Bulletin No. 1997–21

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May 27, 1997

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be relied

upon as authoritative interpretations.

EXEMPT ORGANIZATIONS

Announcement 97–53, page 22.

A list is given of organizations now classified as private

foundations.

EMPLOYMENT TAX

Page 4.

Railroad retirement; rate determination; quarterly.

The Railroad Retirement Board has determined that the

rate of tax imposed by Code section 3221 shall be 35

cents for the quarter beginning April 1, 1997.

Announcement 97–52, page 22.

Extension of test of employment tax early referral

procedures for appeals. This announcement describes

the method by which a taxpayer requests early referral

of one or more unagreed employment tax issues from

the District to Appeals.

ADMINISTRATIVE

Notice 97–31, page 5.

Qualified long-term care. Interim guidance is provided

Finding Lists begin on page 25.

on the definition of a “chronically ill individual” for

purposes of the definitions of “qualified long-term care

services” and a “qualified long-term care insurance

contract” under Code section 213(d).

Notice 97–32, page 8.

This notice sets forth the interim rules regarding the

rate of interest to be used by insurance companies to

compute under Code sections 807(c)(3) or 807(d)(2)

reserves for modified guaranteed contracts as defined in

Code section 817A, and the determination of policy

interest under Code section 812 with regard to these

contracts.

Rev. Proc. 97–27, page 10.

Changes in accounting periods and methods of accounting. General procedures are provided under Code

section 446(e) and section 1.446–1(e) of the Income

Tax Regulations for obtaining the Commissioner’s consent to change a method of accounting for federal

income tax purposes.

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

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

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

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

provision and not to adopt a strained construction in

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

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

Introduction

The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for

announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation,

court decisions, and other items of general interest. It is

published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin

contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold on a

single-copy basis.

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.

It is the policy of the Service to publish in the Bulletin all

substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published rulings

apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management

are not published; however, statements of internal

practices and procedures that affect the rights and

duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the

Treasury’s Office of the Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts

stated in the revenue ruling. In those based on positions

taken in rulings to taxpayers or technical advice to

Service field offices, identifying details and information

of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory

requirements.

Part IV.—Items of General Interest.

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

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

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

Unpublished rulings will not be relied on, used, or cited

as precedents by Service personnel in the disposition of

other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations,

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual period,

respectively.

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

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

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

Section 101.—Certain Death

Benefits

sent to change a method of accounting. See Rev.

Proc. 97–27, page 10.

26 CFR 1.101–1: Exclusion from gross income of

proceeds of life insurance contracts payable by

reason of death.

26 CFR 1.481–4: Adjustments taken into account

with consent.

Interim guidance is provided relating to the

definition of a ‘‘chronically ill individual’’ for

purposes of the treatment of certain accelerated

death benefits. See Notice 97–31, page 5.

Section 104.—Compensation for

Injuries or Sickness

26 CFR 1.104–1: Compensation for injuries or

sickness.

Interim guidance is provided relating to the

definition of a ‘‘chronically ill individual’’ for

purposes of the definition of a ‘‘qualified longterm care insurance contract’’ under section

7702B. See Notice 97–31, page 5.

Section 105.—Amounts Received

Under Accident and Health Plans

26 CFR 1.105–2: Amounts expended for medical

care.

Interim guidance is provided relating to the

definition of a ‘‘chronically ill individual’’ for

purposes of the definition of a ‘‘qualified longterm care insurance contract’’ under section

7702B. See Notice 97–31, page 5.

Section 213.—Medical, Dental,

Etc., Expenses

26 CFR 1.213–1: Medical, dental, etc., expenses.

Interim guidance is provided relating to the

definition of a ‘‘chronically ill individual’’ for

purposes of the definitions of ‘‘qualified long-term

care services’’ and a ‘‘qualified long-term care

insurance contract’’ under section 213(d). See

Notice 97–31, page 5.

General procedures are provided under section

1.446–1(e) for obtaining the Commissioner’s consent to change a method of accounting. See Rev.

Proc. 97–27, page 10.

Section 807.—Rules for Certain

Reserves

The notice sets forth the interim rules regarding

the rate of interest to be used by insurance

companies to compute under sections 807(c)(3) or

807(d)(2) reserves for modified guaranteed contracts as defined in section 817A, and the determination of policy interest under section 812 with

regard to these contracts.

Section 812.—Definition of

Company’s Share and

Policyholders’ Share

The notice sets forth the interim rules regarding

the rate of interest to be used by insurance

companies to compute under sections 807(c)(3) or

807(d)(2) reserves for modified guaranteed contracts as defined in section 817A, and the determination of policy interest under section 812 with

regard to these contracts.

Section 817A.—Special Rules for

Modified Guaranteed Contracts

The notice sets forth the interim rules regarding

the rate of interest to be used by insurance

companies to compute under sections 807(c)(3) or

807(d)(2) reserves for modified guaranteed contracts as defined in section 817A, and the determination of policy interest under section 812 with

regard to these contracts.

Section 3221.—Rate of Tax

Section 446.—General Rule for

Methods of Accounting

26 CFR 1.446–1: General rule for methods of

accounting.

General procedures are provided under section

1.446–1(e) for obtaining the Commissioner’s consent to change a method of accounting. See Rev.

Proc. 97–27, page 10.

Section 481.—Adjustments

Required by Changes in Method of

Accounting

26 CFR 1.481–1: Adjustments in general.

General procedures are provided under section

1.446–1(e) for obtaining the Commissioner’s con-

Determination of Quarterly Rate of

Excise Tax for Railroad Retirement

Supplemental Annuity Program

In accordance with directions in Section 3221(c) of the Railroad Retirement

Tax Act (16 U.S.C., Section 3221(c)),

the Railroad Retirement Board has determined that the excise tax imposed by

such Section 3221(c) on every employer, with respect to having individuals in his employ, for each work-hour

for which compensation is paid by such

employer for services rendered to him

during the quarter beginning April 1,

1997, shall be at the rate of 35 cents.

In accordance with directions in Section 15(a) of the Railroad Retirement

Act of 1974, the Railroad Retirement

Board has determined that for the quarter beginning April 1, 1997, 31.5 percent

of the taxes collected under Sections

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

Retirement Tax Act shall be credited to

the Railroad Retirement Account and

68.5 percent of the taxes collected under

such Sections 3211(b) and 3221(c) plus

100 percent of the taxes collected under

Section 3221(d) of the Railroad Retirement Tax Act shall be credited to the

Railroad Retirement Supplemental Account.

Dated February 25, 1997.

By Authority of the Board.

Beatrice Ezerski,

Secretary to the Board.

(Filed by the Office of the Federal Register on

March 5, 1997, 8:45 a.m., and published in the

issue of the Federal Register for March 6, 1997,

62 F.R. 10297)

Section 4980C.—Requirements for

Issuers of Qualified Long-term Care

Insurance Contracts

Interim guidance is provided relating to the

definition of a ‘‘chronically ill individual’’ for

purposes of the term ‘‘qualified long-term care

insurance contract’’ and to certain issues relating

to consumer protection, rules for adjustments to

nonforfeiture benefits, and grandfather rules for

certain pre-1997 insurance contracts. See Notice

97–31, page 5.

Section 7121.—Closing

Agreements

26 CFR 301.7121–1: Closing agreements.

What is the method by which a taxpayer

requests early referral of one or more unagreed

empolyment tax issues from the District to Appeals? See Announcement 97–52, page 22.

Section 7702B.—Treatment of

Qualified Long-Term Care

Insurance

Interim guidance is provided relating to the

definition of a ‘‘chronically ill individual’’ and to

certain issues relating to consumer protection,

rules for adjustments to nonforfeiture benefits, and

grandfather rules for certain pre-1997 insurance

contracts. See Notice 97–31, page 5.

Part III. Administrative, Procedural, and Miscellaneous

Long-Term Care Services and

Insurance

Notice 97–31

This notice provides interim guidance

relating to qualified long-term care services and qualified long-term care insurance contracts under §§ 213, 7702B,

and 4980C of the Internal Revenue

Code. It is effective pending the publication of proposed regulations or other

guidance.

SUMMARY

The notice includes interim guidance

concerning the definition of a ‘‘chronically ill individual,’’ including safeharbor definitions of the terms ‘‘substantial assistance,’’ ‘‘hands-on assistance,’’

‘‘standby assistance,’’ ‘‘severe cognitive

impairment,’’ and ‘‘substantial supervision.’’ Under the long-term care provisions added to the Internal Revenue

Code in 1996, certain payments received

on account of a chronically ill individual

from a qualified long-term care insurance contract are excluded from income.

In addition, certain expenditures incurred for qualified long-term care services required by a chronically ill individual are deductible as medical care

expenses.

The notice also includes an interim

safe harbor that allows key provisions in

qualified long-term care insurance contracts to be interpreted by an insurance

company using the same standards that

the company used before 1997 to determine whether an individual is unable to

perform activities of daily living or is

cognitively impaired. In addition, the

notice provides interim guidance on the

scope of the statutory grandfather provisions that apply to individual and group

long-term care insurance contracts issued before 1997.

The safe harbors are designed to

provide standards for taxpayers to use in

interpreting the new long-term care provisions and to provide interim guidance

to facilitate operation of the insurance

market without the need for interim

amendment of contracts.

The guidance takes into account comments and information provided by State

insurance regulators (including the National Association of Insurance Commissioners), insurance companies offering

long-term care insurance, consumer representatives, groups representing individuals with chronic disabilities, the De-

partment of Health and Human Services,

health professionals expert in the care

and rehabilitation of individuals with

chronic illnesses, and others. The notice

addresses certain issues identified as

those for which interim guidance would

be most helpful. The Internal Revenue

Service and Treasury Department are

continuing to consider these and other

issues and welcome further comments.

STATUTORY CHANGES

Sections 7702B and 4980C, added by

§§ 321 and 326 of the Health Insurance

Portability and Accountability Act of

1996 (Pub. L. 104–191, 110 Stat. 1936,

2054 and 110 Stat. at 2065)(HIPAA),

establish requirements for qualified

long-term care insurance contracts and

issuers of those contracts. Section

7702B(b)(1)(A) requires a qualified

long-term care insurance contract to provide insurance protection only for qualified long-term care services. Generally,

§ 7702B applies to contracts issued after December 31, 1996, and § 4980C

applies to actions taken after December

31, 1996. See HIPAA §§ 321(f)(1) and

327.

Section 7702B(c)(1) defines ‘‘qualified long-term care services’’ as necessary diagnostic, preventive, therapeutic,

curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services that are required by

a chronically ill individual, and provided

pursuant to a plan of care prescribed by

a licensed health care practitioner.

Section 7702B(c)(2)(A) defines a

‘‘chronically ill individual’’ as any individual who has been certified by a

licensed health care practitioner as —

(i) being unable to perform without substantial assistance from another individual at least 2 out of

6 activities of daily living listed in

§ 7702B(c)(2)(B) (ADLs) for a period of at least 90 days due to a loss

of functional capacity (the ADL Trigger);

(ii) having a level of disability similar to the level of disability described

in the ADL Trigger as determined

under regulations prescribed by the

Secretary of the Treasury in consultation with the Secretary of Health and

Human Services (the Similar Level

Trigger); or

(iii) requiring substantial supervision

to protect the individual from threats

to health and safety due to severe

cognitive impairment (the Cognitive

Impairment Trigger).

The 6 ADLs listed in § 7702B(c)(2)(B)

are eating, toileting, transferring, bathing, dressing, and continence. Section

7702B(c)(2)(B) further provides that a

contract is not a qualified long-term care

insurance contract unless it takes into

account at least 5 of these 6 activities in

determining whether an individual is a

chronically ill individual.

In addition, § 322 of HIPAA

amended § 213 of the Code. For taxpayers who itemize deductions, § 213

generally allows a deduction for expenses paid during the taxable year, not

compensated for by insurance or otherwise, for medical care of the taxpayer,

his or her spouse, and dependents, to the

extent that the expenses exceed 7.5

percent of the taxpayer’s adjusted gross

income. As amended by HIPAA,

§ 213(d) provides that the term ‘‘medical care’’ includes (1) eligible premiums

paid for any qualified long-term care

insurance contract (as defined in

§ 7702B(b)) and (2) amounts paid for

qualified long-term care services (as

defined in § 7702B(c)).

INTERIM GUIDANCE

I. CHRONICALLY ILL INDIVIDUAL

This section of the notice provides

interim guidance including safe harbors

relating to the determination of whether

an individual is a ‘‘chronically ill individual’’ under § 7702B(c)(2). Taxpayers

(including uninsured individuals, insurance companies, employers, policyholders, and certificate holders) may rely on

this interim guidance to determine

whether an individual is a chronically ill

individual under the ADL Trigger or the

Cognitive Impairment Trigger for purposes of the definitions of ‘‘qualified

long-term care services’’ in § 7702B(c)

and ‘‘medical care’’ in § 213(d).

ADL Trigger. For purposes of the

ADL Trigger, taxpayers may rely on all

or any of the following safe-harbor

definitions —

(1) ‘‘Substantial assistance’’ means

hands-on assistance and standby assistance.

(2) ‘‘Hands-on assistance’’ means the

physical assistance of another person

without which the individual would be

unable to perform the ADL.

(3) ‘‘Standby assistance’’ means the

presence of another person within arm’s

reach of the individual that is necessary

to prevent, by physical intervention, injury to the individual while the individual is performing the ADL (such as

being ready to catch the individual if the

individual falls while getting into or out

of the bathtub or shower as part of

bathing, or being ready to remove food

from the individual’s throat if the individual chokes while eating).

An individual is a chronically ill

individual under the ADL Trigger only

if a licensed health care practitioner has

certified that the individual is unable to

perform (without substantial assistance

from another individual) at least 2 ADLs

for a period of at least 90 days due to a

loss of functional capacity. This 90-day

requirement does not establish a waiting

period before which benefits may be

paid or before which services may constitute qualified long-term care services.

Cognitive Impairment Trigger. For

purposes of the Cognitive Impairment

Trigger, taxpayers may rely on either or

both of the following safe-harbor definitions—

(1) ‘‘Severe cognitive impairment’’

means a loss or deterioration in intellectual capacity that is (a) comparable to

(and includes) Alzheimer’s disease and

similar forms of irreversible dementia,

and (b) measured by clinical evidence

and standardized tests that reliably measure impairment in the individual’s (i)

short-term or long-term memory, (ii)

orientation as to people, places, or time,

and (iii) deductive or abstract reasoning.

(2) ‘‘Substantial supervision’’ means

continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect

the severely cognitively impaired individual from threats to his or her health

or safety (such as may result from

wandering).

Under the Cognitive Impairment Trigger, unlike the ADL Trigger, a qualified

long-term care insurance contract is not

required to take any ADL into account

for purposes of determining whether an

individual is a chronically ill individual.

Safe-Harbor for Continuation of Pre1997 Insurance Standards. This safe

harbor applies to post-1996 long-term

care insurance contracts (including any

pre-1997 contracts not grandfathered under § 321(f)(2) and the grandfather

rules in this notice for certain pre-1997

insurance contracts) issued by an insurance company with outstanding pre1997 long-term care insurance contracts

that base eligibility for payments upon

the inability to perform any of the ADLs

(eating, toileting, transferring, bathing,

dressing, and continence) or cognitive

impairment. Insurance companies, policyholders, and certificate holders may

rely on this safe harbor (as well as the

safe-harbor definitions above for the

ADL and Cognitive Impairment Triggers) to determine whether an individual

is a chronically ill individual under both

or either the ADL Trigger and the

Cognitive Impairment Trigger for purposes of the definition of a ‘‘qualified

long-term care insurance contract,’’

whether or not the post-1996 contracts

generally incorporate the provisions of

§ 7702B(c)(2). In order to rely on any

of these safe harbors for federal tax

purposes, contracts are not required to

incorporate or refer to the safe harbors.

In applying the ADL Trigger to its

post-1996 contracts, an insurance company is permitted to use the same

standards that it uses to determine

whether an individual is unable to perform an ADL for purposes of eligibility

for benefit payments under its pre-1997

contracts (‘‘pre-1997 ADL standards’’).

If the insurance company makes determinations regarding an individual’s inability to perform an ADL under a

post-1996 contract using its pre-1997

ADL standards, the contract will be

deemed to satisfy the requirement under

the ADL Trigger that an individual is

unable to perform (without substantial

assistance from another person) that

ADL due to a loss of functional capacity. For example, if an insurance company has outstanding pre-1997 longterm care insurance contracts that

provide for benefit payments if the

insured is unable to perform at least 2

ADLs (whether or not the contracts

refer to substantial assistance), the company may interpret ‘‘substantial assistance’’ for purposes of the ADL Trigger

as requiring the same assistance as the

company requires under its pre-1997

contracts.

In applying the Cognitive Impairment

Trigger to its post-1996 contracts, an

insurance company is permitted to use

the same standards that it uses to determine whether an individual qualifies for

benefits due to cognitive impairment

under its pre-1997 contracts (‘‘pre-1997

cognitive impairment standards’’). If the

insurance company makes determinations regarding an individual’s cognitive

impairment under a post-1996 contract

using its pre-1997 cognitive impairment

standards, the contract will be deemed

to satisfy the requirement under the

Cognitive Impairment Trigger that an

individual requires substantial supervision to protect the individual from

threats to health and safety due to

severe cognitive impairment.

This safe harbor for continuation of

pre-1997 insurance standards applies

only for purposes of determining

whether an individual (1) is unable to

perform (without substantial assistance

from another person) an ADL due to a

loss of functional capacity or (2) requires substantial supervision to protect

the individual from threats to health and

safety due to severe cognitive impairment. This safe harbor does not apply

for purposes of the other statutory requirements of § 7702B(c)(2), such as

(1) the requirement that an individual’s

loss of functional capacity apply to at

least 2 of 5 or 6 ADLs, (2) the requirement for a certification by a licensed

health care practitioner, and (3) the

90-day requirement. These statutory requirements must be satisfied in order for

the individual to be a ‘‘chronically ill

individual’’ under the ADL or Cognitive

Impairment Trigger, whether or not

similar requirements are imposed under

the insurance company’s pre-1997 contracts.

II. QUALIFIED LONG-TERM CARE

INSURANCE

This section of the notice addresses

certain issues relating to the consumer

protection provisions of §§ 7702B(b),

7702B(g), and 4980C, rules for adjustments to nonforfeiture benefits under

§ 7702B(g)(4), and the grandfather rules

for certain pre-1997 insurance contracts.

Taxpayers (including insurance companies, employers, policyholders, and certificate holders) may rely on this interim

guidance for purposes of the definition

of ‘‘qualified long-term care insurance

contract’’ in § 7702B(b) and the requirements of § 4980C.

Consumer Protections Applicable to

Long-Term Care Insurance. Under

§§ 7702B(b)(1)(F), 7702B(g), and

4980C, qualified long-term care insurance contracts and issuers of those contracts are required to satisfy certain

requirements of the Long-Term Care

Insurance Model Act (Model Act) and

Long-Term Care Insurance Model Regulation (Model Regulation) promulgated

by the National Association of Insurance

Commissioners (NAIC), as adopted as

of January 1993. The requirements for

qualified long-term care insurance contracts under §§ 7702B(b)(1)(F) and

7702B(g) relate to guaranteed renewal

or noncancellability, prohibitions on

limitations and exclusions, extension of

benefits, continuation or conversion of

coverage, discontinuance and replacement of policies, unintentional lapse,

disclosure, prohibitions against postclaims underwriting, minimum standards, inflation protection, prohibitions

against preexisting conditions and probationary periods, and prior hospitalization. The requirements for qualified

long-term care insurance contracts under

§ 4980C relate to application forms and

replacement coverage, reporting requirements, filing requirements for marketing, standards for marketing, appropriateness of recommended purchase,

standard format outline of coverage,

delivery of a shopper’s guide, right to

return, outline of coverage, certificates

under group plans, policy summary,

monthly reports on accelerated death

benefits, and incontestability period.

Sections 7702B and 4980C reference

NAIC model provisions that specify

exact language (including punctuation),

captions, format, and content that must

be included in long-term care insurance

contracts, applications, outlines of coverage, policy summaries, and notices.

See, e.g., §§ 10, 13, and 24 of the

Model Regulation.

In the case of a State that has adopted

all or any portion of the Model Act or

Model Regulation, compliance with the

applicable requirement of State law is

considered compliance with the parallel

Model Act or Model Regulation requirement specified in § 7702B(g) or

§ 4980C, and failure to comply with

that requirement of State law is considered failure to comply with the parallel

Model Act or Model Regulation requirement in § 7702B(g) or § 4980C. For

example, if a particular State has

adopted Section 6C of the Model Act

(relating to preexisting conditions), then,

for a contract that is subject to that

State’s insurance laws, compliance

with that State law is considered compliance with § 7702B(g)(2)(A)(ii)(I) and

failure to comply with that State law is

considered failure to comply with

§ 7702B(g)(2)(A)(ii)(I). In accordance

with § 4980C(f), in the case of a State

that imposes a requirement that is more

stringent than the analogous requirement

imposed by § 7702B(g) or § 4980C,

compliance with the applicable requirement of State law is considered compliance with the parallel Model Act or

Model Regulation requirement in

§ 7702B(g) or § 4980C.

If a State has not adopted a provision

of the Model Act or Model Regulation

that is specified in § 7702B(g) or

§ 4980C (and has not adopted a requirement that is more stringent than the

requirement imposed by that provision),

the language, caption, format, and content requirements imposed by the Model

Act or Model Regulation provision with

respect to contracts, applications, outlines of coverage, policy summaries, and

notices will be considered satisfied for a

contract subject to the law of that State

if the language, captions, format, and

content are substantially identical in all

material respects to those required under

that Model Act or Model Regulation

provision.

Adjustments to Nonforfeiture Benefits

Under Insurance Contracts. Section

7702B(g)(4)(B)(ii) provides that the

amount of a nonforfeiture benefit available in the event of a default in premium payments may be subsequently

adjusted only as necessary to reflect

changes in claims, persistency, and interest that have been taken into account in

a change in the premium rates for

contracts issued on the same contract

form if the contract form has been

approved by the Secretary of the Treasury. Solely for the purpose of making

such adjustments, approval by the State

insurance commissioner or other applicable State authority will be treated as

approval by the Secretary of the Treasury.

Grandfather Rules for Certain Pre1997 Insurance Contracts. Section

321(f)(2) of HIPAA provides that a

contract issued before January 1, 1997,

is treated as a qualified long-term care

insurance contract if the contract met

the ‘‘long-term care insurance requirements of the State’’ in which the contract was sitused at the time it was

issued. For this purpose, the ‘‘long-term

care insurance requirements of the

State’’ means the State laws (including

statutory and administrative law) that

are intended to regulate insurance coverage that constitutes ‘‘long-term care insurance’’ (as defined in § 4 of the

Long-Term Care Insurance Model Act

as adopted by the NAIC in December,

1995), regardless of the terminology

used by the State in describing the

insurance coverage.

For purposes of applying the grandfather rule of § 321(f)(2) to a contract

other than a group contract, the issue

date of a contract is generally the date

assigned to the contract by the insurance

company, but in no event earlier than

the date the application is signed. How-

ever, if the period between the date of

application and the date on which the

contract is actually placed in force is

substantially longer than under the insurance company’s usual business practice, then the issue date is the date the

contract is placed in force.

For purposes of applying the grandfather rule of § 321(f)(2) to a group

contract, the issue date of the contract is

the date the group contract was issued.

Thus, insurance coverage under certificates evidencing the addition, on or after

January 1, 1997, of individuals to the

coverage available under a grandfathered group contract is accorded the

same grandfather treatment under

§ 321(f)(2) as the preexisting coverage

under the grandfathered group contract.

A policyholder’s right to return a

long-term care insurance contract within

a ‘‘free-look’’ period following delivery

(with a refund of any premiums that

have been paid) is not taken into account in determining the issue date of

the contract.

For purposes of applying the grandfather rule of § 321(f)(2), any material

change in a contract will be considered

the issuance of a new contract. This

includes any change in the terms of the

contract altering the amount or timing of

any item payable by the policyholder (or

certificate holder), the insured, or the

insurance company. For example, for

purposes of § 321(f)(2), any change in

the terms of a contract altering the

amount or timing of benefits (including

nonforfeiture benefits) or premiums constitutes a material change that will be

considered the issuance of a new contract. A substitution of the insured under

an individual contract, or a change

(other than an immaterial change) in the

eligibility for membership in the group

covered by a group contract, also constitutes a material change that will be

considered the issuance of a new contract. However, the unilateral exercise of

an option or right granted to a policyholder under the contract as in effect on

December 31, 1996, will not constitute a

material change. For this purpose, a

unilateral exercise includes only a

change that becomes effective without

any consent or other non-ministerial

action by the issuer of the contract. A

contract issued in an exchange after

December 31, 1996, for an existing

contract is considered a contract issued

after that date.

COMMENTS REQUESTED

The Internal Revenue Service and

Treasury Department invite comments

concerning the application of new

§§ 7702B and 4980C, the amendments

made to § 213, and other federal income tax provisions relating to longterm care as enacted under HIPAA

§§ 321 through 326, including the standards and definitions in this notice.

Comments are particularly requested on:

(1) whether the relief provided for insurance contracts complying with the interim guidance provided in this notice

needs to be extended beyond the effective date of more definitive guidance;

and (2) the types of disability that

should be included in any regulations

that may be prescribed under the Similar

Level Trigger. Comments should be submitted by August 4, 1997. Written comments should be sent to: Internal Revenue Service, P.O. Box 7604, Ben

Franklin Station, Attn: CC:CORP:T:R,

Room 5228, Washington, DC 20044.

Alternatively, submissions may be hand

delivered between the hours of 8 a.m.

and 5 p.m. to: CC:DOM:CORP:R (Notice 97–31), Courier’s Desk, Internal

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

taxpayers may submit comments electronically via the Internal Revenue

Service INTERNET site at: http://

www.irs.ustreas.gov/prod/tax_regs/

comments.html. All submitted comments

will be available for public inspection

and copying.

FURTHER INFORMATION

For further information, contact Ms.

A. Kathie Jacob Kiss at (202) 622–4920

regarding section I of this notice and

Ms. Katherine A. Hossofsky at (202)

622–3970 regarding section II of this

notice (not toll-free calls).

PROCEDURAL INFORMATION

This document serves as an ‘‘administrative pronouncement’’ as that term is

defined in § 1.6661–3(b)(2) of the Income Tax Regulations and may be relied

upon to the same extent as a revenue

ruling or a revenue procedure.

(Also Part I, sections 807, 812, 817A)

Modified Guaranteed Contracts

Notice 97–32

SUMMARY: This notice provides interim rules with regard to the interest

rate to be used in the determinations

under §§ 807(c)(3), 807(d)(2)(B), and

812 for a ‘‘modified guaranteed contract,’’ as defined in § 817A(d). It also

describes the manner in which § 811(d)

is to be applied to these contracts.

Section 817A was added by § 1612 of

the Small Business Job Protection Act

of 1996, Pub. L. 104–188, 110 Stat.

1755. Section 817A is effective for

taxable years beginning after December

31, 1995. See Small Business Job Protection Act § 1612(c)(1). This notice is

effective pending the publication of further guidance.

BACKGROUND: Life insurance companies issue modified guaranteed annuity and life insurance contracts. A modified guaranteed contract temporarily

guarantees a higher return than the permanently guaranteed crediting rate, in

exchange for shifting additional investment risk to the policyholder in the

form of a market value adjustment. The

temporary guarantee may be a fixed rate

or a rate based on bond or equity yields,

such as a percentage of an increase in

the S&P 500 index. During the temporary guarantee period, the amount paid

to the policyholder upon surrender is

increased or decreased by the market

value adjustment, which is determined

by a formula in the modified guaranteed

contract. The market value adjustment

generally is based on a published bond

index. Modified guaranteed contracts

can be issued out of a life insurance

company’s general account or segregated account. Section 817A provides

special tax treatment for certain modified guaranteed contracts issued out of a

segregated account.

For this purpose, the term ‘‘modified

guaranteed contract’’ (‘‘MGC’’) is defined as an annuity, life insurance, or

pension plan contract (other than a variable contract described in § 817) under

which all or part of the amounts received under the contract are allocated

to a segregated account. Assets in this

segregated account must be valued from

time to time with reference to market

values, and reserves must be valued at

market for annual statement purposes.

Further, an MGC must provide either

for a net surrender value or for a

policyholder’s fund (as defined in

§ 807(e)(1)). If only a portion of a

contract is not described in § 817, such

portion is treated as a separate contract

for purposes of applying § 817A.

The tax reserves for an MGC are

computed under either § 807(c)(3) or

§ 807(d). Section 807(c)(3) provides

that reserves for obligations under insurance and annuity contracts not involving

life, accident, or health contingencies

are computed using an appropriate rate

of interest. The appropriate rate of interest is the highest (as of the time the

obligation first did not involve life,

accident, or health contingencies) of the

following rates: (1) the ‘‘applicable Federal interest rate’’ (as defined in

§ 807(d)(2)(B)(i)); (2) the ‘‘prevailing

State assumed interest rate’’ (as defined

in § 807(d)(2)(B)(ii)); or (3) the rate of

interest assumed by the insurance company to determine the contract’s guaranteed benefit. Section 807(c) also provides that the reserves computed under

§ 807(c)(3) are never less than the net

surrender value of the contract. 1

For an MGC that gives rise to life

insurance reserves, as defined in

§ 816(b), reserves are computed under

§ 807(d). Under § 807(d)(1), the life

insurance reserves for a contract cannot

exceed the statutory reserves (as defined

in § 809(b)(4)(B)) for the contract. Subject to that cap, a contract’s life insurance reserves equal the greater of: (1)

the contract’s net surrender value; or (2)

the contract’s Federally prescribed reserve determined under § 807(d)(2).

Section 807(d)(2) provides that the

Federally prescribed reserves for a contract are determined using: (1) the tax

reserve method applicable to the contract; (2) the greater of the applicable

Federal interest rate or the prevailing

State assumed interest rate in effect on

the date of the issuance of the contract;

and (3) the prevailing commissioners’

standard tables for mortality and morbidity. In the case of a life insurance

contract covered by the Commissioners’

Reserve Valuation Method (‘‘CRVM’’)

or an annuity contract covered by the

Commissioners’ Annuities Reserve Valuation Method (‘‘CARVM’’), § 807(d)(3)

provides that the tax reserve method

applicable to a contract is the CRVM or

CARVM prescribed by the National Association of Insurance Commissioners

(‘‘NAIC’’), which is in effect on the

date of the issuance of the contract.

Section 811(d) imposes an additional

reserve computation restriction for contracts that guarantee beyond the end of

For contracts other than MGCs, § 807(e)(1) provides that net surrender value is determined taking

into account any penalty or charge which would

be imposed upon surrender but ignoring any

market value adjustment. The net surrender values

of MGCs, however, take into account market

value adjustments. § 817A(a).

the taxable year payment or crediting of

amounts in the nature of interest in

excess of the greater of the prevailing

state assumed interest rate or the applicable Federal interest rate. In those

circumstances, § 811(d) requires that

the contract’s future guaranteed benefits

be determined as though the interest in

excess of the greater of the prevailing

state assumed interest rate or the applicable Federal rate were guaranteed only

to the end of the taxable year.

Section 812 prorates the dividends

received deduction and the exclusion for

tax exempt interest between a life insurance company and its policyholders to

prevent the company from receiving a

double tax benefit for amounts added to

reserves. See also §§ 805(a)(4), 807(a)

and 807(b). The proration is based on

the company’s share of ‘‘net investment

income’’ (as defined in § 812(c)) for the

taxable year. The company’s share of

net investment income equals the excess, if any, of the net investment

income over the sum of the ‘‘policy

interest’’ (as defined in § 812(b)(2)) and

‘‘gross investment income’s proportionate share of policyholder dividends’’ (as

defined in § 812(b)(3)) for the taxable

year. Policy interest includes ‘‘required

interest’’ (at the greater of the prevailing

State assumed rate or the applicable

Federal interest rate) on reserves under

§ 807(c) (other than § 807(c)(2)). See

§ 812(b)(2)(A). If neither the prevailing

State assumed rate nor the applicable

Federal interest rate is used, another

appropriate rate is used to calculate

required interest. Thus, for a contract

described in § 807(c)(3), if the rate of

interest assumed by an insurance company in determining the contract’s guaranteed benefit exceeds the applicable

Federal interest rate and the State assumed rate, required interest is computed using the assumed interest rate.

Under § 817A(e)(2), the Service is

authorized to determine annually with

regard to MGCs the interest rates applicable under §§ 807(c)(3), 807(d)(2)(B)

and 812. The Service is authorized to

exercise this authority by issuing a periodic announcement of the appropriate

market interest rates or formula for

determining such rates. H.R. Conf. Rept.

No. 737, 104th Cong. 2d Sess. 313

(1996). Section 817A(e) also authorizes

the Service to modify or waive the

application of § 811(d) (relating to interest guaranteed beyond the end of the

taxable year), and to prescribe other

regulations that are necessary or appropriate to carry out the purposes of

§ 817A.

The legislative history of § 817A indicates that an appropriate interest rate

is a current market rate. H.R. Conf. Rep.

No. 737, at 313. The interest rate may

be determined, for example, using either

a rate that is appropriate for the obligations under the contract to which the

reserve relates or the yield on the assets

underlying the MGCs. Id.

INTERIM RULES FOR MGCs: Pending the publication of further guidance,

an insurance company is required to determine under §§ 807(c)(3) or 807(d)(2)

the reserves for a MGC using, with

regard to the contract’s temporary guarantee period, an annual interest rate

equal to the greater of—

(a) the interest rate assumed by the

insurance company to determine future

guaranteed benefits under the applicable tax reserve method for the contract or, for reserves computed under

§ 807(c)(3), the interest rate assumed by

the company to determine the contract’s

guaranteed benefit; or

(b) the Moody’s Corporate Bond

Yield Average-Monthly Average Corporates (‘‘Moody’s rate’’) as published

by Moody’s Investors Service, Inc., or

any successor thereto, for the month that

includes the last day of the taxable year,

multiplied by:

(i) 1.1 if the MGC provides for a

market value adjustment or a guaranteed

return based in whole or in part on the

performance of stocks, other equity instruments or equity-based derivatives,

including but not limited to a contract

which guarantees a return based on the

S&P 500 index; and

(ii) 1.0 for all other MGCs.

With respect to an MGC’s temporary

guarantee period, section 811(d) shall be

applied by substituting the rate of interest applicable to the contract’s temporary guarantee period under this notice

for the applicable Federal interest rate

and the prevailing State assumed interest

rate. During the temporary guarantee

period, the interest rate to be used to

determine required interest under

§ 812(b)(2)(A) is the rate that applies

with regard to that period for purposes

of §§ 807(c)(3) or 807(d)(2)(B).

For periods outside the temporary

guarantee period, §§ 807(c)(3), 807(d)(2), 811(d) and 812(b)(2)(A) continue to

apply without modification.

EXAMPLE 1

IC, a life insurance company as defined in § 816, issued an MGC on July

1, 1996. The MGC is an annuity contract that gives rise to life insurance

reserves, as defined in § 816(b). IC is a

calendar year taxpayer. The MGC guarantees that interest will be credited at

8% per year for the first 5 contract

years and 4% per year thereafter. During

the 5 year temporary guarantee period,

the MGC provides for a market value

adjustment based on changes in a published bond index and not on the performance of stocks, other equity instruments or equity based derivatives. The

Moody’s rate for December 1996 is

7.5%. The applicable Federal interest

rate and the prevailing State assumed

interest rate for 1996 are 6.63% and

5.75%, respectively.

To determine under § 807(d)(2) the

end of year 1996 reserves for the MGC,

IC must use a discount interest rate of

8% (the interest rate assumed by the

insurance company to determine future

guaranteed benefits during the 5 year

temporary guarantee period) with regard

to the unexpired portion of the temporary guarantee period. The discount rate

applicable to periods outside the 5 year

temporary guarantee period is 6.63%.

The interest rate to be used in computing required interest under § 812(b)(2)(A) for 1996 is 8%.

EXAMPLE 2

The facts are the same as in Example

1, except that the MGC guarantees that

interest will be credited at 7% per year

for the first 5 contract years. To determine under § 807(d)(2) the end of year

1996 reserves for the MGC, IC must use

a discount interest rate of 7.5%

(Moody’s rate multiplied by 1.0) with

regard to the unexpired portion of the 5

year temporary guarantee period. The

discount rate applicable to periods outside the 5 year temporary guarantee

period is 6.63%. The interest rate to be

used in computing required interest under § 812(b)(2)(A) for 1996 is 7.5%

(Moody’s rate multiplied by 1.0).

COMMENTS REQUESTED: The Internal Revenue Service invites comments

concerning the application of new

§ 817A and the application of this notice to various types of MGCs, including

equity indexed annuities and life insurance contracts. Specifically, comments

are requested regarding whether different interest rates should apply to equity

indexed contracts based upon the differ-

ent participation rates, guarantees, market value adjustments, or other pertinent

factors under the contracts. Written comments should be sent to Internal Revenue Service, P.O. Box 7604, Ben

Franklin Station, Washington, DC

20044. Alternatively, submissions may

be hand delivered between the hours of

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

(Notice 97–32), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC.

Finally, taxpayers may submit comments electronically via the Internal

Revenue Service INTERNET site at

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

comments.html. All submitted comments

will be available for public inspection

and copying.

FURTHER INFORMATION: For further

information regarding this notice, contact Ms. Katherine A. Hossofsky at

(202) 622–3970 (not a toll-free call).

PROCEDURAL INFORMATION: This

document serves as an ‘‘administrative

pronouncement’’ as that term is defined

in § 1.6661–3(b)(2) of the Income Tax

Regulations and may be relied upon to

the same extent as a revenue ruling or

revenue procedure.

26 CFR 601.204: Changes in accounting periods

and in methods of accounting.

(Also Part I, §§ 446, 481; 1.446–1, 1.481–1,

1.481–4.)

Rev. Proc. 97–27

TABLE OF CONTENTS

PAGE

SECTION 1. PURPOSE . . . . . . . . 11

.01 In general . . . . . . . . . . . . . . . 11

.02 Voluntary compliance . . . . . . 11

.03 Significant changes. . . . . . . . 11

SECTION 2. BACKGROUND . . .

.01 Change in method of

accounting defined . . . . . . . .

.02 Securing permission to make

a method change. . . . . . . . . .

.03 Terms and conditions of a

method change . . . . . . . . . . .

.04 No retroactive method

change . . . . . . . . . . . . . . . . . .

.05 Method change with a

§ 481(a) adjustment . . . . . . .

(1) Need for adjustment. . . .

(2) Adjustment period . . . . .

.06 Method change using a

cut-off method . . . . . . . . . . . .

.07 Consistency and clear

reflection of income . . . . . . .

.08 Separate trades or

businesses . . . . . . . . . . . . . . .

.09 Penalties . . . . . . . . . . . . . . . . 12

.10 Change made as part of an

examination. . . . . . . . . . . . . . 12

SECTION 3. DEFINITIONS . . . .

.01 Taxpayer . . . . . . . . . . . . . . . .

(1) In general . . . . . . . . . . . .

(2) Consolidated group . . . .

.02 Filed . . . . . . . . . . . . . . . . . . .

.03 Mailed . . . . . . . . . . . . . . . . . .

.04 Timely performance of acts .

.05 Year of change . . . . . . . . . . .

.06 Section 481(a) adjustment

period . . . . . . . . . . . . . . . . . .

.07 Under examination . . . . . . . .

(1) In general . . . . . . . . . . . .

(2) Partnerships and S

corporations subject to

TEFRA. . . . . . . . . . . . . . . . . .

.08 Issue under consideration . .

(1) Under examination . . . .

(2) Before an appeals office

........................

(3) Before a federal court .

.09 Change within the LIFO

inventory method . . . . . . . . .

SECTION 4. SCOPE . . . . . . . . . .

.01 Applicability . . . . . . . . . . . . .

.02 Inapplicability . . . . . . . . . . .

(1) Automatic change . . . . .

(2) Under examination . . . .

(3) Before an appeals

office . . . . . . . . . . . . . . . . . .

(4) Before a federal court .

(5) Consolidated group

member . . . . . . . . . . . . . . . .

(6) Partnerships and S

corporations . . . . . . . . . . . . .

SECTION 5. PROCEDURES FOR

TAXPAYERS NOT UNDER

EXAMINATION . . . . . . . . . . . . . .

.01 Submission of application . .

(1) In general . . . . . . . . . . .

(2) Limited relief for late

application . . . . . . . . . . . . . .

.02 Terms and conditions of

change . . . . . . . . . . . . . . . . .

(1) In general . . . . . . . . . . .

(2) Year of change . . . . . . .

(3) Section 481(a)

adjustment period . . . . . . . .

(4) NOL carryback

limitation for taxpayer

subject to criminal

investigation . . . . . . . . . . . . .

(5) Change treated as

initiated by the taxpayer . . .

SECTION 7. SECTION 481(a)

ADJUSTMENT PERIOD . . . . . . . 16

.01 In general . . . . . . . . . . . . . . 16

.02 Short period as a separate

taxable year . . . . . . . . . . . . . 16

.03 Shortened or accelerated

adjustment periods . . . . . . . 16

(1) De minimis rule . . . . . . 16

(2) Cooperatives . . . . . . . . . 16

(3) Ceasing to engage in the

trade or business . . . . . . . . . 16

SECTION 6. PROCEDURES FOR

TAXPAYERS UNDER

EXAMINATION, BEFORE AN

APPEALS OFFICE, OR BEFORE

A FEDERAL COURT . . . . . . . . . . 15

.01 Taxpayer under

examination . . . . . . . . . . . . .

(1) In general . . . . . . . . . . .

(2) 90-day window period .

(3) 120-day window period

(4) Consent of district

director . . . . . . . . . . . . . . . .

.02 Taxpayer before an appeals

office . . . . . . . . . . . . . . . . . .

.03 Taxpayer before a federal

court . . . . . . . . . . . . . . . . . . .

.04 Terms and conditions of

change . . . . . . . . . . . . . . . . .

SECTION 8. GENERAL

APPLICATION PROCEDURES .

.01 Application—Service

discretion . . . . . . . . . . . . . . .

.02 Terms and

conditions—Service

discretion . . . . . . . . . . . . . . .

.03 Compliance with provisions

.04 Facts and circumstances

considered in processing

applications . . . . . . . . . . . . .

.05 Specific rules in connection

with prior applications . . . .

(1) Method change made . .

(2) Method change not

made . . . . . . . . . . . . . . . . . . .

.06 Where to file . . . . . . . . . . . .

.07 User fee . . . . . . . . . . . . . . . .

.08 Signature requirements . . . .

.09 Incomplete Form 3115—21

day rule . . . . . . . . . . . . . . . .

.10 Conference in the national

office . . . . . . . . . . . . . . . . . .

.11 Consent Agreement . . . . . . .

(1) In general . . . . . . . . . . .

(2) Signature requirements .

(3) 45-day requirement . . . .

(4) Change in method of

accounting not made by the

taxpayer . . . . . . . . . . . . . . . .

.12 Two or more trades or

businesses . . . . . . . . . . . . . .

(1) In general . . . . . . . . . . .

(2) Information required . . .

(3) Separate Forms 3115

required . . . . . . . . . . . . . . . .

.13 Consolidated groups . . . . . .

(1) In general . . . . . . . . . . .

(2) Separate Forms 3115

not required . . . . . . . . . . . . . 19

.14 Applicability of Rev. Proc.

97–1 and Rev Proc. 97–4 . . 19

.15 Effect on other offices of the

Service . . . . . . . . . . . . . . . . . 19

SECTION 9. AUDIT

PROTECTION FOR TAXABLE

YEARS PRIOR TO YEAR OF

CHANGE . . . . . . . . . . . . . . . . . . . .

.01 In general . . . . . . . . . . . . . .

.02 Exceptions . . . . . . . . . . . . . .

(1) Change not made or

made improperly . . . . . . . . .

(2) Change in sub-method .

(3) Prior year

Service-initiated change . . .

(4) Criminal investigation .

SECTION 10. EFFECT OF

CONSENT . . . . . . . . . . . . . . . . . . . 19

.01 In general . . . . . . . . . . . . . . 19

.02 Retroactive change or

modification . . . . . . . . . . . . . 20

SECTION 11. REVIEW BY

DISTRICT DIRECTOR . . . . . . . . 20

.01 In general . . . . . . . . . . . . . . 20

.02 National office

consideration . . . . . . . . . . . . 20

SECTION 12.

INQUIRIES . . . .

SECTION 13. EFFECTIVE

DATE . . . . . . . . . . . . . . . . . . . . . . .

.01 In general . . . . . . . . . . . . . .

.02 Transition rules . . . . . . . . . .

(1) Currently pending

Forms 3115 . . . . . . . . . . . . .

(2) New Forms 3115 . . . . . .

(3) Open window periods

under Rev. Proc. 92–20 . . . .

SECTION 14. EFFECT ON

OTHER DOCUMENTS . . . . . . . .

.01 Rev. Proc. 92–20 . . . . . . . . .

.02 Rev. Proc. 93–48 (notional

principal contracts) . . . . . . .

.03 Notice 89–15 (long-term

contracts) . . . . . . . . . . . . . . .

SECTION 15. PAPERWORK

REDUCTION ACT . . . . . . . . . . . .

DRAFTING INFORMATION . . .

SECTION 1. PURPOSE

.01 In general. This revenue procedure provides the general procedures

under § 446(e) of the Internal Revenue

Code and § 1.446–1(e) of the Income

Tax Regulations for obtaining the consent of the Commissioner of Internal

Revenue to change a method of accounting for federal income tax purposes. This revenue procedure modifies

and supersedes Rev. Proc. 92–20,

1992–1 C.B. 685.

.02 Voluntary compliance.

(1) This revenue procedure provides incentives to encourage prompt

voluntary compliance with proper tax

accounting principles. Under this approach, a taxpayer generally receives

more favorable terms and conditions

(for example, a later year of change and

a longer § 481(a) adjustment period for

a positive adjustment) if the taxpayer

files its request for a change in accounting method before the Internal Revenue

Service contacts the taxpayer for examination. A taxpayer that is contacted for

examination and required to change its

method of accounting by the Service

generally receives less favorable terms

and conditions and may also be subject

to penalties.

(2) Although prompt voluntary

compliance can generally be encouraged

through incentives, the Service recognizes that this approach may not be

appropriate or effective in all cases. For

example, a number of taxpayers have

deferred making changes required by

amendments to the Internal Revenue

Code or the Income Tax Regulations.

Because it is generally not appropriate

to permit changes on a basis more

favorable than applicable under the governing statute or regulation, the Service

may, in other published guidance, provide special terms and conditions that

are designed to place the taxpayer in a

position no more favorable than if the

taxpayer had timely complied with the

required change. See, for example, Rev.

Proc. 93–48, 1993–2 C.B. 580 (regarding changes in method of accounting for

notional principal contracts to comply

with the requirements of § 1.446–3).

.03 Significant changes. Many of the

complex rules and requirements of Rev.

Proc. 92–20 have been simplified or

eliminated. For example, the Category

A, Category B, Designated A, and Designated B classifications have been

eliminated, the 90–day window at the

beginning of an examination has been

eliminated, the 30-day window for taxpayers under continuous examination

has been expanded to 90 days and the

number of consecutive months the taxpayer is required to be under examination has been reduced from 18 to 12, the

definition of ‘‘under examination’’ has

been clarified, the consent requirement

for taxpayers before an appeals office or

a federal court has been replaced with a

notification procedure, the various

§ 481(a) adjustment periods have been

replaced with a single 4-year § 481(a)

adjustment period for both positive and

negative adjustments, and several of the

terms and conditions relating to the

§ 481(a) adjustment have been eliminated.

SECTION 2. BACKGROUND

.01 Change in method of accounting

defined.

(1) Section 1.446–1(e)(2)(ii)(a)

provides that a change in method of

accounting includes a change in the

overall plan of accounting for gross

income or deductions, or a change in the

treatment of any material item. A material item is any item that involves the

proper time for the inclusion of the item

in income or the taking of the item as a

deduction. In determining whether a

taxpayer’s accounting practice for an

item involves timing, generally the relevant question is whether the practice

permanently changes the amount of the

taxpayer’s lifetime income. If the practice does not permanently affect the

taxpayer’s lifetime income, but does or

could change the taxable year in which

income is reported, it involves timing

and is therefore a method of accounting.

See Rev. Proc. 91–31, 1991–1 C.B. 566.

(2) Although a method of accounting may exist under this definition without a pattern of consistent treatment of

an item, a method of accounting is not

adopted in most instances without consistent treatment. The treatment of a

material item in the same way in determining the gross income or deductions

in two or more consecutively filed tax

returns (without regard to any change in

status of the method as permissible or

impermissible) represents consistent

treatment of that item for purposes of

§ 1.446–1(e)(2)(ii)(a). If a taxpayer

treats an item properly in the first return

that reflects the item, however, it is not

necessary for the taxpayer to treat the

item consistently in two or more consecutive tax returns to have adopted a

method of accounting. If a taxpayer has

adopted a method of accounting under

these rules, the taxpayer may not change

the method by amending its prior income tax return(s). See Rev. Rul. 90–38,

1990–1 C.B. 57.

(3) A change in the characterization of an item may also constitute a

change in method of accounting if the

change has the effect of shifting income

from one period to another. For example, a change from treating an item

as income to treating the item as a

deposit is a change in method of accounting. See Rev. Proc. 91–31.

(4) A change in method of accounting does not include correction of

mathematical or posting errors, or errors

in the computation of tax liability (such

as errors in computation of the foreign

tax credit, net operating loss, percentage

depletion, or investment credit). See

§ 1.446–1(e)(2)(ii)(b).

.02 Securing permission to make a

method change. Section 446(e) and

§ 1.446–1(e) state that, except as otherwise provided, a taxpayer must secure

the consent of the Commissioner before

changing a method of accounting for

federal income tax purposes. Section

1.446–1T(e)(3)(i) requires that, in order

to obtain the Commissioner’s consent to

a method change, a taxpayer must file a

Form 3115, Application for Change in

Accounting Method, during the taxable

year in which the taxpayer desires to

make the proposed change.

.03 Terms and conditions of a method

change. Section 1.446–1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the

limitations, terms, and conditions

deemed necessary to permit a taxpayer

to obtain consent to change a method of

accounting in accordance with § 446(e).

The terms and conditions the Commissioner may prescribe include the year of

change, whether the change is to be

made with a § 481(a) adjustment or on

a cut-off basis, and the § 481(a) adjustment period.

.04 No retroactive method change.

Unless specifically authorized by the

Commissioner, a taxpayer may not request, or otherwise make, a retroactive

change in method of accounting, regardless of whether the change is from a

permissible or an impermissible method.

See generally Rev. Rul. 90–38.

.05 Method change with a § 481(a)

adjustment.

(1) Need for adjustment. Section

481(a) requires those adjustments necessary to prevent amounts from being

duplicated or omitted to be taken into

account when the taxpayer’s taxable

income is computed under a method of

accounting different from the method

used to compute taxable income for the

preceding taxable year. When there is a

change in method of accounting to

which § 481(a) is applied, income for

the taxable year preceding the year of

change must be determined under the

method of accounting that was then

employed, and income for the year of

change and the following taxable years

must be determined under the new

method of accounting as if the new

method had always been used.

Example. A taxpayer that is not required to use

inventories uses the overall cash receipts and

disbursements method and changes to an overall

accrual method. The taxpayer has $120,000 of

income earned but not yet received (accounts

receivable) and $100,000 of expenses incurred but

not yet paid (accounts payable) as of the end of

the taxable year preceding the year of change. A

positive § 481(a) adjustment of $20,000 ($120,000

accounts receivable less $100,000 accounts payable) is required as a result of the change.

(2) Adjustment period. Section

481(c) and §§ 1.446–1T(e)(3)(i) and

1.481–4 provide that the adjustment required by § 481(a) may be taken into

account in determining taxable income

in the manner and subject to the conditions agreed to by the Commissioner

and the taxpayer. Generally, in the absence of such an agreement, the

§ 481(a) adjustment is taken into account completely in the year of change,

subject to § 481(b) which limits the

amount of tax where the § 481(a) adjustment is substantial. However, under

the Commissioner’s authority in

§ 1.446–1(e)(3)(ii) to prescribe terms

and conditions for changes in method of

accounting, this revenue procedure provides specific adjustment periods that

are intended to achieve an appropriate

balance between the goals of mitigating

distortions of income that result from

accounting method changes and providing appropriate incentives for voluntary

compliance.

.06 Method change using a cut-off

method. The Commissioner may determine that certain changes in method of

accounting will be made without a

§ 481(a) adjustment, using a ‘‘cut-off

method.’’ Under a cut-off method, only

the items arising on or after the beginning of the year of change (or other

operative date) are accounted for under

the new method of accounting. Any

items arising before the year of change

(or other operative date) continue to be

accounted for under the taxpayer’s

former method of accounting. See, for

example, § 263A (which generally applies to costs incurred after December

31, 1986, for noninventory property),

§ 461(h) (which generally applies to

amounts incurred on or after July 18,

1984), and § 1.446–3 (which applies to

notional principal contracts entered into

on or after December 13, 1993). Because no items are duplicated or omitted

from income when a cut-off method is

used to effect a change in accounting

method, no § 481(a) adjustment is necessary.

.07 Consistency and clear reflection

of income. Methods of accounting

should clearly reflect income on a continuing basis, and the Service exercises

its discretion under §§ 446(e) and

481(c) in a manner that generally minimizes distortions of income across taxable years and on an annual basis.

Accordingly, if a taxpayer requests to

change from a method of accounting

that clearly reflects income, the Service,

in determining whether to consent to the

taxpayer’s request, will weigh the need

for consistency against the taxpayer’s

reason for desiring to change its method

of accounting.

.08 Separate trades or businesses.

(1) Sections 1.446–1(d)(1) and (2)

provide that when a taxpayer has two or

more separate and distinct trades or

businesses, a different method of accounting may be used for each trade or

business, provided the method of accounting used for each trade or business

clearly reflects the overall income of the

taxpayer as well as that of each particular trade or business. No trade or business is separate and distinct unless a

complete and separable set of books and

records is kept for that trade or business.

(2) Section 1.446–1(d)(3) provides

that if, by reason of maintaining different methods of accounting, there is a

creation or shifting of profits or losses

between the trades or businesses of the

taxpayer (for example, through inventory adjustments, sales, purchases, or

expenses) so that income of the taxpayer

is not clearly reflected, the trades or

businesses of the taxpayer are not separate and distinct.

.09 Penalties. Any otherwise applicable penalty for the failure of a taxpayer to change its method of accounting (for example, the accuracy-related

penalty under § 6662 or the fraud penalty under § 6663) may be imposed if

the taxpayer does not timely file a

request to change a method of accounting. See § 446(f). Additionally, the taxpayer’s return preparer may also be

subject to the preparer penalty under

§ 6694. However, penalties will not be

imposed when a taxpayer changes from

an impermissible method of accounting

to a permissible one by complying with

all the appropriate provisions of this

revenue procedure.

.10 Change made as part of an examination. Section 446(b) and § 1.446–

1(b)(1) provide that if a taxpayer does

not regularly employ a method of accounting that clearly reflects its income,

the computation of taxable income must

be made in a manner that, in the opinion

of the Commissioner, does clearly reflect income. If a taxpayer under examination is not eligible to change an

accounting method under this revenue

procedure, the change may be made by

the district director. A change resulting

in a positive § 481(a) adjustment will

ordinarily be made in the earliest taxable year under examination with a

one-year § 481(a) adjustment period.

SECTION 3. DEFINITIONS

.01 Taxpayer.

(1) In general. The term ‘‘taxpayer’’ has the same meaning as the

term ‘‘person’’ defined in § 7701(a)(1)

(rather than the meaning of the term

‘‘taxpayer’’ defined in § 7701(a)(14)).

(2) Consolidated group. For purposes of (a) sections 3.07(1), 3.08(1),

4.02(2) and 6.01 (taxpayer under examination), (b) sections 3.08(2), 4.02(3) and

6.02 (taxpayer before an appeals office),

or (c) sections 3.08(3), 4.02(4) and 6.03

(taxpayer before a federal court), the

term ‘‘taxpayer’’ includes a consolidated

group.

.02 Filed. Any form (including a

Form 3115), statement, or other document required to be filed under this

revenue procedure is filed on the date it

is mailed to the proper address (or an

address similar enough to complete delivery). If the form, statement, or other

document is not mailed (or the date it is

mailed cannot be reasonably determined), it is filed on the date it is

delivered to the Service.

.03 Mailed. The date of mailing will

be determined under the rules of

§ 7502. For example, the date of mailing is the date of the U.S. postmark or

the applicable date recorded or marked

by a designated delivery service. See

Notice 97–26, 1997–17 I.R.B. 6.

.04 Timely performance of acts. The

rules of § 7503 apply when the last day

for the taxpayer’s timely performance of

any act (for example, filing a Form

3115, submitting additional information,

returning a Consent Agreement (see section 8.11 of this revenue procedure), or

holding a conference) falls on a Saturday, Sunday, or legal holiday. The performance of any act is timely if the act

is performed on the next succeeding day

that is not a Saturday, Sunday, or a legal

holiday.

.05 Year of change. The year of

change is the taxable year for which a

change in method of accounting is effective, that is, the first taxable year the

new method is to be used, even if no

affected items are taken into account for

that year. The year of change is also the

first taxable year for complying with all

the terms and conditions set forth in the

Consent Agreement.

.06 Section 481(a) adjustment period.

The § 481(a) adjustment period is the

applicable number of taxable years for

taking into account the § 481(a) adjustment required as a result of the change

in method of accounting. The year of

change is the first taxable year in the

adjustment period and the § 481(a) adjustment is taken into account ratably

over the number of taxable years in the

adjustment period. The applicable adjustment periods are set forth in sections

5.02(3) and 6.04 of this revenue procedure.

.07 Under examination.

(1) In general.

(a) Except as provided in section

3.07(2) of this revenue procedure, an

examination of a taxpayer with respect

to a federal income tax return begins on

the date the taxpayer is contacted in any

manner by a representative of the Service for the purpose of scheduling any

type of examination of the return. An

examination ends:

(i) in a case in which the

Service accepts the return as filed, on

the date of the ‘‘no change’’ letter sent

to the taxpayer;

(ii) in a fully agreed case, on

the earliest of the date the taxpayer

executes a waiver of restrictions on

assessment or acceptance of overassessment (for example, Form 870, 4549, or

4605), the date the taxpayer makes a

payment of tax that equals or exceeds

the proposed deficiency, or the date of

the ‘‘closing’’ letter (for example, Letter

891 or 987) sent to the taxpayer; or

(iii) in an unagreed or a partially agreed case, on the earliest of the

date the taxpayer (or its representative)

is notified by Appeals that the case has

been referred to Appeals from Examination, the date the taxpayer files a petition in the Tax Court, the date on which

the period for filing a petition with the

Tax Court expires, or the date of the

notice of claim disallowance.

(b) An examination does not end

as a result of the early referral of an

issue to Appeals under the provisions of

Rev. Proc. 96–9, 1996–1 C.B. 575.

the date the taxpayer (or its representative) is notified by Appeals (or otherwise) that the case has been referred to

Examination for reconsideration.

(2) Partnerships and S corporations subject to TEFRA. For an entity

(including a limited liability company),

treated as a partnership or an S corporation for federal income tax purposes,

that is subject to the TEFRA unified

audit and litigation provisions for partnerships and S corporations, an examination begins on the date of the notice

of the beginning of an administrative

proceeding sent to the Tax Matters

Partner/Tax Matters Person (TMP). An

examination ends:

(a) in a case in which the Service accepts the partnership or S corporation return as filed, on the date of the

‘‘no adjustments’’ letter or the ‘‘no

change’’ notice of final administrative

adjustment sent to the TMP;

(b) in a fully agreed case, when

all the partners, members, or shareholders execute a Form 870–P, 870–L, or

870–S; or

agreed case, on the earliest of the date

the TMP (or its representative) is notified by Appeals that the case has been

referred to Appeals from Examination,

the date the TMP (or a partner, member,

or shareholder) requests judicial review,

or the date on which the period for

requesting judicial review expires.

But see section 4.02(6) of this revenue procedure for certain rules that

preclude an entity from requesting a

change in accounting method. Also note

that S corporations are not subject to the

TEFRA unified audit and litigation provisions for taxable years beginning after

December 31, 1996. See Small Business

Job Protection Act of 1996, Pub. L. No.

104–188, § 1317(a), 110 Stat. 1755,

1787 (1996).

.08 Issue under consideration.

(1) Under examination. A taxpayer’s method of accounting for an item is

an issue under consideration for the

taxable years under examination if the

taxpayer receives written notification

(for example, by examination plan, information document request (IDR), or

notification of proposed adjustments or

income tax examination changes) from

the examining agent(s) specifically citing the treatment of the item as an issue

under consideration. For example, a taxpayer’s method of pooling under the

dollar-value, last-in first-out LIFO inventory method is an issue under consideration as a result of an examination

plan that identifies LIFO pooling as a

matter to be examined, but it is not an

issue under consideration as a result of

an examination plan that merely identi-

fies LIFO inventories as a matter to be

examined. Similarly, a taxpayer’s

method of determining inventoriable

costs under § 263A is an issue under

consideration as a result of an IDR that

requests documentation supporting the

costs included in inventoriable costs, but

it is not an issue under consideration as

a result of an IDR that requests documentation supporting the amount of cost

of goods sold reported on the return.

The question of whether a method of

accounting is an issue under consideration may be referred to the national

office as a request for technical advice

under the provisions of Rev. Proc. 97–2,

1997–1 I.R.B. 64 (or any successor).

(2) Before an appeals office. A

taxpayer’s method of accounting for an

item is an issue under consideration for

the taxable years before an appeals

office if the treatment of the item is

included as an item of adjustment in the

examination report referred to Appeals

or is specifically identified in writing to

the taxpayer by Appeals.

(3) Before a federal court. A taxpayer’s method of accounting for an

item is an issue under consideration for

the taxable years before a federal court

if the treatment of the item is included

in the statutory notice of deficiency, the

notice of claim disallowance, the notice

of final administrative adjustment, the

pleadings (for example, the petition,

complaint, or answer) or amendments

thereto, or is specifically identified in

writing to the taxpayer by the counsel

for the government.

.09 Change within the LIFO inventory method. A change within the LIFO

inventory method is a change from one

LIFO inventory method or sub-method

to another LIFO inventory method or

sub-method. A change within the LIFO

inventory method does not include a

change in method of accounting that

could be made by a taxpayer that does

not use the LIFO inventory method (for

example, a method governed by § 471

or § 263A).

SECTION 4. SCOPE

.01 Applicability. Except as specifically provided in other published guidance or in section 4.02 of this revenue

procedure, this revenue procedure applies to all taxpayers requesting the

Commissioner’s consent to change a

method of accounting for federal income

tax purposes.

.02 Inapplicability. This revenue procedure does not apply in the following

situations:

(1) Automatic change. If the

change in method of accounting is required to be made pursuant to a published automatic change procedure. Taxpayers are encouraged to review the

automatic change procedures listed in

section 9.03 of Rev. Proc. 97–1, 1997–1

I.R.B. 11, 37 (or any successor), before

submitting a Form 3115 pursuant to this

revenue procedure;

(2) Under examination. If the taxpayer is under examination, except as

provided in sections 6.01(2) (90-day

window), 6.01(3) (120-day window),

and 6.01(4) (district director consent) of

this revenue procedure;

(3) Before an appeals office. If the

taxpayer is before an appeals office with

respect to any income tax issue and the

accounting method to be changed is an

issue under consideration by the appeals

office;

(4) Before a federal court. If the

taxpayer is before a federal court with

respect to any income tax issue and the

accounting method to be changed is an

issue under consideration by the federal

court; or

(5) Consolidated group member. A

corporation that is (or was formerly) a

member of a consolidated group is under examination, before an appeals office, or before a federal court (for

purposes of sections 4.02(2), (3), and (4)

of this revenue procedure) if the consolidated group is under examination,

before an appeals office, or before a

federal court for a taxable year(s) that

the corporation was a member of the

group.

(6) Partnerships and S corporations. For an entity (including a limited

liability company) treated as a partnership or an S corporation for federal

income tax purposes, if the entity’s

accounting method to be changed is an

issue under consideration in an examination of a partner, member, or shareholder’s federal income tax return or an

issue under consideration by an appeals

office or by a federal court with respect

to a partner, member, or shareholder’s

federal income tax return.

SECTION 5. PROCEDURES FOR

TAXPAYERS NOT UNDER

EXAMINATION

.01 Submission of application.

(1) In general.

(a) A Form 3115 must be filed

during the year of change, as provided

in § 1.446–1T(e)(3)(i). If the taxable

year is a short period, the Form 3115

must be filed no later than the last day

of the short taxable year.

(b) The Service recommends

that the Form 3115 be filed as early as

possible during the year of change to

provide the Service adequate time to

respond to the Form 3115 prior to the

original due date of the taxpayer’s return for the year of change.

(2) Limited relief for late application. A taxpayer that fails to file a Form

3115 during the year of change as

provided in section 5.01(1) of this revenue procedure will not be granted an

extension of time to file under

§ 301.9100 of the Procedure and Administration Regulations, except in unusual and compelling circumstances. See

§ 301.9100–3T(c)(2)(i).

.02 Terms and conditions of change.

(1) In general. Except as specifically provided in other published guidance, an accounting method change filed

under this revenue procedure, if granted,

must be made pursuant to the terms and

conditions provided in this revenue procedure (including sections 8.02 and

13.02 of this revenue procedure).

(2) Year of change. The year of

change is the taxable year with respect

to which the Form 3115 is timely filed

under section 5.01 of this revenue procedure. However, Rev. Proc. 93–48 (regarding notional principal contracts) is

an example of other published guidance

that provides for a different year of

change.

(3) Section 481(a) adjustment period.

(a) In general. Except as provided in sections 5.02(3)(b) and 7.03 of

this revenue procedure, the § 481(a)

adjustment period for positive and negative § 481(a) adjustments is four taxable

years.

(b) Changes within the LIFO

method. Any change within the LIFO

inventory method must be made using a

cut-off method. However, Announcement 91–173, 1991–47 I.R.B. 29 (regarding LIFO taxpayers changing their

method of accounting for certain bulk

bargain purchases of inventory to comply with Hamilton Industries, Inc. v.

Commissioner, 97 T.C. 120 (1991)) is

an example of other published guidance

that requires a § 481(a) adjustment.

(4) NOL carryback limitation for

taxpayer subject to criminal investigation. Generally, no portion of any net

operating loss that is attributable to a

negative § 481(a) adjustment may be

carried back to a taxable year prior to

the year of change that is the subject of

any pending or future criminal investigation or proceeding concerning (a) directly or indirectly, any issue relating to

the taxpayer’s federal tax liability, or (b)

the possibility of false or fraudulent

statements made by the taxpayer with

respect to any issue relating to its

federal tax liability.

(5) Change treated as initiated by

the taxpayer. For purposes of § 481, an

accounting method change filed under

this revenue procedure, if granted, is a

change in method of accounting initiated

by the taxpayer.

SECTION 6. PROCEDURES FOR

TAXPAYERS UNDER

EXAMINATION, BEFORE AN

APPEALS OFFICE, OR BEFORE A

FEDERAL COURT

.01 Taxpayer under examination.

(1) In general. A taxpayer that is

under examination may not file a Form

3115 to request a change in accounting

method under this revenue procedure,

except as provided in sections 6.01(2)

(90-day window), 6.01(3) (120-day window), and 6.01(4) (district director consent) of this revenue procedure. A taxpayer that files a Form 3115 beyond the

time periods provided in the 90-day and

120-day windows will not be granted an

extension of time to file under

§ 301.9100, except in unusual and compelling circumstances.

(2) 90-day window period.

(a) A taxpayer may file a Form

3115 to request a change in accounting

method during the first 90 days of any

taxable year (‘‘90-day window’’) if the

taxpayer has been under examination for

at least 12 consecutive months as of the

first day of the taxable year. This 90-day

window is not available if the method of

accounting the taxpayer is requesting to

change is an issue under consideration

at the time the Form 3115 is filed or is

an issue the examining agent(s) has

placed in suspense at the time the Form

3115 is filed.

(b) A taxpayer requesting a

change under this 90-day window must

provide a copy of the Form 3115 to the

examining agent(s) at the same time it

files the original Form 3115 with the

national office. The Form 3115 must

contain the name(s) and telephone number(s) of the examining agent(s). The

taxpayer must attach to the Form 3115 a

separate statement signed by the taxpayer certifying that, to the best of the

taxpayer’s knowledge, the same method

of accounting is not an issue under

consideration or an issue placed in suspense by the examining agent(s).

(3) 120-day window period.

(a) A taxpayer may file a Form

3115 to request a change in accounting

method during the 120-day period following the date an examination ends

(‘‘120-day window’’) regardless of

whether a subsequent examination has

commenced. This 120-day window is

not available if the method of accounting the taxpayer is requesting to change

is an issue under consideration at the

time the Form 3115 is filed or is an

issue the examining agent(s) has placed

in suspense at the time the Form 3115 is

filed.

(b) A taxpayer requesting a

change under this 120-day window must

provide a copy of the Form 3115 to the

examining agent(s) for any examination

that is in process at the same time it

files the original Form 3115 with the

national office. The Form 3115 must

contain the name(s) and telephone number(s) of the examining agent(s). The

taxpayer must attach to the Form 3115 a

separate statement signed by the taxpayer certifying that, to the best of the

taxpayer’s knowledge, the same method

of accounting is not an issue under

consideration or an issue placed in suspense by the examining agent(s).

(4) Consent of district director.

(a) A taxpayer under examination may request to change an accounting method under this revenue procedure if the district director consents to

the filing of the request. The district

director will consent to the filing of the

Form 3115 unless, in the opinion of the

district director, the method of accounting to be changed would ordinarily be

included as an item of adjustment in the

year(s) for which the taxpayer is under

examination. For example, the district

director will consent to the filing of a

Form 3115 to change from a clearly

permissible method of accounting. The

district director will also consent to the

filing of a Form 3115 to change from an

impermissible method of accounting

where the impermissible method was

adopted subsequent to the years under

examination. The question of whether

the method of accounting from which

the taxpayer is changing is permissible

or was adopted subsequent to the years

under examination may be referred to

the national office as a request for

technical advice under the provisions of

Rev. Proc. 97–2 (or any successor).

(b) A taxpayer requesting a

change with the consent of the district

director must attach to the Form 3115 a

statement from the district director consenting to the taxpayer filing the Form

3115. The taxpayer must provide a copy

of the Form 3115 to the district director

at the same time it files the original of

that form with the national office. The

Form 3115 must contain the name(s)

and telephone number(s) of the examining agent(s).

.02 Taxpayer before an appeals office. A taxpayer that is before an appeals

office with respect to any income tax

issue may request a change in accounting method if the accounting method to

be changed is not an issue under consideration by the appeals office. The taxpayer must attach to the Form 3115 a

separate statement signed by the taxpayer certifying that, to the best of the

taxpayer’s knowledge, the same method

of accounting is not an issue under

consideration by the appeals office. The

taxpayer must provide a copy of the

Form 3115 to the appeals officer at the

same time it files the original Form

3115 with the national office. The Form

3115 must contain the name and telephone number of the appeals officer.

.03 Taxpayer before a federal court.

A taxpayer that is before a federal court

with respect to any income tax issue

may request a change in accounting

method if the accounting method to be

changed is not an issue under consideration by the federal court. The taxpayer

must attach to the Form 3115 a separate

statement signed by the taxpayer certifying that, to the best of the taxpayer’s

knowledge, the same method of accounting is not an issue under consideration by the federal court. The taxpayer

must provide a copy of the Form 3115

to the counsel for the government at the

same time it files the original Form

3115 with the national office. The Form

3115 must contain the name and telephone number of the counsel for the

government.

.04 Terms and conditions of change.

For a taxpayer under examination filing

a Form 3115 during the 90-day or

120-day window, or with the consent of

the district director, or for a taxpayer

before an appeals office or a federal

court, the terms and conditions are the

same as those provided in section 5.02

of this revenue procedure for taxpayers

not under examination.

SECTION 7. SECTION 481(a)

ADJUSTMENT PERIOD

.01 In general. The § 481(a) adjustment periods are provided in sections

5.02(3) and 6.04 of this revenue procedure.

.02 Short period as a separate taxable year. If the year of change, or any

taxable year during the § 481(a) adjustment period, is a short taxable year, the

§ 481(a) adjustment must be included in

income as if that short taxable year were

a full 12-month taxable year. See Rev.

Rul. 78–165, 1978–1 C.B. 276.

Example 1. A calendar year taxpayer received

permission to change an accounting method beginning with the 1997 calendar year. The § 481(a)

adjustment is $30,000 and the adjustment period is

four taxable years. The taxpayer subsequently

receives permission to change its annual accounting period to September 30, effective for the

taxable year ending September 30, 1998. The

taxpayer must include $7,500 of the § 481(a)

adjustment in gross income for the short period

from January 1, 1998, through September 30,

1998.

Example 2. Corporation X, a calendar year taxpayer, received permission to change an accounting method beginning with the 1997 calendar year.

The § 481(a) adjustment is $30,000 and the

adjustment period is four taxable years. On July 1,

1999, Corporation Z acquires Corporation X in a

transaction to which § 381(a) applies. Corporation

Z is a calendar year taxpayer that uses the same

method of accounting to which Corporation X

changed in 1997. Corporation X must include

$7,500 of the § 481(a) adjustment in gross income

for its short period income tax return for January

1, 1999, through June 30, 1999. In addition,

Corporation Z must include $7,500 of the

§ 481(a) adjustment in gross income in its income

tax return for calendar year 1999.

.03 Shortened or accelerated adjustment periods. The four-year § 481(a)

adjustment period provided in sections

5.02(3) and 6.04 of this revenue procedure will be shortened or accelerated in

the following situations.

(1) De minimis rule. A taxpayer

may elect to use a one-year adjustment

period in lieu of the § 481(a) adjustment period otherwise provided by this

revenue procedure if the entire § 481(a)

adjustment is less than $25,000 (either

positive or negative). The taxpayer must

complete the appropriate line on the

Form 3115 to elect this de minimis rule.

(2) Cooperatives. A cooperative

within the meaning of § 1381(a) generally must take the entire amount of a

§ 481(a) adjustment into account in

computing taxable income for the year

of change. See Rev. Rul. 79–45, 1979–1

C.B. 284.

(3) Ceasing to engage in the trade

or business.

(a) In general. A taxpayer that

ceases to engage in a trade or business

or terminates its existence must take the

remaining balance of any § 481(a) adjustment relating to the trade or business

into account in computing taxable income in the taxable year of the cessation or termination. Except as provided

in sections 7.03(3)(d) and (e) of this

revenue procedure, a taxpayer is treated

as ceasing to engage in a trade or

business if the operations of the trade or

business cease or substantially all the

assets of the trade or business are

transferred to another taxpayer. For this

purpose, ‘‘substantially all’’ has the

same meaning as in section 3.01 of Rev.

Proc. 77–37, 1977–2 C.B. 568.

(b) Examples of transactions

that are treated as the cessation of a

trade or business. The following is a

nonexclusive list of transactions that are

treated as the cessation of a trade or

business for purposes of accelerating the

§ 481(a) adjustment under this section

7.03(3):

(i) the trade or business to

which the § 481(a) adjustment relates is

incorporated;

(ii) the trade or business to

which the § 481(a) adjustment relates is

purchased by another taxpayer in a

transaction to which § 1060 applies;

(iii) the trade or business to

which the § 481(a) adjustment relates is

terminated or transferred pursuant to a

taxable liquidation;

(iv) a division of a corporation ceases to operate the trade or

business to which the § 481(a) adjustment relates; or

(v) the assets of a trade or

business to which the § 481(a) adjustment relates are contributed to a partnership.

(i) In general. Except as provided in sections 7.03(3)(c)(ii) and (iii)

of this revenue procedure, no acceleration of a § 481(a) adjustment is required under this section 7.03(3)(c)

when a C corporation elects to be

treated as an S corporation or an S

corporation terminates its S election and

is then treated as a C corporation.

(ii) S election effective for

year of LIFO discontinuance. If a C

corporation elects to be treated as an S

corporation for the taxable year in

which it discontinues use of the LIFO

inventory method, § 1363(d) requires an

increase in the taxpayer’s gross income

for the LIFO recapture amount (as defined in § 1363(d)(3)) for the taxable

year preceding the year of change (the

taxpayer’s last taxable year as a C

corporation), and a corresponding adjustment to the basis of the taxpayer’s

inventory as of the end of the taxable

year preceding the year of change. Any

increase in income tax as a result of the

inclusion of the LIFO recapture amount

is payable in four equal installments,

beginning with the taxpayer’s last taxable year as a C corporation as provided

in § 1363(d)(2). Any corresponding basis adjustment is taken into account in

computing the § 481(a) adjustment (if

any) that results upon the discontinuance

of the LIFO method by the corporation.

(iii) S election effective for a

year after LIFO discontinuance. If a C

corporation elects to be treated as an S

corporation for a taxable year after the

taxable year in which it discontinued

use of the LIFO inventory method, the

remaining balance of any positive

§ 481(a) adjustment must be included in

its gross income in its last taxable year

as a C corporation. If this inclusion

results in an increase in tax for its last

taxable year as a C corporation, this

increase in tax is payable in four equal

installments, beginning with the taxpayer’s last taxable year as a C corporation

as provided in § 1363(d)(2), unless the

taxpayer is required to take the remaining balance of the § 481(a) adjustment

into account in the last taxable year as a

C corporation under another acceleration

provision in section 7.03(3) of this revenue procedure.

(d) Certain transfers to which

§ 381(a) applies. No acceleration of the

§ 481(a) adjustment is required under

this section 7.03(3) when a taxpayer

transfers substantially all the assets of

the trade or business that gave rise to

the § 481(a) adjustment to another taxpayer in a transfer to which § 381(a)

applies and the accounting method (the

change to which gave rise to the

§ 481(a) adjustment) is a tax attribute

that is carried over and used by the

acquiring corporation immediately after

the transfer pursuant to § 381(c). The

acquiring corporation is subject to any

terms and conditions imposed on the

transferor (or any predecessor of the

transferor) as a result of its change in

method of accounting.

(e) Certain transfers pursuant to

§ 351 within a consolidated group.

(i) In general. No acceleration

of the § 481(a) adjustment is required

under this section 7.03(3) when one

member of an affiliated group filing a

consolidated return transfers substantially all the assets of the trade or

business that gave rise to the § 481(a)

adjustment to another member of the

same consolidated group in an exchange

qualifying under § 351 and the transferee member adopts and uses the same

method of accounting (the change to

which gave rise to the § 481(a) adjustment) used by the transferor member.

The transferor member must continue to

take the § 481(a) adjustment into account pursuant to the terms and conditions set forth in its Consent Agreement

(as provided in section 8.11 of this

revenue procedure). The transferor

member must take into account activities of the transferee member (or any

successor) in determining whether acceleration of the § 481(a) adjustment is

required. For example, except as provided in the following sentence, the

transferor member must take any remaining § 481(a) adjustment into account in computing taxable income in

the taxable year in which the transferee

member ceases to engage in the trade or

business to which the § 481(a) adjustment relates. The § 481(a) adjustment is

not accelerated when the transferee

member engages in a transaction described in section 7.03(3)(d) or section

7.03(3)(e)(i) of this revenue procedure.

(ii) Exception. The provisions

of section 7.03(3)(e)(i) of this revenue

procedure cease to apply and the

transferor member must take any remaining balance of the § 481(a) adjustment into account in the taxable year

immediately preceding any of the following: (A) the taxable year the

transferor member ceases to be a member of the group; (B) the taxable year

any transferee member owning substantially all the assets of the trade or

business which gave rise to the § 481(a)

adjustment ceases to be a member of the

group; or (C) a separate return year of

the common parent of the group. In

applying the preceding sentence, the

rules of paragraphs (j)(2), (j)(5), and

(j)(6) of § 1.1502–13 apply, but only if

the method of accounting to which the

transferor member changed and to

which the § 481(a) adjustment relates is

adopted, carried over, or used by any

transferee member acquiring the assets

of the trade or business that gave rise to

the § 481(a) adjustment immediately after acquisition of such assets. For example, the transferor member is not

required to accelerate the § 481(a) adjustment if a transferee member ceases

to be a member of a consolidated group

by reason of an acquisition to which

§ 381(a) applies and the acquiring cor-

poration (A) is a member of the same

group as the transferor member, and (B)

continues, under § 381(c)(4) and the

regulations thereunder, to use the same

method of accounting as that used by

the transferor member with respect to

the assets of the trade or business to

which the § 481(a) adjustment relates.

SECTION 8. GENERAL

APPLICATION PROCEDURES

.01 Application—Service discretion.

The Service reserves the right to decline

to process any Form 3115 filed under

this revenue procedure in situations in

which it would not be in the best

interest of sound tax administration to

permit the requested change. In this

regard, the Service will consider

whether the change in method of accounting would clearly and directly frustrate compliance efforts of the Service

in administering the income tax laws.

.02 Terms and conditions—Service

discretion. Except as specifically provided in other published guidance, a

change in method of accounting filed

under this revenue procedure, if granted,

must be made pursuant to the terms and

conditions provided in this revenue procedure. Notwithstanding this general

rule, the Service may determine that,

based on the unique facts of a particular

case and in the interest of sound tax

administration, terms and conditions that

differ from those provided in this revenue procedure are more appropriate for

a change made under this revenue procedure.

.03 Compliance with provisions. If a

taxpayer changes its method of accounting without authorization or without

complying with all the provisions of this

revenue procedure, the taxpayer has initiated a change in method of accounting

without obtaining the consent of the

Commissioner required by § 446(e).

Upon examination, a taxpayer that has

initiated an unauthorized change in

method of accounting may be required

to effect the change in an earlier or later

taxable year and may be denied the

benefit of spreading the § 481(a) adjustment over the number of taxable years

otherwise prescribed by this revenue

procedure.

.04 Facts and circumstances considered in processing applications. In processing an application for a change in

method of accounting, the Service will

consider all the facts and circumstances,

including:

(1) if the method of accounting

requested is consistent with the Code,

regulations, revenue rulings, revenue

procedures, and decisions of the United

States Supreme Court;

(2) if the use of the method of

accounting requested will clearly reflect

income;

(3) if the present method of accounting clearly reflects income;

(4) the need for consistency in the

accounting area (see section 2.07 of this

revenue procedure);

(5) the taxpayer’s reason(s) for the

change;

(6) the tax effect of the § 481(a)

adjustment;

(7) if the taxpayer’s books and

records and financial statements will

conform to the proposed method of

accounting; and

(8) if the taxpayer previously requested to change its method of accounting for the same item but did not

make the change.

.05 Specific rules in connection with

prior applications.

(1) Method change made.

(a) In general. If the taxpayer

changed its method of accounting for

the same item within the four taxable

years preceding the year of change

(under either an automatic change procedure or a procedure requiring advance

consent), a copy of the application for

the previous change, the signed Consent

Agreement (see section 8.11 of this

revenue procedure) if applicable, and

any other correspondence from the Service, must be attached to the Form 3115

filed for the subsequent taxable year. An

explanation must be furnished stating

why the taxpayer is again requesting to

change its method of accounting for the

same item. The Service will consider the

explanation in determining whether the

subsequent request for change in method

of accounting will be granted.

(b) LIFO inventory method

change. If a taxpayer previously received permission from the Commissioner to change from the LIFO inventory method, the Commissioner will not

consent to the taxpayer’s readoption of

the LIFO inventory method for five

taxable years (beginning with the taxable year the taxpayer changed from the

LIFO inventory method), in the absence

of a showing of unusual and compelling

circumstances.

(2) Method change not made. If a

prior Form 3115 (filed under either an

automatic change procedure or a procedure requiring advance consent) was

withdrawn, not perfected, or denied, or

if a Consent Agreement (see section

8.11 of this revenue procedure) was sent

to the taxpayer but was not signed and

returned to the Service, or if the change

was not made, and the taxpayer files

another application to change the same

item for a year of change within four

taxable years of the prior application, a

copy of the earlier application (that is,

the first Form 3115), together with any

correspondence from the Service, must

be attached to the Form 3115 filed for

the subsequent taxable year. An explanation must be furnished stating why the

earlier application was withdrawn or not

perfected, or why the change was not

made. The Service will consider the

explanation in determining whether the

subsequent request for change in method

of accounting will be granted.

.06 Where to file. A taxpayer, other

than an exempt organization, applying

for a change in accounting method pursuant to this revenue procedure must

complete and file a current Form 3115,

together with the appropriate user fee,

with the Commissioner of Internal Revenue, Attention: CC:DOM:CORP:T, P.O.

Box 7604, Benjamin Franklin Station,

Washington, DC 20044. An exempt organization must complete and file a

current Form 3115, together with the

appropriate user fee, with the Assistant

Commissioner (Employee Plans and Exempt Organizations), Attention: E:EO,

P.O. Box 120, Benjamin Franklin Station, Washington, DC 20044.

.07 User fee. Taxpayers are required

to pay user fees for requests for changes

in accounting method made under this

revenue procedure. Rev. Proc. 97–1 (or

any successor) contains the schedule of

user fees and provides guidance for

administering the user fee requirements.

.08 Signature requirements. The Form

3115 must be signed by, or on behalf of,

the taxpayer requesting the change by

an individual with authority to bind the

taxpayer in such matters. For example,

an officer must sign on behalf of a

corporation, a general partner on behalf

of a state law partnership, a membermanager on behalf of a limited liability

company, a trustee on behalf of a trust,

or an individual taxpayer on behalf of a

sole proprietorship. If the taxpayer is a

member of a consolidated group, a Form

3115 submitted on behalf of the taxpayer must be signed by a duly authorized officer of the common parent. See

the signature requirements set forth in

the General Instructions attached to a

current Form 3115 regarding those who

are to sign. If an agent is authorized to

represent the taxpayer before the Service, receive the original or a copy of

the correspondence concerning the request, or perform any other act(s) regarding the Form 3115 filed on behalf

of the taxpayer, a power of attorney

reflecting such authorization(s) must be

attached to the Form 3115. A taxpayer’s

representative without a power of attorney to represent the taxpayer as indicated in this section will not be given

any information regarding the Form

3115.

.09 Incomplete Form 3115—21 day

rule. If the Service receives a Form

3115 that is not properly completed in

accordance with the instructions on the

Form 3115 and the provisions of this

revenue procedure, or if supplemental

information is needed, the Service will

notify the taxpayer. The notification will

specify the information that needs to be

provided, and the taxpayer will be permitted 21 days from the date of the

notification to furnish the necessary information. The Service reserves the right

to impose shorter reply periods if subsequent requests for additional information

are made. If the required information is

not submitted to the Service within the

reply period, the Form 3115 will not be

processed. An additional period, not to

exceed 15 days, to furnish information

may be granted to a taxpayer. The

request for an extension of time must be

made in writing and submitted within

the 21-day period. If the extension request is denied, there is no right of

appeal.

.10 Conference in the national office.

The taxpayer must complete the appropriate line on the Form 3115 to request

a conference of right if an adverse

response is contemplated by the Service.

If the taxpayer does not complete the

appropriate line on the Form 3115 or

request a conference in a later written

communication, the Service will presume that the taxpayer does not desire a

conference. If requested, a conference

will be arranged in the national office

prior to the Service’s formal reply to the

taxpayer’s Form 3115. For taxpayers

other than exempt organizations, see

section 11 of Rev. Proc. 97–1 (or any

successor). For exempt organizations,

see section 12 of Rev. Proc. 97–4,

1997–1 I.R.B. 96 (or any successor).

.11 Consent Agreement.

(1) In general. Unless otherwise

specifically provided, the Commissioner’s permission to change a taxpayer’s

method of accounting for a specific

taxable year will be set forth in a ruling

letter (original and one copy) from the

national office that identifies the item or

items being changed, the § 481(a) adjustment (if any), and the terms and

conditions under which the change is to

be effected for the taxable year specified

in the ruling letter. See §§ 1.446–1(e)(3)

and 1.481–4. If the taxpayer agrees to

the terms and conditions contained in

the ruling letter, the taxpayer must sign

and date the agreement copy of the

ruling letter in the appropriate space.

The signed copy of the ruling letter will

constitute an agreement (Consent Agreement) within the meaning of § 481(c)

and as required by § 1.481–4(b). The

Consent Agreement must be returned to

the address provided in the Consent

Agreement within 45 days of the date of

its issuance. In addition, a copy of the

Consent Agreement must be attached to

the taxpayer’s income tax return for the

year of change. If a taxpayer signs and

returns the Consent Agreement, the taxpayer must implement the change in

accounting method in accordance with

the terms and conditions provided in the

Consent Agreement and this revenue

procedure. See § 1.481–4(b).

(2) Signature requirements. The

Consent Agreement must be signed by,

or on behalf of, the taxpayer making the

request. The individual signing the Consent Agreement must have the authority

to bind the taxpayer in such matters (in

general, it may not be signed by the

taxpayer’s representative).

(3) 45-day requirement. If the taxpayer does not return the signed Consent Agreement within 45 days of the

date of its issuance, the ruling letter

granting permission for the change will

be null and void.

(4) Change in method of accounting not made by the taxpayer.

(a) If the taxpayer decides not to

effect the change in accordance with the

terms and conditions of the ruling letter,

the taxpayer must so indicate by returning the ruling letter and the unsigned

Consent Agreement to the national office addressed as follows: Commissioner

of Internal Revenue, Attention: [Individual whose name and symbols appear

at the top of the Consent Agreement],

P.O. Box 14095, Benjamin Franklin Station, Washington, DC 20044, with an

explanation of why the accounting

method change will not be effected.

(b) If the taxpayer disagrees

with the terms and conditions of the

ruling letter, the taxpayer must express

the disagreement together with an expla-

nation of the reason(s) within the 45-day

period set forth above. The Service will

consider the reason(s) for disagreement

and notify the taxpayer whether the

original ruling letter will be modified. If

the ruling letter is not modified, the

taxpayer will be notified and given 15

days from the date of the notification

either to accept the original ruling letter

by signing and returning the Consent

Agreement, or to reject the change by

returning the ruling letter and the unsigned Consent Agreement to the address in section 8.11(4)(a) of this revenue procedure.

.12 Two or more trades or businesses.

(1) In general. Sections 1.446–

1(d)(1) and (2) permit different methods

of accounting to be used for each trade

or business of a taxpayer. However, in

considering whether to grant an accounting method change for one of the trades

or businesses of a taxpayer, the Service

will consider whether the change will

result in the creation or shifting of

profits or losses between the trades or

businesses, and whether the proposed

method will clearly reflect the taxpayer’s income as required under § 446

and the regulations thereunder.

(2) Information required. A taxpayer requesting a change in method of

accounting for one of its trades or

businesses must identify all other trades

or businesses by name and the method

of accounting used by each trade or

business for the particular item that is

the subject of the requested change in

method of accounting.

(3) Separate Forms 3115 required.

If a taxpayer operates two or more

separate and distinct trades or businesses

and has kept separable books and

records (and employed different methods of accounting for the businesses), a

Form 3115 and separate user fee is

required for each separate trade or business should the taxpayer desire to

change the methods of accounting of the

separate trades or businesses.

.13 Consolidated groups.

(1) In general. Section 1.1502–

17(a) permits separate methods of accounting to be used by each member of

a consolidated group, subject to the

provisions of § 446 and the regulations

thereunder. However, in considering

whether to grant accounting method

changes to group members, the Service

will consider the effects of the changes

on the income of the group. A common

parent requesting a change in method of

accounting on behalf of a member of

the consolidated group must submit any

information necessary to permit the Service to evaluate the effect of the requested change on the income of the

consolidated group. Except as provided

in section 8.13(2) of this revenue procedure, a Form 3115 and separate user fee

must be submitted for each member of

the group for which a change in accounting method is requested pursuant

to this revenue procedure.

(2) Separate Forms 3115 not required. A common parent may request

an identical accounting method change

on a single Form 3115 on behalf of

more than one member of a consolidated group at a reduced user fee. To

qualify, the taxpayers in the consolidated

group must be members of the same

affiliated group under § 1504(a) that

join in the filing of a consolidated tax

return, and they must be requesting to

change from the identical present

method of accounting to the identical

proposed method of accounting. All aspects of the requested accounting

method change, including the present

and proposed methods, the underlying

facts, and the authority for the request,

must be identical, except for the

§ 481(a) adjustment. See section

15.07(1) and (3) of Rev. Proc. 97–1 at

48–49 (or any successor) for the information required to be submitted with the

Form 3115.

.14 Applicability of Rev. Proc. 97–1

and Rev Proc. 97–4. Rev. Proc. 97–1

and Rev. Proc. 97–4 (or any successors),

respectively, are applicable to a Form

3115 filed under this revenue procedure,

unless specifically excluded or overridden by other published guidance (including the special procedures in this

document).

.15 Effect on other offices of the

Service. The provisions of this revenue

procedure are not intended to preclude

an appropriate representative of the Service (for example, an appeals official

with delegated settlement authority)

from settling a particular taxpayer’s case

involving an accounting method issue

by agreeing to terms and conditions that

differ from those provided in this revenue procedure when it is in the best

interest of the government to do so.

SECTION 9. AUDIT PROTECTION

FOR TAXABLE YEARS PRIOR TO

YEAR OF CHANGE

.01 In general. Except as provided in

section 9.02 of this revenue procedure,

when a taxpayer timely files a Form

3115 pursuant to this revenue procedure,

the Service will not require the taxpayer

to change its method of accounting for

the same item for a taxable year prior to

the year of change.

.02 Exceptions.

(1) Change not made or made improperly. The Service may change a

taxpayer’s method of accounting for

prior taxable years if (a) the taxpayer

withdraws or does not perfect its request, (b) the national office denies the

request, (c) the taxpayer declines to

implement the change in method of

accounting pursuant to the terms and

conditions of the Consent Agreement

and this revenue procedure, (d) the

taxpayer implements the change but

does not comply with the terms and

conditions contained in the Consent

Agreement and this revenue procedure,

or (e) the national office modifies or

revokes the ruling retroactively because

there has been a misstatement or an

omission of material facts. See section

10.02(2) of this revenue procedure.

(2) Change in sub-method. The

Service may change a taxpayer’s method of accounting for prior taxable years

if the taxpayer is changing a sub-method

of accounting within the method. For

example, an examining agent may propose to terminate the taxpayer’s use of

the LIFO inventory method during a

prior taxable year even though the taxpayer changes its method of valuing

increments in the current year.

(3) Prior year Service-initiated

change. The Service may make adjustments to the taxpayer’s returns for the

same item for taxable years prior to the

requested year of change to reflect a

prior year Service-initiated change.

(4) Criminal investigation. The

Service may change a taxpayer’s

method of accounting for the same item

for taxable years prior to the requested

year of change if there is any pending

or future criminal investigation or proceeding concerning (a) directly or indirectly, any issue relating to the taxpayer’s federal tax liability for any taxable

year prior to the year of change, or (b)

the possibility of false or fraudulent

statements made by the taxpayer with

respect to any issue relating to its

federal tax liability for any taxable year

prior to the year of change.

SECTION 10. EFFECT OF CONSENT

.01 In general. A taxpayer that

changes to a method of accounting

pursuant to this revenue procedure may

be required to change or modify that

method of accounting for the following

reasons:

(1) the enactment of legislation;

(2) a decision of the United States

Supreme Court;

(3) the issuance of temporary or

final regulations;

(4) the issuance of a revenue ruling, revenue procedure, notice, or other

statement published in the Internal Revenue Bulletin;

(5) the issuance of written notice

to the taxpayer that the change in

method of accounting was granted in

error or is not in accord with the current

views of the Service; or

(6) a change in the material facts

on which the consent was based.

.02 Retroactive change or modification. Except in rare or unusual circumstances, if a taxpayer that changes its

method of accounting under this revenue

procedure is subsequently required under this section 10 to change or modify

that method of accounting, the required

change or modification will not be applied retroactively provided that:

(1) the taxpayer complied with all

the applicable provisions of the Consent

Agreement and this revenue procedure;

(2) there has been no misstatement

or omission of material facts;

(3) there has been no change in the

material facts on which the consent was

based;

(4) there has been no change in the

applicable law; and

(5) the taxpayer to whom consent

was granted acted in good faith in

relying on the consent, and applying the

change or modification retroactively

would be to the taxpayer’s detriment.

SECTION 11. REVIEW BY DISTRICT

DIRECTOR

.01 In general. The district director

must apply a ruling obtained under this

revenue procedure in determining the

taxpayer’s liability unless the district

director recommends that the ruling

should be modified or revoked. The

district director will ascertain if:

(1) the representations on which

the ruling was based reflect an accurate

statement of the material facts;

(2) the amount of the § 481(a)

adjustment was properly determined;

(3) the change in method of accounting was implemented as proposed

in accordance with the terms and conditions of the Consent Agreement and this

revenue procedure;

(4) there has been any change in

the material facts on which the ruling

was based during the period the method

of accounting was used; and

(5) there has been any change in

the applicable law during the period the

method of accounting was used.

.02 National office consideration. If

the district director recommends that the

ruling (other than the amount of the

§ 481(a) adjustment) should be modified or revoked, the district director will

forward the matter to the national office

for consideration before any further action is taken. Such a referral to the

national office will be treated as a

request for technical advice, and the

provisions of Rev. Proc. 97–2 (or any

successor) will be followed.

year of change) in Rev. Proc. 92–20,

and (b) the applicable § 481(a) adjustment period and the authority therefor.

(3) Open window periods under

Rev. Proc. 92–20. If, on May 15, 1997,

a taxpayer is within a window period

provided in Rev. Proc. 92–20, the taxpayer may file a Form 3115 under this

revenue procedure during the remainder

of that window period and apply the

terms and conditions in Rev. Proc.

92–20 for the applicable window period.

The taxpayer must affirmatively state in

an attachment to the Form 3115 (a) that

it agrees to apply the terms and conditions of the applicable window period in

Rev. Proc. 92–20, and (b) the applicable

§ 481(a) adjustment period and the authority therefor.

SECTION 12. INQUIRIES

SECTION 14. EFFECT ON OTHER

DOCUMENTS

Inquiries regarding this revenue procedure may be addressed to the Commissioner of Internal Revenue, Attention: CC:DOM:IT&A, 1111 Constitution

Avenue, NW, Washington, DC 20224.

SECTION 13. EFFECTIVE DATE

.01 In general. Except as provided in

section 13.02(1) of this revenue procedure, this revenue procedure is effective

for Forms 3115 filed on or after May

15, 1997.

.02 Transition rules.

(1) Currently pending Forms 3115.

If a taxpayer filed a Form 3115 under

Rev. Proc. 92–20 for a taxable year

ending on or after May 15, 1997, and

the Form 3115 is pending with the

national office on May 15, 1997, the

taxpayer may apply the terms and conditions (exclusive of the year of change)

in this revenue procedure. However, the

national office will apply the terms and

conditions in Rev. Proc. 92–20, unless,

prior to the later of June 15, 1997, or

the issuance of the letter ruling granting

or denying consent to the change, the

taxpayer notifies the national office that

it requests to apply the terms and conditions (exclusive of the year of change)

in this revenue procedure.

(2) New Forms 3115. Except as

provided in section 13.02(3) of this

revenue procedure, a taxpayer that files

a Form 3115 under this revenue procedure on or before December 31, 1997,

may apply the terms and conditions

(exclusive of the year of change) in Rev.

Proc. 92–20. The taxpayer must affirmatively state in an attachment to the Form

3115 (a) that it requests to apply the

terms and conditions (exclusive of the

.01 Rev. Proc. 92–20. Except as provided in section 14.02 of this revenue

procedure, Rev. Proc. 92–20 is modified

and, as modified, is superseded.

.02 Rev. Proc. 93–48 (notional principal contracts). The Designated A

method provisions of Rev. Proc. 92–20

continue to apply to changes in method

of accounting for notional principal contracts made pursuant to the requirements

of § 1.446–3 and Rev. Proc. 93–48.

.03 Notice 89–15 (long-term contracts). Q&A 13 of Notice 89–15,

1989–1 C.B. 634, 637, regarding

changes in method of accounting for longterm contracts under § 460, is modified and, as modified, is superseded.

SECTION 15. PAPERWORK

REDUCTION ACT

The collections of information contained in this revenue procedure have

been reviewed and approved by the

Office of Management and Budget in

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

number 1545–1541.

An agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information displays a valid OMB control number.

The collections of information in this

revenue procedure are in sections 6, 8,

and 13. This information is required to

determine whether the taxpayer’s proposed method of accounting is permissible. This information will be used by

the Service to determine whether to

consent to a change in accounting

method and the appropriate terms and

conditions for the change. The collections of information are required to

obtain consent to the accounting method

change. The likely respondents are the

following: individuals, farms, business

or other for-profit organizations, nonprofit institutions, and small businesses

or organizations.

The estimated total annual reporting

burden is 9,633 hours.

The estimated annual burden per respondent varies from 1/4 of an hour to 5

hours, depending on individual circumstances, with an estimated average of

31/4 hours. The estimated number of

respondents is 3,000.

The estimated annual frequency of

responses is occasional.

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 confiden-

tial, as required by 26 U.S.C. 6103.

DRAFTING INFORMATION

The author of this revenue procedure

is Robert A. Testoff of the Office of

Assistant Chief Counsel (Income Tax

and Accounting). For further information

regarding this revenue procedure, contact Mr. Testoff on (202) 622–4990 (not

a toll-free call).

Part IV. Items of General Interest

Extension of Test of Employment

Tax Early Referral Procedures for

Appeals

Announcement 97–52

SUMMARY: This document extends the

test of the employment tax early referral

procedures set forth in Announcement

96–13, 1996–12 I.R.B. 33, for an additional one-year period beginning on

May 27, 1997, the date this Announcement is published in the Internal Revenue Bulletin.

FOR FURTHER INFORMATION CONTACT: Thomas Carter Louthan, Director, Office of Dispute Resolution and

Specialty Programs, National Office Appeals, (202) 401–4098 (not a toll-free

number).

EXTENSION OF TEST OF

EMPLOYMENT TAX EARLY

REFERRAL PROCEDURES FOR

APPEALS

Summary: This Announcement is part of

the Internal Revenue Service’s strategy

designed to improve employment tax

administration for all taxpayers, including those who are small business owners. The purpose of early referral for

employment tax issues is to resolve

them more expeditiously through simultaneous action by the District and Appeals. Announcement 96–13 describes

the method by which a taxpayer requests early referral of one or more

unagreed employment tax issues from

the District to Appeals. A taxpayer may

request early referral of any developed,

unagreed employment tax issue, including the application of section 530 of the

Revenue Act of 1978, that is under the

jurisdiction of the District Director arising from an audit.

This document extends the test of the

procedure set forth in Announcement

96–13 for an additional one-year period

beginning on May 27, 1997, the date

this Announcement is published in the

Internal Revenue Bulletin.

Background: Section 530 of the Revenue Act of 1978 provides businesses

with relief from federal employment tax

obligations if certain requirements are

met. It terminates the business’s, not the

worker’s, employment tax liability under

Internal Revenue Code Subtitle C (Federal Insurance Contributions Act and

Federal Unemployment Tax Act taxes,

federal income tax withholding, and

1997–21

I.R.B.

Railroad Retirement Tax Act taxes) and

any interest or penalties attributable to

the liability for employment taxes (Rev.

Proc. 85–18, 1985–1 C.B. 518).

Section 530(e)(3) of the Revenue Act of

1978, as amended by the Small Business

Job Protection Act of 1996, generally

effective after December 31, 1996, clarifies that the first step in any case

involving whether the business has the

employment tax obligations of an employer with respect to workers is determining whether the business meets the

requirements of section 530. If so, the

business will not have an employment

tax liability with respect to the workers

at issue. As a result, IRS examiners will

now consider the taxpayer’s eligibility

for relief under section 530 of the

Revenue Act of 1978 before initiating

any examination of the relationship between a business and a worker.

The application of section 530 of the

Revenue Act of 1978 is considered an

appropriate issue for early referral under

section 2.02 of Announcement 96–13.

Taxpayers that disagree with the District’s determination regarding the application of section 530 of the Revenue

Act of 1978 have the option of immediately requesting early referral of the

issue from the District to Appeals. Appeals will try to resolve the section 530

issue following the procedures set forth

in Announcement 96–13 and Revenue

Procedure 96–9, 1996–1 C.B. 575. See

section 6 of Announcement 96–13. If

the section 530 issue remains unresolved, or if it is determined that the

taxpayer is not eligible for relief under

section 530, the case will be returned to

the District for consideration of the

worker classification issue(s).

A one-year test of the employment tax

early referral procedure concluded on

March 18, 1997. During the additional

one-year test period, Appeals will try

employment tax early referral in more

cases so that the program can be further

evaluated.

Effective Date: This Announcement extends the test of the employment tax

early referral procedure set forth in

Announcement 96–13 for an additional

one-year period beginning May 27,

1997.

For further information contact: Thomas

Carter Louthan, Director, Office of Dispute Resolution and Specialty Programs,

National Office Appeals, (202) 401–

4098 (not a toll-free number).

Foundations Status of Certain

Organizations

Announcement 97–53

The following organizations have

failed to establish or have been unable

to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not,

after this date, rely on previous rulings

or designations in the Cumulative List

of Organizations (Publication 78), or on

the presumption arising from the filing

of notices under section 508(b) of the

Code. This listing does not indicate that

the organizations have lost their status

as organizations described in section

501(c)(3), eligible to receive deductible

contributions.

Former Public Charities. The following organizations (which have been

treated as organizations that are not

private foundations described in section

509(a) of the Code) are now classified

as private foundations:

African American Business Council of

Niagara County Inc., Niagara Falls,

Alameda High School Alumni

Association, Inc., Alameda, CA

Alaska Firebirds, Inc., Anchorage, AK

Alaska Youth Ready for Work, Inc.,

Anchorage, AK

Alta District Hospital Foundation

Incorporated, Dinuba, CA

Alliance of the Holy Family Inc.,

Hillsborough, CA

American Association of Vietnam

Veterans, Inc., Santa Rosa, CA

American College of Productivity &

Enterprise, San Francisco, CA

Barron Area Educational Foundation

Inc., Barron, WI

Bethel Alumni Association of North

America, Inc., Monterey Park, CA

Beyond Survival, Irvine, CA

B. King Productions Inc., New York,

Black Knights Drum Corps, Burbank,

Blossom Valley Pony Baseball, San

Jose, CA

Blue Ridge Resource Conservation and

Development Council, Jefferson, NC

Cumberland Communities

Communications Corporation, Duff,

Cumberland County Scholarship Fund,

Inc., Burkesville, KY

Cypress Creek Community Chorale Inc.,

Spring, TX

Dominic J. Bruno Education Trust, West

Roxbury, MA

Doulos Ministry Inc., La Mirada, CA

Eastern Carolina Orchestra and Chamber

Music Association, Greenville, NC

East Texas Hope Center, Longview, TX

Fire District No. 7 Services, Newport,

Flora Foundation, Kailua Kona, HI

Florence Housing Development

Authority, Florence, AL

Foothills Audubon Club, Longmont, CO

For Children Only, Denver, CO

Forest Lake Wavemakers, Inc., Forest

Lake, MN

Fort Collins Wildlife Coalition, Fort

Collins, CO

Fort Dix Academy Inc., Morristown, NJ

Genesis-A-Sanctuary for the Arts, San

Jose, CA

George Snively Research Foundation,

Odessa, TX

Hedges and Highways, Compton, CA

Help Resources Group, El Paso, TX

Help Services, Kirkland, WA

Heritage Theatre Group, Grand Rapids,

High Desert Aids Outreach, Victorville,

Highland Park Non Profit Housing

Corp., Highland Park, MI

Hillcrest Group Home Inc., Trenton, NJ

Holland Turner Foster Family Home,

Round Rock, TX

Inner City Action Ministries, Inc., Grand

Island, NY

Institute for Environmental Systems and

Technologies, Reseda, CA

Institute for Transportation and the

Environment, Seattle, WA

Institute of Chinese Medicine for

Immunodeficiency Disorders, Long

Beach, CA

Institute of Communication for

Understanding, Berkeley, CA

Jesus Never Fails Pentacostal Church,

Chicago, IL

Jochua House Home for Boys, San

Bernardino, CA

John Hazelton Day Center Inc., Viroqua,

J-Spar Foundation, Oceanside, CA

Jumelage, Inc., Winchester, MA

Kanesville, Inc., Council Bluffs, IA

Ka Ohana Punana Leo O. Kaua I, Inc.,

Puhi, HI

Leap Imagination in Learning, San

Francisco, CA

Lees Transitional Housing & Emergency

Shelter, Los Angeles, CA

Leo D. Lagasse Society, Los Angeles,

Leonard Mendoza Jr. Foundation Inc.,

Commerce, CA

Lewis Residential Care Inc., Stockton,

Life Saviors Rescue and Recovery

Exchange, Mira Loma, CA

Light Evangelical Mission, Bellflower,

Linda Vista Multi-Cultural Fair Inc., San

Diego, CA

Mayors Committee for a Better

Community, Las Vegas, NV

Medical Supplies for Zambia Inc.,

Wildomar, CA

Medjugorje Connection Inc., Boise, ID

Metropolitan Education Foundation,

New Orleans, LA

Mexican American Bar Foundation, Los

Angeles, CA

New Life International Missions to India

and to the World Inc., Long Beach,

New Voice Club of the Valleys, Studio

City, CA

New York State Tenents &

Neighborhood Coalition Rochester

Chapter, Rochester, NY

Nipomo Football League, Nipomo, CA

Nonprofit Community Network, Seattle,

Pikes Peak Childrens Advocates Inc.,

Colorado Springs, CO

Pillar Incorporated, Abita Springs, LA

Plant Closures Project, San Francisco,

Polemical Success International, Inc.,

Boca Raton, FL

Pomona Mission Transitional Shelter,

Chino, CA

Rapid City Teen Center, Rapid City, SD

Robert E. Lee Project, Sacramento, CA

Robert Ford Memorial Scholarship

Fund, Freeport, NY

Roberts Family Foundation, Bainbridge

Island, WA

Rocky Mountain CFS Association, Inc.,

Aurora, CO

SAARC Foundation USA, New York,

SCIO District 95 C Scholarships, Inc.,

Scio, OR

Seneca Hill Manor Inc., Oswego, NY

Shakan Group Homes, South Bend, IN

Share Christmas, Elyria, OH

SHDC No. 2 Inc., Honolulu, HI

Sherman Group Home Inc., Bakersfield,

Silver Cane Foundation, Santa Barbara,

Silver Foxes Theatrical Troupe,

Streamwood, IL

Siskiyou Child Abuse Prevention

Council, Yreka, CA

Temple Community & Economic

Development Corporation,

Philadelphia, PA

Tiger Aquatics Boosters Club, Stockton,

Topdog Wrestling Club, Inc., Sandpoint,

United Bicolandia Los Angeles, Los

Angeles, CA

Valley Air Trust Incorporated,

Jamestown, CA

Valley Oak Soccer Club—VOSC,

Fresno, CA

Valley Voice Youth Choir, Kent, WA

Veterans Helping Veterans, Los Angeles,

Vietnam and the World Foundation Inc.,

Huntingdon Beach, CA

Vietnam Community, Amarillo, TX

Vietnam Museum in Hawaii, Honolulu,

Vietnam Veterans United for Aid and

Assistance, San Jose, CA

Who is My Neighbor Foundation,

Valencia, CA

Widowed Persons Service of Inland

Valley Inc., Oceanside, CA

Wildcat Booster Club, Vacaville, CA

Wilikina Park, Honolulu, HI

William Roberts Memorial Social

Services Foundation, Inc., Chicago,

Willow Area Seniors Incorporated,

Willow, AK

Windmill Media Productions, Los

Angeles, CA

Wings Club Scholarship Fund, Inc.,

New York, NY

If an organization listed above submits information that warrants the renewal of its classification as a public

charity or as a private operating foundation, the Internal Revenue Service will

issue a ruling or determination letter

with the revised classification as to

foundation status. Grantors and contributors may thereafter rely upon such

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

Income Tax Regulations. It is not

the practice of the Service to announce

such revised classification of foundation

status in the Internal Revenue Bulletin.

1997–21

I.R.B.

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as ‘‘rulings’’)

that have an effect on previous rulings

use the following defined terms to describe the effect:

Amplified describes a situation where

no change is being made in a prior

published position, but the prior position

is being extended to apply to a variation

of the fact situation set forth therein.

Thus, if an earlier ruling held that a

principle applied to A, and the new

ruling holds that the same principle also

applies to B, the earlier ruling is amplified. (Compare with modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

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

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it

applies to both A and B, the prior ruling

Abbreviations

The following abbreviations in current use and

formerly used will appear in material published in

the Bulletin.

is modified because it corrects a published position. (Compare with amplified

and clarified, above).

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

used in a ruling that lists previously

published rulings that are obsoleted because of changes in law or regulations.

A ruling may also be obsoleted because

the substance has been included in regulations subsequently adopted.

Revoked describes situations where

the position in the previously published

ruling is not correct and the correct

position is being stated in the new

ruling.

Superseded describes a situation

where the new ruling does nothing more

than restate the substance and situation

of a previously published ruling (or

rulings). Thus, the term is used to

republish under the 1986 Code and

regulations the same position published

under the 1939 Code and regulations.

The term is also used when it is desired

to republish in a single ruling a series of

situations, names, etc., that were previously published over a period of time in

separate rulings. If the new ruling does

more than restate the substance of a

prior ruling, a combination of terms is

used. For example, modified and superseded describes a situation where the

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

continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names

of countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be

published that includes the list in the

original ruling and the additions, and

supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

ER—Employer.

PR—Partner.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

Del. Order—Delegation Order.

M—Minor.

DISC—Domestic International Sales Corporation.

Nonacq.—Nonacquiescence.

DR—Donor.

O—Organization.

E—Estate.

P—Parent Corporation.

X—Corporation.

EE—Employee.

PHC—Personal Holding Company.

Y—Corporation.

E.O.—Executive Order.

PO—Possession of the U.S.

Z—Corporation.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

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

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

I.R.B.—Internal Revenue Bulletin.

TFR—Transferor.

LE—Lessee.

T.I.R.—Technical Information Release.

LP—Limited Partner.

TP—Taxpayer.

LR—Lessor.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

Numerical Finding List1

Bulletin 1997–1 through 1997–20

Announcements:

97–1, 1997–2 I.R.B. 63

97–2, 1997–2 I.R.B. 63

97–3, 1997–2 I.R.B. 63

97–4, 1997–3 I.R.B. 14

97–5, 1997–3 I.R.B. 15

97–6, 1997–4 I.R.B. 11

97–7, 1997–4 I.R.B. 12

97–8, 1997–4 I.R.B. 12

97–9, 1997–5 I.R.B. 27

97–10, 1997–10 I.R.B. 64

97–11, 1997–6 I.R.B. 19

97–12, 1997–7 I.R.B. 55

97–13, 1997–8 I.R.B. 38

97–14, 1997–8 I.R.B. 38

97–15, 1997–9 I.R.B. 23

97–16, 1997–9 I.R.B. 23

97–17, 1997–9 I.R.B. 23

97–18, 1997–10 I.R.B. 67

97–19, 1997–10 I.R.B. 68

97–20, 1997–11 I.R.B. 22

97–21, 1997–11 I.R.B. 23

97–22, 1997–12 I.R.B. 47

97–23, 1997–11 I.R.B. 23

97–24, 1997–11 I.R.B. 24

97–25, 1997–12 I.R.B. 47

97–26, 1997–12 I.R.B. 48

97–27, 1997–13 I.R.B. 30

97–28, 1997–14 I.R.B. 15

97–29, 1997–14 I.R.B. 16

97–30, 1997–14 I.R.B. 16

97–31, 1997–14 I.R.B. 16

97–32, 1997–14 I.R.B. 17

97–33, 1997–15 I.R.B. 8

97–34, 1997–15 I.R.B. 8

97–35, 1997–15 I.R.B. 9

97–36, 1997–15 I.R.B. 10

97–37, 1997–15 I.R.B. 10

97–38, 1997–15 I.R.B. 10

97–39, 1997–16 I.R.B. 27

97–40, 1997–16 I.R.B. 28

97–41, 1997–16 I.R.B. 28

97–42, 1997–17 I.R.B. 19

97–43, 1997–17 I.R.B. 19

97–44, 1997–17 I.R.B. 19

97–45, 1997–17 I.R.B. 20

97–46, 1997–18 I.R.B. 53

97–47, 1997–19 I.R.B. 94

97–48, 1997–20 I.R.B. 8

97–49, 1997–20 I.R.B. 8

97–50, 1997–20 I.R.B. 8

97–51, 1997–20 I.R.B. 9

Notices:

97–1, 1997–2 I.R.B. 22

97–2, 1997–2 I.R.B. 22

97–3, 1997–1 I.R.B. 8

97–4, 1997–2 I.R.B. 24

97–5, 1997–2 I.R.B. 25

97–6, 1997–2 I.R.B. 26

97–7, 1997–1 I.R.B. 8

97–8, 1997–4 I.R.B. 7

97–9, 1997–2 I.R.B. 35

97–10, 1997–2 I.R.B. 41

97–11, 1997–2 I.R.B. 50

97–12, 1997–3 I.R.B. 11

97–13, 1997–6 I.R.B. 13

Notices—Continued

Revenue Procedures—Continued

97–14, 1997–8 I.R.B. 23

97–15, 1997–8 I.R.B. 23

97–16, 1997–9 I.R.B. 15

97–17, 1997–10 I.R.B. 34

97–18, 1997–10 I.R.B. 35

97–19, 1997–10 I.R.B. 40

97–20, 1997–10 I.R.B. 52

97–21, 1997–11 I.R.B. 9

97–22, 1997–13 I.R.B. 9

97–23, 1997–14 I.R.B. 8

97–24, 1997–16 I.R.B. 6

97–25, 1997–16 I.R.B. 8

97–26, 1997–17 I.R.B. 6

97–27, 1997–17 I.R.B. 7

97–28, 1997–18 I.R.B. 45

97–29, 1997–20 I.R.B. 6

97–30, 1997–20 I.R.B. 6

97–18, 1997–10 I.R.B. 53

97–19, 1997–10 I.R.B. 55

97–20, 1997–11 I.R.B. 10

97–21, 1997–12 I.R.B. 44

97–22, 1997–13 I.R.B. 9

97–23, 1997–17 I.R.B. 7

97–24, 1997–16 I.R.B. 10

97–24A, 1997–20 I.R.B. 7

97–25, 1997–17 I.R.B. 8

97–26, 1997–17 I.R.B. 17

Proposed Regulations:

REG–209332–80, 1997–14 I.R.B. 9

REG–209040–88, 1997–7 I.R.B. 34

REG–209121–89, 1997–11 I.R.B. 15

REG–208288–90, 1997–11 I.R.B. 14

REG–209494–90, 1997–8 I.R.B. 24

REG–208172–91, 1997–10 I.R.B. 59

REG–209672–93, 1997–6 I.R.B. 15

REG–209709–94 1997–13 I.R.B. 12

REG–209729–94, 1997–11 I.R.B. 19

REG–209762–95, 1997–3 I.R.B. 12

REG–209785–95, 1997–18 I.R.B. 46

REG–209817–96, 1997–7 I.R.B. 41

REG–209824–96, 1997–11 I.R.B. 19

REG–254394–96, 1997–14 I.R.B. 14

REG–209823–96, 1997–18 I.R.B. 47

REG–209828–96, 1997–6 I.R.B. 15

REG–209830–96, 1997–15 I.R.B. 7

REG–209834–96, 1997–4 I.R.B. 9

REG–209839–96, 1997–8 I.R.B. 26

REG–242996–96, 1997–9 I.R.B. 18

REG–246018–96, 1997–8 I.R.B. 30

REG–247678–96, 1997–6 I.R.B. 17

REG–247862–96, 1997–8 I.R.B. 32

REG–248770–96, 1997–8 I.R.B. 33

REG–249819–96, 1997–7 I.R.B. 50

REG–252231–96, 1997–7 I.R.B. 52

REG–252233–96, 1997–9 I.R.B. 19

REG–252665–96, 1997–12 I.R.B. 46

REG–253578–96, 1997–19 I.R.B. 93

Public Law:

105–2, 1997–18 I.R.B. 14

Revenue Procedures:

97–1, 1997–1 I.R.B. 11

97–2, 1997–1 I.R.B. 64

97–3, 1997–1 I.R.B. 84

97–4, 1997–1 I.R.B. 96

97–5, 1997–1 I.R.B. 132

97–6, 1997–1 I.R.B. 153

97–7, 1997–1 I.R.B. 185

97–8, 1997–1 I.R.B. 187

97–9, 1997–2 I.R.B. 56

97–10, 1997–2 I.R.B. 59

97–11, 1997–6 I.R.B. 13

97–12, 1997–4 I.R.B. 7

97–13, 1997–5 I.R.B. 18

97–14, 1997–5 I.R.B. 20

97–15, 1997–5 I.R.B. 21

97–16, 1997–5 I.R.B. 25

97–17, 1997–9 I.R.B. 15

A cumulative list of all Revenue Rulings,

Revenue Procedures, Treasury Decisions, etc.,

published in Internal Revenue Bulletins 1996–27

through 1996–53 will be found in Internal

Revenue Bulletin 1997–1, dated January 6, 1997.

Revenue Rulings:

97–1, 1997–2 I.R.B. 10

97–2, 1997–2 I.R.B. 7

97–3, 1997–2 I.R.B. 5

97–4, 1997–3 I.R.B. 6

97–5, 1997–4 I.R.B. 5

97–6, 1997–4 I.R.B. 4

97–7, 1997–5 I.R.B. 14

97–8, 1997–7 I.R.B. 4

97–9, 1997–9 I.R.B. 4

97–10, 1997–10 I.R.B. 31

97–11, 1997–10 I.R.B. 5

97–12, 1997–11 I.R.B. 5

97–13, 1997–16 I.R.B. 4

97–14, 1997–11 I.R.B. 5

97–15, 1997–12 I.R.B. 42

97–16, 1997–13 I.R.B. 4

97–17, 1997–14 I.R.B. 5

97–18, 1997–15 I.R.B. 4

97–19, 1997–18 I.R.B. 11

97–20, 1997–19 I.R.B. 4

97–21, 1997–18 I.R.B. 8

97–22, 1997–20 I.R.B. 5

Social Security Domestic Coverage Threshold

1997–9, I.R.B. 17

Tax Conventions:

1997–17 I.R.B. 5

Treasury Decisions:

8688, 1997–3 I.R.B. 7

8689, 1997–3 I.R.B. 9

8690, 1997–5 I.R.B. 5

8691, 1997–5 I.R.B. 16

8692, 1997–3 I.R.B. 4

8693, 1997–6 I.R.B. 9

8694, 1997–6 I.R.B. 11

8695, 1997–4 I.R.B. 5

8696, 1997–6 I.R.B. 4

8697, 1997–2 I.R.B. 11

8698, 1997–7 I.R.B. 29

8699, 1997–6 I.R.B. 4

8700, 1997–7 I.R.B. 5

8701, 1997–7 I.R.B. 23

8702, 1997–8 I.R.B. 4

8703, 1997–8 I.R.B. 18

8704, 1997–8 I.R.B. 12

8705, 1997–8 I.R.B. 16

8706, 1997–9 I.R.B. 11

8707, 1997–7 I.R.B. 17

8708, 1997–10 I.R.B. 14

8709, 1997–9 I.R.B. 5

8710, 1997–13 I.R.B. 4

8711, 1997–12 I.R.B. 35

8712, 1997–12 I.R.B. 4

8713, 1997–14 I.R.B. 4

8714, 1997–15 I.R.B. 5

8715, 1997–18 I.R.B. 5

8716, 1997–19 I.R.B. 5

Finding List of Current Action on

Previously Published Items1

Revenue Procedures—Continued

Bulletin 1997–1 through 1997–20

97–3

Amplified by

97–23, 1997–17 I.R.B. 7

*Denotes entry since last publication

Revenue Rulings:

Revenue Procedures:

70–480

Revoked by

97–6, 1997–4 I.R.B. 4

66–3

Modified by

97–11, 1997–6 I.R.B. 13

87–21

Modified by

97–11, 1997–6 I.R.B. 13

92–20

Modified by

97–1, 1997–1 I.R.B. 11

92–20

Modified by

97–10, 1997–2 I.R.B. 59

92–90

Superseded by

97–1, 1997–1 I.R.B. 11

94–52

Revoked by

97–11, 1997–6 I.R.B. 13

96–1

Superseded by

97–1, 1997–1 I.R.B. 11

96–2

Superseded by

97–2, 1997–1 I.R.B. 64

96–3

Superseded by

97–3, 1997–1 I.R.B. 84

96–4

Superseded by

97–4, 1997–1 I.R.B. 96

96–5

Superseded by

97–5, 1997–1 I.R.B. 132

72–527

Obsoleted by

8704, 1997–8 I.R.B. 12

74–59

Revoked by

8708, 1997–10 I.R.B. 14

92–19

Supplemented in part by

97–2, 1997–2 I.R.B. 7

96–12

Superseded by

97–3, 1997–1 I.R.B. 84

96–13

Modified by

97–1, 1997–1 I.R.B. 11

96–22

Superseded by

97–3, 1997–1 I.R.B. 84

96–34

Superseded by

97–3, 1997–1 I.R.B. 84

96–39

Superseded by

97–3, 1997–1 I.R.B. 84

96–43

Superseded by

97–3, 1997–1 I.R.B. 84

96–56

Superseded by

97–3, 1997–1 I.R.B. 84

96–6

Superseded by

97–6, 1997–1 I.R.B. 153

96–7

Superseded by

97–7, 1997–1 I.R.B. 185

96–8

Superseded by

97–8, 1997–1 I.R.B. 187

96–24

96–24A

Superseded by

97–24, 1997–16 I.R.B. 10

96–37

Obsoleted by

97–26, 1997–17 I.R.B. 17

97–2

Amplified by

97–21, 1997–12 I.R.B. 44

A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

1996–27 through 1996–53 will be found in Internal Revenue Bulletin 1997–1, dated January 6,

1997.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.