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Bulletin No. 1998–4
January 26, 1998
Internal Revenue
bulletin
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
ADMINISTRATIVE
Rev. Rul. 98–6, page 4.
Notice 98–8, page 6.
LIFO; price indexes; department stores. The November
1997 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, November 30,
1997.
EMPLOYEE PLANS
REG–209463–82, page 27.
This proposed regulation contains amendments to
EE–113–82, 1987–2 C.B. 881, under section 401(a)(9) of
the Code that makes changes to the rules that apply if a
trust is named as a beneficiary of an employee’s retirement
benefit under a qualified plan.
Rev. Proc. 98–14, page 22.
Determination letters; Small Business Job Protection
Act. This procedure opens the determination letter program
for qualified plans that seek to comply with changes in the
qualification requirements made by the Uruguay Round
Agreements Act and the Taxpayer Relief Act of 1997, as well
as those changes in the qualification requirements made by
the Small Business Job Protection Act of 1996 that are effective before the first day of the first plan year beginning on
or after January 1, 1999.
Notice 98–9, page 8.
Weighted average interest rate update. Guidelines are
set forth for determining for January 1998, the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for purposes of
the full funding limitation of section 412(c)(7) of the Code as
amended by the Omnibus Budget Reconciliation Act of 1987
and by the Uruguay Round Agreements Act (GATT).
EXEMPT ORGANIZATIONS
Announcement 98–4, page 31.
A list is given of organizations now classified as private foundations.
Finding Lists begin on page 34.
Department of the Treasury
Internal Revenue Service
Eligible deferred compensation plans under section
457. This notice provides guidance relating to the new statutory requirements applicable to eligible deferred compensation plans of state and local government and tax-exempt
employers under section 457 of the Code after the Small
Business Job Protection Act of 1996 and the Taxpayer Relief
Act of 1997.
Rev. Proc. 98–11, page 9.
Insurance companies; loss reserves; discounting unpaid losses. The loss payment patterns and discount factors are set forth for the 1997 accident year, which is a determination year. These factors will be used for computing
discounted unpaid losses under section 846 of the Code.
Rev. Proc. 98–12, page 18.
Insurance companies; discounting estimated salvage
recoverable. The salvage discount factors are set forth for
the 1997 accident year. These factors will be used for computing estimated salvage recoverable under section 832 of
the Code.
Rev. Proc. 98–13, page 21.
Section 646 election. This procedure provides the procedures and requirements for making the section 646 election
to treat certain revocable trusts as part of an estate.
Rev. Proc. 98–15, page 25.
Underpayment interest; interest expense deduction;
estates. Procedures are provided for estates of decedents
dying before January 1, 1998, to elect, under section
503(d)(2) of the Taxpayer Relief Act of 1997, to reduce the
rate of interest on estate taxes deferred under section 6166
of the Code and forgo the deduction for interest paid on the
deferred estate taxes under sections 2053 and 163(h) of
the Code.
Mission of the Service
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, efficiency, and fairness.
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-
Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
2
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumulative Bulletins.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin of the
succeeding quarterly and semiannual period, respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
3
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 163.—Interest
26 CFR 1.163–1: Interest deduction in general.
What procedures apply for estates of decedents
dying before January 1, 1998, to make an election
under § 503(d)(2) of the Taxpayer Relief Act of 1997
to reduce the rate of interest on estate taxes deferred
under § 6166 of the Code and forgo the deduction for
interest paid on the deferred estate taxes under
§§ 2053 and 163(h). See Rev. Proc. 98–15, page 25.
Section 401.—Qualified
Pension, Profit-Sharing and
Stock Bonus Plans
26 CFR 1.401(b)–1: Certain retroactive changes in
plans.
A remedial amendment period for changes in
plan qualification requirements made by the Taxpayer Relief Act of 1997 is provided. See Rev. Proc.
98–14, page 22.
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores. The November 1997 Bureau of
Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or with
reference to, November 30, 1997.
Rev. Rul. 98–6
The following Department Store Inventory Price Indexes for November 1997
were issued by the Bureau of Labor Statistics on December 16, 1997. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the
Income Tax Regulations and Rev. Proc.
86–46, 1986–2 C.B. 739, for appropriate
application to inventories of department
stores employing the retail inventory and
last-in, first-out inventory methods for tax
years ended on, or with reference to, November 30, 1997.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of departments, (b) three special combinations of
the major groups – soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, except for the following: candy, foods,
liquor, tobacco, and contract departments.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Nov.
1996
Nov.
1997
Percent Change
from Nov. 1996
to Nov. 19971
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55.9
2. Domestics and Draperie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634.7
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656.1
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 903.7
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614.8
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535.4
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287.4
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562.5
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415.9
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.0
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591.5
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495.1
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1020.6
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740.7
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 903.4
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667.8
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585.6
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804.5
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244.2
20. Radio and Television- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78.1
21. Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.3
22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130.6
23. Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.1
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602.1
524.6
628.2
661.7
906.9
618.2
552.9
298.8
543.7
428.4
621.2
604.0
513.1
978.9
807.7
917.8
665.8
580.1
811.7
241.0
74.2
108.3
133.2
107.9
606.5
–5.6
–1.0
0.9
0.4
0.6
3.3
4.0
–3.3
3.0
–1.9
2.1
3.6
–4.1
9.0
1.6
–0.3
–0.9
0.9
–1.3
–5.0
–2.7
2.0
0.7
0.7
Groups
January 26, 1998
4
1998–4 I.R.B.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS—Continued
(January 1941 = 100, unless otherwise noted)
Groups
Nov.
1996
Nov.
1997
Percent Change
from Nov. 1996
to Nov. 19971
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Groups 21 – 23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
466.5
113.0
555.1
462.6
111.4
555.9
–0.8
–1.4
0.1
1Absence of a minus sign before percentage change in this column signifies price increase.
2Indexes on a January 1986=100 base.
3The store total index covers all departments, including some not listed separately, except for the following: candy, foods, liquor, to-
bacco, and contract departments.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information regarding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a tollfree call).
Section 646.—Election To Treat
Certain Revocable Trusts as
Part of an Estate
What are the procedures and requirements for
making the § 646 election to treat certain revocable
trusts as part of an estate? See Rev. Proc. 98–13,
page 21.
Section 832.—Insurance
Company Taxable Income
computing estimated salvage recoverable for purposes of section 832 of the Code. See Rev. Proc.
98–12, page 18.
Section 846.—Discounted
Unpaid Losses Defined
26 CFR 1.846–1: Application of discount factors.
The loss payment patterns and discount factors
are set forth for the 1997 accident year, which is a
determination year. These factors will be used for
computing discounted unpaid losses under section
846 of the Code. See Rev. Proc. 98–11, page 9.
The salvage discount factors are set forth for the
1997 accident year. These factors will be used for
computing estimated salvage recoverable for purposes of section 832. See Rev. Proc. 98–12, page 18.
Section 2053.—Expenses,
Indebtedness, and Taxes
26 CFR 1.832–4: Gross income.
26 CFR 20.2053–1: Expenses, indebtedness, and
taxes in general.
The salvage discount factors are set forth for the
1997 accident year. These factors will be used for
What procedures apply for estates of decedents
dying before January 1, 1998, to make an election
1998–4 I.R.B
5
under § 503(d)(2) of the Taxpayer Relief Act of
1997 to reduce the rate of interest on estate taxes deferred under § 6166 of the Code and forgo the deduction for interest paid on the deferred estate taxes
under §§ 2053 and 163(h). See Rev. Proc. 98–15,
page 25.
Section 6166.—Extension of
Time for Payment of Estate Tax
Where Estate Consists Largely
of Interest in Closely Held
Business
26 CFR 20.6166–1: Election of alternate extension
of time for payment of estate tax where estate
consists largely of interest in closely held
business.
What procedures apply for estates of decedents
dying before January 1, 1998, to make an election
under § 503(d)(2) of the Taxpayer Relief Act of
1997 to reduce the rate of interest on estate taxes deferred under § 6166 of the Code and forgo the deduction for interest paid on the deferred estate taxes
under §§ 2053 and 163(h). See Rev. Proc. 98–15,
page 25.
January 26, 1998
Part III. Administrative, Procedural, and Miscellaneous
Eligible Deferred Compensation
Plans Under Section 457
Notice 98–8
I. PURPOSE
This notice provides guidance relating
to the requirements applicable to eligible
deferred compensation plans described in
§ 457(b) of the Internal Revenue Code
(“§ 457(b) plans”). Section 457 was
amended by §§ 1447 and 1448 of the
Small Business Job Protection Act of
1996, Pub. L. 104–188 (“SBJPA”), and
more recently by § 1071 of the Taxpayer
Relief Act of 1997, Pub. L. 105–34
(“TRA ’97”). Unless indicated otherwise,
references to § 457 in this notice refer to
§ 457 as amended by the SBJPA and TRA
‘97.
Specifically, this notice provides guidance on—
• in-service distributions from a
§ 457(b) plan if the total amount payable
to the participant does not exceed $5,000;
• an additional election to defer commencement of distributions from a
§ 457(b) plan;
• cost of living adjustments to the
$7,500 limitation on maximum deferrals
under a § 457(b) plan; and
• the trust requirements applicable to
state and local government employers
maintaining a § 457(b) plan, including the
requirements for custodial accounts and
annuity contracts.
II. BACKGROUND
Section 457 provides rules for nonqualified deferred compensation plans established by state and local governments or
tax-exempt organizations. These employers can establish either § 457(b) plans or
ineligible plans under § 457(f) of the Internal Revenue Code (“Code”). Section
457 was amended by §§ 1447 and 1448 of
the SBJPA, as well as by § 1071 of TRA
’97. These amendments and the guidance
provided by this notice relate only to
§ 457(b) plans.
Section 1447 of the SBJPA amended
§ 457(e)(9) of the Code to permit, under
certain conditions, in-service distributions
from a § 457(b) plan if the total amount
January 26, 1998
payable to the participant does not exceed
$3,500. Under § 1071 of TRA ’97, this
$3,500 amount was increased to $5,000.
Section 1447 of the SBJPA also permits
an additional election by a participant to
defer commencement of distributions
under a § 457(b) plan. Further, § 1447 of
the SBJPA provides for the $7,500 maximum deferral amount, under §§ 457(b)(2)
and 457(c)(1), to be adjusted (in $500 increments) to reflect increases in the cost
of living.
Section 1448 of the SBJPA added new
§ 457(g) of the Code, which requires that
§ 457(b) plans maintained by state or local
government employers hold all plan assets
and income in trust, or in custodial accounts or annuity contracts (described in
§ 401(f) of the Code), for the exclusive benefit of their participants and beneficiaries.
III. IN-SERVICE DISTRIBUTIONS
OF SMALLER AMOUNTS
Section 457(e)(9)(A), as amended by
the SBJPA and TRA ’97, permits certain
in-service distributions from a § 457(b)
plan if the total amount payable to the
participant does not exceed a specified
dollar amount. This specified dollar
amount was changed from $3,500 to
$5,000 effective for plan years beginning
after August 5, 1997. Each participant
can be given only one such in-service distribution from the plan. This in-service
distribution is available only if no amount
has been deferred under the § 457(b) plan
for the participant during the 2-year period ending on the date of the distribution.
Under this provision, for plan years beginning after August 5, 1997, a § 457(b)
plan may provide for the total amount
payable to a participant with a balance of
$5,000 or less to be distributed to the participant if the participant so elects. Alternatively, the plan may provide for the
total amount payable to a participant with
a balance of $5,000 or less to be distributed automatically to the participant. A
§ 457(b) plan is permitted to substitute a
specified dollar amount that is less than
$5,000 under either of these alternatives.
In addition, these two alternatives can be
combined; for example, a plan could provide for automatic cashout for balances
up to $500 and allow participants to elect
6
a cashout for balances above $500 but not
above $5,000. A § 457(b) plan is not required to permit in-service distributions
under any of these alternatives.
IV. ADDITIONAL DEFERRAL
ELECTION
Under § 457(d)(1)(A), benefits under a
§ 457(b) plan generally may not be made
available to a participant before the participant separates from service with the
employer. In-service distributions are
permitted only if the participant has an
unforeseeable emergency or attains age
701⁄2, or if the in-service distribution provision described in section III of this notice applies.
Section 1.457–1(b) of the regulations
provides that amounts are not made available if a participant irrevocably elects,
prior to the time the amounts become
payable, to defer the payment to a fixed
and determinable future time. For this
purpose, the time at which amounts become payable (the “first permissible payout date”) is the earliest date on which a
plan permits payments to begin after separation from service (i.e., disregarding
payments to a participant who has an unforeseeable emergency or attains age 701⁄2,
or under the in-service distribution provision described in section III of this notice). Prior to the changes made by the
SBJPA, a participant could not change
this deferral election after the first permissible payout date.
Section 457(e)(9)(B), as amended by
the SBJPA, provides that the amount
payable to a participant under a § 457(b)
plan is not treated as made available
merely because the plan allows the participant to make an additional election, after
the first permissible payout date, to defer
the commencement of distributions so
long as this additional deferral election is
made before distributions begin (a
“§ 457(e)(9)(B) additional deferral election”). Only one § 457(e)(9)(B) additional deferral election can be made after
the end of the period in which the plan
permits a participant to make deferral
elections under § 457(d)(1)(A) and
§ 1.457–1(b) of the regulations.
A participant is not precluded from
making a § 457(e)(9)(B) additional deferral election merely because the participant
1998–4 I.R.B.
has previously received a hardship distribution under § 457(d)(1)(A) or has made
other deferral elections prior to separation
from service.
The § 457(e)(9)(B) additional deferral
election is not available if the participant
has separated from service and distributions have begun. The § 457(e)(9)(B) additional deferral election permits the participant to elect only to defer, and not to
accelerate, commencement of distributions under the plan.
The § 457(e)(9)(B) additional deferral
election provision is illustrated by the following examples:
Example (1). (i) Employee A is a participant in an
eligible § 457(b) plan. The plan provides that the total
amount deferred under the plan is payable to a participant who separates from service before age 65. Payment is made in a lump sum 90 days after separation
from service, unless, during a 30-day “window period” immediately following the separation, the participant elects to receive the payment at a later date or
in 10 annual installments to begin 90 days after separation from service or at a later date. The plan also
permits eligible participants to make a § 457(e)(9)(B)
additional deferral election. Employee A separates
from service at age 50. The next day, during the 30day window period provided in the plan, Employee A
elects to receive distribution in the form of 10 annual
installment payments beginning at age 55. Two
weeks later, within the 30-day window period, Employee A makes a new election permitted under the
plan to receive 10 annual installment payments beginning at age 60 (instead of at age 55).
(ii) In this example, the two elections Employee
A makes during the 30-day window period are not
§ 457(e)(9)(B) additional deferral elections (because
they are made before the first permissible payout
date under the plan) and therefore do not preclude
the plan from allowing Employee A to make a
§ 457(e)(9)(B) additional deferral election after Employee A’s election to receive 10 annual installment
payments beginning at age 60.
Example (2). (i) The facts are the same as in Example (1). Employee A has made no other deferral
elections after the 30-day window period and before
age 59. While age 59, Employee A elects to defer
commencement of the installment payments until
Employee A attains age 65.
(ii) In this example, under § 457(e)(9)(B), the
total amount payable to Employee A will not be
treated as made available merely because Employee
A made this additional election at age 59 (after the
first permissible payout date under the plan, but before commencement of distributions). However,
after making this election, Employee A may make
no further elections to change the date on which distributions commence.
V. COST OF LIVING
ADJUSTMENTS IN MAXIMUM
DEFERRAL AMOUNT
Sections 457(b)(2) and (c)(1) limit the
maximum deferrals under an eligible
1998–4 I.R.B
§ 457(b) plan during any taxable year to
$7,500. Section 457(e)(15) provides for
cost of living adjustments (in $500 increments) of this maximum deferral amount
at the same time and, generally, in the
same manner as adjustments are made to
the limitations for tax-qualified plans
under § 415(d). This change is effective
for taxable years beginning after December 31, 1996. The maximum deferral
amount for each year is announced before
the beginning of the year at the same time
as cost of living adjustments under
§ 415(d).
For 1997, the maximum deferral
amount remains at $7,500. For 1998, the
maximum deferral amount is $8,000.
VI. TRUST REQUIREMENTS
UNDER § 457(g)
Section 457(g) requires that all assets
and income of a § 457(b) plan maintained
by a state or local government employer
(“governmental § 457(b) plan”) be held in
trust, or in custodial accounts or annuity
contracts described in § 401(f), for the exclusive benefit of participants and beneficiaries. Section 457(g) applies generally
to assets and income held by a governmental § 457(b) plan on and after August
20, 1996. However, with respect to a governmental § 457(b) plan in existence on
August 20, 1996, a trust (or a custodial account or annuity contract) is not required
to be established before January 1, 1999.
Section 457(g) does not apply to a
§ 457(b) plan established by a tax-exempt
organization that is not a governmental
entity. Prior to the addition of § 457(g) to
the Code, all § 457(b) plans were subject
to § 457(b)(6), which mandates that a
§ 457(b) plan be unfunded and that plan
assets not be set aside for participants.
Section 457(b)(6) continues to apply to a
§ 457(b) plan of a tax-exempt employer.
To satisfy the trust requirement applicable to governmental § 457(b) plans
under § 457(g)(1), a trust must be established pursuant to a written agreement
that constitutes a valid trust under state
law. The terms of the trust must make it
impossible, prior to the satisfaction of all
liabilities with respect to plan participants
and their beneficiaries, for any part of the
assets and income of the trust to be used
for, or diverted to, purposes other than for
the exclusive benefit of plan participants
and their beneficiaries.
7
In order to satisfy the requirement that
all plan assets and income be held in trust,
amounts deferred under a governmental
§ 457(b) plan after a trust has been established must be transferred to the trust
within a period that is not longer than is
reasonable for the proper administration
of the accounts of participants. For purposes of this requirement, a governmental
§ 457(b) plan may provide for amounts
deferred for a participant under the plan to
be transferred to the trust within a specified period after the date the amounts
would otherwise have been paid to the
participant. For example, a governmental
§ 457(b) plan could provide for amounts
deferred under the plan to be contributed
to the trust within 15 business days following the month in which these amounts
would otherwise have been paid to the
participant.1
Unless all assets or income of a plan
are held in one or more trusts that satisfy
the requirements of this section VI (or in
custodial accounts or annuity contracts
that are treated as trusts under section VII
of this notice), the plan is not a § 457(b)
plan because the requirements of § 457(g)
are not met.
VII. CUSTODIAL ACCOUNTS AND
ANNUITY CONTRACTS UNDER
§ 457(g)(3) TREATED AS TRUSTS
Section 457(g)(3) provides that, for
purposes of the § 457(g)(1) trust requirements, custodial accounts and annuity
contracts described in § 401(f) will be
treated as trusts under rules similar to the
rules under § 401(f). Section 1.401(f)–
1(b) of the regulations contains requirements that a custodial account or an annuity contract must satisfy to be treated as a
trust. For purposes of applying the
§ 401(f) rules under § 457(g), the requirements under § 1.401(f)–1(b) of the regulations generally will be used to determine whether a custodial account or
annuity contract meets the requirements
of § 457(g)(3).
A custodial account will be treated as a
trust under § 457(g)(1) if the custodian is
1Cf. section 2510.3–102(b) of the Department of
Labor regulations concerning contributions to an
employee pension plan that is subject to the
Employee Retirement Income Security Act
(“ERISA”) (such as a plan qualifying under
§ 401(k) of the Code). A governmental § 457(b) plan
is not subject to ERISA, and, thus, is not subject to
the Department of Labor regulations.
January 26, 1998
a bank, as described in § 408(n), or a person who meets the nonbank trustee requirements of section VIII of this notice,
and the account meets the requirements of
section VI of this notice, other than the requirement that it be a trust.
An annuity contract will be treated as a
trust under § 457(g)(1) if the contract is
an annuity contract, as defined in
§ 401(g), that has been issued by an insurance company qualified to do business in
the state, and the contract meets the requirements of section VI of this notice,
other than the requirement that it be a
trust. An annuity contract does not include a life, health or accident, property,
casualty, or liability insurance contract.
The use of a custodial account or annuity contract as part of a governmental
§ 457(b) plan does not preclude the use of
a trust or another custodial account or annuity contract as part of the same governmental § 457(b) plan, provided that all
such vehicles satisfy the requirements of
§§ 457(g)(1) and (3) and all assets and income of the plan are held in such vehicles.
Unless all assets and income of a plan are
held in one or more trusts, custodial accounts, or annuity contracts that satisfy
section VI or VII of this notice, the plan is
not a governmental § 457(b) plan because
the requirements of § 457(g) are not met.
VIII. NONBANK CUSTODIANS
The custodian of a custodial account
may be a person other than a bank only if
the person demonstrates to the satisfaction
of the Commissioner that the manner in
which the person will administer the custodial account will be consistent with the
requirements of §§ 457(g)(1) and (g)(3).
To do so, the person must demonstrate that
the requirements of paragraphs (2)–(6) of
§ 1.408–2(e) of the regulations relating to
nonbank trustees will be met. The written
application must be sent to the address
prescribed by the Commissioner in revenue rulings, notices and other guidance
published in the Internal Revenue Bulletin
in the same manner as prescribed under
1.408–2(e) of the regulations.
To the extent that a person has already
demonstrated to the satisfaction of the
Commissioner that the person satisfies the
requirements of § 1.408–2(e) of the regulations in connection with a qualified trust
(or custodial account or annuity contract)
under § 401(a), that person will be
deemed to satisfy the requirements of this
section VIII.
IX. PAPERWORK REDUCTION
ACT
The collection of information requirement contained in this notice has been reviewed and approved by the Office of
Management and Budget (OMB) in accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) under control number 1545–1580.
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 collection of information in this
notice is pursuant to section 457(g) of the
Internal Revenue Code of 1986. This information is required to ensure compliance with the statutory requirements that
certain eligible deferred compensation
plans hold their assets in trust for the exclusive benefit of their participants and
beneficiaries. The collection of information is mandatory. The likely respondents
are state or local governments.
The estimated total reporting burden is
10,600 hours.
The estimated burden per respondent
varies from .033 hour to 2 hours per trust
established depending upon individual respondents’ circumstances, with an estimated average of one hour for each trust
established, and from 20 hours to 50 hours
per application for approval as a custodian
with an estimated average of 35 hours for
Month
Year
Weighted
Average
January
1998
6.77
January 26, 1998
8
each application submitted to qualify as a
custodian. The estimated number of respondents is 10,260 including 10 applications for approval as a custodian.
The estimated frequency of responses
is one-time only.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this notice is
Cheryl Press of the Office of the Associate Chief Counsel (Employee Benefits
and Exempt Organizations). However,
other personnel from the IRS and Treasury participated in its development. For
further information regarding this notice,
contact Cheryl Press at (202) 622-6030
(not a toll-free number).
Weighted Average Interest Rate
Update
Notice 98–9
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current liability for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103–465
(GATT).
The average yield on the 30-year Treasury Constant Maturities for December
1997 is 5.99 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
90% to 106%
Permissible
Range
90% to 110%
Permissible
Range
6.09 to 7.17
6.09 to 7.44
1998–4 I.R.B.
Drafting Information
The principal author of this notice is
Donna Prestia of the Employee Plans Division. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Ms. Prestia’s number
is (202) 622-7377 (also not a toll-free
number).
26 CFR 601.201: Rulings and determination
letters.
(Also Part I, §§ 846, 1.846–1.)
Rev. Proc. 98–11
SECTION 1. PURPOSE
This revenue procedure prescribes the
loss payment patterns and discount factors for the 1997 determination year.
These factors will be used for computing
discounted unpaid losses under § 846 of
the Internal Revenue Code.
SEC. 2. BACKGROUND
.01 Section 846 provides that discounted unpaid losses must be separately
determined for each accident year of each
line of business by applying an interest
rate determined under § 846(c) and the
appropriate loss payment pattern to the
amount of unpaid losses as measured at
the end of the tax year.
Section 846(d) directs the Secretary to
use the most recent aggregate loss payment data of property and casualty insurance companies to determine and publish
a loss payment pattern for each line of
business every five years. This payment
pattern is used to discount unpaid losses
for the accident year ending with a determination year and for each of the four
succeeding accident years.
Section 846(e) allows a taxpayer to
make an election in each determination
year to use its own historical payment pattern instead of the Secretary’s tables. This
election does not apply to any international insurance or reinsurance line of
business.
Section 846(f)(4) defines the term “line
of business” as a category for the reporting of loss payment patterns on the annual
statement for fire and casualty companies
1998–4 I.R.B
approved by the National Association of
Insurance Commissioners (NAIC), except
that the multiple peril lines shall be
treated as a single line of business. Section 846(f)(5) states that the term “multiple peril lines” means the lines of business relating to farmowners multiple
peril, homeowners multiple peril, commercial multiple peril, ocean marine, aircraft (all perils) and boiler and machinery.
.02 Pursuant to § 846(d), the Secretary
has determined a loss payment pattern for
each property and casualty line of business for the 1997 determination year that,
pursuant to § 846(d)(1), must be applied
through the 2001 accident year. The loss
payment patterns for the 1997 determination year are based on the aggregate industry loss payment experience as reported on the 1995 annual statements
filed by property and casualty insurance
companies and compiled by A.M. Best
and Co.
.03 The loss payment patterns for the
1997 determination year are based on the
aggregate loss payment information reported on the 1995 annual statements of
property and casualty insurance companies. The tables are now arranged in alphabetical order. Following is an additional explanation of some of the tables.
(1) NAIC changes in lines of business.
The NAIC has changed the reporting of
unpaid loss experience on the annual
statement for fire and casualty insurance
companies. These changes are reflected
in the lines of business set forth below.
(2) Treatment of Multiple Peril Lines.
Section 846(f)(4) defines the term “line of
business” and states that the multiple peril
lines are to be treated as a single line of
business. The term “multiple peril lines”
means lines of business relating to farmowners multiple peril, homeowners multiple peril, commercial multiple peril,
ocean marine, aircraft (all perils) and
boiler and machinery. On the 1990 annual
statement the multiple peril line was represented by the following three lines:
Homeowners/Farmowners; Commercial
Multiple Peril; and Special Liability
(Ocean Marine, Aircraft (all Perils), Boiler
and Machinery. On the 1995 annual statement, the multiple peril lines continue to
be represented by the same three lines.
Revenue Procedure 92–47, 1992–2
C.B. 980, prescribed the loss payment
9
patterns and discount factors for the 1992
determination year. In that revenue procedure, the loss payment patterns that
were used followed the changes made to
the 1990 annual statement, including reporting the multiple peril lines as three
separate lines of business. Subsequent
revenue procedures did the same. See
Rev. Proc. 93–29, 1993–2 C.B. 344, for
the 1993 accident year; Rev. Proc. 94–47,
1994–2 C.B. 688, for the 1994 accident
year; Rev. Proc. 95–40, 1995–2 C.B. 402,
for the 1995 accident year; and Rev. Proc.
96–44, 1996–2 C.B. 330, for the 1996 accident year.
Because § 846(f)(4) requires that the
multiple peril lines be treated as a single
line of business, the lines of business that
are shown on the 1995 annual statement
as Homeowners/Farmowners; Commercial Multiple Peril; and Special Liability
(Ocean Marine, Aircraft (all Perils),
Boiler and Machinery) are merged in this
revenue procedure as one multiple peril
line of business. The merged line is entitled “Multiple Peril Lines (Homeowners/Farmowners Multiple Peril, Commercial Multiple Peril, and Special Liability
(Ocean Marine, Aircraft (All Perils),
Boiler and Machinery)).”
(3) Factors to be used when tables indicate loss fully paid. In many situations,
losses are deemed fully paid under the
Secretary’s table prior to AY+14, and no
discount factor is shown for AY+14 and
earlier accident years. If taxpayers have
unpaid losses relating to an accident year
which is older than the last accident year
for which a discount factor is presented in
the Secretary’s table, those unpaid losses
should be discounted using the discount
factor for the last accident year in the Secretary’s table.
SEC. 3. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount unpaid losses under section 846 for a line of
business using the discount factors published by Secretary.
SEC. 4. TABLES OF DISCOUNT
FACTORS
.01 The following tables present separately for each line of business the discount factors under section 846 of the
January 26, 1998
Code for accident year 1997. All the discount factors presented in this section
were determined using the applicable interest rate under § 846(c) for 1997, 6.33
percent, and by assuming all loss pay-
ments occur in the middle of the calendar
year.
.02 If the groupings of individual lines
of business on the annual statement
change, taxpayers must discount the un-
paid losses on the resulting line of business in accordance with the discounting
patterns that would have applied to those
unpaid losses based on their classification
on the 1995 annual statement.
.03 Tables
Accident and Health (Other Than Disability Income or Credit Disability Insurance)
The discount factor for all years equals 96.9777 percent.
Auto Physical Damage
Tax Year
AY+ 0
AY+ 1
AY+ 2
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
89.9430
99.3814
N/A
89.9430
9.4384
0.3093
10.0570
0.6186
0.3093
9.7006
0.5821
0.3000
96.4556
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
Commercial Auto/Truck Liability/Medical
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
25.8075
49.8793
67.6592
79.7711
88.2132
93.1778
95.9623
97.0091
97.5719
98.2191
N/A
N/A
25.8075
24.0718
17.7799
12.1119
8.4421
4.9646
2.7845
1.0468
0.5628
0.6471
0.6471
0.6471
74.1925
50.1207
32.3408
20.2289
11.7868
6.8222
4.0377
2.9909
2.4281
1.7809
1.1338
0.4867
64.8956
44.1814
28.6441
17.9679
10.4001
5.9391
3.4438
2.5823
2.1654
1.6352
1.0715
0.4720
87.4691
88.1501
88.5696
88.8231
88.2353
87.0558
85.2909
86.3405
89.1841
91.8184
94.4995
96.9777
The discount factor for AY+12 and subsequent years equals 96.9777 percent.
January 26, 1998
10
1998–4 I.R.B.
Composite Discount Factors
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
AY+13
AY+14
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
35.4611
59.1449
70.8220
81.9019
86.3688
90.0497
92.7488
93.8259
94.2415
94.8568
N/A
N/A
N/A
N/A
N/A
35.4611
23.6838
11.6771
11.0799
4.4669
3.6809
2.6991
1.0771
0.4156
0.6153
0.6153
0.6153
0.6153
0.6153
0.6153
64.5389
40.8551
29.1780
18.0981
13.6312
9.9503
7.2512
6.1741
5.7585
5.1432
4.5279
3.9125
3.2972
2.6819
2.0665
55.1671
34.2373
24.3635
14.4806
10.7911
7.6785
5.3813
4.6113
4.4747
4.1234
3.7499
3.3528
2.9305
2.4815
2.0041
85.4789
83.8018
83.4996
80.0114
79.1644
77.1686
74.2131
74.6881
77.7054
80.1725
82.8190
85.6937
88.8789
92.5291
96.9777
The discount factor for AY+15 and subsequent years equals 96.9777 percent.
Fidelity/Surety
Tax Year
AY+ 0
AY+ 1
AY+ 2
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
24.1540
59.0961
N/A
24.1540
34.9421
20.4520
75.8460
40.9039
20.4520
70.0818
38.4870
19.8339
92.4001
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
Financial Guaranty/Mortgage Guaranty
Tax Year
AY+ 0
AY+ 1
AY+ 2
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
9.2513
50.5659
N/A
9.2513
41.3146
24.7171
90.7487
49.4341
24.7171
83.8101
46.5131
23.9700
92.3540
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
1998–4 I.R.B
11
January 26, 1998
International (Composite)
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
AY+13
AY+14
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
35.4611
59.1449
70.8220
81.9019
86.3688
90.0497
92.7488
93.8259
94.2415
94.8568
N/A
N/A
N/A
N/A
N/A
35.4611
23.6838
11.6771
11.0799
4.4669
3.6809
2.6991
1.0771
0.4156
0.6153
0.6153
0.6153
0.6153
0.6153
0.6153
64.5389
40.8551
29.1780
18.0981
13.6312
9.9503
7.2512
6.1741
5.7585
5.1432
4.5279
3.9125
3.2972
2.6819
2.0665
55.1671
34.2373
24.3635
14.4806
10.7911
7.6785
5.3813
4.6113
4.4747
4.1234
3.7499
3.3528
2.9305
2.4815
2.0041
85.4789
83.8018
83.4996
80.0114
79.1644
77.1686
74.2131
74.6881
77.7054
80.1725
82.8190
85.6937
88.8789
92.5291
96.9777
The discount factor for AY+15 and subsequent years equals 96.9777 percent.
Medical Malpractice — Claims-Made
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
6.3899
24.0011
42.6970
58.0610
69.6653
75.6033
81.8786
87.8539
89.5207
94.3025
N/A
6.3899
17.6112
18.6959
15.3640
11.6043
5.9380
6.2753
5.9753
1.6668
4.7818
4.7818
93.6101
75.9989
57.3030
41.9390
30.3347
24.3967
18.1214
12.1461
10.4793
5.6975
0.9157
76.7016
63.3967
48.1312
35.3351
25.6058
21.1036
15.9686
10.8179
9.7839
5.4724
0.8880
81.9372
83.4179
83.9942
84.2535
84.4110
86.5019
88.1202
89.0649
93.3644
96.0499
96.9777
The discount factor for AY+11 and subsequent years equals 96.9777 percent.
January 26, 1998
12
1998–4 I.R.B.
Medical Malpractice — Occurrence
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
2.1239
6.4831
15.5987
31.9062
45.0931
50.0751
60.9728
69.2138
72.8658
80.0005
N/A
N/A
2.1239
4.3592
9.1156
16.3075
13.1868
4.9821
10.8976
8.2411
3.6519
7.1347
7.1347
7.1347
97.8761
93.5169
84.4013
68.0938
54.9069
49.9249
39.0272
30.7862
27.1342
19.9995
12.8648
5.7300
71.3476
71.3689
66.4869
53.8797
43.6925
41.3209
32.6993
26.2712
24.1685
18.3412
12.1452
5.5569
72.8958
76.3165
78.7747
79.1257
79.5755
82.7662
83.7858
85.3345
89.0700
91.7085
94.4063
96.9777
The discount factor for AY+12 and subsequent years equals 96.9777 percent.
Miscellaneous Casualty
Tax Year
AY+ 0
AY+ 1
AY+ 2
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
77.6669
94.0673
N/A
77.6669
16.4004
2.9664
22.3331
5.9327
2.9664
21.1546
5.5822
2.8767
94.7229
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
Multiple Peril Lines (Homeowners/Farmowners Multiple Peril, Commercial Multiple Peril, and Special Liability (Ocean
Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
55.9587
77.8939
84.0083
91.3188
92.1670
94.3838
96.4959
97.3670
98.0034
98.4059
N/A
N/A
N/A
55.9587
21.9352
6.1144
7.3105
0.8482
2.2168
2.1121
0.8712
0.6364
0.4025
0.4025
0.4025
0.4025
44.0413
22.1061
15.9917
8.6812
7.8330
5.6162
3.5041
2.6330
1.9966
1.5941
1.1916
0.7892
0.3867
39.0317
18.8836
13.7739
7.1075
6.6827
4.8199
2.9471
2.2354
1.7207
1.4146
1.0891
0.7430
0.3750
88.6251
85.4224
86.1318
81.8723
85.3156
85.8215
84.1041
84.8988
86.1793
88.7355
91.3925
94.1488
96.9777
The discount factor for AY+13 and subsequent years equals 96.9777 percent.
1998–4 I.R.B
13
January 26, 1998
Other (Including Credit)
Tax Year
AY+ 0
AY+ 1
AY+ 2
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
66.7418
89.2755
N/A
66.7418
22.5337
5.3622
33.2582
10.7245
5.3622
31.3428
10.0908
5.2002
94.2407
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
Other Liability — Claims-Made
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
10.2440
29.3763
44.4111
67.8197
73.4753
78.8604
83.5027
84.0676
85.2129
90.5992
N/A
10.2440
19.1323
15.0349
23.4086
5.6555
5.3852
4.6422
0.5649
1.1453
5.3863
5.3863
89.7560
70.6237
55.5889
32.1803
26.5247
21.1396
16.4973
15.9324
14.7871
9.4008
4.0145
73.7178
58.6556
46.8651
25.6935
21.4881
17.2953
13.6032
13.8818
13.5795
8.8849
3.8932
82.1313
83.0537
84.3066
79.8425
81.0117
81.8150
82.4571
87.1292
91.8334
94.5123
96.9777
The discount factor for AY+11 and subsequent years equals 96.9777 percent.
Other Liability — Occurrence
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
AY+13
AY+14
January 26, 1998
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
13.5751
26.3964
40.2725
55.4566
65.3309
74.0647
80.9090
84.3622
84.6163
86.7311
N/A
N/A
N/A
N/A
N/A
13.5751
12.8213
13.8761
15.1841
9.8742
8.7339
6.8442
3.4532
0.2542
2.1147
2.1147
2.1147
2.1147
2.1147
2.1147
86.4249
73.6036
59.7275
44.5434
34.6691
25.9353
19.0910
15.6378
15.3837
13.2689
11.1542
9.0395
6.9247
4.8100
2.6953
67.6678
58.7304
48.1394
35.5293
27.5964
20.3372
14.5670
11.9282
12.4212
11.0268
9.5442
7.9677
6.2914
4.5090
2.6138
78.2967
79.7927
80.5984
79.7634
79.5992
78.4151
76.3027
76.2781
80.7428
83.1026
85.5659
88.1435
90.8543
93.7427
96.9777
14
1998–4 I.R.B.
The discount factor for AY+15 and subsequent years equals 96.9777 percent.
Private Passenger Auto Liability/Medical
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
37.9339
67.7044
81.5316
89.8898
94.6531
97.1265
98.4587
98.9811
99.2330
99.4067
N/A
N/A
N/A
37.9339
29.7705
13.8272
8.3583
4.7633
2.4734
1.3322
0.5224
0.2519
0.1737
0.1737
0.1737
0.1737
62.0661
32.2956
18.4684
10.1102
5.3469
2.8735
1.5413
1.0189
0.7670
0.5933
0.4196
0.2460
0.0723
56.2405
29.1023
16.6864
9.1239
4.7897
2.5424
1.3296
0.8751
0.6707
0.5341
0.3888
0.2344
0.0701
90.6139
90.1122
90.3507
90.2445
89.5789
88.4775
86.2663
85.8870
87.4508
90.0213
92.6584
95.2808
96.9777
The discount factor for AY+13 and subsequent years equals 96.9777 percent.
Products Liability — Claims-Made
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
AY+13
AY+14
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
4.9750
15.1072
30.9560
38.2420
68.6101
78.5966
88.3971
93.2957
88.3815
89.6105
N/A
N/A
N/A
N/A
N/A
4.9750
10.1322
15.8488
7.2860
30.3681
9.9865
9.8005
4.8986
–4.9142
1.2290
1.2290
1.2290
1.2290
1.2290
1.2290
95.0250
84.8928
69.0440
61.7580
31.3899
21.4034
11.6029
6.7043
11.6185
10.3895
9.1604
7.9314
6.7024
5.4733
4.2443
75.3005
69.6191
57.6832
53.8215
25.9138
17.2565
8.2429
3.7135
9.0158
8.3192
7.5785
6.7908
5.9534
5.0629
4.1160
79.2428
82.0082
83.5456
87.1490
82.5548
80.6250
71.0419
55.3889
77.5989
80.0734
82.7304
85.6198
88.8249
92.5009
96.9777
The discount factor for AY+15 and subsequent years equals 96.9777 percent.
1998–4 I.R.B
15
January 26, 1998
Products Liability — Occurrence
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
AY+13
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
9.0653
14.9035
29.2591
45.6462
57.5945
63.8634
75.2266
78.2679
78.1898
81.8722
N/A
N/A
N/A
N/A
9.0653
5.8382
14.3555
16.3871
11.9483
6.2689
11.3632
3.0413
–0.0781
3.6825
3.6825
3.6825
3.6825
3.6825
90.9347
85.0965
70.7409
54.3538
42.4055
36.1366
24.7734
21.7321
21.8102
18.1278
14.4453
10.7628
7.0803
3.3979
68.4900
66.8052
56.2311
42.8927
33.2872
28.9300
19.0439
17.1133
18.2771
15.6368
12.8294
9.8443
6.6702
3.2952
75.3178
78.5053
79.4888
78.9139
78.4972
80.0572
76.8723
78.7466
83.8007
86.2591
88.8138
91.4657
94.2072
96.9777
The discount factor for AY+14 and subsequent years equals 96.9777 percent.
Reinsurance A (Nonproportional Property)
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
27.1668
68.7008
70.0362
87.5338
90.2132
91.3751
94.3845
93.3293
N/A
N/A
N/A
N/A
N/A
27.1668
41.5340
1.3354
17.4976
2.6794
1.1619
3.0095
–1.0552
1.0387
1.0387
1.0387
1.0387
1.0387
72.8332
31.2992
29.9638
12.4662
9.7868
8.6249
5.6155
6.6707
5.6320
4.5932
3.5545
2.5158
1.4771
64.5830
25.8427
26.1015
9.7109
7.5627
6.8433
4.1732
5.5255
4.8042
4.0372
3.2216
2.3545
1.4324
88.6725
82.5667
87.1103
77.8976
77.2743
79.3434
74.3169
82.8327
85.3021
87.8942
90.6354
93.5882
96.9777
The discount factor for AY+13 and subsequent years equals 96.9777 percent.
January 26, 1998
16
1998–4 I.R.B.
Reinsurance B (Nonproportional Liability)
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
6.6962
22.3944
32.6486
50.2234
53.5839
55.6838
63.6144
66.4211
N/A
N/A
N/A
N/A
N/A
6.6962
15.6982
10.2542
17.5748
3.3605
2.0999
7.9306
2.8066
2.8066
2.8066
2.8066
2.8066
2.8066
93.3038
77.6056
67.3514
49.7766
46.4161
44.3162
36.3856
33.5789
30.7723
27.9656
25.1590
22.3524
19.5457
68.4343
56.5788
49.5864
34.6027
33.3279
33.2721
27.2005
26.0282
24.7817
23.4563
22.0469
20.5484
18.9550
73.3457
72.9055
73.6235
69.5161
71.8024
75.0790
74.7564
77.5135
80.5325
83.8753
87.6304
91.9294
96.9777
The discount factor for AY+13 and subsequent years equals 96.9777 percent.
Reinsurance C (Financial Lines)
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
11.4622
44.5791
63.9134
65.6185
79.9778
88.9152
91.2490
94.7645
N/A
11.4622
33.1169
19.3343
1.7051
14.3593
8.9374
2.3338
3.5155
3.5155
88.5378
55.4209
36.0866
34.3815
20.0222
11.0848
8.7510
5.2355
1.7200
76.8398
47.5547
30.6281
30.8086
17.9520
9.8725
8.0909
4.9780
1.6680
86.7875
85.8065
84.8740
89.6082
89.6607
89.0632
92.4566
95.0811
96.9777
The discount factor for AY+9 and subsequent years equals 96.9777 percent.
Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year
AY+ 0
AY+ 1
AY+ 2
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
57.4895
90.5193
N/A
57.4895
33.0297
4.7404
42.5105
9.4807
4.7404
40.4210
8.9205
4.5971
95.0847
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
1998–4 I.R.B
17
January 26, 1998
Workers’ Compensation
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
AY+13
AY+14
Cumulative
Losses
Paid
(%)
Estimated
Losses Paid
Each Year
(%)
Unpaid
Losses at
Year End
(%)
Discounted
Unpaid
Losses at
Year End
(%)
Discount
Factor
(%)
23.6461
44.8166
57.9652
72.0542
80.5542
84.8876
87.1173
88.2647
88.5404
88.8062
N/A
N/A
N/A
N/A
N/A
23.6461
21.1705
13.1486
14.0889
8.5000
4.3334
2.2297
1.1473
0.2757
0.2658
0.2658
0.2658
0.2658
0.2658
0.2658
76.3539
55.1834
42.0348
27.9458
19.4458
15.1124
12.8827
11.7353
11.4596
11.1938
10.9279
10.6621
10.3963
10.1304
9.8646
62.1544
44.2585
33.5016
21.0943
13.6646
10.0611
8.3988
7.7473
7.9534
8.1828
8.4266
8.6859
8.9616
9.2548
9.5665
81.4030
80.2025
79.6998
75.4828
70.2704
66.5754
65.1946
66.0173
69.4041
73.1011
77.1108
81.4653
86.2002
91.3560
96.9777
The discount factor for AY+15 and subsequent years equals 96.9777 percent.
SEC. 5. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning after December
31, 1996.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
the Office of Assistant Chief Counsel (Financial Institutions & Products). For further information regarding this revenue
procedure, contact Ms. Hossofsky on
(202) 622-3970 (not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 832, 846; 1.832–4, 1.846–1.)
that which cannot be treated as an asset
for state accounting purposes) be taken
into account in computing the deduction
for losses incurred. Under § 832(b)(5)(A), paid losses are to be reduced by
salvage and reinsurance recovered during
the taxable year. This amount is adjusted
to reflect changes in discounted unpaid
losses on nonlife insurance contracts and
in unpaid losses on life insurance contract. An adjustment is then made to reflect any changes in discounted estimated
salvage recoverable and in reinsurance recoverable.
Pursuant to § 832(b), the amount of estimated salvage is determined on a discounted basis in accordance with procedures established by the Secretary.
Rev. Proc. 98–12
SEC. 3. SCOPE
SECTION 1. PURPOSE
This revenue procedure applies to any
taxpayer that is required to discount estimated salvage recoverable under § 832.
This revenue procedure prescribes the
salvage discount factors for the 1997 accident year. These factors will be used for
computing discounted estimated salvage
recoverable under § 832 of the Internal
Revenue Code.
SEC. 2. BACKGROUND
Section 832(b)(5)(A) requires that all
estimated salvage recoverable (including
January 26, 1998
§ 846(c) for 1997, which is 6.33 percent,
and by assuming all estimated salvage is
recovered in the middle of each calendar
year. The discount factors for the 1997
accident year have been adjusted to take
into account changes in the groupings of
the lines of business on the annual statement. In addition, see Rev. Proc. 98–11,
page 9, for an explanation of the treatment of the multiple peril lines.
.02 These tables must be used by taxpayers irrespective of whether they
elected to discount unpaid losses using
their own historical experience under
§ 846.
.03 Tables.
Accident and Health (Other Than
Disability Income or Credit Disability
Insurance)
The discount factor for all years equals
96.9777 percent.
Auto Physical Damage
SEC. 4. APPLICATION
.01 The following tables present separately for each line of business the discount factors under § 832 for the 1997 accident year. All the discount factors
presented in this section were determined
using the applicable interest rate under
18
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
95.5498
94.0911
96.9777
1998–4 I.R.B.
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
The discount factor for AY+10 and subsequent years equals 96.9777 percent.
Commercial Auto/Truck Liability/
Medical
Financial Guaranty/Mortgage
Guaranty
Medical Malpractice — Occurrence
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
88.0553
87.1995
88.9446
88.2138
88.0377
90.4504
85.6730
91.3816
89.7918
92.4220
95.0477
96.9777
The discount factor for AY+12 and subsequent years equals 96.9777 percent.
Composite Discount Factors
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
Discount
Factors
(%)
85.5529
83.9261
83.4985
83.3876
84.1370
84.7213
84.7741
84.8647
87.7469
90.3325
92.9868
95.6242
96.9777
The discount factor for AY+13 and subsequent years equals 96.9777 percent.
Fidelity/Surety
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
92.7512
94.0911
96.9777
1998–4 I.R.B
Discount
Factors
(%)
Tax Year
AY+ 0
AY+ 1
AY+ 2
94.6118
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
International (Composite)
Discount
Factors
(%)
Tax Year
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
85.5529
83.9261
83.4985
83.3876
84.1370
84.7213
84.7741
84.8647
87.7469
90.3325
92.9868
95.6242
96.9777
The discount factor for AY+13 and subsequent years equals 96.9777 percent.
Medical Malpractice — Claims-Made
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
69.7444
72.4408
70.9597
70.2975
73.8865
72.2143
82.0526
91.3471
96.2732
96.9777
19
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
63.4849
66.8754
71.4631
75.2927
72.0433
78.1594
83.1757
86.3387
90.8773
93.5843
96.3144
96.9777
The discount factor for AY+12 and subsequent years equals 96.9777 percent.
Miscellaneous Casualty
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
94.9505
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
Multiple Peril Lines (Homeowners/
Farmowners Multiple Peril, Commercial Multiple Peril, and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
88.1442
87.0828
87.8621
87.5115
88.6539
90.1258
90.1198
89.0542
91.5003
94.2350
96.9777
January 26, 1998
The discount factor for AY+11 and subsequent years equals 96.9777 percent.
Private Passenger Auto Liability/Medical
Other (Including Credit)
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
91.4258
90.8687
89.9218
89.5302
89.0574
89.5204
88.2913
89.0287
89.7296
92.3587
94.9871
96.9777
Tax Year
AY+ 0
AY+ 1
AY+ 2
Discount
Factors
(%)
96.0160
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
Other Liability — Claims-Made
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
77.1913
82.7511
81.7452
79.3754
82.4055
87.1445
85.6308
91.3857
93.5459
96.2673
96.9777
The discount factor for AY+11 and subsequent years equals 96.9777 percent.
Other Liability — Occurrence
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
78.1808
78.9149
81.3348
83.3371
84.6107
82.1372
86.2972
88.2925
92.4786
95.1025
96.9777
The discount factor for AY+12 and subsequent years equals 96.9777 percent.
Products Liability — Claims-Made
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
78.6232
80.6940
85.2594
85.1672
80.6815
87.8085
80.3554
87.9607
96.6992
96.9777
The discount factor for AY+10 and subsequent years equals 96.9777 percent.
Products Liability — Occurrence
The discount factor for AY+11 and subsequent years equals 96.9777 percent.
January 26, 1998
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
75.1149
77.7623
76.1078
77.4296
79.2166
78.5502
79.9464
71.9235
77.4789
20
AY+ 9
AY+10
AY+11
AY+12
AY+13
AY+14
79.9620
82.6312
85.5373
88.7650
92.4698
96.9777
The discount factor for AY+15 and subsequent years equals 96.9777 percent.
Reinsurance A (Nonproportional
Property)
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
86.2624
89.5106
92.2926
91.6380
78.5001
94.6795
93.2638
95.9330
96.9777
The discount factor for AY+9 and subsequent years equals 96.9777 percent.
Reinsurance B (Nonproportional
Liability)
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
AY+12
74.1864
76.4932
77.2282
76.6129
79.1554
74.1193
75.9021
83.5464
86.0047
88.5652
91.2350
94.0259
96.9777
The discount factor for AY+13 and subsequent years equals 96.9777 percent.
1998–4 I.R.B.
Reinsurance C (Financial Lines)
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
80.6765
83.1043
86.4423
92.4514
90.9915
92.9165
89.3489
96.8614
96.9777
SEC. 5. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning after December
31, 1996.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
the Office of Assistant Chief Counsel (Financial Institutions & Products). For further information regarding this revenue
procedure, contact Ms. Hossofsky on
(202) 622-3970 (not a toll-free call).
The discount factor for AY+9 and subsequent years equals 96.9777 percent.
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, § 646.)
Special Property (Fire, Allied Lines,
Inland Marine, Earthquake, Glass,
Burglary and Theft)
Rev. Proc. 98–13
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
92.0611
94.0911
96.9777
The discount factor for AY+3 and subsequent years equals 96.9777 percent.
Workers’ Compensation
Tax Year
Discount
Factors
(%)
AY+ 0
AY+ 1
AY+ 2
AY+ 3
AY+ 4
AY+ 5
AY+ 6
AY+ 7
AY+ 8
AY+ 9
AY+10
AY+11
78.0209
80.4915
82.4316
84.0275
84.1405
84.3058
85.5062
86.2679
88.7269
91.3845
94.1425
96.9777
The discount factor for AY+12 and subsequent years equals 96.9777 percent.
1998–4 I.R.B
SECTION 1. PURPOSE
Section 1305 of the Taxpayer Relief
Act of 1997, Pub. L. No. 105–34, 111
Stat. 788 (1997) (Act) added § 6461 to the
Internal Revenue Code, which provides
an election to have certain revocable
trusts be treated and taxed as part of an estate. This revenue procedure provides the
procedures and requirements for making
the § 646 election.
SECTION 2. BACKGROUND
Both estates and trusts can function to
settle the affairs of a decedent and distribute assets to heirs. In the case of a revocable inter vivos trust, the grantor transfers property to a trust that is revocable
during the grantor’s lifetime. When the
grantor dies, the power to revoke ceases
and the trustee performs the settlement
functions typically performed by an estate
executor. H.R. Conf. Rep. No. 220, 105th
Cong., 1st Sess. at 711 (1997).
Section 646(a) provides that if both the
executor (if any) of an estate and the
trustee of a qualified revocable trust elect
the treatment provided in § 646, such trust
1H.R. 2676, 105th Cong. § 612 (1997) would re-
designate § 646 as § 645. If the redesignation is enacted, all references in this revenue procedure to
§ 646 shall be deemed to be references to § 645.
21
shall be treated and taxed for income tax
purposes as part of such estate (and not as
a separate trust) for all taxable years of
the estate ending after the date of the
decedent’s death and before the applicable date, as defined in § 646(b)(2).
Section 646(b)(1) provides that the
term “qualified revocable trust” means
any trust (or portion thereof) that was
treated under § 676 as owned by the decedent by reason of a power in the decedent
to revoke (determined without regard to
§ 672(e)).
Section 646(b)(2) provides that the
term “applicable date” means—(A) if no
estate tax return is required to be filed, the
date that is 2 years after the date of the
decedent’s death, and (B) if an estate tax
return is required to be filed, the date that
is 6 months after the date of the final determination of the estate tax liability.
Section 646(c) provides that the election under § 646(a) shall be made not later
than the time prescribed for filing the income tax return for the first taxable year
of the estate (determined with regard to
extensions), and once made, shall be irrevocable.
SECTION 3. PROCEDURES AND
REQUIREMENTS FOR MAKING THE
§ 646 ELECTION
.01 Required Statement.
To make the election, a required statement must be attached to a Form 1041,
U.S. Income Tax Return for Estates and
Trusts, at the time and in the manner described in this revenue procedure. The required statement must:
(1) Identify the election as an election
made under § 646;
(2) Contain the name, address, date of
death, and taxpayer identification number
(TIN) of the decedent;
(3) Contain the qualified revocable
trust’s name, address, and TIN. If the
trust does not have a TIN because the
trust was reporting pursuant to § 1.671–
4(b)(2)(i)(A) of the Income Tax Regulations, the trustee must obtain a TIN unless
a Form 1041 does not have to be filed
under SECTION 3.03. See § 301.6109–
1(a)(2) of the Procedure and Administration Regulations;
(4) Contain the estate’s name, address,
and TIN;
January 26, 1998
(5) Provide a representation that as of
the date of the decedent’s death, the trust
for which the election is being made, or a
portion thereof, was treated under § 676
as owned by the decedent of the estate referred to in § 646(a) by reason of a power
in the decedent to revoke (determined
without regard to § 672(e)); and
(6) Be signed and dated by both an executor or administrator of the estate and a
trustee of the qualified revocable trust. If
there is more than one trustee, only one
must sign the required statement, unless
otherwise required by the governing instrument or by local law. Similarly, if
there is more than one executor, only one
must sign the required statement, unless
otherwise required by the governing instrument or by local law. If there is no
probate estate and, hence, no executor or
administrator, the election may still be
made. In that case, a TIN must still be obtained for the estate and only a trustee of
the qualified revocable trust must sign the
required statement; however, the required
statement must then include a representation that there is no executor or administrator and that neither an executor nor an
administrator will be appointed.
.02 Submission of the Required Statement.
The original required statement must
be attached to the Form 1041 filed for the
estate for its first taxable year. Additionally, except as provided in SECTION
3.03, a copy of the required statement
must be attached to a Form 1041 filed for
the trust for the taxable year ending after
the date of the decedent’s death. The
election is considered made when the
original required statement is attached to
the Form 1041 filed for the estate’s first
taxable year, or when a copy of the required statement is attached to the Form
1041 filed for the trust, whichever occurs
first. Once made, the election is effective
from the date of the decedent’s death.
If the election is made, then the items
of the trust, including income, deductions
and credits, that are attributable to the
qualified revocable trust for the period
subsequent to the decedent’s death must
be excluded from the Form 1041 filed for
the trust for the taxable year ending after
the date of the decedent’s death and must
be reported on the estate’s Form 1041. If
there is no executor or administrator and
neither one will be appointed, a trustee of
January 26, 1998
the qualified revocable trust must sign
every Form 1041 filed for the estate.
If a Form 1041 reporting the items of
the trust has already been filed for the
trust for its taxable year ending after the
date of the decedent’s death without a
copy of the required statement attached to
the form, then the trust must file an
amended Form 1041 and attach a copy of
the required statement to the amended
form. The items of the trust that are attributable to the qualified revocable trust
for the period subsequent to the decedent’s death must be excluded from the
amended Form 1041 and reported on the
estate’s Form 1041.
.03 A Form 1041 Does Not Have to be
Filed for Certain Trusts.
The trust does not have to file a Form
1041 for its taxable year ending after the
date of the decedent’s death if the following conditions are met: (1) The Form
1041 for the estate’s first taxable year is
filed before the due date for filing a Form
1041 for the trust for the taxable year ending after the date of the decedent’s death;
(2) The trust items attributable to the
decedent are reported pursuant to § 1.671–
4(b)(2)(i)(A) or (B); and (3) The entire
trust is a qualified revocable trust.
make the § 646 election. The likely respondents are trusts and estates.
The estimated total reporting burden is
5,000 hours.
The estimated average burden per respondent is .5 hours. The estimated number of respondents is 10,000.
The estimated frequency of responses
is twice.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Eliana Dolgoff of the Office
of Assistant Chief Counsel (Passthroughs
and Special Industries). For further information regarding this revenue procedure,
contact Eliana Dolgoff at (202) 622-3060
(not a toll-free call).
26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 401; 1.401(b)–1.)
SECTION 4. EFFECTIVE DATE
Rev. Proc. 98–14
Section 646 applies with respect to estates of decedents dying after August 5,
1997, the date of enactment of the Act.
This revenue procedure applies to elections made after August 5, 1997.
SECTION 1. PURPOSE
SECTION 5. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1578.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
The collection of information in this
revenue procedure is in the section
headed Procedures and Requirements for
Making the § 646 Election. This information is required to be submitted in order to
22
.01 This revenue procedure opens the
Internal Revenue Service’s determination
letter program for qualified plans that
seek to comply with the changes in the
qualification requirements made by the
Uruguay Round Agreements Act, Pub. L.
103–465 (GATT), and the Taxpayer Relief Act of 1997, Pub. L. 105–34 (TRA
‘97), as well as those changes in the qualification requirements made by the Small
Business Job Protection Act of 1996, Pub.
L. 104–188 (SBJPA) (including § 414(u)
and the Uniformed Services Employment
and Reemployment Rights Act of 1994,
Pub. L. 103–353 (USERRA)), that are effective before the first day of the first plan
year beginning on or after January 1,
1999. Beginning April 27, 1998, the Service will consider these changes when it
reviews applications for determination of
the tax-qualified status of pension, profitsharing and stock bonus plans and applications for opinion and notification letters
1998–4 I.R.B.
for pre-approved plans. This revenue procedure provides guidance to plan sponsors regarding this change in the Service’s
procedures.
.02 This revenue procedure also provides that the remedial amendment period
for amending plans for GATT and SBJPA,
which was described in Rev. Proc. 97–41,
1997–33 I.R.B. 51, will apply to plan
amendments that relate to TRA ‘97. In
addition, this revenue procedure extends
the remedial amendment period under
Rev. Proc. 97–41 for amending governmental plans to the extent the period
would otherwise end before the last day
of the last plan year beginning before January 1, 2001.
.03 Finally, this revenue procedure
clarifies that a plan will not satisfy any of
the nondiscrimination in amount safe harbors in the regulations under § 401(a)(4)
if the plan’s provisions reflecting the family aggregation requirements of § 414(q)(6) or § 401(a)(17)(A), as in effect prior to
their repeal by SBJPA, continue to apply.
SECTION 2. BACKGROUND
.01 GATT and SBJPA made a number
of changes to the plan qualification requirements. Many of these changes are
already in effect for most plans while
other changes do not take effect until plan
years beginning after December 31, 1998
or December 31, 1999. TRA ’97 also
made several changes to the qualification
requirements. The TRA ’97 changes are
generally effective for plan years beginning after December 31, 1997, but certain
changes are effective for plan years beginning after the date of enactment of
TRA ’97, August 5, 1997.
.02 In Rev. Proc. 97–41, the Service
provided a remedial amendment period
under § 401(b) with respect to certain
amendments for GATT and SBJPA. The
remedial amendment period generally
permits plan amendments to be made
retroactively effective if they are adopted
on or before the last day of the first plan
year beginning on or after January 1,
1999, and they relate to GATT and SBJPA
qualification changes that are effective
before the first day of that plan year. (In
the case of governmental plans, as defined in § 414(d), the plan amendment
deadline is the later of (i) the first day of
the first plan year beginning on or after
January 1, 2000, or (ii) the last day of the
1998–4 I.R.B
first plan year beginning on or after the
“1999 legislative date” (that is, the 90th
day after the opening of the first legislative session beginning on or after January
1, 1999, of the governing body with authority to amend the plan, if that body
does not meet continuously).) Those
amendments that are required to be made
to retain qualified status as a result of
GATT and SBJPA qualification changes
must be made retroactively effective as of
the date on which the qualification change
became effective with respect to the plan.
Operational compliance prior to actual
amendment is required if the qualification
change is effective before the first day of
the first plan year beginning on or after
January 1, 1998 (or January 1, 2000, in
the case of a governmental plan). Those
amendments that are not required but that
amend plan provisions that are integrally
related to SBJPA qualification changes
may be made retroactively effective as of
the first day on which the plan was operated in accordance with the amended plan
provision.
.03 Rev. Proc. 98–6, 1998–1 I.R.B.
183, contains the Service’s general procedures for employee plan determination
letter requests. Section 3.03 of Rev Proc.
98–6 states that until further notice is
given, determination letters, other than
those issued for terminating plans, will
not include consideration by the Service
of any amendments to the qualification
requirements made by TRA ’97 or by
GATT or SBJPA, except for § 1432 and
§ 1454 of SBJPA, which amended
§ 401(a)(26) and § 414(n), respectively.
.04 Section 1431(b)(1) of SBJPA repealed the family aggregation requirements of § 414(q)(6), effective for years
beginning after December 31, 1996. Section 1431(b)(2) of SBJPA also repealed
the family aggregation requirement that
formerly applied under § 401(a)(17)(A),
effective for years beginning after December 31, 1996. Prior to its repeal,
§ 414(q)(6) required the compensation
and benefits of certain family members of
a highly compensated employee who was
a 5-percent owner or among the ten highest paid employees of the employer to be
combined with the compensation and
benefits of the highly compensated employee. The resulting family unit was
treated as one employee for purposes of
applying the nondiscrimination require-
23
ments of § 401(a)(4) to a plan. Section
401(a)(17)(A) provided similar rules with
respect to the application of the limitation
on compensation that may be taken into
account under a qualified plan.
SECTION 3. PROGRAM OPENING
.01 Applications for determination,
opinion, notification, and advisory letters
involving § 401(a) or § 403(a) that are
filed with the Service on or after April 27,
1998 will be reviewed taking into account
the changes in the qualification requirements made by GATT and TRA ’97, as
well as those changes in the qualification
requirements made by SBJPA that are effective before the first day of the first plan
year beginning on or after January 1,
1999. However, except in the case of terminating plans, applications for determination letters involving master or prototype (M&P) and regional prototype plans
that have not yet been amended to comply
with the changes in the qualification requirements made by GATT, SBJPA, and
TRA ’97 will be reviewed without taking
these changes into account.
.02 Until further notice, the Service’s
review of applications for determination
and other letters will not consider changes
in the qualification requirements made by
SBJPA that are first effective in a plan
year beginning after December 31, 1998.
Thus, for example, the Service’s review
will not consider the § 401(k)(12) and
§ 401(m)(11) safe harbors described in
§ 1433(a) and (b) of SBJPA, which are effective for plan years beginning after December 31, 1998, or the repeal of § 415(e)
by § 1452(a) of SBJPA, which is effective
for limitation years beginning after December 31, 1999. Nevertheless, the review will take into account the changes to
§ 417(e) and § 415(b) made by § 767 of
GATT and § 1449 of SBJPA, even though
application of these changes may not be
required until the first plan (or limitation)
year beginning after December 31, 1999.
Although defined benefit plans that are
submitted for determination on or after
April 27, 1998 will be required to incorporate provisions that reflect the changes
to § 417(e) and § 415(b) made by GATT
and SBJPA, the application of such provisions may be deferred under the plan to
the extent permitted by § 417(e)(3)(B)
and § 767(d)(3) of GATT (as amended by
§ 1449(a) of SBJPA), respectively. Like-
January 26, 1998
wise, the vesting provisions of multiemployer plans submitted on or after April
27, 1998 will have to reflect the repeal of
§ 411(a)(2)(C) by § 1442 of SBJPA, although application of this change may be
deferred under the plan to the extent permitted by § 1442(c) of SBJPA.
.03 Except as provided below, favorable letters that are issued with respect to
applications for determination or other
letters filed on or after April 27, 1998 will
contain a statement to the effect that the
determination (or opinion) takes into account the requirements of GATT and
TRA ’97, as well as those requirements of
SBJPA that are effective before the first
day of the first plan year beginning on or
after January 1, 1999.
.04 The statement described in the preceding paragraph will not be included in
determination letters issued with respect
to applications filed on Form 6406, Short
Form Application for Determination for
Minor Amendment of Employee Benefit
Plan. The statement described in the preceding paragraph also will not be included in determination letters issued
with respect to applications filed by
adopters of M&P or regional prototype
plans on Form 5307, Application for Determination for Adopters of Master or
Prototype, Regional Prototype, or Volume
Submitter Plans, regardless of whether
the opinion or notification letter for the
plan contains such statement. The statement described in the preceding paragraph will be included in opinion and notification letters issued with respect to
applications filed on Form 4461–B, Application for Approval of Master or Prototype Plan, or Regional Prototype
Plan/Mass Submitter Adopting Sponsor,
only if a letter containing such a statement
has been issued with respect to the mass
submitter’s plan.
SECTION 4. REMEDIAL
AMENDMENT PERIOD FOR
CHANGES IN PLAN
QUALIFICATION REQUIREMENTS
MADE BY TRA ’97
.01 Section 1541 of TRA ’97 contains
provisions relating to plan amendments
that are adopted as a result of TRA ’97. If
§ 1541 applies to a plan amendment,
§ 1541(a) provides that the plan will be
treated as operated in accordance with its
terms and will not fail to satisfy the re-
January 26, 1998
quirements of § 411(d)(6) by reason of
the amendment. Section 1541 applies to a
plan amendment that is made pursuant to
a legislative change in the pension and
employee benefit provisions of TRA ’97,
provided the following conditions are satisfied. First, the plan amendment must be
adopted before the first day of the first
plan year beginning on or after January 1,
1999 (2001, in the case of a governmental
plan, as defined in § 414(d)). Second, the
plan must be operated in accordance with
the terms of the plan amendment beginning on the date the legislative change
takes effect, or, if the amendment is not
required by the legislative change, the effective date of the amendment specified
by the plan. Third, the plan amendment
must be made retroactively effective.
.02 Pursuant to the Commissioner’s
authority under § 1.401(b)–1, a plan provision is hereby designated as a disqualifying provision under § 1.401(b)–1(b) to
which the remedial amendment period described in section 6 of Rev. Proc. 97–41
applies if the provision causes a plan to
fail to satisfy the qualification requirements of the Code because of changes
made to those requirements by TRA ’97
or if the provision is integral to a qualification requirement changed by TRA ’97.
The operational compliance and retroactive amendment conditions described in
§ 1541(b)(2) of TRA ’97 must be satisfied
throughout such remedial amendment period with respect to any amendment of a
disqualifying provision described in the
preceding sentence.
.03 For example, § 1071 of TRA ’97
increased the amount of the accrued benefit subject to involuntary distribution
under § 411(a)(11) from $3,500 to $5,000,
effective for plan years beginning after
August 5, 1997. A plan provision that reflects the $3,500 limit under § 411(a)(11),
as in effect prior to TRA ’97, is integral to
a qualification requirement changed by
TRA ’97. Thus, for example, a plan that
contains the $3,500 limit may, for plan
qualification purposes, be operated during
the remedial amendment period in anticipation of a retroactive amendment reflecting the increase in the limit under § 1071
of TRA ’97, provided the amendment is
adopted on or before the last day of the remedial amendment period and is made
retroactively effective as of the beginning
of the remedial amendment period. In
24
this case, the plan provision containing
the $3,500 limit is integrally related to a
qualification requirement changed by
TRA ’97 but the plan provision would not
disqualify the plan as a result of the statutory change. Therefore, the remedial
amendment period begins on the date on
or after the first day of the first plan year
beginning after August 5, 1997, on which
the plan was first operated in anticipation
of the amendment increasing the limit to
$5,000. In the case of a nongovernmental
plan, the remedial amendment period
ends on the last day of the first plan year
beginning on or after January 1, 1999.
SECTION 5. REMEDIAL
AMENDMENT PERIOD FOR
GOVERNMENTAL PLANS
Pursuant to the Commissioner’s authority under § 1.401(b)–1, the remedial
amendment period described in section 6
of Rev. Proc. 97–41 with respect to governmental plans, as defined in § 414(d), is
hereby extended to the later of (i) the last
day of the last plan year beginning before
January 1, 2001, or (ii) the last day of the
first plan year beginning on or after the
“1999 legislative date.” Thus, the remedial amendment period for amending a
governmental plan for GATT, SBJPA, and
TRA ’97 will not end before the amendment deadline applicable to governmental
plans under § 1541 of TRA ’97.
SECTION 6. EFFECT OF REPEAL OF
FAMILY AGGREGATION ON
NONDISCRIMINATION SAFE
HARBORS
.01 The regulations under § 401(a)(4)
provide safe harbors that a plan may meet
to satisfy the requirement that either the
contributions or the benefits under the
plan be nondiscriminatory in amount.
See, for example, § 1.401(a)(4)–2(b) and
§ 1.401(a)(4)–3(b). The safe harbors generally are designed to ensure that a plan
that meets a safe harbor will automatically satisfy the nondiscrimination in
amount requirement if the plan is operated in accordance with its terms. In general, the safe harbors require a uniform allocation or benefit formula, although
formulas that provide lower allocations or
benefits for highly compensated employees are permitted.
.02 In section 6.09 of Rev. Proc. 97–
1998–4 I.R.B.
41, it was noted that in many cases plans
would remain qualified even though the
family aggregation rules of § 414(q)(6)
and § 401(a)(17)(A) continued to apply
under the plans subsequent to the repeal
of these rules. Nevertheless, the continued application of family aggregation will
cause a plan to fail to be a safe harbor
plan. This is because the application of
family aggregation may, in some circumstances, result in lower allocations or benefits for employees who are not highly
compensated.
.03 Thus, a plan will not satisfy a
nondiscrimination in amount safe harbor
for a plan year beginning after December
31, 1996, unless family aggregation is
disregarded in the operation of the plan
and the plan is amended within the remedial amendment period, retroactive to the
first day of such plan year, to eliminate its
family aggregation provisions. Therefore, in an application for a determination
letter (other than with respect to an M&P
or regional prototype plan) that is filed on
or after April 27, 1998, an employer may
not designate a plan as one that is intended to satisfy a nondiscrimination in
amount safe harbor if the family aggregation rules continue to apply under the
plan. Instead, the employer must either
demonstrate that the plan satisfies the
general test for nondiscrimination in
amount or request a letter that contains a
caveat regarding the nondiscrimination in
amount requirement.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 98–6 and Rev. Proc. 97–41
are modified.
SECTION 8. EFFECTIVE DATE
This revenue procedure is effective
January 26, 1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is James Flannery of the Employee Plans Division. For further information regarding this revenue procedure,
contact the Employee Plans Division’s
telephone assistance service between the
hours of 1:30 and 3:30 p.m. Eastern time,
Monday through Thursday, on (202) 6226074 (not a toll-free call). Mr. Flannery
1998–4 I.R.B
can be contacted by calling (202) 6226214 (also not a toll-free call).
26 CFR 301.6601–1: Interest on underpayments.
(Also Part I, §§ 163, 2053, 6166, 6601.)
Rev. Proc. 98–15
SECTION 1. PURPOSE
This revenue procedure provides procedures for estates of decedents dying before
January 1, 1998, to make an election
under § 503(d)(2) of the Taxpayer Relief
Act of 1997, Pub. L. No. 105–34, 111 Stat.
788 (the “Act”). This § 503(d)(2) election
allows an estate to reduce the rate of interest on estate taxes deferred under § 6166
of the Internal Revenue Code and forgo
the deduction for interest paid on the deferred estate taxes under §§ 2053 and
163(h).
SECTION 2. BACKGROUND
.01 Deferral of Estate Taxes.
(1) Section 6166 provides an election to extend the time for payment of estate tax where greater than 35 percent of
the value of the adjusted gross estate consists of one or more interests in a closely
held business. Only the estate of a decedent who, at the date of death, was a
United States citizen or resident is eligible
to make a § 6166 election.
(2) If an estate makes a § 6166 election, the estate tax may be paid in up to
ten installments, with the first payment of
tax due not more than five years after the
date prescribed for payment of the tax.
However, interest on the estate tax is not
deferred. Under § 6166(f), the interest
must be paid annually.
(3) Section 6601(a) imposes underpayment interest at the § 6621 underpayment rate, which for estates is the federal
short-term rate plus 3 percentage points.
However, § 6601(j), prior to its amendment by the Act, imposed a reduced interest rate of 4 percent on a portion (the “4percent portion”) of the estate tax
deferred under § 6166. The 4-percent
portion is the lesser of (i) $345,800 reduced by the amount of the credit allowable under § 2010(a) (prior to amendment
by § 501(a) of the Act), or (ii) the amount
of deferred estate tax. The 4 percent rate
25
continues to apply to estates of decedents
dying before January 1, 1998, (the effective date of § 503 of the Act) unless such
an estate properly makes the § 503(d)(2)
election in the manner discussed below.
.02 Changes Made by the Act
(1) Reduced interest rates.
(a) In general. Section 503(a)(1) of the Act amends § 6601(j) to provide
a 2-percent interest rate on the “2-percent
portion” (defined below) of deferred estate tax. The interest rate on deferred estate tax in excess of the 2-percent portion
is 45 percent of the underpayment rate determined under § 6621.
(b) 2-percent portion. Section
503(a)(2) of the Act provides that the 2percent portion is an amount of deferred
estate tax not exceeding the lesser of (i)
the tentative tax under § 2001(c) computed on $1,000,000 plus the § 2010(c)
(as amended by § 501(a) of the Act) applicable exclusion amount, reduced by the
§ 2010(c) applicable credit amount, or (ii)
the amount of the deferred estate tax.
(2) Elimination of interest deduction. Section 503(b) of the Act amends
§§ 163 and 2053 to eliminate both the income tax and the estate tax deductions for
interest paid on § 6166 deferred estate tax.
(3) Effective dates. Pursuant to
§ 503(d)(1) of the Act, the amendments
described in this section 2.02 generally
apply to estates of decedents dying after
December 31, 1997. However, § 503(d)(2) provides that any estate of a decedent
dying before January 1, 1998, that has
made a § 6166 election may elect to have
the reduced interest rates and nondeductibility amendments (but not the 2percent portion) contained in § 503 apply
to installments due after the effective date
of the election. The election must be
made before January 1, 1999, in a manner
prescribed by the Secretary and, once
made, is irrevocable.
SECTION 3. SCOPE
This revenue procedure applies to estates of decedents dying before January 1,
1998, that properly elect under § 6166 to
defer payment of estate taxes, and that
wish to elect to apply the new reduced interest rates of § 6601(j), as amended, and
forgo the estate tax and income tax deductions for interest paid on deferred estate
tax. The new rates and the nondeductibil-
January 26, 1998
ity provision apply automatically in the
case of estates of decedents dying after
December 31, 1997.
SECTION 4. PROCEDURE
.01 Making a § 503(d)(2) Election.
After August 5, 1997, but before January
1, 1999, an estate may make a § 503(d)(2)
election by writing a letter to the Service
Center where the next installment of estate tax or interest is due. If an estate of a
decedent dying before January 1, 1998,
has not filed an estate tax return as of January 26, 1998, the letter may be attached
to the estate tax return. No § 503(d)(2)
election may be made before a § 6166
election is made. The letter must include
the following information:
(1) the decedent’s name;
(2) the estate’s EIN;
(3) a statement that the letter is an election under § 503(d)(2) of the Taxpayer
Relief Act of 1997; and
(4) the due date of the installment of estate tax or interest for which the election
is to be effective.
The letter must be signed and dated by the
executor. Once made, the § 503(d)(2)
election cannot be modified or revoked.
.02 Effective Date of the § 503(d)(2)
Election. Generally, a § 503(d)(2) election is effective beginning with the first
January 26, 1998
installment of estate tax or interest due on
or after the date the election is filed with
the appropriate Service Center. However,
a § 503(d)(2) election made by April 27,
1998, will be effective beginning with any
installment, designated by the executor,
due after August 5, 1997, and on or before
April 27, 1998. Any assessment that was
proper when made, but that becomes excessive as a result of the election, will be
abated. Future installments due will be
calculated and any overpayment of an installment of either tax or interest will be
applied to the next installment in accordance with § 6403.
SECTION 5. 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 1545–1585.
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 contained in SECTION 4 of this revenue procedure. This
26
information is required to verify that estates are electing under § 503(d)(2) of the
Taxpayer Relief Act of 1997 to apply the
reduced interest rates of § 6601(j), as
amended, to deferred estate taxes. The
likely respondents are estates.
The estimated total annual recordkeeping burden will be 3,300 hours.
The estimated annual burden per respondent will vary from 15 minutes to 45
minutes, depending on individual circumstances, with an estimated average of 30
minutes.
The estimated number of respondents
is 6,600.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Brendan P. O’Hara of the Office of Assistant Chief Counsel (Income
Tax and Accounting). For further information regarding this revenue procedure
contact Brendan P. O’Hara at (202) 6224910 (not a toll-free call).
1998–4 I.R.B.
Part IV. Items of General Interest
Notice of Proposed Rulemaking
SUPPLEMENTARY INFORMATION:
Required Distributions From
Qualified Plans and Individual
Retirement Plans
Paperwork Reduction Act
REG–209463–82
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
amendments to the existing proposed regulations under section 401(a)(9) that
make changes to the rules that apply if a
trust is named as a beneficiary of an employee’s benefit under a retirement plan.
These proposed regulations will affect administrators of, participants in, and beneficiaries of qualified plans, institutions
which sponsor and individuals who administer individual retirement plans, individuals who use individual retirement
plans, simplified employee pensions and
SIMPLE Savings Plans for retirement income and beneficiaries of individual retirement plans; and employees for whom
amounts are contributed to section 403(b)
annuity contracts, custodial accounts, or
retirement income accounts and beneficiaries of such contracts and accounts.
DATES: Written comments and requests
for a public hearing must be received by
March 30, 1998.
ADDRESSES: Send submissions to
CC:DOM:CORP:R (REG–209463–82),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to CC:DOM:CORP:R
(REG–209463–82), Courier’s Desk, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html
FOR FURTHER INFORMATION CONTACT: Thomas Foley at (202) 622-6030
(not a toll-free number).
1998–4 I.R.B
The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of
Management and Budget for review in accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget, Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, T:FP, Washington, DC 20224. Comments on the collection of information should be received
by March 2, 1998. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be enhanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the application of automated collection techniques or other forms of information technology; and
Estimates of capital or start-up costs and
costs of operation, maintenance, and purchase of services to provide information.
The collection of information in this
proposed regulation is in Question and
Answer D–7 of §1.401(a)(9)–1. This information is required for a taxpayer who
wants to name a trust and treat the underlying beneficiaries of the trust as designated beneficiaries of the taxpayer’s benefit under a retirement plan or an
individual retirement plan (“IRA”). The
taxpayer must provide a copy of the trust
instrument or IRA trustee, custodian, or
issuer, or provide a list of all the beneficiaries of the trust, certify that, to the best
of the taxpayer’s knowledge, this list is
correct and complete, and agree to pro-
27
vide a copy of the trust instrument upon
demand. In addition, other related requirements for the beneficiaries of the
trust to be treated as designated beneficiaries must be satisfied. If the trust instrument is amended at any time in the future,
the taxpayer must, within a reasonable
time, provide a copy of each such amendment, or provide corrected certifications
to the extent that the amendment changes
the information previously certified. In
addition, by the end of the ninth month
after the death of the taxpayer, the trustee
of the trust must provide a copy of the
trust to the plan administrator or IRA
trustee, custodian, or issuer, or provide a
list of all the beneficiaries of the trust,
certify that, to the best of the taxpayer’s
knowledge, this list is correct and complete, and agrees to provide a copy of the
trust instrument upon demand. The collection of information is required to obtain a benefit. The likely respondents are
individuals or households.
Estimated total annual reporting hours
is 333 hours.
The estimated average burden per respondent is 20 minutes.
The estimated total number of respondents is 1,000.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it displays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collection of information must be retained as
long as their contents may become
material in the administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26 U.S.C. 6103.
Background
On July 27, 1987, Proposed Regulations (EE–113–82 [1987–2 C.B. 881])
under sections 401(a)(9), 403(b), 408, and
4974 of the Internal Revenue Code of
1986 were published in the Federal Register (52 FR 28070) Those proposed regulations provide guidance for complying
with the rules relating to required distributions from qualified plans, individual retirement plans, and section 403(b) annuity
contracts, custodial accounts, and retirement income accounts. This document
January 26, 1998
contains amendments to proposed
§ 1.401(a)(9)–1 (hereinafter referred to
as the Existing Proposed Regulations)
that was included in EE–113–82. Specifically this document contains amendments
to Q&As D–5 and Q&A D–6 of the Existing Proposed Regulations which prescribe
specific requirements that must be met
when a trust is named as a beneficiary of
an employee’s benefit under a plan, and
adds a new Q&A D–7 to the Existing Proposed Regulations. Proposed § § 1.408–8
and 1.403(b)–2 (also included in
EE–113–82) provide that the provisions
of proposed § 1.401(a)(9)–1 generally
apply to individual retirement plans, and
section 403(b) annuity contracts, custodial accounts, and retirement income accounts. Accordingly, these amendments
and additions also generally apply to such
plans, contracts, and accounts.
The amendments and additions to the
Existing Proposed Regulations in these
proposed regulations are issued in response to comments and questions received regarding the Existing Proposed
Regulations with respect to section
401(a)(9). Treasury and the IRS continue
to welcome additional comments concerning the Existing Proposed Regulations and
the other sections of EE–113–82.
As in the case of the Existing Proposed
Regulations and the other sections of EE–
113–82, taxpayers may rely on these proposed regulations for guidance pending
the issuance of final regulations. If, and to
the extent, future guidance is more restrictive than the guidance in these proposed regulations, the future guidance
will be applied without retroactive effect.
Explanation of provisions
Overview
Section 401(a)(9)(A) provides that, in
order for a plan to be qualified under section 401(a), distributions of each employee’s interest in the plan must commence no later than the “required
beginning date” for the employee and
must be distributed over a period not to
exceed the joint lives or joint life expectancy of the employee and the employee’s designated beneficiary. Section
401(a)(9)(B) provides that if distribution
does not commence prior to death in accordance with section 401(a)(9)(A), distributions of the employee’s interest must
January 26, 1998
be made within 5 years of the employee’s
death or, generally, commence within one
year of the employee’s death and be made
over the life or life expectancy of the designated beneficiary.
Section 401(a)(9)(E) defines the term
“designated beneficiary” as an individual
designated as a beneficiary by the employee. The Existing Proposed Regulations provide that, for purposes of section
401(a)(9), only individuals may be designated beneficiaries. A beneficiary who is
not an individual, such as the employee’s
estate, may not be a designated beneficiary for purposes of determining the
minimum required distribution, but nevertheless may be designated as the employee’s beneficiary under the plan. If a
beneficiary who is not an individual is
designated to receive an employee’s benefit after death, the employee is treated as
having no designated beneficiary when
determining the required minimum distribution. In that case, under section
401(a)(9), distributions commencing before death must be made over the employee’s single life or life expectancy and
distributions commencing after death
must be made within 5 years of the employee’s death.
However, the Existing Proposed Regulations provide that if a trust is named as a
beneficiary of an employee’s benefit under
the plan, the underlying beneficiaries of
the trust may be treated as designated beneficiaries for purposes of section 401(a)(9)
if certain requirements are satisfied. In response to comments, these proposed regulations modify these trust beneficiary requirements as explained below by:
• Permitting the designated beneficiary
of a revocable trust to be treated as the
designated beneficiary for purposes of determining the minimum distribution under
section 401(a)(9), provided that the trust
becomes irrevocable upon the death of the
employee.
• Providing relief from the requirement
that the plan be provided with a copy of
the trust document if certain certification
requirements are met.
Irrevocability of trust
The Existing Proposed Regulations
generally provide that a trust must be irrevocable as of the employee’s required
beginning date in order for the beneficiaries of the trust to be treated as designated
28
beneficiaries under the plan for purposes
of determining the distribution period
under section 401(a)(9)(A). Commentators have indicated that most trusts established for estate planning purposes and
designated as the beneficiary of an employee’s plan benefits are revocable instruments prior to the death of the employee. In response to those comments,
these proposed regulations provide that a
trust named as beneficiary of an employee’s interest in a retirement plan be
permitted to be revocable while the employee is alive, provided that it becomes
irrevocable, by its terms, upon the death
of the employee. The requirements in the
Existing Proposed Regulations that the
trust be valid under state law (or would be
but for the fact that there is no corpus) and
that the beneficiaries be identifiable from
the trust instrument are retained.
Information to Plan Administrator
In order to permit the plan administrator to substantiate that the requirements
for treating the beneficiaries of the trust as
designated beneficiaries under the plan
are satisfied, the Existing Proposed Regulations require that a copy of the trust instrument be provided to the plan administrator by the earlier of the required
beginning date or the date of the employee’s death. In response to comments,
this proposed regulation permits an alternative method of substantiation.
As under the Existing Proposed Regulations, a copy of the trust instrument may
be provided to the plan administrator.
However, because the trust need not be irrevocable, under this method, the employee must also agree that if the trust instrument is amended at any time in the
future, the employee will, within a reasonable time, provide a copy of each such
amendment.
Alternatively, the employee may provide a list of all of the beneficiaries of the
trust (including contingent beneficiaries)
with a description of the portion to which
they are entitled and any conditions on
their entitlement, and certify that, to the
best of the employee’s knowledge, this
list is correct and complete and that the
other requirements for the beneficiaries of
the trust to be treated as designated beneficiaries are satisfied. Under the second
method, the employee must also agree to
provide corrected certifications to the ex-
1998–4 I.R.B.
tent that the amendment changes the information previously certified. Finally,
the employee must agree to provide a
copy of the trust instrument to the plan
administrator upon demand.
In addition, these proposed regulations
provide that, if the minimum required distributions after death are determined by
treating the beneficiaries of the trust as
designated beneficiaries, a final certification as to the beneficiaries of the trust instrument must be provided to the plan administrator by the end of the ninth month
after the death of the employee. This rule
applies even if a copy of the trust instrument were provided to the plan administrator before the employee’s death. Alternatively, an updated trust instrument may
be provided.
The proposed regulations also provide
that a plan will not fail to satisfy section
401(a)(9) merely because the terms of the
actual trust instrument are inconsistent
with the information in the certifications
or trust instruments previously provided
to the plan administrator if the plan administrator reasonably relies on the information provided in the certifications or
trust instruments. However, the minimum required distributions for years after
the year in which the discrepancy is discovered must be determined based on the
actual terms of the trust instrument. For
those years, the minimum required distribution will be determined by treating the
beneficiaries of the employee as having
been changed in the year in which the
year the discrepancy was discovered to
conform to the corrected information and
by applying the change in beneficiary
provisions found under the Existing Proposed Regulations. However, for purposes of determining the amount of the
excise tax under section 4974 (including
application of a waiver, if any, for reasonable error under section 4974), the minimum required distribution is determined
for any year based on the actual terms of
the trust in effect during the year.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant regulatory action as defined in EO
12866. Therefore, a regulatory assessment is not required. It also has been de-
1998–4 I.R.B
termined that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations. Moreover, it hereby certified that
the regulations in this document will not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that the
reporting burden is primarily on the plan
participant to supply the information
rather than on the entity maintaining the
retirement plan and the fact that the number of participants per plan to whom the
burden applies is insignificant. Accordingly, a regulatory flexibility analysis
under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration will be given to any written comments (preferably a signed original and
eight (8) copies) or comments transmitted
via Internet that are submitted timely to
the IRS. All comments will be available
for public inspection and copying.
A public hearing may be scheduled if
requested in writing by a person that
timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the hearing will
be published in the Federal Register.
Drafting Information
The principal author of these regulations is Cheryl Press, Office of the Associate Chief Counsel (Employee Benefits
and Exempt Organizations), IRS. However, other personnel from the IRS and
Treasury Department participated in their
development.
* * * * *
Amendments to the Previously Proposed
Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
29
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 ***
Par. 2. Section 1.401(a)(9)–1, as proposed to be added at 52 FR 28075, July
27, 1987, is amended by:
1. Revising Q&A D–5
2. Revising Q&A D–6.
3. Adding Q&A D–7
The additions and revisions read as follows:
§ 1.401(a)(9)–1 Required distributions
from trust and plans.
*
*
*
*
*
D. Determination of the Designated
Beneficiary.
*
*
*
*
*
D–5. Q. If a trust is named as a beneficiary of an employee, will the beneficiaries of the trust with respect to the trust’s
interest in the employee’s benefit be
treated as having been designated as beneficiaries of the employee under the plan
for purposes of determining the distribution period under section 401(a)(9)(A)(ii)?
A. (a) Pursuant to D–2A of this section, only an individual may be a designated beneficiary for purposes of determining the distribution period under
section 401(a)(9)(A)(ii). Consequently, a
trust itself may not be the designated beneficiary even though the trust is named as
a beneficiary. However, if the requirements of paragraph (b) of this D–5 are
met, distributions made to the trust will be
treated as paid to the beneficiaries of the
trust with respect to the trust’s interest in
the employee’s benefit, and the beneficiaries of the trust will be treated as having
been designated as beneficiaries of the
employee under the plan for purposes of
determining the distribution period under
section 401(a)(9)(A)(ii). If, as of any date
on or after the employee’s required beginning date, a trust is named as a beneficiary of the employee and the requirements in paragraph (b) of this D–5A are
not met, the employee will be treated as
not having a designated beneficiary under
the plan for purposes of section
401(a)(9)(A)(ii). Consequently, for cal-
January 26, 1998
endar years beginning after that date, distribution must be made over the employee’s life (or over the period which
would have been the employee’s remaining life expectancy determined as if no
beneficiary had been designated as of the
employee’s required beginning date).
(b) The requirements of this paragraph
(b) are met if, as of the later of the date on
which the trust is named as a beneficiary
of the employee, or the employee’s required beginning date, and as of all subsequent periods during which the trust is
named as a beneficiary, the following requirements are met:
(1) The trust is a valid trust under state
law, or would be but for the fact that there
is no corpus.
(2) The trust is irrevocable or will, by
its terms, become irrevocable upon the
death of the employee.
(3) The beneficiaries of the trust who
are beneficiaries with respect to the trust’s
interest in the employee’s benefit are
identifiable from the trust instrument
within the meaning of D–2 of this section.
(4) The documentation described in D–
7 of this section has been provided to the
plan administrator.
(c) In the case of payments to a trust
having more than one beneficiary, see E–
5 of this section for the rules for determining the designated beneficiary whose life
expectancy will be used to determine the
distribution period. If the beneficiary of
the trust named as beneficiary is another
trust, the beneficiaries of the other trust
will be treated as having been designated
as beneficiaries of the employee under the
plan for purposes of determining the distribution period under section 401(a)(9)(A)(ii), provided that the requirements of
paragraph (b) of this D–5A are satisfied
with respect to such other trust in addition
to the trust named as beneficiary.
D–6. Q. If a trust is named as a beneficiary of an employee, will the beneficiaries
of the trust with respect to the trust’s interest in the employee’s benefit be treated as
designated beneficiaries under the plan
with respect to the employee for purposes
of determining the distribution period
under section 401(a)(9)(B)(iii) and (iv)?
A. (a) If a trust is named as a beneficiary of an employee and the requirements of paragraph (b) of D–5A of this
section are satisfied as of the date of the
January 26, 1998
employee’s death or, in the case of the
documentation described in D–7 of this
section, by the end of the ninth month beginning after the employee’s date of
death, then distributions to the trust for
purposes of section 401(a)(9) will be
treated as being paid to the appropriate
beneficiary of the trust with respect to the
trust’s interest in the employee’s benefit,
and all beneficiaries of the trust with respect to the trust’s interest in the employee’s benefit will be treated as designated beneficiaries of the employee under
the plan for purposes of determining the
distribution period under section 401(a)(9)(B)(iii) and (iv). If the beneficiary of
the trust named as beneficiary is another
trust, the beneficiaries of the other trust
will be treated as having been designated
as beneficiaries of the employee under the
plan for purposes of determining the distribution period under section 401(a)(9)(B)(iii) and (iv), provided that the requirements of paragraph (b) of D–5A of this
section are satisfied with respect to such
other trust in addition to the trust named
as beneficiary. If a trust is named as a
beneficiary of an employee and if the requirements of paragraph (b) of D–5A of
this section are not satisfied as of the
dates specified in the first sentence of this
paragraph, the employee will be treated as
not having a designated beneficiary under
the plan. Consequently, distribution must
be made in accordance with the five-year
rule in section 401(a)(9)(B)(ii).
(b) The rules of D–5 of this section and
this D–6 also apply for purposes of applying the provisions of section 401(a)(9)(B)(iv)(II) if a trust is named as a beneficiary of the employee’s surviving spouse.
In the case of payments to a trust having
more than one beneficiary, see E–5 of this
section for the rules for determining the
designated beneficiary whose life expectancy will be used to determine the
distribution period.
D–7. Q. If a trust is named as a beneficiary of an employee, what documentation must be provided to the plan administrator so that the beneficiaries of the trust
who are beneficiaries with respect to the
trust’s interest in the employee’s benefit
are identifiable to the plan administrator?
A. (a) Required distributions commencing before death. In order to satisfy the requirement of paragraph (b)(4) of D–5A of
30
this section for distributions required
under section 401(a)(9) to commence before the death of an employee, the employee must comply with either paragraph
(a)(1) or (2) of this D–7A:
(1) The employee provides to the plan
administrator a copy of the trust instrument and agrees that if the trust instrument is amended at any time in the future,
the employee will, within a reasonable
time, provide to the plan administrator a
copy of each such amendment.
(2) The employee—
(i) Provides to the plan administrator a
list of all of the beneficiaries of the trust
(including contingent and remainderman
beneficiaries with a description of the
conditions on their entitlement);
(ii) Certifies that, to the best of the employee’s knowledge, this list is correct
and complete and that the requirements of
paragraphs (b)(1), (2), and (3) of D–5A of
this section are satisfied;
(iii) Agrees to provide corrected certifications to the extent that an amendment
changes any information previously certified; and
(iv) Agrees to provide a copy of the
trust instrument to the plan administrator
upon demand.
(b) Required distributions after death.
In order to satisfy the documentation requirement of this D–7 for required distributions after death, by the end of the ninth
month beginning after the death of the employee, the trustee of the trust must either
(1) Provide the plan administrator with
a final list of all of the beneficiaries of the
trust (including contingent and remainderman beneficiaries with a description of
the conditions on their entitlement) as of
the date of death; certify that, to the best
of the trustee’s knowledge, this list is correct and complete and that the requirements of paragraph (b)(1), (2), and (3) of
D–5A of this section are satisfied as of the
date of death; and agree to provide a copy
of the trust instrument to the plan administrator upon demand; or
(2) Provide the plan administrator with
a copy of the actual trust document for the
trust that is named as a beneficiary of the
employee under the plan as of the employee’s date of death.
(c) Relief for discrepancy between trust
instrument and employee certifications or
earlier trust instruments. (1) If required
1998–4 I.R.B.
distributions are determined based on the
information provided to the plan administrator in certifications or trust instruments
described in paragraph (a)(1), (a)(2) or (b)
of this D–7A, a plan will not fail to satisfy
section 401(a)(9) merely because the actual terms of the trust instrument are inconsistent with the information in those
certifications or trust instruments previously provided to the plan administrator,
but only if the plan administrator reasonably relied on the information provided
and the minimum required distributions
for calendar years after the calendar year
in which the discrepancy is discovered are
determined based on the actual terms of
the trust instrument. For purposes of determining whether the plan satisfies section 401(a)(9) for calendar years after the
calendar year in which the discrepancy is
discovered, if the actual beneficiaries
under the trust instrument are different
from the beneficiaries previously certified
or listed in the trust instrument previously
provided to the plan administrator, or the
trust instrument specifying the actual beneficiaries does not satisfy the other requirements of paragraph (b) of D–5A of
this section, the minimum required distribution will be determined by treating the
beneficiaries of the employee as having
been changed in the calendar year in
which the discrepancy was discovered to
conform to the corrected information and
by applying the change in beneficiary
provisions of E–5 of this section.
(2) For purposes of determining the
amount of the excise tax under section
4974, the minimum required distribution
is determined for any year based on the
actual terms of the trust in effect during
the year.
*
*
*
*
*
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 29, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 30, 1997,
62 F.R. 67780)
Foundations Status of Certain
Organizations
Announcement 98–4
The following organizations have
failed to establish or have been unable to
1998–4 I.R.B
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:
Association of Business Administration
of Christian Colleges, River Forest, IL
Chicano-Latino Medical Association of
California Foundation, Montebello,
CA
Children of Light, Mill Valley, CA
Childrens Life Foundation of America,
San Diego, CA
Club Social San Pedro Tesistan, Watsonville, CA
Coalition of Mental Health Professional
Inc., Los Angeles, CA
Comfort Zone Group Homes, Compton,
CA
Communications Connection Center Inc.,
Marina Del Rey, CA
Cook Island Institute, San Francisco, CA
Coos River Step Association Inc.,
Eastside, OR
Cosmos Affiliates, Highland, CA
Country Hospice Association, Enumclaw,
WA
Creative Response of the Arts Inc., La
Jolla, CA
Culpeppers Affordable Housing and
Emergency Shelter, Sherman Oaks,
CA
Cultural Bridges, Alameda, CA
I Became a Star Foundation Inc.,
Antioch, TN
I C E Supervised Independent Living
Center, Inc., New Orleans, LA
Idora Park Historical Society Inc.,
Youngstown, OH
Illegitimate Theater Company Inc., Sierra
Vista, AZ
Illinois Insurance Exchange Foundation,
Chicago, IL
Illinois Nursing Home Administrators
Foundation, Springfield, IL
31
Image Plus Organization Inc., Chicago,
IL
Immigration Support Services Inc.,
Lexington, KY
Immunodeficiency Collaberative of
America, Washington, DC
Independence Non Profit Housing
Corporation, Marquette, MI
Independence Nonprofit Development
Corporation, Detroit, MI
Independence Science and Technology
Center, Inc., Independence, KS
India Cultural and Education, Inc.,
Gainesville, FL
India League of Ohio, Columbus, OH
Indian Heritage Association Inc., Great
Falls, MT
Indian Trace Education Fund Inc., Ft.
Lauderdale, FL
Indiana Junior High Christian
Convention, Anderson, IN
Indiana Relief Foundation Inc.,
Indianapolis, IN
Indiana Spina Bifida Association, Inc.,
South Bend, IN
Indianapolis Tawl Inc., Carmel, IN
Indy-American Expeditions,
Incorporated, Rosedale, IN
Information Access Institute, La Porte,
TX
Inner-City Community Development
Corporation, Denver, CO
Inner City Community Task Force,
Lynchburg, VA
Inner City Development Group, Detroit,
MI
Inner City Development Non Profit
Housing Corporation, Ann Arbor, MI
Inner City Mountain Movers Community
Development Corporation, Detroit, MI
Inner City Recovery Program, Inc.,
Houston, TX
Inner Spaces Network Inc., Pittsburgh, PA
Innovative Human Services Corporation,
Southfield, MI
Inside Corporation, Chamblee, GA
Insight Unlimited Inc., Sebastian, FL
Inspirational Community Center Soup
Kitchen, Detroit, MI
In Step Ministries Inc., Memphis, TN
Institute for Adolescent Development,
Batavia, OH
Institute for Continuing Education in
Communications, Inc., Atlanta, GA
Institute for Health Care Research Inc.,
Miami Lakes, FL
Institute for International Trade &
Investment, Dekalb, IL
January 26, 1998
Institute for Leadership Education
Advancement & Development, Inc.,
Philadelphia, PA
Institute for Quality in Professional
Speaking, Inc., Overland Park, KS
Institute for Research on Boards of
Directors, Inc., Sarasota, FL
Institute for Youth Development and
Educational Resources, Fayetteville,
NC
Institute of International Banking Law
and Practice, Inc., Gaithersburg, MD
Institute of Scholar Athletes Inc.,
Columbia, MD
Instituto Cultural Latino-Americano, Inc.,
Detroit, MI
Inter-Connections Drop-In Center Inc.,
Adrian, MI
Interdenominational Ministerial Alliance
Incorporated, Indianapolis, IN
Interdenominational Ministerial Alliance
of Greater Cincinnati, Cincinnati, OH
Interfaith Hospitality Network of
Washington County Inc., Ann Arbor,
MI
Intergenerational Festivals Inc., Tampa,
FL
Intermountain Child Care Services Inc.,
Murray, UT
Intermountain Education Center, Logan,
UT
International Assistance Project of
Alabama Inc., Montgomery, AL
International Center for Tourism Planning
and Design, Englewood, CO
January 26, 1998
International Children Care, Houston, TX
International Christian Single Helpmate
Groups, Inc., Woodridge, IL
International Federation of Palynological
Societies, Tucson, AZ
International Health Dynamics Inc.,
Colorado Springs, CO
International Institute for Baubiologie
and Ecology, Inc., Clearwater, FL
International Medical Outreach Inc.,
Houston, TX
International Orchid Seed Foundation,
Inc., Labelle, FL
International Society for Social Consciousness, Southfield, MI
International Tribunal Fund Inc., Key
Biscayne, FL
International Youth Exchange Inc., Cape
Coral, FL
Intersouth Sheltercare, Tucson, AZ
Inter-Tribal Trade Center, Lafayette, CO
In The Paint Inc., Milwaukee, WI
In The Warmth of His Glow Ministries
Inc., Tulsa, OK
In Touch Ministries Inc., Richmond, VA
Inventors Network, Stillwater, MN
Iowa City Jazz Festival Inc., Iowa City,
IA
Iowa Hawkeye Floor Covering
Association, Inc., Des Moines, IA
Iowa Problem Gambling Council Inc.,
Des Moines, IA
IRCC Truckers Legal Defense and
Education Fund of Minnesota, Clinton,
MN
32
Irish American Information Service,
Livonia, MI
Irish Childrens Summer Program of
Aurens County, Clinton, SC
Iron Two Iron Church, Cleveland, OH
Ironton Metropolitan Housing Authority
Tenants Council, Inc., Ironton, OH
Irregular Pearl, Dallas, TX
Isis Performance Company-The World
Organization of Art Culture Music,
Atlanta, GA
Isis T. Johnson Foundation, New Orleans,
LA
Islamic Foundation of Florida Inc.,
Miami Beach, FL
Islamic Science Research Institute Inc.,
Mt. Clemens, MI
Mission Specialities, Inc., Marietta, GA
U.S. Prayer Track, Inc., Houston, TX
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.
1998–4 I.R.B.
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”)
that have an effect on previous rulings
use the following defined terms to describe the effect:
Amplified describes a situation where
no change is being made in a prior published position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confusion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the substance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published ruling is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a period of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously published ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be published that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
The following abbreviations in current use and formerly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
1998–4 I.R.B
33
January 26, 1998
Numerical Finding List1
Bulletins 1998–1 and 1998–3
Announcements:
98–1, 1998–2 I.R.B. 38
98–2, 1998–2 I.R.B. 38
98–3, 1998–2 I.R.B. 38
Notices:
98–1, 1998–3 I.R.B. 42
98–2, 1998–2 I.R.B. 22
98–3, 1998–3 I.R.B. 48
98–4, 1998–2 I.R.B. 25
98–5, 1998–3 I.B.R. 49
98–6, 1998–3 I.R.B. 52
98–7, 1998–3 I.R.B. 54
Proposed Regulations:
REG–102894–97, 1998–3 I.R.B. 59
REG–109704–97, 1998–3 I.R.B. 60
Revenue Procedures:
98–1, 1998–1 I.R.B. 7
98–2, 1998–1 I.R.B. 74
98–3, 1998–1 I.R.B. 100
98–4, 1998–1 I.R.B. 113
98–5, 1998–1 I.R.B. 155
98–6, 1998–1 I.R.B. 183
98–7, 1998–1 I.R.B. 222
98–8, 1998–1 I.R.B. 225
98–9, 1998–3 I.R.B. 56
98–10, 1998–2 I.R.B. 35
Revenue Rulings:
98–1, 1998–2 I.R.B. 5
98–2, 1998–2 I.R.B. 15
98–3, 1998–2 I.R.B. 4
98–4, 1998–2 I.R.B. 18
98–5, 1998–2 I.R.B. 20
Treasury Decisions:
8740, 1998–3 I.R.B. 4
8741, 1998–3 I.R.B. 6
1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–27 through
1997–52 will be found in Internal Revenue Bulletin
1998–1, dated January 5, 1998.
January 26, 1998
34
1998–4 I.R.B.
Finding List of Current Action on
Previously Published Items1
Bulletins 1998–1 and 1998–3
Revenue Procedures:
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17
Supplemented and superseded by
98–5, 1998–2 I.R.B. 20
92–19
Supplemented in part by
98–2, 1998–2 I.R.B. 15
1 A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–27 through 1997–52 will be found in Internal
Revenue Bulletin 1998–1, dated January 5, 1998.
1998–4 I.R.B
35
January 26, 1998
Note
January 26, 1998
36
1998–4 I.R.B.
Note
1998–4 I.R.B
37
January 26, 1998
Note
January 26, 1998
38
1998–4 I.R.B.
INTERNAL REVENUE BULLETIN
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