Bulletin No. 1996–32

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August 5, 1996

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be relied

upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 96–37, page 4.

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

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

sections of the Code, tables set forth the rates for

August 1996.

Rev. Proc. 96–41, page 9.

Tax-exempt bonds; arbitrage. If an issuer of state or

local bonds used the proceeds of those bonds to pay

more than fair market value for nonpurpose investments

deposited into an advance refunding escrow, procedures

are provided for an issuer to request a closing agreement pursuant to which the purchase of those investments alone will not cause sections 103(b)(2) and 148

of the Code to apply to those bonds.

EXEMPT ORGANIZATIONS

Rev. Proc. 96–40, page 8.

Exempt organizations holding group exemption letters

should file the annual reports required to maintain a

group exemption letter at the Ogden Service Center. Rev.

Proc. 80–27 modified.

Announcement 96–69, page 38.

A list is given of organizations now classified as private

foundations.

Announcement 96–70, page 40.

The Frank Nappi Foundation no longer qualifies as an

organization to which contributions are deductible under

section 170 of the Code.

ADMINISTRATIVE

Rev. Proc. 96–42, page 14.

Requirements are set forth for reproducing paper substitutes for Forms 1096, 1098, 1099 series, 5498, and

W–2G, and for furnishing substitute statements to form

recipients. Rev. Proc. 89–42 superseded.

Notice 96–39, page 8.

This notice states that the Service disagrees with the

Eighth Circuit’s decision in Brown Group v. Commissioner 77 F.3d 217 (8th Cir. 1996), vacating and

remanding 104 T.C. 105 (1995). Also, the Service

intends to issue regulations under subpart F confirming

that whether a controlled foreign corporation (‘‘CFC’’)

partner’s distributive share of partnership income is

subpart F income generally is determined at the CFC

partner level.

Finding Lists begin on page 42.

Announcement of Declaratory Judgment Proceedings Under Section 7428 on page 40.

Monthly Index for July on page 44.

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

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

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

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

provision and not to adopt a strained construction in

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

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

Introduction

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

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

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

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

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

single-copy basis.

court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are

cautioned against reaching the same conclusions in

other cases unless the facts and circumstances are

substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

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

substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published rulings

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

are not published; however, statements of internal

practices and procedures that affect the rights and

duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

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

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

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

stated in the revenue ruling. In those based on positions

taken in rulings to taxpayers or technical advice to

Service field offices, identifying details and information

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

requirements.

Part IV.—Items of General Interest.

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

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

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

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

as precedents by Service personnel in the disposition of

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

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual period,

respectively.

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

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

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

Section 42.—Low-Income Housing

Credit

Section 412.—Minimum Funding

Standards

Section 846.—Discounted Unpaid

Losses Defined

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

month of August 1996. See Rev. Rul. 96–37, on

this page.

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

month of August 1996. See Rev. Rul. 96–37, on

this page.

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

month of August 1996. See Rev. Rul. 96–37, on

this page.

Section 103.—Interest on State and

Local Bonds

Section 467.—Certain Payments

for the Use of Property or Services

If an issuer of state or local bonds has used the

proceeds of those bonds to pay more than fair

market value for nonpurpose investments deposited into an advance refunding escrow, what are

the procedures that an issuer may follow to

request a closing agreement pursuant to which the

purchase of those investments alone will not be

sufficient to cause §§ 103(b)(2) and 148 of the

Internal Revenue Code to apply to those bonds?

See Rev. Proc. 96–41, page 9.

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

month of August 1996. See Rev. Rul. 96–37, on

this page.

Section 1274.—Determination of

Issue Price in the Case of Certain

Debt Instruments Issued for

Property

Section 280G.—Golden Parachute

Payments

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

rates are set forth for the month of August 1996.

See Rev. Rul. 96–37, on this page.

Section 382.—Limitation on Net

Operating Loss Carryforwards and

Certain Built-In Losses Following

Ownership Change

The adjusted federal long-term rate is set forth

for the month of August 1996. See Rev. Rul.

96–37, on this page.

Section 408.—Individual

Retirement Accounts

26 CFR 1.408–5: Annual reports by trustees or

issuers.

Specifications for paper substitutes for Form

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

26 CFR 1.408–7: Reports on distributions from

individual retirement plans.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 468.—Special Rules for

Mining and Solid Waste

Reclamation and Closing Costs

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

month of August 1996. See Rev. Rul. 96–37, on

this page.

Section 483.—Interest on Certain

Deferred Payments

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

month of August 1996. See Rev. Rul. 96–37, on

this page.

Section 501.—Exemption From Tax

on Corporations, Certain Trusts,

Etc.

26 CFR 1.501(a)–1: Exemption from taxation.

Procedure provides that exempt organizations

that hold group exemption letters should file the

group exemption information required annually by

Rev. Proc. 80–27, 1980–1 C.B. 677, with the

Ogden Service Center, Mail Stop 6271, 1000

South 1200 West, Ogden, UT 84404–4749. Rev.

Proc. 80–27 modified. See Rev. Proc. 96–40,

page 8.

Section 807.—Rules for Certain

Reserves

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

month of August 1996. See Rev. Rul. 96–37, on

this page.

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

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

Federal rates; adjusted federal

rates; adjusted federal long-term rate,

and the long-term exempt rate. For

purposes of sections 1274, 1288, 382,

and other sections of the Code, tables

set forth the rates for August 1996.

Rev. Rul. 96–37

This revenue ruling provides various

prescribed rates for federal income tax

purposes for August 1996 (the current

month.) Table 1 contains the short-term,

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

for purposes of section 1274(d) of the

Internal Revenue Code. Table 2 contains

the short-term, mid-term, and long-term

adjusted applicable federal rates (adjusted AFR) for the current month for

purposes of section 1288(b). Table 3

sets forth the adjusted federal long-term

rate and the long-term tax-exempt rate

described in section 382(f). Table 4

contains the appropriate percentages for

determining the low-income housing

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

buildings placed in service during the

current month. Finally, Table 5 contains

the federal rate for determining the

present value of an annuity, an interest

for life or for a term of years, or a

remainder or a reversionary interest for

purposes of section 7520.

REV. RUL. 96–37 TABLE 1

Applicable Federal Rates (AFR) for August 1996

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

6.15%

6.78%

7.40%

8.04%

6.06%

6.67%

7.27%

7.88%

6.01%

6.62%

7.21%

7.80%

5.98%

6.58%

7.16%

7.75%

6.84%

7.54%

8.24%

8.94%

10.36%

12.13%

6.73%

7.40%

8.08%

8.75%

10.10%

11.78%

6.67%

7.33%

8.00%

8.66%

9.98%

11.61%

6.64%

7.29%

7.95%

8.59%

9.89%

11.50%

7.21%

7.94%

8.68%

9.41%

7.08%

7.79%

8.50%

9.20%

7.02%

7.72%

8.41%

9.10%

6.98%

7.67%

8.35%

9.03%

Short-Term

AFR

110% AFR

120% AFR

130% AFR

Mid-Term

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

Long-Term

AFR

110% AFR

120% AFR

130% AFR

REV. RUL. 96–37 TABLE 2

Adjusted AFR for August 1996

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-term

adjusted AFR

3.97%

3.93%

3.91%

3.90%

Mid-term

adjusted AFR

4.89%

4.83%

4.80%

4.78%

Long-term

adjusted AFR

5.80%

5.72%

5.68%

5.65%

REV. RUL. 96–37 TABLE 3

Rates Under Section 382 for August 1996

Adjusted federal long-term rate for the current month

5.80%

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

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

5.80%

REV. RUL. 96–37 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for August 1996

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

8.65%

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

3.71%

REV. RUL. 96–37 TABLE 5

Rate Under Section 7520 for August 1996

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

term of years, or a remainder or reversionary interest

Section 1288.—Treatment of

Original Issue Discount on

Tax-Exempt Obligations

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

month of August 1996. See Rev. Rul. 96–37, page

Section 6041.—Information at

Source

26 CFR 1.6041–1: Return of information as to

payments of $600 or more.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

26 CFR 7.6041–1: Return of information as to

payments of winnings from bingo, keno, and slot

machines (Temporary).

Section 6044.—Returns Regarding

Payments of Patronage Dividends

26 CFR 1.6049–6: Statements to recipients of

interest payments and holders of obligations for

attributed original issue discount.

26 CFR 1.6044–2: Returns of information as to

payments of patronage dividends with respect to

patronage occurring in taxable years beginning

after 1962.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

26 CFR 1.6044–5: Statements to recipients of

patronage dividends.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6045.—Returns of Brokers

26 CFR 1.6045–1: Returns of information of

brokers and barter exchanges.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6041A.—Returns

Regarding Payments of

Remuneration for Services and

Direct Sales

26 CFR 1.6045–2: Furnishing statement required

with respect to certain substitute payments.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6042.—Returns Regarding

Payments of Dividends and

Corporate Earnings and Profits

26 CFR 1.6042–2: Returns of information as to

dividends paid in calendar years after 1962.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

26 CFR 1.6042–4: Statements to recipients of

dividend payments.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

8.2%

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

26 CFR 1.6045–4: Information reporting on real

estate transactions with dates of closing on or

after January 1, 1991.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6047.—Information

Relating to Certain Trusts and

Annuity Plans

26 CFR 1.6047–1: Information to be furnished

with regard to employee retirement plan covering

an owner-employee.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

26 CFR 1.6049–7: Returns of information with

respect to REMIC regular interests and collateralized debt obligations.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6050A.—Reporting

Requirements of Certain Fishing

Boat Operators

26 CFR 1.6050A–1: Reporting requirements of

certain fishing boat operators.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6050B.—Returns Relating

to Unemployment Compensation

26 CFR 1.6050B–1: Information returns by person

making unemployment compensation payments.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6050D.—Returns Relating

to Energy Grants and Financing

26 CFR 1.6050D–1: Information returns relating

to energy grants and financing.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6049.—Returns Regarding

Payments of Interest

Section 6050E.—State and Local

Income Tax Refunds

26 CFR 1.6043–2 Return of information respecting distributions in liquidation.

26 CFR 1.6049–4: Return of information as to

interest paid and original issue discount includible

in gross income after December 31, 1982.

26 CFR 1.6050E–1: Reporting of state and local

income tax refunds.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6043.—Liquidating, Etc.,

Transactions

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6050H.—Returns Relating

to Mortgage Interest Received in

Trade or Business From Individuals

Section 6050N.—Returns

Regarding the Payment of

Royalties

26 CFR 1.6050H–1: Information reporting of

mortgage interest received in a trade or business

from an individual.

26 CFR 1.6050N–1: Statements to recipients of

royalties.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

26 CFR 1.6050H–2: Time, form, and manner of

reporting interest received on qualified mortgage.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6050J.—Returns Relating

to Foreclosures and Abandonments

of Security

26 CFR 1.6050J–1T: Questions and answers concerning information returns relating to foreclosures and abandonments of security (Temporary).

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

Section 6050P.—Returns Relating

to the Cancellation of Indebtedness

by Certain Financial Entities

26 CFR 1.6050P–1T: Information reporting for

discharges of indebtedness by certain financial

entities (temporary).

Section 7121.—Closing

Agreements

If an issuer of state or local bonds has used the

proceeds of those bonds to pay more than fair

market value for nonpurpose investments deposited into an advance refunding escrow, what are

the procedures that an issuer may follow to

request a closing agreement pursuant to which the

purchase of those investments alone will not be

sufficient to cause §§ 103(b)(2) and 148 of the

Internal Revenue Code to apply to those bonds?

See Rev. Proc. 96–41, page 9.

Section 7520.—Valuation Tables

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

month of August 1996. See Rev. Rul. 96–37,

page 4.

26 CFR 1.6050P–1: Information reporting for

discharges of indebtedness by certain financial

entities.

Section 7872.—Treatment of Loans

with Below-Market Interest Rates

Specifications for paper substitutes for Forms

1096, 1098, 1099, 5498, and W–2G. See Rev.

Proc. 96–42, page 14.

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

month of August 1996. See Rev. Rul. 96–37,

page 4.

Part III. Administrative, Procedural, and Miscellaneous

Determination of Whether Income

of a Controlled Foreign Corporation

Earned Through a Partnership Is

Subpart F Income

Notice 96–39

This Notice sets forth the Service’s

position on the Eighth Circuit’s recent

decision in Brown Group, Inc. v. Commissioner, 77 F.3d 217 (8th Cir. 1996),

vacating and remanding 104 T.C. 105

(1995). This Notice also announces that

the Service intends to issue regulations

under Subpart F of the Internal Revenue

Code describing how the aggregate approach to partnerships applies to determine the treatment of a controlled foreign corporation’s (‘‘CFC’s’’) distributive share of partnership income for

purposes of subpart F.

BACKGROUND

In Brown Group, a CFC incorporated

in the Cayman Islands was a partner in

a Cayman Islands partnership. The partnership was not a sham. It acted as a

purchasing agent for the CFC’s U.S.

parent with respect to footwear manufactured in Brazil and received commission income from the U.S. parent as

compensation for its efforts. The footwear imported by the U.S. parent was

sold primarily in the United States. For

its fiscal year ended November 1, 1986,

the U.S. parent did not include as

subpart F income the CFC’s distributive

share of the partnership’s commission

income.

At issue in Brown Group was whether

the CFC partner’s distributive share of

the income of the Cayman Islands partnership was foreign base company sales

income. If so, this income would be

currently includible in the gross income

of the CFC’s U.S. shareholder as subpart F income. See sections 951(a)(1)

and (b), 952(a), 954(d) and 957(a) of

the Internal Revenue Code. Foreign base

company sales income is defined under

section 954(d) to include commission

income from the purchase of personal

property on behalf of a related person

where the property that is purchased is

both manufactured and sold for use

outside the CFC’s country of incorporation.

In Brown Group, the parties agreed

that the commission income was earned

from purchasing personal property that

was both manufactured and sold for use

outside the CFC’s country of incorpora-

tion. The narrow issue in dispute was

whether the footwear was purchased on

behalf of a related person, as defined in

section 954(d)(3) of the Code. It was

undisputed that the U.S. parent, on

whose behalf the purchases were made,

was a related person with respect to the

CFC. The Service argued that an aggregate theory of partnerships should apply,

under which the CFC’s distributive

share of the partnership’s commission

income would be tested at the CFC

level to determine whether it was foreign base company sales income. Accordingly, the related person determination would be made at the partner level,

as if the purchases had been made

directly by the CFC. The taxpayer argued that an entity theory of partnerships should apply, under which the

CFC’s distributive share of partnership

income would be tested at the partnership level. The taxpayer maintained that,

at the partnership level, the purchases

were not made on behalf of a related

person.

The Tax Court, after withdrawing an

earlier opinion favorable to the taxpayer,

held in a reviewed opinion that the CFC

partner’s distributive share of the partnership’s commission income was foreign base company sales income. The

Tax Court reached its conclusion based

upon an analysis of the provisions and

purposes of subpart F and subchapter K,

as well as the case law discussing the

application of the entity and aggregate

theories of partnership taxation. The Tax

Court’s holding is consistent with the

Service’s published position in Rev. Rul.

89– 72, 1989–1 C.B. 257.

On appeal by the taxpayer, the Eighth

Circuit vacated and remanded the decision of the Tax Court. The court concluded, based upon its application of the

definition of related person in section

954(d)(3) of the Code, that the commission income was not foreign base company sales income at the partnership

level and that the CFC partner’s distributive share of this partnership income therefore was not subpart F income.

THE SERVICE’S POSITION

The Service disagrees with the opinion of the Eighth Circuit in Brown

Group. To permit a CFC to avoid subpart F by earning income through a

partnership under circumstances in

which the income would be subpart F

income if earned directly by the CFC

would be contrary to the purposes of

subpart F. See S. Rep. No. 1881, 87th

Cong., 2d Sess. 78–79 (1962).

The legislative history of subchapter

K indicates that, although a partnership

is to be considered an entity in the

treatment of transactions between a partner and a partnership, it need not be

considered a separate entity for purposes

of applying other provisions of the Code

‘‘if the concept of the partnership as a

collection of individuals is more appropriate for such provisions.’’ H.R. Conf.

Rep. No. 2543, 83d Cong. 2d. Sess. 59

(1954). The courts have recognized that

the aggregate approach may be applied

in appropriate circumstances. See Casel

v. Commissioner, 79 T.C. 424, 433

(1982); Unger v. Commissioner, T.C.

Memo. 1990–15, aff’d 936 F.2d 1316

(D.C. Cir. 1991). Section 1.701–2(e) and

(f) of the Income Tax Regulations confirmed the Commissioner’s authority to

treat a partnership as an aggregate of its

partners in whole or in part as appropriate to carry out the purposes of any

provision of the Code or regulations

thereunder.

The Service intends to issue regulations under subpart F to confirm its

position that whether a CFC partner’s

distributive share of partnership income

is subpart F income generally is determined at the CFC partner level. Prior to

the effective date of those regulations,

the Service will rely on principles and

authorities under subpart F and

subchapter K to apply the aggregate

approach, including section 1.701–2(e)

and (f) of the regulations for periods for

which it is effective.

The principal author of this notice is

Valerie Mark of the Office of the Associate Chief Counsel (International). For

further information regarding this notice,

contact Ms. Mark at (202) 622–3840

(not a toll-free call).

26 CFR 601.201: Rulings and determination letters. (Also Part I, § 501; 1.501(a)–1.)

Rev. Proc. 96–40

SECTION 1. PURPOSE

The purpose of this revenue procedure is to modify Rev. Proc. 80–27,

1980–1 C. B. 677, by identifying the

one central location where all filers of

reports required of group parents to

maintain group exemptions should send

the required annual reports.

SEC. 2. BACKGROUND

SECTION 2. BACKGROUND

Rev. Proc. 80–27, provides, in § 6.02,

for nine separate locations to which

group parents should send the annual

information required to maintain a group

exemption letter. These designations

were generally based upon the locations

of the service centers closest to the

filers. The Service has now centralized

the filing of the required information in

the Internal Revenue Service Center,

Ogden, Utah.

.01 Section 103(a) provides, in general, that gross income does not include

interest on any state or local bond.

Section 103(b)(2) provides, however,

that this exclusion from gross income

does not apply to arbitrage bonds.

.02 Section 148(a)(1) provides, in

general, that bonds of an issue are

arbitrage bonds if any portion of the

proceeds of the issue is ‘‘reasonably

expected’’ on the issue date of the issue

to be used directly or indirectly to

acquire higher yielding investments.

.03 Section 1.148–1(b) of the Income

Tax Regulations provides that an issuer’s expectations or actions are reasonable only if a prudent person in the

same circumstances as the issuer would

have those same expectations or take

those same actions, based on all the

objective facts and circumstances. Section 1.148–1(b) also provides that factors relevant to a determination of reasonableness include the level of inquiry

by the issuer into factual matters.

.04 Section 148(f) provides, in general, that bonds of an issue are arbitrage

bonds unless the earnings from the

investment of bond proceeds in excess

of the yield on the issue are rebated to

the United States. The rebate requirement of § 148(f) is generally not based

on reasonable expectations.

.05 Section 1.148–6(c) provides that

gross proceeds of an issue of bonds are

not allocated to a payment for a

nonpurpose investment in an amount

greater than the fair market value of that

investment on the purchase date. For

this purpose only, the fair market value

of a nonpurpose investment is adjusted

to take into account qualified administrative costs allocable to that investment.

.06 Section 1.148–5(d)(6)(i) generally

defines fair market value as the price at

which a willing buyer would purchase

from a willing seller in a bona fide,

arm’s-length transaction. Fair market

value generally is determined on the

date on which a contract to purchase the

nonpurpose investment becomes binding

(that is, the trade date rather than the

settlement date).

.07 Section 1.148–5(d)(6)(iii) provides

that the purchase price of a guaranteed

investment contract is treated as its fair

market value on the purchase date if the

issuer makes a bona fide solicitation for

a guaranteed investment contract that

meets the requirements of that section.

The definition of guaranteed investment

contract in § 1.148–1(b) generally does

SEC. 3. CHANGES

.01 Rev. Proc. 80–27 is modified by

deleting the text of § 6.02 in its entirety

and substituting the following:

Filers of the information listed in

§ 6.01 should send the report to:

Ogden Service Center

Mail Stop 6271

1000 South 1200 West

Ogden, UT 84404–4749

SEC. 4. EFFECTIVE DATE

This revenue procedure is effective

for all group exemption filings submitted on or after July 1, 1996, to comply

with the requirements of § 6 of Rev.

Proc. 80–27.

SEC. 5. EFFECT ON OTHER

REVENUE PROCEDURES

Rev. Proc. 80–27 is modified.

SEC. 6. DRAFTING INFORMATION

The principal author of this revenue

procedure is E. D. Luft of the Exempt

Organizations Division. For further information regarding this revenue procedure, contact Mr. Luft on (202) 622–

6488 (not a toll-free number).

26 CFR 601.202: Closing agreements.

(Also Part I, §§ 103, 148, 7121.)

Rev. Proc. 96–41

SECTION 1. PURPOSE

This revenue procedure applies to an

issuer of state or local bonds that has

used the proceeds of state or local bonds

sold prior to July 19, 1996, to pay more

than fair market value for nonpurpose

investments deposited into an advance

refunding escrow. It provides a program

under which an issuer may request a

closing agreement pursuant to which the

purchase of those investments alone will

not be sufficient to cause §§ 103(b)(2)

and 148 of the Internal Revenue Code

to apply to those bonds.

not include the purchase of investments

for an escrow for an advance refunding

transaction.

.08 Section 1.148–2(d)(2)(ii) defines

‘‘materially higher yield’’ for investments in an advance refunding escrow

as 0.001 percent higher than the yield

on the issue.

.09 An issuer cannot avoid the application of § 148 by giving away the

prohibited arbitrage profit. See 2 H.R.

Conf. Rep. No. 841, 99th Cong., 2d

Sess. II–746 (1986), 1986–3 (Vol. 4)

C.B. 746. The deflection of arbitrage

through the purchase of investments at

other than fair market value is prohibited. H.R. Rep. No. 426, 99th Cong., 1st

Sess. 556 (1985), 1986–3 (Vol. 2) C.B.

556.

.10 Issuers of advance refunding

bonds commonly enter into an agreement to purchase United States Treasury

securities that are to be deposited into

an escrow to pay the refunded prior

issue of bonds. In most cases, an issuer

enters into this investment purchase

agreement on the same date it enters

into an agreement to sell its advance

refunding bonds. That date (the ‘‘sale

date’’) is often several weeks before the

issue date of the issue of bonds.

.11 In a typical tax-exempt advance

refunding transaction, the obligation to

purchase the Treasury securities is contingent on the issuance and sale of the

advance refunding bonds, which in turn

are commonly subject to contingencies

that are standard in the municipal bond

industry (such as the ability of bond

counsel to render an unqualified opinion

on the validity of the bonds).

.12 In general, a valuation method

must take into account all pertinent

information. A valuation method that

singles out one economic factor and

disregards other significant economic

factors is erroneous. See, e.g., Powers v.

Commissioner, 312 U.S. 259, 260

(1941), 1941–1 C.B. 448; Guggenheim

v. Rasquin, 312 U.S. 254 (1941),

1941–1 C.B. 445; Commissioner v. McCann, 146 F.2d 385 (2d Cir. 1944).

.13 Certain state and local government issuers, and certain sellers of Treasury securities to state and local government issuers, of advance refunding

bonds have used a valuation method that

results in prices for those Treasury securities that exceed the fair market value

of the securities. It has been asserted

that the risk of nonsettlement justifies

the inclusion of the cost of a hedge

(such as a put option on Treasury securities) in the fair market value of the

Treasury securities to protect the seller

against any increase in interest rates

between the sale date (trade date) and

the issue date (settlement date).

.14 In these transactions, a substantial

mark-up of the price of Treasury securities for the risk of nonsettlement is

inappropriate for two reasons. First, the

risk of nonsettlement is remote. In addition, the seller of the Treasury securities

is in a position to benefit if interest rates

fall. This potential for benefit should

reduce the weight given to the potential

for loss if rates should rise. In general,

nonsettlement is not more likely when

interest rates rise than when they fall.

.15 In other cases, issuers have entered into agreements to purchase open

market Treasury securities to be deposited into an escrow to pay the refunded

prior issue of bonds. On the same date,

issuers have subscribed to purchase

United States Treasury securities—State

and Local Government Series (‘‘SLGS’’)

from the United States Department of

the Treasury, Bureau of Public Debt to

pay the same refunded prior issue of

bonds. In effect, this arrangement provides a call option on the open market

Treasury securities to the seller of those

securities.

.16 In the case of simultaneous SLGS

subscription and forward purchase contracts, the issuer and the seller of the

open market Treasury securities agree

on the sale date that, if the advance

refunding bonds are issued and if interest rates decline between the sale date

and the issue date of the advance refunding bonds so that the value of the

nonpurpose investments increases, the

issuer will purchase the SLGS. In this

case, the seller will not be obligated to

deliver the open market Treasury securities to the issuer. Alternatively, if the

advance refunding bonds are issued and

if interest rates remain the same or

increase between the sale date and the

issue date so that the value of the

nonpurpose investments remains the

same or decreases, the issuer will be

obligated to purchase the open market

Treasury securities. In this case, the

seller will be obligated to deliver the

open market Treasury securities to the

issuer for deposit into the advance refunding escrow. In addition, the issuer

will not purchase the SLGS. In such a

case, by subscribing for the SLGS, the

issuer in effect provides a call option on

the open market Treasury securities to

the seller of the open market Treasury

securities. For purposes of the arbitrage

rules, the fair market value of the open

market Treasury securities under the

agreement with the seller must accordingly be reduced by the value of this

call option.

.17 Even if the issuer obtains certifications that the purchase price being

paid for nonpurpose investments does

not exceed the fair market value of

those investments, an issue may nevertheless fail to meet the reasonable expectations standard of § 148(a). Further,

in general, an agreement between unrelated persons about price does not presumptively establish fair market value in

a situation where one party to the

agreement lacks financial incentive to

obtain the best price. See Raymond v.

Commissioner, 114 F.2d 140 (7th Cir.),

cert. denied, 311 U.S. 710 (1940).

.18 All the facts and circumstances

are considered in the determination of

whether the proceeds of the issue are to

be invested at a materially higher yield.

Factors strongly tending to establish that

an issuer does not reasonably expect the

proceeds of the issue to be invested at a

materially higher yield are (1) the use of

a bona fide bidding procedure to reasonably probe the market for the fair market value of nonpurpose investments and

(2) reasonable due diligence by the

issuer to review the method used to

determine the fair market value of Treasury securities. One important factor

tending to establish that a bidding procedure is bona fide is that it is conducted by a person that does not have a

material financial interest in the transaction (for example, as the seller of Treasury securities to the issuer).

.19 Some issuers have obtained Treasury securities for an advance refunding

escrow by using procedures that generally are designed to conform to the safe

harbor for guaranteed investments contracts in § 1.148–5(d)(6)(iii). Although

that safe harbor does not expressly apply to the purchase of Treasury securities for an advance refunding escrow,

the Internal Revenue Service will apply

the principles underlying that safe harbor to the purchase of those nonpurpose

investments. Absent extraordinary circumstances, a bona fide bidding procedure consistent with the principles of the

safe harbor for guaranteed investments

contracts is rebuttably presumed to establish fair market value for transactions

to which this revenue procedure is applicable, even in cases where the forward price paid for Treasury securities

is greater than the spot price of those

Treasury securities. Other procedures

may also establish fair market value.

.20 If promulgated as a final regulation, § 1.148–5(d)(6)(v) of the proposed

Income Tax Regulations, published in

the Federal Register on June 27, 1996

(61 Fed. Reg. 33405), would provide a

rebuttable presumption for establishing

fair market value for Treasury securities

purchased other than directly from the

United States Treasury for those transactions described in the regulation.

SECTION 3. DESCRIPTION OF THE

CLOSING AGREEMENT PROGRAM

FOR ADVANCE REFUNDING

ESCROWS

.01 Under the program established by

this revenue procedure, the Service will

enter into closing agreements with the

issuers of bonds. These closing agreements will resolve the effect of the

payment of more than fair market value

for the nonpurpose investments for yield

restriction and rebate purposes under

§ 148. The closing agreements will not

resolve any other matters.

.02 The closing agreements will provide that, for purposes of § 148, the

amount paid by the issuer for the Treasury securities deposited into an advance

refunding escrow will be treated as the

fair market value for those nonpurpose

investments. For purposes of computing

rebate under § 148(f), the closing agreement amount will not be treated as a

rebate payment.

.03 This program is a compliance

program but is not based upon an

examination of an issue of bonds by the

Service.

.04 Because this program does not

arise out of an examination, consideration under this program does not preclude or impede an examination of the

issuer, the bondholders, or the issue of

bonds by the Service with respect to

matters not addressed in the closing

agreement.

.05 The intent underlying this program is to treat expeditiously all requests for closing agreements which are

submitted in accordance with sections 5

and 6 of this revenue procedure. Accordingly, negotiations with the issuers

on the basis of mitigating circumstances

of individual cases will not be entertained under the terms of this revenue

procedure.

SECTION 4. SCOPE

.01 This revenue procedure applies to

any issue of advance refunding bonds

which was sold prior to July 19, 1996,

and issued prior to August 19, 1996, and

the proceeds of which were used to

purchase nonpurpose investments pursuant to an agreement that is substantially

similar to an agreement to purchase

described in sections 2.13 or 2.15 of this

revenue procedure.

.02 An issue of bonds that is under an

examination by the Service is not eligible for the program. An issue of bonds

is under examination if the issuer of the

bonds has been contacted in any manner

by the Service for the purpose of scheduling any type of examination of that

issue of bonds. For issuers that do not

avail themselves of a closing agreement

under this revenue procedure, the Service will treat the purchase of

nonpurpose investments with the proceeds of an issue of bonds as being

subject to the usual procedures governing tax consequences. The result upon

any examination by the Service of the

issue of bonds could be different from

the terms of this revenue procedure,

depending on the merits of the issuer’s

position.

.03 For purposes of this revenue procedure, ‘‘issuer’’ means only the entity

that actually issues the bonds and not a

conduit borrower of the issue.

SECTION 5. PROCEDURE

.01 The issuer seeking relief must

request a closing agreement within 1

year from July 19, 1996, following the

procedures in this revenue procedure.

.02 The issuer must request a closing

agreement using Form 10001, which is

shown as an exhibit at the end of this

revenue procedure.

.03 The closing agreement will be

prepared by the Service and, in general,

will be in substantially the same form as

the model closing agreement set forth in

Announcement 95–61, Exhibit (7)(10)(15)0–6, 1995–32 I.R.B. 54, 74, or any

successor of Announcement 95–61.

.04 As a condition to executing a

closing agreement under this procedure,

the issuer must agree to pay, simultaneously with the execution by the issuer

of the closing agreement, the closing

agreement amount computed under section 6 of this revenue procedure.

.05 The Service will not challenge

whether an issuer paid more than fair

market value for Treasury securities that

are purchased other than directly from

the United States Treasury and deposited

into an advance refunding escrow in a

transaction described in section 2.13 of

this revenue procedure if:

(1) The amount paid for the Treasury securities does not exceed the spot

price as described in section 6.02 of this

revenue procedure;

(2) The period between the sale

date and the issue date of the issue of

bonds was not greater than 1 month;

and

(3) The Treasury securities are purchased prior to July 19, 1996.

SECTION 6. CLOSING AGREEMENT

AMOUNT

.01 The closing agreement amount is

equal to:

(1) The excess of the amount paid

by the issuer for the nonpurpose investments deposited in the advance refunding escrow over the spot price (as

described in section 6.02 of this revenue

procedure) of those nonpurpose investments (this excess is referred to as the

‘‘differential amount’’); plus

(2) Interest on the differential

amount from the issue date of the bonds

to the date of payment at an interest rate

equal to the yield on the issue of bonds.

.02 The spot price is the noncontingent price on the trade date of a

nonpurpose investment for delivery on

the next business day after the trade

date.

.03 In the case of an agreement to

purchase Treasury securities described in

section 2.15 of this revenue procedure,

the differential amount must include the

value of a call option on an equivalent

portfolio of Treasury securities for the

period from the sale date to the issue

date of the advance refunding bonds at a

strike price for the portfolio equal to the

price established in the agreement.

.04 Use of the spot price as the basis

for the settlement amount under this

revenue procedure is for the administrative convenience of state and local government issuers and the Service and

does not reflect a view by the Service

that the spot price closely reflects the

fair market value in all cases of a

contingent forward price for the portfolio. For example, in many cases, use of

the noncontingent forward price for

Treasury securities may be a more accurate basis for determining the fair market value of the contingent forward

price.

.05 Use of the spot price of the

nonpurpose investments is not permitted

if the period between the sale date and

the issue date of the issue of bonds was

greater than 1 month.

SECTION 7. INQUIRIES

Inquiries in regard to this revenue

procedure should be directed to:

Internal Revenue Service

CP:E:EO:T:4 Room 6236

1111 Constitution Ave. NW

Washington, D.C. 20224

SECTION 8. EFFECTIVE DATE

This revenue procedure is effective

July 19, 1996, and applies to state or

local bonds described in section 4.01 of

this revenue procedure.

DRAFTING INFORMATION

The principal author of this revenue

procedure is Loretta J. Finger of the

Office of Assistant Chief Counsel (Financial Institutions and Products). For

further information regarding this revenue procedure contact Loretta J. Finger

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

CAMERA COPY HERE

26 CFR 601.602: Forms and instructions.

(Also Part I, Sections 408, 6041, 6041A, 6042,

6043, 6044, 6045, 6047, 6049, 6050A, 6050B,

6050D, 6050E, 6050H, 6050J, 6050N, 6050P;

1.408–5, 1.408–7, 1.6041–1, 7.6041–1, 1.6042–2,

1.6042–4, 1.6044–2, 1.6044–5, 1.6045–1,

5f.6045–1, 1.6045–2, 1.6045–4, 1.6047–1,

1.6049–4, 1.6049–6, 1.6049–7, 1.6050A–1,

1.6050B–1, 1.6050D–1, 1.6050E–1, 1.6050H–1,

1.6050H–2, 1.6050J–1T, 1.6050N–1, 1.6050P–1)

Rev. Proc. 96–42

CONTENTS

PART A. GENERAL

SECTION 1. PURPOSE

SECTION 2. NATURE OF

CHANGES

SECTION 3. REQUIREMENTS

FOR ACCEPTABLE SUBSTITUTE FORMS 1096, 1098, 1099,

5498, AND W–2G

SECTION 4. DEFINITIONS

SECTION 5. INSTRUCTIONS FOR

PREPARING PAPER FORMS

THAT WILL BE FILED WITH

THE IRS (COPY A)

SECTION 6. MAGNETIC MEDIA

AND ELECTRONIC FILING

SECTION 7. SUBSTITUTE STATEMENTS TO RECIPIENTS AND

FORM RECIPIENT COPIES

PART B. SPECIFICATIONS FOR

SUBSTITUTE FORMS TO BE FILED

WITH IRS (EXCEPT W–2G)

SECTION 1. GENERAL

SECTION 2. SPECIFICATIONS

FOR FORM 1096 AND COPY A

OF FORM 1098, 1099, AND 5498

PART C. SPECIFICATIONS FOR

SUBSTITUTE FORMS W–2G TO BE

FILED WITH IRS

SECTION 1. GENERAL

SECTION 2. SPECIFICATIONS

FOR COPY A FOR FORMS

W–2G

PART D. ADDITIONAL

INSTRUCTIONS FOR FORMS 1098,

1099, 5498, AND W–2G

SECTION 1. OTHER COPIES

SECTION 2. OMB REQUIREMENTS

SECTION 3. REPRODUCTION

PROOFS

SECTION 4. EFFECT ON OTHER

REVENUE PROCEDURES

PART E. EXHIBITS

EXHIBIT A. FORM 1098

EXHIBIT B. FORM 1099–A

EXHIBIT C. FORM 1099–B

EXHIBIT D. FORM 1099–C

EXHIBIT E. FORM 1099–DIV

EXHIBIT F. FORM 1099–G

EXHIBIT G. FORM 1099–INT

EXHIBIT H. FORM 1099–MISC

EXHIBIT I. FORM 1099–OID

EXHIBIT J. FORM 1099–PATR

EXHIBIT K. FORM 1099–R

EXHIBIT L. FORM 1099–S

EXHIBIT M. FORM W–2G

EXHIBIT N. FORM 5498

EXHIBIT O. FORM 1096

PART A. GENERAL

SECTION 1. PURPOSE

.01 The purpose of this revenue procedure is to set forth the requirements

for:

1. Using official Internal Revenue

Service (IRS) forms to file information

returns with IRS,

2. Preparing acceptable substitutes of

the official IRS forms to file information returns, and

3. Using such official or acceptable

substitute forms to furnish information

to a recipient.

This revenue procedure contains specifications for the following information

returns:

(a) Form 1098 Mortgage Interest

Statement;

(b) Form 1099–A Acquisition or

Abandonment of Secured Property;

Broker and Barter Exchange Transactions;

(d) Form 1099–C Cancellation of

Debt;

(e) Form 1099–DIV Dividends and

Distributions;

(f) Form 1099–G Certain Government Payments;

(g) Form 1099–INT Interest Income;

(h) Form 1099–MISC Miscellaneous

Income;

(i) Form 1099–OID Original Issue

Discount;

(j) Form 1099–PATR Taxable Distributions Received From Cooperatives;

(k) Form 1099–R Distributions From

Pensions, Annuities, Retirement or

Profit-Sharing Plans, IRAs, Insurance Contracts, etc.;

(l) Form 1099–S Proceeds From Real

Estate Transactions;

(m) Form W–2G Certain Gambling

Winnings;

(n) Form 5498 Individual Retirement

Arrangement Information; and

(o) Form 1096 Annual Summary and

Transmittal of U.S. Information Returns.

.02 For the purpose of this revenue

procedure, a substitute form or statement

is one that is not printed by the IRS. For

a substitute form or statement to be

acceptable to the IRS, it must conform

to the official form or the specifications

outlined in this revenue procedure. DO

NOT SUBMIT ANY SUBSTITUTE

FORMS OR STATEMENTS TO IRS

FOR APPROVAL. Private printers cannot state ‘‘This is an IRS approved

form.’’ Further, only those forms that

conform to the official form or comply

with the specifications set forth herein

are acceptable. See Part A, Section 7,

for the specifications that apply to form

recipient statements (generally Copy B).

.03 Filers who make payments to

certain persons (payees) (or in some

cases receive payments) during a calendar year are required by the Internal

Revenue Code (IRC) to file information

returns with the IRS reflecting these

payments. Further, as discussed below,

these filers must provide this information to their payees.

.04 In general, the manner in which a

filer must file an information return is

governed by section 6011 of the IRC. A

filer must file information returns on

magnetic media or on paper. Under

section 6011 of the IRC, a filer who is

required to file 250 or more information

returns (of any one type) during a

calendar year must file those returns on

magnetic media. Filers required to file

less than 250 returns during a calendar

year may, but are not required to, file

such information returns on magnetic

media (small volume filers). The IRS

explains these legal requirements for

filing information returns (and providing

a copy to a payee) in the annual publication of Instructions for Forms 1099,

1098, 5498, and W–2G.

.05 Copies of the official forms for

the reporting year and the instruction

booklet may be obtained by calling our

toll-free number 1–800–TAX–FORM

(1–800–829–3676).

.06 The IRS prints and provides the

forms on which various payments must

be reported. Alternatively, filers may

prepare substitute copies of these IRS

forms and use such forms to report

payments to the IRS.

.07 IRS operates a centralized call

site, located at the Martinsburg Comput-

ing Center (MCC), to answer questions

related to information returns, penalties,

and backup withholding. The call site

phone number is 304–263–8700. The

number for Telecommunications Device

for the Deaf (TDD) is 304–267–3367.

These are not toll-free numbers.

.08 IRS has established a personal

computer based Information Reporting

Bulletin Board System (IRP–BBS) at

MCC. This system provides information

about forms and publications, including

this revenue procedure, news of the

latest changes, answers to questions,

access to shareware, and other features.

The IRP–BBS is available for public use

and can be reached by dialing 304–264–

7070. The IRP–BBS is compatible with

most modems. For more information

concerning this system, call MCC at

304–263–8700 (not a toll-free number)

Monday through Friday 8:30 A. M. to

4:30 P. M. eastern time.

SEC. 2. NATURE OF CHANGES

.01 The text and exhibits were updated for tax year 1996.

.02 The phone number for the Information Reporting Bulletin Board System

(IRP–BBS) has been changed. See Part

A, Sec. 1.08.

.03 On Form 5498, new box 5 (check

box for simplified employee pension

(SEP)) was added. See Exhibit N.

.04 A statement regarding the acceptance of handwritten forms has been

added to Part A, Section 5.04.

.05 A note requesting that a phone

number be included on statements to

recipients has been added to Part A,

Sections 7.01(7) and 7.02(2).

.06 A note referring to the correct

form measurements has been added to

Part B, Sec. 2.01.

.07 The note regarding new verbiage

for paper and ink specifications for

substitute forms has been deleted from

Part B, Sec. 2.02. The current specifications are applicable to our new OCR

equipment. Therefore, it is not necessary

to change the current specifications.

.08 New procedures for obtaining Reproducible copies were added to Part D,

Sec. 3.

SEC. 3 REQUIREMENTS FOR

ACCEPTABLE SUBSTITUTE FORMS

1096, 1098, 1099, 5498, and

W–2G

.01 Paper substitutes for Form 1096

and Copy A of Forms 1098, 1099, 5498,

and W–2G that totally conform to the

specifications contained in this revenue

procedure may be privately printed and

filed as returns with the IRS. The reference to the Department of the Treasury Internal Revenue Service should be included on all such forms. The Catalog

Number (Cat. No.) shown on the 1996

Forms 1096, 1098, 1099, 5498, and

W–2G is used for IRS distribution purposes and need not be printed on any

substitute forms.

If you are uncertain of any specification set forth herein and want that

specification clarified, you may submit a

letter citing the specification in question,

giving your understanding and interpretation of the specification, and enclosing

an example of the form (if appropriate)

to:

Internal Revenue Service

ATTN: T:S:P:S - SAL (IRP Coordinator)

1111 Constitution Avenue, N.W.

Washington, DC 20224

NOTE: Allow at least 45 days for the

IRS to respond.

.02 Copy B (Form 1098 - For Payer,

Form 1099–A - For Borrower, Form

1099–C - For Debtor, Form 1099–S For Transferor, Other Forms 1099 - For

Recipient, Form 5498 - For Participant,

and Forms W–2G and 1099–R - To Be

Attached To the Federal Tax Return),

and Copy C- (Form 1099–R For Recipient’s Records and Form W–2G For

Winner’s Records) must contain the information specified in PART A Section

7 in order to constitute a ‘‘statement’’ or

‘‘official form’’ under the applicable

provisions of the Internal Revenue

Code. The format of this information is

at the discretion of the filer with the

exception of the location of the tax year,

form number and form name specified

in Part A Section 7.01(6) and composite

Form 1099 statements specified in

PART A Sections 7.02 and 7.04.

.03 Forms 1096, 1098, 1099, 5498,

and W–2G are subject to annual review

and possible change. Therefore, filers

are cautioned against overstocking supplies of privately printed substitutes.

THE SPECIFICATIONS CONTAINED

IN THIS REVENUE PROCEDURE APPLY TO 1996 FORMS ONLY.

.04 Proposed substitutes for Copy A

that do not conform to the specifications

in this revenue procedure are not acceptable. Further, if you file such forms with

IRS, you may be subject to a penalty for

failure to file an information return

under section 6721 of the Internal Revenue Code (IRC). Generally, the penalty

is $50 for each failure to file a form (up

to $250,000) that the IRS cannot accept

as a return because it does not meet the

provisions in this revenue procedure. No

IRS office is authorized to allow deviations from this revenue procedure.

SEC. 4. DEFINITIONS

.01 The term ‘‘form recipient’’ means

the person to whom you are required by

law to furnish a copy of the official

form or information statement: i.e., for

Form 1098, the recipient is the ‘‘payer/

borrower’’; Form 1099–A, the ‘‘borrower’’; Form 1099–C, the ‘‘debtor’’;

Form 1099–S, the ‘‘transferor’’; other

Forms 1099, the payment recipient;

Form 5498, the ‘‘participant’’; and Form

W–2G, the ‘‘winner.’’

.02 The term ‘‘filer’’ means the person or organization required by law to

file a form listed in PART A Section

1.01 with the IRS. Thus, a filer may be

a payer, a creditor, a recipient of mortgage interest payments, a broker, a barter exchange, a person reporting real

estate transactions, a trustee or issuer of

an individual retirement arrangement

(including an IRA or SEP), or a lender

who acquires an interest in secured

property or who has reason to know that

the property has been abandoned.

.03 A corrected (or amended) return

is one that corrects information previously reported to IRS. (A voided return

will not correct previously reported information.)

.04 The term ‘‘substitute form’’

means a paper substitute of Copy A of

an official form listed in PART A Section 1.01 that totally conforms to the

provisions in this revenue procedure.

.05 The term ‘‘substitute form recipient statement’’ means a paper statement

of the information reported on a form

listed in PART A Section 1.01 that must

be furnished to a person (form recipient), as so defined under the applicable

provisions of the Internal Revenue Code

and the applicable regulations.

.06 A composite substitute statement

is one in which two or more required

statements (e.g., Forms 1099–INT and

1099–DIV) are furnished to the recipient

on one document. However, each statement must be separately designated and

must contain all the requisite Form 1099

information except as provided in Part A

Section 7. A composite statement CANNOT be filed with the IRS. See PART A

Section 7.02 and 7.04 for more information on composite statements.

SEC. 5. INSTRUCTIONS FOR

PREPARING PAPER FORMS THAT

WILL BE FILED WITH THE IRS (Copy

.01 The form recipient’s name, street

address, city, state, and ZIP code information should be TYPED OR MACHINE PRINTED IN BLACK INK on

separate lines. Carbon copies and photocopies are not acceptable. The city,

state, and ZIP code must be on the same

line.

.02 The name of the appropriate form

recipient must be shown on the first or

second name line in the area on the

form provided for the form recipient’s

name and address. No descriptive information or other name may precede the

form recipient’s name. Only ONE form

recipient’s name may appear on the first

name line of the form. If the names of

multiple recipients must be set forth on

the form, on the first name line insert

the recipient name that corresponds to

the taxpayer identification number (TIN)

used for information reporting purposes.

Place the other form recipients’ names,

on the succeeding name line (up to 2

name lines are allowable). Because certain states require that trust accounts be

provided in a different format, generally

filers should provide information returns

reflecting payments to trust accounts

with (1) the trust’s employer identification number (EIN) in the recipient’s TIN

area, (2) the trust’s name on the recipient’s first name line, and (3) the name

of the trustee on the recipient’s second

name line.

.03 You should use the account

number box for an account number

designation. This number must not appear anywhere else on the form, and this

box may not be used for any other item.

Showing the account number is optional.

However, it may be to your benefit to

include the recipient’s account number

or designation on paper documents if

your system of records uses the account

number or designation in conjunction

with, or rather than, the name, social

security number, or employer identification number for identification purposes.

If you furnish the account number, the

IRS will include it in future notices to

you about backup withholding. If you

use window envelopes and reduced rate

mail to mail statements to recipients, be

sure the account number does not appear in the window. Otherwise the

Postal Service may not accept them for

mailing.

.04 Although forms completed in

handwriting will be accepted, in order

for IRS to process the submitted forms

in the most economical manner, the IRS

prefers that filers TYPE OR MACHINE

PRINT data entries. In addition, filers

should insert data in the middle of

blocks well separated from other printing and guidelines, and take other measures to guarantee a clear, dark black,

sharp image.

.05 Machine printed forms should be

printed using a 6 lines/inch option.

.06 Machine printed forms should be

printed in 10 pitch pica (i.e., 10 print

positions per inch) or 12 pitch elite (i.e.,

12 print positions per inch). Proportional

spaced fonts are unacceptable.

.07 To correct returns, enter an ‘‘X’’

within the checkbox located at the top

of the form making the correction, to

the left of the word ‘‘CORRECTED.’’

DO NOT type the words CORRECTED

RETURN on the Form 1096, 1098,

1099, 5498, or W–2G. See ‘‘Corrected

Returns’’ in the 1996 ‘‘Instructions for

Forms 1099, 1098, 5498, and W–2G.’’

.08 If you make an error while typing

or printing a Form 1098, 1099, or 5498,

enter an ‘‘X’’ in the ‘‘VOID’’ box at the

top of the form. An entry in the

‘‘VOID’’ box will not correct previously

filed information returns. See ‘‘Void

Returns’’ in the 1996 ‘‘Instructions for

Forms 1099, 1098, 5498, and W–2G.’’

.09 DO NOT use a felt tip marker.

The machine used to ‘‘read’’ paper

forms generally cannot ‘‘read’’ this ink

type.

.10 Substitute forms prepared in continuous or strip form must be burst and

stripped to conform to the size specified

for a single sheet before they are filed

with IRS. The size specified does not

include pinfeed holes. Pinfeed holes

MUST NOT be present on forms filed

with the IRS.

.11 Use decimal points to indicate

dollars and cents. DO NOT use dollar

signs ($), ampersands (&), asterisks (*),

commas (,), or other special characters

in the numbered money boxes. Example:

2000.00 is acceptable.

.12 DO NOT FOLD Forms 1096,

1098, 1099, or 5498 being mailed to

IRS. Mail these forms flat in an appropriately sized envelope or box. Folded

documents cannot be readily moved

through the scanner transport used in

IRS processing.

.13 DO NOT STAPLE Forms 1096

to the returns being transmitted. Staple

holes in the vicinity of the return code

number reduce the IRS’s ability to machine scan the type of documents.

.14 DO NOT type other information

on Copy A. DO NOT cut or separate

the individual forms on the sheet of

forms of Copy A (except Forms W–2G).

.15 MAIL completed paper forms to

the IRS service center specified on the

back of Form 1096 and in the 1996

‘‘Instructions for Forms 1099, 1098,

5498, and W–2G.’’ CAUTION: SEE

NEW ‘‘WHERE TO FILE’’ ADDRESSES, for tax year 1995. Specific

information needed to complete the

forms in this revenue procedure is given

in those instructions. A chart is included

in those instructions giving a quick

guide to which form must be filed to

report a particular payment.

SEC. 6. MAGNETIC MEDIA AND

ELECTRONIC FILING

.01 All forms listed in Section 1.01

(except Form 1096) may be filed magnetically or electronically. The IRS encourages all filers including nominees

(hereafter collectively referred to as filers) to file information returns on magnetic media or electronically instead of

on paper forms.

.02 Any person who is required to

file 250 or more (of any one type of

form) information returns for one calendar year MUST file on magnetic media

unless an undue hardship waiver is

requested and received. To request a one

year waiver of the magnetic media filing

requirements, for the current tax year

only, submit Form 8508, Request for

Waiver From Filing Information Returns

on Magnetic Media. See Publication

1220 Part A, Sec. 5, for more information. Specifications for filing information returns on magnetic media are

contained in Publication 1220, ‘‘Specifications for Filing Forms 1098, 1099,

5498, and W–2G Magnetically or Electronically.’’ Copies of this publication

may be obtained by calling 1–800–

TAX–FORM (1–800–829–3676). Payers who do not comply with the magnetic media filing requirements and who

are not granted a waiver may be subject

to penalties. Note: Filing electronically

will satisfy the magnetic media filing

requirements. Refer to Publication 1220,

Part C, Bisynchronous (Mainframe)

Electronic Filing Specifications and Part

D, Asynchronous (IRB–BBS) Electronic

Filing Specifications.

SEC. 7. SUBSTITUTE STATEMENTS

TO FORM RECIPIENTS AND FORM

RECIPIENT COPIES

If you are not using the official IRS

form to furnish statements to your recipients, your substitute statements must

comply with the rules in this section. In

general, see Regulations sections

1.6042–4, 1.6044–5, 1.6049–6, and

1.6050N–1 on the manner in which

certain statements must be provided to

recipients (statement mailing requirements for most Forms 1099–DIV and

1099–INT, all Forms 1099–OID and

1099–PATR, and Form 1099–MISC or

1099–S for royalties).

.01 SUBSTITUTE STATEMENTS

TO RECIPIENTS - Forms 1099–INT

(except for interest reportable under section 6041), DIV (except for section

404(k) dividends)), OID, and PATR

ONLY. The requirement to furnish form

recipients with an official Form 1099–

INT, DIV, OID, or PATR may be met

by furnishing Copy B of the official

form or by furnishing a substitute Form

1099 (form recipient statement) if it

contains the same language as that of

the official IRS form (such as aggregate

amounts paid to the form recipient, any

backup withholding, the name, address,

and TIN of the person making the

return, and any other information required by the official form). Information

not required by the official form should

not be included on the substitute form

except for state tax withholding information. You may enter a total of the

individual accounts listed on the form

only if they have been paid by the same

payer. For example, if you are listing

interest paid on several accounts by one

financial institution on Form 1099–

INT, you may also enter the total

interest amount. You may also enter a

date next to the corrected box if that

box is checked.

The form recipient statement, e.g.,

Copy B of a substitute form for 1099–

INT, 1099–DIV, 1099–OID, and 1099–

PATR, must comply with the following

requirements.

(1) Box captions and numbers that

are applicable must be clearly identified, using the same wording and

numbering as on the official form.

However on Form 1099–INT, if

box 3 is not on your substitute

form, you may drop ‘‘not included

in box 3’’ from the box 1 caption.

(2) The form recipient statement must

contain all applicable form recipient instructions provided on the

front and back of the official IRS

form. Those instructions may be

provided on a separate sheet of

paper.

(3) The form recipient statement must

contain the following statement in

bold and conspicuous type, ‘‘This

is important tax information and is

being furnished to the Internal Revenue Service. If you are required to

file a return, a negligence penalty

or other sanction may be imposed

on you if this income is taxable

and the IRS determines that it has

not been reported.’’

(4) The caption ‘‘Federal income tax

withheld’’ must be in bold face

type on the form recipient statement.

(5) The form recipient statement must

contain the Office of Management

and Budget (OMB) number as

shown on the official IRS form.

See Part D, Section 2.

(6) The form recipient statement must

contain the tax year (e.g., 1996),

form number (e.g., Form 1099–

INT), and form name (e.g., Interest

Income) of the official IRS Form

1099 for which it substitutes prominently displayed together in one

area of the statement. For example,

the tax year, form number, and

form name could be shown in the

upper right part of the statement.

Each copy must be appropriately

labeled (such as Copy B, For Recipient) (see PART D Section 1.02

for applicable labels of forms). DO

NOT include the words ‘‘Substitute

for’’ or ‘‘In lieu of’’ on the form

recipient statement.

(7) Layout and format of the form is

at the discretion of the filer. However, IRS encourages the use of

statements with boxes so that the

statement has the appearance of a

form and can be easily distinguished from other nontax statements. NOTE: Please include your

telephone number on statements to

recipients you provide so that taxpayers can contact you directly

with questions.

(8) With respect to dividend income,

a mutual fund family may separately state on one document (e.g.,

one piece of paper) the dividend

income earned by a recipient from

each fund within the family of

funds as required by Form 1099–

DIV. However, each fund and its

earnings must be separately stated.

The form must contain an instruc-

tion to the recipient that each

fund’s dividends and name, not the

name of the mutual fund family,

must be reported on the recipient’s

tax return. The form cannot contain

an aggregate total of all funds.

Moreover, a mutual fund family

may furnish a single statement (as

a single filer) for Form 1099–INT,

DIV, and OID information. Each

fund and its earnings must be separately stated. The form must contain an instruction to the recipient

that each fund’s earnings and name,

not the name of the mutual fund

family, is to be reported on the

shareholder’s tax return. The form

cannot contain an aggregate total of

all funds.

.02 COMPOSITE SUBSTITUTE

STATEMENTS - FORMS 1099–INT

(except for interest reportable under

section 6041), DIV (except for section

404(k) dividends)), OID, AND PATR

ONLY. - A composite form recipient

statement is permitted for reportable

payments of interest, dividends, original

issue discount, and/or patronage dividends (Forms 1099–INT, DIV, OID or

PATR) when one payer is reporting

more than one of these payments during

a calendar year to the same form recipient. Generally, do not include any other

Form 1099 information (e.g., 1098 or

1099–A) on a composite statement with

the information required on the forms

listed in the preceding sentence. Exception: A filer may include Form 1099–B

information on a composite form with

the forms listed above. Although the

composite form recipient statement may

be on one sheet, the format of the

composite form recipient statement must

satisfy the following requirements in

addition to the requirements listed in

Section 7.01 above.

(1) All information pertaining to a

particular type of payment must be

located and blocked together on the

form and must be separate from

any information covering other

types of payments included on the

form. For example, if you are reporting interest and dividends, the

Form 1099–INT information must

be presented separately from the

Form 1099–DIV information.

(2) The tax year, form number, and

form name of the official IRS

forms for which the composite

form recipient statement substitutes

must be prominently displayed together in one area at the beginning

of each appropriate block of infor-

mation. NOTE: Please include

your telephone number on statements to recipients you provide so

that taxpayers can contact you directly with questions.

(3) Any information required by the

official IRS forms that would otherwise be repeated in each information block is only required to be

listed once in the first information

block on the composite form. For

example, there is no requirement to

report the name of the filer in each

information block. This rule does

not apply to any money amounts,

e.g., Federal income tax withheld,

or to any other information that

applies to money amounts.

(4) A composite statement shall be

considered an acceptable substitute

only if the type of payment and the

recipient’s tax obligation with respect to the payment are no less

clear than if each required statement were furnished separately on

an official form.

.03 SUBSTITUTES STATEMENTS

TO RECIPIENTS - FORMS 1098,

1099–A, 1099–B, 1099–C, 1099–G,

1099–MISC, 1099–R, 1099–S, 5498,

W–2G, AND CERTAIN FORMS 1099–

INT AND 1099–DIV. Statements to

form recipients of payments reportable

on Forms 1098, 1099–A, 1099–B,

1099–C,

1099–G,

1099–MISC,

1099–R, 1099–S, 5498, 1099–DIV only

for section 404(k) dividends reportable under section 6047, and 1099–

INT only for interest of $600 or more

made in the course of a trade or

business reportable under section

6041 can be, but are not required to be,

copies of the official forms. If you do

not use the official form as the form

recipient statement, the substitute recipient statement must meet the following

requirements:

(1) The tax year, form number, and

form name must be the same as the

official form, and must be prominently displayed together in one

area of the statement.

(2) The filer’s and the form recipient’s identifying information required on the official IRS form

must be included.

(3) All applicable money amounts

and information, including box

numbers, required to be reported to

the form recipient must be titled on

the form recipient statement in substantially the same manner as those

on the official IRS form. The caption ‘‘Federal income tax withheld’’

must be in bold face type on the

form recipient statement. Exception: If you are reporting a payment as ‘‘Other income’’ in box 3,

Form 1099–MISC, you may substitute appropriate explanatory language for the box title. For example, for payments of accrued

wages and leave to a beneficiary of

a deceased employee, you might

change the title of box 3 to ‘‘Beneficiary payments’’ or something

similar. (You cannot make this

change on Copy A.)

(4) Appropriate instructions to the

form recipient, similar to those on

the official IRS form, must be

provided to aid in the proper reporting of the items on the form

recipient’s income tax return. For

payments reported on Form

1099–B, the requirement to include

instructions that are substantially

similar to those on the official IRS

form may be satisfied by providing

form recipients with a single set of

instructions with respect to all

Forms 1099–B statements required

to be furnished in a calendar year.

NOTE: If Federal income tax withheld is shown on Form 1099–R or

W–2G, Copy B (to be attached to

the tax return) and Copy C (for

recipient’s/winner’s records) must

be furnished to the recipient. If

Federal income tax withheld is not

shown on Form 1099–R or

W–2G, only Copy C is required to

be furnished. However, instructions

similar to those contained on the

back of the official Copy B and

Copy C of Form 1099–R must be

furnished to the recipient. For convenience, you may choose to provide both Copies B and C of Form

1099–R to the recipient.

(5) The quality of carbon used to

produce statements to recipients

must meet new standards as follows:

(a) all copies must be CLEARLY

LEGIBLE;

(b) all copies must have the capability to be photocopied;

degree as to preclude legibility

and the ability to photocopy. In

general, black chemical transfer

inks are preferred; other colors

are permitted only if the above

standards are met. Hot wax and

cold carbon spots are NOT permitted on any of the internal

form plies. These spots are per-

mitted on the back of a mailer

top envelope ply.

(6) A mutual fund family may separately state on one document (e.g.,

one piece of paper) the Form

1099–B information for a recipient

from each fund as required by

Form 1099–B. However, the gross

proceeds, etc., from each transaction within a fund must be separately stated. The form must contain an instruction to the recipient

that each fund’s amount and name,

not the name of the mutual fund

family, must be reported on the

recipient’s tax return. The form

cannot contain an aggregate total of

all funds.

(7) For Form 1099–S, Proceeds

From Real Estate Transactions, you

may use a Uniform Settlement

Statement under the Real Estate

Settlement Procedures Act of 1974

(RESPA), as the written statement

to the transferor if it is conformed

by including on the statement the

legend described in (8)(e) below

and by designating which information on the Uniform Settlement

Statement is being reported to IRS

on Form 1099–S.

(8) Form recipient statements must

contain the following legends:

(a) Form 1098—(i) ‘‘The information in boxes 1, 2 and 3 is

important tax information and is

being furnished to the Internal

Revenue Service. If you are required to file a return, a negligence penalty or other sanction

may be imposed on you if the

IRS determines that an underpayment of tax results because you

overstated a deduction for this

mortgage interest or for these

points or because you did not

report this refund of interest on

your return.’’ (ii) ‘‘The amount

shown may not be fully deductible by you on your Federal

income tax return. Limitations

based on the cost and value of

the secured property may apply.

In addition, you may only deduct

an amount of mortgage interest

to the extent it was incurred by

you, actually paid by you, and

not reimbursed by another person.’’

(b) Form 1099–A and 1099–C—

‘‘This is important tax information and is being furnished to the

Internal Revenue Service. If you

are required to file a return, a

negligence penalty or other sanction may be imposed on you if

taxable income results from this

transaction and the IRS determines that it has not been reported.’’

1099–INT, 1099–MISC, and

W–2G (Copy C)— ‘‘This is important tax information and is

being furnished to the Internal

Revenue Service. If you are required to file a return, a negligence penalty or other sanction

may be imposed on you if this

income is taxable and the IRS

determines that it has not been

reported.’’ Copy B of Form

W–2G must state ‘‘This information is being furnished to the

Internal Revenue Service. Report

this income on your Federal tax

return. If this form shows Federal income tax withheld in box

2, attach this copy to your return.’’

(d) Form 1099–R, Copy B—‘‘Report this income on your Federal

tax return. If this form shows

Federal income tax withheld in

box 4, attach this copy to your

return. This information is being

furnished to the Internal Revenue

Service.’’ Form 1099–R, Copy

C—‘‘This information is being

furnished to the Internal Revenue

Service.’’

(e) Form 1099–S—‘‘This is important tax information and is being

furnished to Internal Revenue

Service. If you are required to

file a return, a negligence penalty

or other sanction may be imposed on you if this item is

required to be reported and the

IRS determines that it has not

been reported.’’

(f) Form 5498—‘‘The information

in boxes 1, 2, 3, 4 and 5 is being

furnished to the Internal Revenue

Service.’’ Note: If the trustee

does not issue Form 5498 to a

participant because no contributions were made to an IRA for

the year, a year-end statement

issued to the participant reporting

the fair market value of the account must contain a similar legend designating which information is being furnished to IRS.

.04 COMPOSITE SUBSTITUTE

STATEMENT - FORMS SPECIFIED IN

7.03 ONLY. - A composite form recipient statement for forms specified in 7.03

is permitted when one filer is reporting

more than one of the related payments

during a calendar year to the same form

recipient. A composite statement is not

allowable for a combination of forms

listed in 7.01 and forms listed in 7.03

except that a filer may report Form

1099–B information on a composite

form with the forms listed in 7.01 as

described in 7.02. Although the composite form recipient statement may be on

one sheet, the format of the composite

form recipient statement must satisfy the

requirements listed in items (1), (2), (3)

and (4) of 7.02 above in addition to the

requirements specified in 7.03. A composite statement of Forms 1098 and

1099–INT (for interest reportable under

section 6049) IS NOT ALLOWABLE.

PART B - SPECIFICATIONS FOR

SUBSTITUTE FORMS TO BE FILED

WITH IRS (EXCEPT FORM W–2G)

SEC. 1. GENERAL

.01 The following specifications prescribe the format requirements for

Forms 1096 and Copy A of Forms

1098, 1099, and 5498. (See Part C for

Form W–2G specifications.)

.02 The form identifying number

(e.g., 9191 for Form 1099–DIV) must

be printed in non-reflective black

carbon-based ink in print positions 15

through 19 using an OCR A font. The

checkboxes located to the right of the

form identifying number must be 10point boxes, the void checkbox is in

print position 25 and the corrected

checkbox in position 33. These measurements are from the left edge of the

paper, not including the perforated strip.

SEC. 2. SPECIFICATIONS FOR

FORMS 1096 AND COPY A OF

FORMS 1098, 1099 AND 5498

.01 The substitute form must be an

exact replica of the official IRS reproduction proof with respect to layout and

contents. NOTE: To determine the correct form measurements, see Exhibits A

through O at the end of this publication.

The specifications for Copy A of Forms

1098, 1099 and 5498 are provided in

Exhibits A through N, and specifications

for Form 1096 are provided in Exhibit

O.] Hot wax and cold carbon spots are

not permitted on any of the internal

form plies. These spots are permitted on

the back of a mailer top envelope ply.

Use of chemical transfer paper for Copy

A is acceptable. The Government Printing Office (GPO) symbol must be deleted.

.02 Color and quality of paper for

Copy A (cut sheets and continuous

pinfeed forms) as specified by JCP Code

0–25, dated November 29, 1978, must

be white 100% bleached chemical wood,

optical character recognition (OCR)

bond produced in accordance with the

following specifications:

NOTE: Reclaimed fiber in any percentage is permitted provided the requirements of this standard are met.

(1) Acidity: Ph value, average,

not less than . . . . . . . . . . . . . . . . . . . . . . . .4.5

(2) Basis Weight 17 x 22

500 cut sheets . . . . . . . . . . . . . . . . . . . 18–20

Metric equivalent—g/m2 . . . . . . . . . . . . . . 75

A Tolerance of 65 pct.

shall be allowed.

(3) Stiffness: Average, each

direction, not less

than—milligrams . . . . . . . . . . . . . . . . . . . . 50

(4) Tearing strength: Average,

each direction, not less

than—grams . . . . . . . . . . . . . . . . . . . . . . . . 40

(5) Opacity: Average, not less

than—percent . . . . . . . . . . . . . . . . . . . . . . . 82

(6) Thickness: Average—

inch—0.0038

Metric equivalent—

mm—0.097

A tolerance of +0.0005 inch

(0.0127 mm) shall be allowed.

Paper shall not vary more than

0.0004 inch (0.0102 mm) from

one edge to the other.

(7) Porosity: Average, not less

than—seconds . . . . . . . . . . . . . . . . . . . . . . 10

(8) Finish (smoothness): Average,

each side—seconds . . . . . . . . . . . . . . . . 20–5

For information only,

the Sheffield

equivalent—units . . . . . . . . . . . . . . . 170–100

(9) Dirt: Average, each side,

not to exceed—parts

per million . . . . . . . . . . . . . . . . . . . . . . . . . . 8

.03 All printing on Forms 1098,

1099, and 5498 must be in red OCR

dropout ink, Flint J–6983 (formerly

Sinclair-Valentine) or an exact match,

except for the 4-digit form identifying

numbers, which must be printed in nonreflective carbon-based black ink. The

shaded areas of any substitute form

should generally correspond to that

present on the official form. Printing on

Form 1096 above the statement:

‘‘Please return this entire page to the

Internal Revenue Service. Photocopies

are NOT acceptable.’’ must be in red

OCR dropout ink (except for the 4 digit

form identifying number 6969). All

printing including and below the statement described in the previous sentence

may be in any shade or tone of black

ink. Black ink should only appear on the

lower portion of the reverse side of

Form 1096 where it would not bleed

through and interfere with scanning. The

instructions to filers are printed on the

back of the copy designated for the

Payer, Recipient for 1098, Lender for

Form 1099–A, Creditor for 1099–C,

Filer for 1099–S, or Trustee or Issuer

for Form 5498 in any ink color or tone.

Separation between fields must be 0.1

inch. Other than the Form 1099–R, the

numbered captions are printed as a solid

with no shaded background. Other printing requirements are discussed below.

OCR Specifications

The contractor must have or initiate a

quality control program to assure OCR

ink density. In addition, the contractor

must have access to either a MacBeth

PCM–II tester or a Kidder 082A tester

to evaluate the ink at regular intervals

throughout a shift.

Paper and Ink

Readings will be made when printed

on approved 20 lb. white OCR bond

with a reflectance of not less than 80%.

Black ink used must not have a reflectance greater than 15%. These readings

are based on requirements of the ‘‘REI

Input 80 Model C1 & D’’ Optical

Scanner using Flint Ink (formerly

known as Sinclair - Valentine J–6983

red ink) or equal.

MacBeth PCM II Tester

The tested Print Contrast Signal

(PCS) values when using the MacBeth

PCM–II tester on the ‘‘C’’ scale must

range from .01 minimum to .06 maximum.

Kidder 082A Tester

The tested Print Contrast Signal

(PCS) values when using the Kidder

082A tester on the Infra Red (IR) scale

must range from .12 minimum to .21

maximum. White calibration disc must

be 100%, sensitivity must be set at one

(1).

Alternative Tester

If an alternative tester is used it must

be approved by the Government so that

tested (PCS) values can be established

with this equipment. Approval may be

obtained by writing to the following

address:

Commissioner of Internal Revenue

Attn: HR:F:P:P Room 1237

Tax Forms Procurement Analyst

1111 Constitution Avenue, N.W.

Washington, DC 20224

.04 Typography - Type must be substantially identical in size and shape

with corresponding type on the official

form. All rules are either 1⁄2-point or

3⁄4-point. Rules must be identical to that

on the official IRS form. NOTE: The

form identifying number must be

nonreflective carbon-based black ink in

OCR A Font. .

05 Dimension - Three Forms 1098,

1099, or 5498 (Copy A) are contained

on a single page, except Form 1099–R

which contains two documents per page,

which is 8 inches wide (exclusive of

any snap-stubs and/or pinfeed holes) by

11 inches deep. There is a .33 inch top

margin from the top of the corrected

box, and there is a .25 inch right

margin. There is a 1⁄329 (0.0313’’) tolerance for the right margin. These measurements are constant for all Forms

1098, 1099 and 5498. The measurements will be shown only once in the

exhibit section of this publication, on

the Form 1098. Exceptions to these

measurements will be shown on the

remainder of exhibits. If the right and

top margins are properly aligned, the

left margin for all forms will be correct.

All margins must be free of all printing.

See Exhibits A through O in this publication for the correct form measurements.

.06 The depth of the individual trim

size of each form on a page must be the

same as that of the official form (32⁄3

inches, except 51⁄2 inches for Form

1099–R).

.07 The words ‘‘For Paperwork Reduction Act Notice and instructions for

completing this form, see Instructions

for Forms 1099, 1098, 5498, and

W–2G’’ must be printed on Copy A (and

Copy C). The words ‘‘For more information and the Paperwork Reduction

Act Notice, see the Instructions for

Forms 1099, 1098, 5498, and W–2G’’

must be printed on Form 1096.

.08 The OMB Number must be

printed on Copies A and Form 1096 in

the same location as that on the official

form.

.09 Privately printed continuous substitute forms (Copy A) must be perforated at each 119 (3 per page, or 2 per

page for 1099–R) page depth. No perforations are allowed between the 32⁄39

forms (or 51⁄29 for Form 1099–R) on a

single copy page of Copy A.

.10 The words ‘‘Do NOT Cut or

Separate Forms on This Page’’ must be

printed in red dropout ink (as required

by form specifications) between the

three, or two for Forms 1099–R.

NOTE: Perforations are required between all the other individual copies

(Copies B and C, and Copies 1 and 2

for Form 1099–R and Form 1099–

MISC, and Copy D for Form 1099–R)

included in the set.

.11 Chemical transfer paper is permitted for Copy A only if the following

standards are met:

(1) Only chemically backed paper

is acceptable for Copy A.

(2) Carbon coated forms are not

permitted. Front and back chemically

treated paper cannot be processed properly by machine.

(3) Chemically transferred images

must be black in color.

.12 Hot wax and cold carbon spots

are NOT permitted for Copy A. Interleaved carbon should be black and must

be of good quality to assure legibility of

information on all copies to preclude

smudging. All copies must be

CLEARLY LEGIBLE. Fading must not

be of such a degree as to preclude

legibility.

.13 Printer’s symbol —- The GPO

symbol must not be printed on substitute

Copy A. Instead, the employer identification number (EIN) of the forms

printer must be entered in the bottom

margin on the face of each individual

form of Copy A, or the bottom margin

on the reverse side of each Form 1096.

THE FORM MUST NOT CONTAIN

THE STATEMENT ‘‘IRS APPROVED.’’

.14 A postal indicia may be used if it

meets the following criteria: a) it is

printed in the OCR ink color prescribed

for the form; and b) no part of the

indicia is within 1 print position of the

scannable area.

PART C. SPECIFICATIONS FOR

SUBSTITUTE FORMS W–2G TO BE

FILED WITH IRS

SEC. 1. GENERAL

.01 The following specifications prescribe the format requirements for Form

W–2G—COPY A ONLY.

.02 A filer may file a substitute Form

W–2G with the IRS (hereinafter referred to as ‘‘substitute Copy A’’). The

substitute form (filed with the IRS) must

be an exact replica of the official form

with respect to layout and contents.

SEC. 2. SPECIFICATIONS FOR

COPY A FOR FORMS W–2G

.01 Color and Quality of Paper—

Paper for Copy A must be white chemical wood bond, or equivalent, 20 pound

(basis 17 X 22–500), plus or minus 5

percent. The paper must consist substantially of bleached chemical wood pulp

and be free from unbleached or ground

wood pulp or recycled printed paper. It

also must be suitably sized to accept ink

without feathering.

.02 Color and Quality of Ink—All

printing must be in a high quality

non-gloss black ink. Bar codes should

be free from picks and voids.

.03 Typography—The type must be

substantially identical in size and shape

with that on the official form. All rules

on the document are either 1⁄2 point

(.007 inch), 1 point (0.015 inch), or 3

point (0.045). Vertical rules must be

parallel to the left edge of the document; horizontal rules, to the top edge.

.04 Dimensions—The official form is

8 inches wide x 32⁄3 inches deep, exclusive of a 2⁄3 inch snap stub on the left

side of the form. The snap feature is not

required on substitutes. The top and

right margins must be 1⁄4 inch plus or

minus .0313. If the top and right margins are properly aligned, the left margin for all forms will be correct. All

margins must be free of any printing. If

the substitute forms are in continuous or

strip form, they must be burst and

stripped to conform to the size specified

for a single form.

(1) The width of a substitute Copy

A must be 8 inches. The left margin

must be free of all printing other than

that shown on the official form.

(2) The depth of a substitute Copy

A must be 32⁄3 inches.

.05 Hot wax and cold carbon spots

are not permitted on any of the internal

form plies. These spots are permitted on

the back of a mailer top envelope ply.

Interleaved carbons, if used, should be

black and of good quality to preclude

smudging.

.06 Printer’s Symbol—The Government Printing Office (GPO) symbol

must not be printed on substitute Forms

W–2G. Instead the employer identification number (EIN) of the forms printer

must be printed in the bottom margin on

the face of each individual form of

Copy A of such substitute forms. The

form must not contain the statement

’’IRS approved.‘‘

PART D. ADDITIONAL

INSTRUCTIONS FOR FORMS 1098,

1099, 5498, AND W–2G

SEC. 1. OTHER COPIES

.01 Copies B, C, and in some cases

D, 1, and 2, are included in the official

assembly for the convenience of the

filer. There is no legal requirement that

privately printed substitute forms include all these copies, Copies B, and in

some cases Copies C, will satisfy the

requirement of the law and regulations

concerning the statement of information

that is required to be furnished to the

form recipient. NOTE: If Federal income tax withheld is shown on Form

W–2G or 1099–R, Copy B (to be

attached to the tax return) and Copy C

must be furnished to the recipient. Copy

D (Forms 1099–R and W–2G) may be

desired as a filer record copy. Only

Copy A should be filed with the IRS.

.02 Arrangement of Assembly- The

parts of the assembly must be arranged,

from top to bottom, as follows: (a) All

forms-Copy A ‘‘For Internal Revenue

Service Center.’’ (b) Form 1098- Copy

B ‘‘For Payer’’; Copy C ‘‘For Recipient.’’ (c) Form 1099–A- Copy B ‘‘For

Borrower’’; Copy C ‘‘For Lender.’’ (d)

Form 1099–C Copy B ‘‘For Debtor’’;

Copy C ‘‘For Creditor’’; (e) Forms

1099–B, 1099–DIV, 1099–G, 1099–INT,

1099–OID, and 1099–PATR- Copy B

‘‘For Recipient’’; Copy C ‘‘For Payer.’’

(f) Form 1099–MISC- Copy 1 ‘‘For

State Tax Department’’; Copy B ‘‘For

Recipient’’; Copy 2 ‘‘To be filed with

recipient’s state income tax return, when

required.’’; Copy C ‘‘For Payer.’’ (g)

Form 1099–R- Copy 1 ‘‘For State, City,

or Local Tax Department’’; Copy B

‘‘Report this income on your Federal tax

return. If this form shows Federal income tax withheld in box 4, attach this

copy to your return.’’; Copy C ‘‘For

Recipient’s Records’’; Copy 2 ‘‘File this

copy with your state, city, or local

income tax return, when required.’’;

Copy D ‘‘For Payer.’’ (h) Form 1099–SCopy B ‘‘For Transferor’’; Copy C ‘‘For

Filer.’’ (i) Form 5498– Copy B ‘‘For

Participant’’; Copy C ‘‘For Trustee or

Issuer.’’ (j) Form W–2G- Copy 1 ‘‘For

State Tax Department’’; Copy B ‘‘Report this income on your Federal tax

return. If this form shows Federal income tax withheld in box 2, attach this

copy to your return.’’ Copy C ‘‘For

Winner’s Records’’; Copy 2 ‘‘Attach

this copy to your state income tax

return, if required.’’; Copy D ‘‘For

Payer.’’

.03 Perforations are required between

forms on all copies except Copy A to

enable the separation of individual

forms. Copy A of Form W–2G may be

perforated.

SEC. 2. OMB REQUIREMENTS

.01 Office of Management and Budget (OMB) Requirements for Substitute

Forms—Public Law 96–511 requires

that : (1) OMB approve Internal Revenue Service tax forms, (2) each form

show (in the upper right corner) the

OMB approval number, and (3) the

form (or its instructions) state why IRS

is collecting the information, how it will

be used and whether it must be given to

IRS. The official IRS forms or instructions contain this information and any

substitute must contain it also.

.02 The OMB requirements for substitute IRS forms are:

(1) All substitute forms, including

substitute statements to recipients,

must show the OMB number as it

appears on the official IRS form;

(2) For Copy A, the OMB number

must appear exactly as shown on the

official IRS form;

(3) For any copy other than Copy

A, the OMB number must use one of

the following formats:

(a) OMB No. XXXX–XXXX

(preferred) or;

(b) OMB # XXXX–XXXX.

(4) All substitute forms (Copy A

only) must state ‘‘For Paperwork Reduction Act Notice, see Instructions for

Forms 1099, 1098, 5498, and W–2G.’’

.03 The official OMB numbers may

be obtained from reproduction proofs or

official IRS printed forms.

SEC 3. REPRODUCIBLE COPIES

.01 As of April 30, 1996, IRS discontinued taking orders for reproducible

and information copies of federal tax

materials. However, there will be several

new options available to obtain federal

tax material in the future. The new

options are:

(1) Internal Revenue Information

Services (IRIS)—IRIS is housed

within FedWorld, known also as

the Electronic Marketplace of

U.S. Government Information.

IRIS at FedWorld can be reached

by:

(a) Modem (dial up) at (703)

321–8020,

(b) by Internet - Telnet to

iris.irs.ustreas.gov

(FTP)

connect

ftp.irs.ustreas.gov

(d) or by World Wide Web http://www.irs.ustreas.gov

(2) IRS Federal Tax Forms CD–

ROM—The IRS also offers an

alternative to downloading electronic files from IRIS and provides prior-year access to tax

forms and instructions through

it’s Federal Tax Forms CD–

ROM. First offered during 1994,

the CD will again be available

for the upcoming filing season.

For system requirements and to

order the 1996 Federal Tax

Forms CD–ROM contact the

Government Printing Office’s

(GPO’s) Superintendent of Documents either:

(a) by telephone (202) 521–

1800; or

(b) electronically through GPO’s

Federal Bulletin Board on

(202) 512–1387.

(3) Government Printing Office

Superintendent of Documents

Bookstores—The Government

Printing Office Superintendent of

Documents Bookstores also sell

individual copies of tax forms,

instructions and publications.

Call (202) 521–1800 to find the

bookstore nearest to you.

.02 Forms 1096, 1098, 1099 Series,

and 5498 are provided electronically on

the IRS home page, IRIS bulletin board

system, and on the Federal Tax Forms

CD–ROM, but CANNOT be used for

filing with IRS when printed from a

conventional laser printer. These forms

contain drop-out ink requirements as

described in Part B, Section 2. of this

publication.

SEC. 4. EFFECT ON OTHER

REVENUE PROCEDURES

Revenue Procedure 95–30, 1995–1

C.B. 27 I.R.B. 9, covering paper returns

and statements for payments made during the 1995 calendar year is hereby

superseded.

CAMERA COPY HERE

Part IV. Items of General Interest

Foundations Status of Certain

Organizations

Announcement 96–69

The following organizations have

failed to establish or have been unable

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

after this date, rely on previous rulings

or designations in the Cumulative List

of Organizations (Publication 78), or on

the presumption arising from the filing

of notices under section 508(b) of the

Code. This listing does not indicate that

the organizations have lost their status

as organizations described in section

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

contributions.

Former Public Charities. The following organizations (which have been

treated as organizations that are not

private foundations described in section

509(a) of the Code) are now classified

as private foundations:

Absalom Jones Cultural Center Inc.,

Philadelphia, PA

Acts of The Holy Spirit, Philadelphia,

African Council Inc., Englewood, NJ

African Peoples Relief Fund Inc.,

Washington, DC

Against All Odds Ministries Full Gospel

Church, Philadelphia, PA

AIDS Interfaith Network Inc., New

Haven, CT

AIDS Resources of Central Shenandoah,

Staunton, VA

Aisquith-Somerset Development Inc.,

Columbia, MD

Aleph-Bet Child Development Center

Incorporated, Randallstown, MD

Allied Pharmacists Association,

Baltimore, MD

Alpha Scholarship Foundation Inc.,

Boston, MA

Altamont Society Inc., Meadowview,

Alternatives Research Center Inc., Toms

River, NJ

American Civil War Association,

Winchester, VA

American Friends of Beth Jacob

Teachers Institute of Jerusalem,

Brooklyn, NY

American Friends of Birkas Rifka Inc.,

Lakewood, NJ

American Friends of Universe Fund

Inc., Quebec, CA

American Friends of Yeshiva Halacha

Lmoshe, Inc., Queens, NY

American Housing Foundation Inc.,

Fairfax, VA

American Institute for Public Health

Education Inc., Lutherville, MD

American Public Priorities Institute,

Washington, DC

American School of Tampico

Foundation, Wilmington, DE

American Society of Soviet Political

Prisoners, New York, NY

A Musical Journey in Jazz Inc., Shaker

Heights, OH

Apostolic Christian Village Inc.,

Francesville, IN

Appalachian Youth Ministries,

Abingdon, VA

Artist Citizen Corp., Dover, NH

Art of Living Institute, Northampton, PA

Aspen Cancer Conference Inc.,

Kensington, MD

Battery Park City Parks Corporation,

New York, NY

Bay Cove Moseley Group Home Inc.,

Boston, MA

Bay Shores Chapel Inc., Jupiter, FL

Benefit Foundation for Children Inc.,

Boston, MA

B H R A G S Housekeeping Inc.,

Brooklyn, NY

B H R A G S Senior Citizens Program

Inc., Brooklyn, NY

B H R A G S Thompkins Park Inc.,

Brooklyn, NY

Black Administrators Faculty and Staff,

Brookville, NY

Blauvelt Lions Charities, Inc., Blauvelt,

Boettner Institute of Financial

Gerontology, Philadelphia, PA

Boys and Girls Club of Bentonville

Bella Vista Arkansas, Inc.,

Bentonville, AR

Brain Injury Association of Greater

Rochester, Inc., Rochester, NY

Bridge Street Senior Citizens Center,

Inc., Brooklyn, NY

Brotherhood Classic Association, Inc.,

Bronx, NY

Brunswick Hospital Center Foundation,

Amityville, NY

Burgettstown Area Youth Baseball

Association, Burgettstown, PA

Cape Ann Bike Trek Assoc. Partners in

Rehab, Medford, MA

Capital City Kiwanis Club Foundation

Inc., Tallahassee, FL

Capital Region School and Business

Alliance, Inc., Albany, NY

Cathedral Tenants United, Inc., Boston,

Center for Soviet-American Musical

Exchange, Inc., Carmel, NY

Central Florida Area Health Education

Center Inc., Apopka, FL

Chelmsford Youth Basketball League,

Inc., Chelmsford, MA

Chinese Scalp Acupuncture Association

International Inc., San Francisco, CA

Christ the King Counseling Ministry,

Columbus, OH

Citizens for a Safe Environment, Inc.,

North Muskegon, MI

Citizens Promoting the Book of Hope,

Cincinnati, OH

Citizen’s Rapid Transit Committee,

Denver, CO

Clerc Foundation Ltd., Boston, MA

CMU Presents, Inc., New York, NY

Coalition of Consumer Self Advocates,

Providence, RI

Cognosco, Inc., New Bedford, MA

Community Alcohol and Drug

Awareness Committee, Inc.,

Chelmsford, MA

Dallas-Fort Worth Hebert High School

Alumni Association, Dallas, TX

Danvers Educational Enrichment

Program, Inc., Danvers, MA

Devereaux Corporation, Lanham, MD

Discovery Center A Blacks Hills

Handon Museum, Rapid City, SD

Dixie Child Care Inc., Springfield, LA

Earthcard Land Trust Inc., Melbourne,

Earthkind International, Washington, DC

East Side Coalition of Arts, Inc.,

Buffalo, NY

Eddy’s Miracle Donors Henry County

Chapter, Paris, TN

Edison Boosters Club Inc., Minneapolis,

Environscape, Inc., Lexington, KY

Ethical Treatment in Health Care, Inc.,

Weston, MA

Faiths Way, Saline, MI

Fathers, Inc., Roxbury Crossing, MA

Feres Project Foundation Inc., Meridian,

Flamingo Park Neighborhood

Association, West Palm Beach, FL

Florida Association for Staff

Development Inc., Orlando, FL

Florida Federation of Community

Development Corporations

Incorporated, Miami, FL

Florida Sun Coast Figure Skating Club

Inc., Clearwater, FL

Forest & Trees Inc., Deland, FL

Forest Park School Foundation, Crystal

Falls, MI

420 Gifford Street Hospitality House for

Youth, Inc., Syracuse, NY

Foster Manor Apartments Inc.,

Lancaster, OH

Fort Des Moines, Des Moines, IA

47th Precinct Youth Council, Bronx, NY

Friends of Dade County Elderly Inc.,

Miami, FL

Friends of Haiti National Foundation

Inc., Miami, FL

Friends of Melrose Football, Inc.,

Melrose, MA

Friends of The Ashby Public Library,

Ashby, MA

Friends of The Rapides Library Inc.,

Alexandria, LA

Friends of Whittier, Lorain, OH

Friends of Woodside, Inc., Colchester,

Fund for Special Music School of Music

NY, Inc., Stamford, CT

Garden of the Child, Inc., Chester, NY

Gaston Futures, Institute, Inc., Gastonia,

General Resource Guidance Center,

Alice, TX

Greater Cincinnati Blues Society Inc.,

Cincinnati, OH

Hampden County Sheriffs Dept Sexual

Abuse Treatment Program, Ludlow,

Hands Extended Ministries, St. Francis,

Harlem Girls Ensemble Inc., New York,

Harlem Jazz Homecoming Festival, Inc.,

New York, NY

Hartford Sunrise Sunshine Fund, Inc.,

Hartford, CT

Harvest Christian Mission, Memphis,

Hatian Community AIDS Outreach

Project, Inc., Dorchester, MA

Health Services Development Inc.,

Washington, DC

Helping Hands Community Hospice,

Inc., Cordele, GA

Hidden Signal Theatre Company, Inc.,

Brooklyn, NY

Holocaust Educational Center of Volusia

& Flagler Counties, Palm Coast, FL

Housing Partnership Inc., Delray Beach,

Hudson Valley Wind Symphony, Inc.,

Bardonia, NY

Human Resources Training &

Development Institute Inc., Miami,

I Love America Education Foundation,

Lakewood, CO

Ilankai Thamil Sangam Florida Chapter

Inc., Coral Springs, FL

Inner Change, Inc., Newburgh, IN

International Foundation for Eye

Transplant Research, Inc., New York,

Isadora Duncan International Center for

Dance, New York, NY

Jackson Foundation, New Milford, CT

James Kavanaugh Institute, Highland

Park, IL

Jesus Never Fails, Chicago, IL

Jewish Media Workshop, Bensalem, PA

J Jireh Ministries, Columbus, OH

Kayumanggi Choral, Inc., New York,

Keren Ahavat Achim, Inc., Brooklyn,

Knox County Child Abuse Prevention

Council, Inc., Vincennes, IN

Lena Burkard Public Charities Inc.,

Kirk, CO

Liberty City Optimist Club of Florida

Inc., Miami, FL

Lion Study, Englewood, CO

Little Falls Sports Arena Inc., Little

Falls, MN

Los Brazos De Cristo, McAllen, TX

Louisiana Association for the Education

of Young Children, Metairie, LA

Masters Plan Inc., Sarasota, FL

MBA of New York Scholarship

Foundation, Inc., New York, NY

Mennonite Disaster Service of Eastern

Pennsylvania & New Jersey,

Souderton, PA

Miami Artwords Inc., Coral Gables, FL

Middle Creek National Battlefield

Foundation, Inc., Prestonsburg, KY

Mike Reynolds Memorial Scholarship

Fund, Des Moines, IA

Minority Business Council Inc.,

Pompano Beach, FL

Mt. Zion Safe House, Inc., Kalamazoo,

Multinational Transitional Housing

Program of New Jersey, Orange, NJ

National Association of Italian American

Police Officers, Inc., Stoneham, MA

National Science Research Institute Inc.,

Abingdon, MD

National We Care Foundation,

Carrollton, TX

Neighborhood Women of

Williamsburg-Greenpoint, Inc.,

Brooklyn, NY

19th Street Baptist Community

Development Corporation,

Philadelphia, PA

North American Plant Preservation

Council, Inc., Renick, WV

North Aurora Baseball Association,

North Aurora, IL

North Kingstown Business-Education

Partnership, Inc., North Kingstown,

Northwest Suburban Christian Academy,

Lake Zurich, IL

Off-Broadways Best Inc., Hollywood,

Old Broadway House, Inc., New York,

100 Black Men of Maryland Inc.,

Baltimore, MD

Open Hearth, New Castle, ME

Paleontological Research Institute, Inc.,

Arlington, TX

Parenting Partnerships Inc., Lacombe,

Paul A Nuzzo Memorial Scholarship

Fund Inc., Tampa, FL

Phoenix Project I, Inc., Detroit, MI

Pilgrim Productions, Elmendorf, TX

PTA Florida Congress Gulf Gate

Elementary, Sarasota, FL

Puertorican and Caribbean Organization

(PACO), Fairborn, OH

Ravenwood Community Betterment,

Ravenwood, MO

Repairers of the Breach Inc.,

Milwaukee, WI

Sampson Haven Inc., Clinton, NC

Santas Anonymous of East Dupage Inc.,

Chicago, IL

Saturn Institute, St. Paul, MN

Schiller International University Alumni

Association Inc., England

School Buildings Inc., Atlanta, GA

Search for Missing Children Inc.,

Plantation, FL

Self Employment Training Associates

Corporation SETA, St. Petersburg, FL

Sharenet Association, Independence,

Sharon Glen, Wheaton, IL

Show Theatre Group, Chicago, IL

Sirach House Inc., West Orange, NJ

Skyview Village Inc., Denver, CO

South African Azanian Student

Movement—SAASM, Washington,

South Dakota Expressions, Sioux Falls,

South Hall Community Development

Corp., Alcoa, TN

South Pointe Family & Children Center

Inc., Miami, FL

Southwest Animal Rehabilitation, Inc.,

Angel Fire, NM

Southwest Just Say No Club,

Springdale, AR

Sports Against Drugs International Inc.,

McLean, VA

Springfield Education Association

Philanthropic Fund Inc., Union, NJ

St. Agnes Foundation, Minneapolis, MN

St. Elizabeth’s Children Home,

Lexington, MS

Stairways Supported Housing

Corporation, Erie, PA

Student Foundation of Florida Institute

of Technology Inc., Melbourne, FL

Tampa Bay Wheelchair Athletic

Association Inc., Belleair Beach, FL

TBJVC, Inc., Dublin, OH

Technology Learning Center Inc.,

Milwaukee, WI

Til Healing Comes Ministries,

Bolingbrook, IL

Tom Stearns Memorial Scholarship

Fund, Summerville, TX

Total Access for the Disabled,

Lynchburg, VA

Towson Catholic High School Alumni

Association Inc., Towson, MD

Transpersonal Network Inc., Chicago, IL

Transportation 2000, Denver, CO

United Cerebral Palsy of Palm Beach &

Mid-Coast Counties Inc., Miami, FL

United Spirit for AIDS Inc., Myrtle

Beach, SC

Urbancrest Community Urban

Redevelopment Corporation,

Urbancrest, OH

Urology Education and Research

Foundation Inc., Hinsdale, IL

Vacaville Pony League, Inc., Vacaville,

Vanceboro Rotary Club Foundation Inc.,

Vanceboro, NC

Virginia Beach Police Athletic League,

Virginia Beach, VA

Virginia Boys Gymnastic Booster Club,

Oakton, VA

Virginia Hunger Foundation, Richmond,

Voices United for Israel, Grandview,

Walworth Countryside Conservation

Foundation Inc., Delavan, WI

Wayne County Community Foundation,

Honesdale, PA

Western Institute of Technology, Inc.,

Salt Lake City, UT

Western Maryland Conservancy Inc.,

Frostburg, MD

West Philadelphia Neighborhood

Enterprise Center, Philadelphia, PA

West Virginia Basic Skills and

Computer Education Foundation, Inc.,

Charleston, WV

Whitfield Education Foundation, Dalton,

Willing House, Philadelphia, PA

Wisconsin Womens Golf Club Inc.,

Monona, WI

Wolf Bay Wildlife Refuge Inc., Elberta,

Woodland Volunteer Fire Department

Benevolent Fund, Woodland, NC

WRC Health Care Support Services,

Brookville, PA

Wysiwyg Theatre Company, Chicago, IL

Yanomamo Survival Fund, Inc., Santa

Barbara, CA

Yazoo Housing Resident Council, Yazoo

City, MS

Young Shakespeare Players, Evanston,

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.

Deletions from Cumulative List of

Organizations Contributions to

Which Are Deductible Under

Section 170 of the Code

Announcement 96–70

The name of an organization that no

longer qualifies as an organization described in section 170(c)(2) of the Internal Revenue Code of 1986 is listed

below.

Generally, the Service will not disallow deductions for contributions made

to a listed organization on or before the

date of announcement in the Internal

Revenue Bulletin that an organization

no longer qualifies. However, the Service is not precluded from disallowing a

deduction for any contributions made

after an organization ceases to qualify

under section 170(c)(2) if the organization has not timely filed a suit for

declaratory judgment under section 7428

and if the contributor (1) had knowledge

of the revocation of the ruling or determination letter, (2) was aware that such

revocation was imminent, or (3) was in

part responsible for or was aware of the

activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely

filed, contributions from individuals and

organizations described in section

170(c)(2) that are otherwise allowable

will continue to be deductible. Protection under section 7428(c) would begin

on August 5, 1996, and would end on

the date the court first determines that

the organization is not described in

section 170(c)(2) as more particularly

set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor.

This benefit is not extended to any

individual who was responsible, in

whole or in part, for the acts or omissions of the organization that were the

basis for revocation.

Frank Nappi Foundation

Ashtabula, OH

Section 7428(c) Validation of

Certain Contributions Made During

Pendency of Declaratory Judgment

Proceedings

This announcement serves notice to

potential donors that the organization

listed below has recently filed a timely

declaratory judgment suit under section

7428 of the Code, challenging revocation of its status as an eligible donee

under section 170(c)(2).

Protection under section 7428(c) of

the Code begins on the date that the

notice of revocation is published in the

Internal Revenue Bulletin and ends on

the date on which a court first determines that an organization is not described in section 170(c)(2), as more

particularly set forth in section

7428(c)(1). In the case of individual

contributors, the maximum amount of

contributions protected during this period is limited to $1,000, with a husband

and wife being treated as one contributor. This protection is not extended to

any individual who was responsible, in

whole or in part, for the acts or omissions of the organization that were the

basis for the revocation. This protection

also applies (but without limitation as to

amount) to organizations described in

section 170(c)(2) which are exempt

from tax under section 501(a). If the

organization ultimately prevails in its

declaratory judgment suit, deductibility

of contributions would be subject to the

normal limitations set forth under section 170.

Music Square Church

Van Buren, AR

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as ‘‘rulings’’)

that have an effect on previous rulings

use the following defined terms to describe the effect:

Amplified describes a situation where

no change is being made in a prior

published position, but the prior position

is being extended to apply to a variation

of the fact situation set forth therein.

Thus, if an earlier ruling held that a

principle applied to A, and the new

ruling holds that the same principle also

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

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

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

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it

applies to both A and B, the prior ruling

Abbreviations

The following abbreviations in current use and

formerly used will appear in material published in

the Bulletin.

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

and clarified, above).

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

used in a ruling that lists previously

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

A ruling may also be obsoleted because

the substance has been included in regulations subsequently adopted.

Revoked describes situations where

the position in the previously published

ruling is not correct and the correct

position is being stated in the new

ruling.

Superseded describes a situation

where the new ruling does nothing more

than restate the substance and situation

of a previously published ruling (or

rulings). Thus, the term is used to

republish under the 1986 Code and

regulations the same position published

under the 1939 Code and regulations.

The term is also used when it is desired

to republish in a single ruling a series of

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

separate rulings. If the new ruling does

more than restate the substance of a

prior ruling, a combination of terms is

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

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

continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names

of countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be

published that includes the list in the

original ruling and the additions, and

supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

ER—Employer.

PR—Partner.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

Del. Order—Delegation Order.

M—Minor.

DISC—Domestic International Sales Corporation.

Nonacq.—Nonacquiescence.

DR—Donor.

O—Organization.

E—Estate.

P—Parent Corporation.

X—Corporation.

EE—Employee.

PHC—Personal Holding Company.

Y—Corporation.

E.O.—Executive Order.

PO—Possession of the U.S.

Z—Corporation.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

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

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

I.R.B.—Internal Revenue Bulletin.

TFR—Transferor.

LE—Lessee.

T.I.R.—Technical Information Release.

LP—Limited Partner.

TP—Taxpayer.

LR—Lessor.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

Numerical Finding List1

Bulletins 1996–27 through 1996–31

Announcements:

96–61, 1996–27 I.R.B. 72

96–62, 1996–28 I.R.B. 55

96–63, 1996–29 I.R.B. 18

96–64, 1996–29 I.R.B. 18

96–65, 1996–29 I.R.B. 18

96–66, 1996–29 I.R.B. 19

96–67, 1996–30 I.R.B. 27

96–68, 1996–31 I.R.B. 45

Notices:

96–36, 1996–27 I.R.B. 11

96–37, 1996–31 I.R.B. 29

96–38, 1996–31 I.R.B. 29

Proposed Regulations:

CO–24–96, 1996–30 I.R.B. 22

CO–25–96, 1996–31 I.R.B. 30

CO–26–96, 1996–31 I.R.B. 31

FI–28–96, 1996–31, I.R.B. 33

FI–48–95, 1996–31 I.R.B. 36

FI–59–94, 1996–30 I.R.B. 23

IA–26–94, 1996–30 I.R.B. 24

IA-292-84, 1996–28 I.R.B. 38

Railroad Retirement Quarterly Rate

1996–29 I.R.B. 14

Revenue Procedures:

96–36, 1996–27 I.R.B. 11

96–37, 1996–29 I.R.B. 16

Revenue Rulings:

96–33, 1996–27 I.R.B. 4

96–34, 1996–28 I.R.B. 4

96–35, 1996–31 I.R.B. 4

96–36, 1996–30 I.R.B. 6

Tax Conventions:

1996–28 I.R.B. 36

Treasury Decisions:

8673, 1996–27 I.R.B. 4

8674, 1996–28 I.R.B. 7

8675, 1996–29 I.R.B. 5

8676, 1996–30 I.R.B. 4

8677, 1996–30 I.R.B. 7

8678, 1996–31 I.R.B. 11

8679, 1996–31 I.R.B. 4

A cumulative list of all Revenue Rulings, Revenue Procedures, Treasury Decisions, etc., published in Internal Revenue Bulletins 1996–1

through 1996–26 will be found in Internal Revenue Bulletin 1996–27, dated July 1, 1996.

Finding List of Current Action on

Previously Published Items1

Bulletins 1996–27 through 1996–31

*Denotes entry since last publication

Revenue Procedures:

95–29

Superseded by

96–36, 1996–27 I.R.B. 11

95–29A

Superseded by

96–36, 1996–27 I.R.B. 11

A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

1996–1 through 1996–26 will be found in Internal

Revenue Bulletin 1996–27, dated July 1, 1996.

Index

Internal Revenue Bulletins 1996–27

Through 1996–31

For index of items published during

the first six months of 1996, see

I.R.B. 1996–27, dated July 1, 1996.

The abbreviation and number in parenthesis following the index entry

refer to the specific item; numbers in

roman and italic type following the

parenthesis refer to the Internal Revenue Bulletin in which the item may

be found and the page number on

which it appears.

Key to Abbreviations:

Revenue Ruling

Revenue Procedure

Treasury Decision

Court Decision

Public Law

Executive Order

Delegation Order

TDO

Treasury Department Order

Tax Convention

SPR

Statement of Procedural

Rules

PTE

Prohibited Transaction

Exemption

EMPLOYMENT TAXES

Railroad retirement:

Rate determination, quarterly (July 1,

1996) 29, 14

INCOME TAX

Bonds:

Qualified mortgage bonds:

Mortgage credit certificates:

National median gross income

(RP 37) 29, 16

Claiming a refund. U.S. v. IBM (Notice

37) 31, 29

Employee plans:

Funding:

Full funding limitations, weighted

average interest rate, June 1996

(Notice 36) 27, 11; July 1996

(Notice 38) 31, 29

Interest:

Investment:

Federal short-term, mid-term, and

long-term rates, July 1996 (RR

34) 28, 4

INCOME TAX—Continued

Inventories:

LIFO:

Price indexes, department stores,

May 1996 (RR 36) 30, 6

Low-income housing credit:

Bond factor amounts, April—June

1996 (RR 33) 27, 4

FEMA (RR 35) 31, 4

Proposed regulations:

26 CFR 1.61–8(b), revised; 1.451–

1(g), added; 1.467–1, amended;

1.467–4, amended; 1.467–0 through

–8, added; rental agreements (IA–

292–84) 28, 38

26 CFR 1.61–12(c), 1.163–7(c),

1.171–1—1.171–4, 1.1016–5(b),

revised; 1.163–13, 1.171–5, added;

1.1016–9, removed; amortizable

bond premium (FI–48–95) 31,

26 CFR 1.148–5(d)(6)(iv)—(viii) and

intermediary sections; 1.148–

5(e)(2)(iv), added; arbitrage restrictions on tax-exempt bonds (FI–28–

96) 31, 33

26 CFR 1.166–3(a)(3), added; bad

debts modifications and dealer assignments of notional principal

contracts (FI–59–94) 30, 23

26 CFR 1.382–5, –8, added; 1.382–

2(a)(1)(iv), revised; consolidated

returns, short taxable years for

controlled groups (CO–26–96) 31,

26 CFR 1.1202–0, –2, added; qualified small business stock (IA–26–

94) 30, 24

26 CFR 1.1502–15, –21, –22, –23,

added; consolidated returns, limitations on the use of certain losses

and deductions (CO–24–96) 30,

26 CFR 1.1502–90T—1.1502–99T

and intermediary sections, added;

consolidated group, net operating

loss carryforwards and built-in

losses and credits following ownership change, limitation (CO–25–96)

31, 30

Regulations:

26 CFR 1.110–3, added; debt instruments modifications (TD 8675) 29,

Regulations:—Continued

26 CFR 1.163–7(a), added; 1.446–4,

amended; 1.483–2T, removed;

1.483–4, added; 1.1001–1, revised;

1.1012–1(g), revised; 1.1271–0(b),

amended; 1.1272–1(c)(7), added;

1.1274–2(g), revised; 1.1274–2(i)

and (j), added; 1.1275–2(g), (h), (i),

(j), added; 1.1275–2T, removed;

1.1275–4, added; 1.1275–5(a)(5),

(6), added; 1.1275–5(c)(1), (5), revised; 1.1275–6, added; debt instruments with original issue discount,

contingent payments, anti-abuse

rule (TD 8674) 28, 7

26 CFR 1.166–3T, 1.1001–4T, added;

bad debts modifications and dealer

assignments of notional principal

contracts (TD 8676) 30, 4

26 CFR 1.382–5T, –8T, –2T(f)(1)(i)—

(iii) and intermediary sections,

added; 1.382–2, –2T, removed;

consolidated groups, short taxable

years for controlled groups (TD

8679) 31, 4

26 CFR 1.1394–0, –1, added; enterprise zone facility bonds (TD 8673)

27, 4

26 CFR 1.1502–0, –1, –2, –11, –21A,

–22A, –23A, –41A, revised;

1.1502–15, –21, redesignated,

1.1502–21T, –23T, –79A, added;

1.1502–79, amended; consolidated

returns, limitations on the use of

certain losses and deductions (TD

8677) 30, 7

26 CFR 1.1502–90T—99T and intermediary sections, added; consolidated groups, net operating loss

carryforwards and built-in losses

and credits following ownership

change, limitations (TD 8678) 31,

Returns:

Magnetic media reporting, Forms

1098, 1099, 5498, and W–2G (RP

36) 27, 11

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