3, and 4, the distributions do not constitute an investment of P for purposes of § 4940; therefore the distributions do not give rise to net investment income under § 4940(a). See § 53.4940–1(f)(1). SECTION 4941 In Situations 1, 2, 3, and 4, the distributions are to § 501(c)(3) organizations, which are not treated as disqualified persons for purposes of § 4941. See § 53.4946– 1(a)(8). Thus, the distributions do not constitute self-dealing transactions and are not subject to tax under § 4941(a)(1). SECTION 4942 In Situations 1, 2, 3, and 4, the distributions are paid to accomplish one or more purposes described in § 170(c)(2)(B) and are not made to organizations controlled directly or indirectly by P or by one or more disqualified persons with respect to P. Thus, the distributions are qualifying distributions for purposes of § 4942(g)(1)(A). SECTION 4943 In Situations 1, 2, 3, and 4, the distributions do not cause P to have excess business holdings subject to tax under § 4943(a). SECTION 4944 In Situations 1, 2, 3, and 4, the distributions do not constitute investments for purposes of § 4944 and therefore are not jeopardizing investments subject to tax under § 4944(a)(1). SECTION 4945 In Situations 1, 2, 3, and 4, the distributions are to organizations described in §§ 509(a)(1), (2), or (3). Therefore, the distributions are not taxable expenditures under § 4945. See § 4945(d)(4)(A). P will not be required to exercise expenditure responsibility with respect to the distributions under § 4945(d)(4) or (h). HOLDINGS Under the facts of the ruling: 2003–4 I.R.B. 1. A private foundation that distributes all its net assets to one or more organizations described in § 509(a)(1) (i.e., organizations described in § 170(b)(1)(A) (other than in clauses (vii) and (viii))) each of which has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding the distribution terminates its private foundation status under § 507(b)(1)(A). The private foundation is not required to file a notice of termination under § 507(a)(1) and is not liable for tax under § 507(c). A private foundation that distributes all its net assets to one or more public charities, at least one of which is described in § 509(a)(1) and has been so described for fewer than 60 calendar months immediately preceding the distribution or is described in §§ 509(a)(2) or (3), does not terminate its private foundation status unless it gives notice under § 507(a)(1). If the private foundation does not provide notice and does not terminate, the private foundation is not subject to tax under § 507(c). If the private foundation chooses to provide notice, and therefore terminates, it is subject to the tax under § 507(c) on the date notice is given; however, if the private foundation has no net assets on the day it provides notice (e.g., it provides notice at least one day after it distributes all its net assets), the tax imposed by § 507(c) will be zero. If the private foundation elects to terminate its private foundation status under § 507(a)(1), it must submit a statement to the Manager, Exempt Organizations Determinations, Tax Exempt and Government Entities Division (TE/GE), of its intent to terminate its private foundation status under § 507(a)(1). Such statement must set forth in detail the computation and amount of tax imposed under § 507(c). The submission of a Form 990–PF marked “Final” does not constitute notice of termination of private foundation status under § 507(a)(1). 2. (a) The distribution does not give rise to net investment income and is not subject to tax under § 4940(a). (b) The distribution does not constitute a self-dealing transaction and is not subject to tax under § 4941(a)(1). (c) The distribution constitutes a qualifying distribution for the transferor private foundation under § 4942. 2003–4 I.R.B. (d) The distribution does not result in excess business holdings and is not subject to tax under § 4943(a). (e) The distribution does not constitute an investment jeopardizing the transferor private foundation’s exempt purposes and is not subject to tax under § 4944(a)(1). (f) The distribution is not a taxable expenditure described in § 4945. DRAFTING INFORMATION The principal author of this revenue ruling is Theodore R. Lieber of the Exempt Organizations, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, contact Theodore R. Lieber at (202) 283–8999 (not a toll-free call). Section 671.—Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners Section 4940.—Excise Tax Based on Investment Income Responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) when it transfers all of its assets to one or more organizations described in section 509(a). See Rev. Rul. 2003– 13, page 305. Section 4941.—Taxes on Self-Dealing Responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) when it transfers all of its assets to one or more organizations described in section 509(a). See Rev. Rul. 2003– 13, page 305. Section 4942.—Taxes on Failure to Distribute Income Responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) when it transfers all of its assets to one or more organizations described in section 509(a). See Rev. Rul. 2003– 13, page 305. 26 CFR 1.671–1: Grantors and others treated as substantial owners; scope The Internal Revenue Service will treat an Indian tribe as the grantor and owner of a trust for the receipt of gaming revenues under the Indian Gaming Regulatory Act (25 U.S.C. sections 2701–2721) (IGRA) for the benefit of minors or legal incompetents if the trust conforms to the procedures of this revenue procedure. See Rev. Proc. 2003–14, page 319. Section 1234B.—Gains or Losses From Securities Futures Contracts Section 4943.—Taxes on Excess Business Holdings Responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) when it transfers all of its assets to one or more organizations described in section 509(a). See Rev. Rul. 2003– 13, page 305. Section 4944.—Taxes on Investments Which Jeopardize Charitable Purpose Until further notice, the Internal Revenue Service will not require information reporting under section 6045 with respect to securities futures contracts. See Notice 2003–8, page 310. Responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) when it transfers all of its assets to one or more organizations described in section 509(a). See Rev. Rul. 2003– 13, page 305. Section 1256.—Section 1256 Contracts Marked to Market Section 4945.—Taxes on Taxable Expenditures Until further notice, the Internal Revenue Service will not require information reporting under section 6045 with respect to securities futures contracts. See Notice 2003–8, page 310. Responsibilities of a private foundation relating to section 507 and chapter 42 (sections 4940–4945) when it transfers all of its assets to one or more organizations described in section 509(a). See Rev. Rul. 2003– 13, page 305. 308 January 27, 2003 Section 6045.—Returns of Brokers 26 CFR 1.6045–1: Returns of information of brokers and barter exchanges. Until further notice, the Internal Revenue Service will not require information reporting under section 6045 with respect to securities futures contracts. See Notice 2003–8, page 310. January 27, 2003 309 2003–4 I.R.B. Part III. Administrative, Procedural, and Miscellaneous Weighted Average Interest Rate Update Notice 2003–7 Sections 412(b)(5)(B) and 412(l)(7)(C)(i) of the Internal Revenue Code provide that the interest rates used to calculate current liability for purposes of determining the full funding limitation under § 412(c)(7) and the required contribution under § 412(l) must be within a permissible range around the weighted average of the rates of interest on 30-year Treasury securities during the fouryear period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of the Code. Section 417(e)(3)(A)(ii)(II) of the Code defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applicable interest rate for a month is the annual interest rate on 30-year Treasury securities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin. The rate of interest on 30-year Treasury Securities for December 2002 is 4.92 percent. Pursuant to Notice 2002–26, 2002–15 I.R.B. 743, the Service has determined this rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in February 2031. Section 405 of the Job Creation and Worker Assistance Act of 2002 amended § 412(l)(7)(C) of the Code to provide that for plan years beginning in 2002 and 2003 the permissible range is extended to 120 percent. The following rates were determined for the plan years beginning in the month shown below. Month Year Weighted Average 90% to 110% Permissible Range 90% to 120% Permissible Range January 2003 5.54 4.98 to 6.09 4.98 to 6.65 Drafting information Background The principal author of this notice is Todd Newman of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Newman may be reached at 1–202– 283–9888 (not a toll-free number). The Commodity Futures Modernization Act of 2000 (the “Act”) authorized trading in securities futures contracts (“SFCs”). The Securities Exchange Act of 1934, as amended by the Act, defines a SFC generally as a contract of sale for future delivery of a single security or a narrowbased security index. See 15 U.S.C. § 78c(a)(55)(A) (2000). Section 6045(a) of the Internal Revenue Code provides that brokers, when required by the Secretary, must make a return, in accordance with such regulations as the Secretary may prescribe, regarding each of the broker’s customers, with such details regarding gross proceeds and other information as the Secretary may by forms or regulations require. Information Reporting for Securities Futures Contracts Notice 2003–8 Until further notice, the Internal Revenue Service will not require information reporting under Code section 6045 with respect to securities futures contracts. 2003–4 I.R.B. Deferral of Potential Information Reporting Obligations The Service will issue published guidance identifying the circumstances, if any, in which brokers must file information returns under section 6045 regarding SFC in- 310 vestments or transactions of the brokers’ customers. Depending on the conclusions reached, this guidance may take the form of regulations, of a notice published in the Federal Register, or of a publication in the Internal Revenue Bulletin. Pending this guidance, the Service will not require information reporting under section 6045 with respect to SFCs. Thus, to the extent current law can be interpreted as requiring brokers to prepare information returns under section 6045 with respect to SFCs, no such returns will be required pending issuance of the guidance described above. This Notice 2003–8 does not affect informationreporting obligations, if any, with respect to SFCs under any other Code section. For further information regarding this notice, contact Nathan Rosen of the Office of the Associate Chief Counsel (Procedure & Administration), Administrative Provisions and Judicial Practice Division, at (202) 622–4910 (not a toll-free call). January 27, 2003 Offshore Voluntary Compliance Initiative Rev. Proc. 2003–11 SECTION 1. PURPOSE .01 This revenue procedure describes the Internal Revenue Service’s Offshore Voluntary Compliance Initiative for taxpayers that have underreported their United States income tax liability through financial arrangements that in any manner rely on the use of offshore payment cards (including credit, debit, or charge cards) issued by banks in foreign jurisdictions or offshore financial arrangements (including arrangements with foreign banks, financial institutions, corporations, partnerships, trusts, or other entities). This revenue procedure applies to tax years ending after December 31, 1998, and to tax years ending before that date to the extent provided in section 8 of this revenue procedure. .02 The Service has determined that some taxpayers have used offshore payment cards or offshore financial arrangements to avoid United States income taxes. The Offshore Voluntary Compliance Initiative described in this revenue procedure affords taxpayers that have used these devices an opportunity to avoid certain penalties that would otherwise apply. SECTION 2. SCOPE OF THE OFFSHORE VOLUNTARY COMPLIANCE INITIATIVE .01 With respect to unreported income or false deductions associated with the use of offshore payment cards or offshore financial arrangements, the Service: (1) will not impose the civil fraud penalty under section 6663, the fraudulent failure to file penalty under section 6651(f), and information return civil penalties for failure to comply with sections 6035, 6038, 6038A, 6038B, 6038C, 6039F, 6046, 6046A, and 6048; and (2) will, in appropriate circumstances, impose the delinquency penalty under section 6651, the accuracy–related penalty under section 6662, or both penalties against taxpayers that participate in the Offshore Voluntary Compliance Initiative. .02 The Financial Crimes Enforcement Network (FinCEN) will not impose civil January 27, 2003 penalties for failure to timely file a Report of Foreign Bank and Financial Accounts (FBAR) against eligible taxpayers that participate in the Offshore Voluntary Compliance Initiative. For more information, see FinCEN’s website at www. fincen.gov and look under Regulatory/BSA Guidance. .03 The Service will treat the request to participate in the Offshore Voluntary Compliance Initiative as a request to make a voluntary disclosure pursuant to its Voluntary Disclosure Practice as described in IR–2002–135, Dec. 11, 2002. See also Treasury Directive 15–41, dated December 1, 1992 (delegating to the Service the authority to investigate the criminal FBAR penalty). .04 Any contact or communication by the Service with a taxpayer regarding the taxpayer’s request to participate in the Offshore Voluntary Compliance Initiative is not an examination of books and records for purposes of section 7605(b) or Rev. Proc. 94–68, 1994–2 C.B. 803. The Service may audit the returns of any taxpayer that participates in the Offshore Voluntary Compliance Initiative, and may propose adjustments for items that are not resolved under the Offshore Voluntary Compliance Initiative. SECTION 3. APPLICATION PROCESS .01 Taxpayers that want to participate in the Offshore Voluntary Compliance Initiative must, on or before April 15, 2003, send a written request to participate in the Offshore Voluntary Compliance Initiative to the National Offshore Voluntary Compliance Initiative Coordinator. Taxpayers may send the written request via the United States Postal Service to P.O. Box 480, Bensalem, PA 19020; by private delivery service to 11601 Roosevelt Blvd., Philadelphia, PA 19154, Attn.: DP S6005; or by email to VCI@irs.gov. The written request must: (1) state that the taxpayer requests to participate in the Offshore Voluntary Compliance Initiative and is a taxpayer eligible to participate in the program, as described in section 4 of this revenue procedure; (2) state the taxpayer’s name, taxpayer identification number, current address, and daytime telephone number; (3) state the name and employer identification number of any entity (including but not limited to corporations, partner- 311 ships, trusts, and estates) that the taxpayer caused to use offshore payment cards or offshore financial arrangements, or that was the source of funds that the taxpayer caused to be transferred to a foreign jurisdiction; (4) state the name and office location of any Service official whom the taxpayer has previously contacted about making a voluntary disclosure; and (5) include complete information regarding the taxpayer’s introduction to offshore payment cards and offshore financial arrangements, including the following: (a) the names, addresses, and telephone numbers of any parties who promoted or solicited the taxpayer’s use of offshore payment cards or offshore financial arrangements; (b) if known to the taxpayer, the names, addresses, and telephone numbers of any parties who advised or assisted the promoters or solicitors in marketing offshore payment cards or offshore financial arrangements; and (c) all promotional materials, transactional materials, and other related correspondence and documentation that the taxpayer at any time received regarding offshore payment cards or offshore financial arrangements. Taxpayers that send a written request to participate in the Offshore Voluntary Compliance Initiative by email to VCI@irs.gov must send these materials by mail or private delivery service (to the addresses provided in subsection .01 above) within five days of the email. These taxpayers should include with the materials a copy of the email sent to VCI@irs.gov. SECTION 4. TAXPAYERS THAT ARE ELIGIBLE TO PARTICIPATE IN THE OFFSHORE VOLUNTARY COMPLIANCE INITIATIVE .01 A taxpayer that has used offshore payment cards or offshore financial arrangements is eligible to participate in the Offshore Voluntary Compliance Initiative if the taxpayer meets the following conditions: (1) the taxpayer’s written request to participate in the Offshore Voluntary Compliance Initiative is received before: (a) the Service has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation; 2003–4 I.R.B. (b) the Service has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the Service to the specific taxpayer’s noncompliance; (c) the Service has initiated a civil examination or criminal investigation that is directly related to the specific liability of the taxpayer; or (d) the Service has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena); (2) the taxpayer has not promoted, solicited, or, in any way, facilitated the participation of others (other than members of the taxpayer’s immediate family, or of individuals from whom the taxpayer did not receive compensation of more than a nominal amount) in arrangements to avoid taxation by using offshore payment cards, offshore financial arrangements, or any other abusive transaction, domestic or offshore, such as arrangements based on arguments refuted by the Service in The Truth About Frivolous Tax Arguments found at www.irs.gov/pub/irs-utl/friv_tax.pdf; (3) during the years in which the taxpayer seeks to participate in the Offshore Voluntary Compliance Initiative, the taxpayer has not derived income from illegal sources, such as income from drug trafficking; and (4) during the years in which the taxpayer seeks to participate in the Offshore Voluntary Compliance Initiative, the taxpayer has not used the offshore payment cards or offshore financial arrangements to support or, in any way, facilitate illegal activities not related to taxes. SECTION 5. ACKNOWLEDGMENT OF THE TAXPAYER’S REQUEST TO PARTICIPATE IN THE OFFSHORE VOLUNTARY COMPLIANCE INITIATIVE .01 The Service will acknowledge receipt of the taxpayer’s written request to participate in the Offshore Voluntary Compliance Initiative within 30 calendar days of receipt of the request. In its acknowledgment, the Service will advise whether the taxpayer has been preliminarily determined to be eligible to participate in the Offshore Voluntary Compliance Initiative or has been determined to be ineligible to participate in the Offshore Voluntary Com- 2003–4 I.R.B. pliance Initiative. A preliminary determination of eligibility will not prevent the Service from later determining that the taxpayer is not eligible to participate in the Offshore Voluntary Compliance Initiative due to a failure to comply with the conditions of section 4.01(2), (3), or (4), section 6, or section 7 of this revenue procedure. SECTION 6. ADDITIONAL REQUIREMENTS THAT A TAXPAYER MUST SATISFY AFTER THE SERVICE PRELIMINARILY DETERMINES THAT THE TAXPAYER IS ELIGIBLE TO PARTICIPATE IN THE OFFSHORE VOLUNTARY COMPLIANCE INITIATIVE .01 Within 150 calendar days of the date of the letter informing the taxpayer that the Service has preliminarily determined that the taxpayer is eligible to participate in the Offshore Voluntary Compliance Initiative, the taxpayer must send the following material to the National Offshore Voluntary Compliance Initiative Coordinator, via the United States Postal Service to P.O. Box 480, Bensalem, PA 19020, or by private delivery service to 11601 Roosevelt Blvd., Philadelphia, PA 19154, Attn.: DP S6005: (1) copies of original and amended federal income tax returns for tax periods ending after December 31, 1998, that the taxpayer previously filed; (2) copies of any powers of attorney (Forms 2848) granted by the taxpayer with respect to tax years in which the taxpayer requests to participate in the Offshore Voluntary Compliance Initiative; (3) descriptions of offshore payment cards and foreign and domestic accounts of any kind (including the name and address of the bank or financial institution, the account number, and the date the account was opened), and descriptions of foreign assets in which the taxpayer has or had any ownership or beneficial interest or that are or were controlled by the taxpayer (i.e., the taxpayer has or had the practical ability to direct or influence the financial transactions or affairs of an account or entity, or the use or disposition of an asset, whether this ability was exercised directly or indirectly through a nominee, agent, power of attorney, letter of directions, letter of wishes, or any other device whatsoever) at any time after December 31, 1998; (4) descriptions of entities of any kind (including but not limited to corporations, 312 partnerships, trusts, and estates) and any nominees through which the taxpayer exercised control over foreign funds, assets, or investments at any time after December 31, 1998; (5) descriptions of the source of any foreign funds, assets, or investments owned or controlled by the taxpayer at any time after December 31, 1998; (6) all promotional materials, transactional materials, and other related correspondence and documentation regarding offshore payment cards or offshore financial arrangements received subsequent to the date the taxpayer submits the request to participate in the Offshore Voluntary Compliance Initiative; (7) complete and accurate amended or delinquent original federal income tax returns of the taxpayer for all tax years ending after December 31, 1998, which are supported by an explanation of previously unreported income or incorrectly claimed deductions or credits (whether or not related to offshore payment cards or offshore financial arrangements); (8) complete and accurate amended or delinquent original information returns required by sections 6035, 6038, 6038A, 6038B, 6038C, 6039F, 6046, 6046A, and 6048 for which the taxpayer requests relief from penalties; and (9) complete and accurate FBARs for tax years ending after December 31, 1998. (FBAR forms are available by contacting FinCEN at 800–949–2732 and on FinCEN’s website, www.fincen.gov.) .02 Upon the Service’s request, and within the period of time allowed by the Service in its request, the taxpayer must provide documentation of the matters described in section 6.01 paragraphs (3) through (5) of this revenue procedure, and information regarding all transactions conducted through the foreign accounts and entities. .03 Upon the Service’s request, and within the period of time allowed by the Service in its request, the taxpayer must provide executed consents or special consents to extend the time to assess tax for years that the taxpayer requests to participate in the Offshore Voluntary Compliance Initiative. .04 At the time the taxpayer files the required amended or delinquent original returns, the taxpayer must fully pay the tax liabilities, including applicable penalties under sections 6651 and 6662, and interest, January 27, 2003 or make other financial arrangements acceptable to the Service for all years covered by the Offshore Voluntary Compliance Initiative. In addition, the taxpayer must fully pay all other unpaid, previously assessed liabilities, or make other financial arrangements acceptable to the Service. For purposes of this revenue procedure, other financial arrangements acceptable to the Service shall include the completion and submission of complete financial statements to the National Offshore Voluntary Compliance Initiative Coordinator at the time amended or delinquent returns are filed in compliance with section 6.01 of this revenue procedure. A complete financial statement shall include all assets, domestic and foreign, in which the taxpayer has an ownership or beneficial interest or over which the taxpayer has control, whether directly or indirectly, through a nominee, agent, power of attorney, letter of directions, letter of wishes, or any other device. SECTION 7. FINAL DETERMINATION THAT A TAXPAYER IS ELIGIBLE TO PARTICIPATE IN THE OFFSHORE VOLUNTARY COMPLIANCE INITIATIVE .01 After an eligible taxpayer meets the requirements of sections 3 and 6 of this revenue procedure, the taxpayer must execute a specific matters closing agreement in the form appended to this revenue procedure as Exhibit 1. In the closing agreement, the taxpayer must waive all defenses to the assessment and collection of tax, penalties, and interest under the Offshore Voluntary Compliance Initiative, including any defenses based on the expiration of the period of limitations on assessment or collection. The taxpayer must also agree that the failure to disclose information that would make the taxpayer ineligible to participate in the Offshore Voluntary Compliance Initiative, or the failure to fully and accurately provide the information required by sections 3 and 6 of this revenue procedure, constitutes a misrepresentation of a material fact under section 7121. .02 Execution of the closing agreement by the Commissioner constitutes a final determination under section 7121 that the tax- January 27, 2003 payer is eligible to participate in the Offshore Voluntary Compliance Initiative. SECTION 8. TREATMENT OF TAX YEARS ENDING PRIOR TO JANUARY 1, 1999 .01 For cases resolved under the Offshore Voluntary Compliance Initiative, the Service does not intend to solicit or secure information concerning an eligible participating taxpayer’s federal income tax liabilities for tax years ending prior to January 1, 1999. Eligible participating taxpayers, however, must provide information about all aspects of the taxpayer’s involvement with offshore payment cards or offshore financial arrangements, regardless of the year in which such activities began. .02 If it comes to the Service’s attention that substantial tax avoidance occurred in tax years ending prior to January 1, 1999, the Service reserves the right to examine such prior tax years and to assess tax, penalties, and interest, if the period of limitations on assessment and collection for those years is open. If any eligible participating taxpayer files complete and accurate amended or delinquent original returns for tax years ending prior to January 1, 1999, which are supported by an explanation of previously unreported income or incorrectly claimed deductions or credits (whether or not related to offshore payment cards or offshore financial arrangements), the Service will resolve the taxpayer’s liability for those years for tax, penalties, and interest on the same basis that the Service will resolve liabilities for tax years ending after December 31, 1998, under the Offshore Voluntary Compliance Initiative. SECTION 9. EFFECTIVE DATE .01 This revenue procedure is effective on January 14, 2003. SECTION 10. PAPERWORK REDUCTION ACT .01 The collection of information contained in this revenue procedure 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 1545–1822. An agency may not conduct or sponsor, and 313 a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. .02 The collection of information in this revenue procedure is in Section 3 (APPLICATION PROCESS), Section 6 (ADDITIONAL REQUIREMENTS THAT A TAXPAYER MUST SATISFY AFTER THE SERVICE PRELIMINARILY DETERMINES THAT THE TAXPAYER IS ELIGIBLE TO PARTICIPATE IN THE OFFSHORE VOLUNTARY COMPLIANCE INITIATIVE), Section 7 (FINAL DETERMINATION THAT A TAXPAYER IS ELIGIBLE TO PARTICIPATE IN THE OFFSHORE VOLUNTARY COMPLIANCE INITIATIVE), and Section 8 (TREATMENT OF TAX YEARS ENDING PRIOR TO JANUARY 1, 1999). This information will be used to determine whether a taxpayer is eligible for the Offshore Voluntary Compliance Initiative and to apply the terms of the initiative. This information will also further the Service’s understanding of how offshore payment cards and offshore financial arrangements have been promoted and solicited. Collection of the information described in this revenue procedure is required to obtain the benefits of the Offshore Voluntary Compliance Initiative. The likely respondents are individuals, corporations, partnerships, trusts, and other entities. .03 The estimated total annual reporting burden is uncertain but estimated to be at least 100,000 hours. The estimated annual burden per respondent varies from 25 hours to 75 hours, depending on individual circumstances, with an estimated average of 50 hours. The number of respondents is uncertain but estimated to be in the thousands. The estimated frequency of responses is at least one per respondent. .04 Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. § 6103. SECTION 11. CONTACT INFORMATION .01 The principal author of this revenue procedure is Stuart Spielman of the 2003–4 I.R.B. Office of the Associate Chief Counsel (Procedure and Administration). For further information regarding this revenue procedure, please contact the Office of the National Offshore Voluntary Compliance Initiative Coordinator at 215–516–3537 (not a tollfree number) or visit www.irs.gov. EXHIBIT 1 Department of the Treasury—Internal Revenue Service Closing Agreement On Final Determination Covering Specific Matters Under section 7121 of the Internal Revenue Code: ______________________________________________________________________________________________________ (Taxpayer’s name) _______________________________________________________________________________________________________ (Taxpayer’s address and identifying number) WHEREAS, Taxpayer has underreported federal income taxes for [specify tax years] through financial arrangements that in some manner rely on the use of offshore payment cards (including credit, debit, or charge cards) issued by banks in foreign jurisdictions or offshore financial arrangements (including arrangements with foreign banks, financial institutions, corporations, partnerships, trusts, or other entities); WHEREAS, Taxpayer has requested to participate in the Offshore Voluntary Compliance Initiative, which is described in Revenue Procedure 2003–11; and WHEREAS, Taxpayer has agreed to all the terms and conditions of the Offshore Voluntary Compliance Initiative. NOW IT IS HEREBY DETERMINED AND AGREED FOR FEDERAL TAX PURPOSES THAT: 1. For [Year 1], Taxpayer used offshore payment cards or offshore financial arrangements to avoid reporting income in the amount of [specify amount] and to claim false deductions in the amount of [specify amount]. [Insert only if applicable: For Year 1, Taxpayer had additional unreported income in the amount of [specify amount] and false deductions in the amount of [specify amount.]] For [Year 2], Taxpayer used offshore payment cards or offshore financial arrangements to avoid reporting income in the amount of [specify amount] and to claim false deductions in the amount of [specify amount]. [Insert only if applicable: For Year 2, Taxpayer had additional unreported income in the amount of [specify amount] and false deductions in the amount of [specify amount]] [Continue in this manner for all tax years.] 2. For [Year 1], penalties under sections [indicate sections] of the Internal Revenue Code apply to underpayments attributable to the unreported income and false deductions. For [Year 2], penalties under sections [indicate sections] apply to underpayments attributable to the unreported income and false deductions. [Continue in this manner for all tax years.] 3. Interest is due as provided by law on Taxpayer’s underpayments of tax and penalties. 4. Taxpayer waives all defenses to the assessment and collection of tax, penalties, and interest described in the preceding paragraphs, including any defense based on the expiration of the period of limitations on assessment or collection. 5. This closing agreement does not prevent the Internal Revenue Service from auditing Taxpayer for [specify tax years] and proposing adjustments unrelated to offshore payment cards or to offshore financial arrangements. This closing agreement also does not prevent the Service from proposing adjustments related to offshore payment cards or to offshore financial arrangements if, subsequent to the date that this closing agreement is executed, the Service determines that Taxpayer, contrary to the provisions of Revenue Procedure 2003–11, failed to fully and accurately provide the information and materials required by sections 3 and 6 of the revenue procedure. Any examination or determination under this paragraph 5 does not constitute a second examination for purposes of section 7605(b) of the Code or Rev. Proc. 94–68, 1994–2 C.B. 803. 2003–4 I.R.B. 314 January 27, 2003 6. Failure to disclose information that would make Taxpayer ineligible to participate in the Offshore Voluntary Compliance Initiative or failure to fully and accurately provide the information or material required by sections 3 and 6 of Revenue Procedure 2003–11 constitutes a misrepresentation of a material fact under section 7121 of the Code. Instructions This agreement must be signed and filed in triplicate. (All copies must have original signatures.) The original and copies of the agreement must be identical. The name of the taxpayer must be stated accurately. The agreement may relate to one or more years. If an attorney or agent signs the agreement for the taxpayer, the power of attorney (or a copy) authorizing that person to sign must be attached to the agreement. If the agreement is made for a year when a joint income tax return was filed by a husband and wife, it should be signed by or for both spouses. One spouse may sign as agent for the other if the document (or a copy) specifically authorizing that spouse to sign is attached to the agreement. If the fiduciary signs the agreement for a decedent or an estate, an attested copy of the letters testamentary or the court order authorizing the fiduciary to sign, and a certificate of recent date that the authority remains in full force and effect must be attached to the agreement. If a trustee signs, a certified copy of the trust instrument or a certified copy of extracts from that instrument must be attached showing: (1) the date of the instrument; (2) that it is or is not of record in any court; (3) the names of the beneficiaries; (4) the appointment of the trustee, the authority granted, and other information necessary to show that the authority extends to Federal tax matters; and (5) that the trust has not been terminated, and that the trustee appointed is still acting. If a fiduciary is a party, Form 56, Notice Concerning Fiduciary Relationship, is ordinarily required. If the taxpayer is a corporation, the agreement must be dated and signed with the name of the corporation, the signature and title of an authorized officer or officers, or the signature of an authorized attorney or agent. It is not necessary that a copy of an enabling corporate resolution be attached. Use additional pages if necessary, and identify them as part of this agreement. Please see Revenue Procedure 68–16, C.B. 1968–1, page 770, for a detailed description of practices and procedures applicable to most closing agreements. January 27, 2003 315 2003–4 I.R.B. This agreement is final and conclusive except: (1) the matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of material fact; (2) it is subject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions (including any stated exception for Code section 7122) notwithstanding any other law or rule of law; and (3) if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to that tax period. By signing, the above parties certify that they have read and agreed to the terms of this document. Your signature ___________________________________________________ Date Signed __________________ Spouse’s signature (if a joint return was filed) __________________________ Date Signed __________________ Taxpayer’s representative __________________________________________ Date Signed __________________ Taxpayer (other than individual) _________________________________________________________________ By ___________________________________ Date Signed ____________________ Title __________________________________ Commissioner of Internal Revenue By ___________________________________ Date Signed __________________ Title __________________________________ SECTION 2. BACKGROUND 26 CFR 601.201: Rulings and determination letters. (Also section 115.) Rev. Proc. 2003–12 SECTION 1. PURPOSE This Revenue Procedure provides guidance on dissolution provisions for any organization described in § 501(c)(3) and exempt from federal income tax under § 501(a) of the Code that requests a letter ruling that its income is excluded from gross income under § 115(1). 2003–4 I.R.B. .01 Section 115(1) of the Code provides that gross income does not include income that is (i) derived from a public utility or from the exercise of any essential governmental function (the “essential government function test”), and (ii) accruing to a State, any political subdivision thereof, or the District of Columbia (the “accrual test”). An entity is not required to obtain a ruling from the Service to claim an exclusion from gross income under § 115(1). .02 One aspect of the accrual test of § 115(1) is that assets of the organization must be distributed upon the organiza- 316 tion’s dissolution to one or more States, political subdivisions thereof, the District of Columbia, or to other organizations the income of which is excluded from gross income under § 115(1) (the “distribution of assets upon dissolution requirement”). The assets of an entity described in § 115(1) may not be distributed upon dissolution (or at any other time) to the United States government. See Rev. Rul. 90–74, 1990–2 C.B. 34; Rev. Rul. 77–261, 1977–2 C.B. 45; Rev. Rul. 71–589, 1971–2 C.B. 94. An organization seeking a ruling under § 115(1) will not be found to satisfy the distribution of assets upon dissolution requirement of the January 27, 2003 § 115(1) accrual test if its articles of organization fail to limit distribution of all the organization’s assets upon dissolution to one or more States, political subdivision(s) thereof, the District of Columbia, or to other organizations whose income is excluded from gross income under § 115(1). .03 An organization may be described in § 501(c)(3) of the Internal Revenue Code and its income may also be excluded from gross income under § 115(1). See Treas. Reg. § 1.6033–2(g)(1)(v) (a state institution exempt from taxation under § 501(a) the income of which is excluded from gross income under § 115(a) (now § 115(1)) is not required to file an annual information return on Form 990, Return of Organization Exempt From Income Tax); see also Rev. Proc. 95–48, §§ 3.01, 4.02, 1995–2 C.B. 418. .04 To qualify as an organization described in § 501(c)(3) and exempt from federal income tax under § 501(a), an organization must meet the requirements of the organizational test of § 501(c)(3). One requirement of the organizational test is that the assets of the organization be dedicated to an exempt purpose. Treas. Reg. § 1.501(c)(3)–1(b)(4). .05 A § 501(c)(3) organization’s articles of organization must contain a dissolution clause that satisfies the organizational test of § 1.501(c)(3)–1(b)(4) of the Treasury Regulations, unless the organization is organized under State laws that satisfy the distribution of assets upon dissolution provisions of § 1.501(c)(3)–1(b)(4). See Treas. Reg. § 1.501(c)(3)–1(b)(4); Rev. Proc. 82–2, 1982–1 C.B. 367. SECTION 3. APPLICATION A § 501(c)(3) organization can satisfy the organizational test of § 1.501(c)(3)–1(b)(4) of the Treasury Regulations by reason of its articles of organization or by operation of law. However, for purposes of obtaining a § 115(1) ruling, a § 501(c)(3) organization will not satisfy the “distribution of assets upon dissolution requirement” of §115(1) unless its articles of organization also limit distribution of assets on dissolution (to the extent consistent with § 1.501(c)(3)–1(b)(4)) to one or more States, political subdivisions of States, the District of Columbia, or other organizations the income of which is excluded under § 115(1). For purposes of obtaining a § 115(1) ruling, the organization may not January 27, 2003 rely on a provision of state law to satisfy the distribution of assets upon dissolution requirement of § 115(1). SECTION 4. EXAMPLES .01 Organization A is exempt from federal income tax under § 501(a) as an organization described in § 501(c)(3). Organization A has a dissolution clause in its articles of organization that satisfies Treas. Reg. § 1.501(c)(3)–1(b)(4). Organization A’s articles state that, upon dissolution, any assets remaining after the payment of debts and the satisfaction of liabilities are to be distributed (1) to an organization described in § 501(c)(3) for one or more exempt purposes, or (2) to the United States government, or to a State or local government, for a public purpose. Organization A requests a letter ruling that its income is excluded from gross income under § 115(1). Although the dissolution clause in the articles of Organization A meets the organizational requirements of § 501(c)(3), the dissolution clause allows for distribution to entities to which distributions may not be made under § 115(1). The dissolution clause, therefore, fails to satisfy the distribution of assets upon dissolution requirement of the accrual test of § 115(1). In these circumstances, a favorable ruling on § 115(1) would not be issued. .02 Organization B is exempt from federal income tax under § 501(a) as an organization described in § 501(c)(3). Organization B has a dissolution clause in its articles of organization that satisfies Treas. Reg. § 1.501(c)(3)–1(b)(4). Organization B’s articles state that, upon dissolution, any assets remaining after the payment of debts and the satisfaction of liabilities are to be distributed either (1) to a State or political subdivision thereof for a public purpose or (2) for one or more exempt purposes to an organization described in § 501(c)(3) and whose income is also excludable from gross income under § 115(1). Organization B requests a letter ruling that its income is excluded from gross income under § 115(1). The dissolution clause in the articles of Organization B meets the requirements of the organizational test of § 501(c)(3) and also satisfies the distribution of assets upon dissolution requirement of the accrual test of § 115(1). .03 Organization C is exempt from federal income tax under § 501(a) as an organization described in § 501(c)(3). Upon 317 dissolution, Organization C’s remaining assets will be distributed by operation of the law of Organization C’s state of incorporation to a political subdivision of the state for a public purpose. Organization C requests a letter ruling that its income is excluded from gross income under § 115(1). Although state law provides a dissolution distribution scheme that meets the organizational test of Treas. Reg. § 1.501(c)(3)– 1(b)(4), the state’s dissolution provision fails to satisfy the accrual test of § 115(1) for purposes of obtaining a § 115(1) letter ruling. In these circumstances, a favorable ruling on § 115(1) would not be issued. To receive a favorable § 115(1) letter ruling, Organization C must have articles of organization that contain a provision satisfying the distribution of assets upon dissolution requirement for the § 115(1) accrual test. SECTION 5. DRAFTING INFORMATION The principal author of this revenue procedure is Sara T. S. Wolff of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this revenue procedure, contact Ms. Wolff at (202) 622–6080 (not a toll-free call). 26 CFR 601.201: Rulings and determination letters. Rev. Proc. 2003–13 SECTION 1. PURPOSE This revenue procedure provides guidance for employers that want to amend their plans qualified under § 401(a) of the Internal Revenue Code to include “deemed IRAs” described in § 408(q). The revenue procedure also provides a sample plan amendment that may be used, in conjunction with IRA language, to amend a qualified plan to provide for deemed IRAs. SECTION 2. BACKGROUND .01 Section 408(q) was added to the Code by section 602 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), Pub. L. 107–16, effective for plan years beginning after December 31, 2002. Section 408(q) provides 2003–4 I.R.B. that if a qualified employer plan elects to allow employees to make voluntary employee contributions to a separate account or annuity established under the plan, and under the terms of the qualified employer plan such account or annuity meets the applicable requirements of § 408 or 408A for an individual retirement account or annuity, then such account or annuity shall be treated under the Code in the same manner as an IRA and not as a qualified employer plan. The Internal Revenue Service and Treasury expect to issue regulations under Code § 408(q) in the near future. .02 Notice 2001–42, 2001–2 C.B. 70, provides a remedial amendment period under § 401(b), ending no earlier than the end of the first plan year beginning on or after January 1, 2005, in which any needed retroactive EGTRRA plan amendment may be adopted (the “EGTRRA remedial amendment period”). The availability of the EGTRRA remedial amendment period is conditioned on the timely adoption of a good faith EGTRRA plan amendment. .03 Notice 2001–57, 2001–2 C.B. 279, provides sample plan amendments that satisfy, in form, the “good faith EGTRRA plan amendment” requirement described in the preceding paragraph. Although not containing a sample plan amendment for deemed IRAs under Code § 408(q), the notice provides that the good faith plan amendment requirement applies to § 408(q). The notice also provides that, until further notice, the Service will not consider EGTRRA in issuing determination, opinion or advisory letters. .04 Rev. Proc. 2002–10, 2002–4 I.R.B. 401, requires all prototype sponsors with currently approved IRAs, SEPs, and SIMPLE IRA plans to amend these documents and submit applications for opinion letters on the amended documents by December 31, 2002. SECTION 3. REQUIRED LANGUAGE FOR DEEMED IRAS .01 Plan sponsors that want to provide for deemed IRAs must have such provisions in their plan documents and must have deemed IRAs in effect for employees no later than the date deemed IRA contributions are accepted from such employees. Notwithstanding the preceding sentence, plan sponsors that want to provide for deemed IRAs for plan years beginning before January 1, 2004, (but after December 31, 2002) are not required to have such provisions in their plan documents before the end of such plan years. Plan sponsors must otherwise comply with the rules in Notice 2001–57. To satisfy the requirements for the EGTRRA remedial amendment period, the provisions must reflect a reasonable, good-faith interpretation of the statute. The sample plan amendment contained in the appendix to this revenue pro- cedure, when used in conjunction with IRA language described in section 3.02 below, is a reasonable, good-faith interpretation of the statute. .02 In addition to the sample plan amendment in the Appendix, a plan that intends to comply with Code § 408(q) must also contain language that satisfies § 408 or 408A, relating to traditional and Roth IRAs, respectively. The Service provides sample language (a “Listing of Required Modifications,” or “LRMs”) that satisfies §§ 408 and 408A on the Service’s Web Site at www.irs.gov/ep. A plan will satisfy the “reasonable, good-faith interpretation of the statute” requirement with respect to IRA language if the language addresses every applicable point in the IRA LRMs. DRAFTING INFORMATION The principal author of this revenue procedure is Roger Kuehnle of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue procedure, please contact Employee Plans’ taxpayer assistance telephone service at 1–877–829– 5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern Time, Monday through Friday. Mr. Kuehnle can be reached at 202–283–9888 (not a tollfree number). APPENDIX Sample Plan Amendment (The following sample plan amendment may be adopted only by plans trusteed by a person eligible to act as a trustee of an IRA under § 408(a)(2) and plans that designate an insurance company to issue annuity contracts under § 408(b). Additional language that satisfies § 408 or 408A must also be added to the plan.) SECTION______ . DEEMED IRAs 1. Applicability and effective date. This section shall apply if elected by the employer in the adoption agreement and shall be effective for plan years beginning after the date specified in the adoption agreement. 2. Deemed IRAs. Each participant may make voluntary employee contributions to the participant’s ___________ [insert “traditional” or “Roth”] IRA under the plan. The plan shall establish a separate ______________ [insert “account” or “annuity”] for the designated IRA contributions of each participant and any earnings properly allocable to the contributions, and maintain separate recordkeeping with respect to each such IRA. 2003–4 I.R.B. 318 January 27, 2003 3. Reporting duties. The ___________ [insert “trustee” or “issuer”] shall be subject to the reporting requirements of section 408(i) of the Internal Revenue Code with respect to all IRAs that are established and maintained under the plan. 4. Voluntary employee contributions. For purposes of this section, a voluntary employee contribution means any contribution (other than a mandatory contribution within the meaning of section 411(c)(2) of the Code) that is made by the participant and which the participant has designated, at or prior to the time of making the contribution, as a contribution to which this section applies. 5. IRAs established pursuant to this section shall be held in __________ [insert “a trust” or “an annuity”] separate from the trust established under the plan to hold contributions other than deemed IRA contributions and shall satisfy the applicable requirements of sections 408 and 408A of the Code, which requirements are set forth in section __________ [insert the section of the plan that contains the IRA requirements]. (Adoption agreement provisions) Section _____ of the plan, Deemed IRAs: (check one) ___ shall be effective for plan years beginning after December 31, ____ (enter a year later than 2001). ___ shall not apply. 26 CFR 601.601: Rules and regulations. (Also Part I, sections 61, 451, 671; 1.61–1; 1.451–1; 1.671–1.) Rev. Proc. 2003–14 SECTION 1. PURPOSE This revenue procedure provides a safe harbor under which the Internal Revenue Service will treat an Indian tribe as the grantor and owner of a trust for the receipt of gaming revenues under the Indian Gaming Regulatory Act (25 U.S.C. §§ 2701–2721) (IGRA) for the benefit of minors or legal incompetents. In addition, under this revenue procedure, beneficiaries of an IGRA trust will not be required to include amounts in gross income when transferred to, or earned by, the IGRA trust under the economic benefit doctrine. Rather, beneficiaries will include amounts in income when actually or constructively received. SECTION 2. BACKGROUND .01 Indian tribes and their members have requested guidance on determining the taxable years in which beneficiaries must include in gross income amounts transferred to, or earned by, an IGRA trust. In addition, Indian tribes have requested guid- January 27, 2003 ance about the situations in which a tribe will be considered the grantor and owner of an IGRA trust. .02 Under § 451 of the Internal Revenue Code (Code) and §§ 1.451–1(a) and 1.451–2 of the Income Tax Regulations, a taxpayer using the cash receipts and disbursements method of accounting must include gains, profits, and income in gross income for the taxable year in which those items are actually or constructively received. In addition, under the economic benefit doctrine, a taxpayer using the cash receipts and disbursements method of accounting must include in gross income currently any financial or economic benefit derived from the absolute right to receive property in the future that has been irrevocably and unconditionally set aside for the taxpayer in a trust or fund. Sproull v. Commissioner, 16 T.C. 244 (1951), aff’d per curiam, 194 F.2d 541 (6th Cir. 1952); Pulsifer v. Commissioner, 64 T.C. 245 (1975). .03 Section 671 provides that, where it is specified under subpart E, part I, subchapter J, chapter 1, subtitle A of the Code (“subpart E”) that the grantor or another person shall be treated as the owner of any portion of a trust, there shall be included in computing the taxable income and credits of the grantor or the other person those items of income, deductions, and credits against tax of the trust that are attribut- 319 able to that portion of the trust to the extent that such items would be taken into account under chapter 1 in computing taxable income or credits against the tax of an individual. Section 672 provides definitions and rules for purposes of subpart E. Subpart E and the accompanying regulations define the circumstances under which a grantor is treated as the owner of all or a portion of a subpart E trust. .04 IGRA provides rules regarding the conduct of class II and class III gaming on Indian lands within an Indian tribe’s jurisdiction and an Indian tribe’s use of revenues from that gaming. Under IGRA, net revenues from any class II and class III gaming activities conducted or licensed by any Indian tribe may be used to make per capita payments to members of the Indian tribe only if: (A) the Indian tribe has prepared a plan to allocate revenues to authorized uses; (B) the Secretary of the Interior approves the plan as adequate; (C) the interests of minors and other legally incompetent persons who are entitled to receive any of the per capita payments are protected and preserved and the per capita payments are disbursed to the parents or legal guardians of the minors or legal incompetents in such amounts as may be necessary for the health, education, or welfare of the minors or other legally incompetent persons under a plan approved by the Secretary of the Interior and the govern- 2003–4 I.R.B. ing body of the Indian tribe; and (D) the per capita payments are subject to federal taxation and the Indian tribe notifies members of that tax liability when payments are made. Section 11(b)(3) and (d)(1)(A) of IGRA, 25 U.S.C. § 2710(b)(3) and (d)(1)(A). SECTION 3. SCOPE This revenue procedure applies to each Indian tribe, each IGRA trust, and each beneficiary of an IGRA trust. SECTION 4. DEFINITIONS For purposes of this revenue procedure: .01 Indian tribe. The term “Indian tribe” has the same meaning as in 25 U.S.C. § 2703(5). .02 IGRA trust. An “IGRA trust” is a trust that an Indian tribe establishes under IGRA to receive and invest per capita payments for its members who are minors or legal incompetents pending distribution of the trust assets to those members after they attain the age of majority or cease to be legal incompetents. .03 Minor and legal incompetent. The terms “minor” and “legal incompetent” have the same meaning as in 25 CFR § 290.2 (relating to review of Indian tribal revenue allocation plans adopted under IGRA). .04 Per capita payment. The term “per capita payment” has the same meaning as in 25 CFR § 290.2, but in no event shall the term include compensation for services. SECTION 5. APPLICATION .01 In general. For any period in which all of the requirements of section 5.02 of this revenue procedure are met: (1) The Indian tribe that establishes (or has established) an IGRA trust will be treated as the grantor and owner of the trust under subpart E, and (2) The beneficiaries of an IGRA trust will not be required to include per capita payments received by the trust, and any earnings on the per capita payments, in gross income until the taxable year that the beneficiaries actually or constructively receive the amounts under § 451 and the regulations thereunder. .02 Requirements for IGRA trusts. (1) The Indian tribe has complied with the requirements of § 11(b)(3) of IGRA, 25 U.S.C. § 2710(b)(3), regarding the dis- 2003–4 I.R.B. bursement of per capita payments to members of the Indian tribe. (2) All contributions to the trust are per capita payments disbursed under a revenue allocation plan that complies with the requirements of § 11(b)(3) of IGRA, 25 U.S.C. § 2710(b)(3). (3) All beneficiaries of the trust are members of the Indian tribe that establishes the trust. (4) Each trust beneficiary is a minor or legal incompetent at the time of the establishment of a trust interest for the beneficiary, and all contributions to the trust with respect to that beneficiary are made for the period that the beneficiary is a minor or legal incompetent. (5) The trust is a valid trust under applicable federal, state, local, and tribal law and all of the material terms and provisions of the trust are enforceable under those laws. (6) The governing trust instrument states that the trust is intended to be a grantor trust, that the Indian tribe is the grantor of the trust (within the meaning of subpart E), and that the trust shall be construed accordingly. (7) The governing trust instrument grants to the Indian tribe a power, an interest, or a combination thereof, described in §§ 673 through 677, that would cause the Indian tribe to be treated as owner of the trust under subpart E. (8) The governing trust instrument provides that— (a) trust assets are not available to a beneficiary until the beneficiary attains a specified age or ceases to be a legal incompetent, except for distributions for the health, education, or welfare of the beneficiary made at the sole discretion of the trustee pursuant to the governing trust instrument; (b) beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the trust; any rights created under the trust instrument shall be mere unsecured contractual rights of beneficiaries against the Indian tribe; and at all times during the continuance of the trust, the principal and income of the trust shall be subject to claims of general creditors of the Indian tribe under applicable federal, state, local, and tribal law; (c) the trustee shall cease payments to beneficiaries and shall hold the assets of the trust for the benefit of the Indian tribe’s 320 general creditors throughout any period during which the trustee believes or has reason to believe that the Indian tribe is unable to pay its debts as they become due, or is subject to a pending insolvency or bankruptcy proceeding; (d) amounts payable to beneficiaries under the governing trust instrument may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process; and (e) the beneficiary’s share will be paid to the Indian tribe if the beneficiary dies prior to attaining the specified age or legal competency, or alternatively the beneficiary dies prior to attaining the specified age or legal competency without one or more of the following relatives surviving: a spouse, parent, child, or sibling. SECTION 6. AMPLIFICATION OF REV. PROC. 2003–3 .01 This revenue procedure amplifies section 4.01 of Rev. Proc. 2003–3, 2003–1 I.R.B. 113, relating to areas in which ruling letters or determination letters will not ordinarily be issued, by adding the following new paragraphs: Section 451.—General Rule for Taxable Year of Inclusion—The income tax consequences as a result of being a beneficiary of a trust that an Indian tribe (as defined in 25 U.S.C. § 2703(5)) establishes to receive and invest per capita payments for its members who are minors or legal incompetents under the Indian Gaming Regulatory Act (25 U.S.C. §§ 2701–2721), if the trust meets the requirements of section 5.02 of Rev. Proc. 2003–14. Sections 671 through 679.—Grantors and Others Treated as Substantial Owners– Whether an Indian tribe (as defined in 25 U.S.C. § 2703(5)) that establishes a trust to receive and invest per capita payments for its members who are minors or legal incompetents under the Indian Gaming Regulatory Act (25 U.S.C. §§ 2701–2721) is the grantor and owner of the trust, if the trust meets the requirements of section 5.02 of Rev. Proc. 2003–14. .02 This revenue procedure also amplifies section 5 of Rev. Proc. 2003–3, relating to areas in which rulings or January 27, 2003 determination letters will not be issued until the Service resolves the issue through publication of a revenue ruling, revenue procedure or otherwise, by adding the following new paragraphs: Section 451.—General Rule for Taxable Year of Inclusion—The income tax consequences as a result of being a beneficiary of a trust that an Indian tribe (as defined in 25 U.S.C. § 2703(5)) establishes to receive and invest per capita payments for its members (regardless of whether they are minors or legal incompetents) under the Indian Gaming Regulatory Act (25 U.S.C. §§ 2701–2721) if the trust does not meet the requirements of section 5.02 of Rev. Proc. 2003–14. Sections 671 through 679.—Grantors and Others Treated as Substantial Owners— Whether an Indian tribe (as defined in 25 U.S.C. § 2703(5)) that establishes a trust to receive and invest per capita payments for its members (regardless of whether they are minors or legal incompetents) under the Indian Gaming Regulatory Act (25 U.S.C. §§ 2701–2721) is the grantor and owner of the trust if the trust does not meet the requirements of section 5.02 of Rev. Proc. 2003–14. SECTION 7. EFFECTIVE DATES This revenue procedure (except section 6) is effective for taxable years beginning after December 31, 2001. Section 6 of this revenue procedure applies to requests for rulings received or pending in the national office on or after January 6, 2003. SECTION 8. EFFECT ON OTHER DOCUMENTS Rev. Proc. 2003–3 is amplified. REQUEST FOR COMMENTS The Service requests comments on this revenue procedure and on the application of the economic benefit doctrine to IGRA trusts that are not within the scope of this revenue procedure. Specifically, the Service requests comments concerning the type of trust provisions that preclude the application of the economic benefit doctrine. Comments should be submitted by April 28, 2003, either to: Internal Revenue Service P.O. Box 7604 Ben Franklin Station January 27, 2003 Washington, DC 20044 Attn: CC:PA:T:CRU (CC:ITA:4) Room 5529 or electronically at: Notice.Comments@ irscounsel.treas.gov (the Service’s comments e-mail address). All comments are available for public inspection and copying. DRAFTING INFORMATION The principal author of this revenue procedure is Elizabeth Kaye of the Office of the Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Kaye at (202) 622–4920 (not a tollfree call). 26 CFR 601.201: Rulings and determination letters. (Also Part I, sections 25, 103, 143, 1.25.4T, 1.103–1, 6A.103A–2.) Rev. Proc. 2003–15 SECTION 1. PURPOSE This revenue procedure provides issuers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code, and issuers of mortgage credit certificates, as defined in section 25(c), with a list of qualified census tracts for each state and the District of Columbia. SECTION 2. BACKGROUND .01 Section 103(a) of the Code provides that, except as provided in section 103(b), gross income does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a) shall not apply to any private activity bond that is not a “qualified bond” within the meaning of section 141. Section 141(e) provides that the term “qualified bond” includes any private activity bond if that bond: (1) is a qualified mortgage bond; (2) meets the volume cap requirements under section 146; and (3) meets the applicable requirements under section 147. .02 Section 143(a)(1) of the Code provides that the term “qualified mortgage bond” means a bond which is issued as part of a “qualified mortgage issue”. Section 143(a)(2)(A) provides that the term “qualified mortgage issue” means an issue by a 321 state or political subdivision thereof of one or more bonds but only if: (i) all proceeds of the issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner occupied residences; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7); (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on financing provided by the issue are used not later than the close of the first semi-annual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds that are part of the issue. .03 An issue of bonds meets the requirements of subsection (h) of section 143 of the Code only if at least 20 percent of the proceeds of the issue is made available for owner financing of “targeted area residences” for at least 1 year after the date on which owner financing is first made available with respect to targeted area residences. Subsection (h)(2) provides, however, that the amount made available need not exceed 40 percent of the average annual aggregate principal amount of mortgages executed during the immediately preceding 3 calendar years for single-family, owner occupied residences located in targeted areas within the jurisdiction of the issuing authority. .04 Targeted area residences are defined in section 143(j)(1)(A) to include residences in a qualified census tract. A “qualified census tract,” according to section 143(j)(2)(A), is a census tract in which 70 percent or more of the families have income that is 80 percent or less of the statewide median family income. Section 143(j)(2)(B) of the Code provides that the determination that a census tract is a “qualified census tract” must be based on the most recent decennial census for which data are available. The last list of qualified census tracts, published in Rev. Proc. 93–38, 1993–2 C.B. 483, was based on the 1990 Census. .05 Section 6a.103A–2(b)(4)(ii) of the Temporary Income Tax Regulations provides that, with respect to any particular bond issue, the determination that a census tract is a “qualified census tract” may be based upon the decennial census data 2003–4 I.R.B. available 3 months prior to the date of issuance and shall not be affected by official changes to the data during or after that 3-month period. .06 Section 143(k)(2)(A) of the Code provides that the term “statistical area” means (i) a metropolitan statistical area (“MSA”), and (ii) any county (or the portion thereof) that is not within an MSA. .07 An MSA is currently defined as an area containing at least one urbanized area with a population of at least 50,000, plus adjacent outlying counties having a high degree of social and economic integration with the central county as measured through commuting. See Office of Management and Budget (“OMB”), Standards for Defining Metropolitan and Micropolitan Statistical Areas; Notice, 65 FR 249, December 27, 2003–4 I.R.B. 2000. (New area definitions based on Census 2000 will be released by OMB in 2003). .08 A state or local government may elect to exchange all or part of its qualified mortgage bond authority for authority to issue mortgage credit certificates. In general, the recipient of a mortgage credit certificate may claim a federal income tax credit equal to the product of the certificate credit rate and the interest paid or accrued during the tax year on the remaining principal of the certified indebtedness amount. Section 25(c)(2)(A)(iii)(V) of the Code provides that the indebtedness certified by mortgage credit certificates must meet the requirements of section 143(h) concerning the portion of loans to be placed in targeted areas. 322 .09 The list of qualified census tracts is developed by HUD for publication by the service. HUD’s determination is based upon decennial census data received by HUD from the Bureau of the Census. SECTION 3. APPLICATION The qualified census tracts for each state and the District of Columbia as listed below are based on the 2000 census. In 2000, the Bureau of the Census has provided data for all areas, not only the metropolitan statistical areas. Thus, the list of qualified census tracts includes tracts in Block numbering areas (BNA) in nonmetropolitan counties as well as tracts in Metropolitan Statistical Areas (MSA). January 27, 2003 State and County or County Equivalent Qualified Census Tracts ALABAMA Butler County................................................................................................ Calhoun County ............................................................................................ Dallas County ............................................................................................... Etowah County ............................................................................................. Houston County ............................................................................................ Jefferson County ........................................................................................... Perry County ................................................................................................. Russell County.............................................................................................. Tuscaloosa County........................................................................................ Wilcox County .............................................................................................. 953100 000500 996400 000700 040600 000300 002700 003900 010302 010300 040700 000201 002100 000401 001400 004000 004600 000100 001000 987200 030200 011200 994700 ALASKA Anchorage Municipality ............................................................................... Bethel Census Area....................................................................................... Fairbanks North Star Borough ..................................................................... Kenai Peninsula Borough ............................................................................. Skagway-Hoonah-Angoon Census Area ...................................................... Wade Hampton Census Area........................................................................ Yukon-Koyukuk Census Area ...................................................................... 000600 000100 001100 000100 000200 000100 000100 001000 000300 001800 940100 944200 000600 000800 940200 940500 020100 061400 108601 110701 112507 113202 113601 114200 114500 942600 944300 000900 001000 940400 Lauderdale County........................................................................................ Lee County.................................................................................................... Madison County............................................................................................ Mobile County .............................................................................................. Montgomery County..................................................................................... ARIZONA Apache County ............................................................................................. Cochise County............................................................................................. Coconino County .......................................................................................... Gila County................................................................................................... Graham County............................................................................................. La Paz County .............................................................................................. Maricopa County .......................................................................................... January 27, 2003 323 000600 996500 001400 000500 002900 004500 000700 003200 005101 001500 003400 010100 041600 001200 001600 010700 040800 001100 002501 000402 001501 004100 004800 000200 001100 000600 001502 004200 001200 002700 004300 000300 001200 000600 003000 030800 011701 011800 000400 020500 092900 108602 111202 112602 113203 113700 114302 114701 942700 944100 941100 944500 103306 109000 111203 112800 113300 113800 114401 114702 107201 110200 111602 113201 113500 113900 114402 114703 2003–4 I.R.B. State and County or County Equivalent Qualified Census Tracts ARIZONA (cont.) Maricopa County (cont.) .............................................................................. Mohave County............................................................................................. Navajo County .............................................................................................. Pima County ................................................................................................. Santa Cruz County........................................................................................ Yuma County ................................................................................................ ARKANSAS Craighead County ......................................................................................... Crittenden County......................................................................................... Jefferson County ........................................................................................... Miller County................................................................................................ Phillips County ............................................................................................. Pulaski County.............................................................................................. Washington County....................................................................................... CALIFORNIA Alameda County ................ [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Aba850a866d6496a8. Public record. Not legal advice.