# Bulletin No. 1998–31

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- **Document type:** Agency decision

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Bulletin No. 1998–31
August 3, 1998

Internal Revenue

bulletin
HIGHLIGHTS
OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX

EMPLOYMENT TAX

Rev. Rul. 98–34, page 12.

T.D. 8772, page 8.

Below-market loans; exempted loans; second mortgage loans under the MAHRA Act. A below-market second mortgage loan made under the Multifamily Assisted
Housing Reform and Aff o rdability Act of 1997, by the
Department of Housing and Urban Development (HUD) to the
owner of a multifamily low-income rental property in connection with restructuring the existing first mortgage on the
property, is exempted from section 7872 of the Code.

Final and temporary regulations under section 6011 of the
Code relate to the requirements for filing information returns
on magnetic media or in other machine-readable form.

Rev. Rul. 98–36, page 6.
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 1998.

T.D. 8775, page 4.
Final and temporary regulations under section 460 of the
Code explain how a taxpayer elects not to apply the lookback method to long-term contracts in de minimis cases.

EXEMPT ORGANIZATIONS
Announcement 98–75, page 15.
A list is given of organizations now classified as private foundations.

Finding Lists begin on page 18.
Index for January–July begins on page 20.

Department of the Tr e a s u r y
Internal Revenue Service

Page 7.
Railroad retirement; rate determination; quarterly. The
Railroad Retirement Board has determined that the rate of
tax imposed by section 3221 of the Code shall be 35 cents
for the quarter beginning April 1, 1998, and 35 cents for the
quarter beginning July 1, 1998.

ADMINISTRATIVE
Announcement 98–72, page 14.
Rev. Proc. 98–35, 1998–21 I.R.B. 6, relating to specifications for the magnetic or electronic filing of 1998 Forms
1098, 1099, 5498, and W–2G, is corrected.

Announcement 98–73, page 14.
The Service will not assess penalties for missing or incorrect taxpayer identification numbers (TINs) on Form 1099–R
for 1996 and 1997. Listings of missing and incorrect TINs
will be sent to filers of this form in early August of this year.

Announcement 98–74, page 15.
REG–106031–98, 1998–26 I.R.B. 38, relating to the treatment of foreign taxpayers trading in derivative financial instruments for their own account, is corrected.

Mission of the Service
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, efficiency, and fairness.

The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-

Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.

Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.

At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.

2

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.

Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semiannual period, respectively.

The contents of this publication are not copyrighted and may be reprinted freely.Acitation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.

Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 1998. See
Rev. Rul. 98–36, page 6.

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 1998. See Rev. Rul. 98–36,
page 6.

Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.

Section 460.—Special Rules for
Long-Term Contracts
26 CFR 1.460–6: Look-back method.

T.D. 8775
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Election Not to Apply Look-Back
Method in De Minimis Cases
A G E N C Y: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulations.
S U M M A RY: This document contains
regulations explaining how a taxpayer
elects under section 460(b)(6) not to
apply the look-back method to long-term
contracts in de minimis cases. The regulations reflect changes to the law made by

August 3, 1998

the Taxpayer Relief Act of 1997 and affect manufacturers and construction contractors whose long-term contracts otherwise are subject to the look-back method.
D ATES: Effective date: These regulations are effective July 2, 1998.
Applicability date: These regulations
apply to long-term contracts completed in
taxable years ending after August 5, 1997.
FOR FURTHER INFORMATION CONTA C T: Leo F. Nolan II or John M.
Aramburu at (202) 622-4960 (not a tollfree number).
SUPPLEMENTARYINFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1572. Responses to this collection
of information are required for a taxpayer
to elect not to apply the look-back method
to long-term contracts in de minimis
cases. An agency may not conduct or
s p o n s o r, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid OMB control number. The
estimated average burden per respondent
is 0.2 hours.
Comments concerning the accuracy of
this burden estimate should be sent to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224, and to the O ffice of
Management and Budget, Attn: Desk
O fficer for the Department of the Tr e as u r y, Office of Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Income Tax Regulations (26 CFR Part

4

1). Section 460(b)(6) of the Internal Revenue Code was added by section 1211 of
the Taxpayer Relief Act of 1997, Public
Law 105–34, 111 Stat. 788, 998, to provide an election not to apply the lookback method of section 460(b)(2) to longterm contracts in de minimis cases. These
regulations provide guidance concerning
this new election.
A notice of proposed rulemaking was
published in REG–120200–97, 1998–12
I.R.B. 32 for January 13, 1998 (63 F. R .
1932). No written comments were received, and no public hearing was requested or held. The proposed regulations
under section 460 are adopted by this
Treasury decision with one revision. T h e
final regulations provide that for longterm contracts completed in taxable years
ending after August 5, 1997, an election
not to apply the look-back method under
section 460(b)(6) automatically revokes
an election under §1.460–6(e) to use the
delayed reapplication method.
Special Analyses
It has been determined that this final
regulation is not a significant regulatory
action as defined in EO 12866. T h e r efore, a regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. Moreover, it is
hereby certified that the collection of information in these regulations will not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that the
time required to prepare and file an election statement is minimal and will not
have a significant impact on those small
entities that choose to make the election.
In addition, the election need only be
made once by a taxpayer. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on the impact of the
proposed regulations on small business.

1998–31 I.R.B.

Drafting Information
The principal author of these regulations is Leo F. Nolan II, Office of Assistant Chief Counsel (Income Tax and Accounting). However, other personnel
from the IRS and Treasury Department
participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
A c c o r d i n g l y, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for “§1.460–6T” to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
P a r. 2. In §1.460–0, the entry for
§1.460–6 is amended by adding entries
for paragraphs (i) and (j) and the entry for
§1.460–6T is removed to read as follows:
§1.460–0 Outline of regulations under
section 460.

tive or to an amended return for that year,
provided the amended return is filed on or
before March 31, 1998. This statement
must have the legend “NOTIFICAT I O N
OF ELECTION UNDER SECTION
460(b)(6)”; provide the taxpayer’s name
and identifying number and the effective
date of the election; and identify the
trades or businesses that involve longterm contracts. An election applies to all
long-term contracts completed during and
after the taxable year for which the election is effective. An election may not be
revoked without the Commissioner’s consent. For taxpayers who elected to use the
delayed reapplication method under paragraph (e) of this section, an election under
this paragraph (j) automatically revokes
the election to use the delayed reapplication method for contracts subject to section 460(b)(6). A consolidated group of
corporations, as defined in §1.1502–1(h),
is subject to consistency rules analogous
to those in paragraph (e)(2) of this section
and in paragraph (d)(4)(ii)(C) of this section (concerning election to use simplified
marginal impact method).

§602.101 OMB Control numbers.

§1.460–6T [Removed]

Section 467.—Certain Payments
for the Use of Property or
Services

* * * * *
Par. 4. Section 1.460–6T is removed.
§1.460–6 Look-back method.
* * * * *
(i) [Reserved].
(j) Election not to apply look-back
method in de minimis cases.

PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT

P a r. 3. In §1.460–6, paragraph (i) is
added and reserved and paragraph (j) is
added to read as follows:

P a r. 5. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
P a r. 6. In §602.101, paragraph (c) is
amended by:
1. Removing the following entry from
the table:

§1.460–6 Look-back method.

§602.101 OMB Control numbers.

* * * * *

* * * * *
(i) [Reserved].
(j) Election not to apply look-back
method in de minimis cases. S e c t i o n
460(b)(6) provides taxpayers with an
election not to apply the look-back
method to long-term contracts in de min imis cases, effective for contracts completed in taxable years ending after A ugust 5, 1997. To make an election, a
taxpayer must attach a statement to its
timely filed original federal income tax
return (including extensions) for the taxable year the election is to become effec-

1998–31 I.R.B.

* * * * *
(c) * * *
CFR part or section
where identified and
described

Current OMB
control No.

* * * * *
1.460–6T . . . . . . . . . . . . . . . 1545–1572
* * * * *
2. Revising the entry for §1.460–6 to
read as follows:

5

* * * * *
(c) * * *
CFR part or section
where identified and
described

Current OMB
control No.

* * * * *
1.460–6 . . . . . . . . . . . . . . . . . 1545–1031
1545–1572
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved June 12, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on July
1, 1998, 8:45 a.m., and published in the issue of the
Federal Register for July 2, 1998, 63 F.R. 36180)

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.

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 1998. See Rev. Rul. 98–36, page 6.

Section 482.—Allocation of
Income and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 1998. See
Rev. Rul. 98–36, page 6.

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 1998. See Rev. Rul. 98–36, page 6.

August 3, 1998

Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 1998. See
Rev. Rul. 98–36, page 6.

Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)

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 1998. See Rev. Rul. 98–36, page 6.

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 1998.

Rev. Rul. 98–36

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 1998. See Rev. Rul. 98–36, page 6.

This revenue ruling provides various
prescribed rates for federal income tax
purposes for August 1998 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable fed-

eral 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. 98–36 TABLE 1
Applicable Federal Rates (AFR) for August 1998
Period for Compounding
Annual

Semiannual

Quarterly

Monthly

Short-Term
AFR
110% AFR
120% AFR
130% AFR

5.48%
6.04%
6.60%
7.15%

5.41%
5.95%
6.49%
7.03%

5.37%
5.91%
6.44%
6.97%

5.35%
5.88%
6.40%
6.93%

Mid-Term
AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR

5.57%
6.13%
6.70%
7.27%
8.41%
9.84%

5.49%
6.04%
6.59%
7.14%
8.24%
9.61%

5.45%
6.00%
6.54%
7.08%
8.16%
9.50%

5.43%
5.97%
6.50%
7.04%
8.10%
9.42%

Long-Term
AFR
110% AFR
120% AFR
130% AFR

5.72%
6.30%
6.88%
7.46%

5.64%
6.20%
6.77%
7.33%

5.60%
6.15%
6.71%
7.26%

5.57%
6.12%
6.68%
7.22%

August 3, 1998

6

1998–31 I.R.B.

REV. RUL. 98–36 TABLE 2
Adjusted AFR for August 1998
Period for Compounding
Annual

Semiannual

Quarterly

Monthly

Short-term
adjusted AFR

3.66%

3.63%

3.61%

3.60%

Mid-term
adjusted AFR

4.25%

4.21%

4.19%

4.17%

Long-term
adjusted AFR

5.01%

4.95%

4.92%

4.90%

REV. RUL. 98–36 TABLE 3
Rates Under Section 382 for August 1998
Adjusted federal long-term rate for the current month
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.)

5.01%
5.15%

REV. RUL. 98–36 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for August 1998
Appropriate percentage for the 70% present value low-income housing credit

8.32%

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

3.57%

REV. RUL. 98-36 TABLE 5
Rate Under Section 7520 for August 1998
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 1998. See Rev. Rul. 98–36, page 6.

Section 3221.—Rate of Tax
Determination of Quarterly Rate
of Excise Tax for Railroad
Retirement Supplemental
Annuity Program
In accordance with directions in Sec-

1998–31 I.R.B.

7

6.8%

tion 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C., Section 3221(c)), the
Railroad Retirement Board has determined that the excise tax imposed by such
Section 3221(c) on every employer, with
respect to having individuals in his employ, for each work-hour for which compensation is paid by such employer for

August 3, 1998

services rendered to him during the quarter beginning April 1, 1998, shall be at the
rate of 35 cents.
In accordance with directions in Section 15(a) of the Railroad Retirement Act
of 1974, the Railroad Retirement Board
has determined that for the quarter beginning April 1, 1998, 30.3 percent of the
taxes collected under Sections 3211 ( b )
and 3221(c) of the Railroad Retirement
Tax Act shall be credited to the Railroad
Retirement Account and 69.7 percent of
the taxes collected under such Sections
3211(b) and 3221(c) plus 100 percent of
the taxes collected under Section 3221(d)
of the Railroad Retirement Tax Act shall
be credited to the Railroad Retirement
Supplemental Account.
Dated: February 19, 1998.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
(Filed by the Office of the Federal Register on
February 25, 1998, at 8:45 a.m., and published in the
issue of the Federal Register for February 26, 1998,
63 F.R. 9876)

Beatrice Ezerski,
Secretary to the Board.
(Filed by the Office of the Federal Register on June
11, 1998, at 8:45 a.m., and published in the issue of
the Federal Register for June 12, 1998, 63 F.R.
32259)

Section 6011.—General
Requirement of Return,
Statement or List
26 CFR 301.6011–2: Required use of magnetic
media.

T.D. 8772
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
Magnetic Media Filing
Requirements for Information
Returns
A G E N C Y: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulations.

In accordance with directions in Section 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C., Section 3221(c)), the
Railroad Retirement Board has determined that the excise tax imposed by such
Section 3221(c) on every employer, with
respect to having individuals in his employ, for each work-hour for which compensation is paid by such employer for
services rendered to him during the quarter beginning July 1, 1998, shall be at the
rate of 35 cents.
In accordance with directions in Section 15(a) of the Railroad Retirement Act
of 1974, the Railroad Retirement Board
has determined that for the quarter beginning July 1, 1998, 29.7 percent of the
taxes collected under Sections 3211 ( b )
and 3221(c) of the Railroad Retirement
Tax Act shall be credited to the Railroad
Retirement Account and 70.3 percent of
the taxes collected under such Sections
3211(b) and 3221(c) plus 100 percent of
the taxes collected under Section 3221(d)
of the Railroad Retirement Tax Act shall
be credited to the Railroad Retirement
Supplemental Account.
Dated: June 2, 1998.
By Authority of the Board.

August 3, 1998

S U M M A RY: This document contains
final and temporary regulations relating to
the requirements for filing information returns on magnetic media or in other machine-readable form under section
6 0 11(e) of the Internal Revenue Code
(Code). These regulations affect persons
filing information returns. These regulations prescribe magnetic media filing requirements for employers filing wage and
tax statements for employees in Puerto
Rico, U.S. Vi rgin Islands, Guam, and
American Samoa. In addition, these regulations provide taxpayers with the guidance to comply with the changes made to
the Code and to the administrative practices with respect to filing on magnetic
media or in other machine-readable form.
D ATES: Effective date: These regulations are effective June 30, 1998.
Applicability date: These regulations
apply to information returns required to
be filed on or after January 1, 1997.
FOR FURTHER INFORMATION CONTA C T: Donna Joy Welch, (202) 6224910 (not a toll-free call), if the inquiry
relates to provisions of these regulations.

8

For further information, see the telephone
numbers listed at the beginning of SUPPLEMENTARYINFORMATION.
S U P P L E M E N TA RY I N F O R M AT I O N :
If the inquiry relates to magnetic media
filing and magnetic media specifications
for Form W–2, Form 499R–2/W–2PR,
Form W–2VI, Form W–2GU, and Form
W–2AS, persons residing in the following
locations should contact the corresponding Social Security Administration office
(not a toll-free call):
Alabama (404) 562-1314 (Atlanta),
Alaska (206) 615-2125 (Seattle),
American Samoa (415) 744-4559 (San
Francisco),
Arizona (415) 744-4559 (San
Francisco),
Arkansas (501) 324-5466 (Little
Rock),
California (415) 744-4559 (San
Francisco),
Colorado (303) 844-2364 (Denver),
Connecticut (617) 565-2895 (Boston),
Delaware (215) 597-4632
(Philadelphia),
District of Columbia (215) 597-4632
(Philadelphia),
Florida (404) 562-1314 (Atlanta),
Georgia (404) 562-1314 (Atlanta),
Guam (415) 744-4559 (San Francisco),
Hawaii (415) 744-4559 (San
Francisco),
Idaho (206) 615-2125 (Seattle),
Illinois (312) 575-4244 (Chicago),
Indiana (312) 575-4244 (Chicago),
Iowa (816) 936-5649 (Kansas City),
Kansas (816) 936-5649 (Kansas City),
Kentucky (404) 562-1314 (Atlanta),
Louisiana (504) 389-0426 (Baton
Rouge),
Maine (617) 565-2895 (Boston),
Maryland (215) 597-4632
(Philadelphia),
Massachusetts (617) 565-2895
(Boston),
Michigan (312) 575-4244 (Chicago),
Minnesota (312) 575-4244 (Chicago),
Mississippi (404) 562-1314 (Atlanta),
Missouri (816) 936-5649 (Kansas
City),
Montana (303) 844-2364 (Denver),
Nebraska (816) 936-5649 (Kansas
City),
Nevada (415) 744-4559 (San
Francisco),

1998–31 I.R.B.

New Hampshire (617) 565-2895
(Boston),
New Jersey (212) 264-5643 (New
York),
New Mexico (505) 262-6048
(Albuquerque),
New York (212) 264-5643 (New York),
North Carolina (404) 562-1314
(Atlanta),
North Dakota (303) 844-2364
(Denver),
Ohio (312) 575-4244 (Chicago),
Oklahoma (405) 951-3007 (Oklahoma
City),
Oregon (206) 615-2125 (Seattle),
Pennsylvania (215) 597-4632
(Philadelphia),
Puerto Rico (787) 766-5574 (San
Juan),
Rhode Island (617) 565-2895
(Boston),
South Carolina (404) 562-1314
(Atlanta),
South Dakota (303) 844-2364
(Denver),
Tennessee (404) 562-1314 (Atlanta),
Texas-Central/South (210) 229-6433
(San Antonio),
Texas-Dallas County (214) 767-6777
(Dallas),
Texas-North (817) 978-3123 (Forth
Worth),
Texas-Southeast (713) 718-3015
(Houston),
Texas-West (505) 262-6048
(Albuquerque),
Utah (303) 844-2364 (Denver),
Vermont (617) 565-2895 (Boston),
Virgin Islands (787) 766-5574 (San
Juan),
Virginia (215) 597-4632
(Philadelphia),
Washington (206) 615-2125 (Seattle),
West Virginia (215) 597-4632
(Philadelphia),
Wisconsin (312) 575-4244 (Chicago),
and
Wyoming (303) 844-2364 (Denver).
If the inquiry relates to either the
waiver procedure for all forms described
in these regulations or the magnetic media
specifications for Forms 1042–S, 1098,
1099 series, 5498, 8027, or W–2G, persons should contact the Internal Revenue
Service, Martinsburg Computing Center,
P.O. Box 1359, Martinsburg, West Vi rginia 25402-1359; telephone (304) 2638700 (not a toll-free call).

1998–31 I.R.B.

Background
Section 6011(e) authorizes the Secretary to prescribe regulations providing the
standards for determining which returns
must be filed on magnetic media or in
other machine-readable form. Section
6 0 11(e) was added to the Internal Revenue Code (Code) by section 319 of the
Tax Equity and Fiscal Responsibility Act
of 1982, Public Law 97–248, 96 Stat.
610; and was amended by section 109 of
the Interest and Dividend Tax Compliance Act of 1983, Public Law 98–67, 97
Stat. 383; and section 7713 of the Revenue Reconciliation Act of 1989 (1989
Act), Public Law 101–239, 103 Stat.
2394. As amended by the 1989 Act, section 6011(e)(2)(A) provides that the Secretary shall not require any person to file
returns on magnetic media unless the person is required to file at least 250 returns
during the calendar year.
On October 10, 1996, final and temporary regulations (T.D. 8683) amending the
existing regulations relating to the requirements for filing information returns
on magnetic media or in other machinereadable form under section 6011(e) were
published in the Federal Register (61
F.R. 53058 [T.D. 8683, 1996–2 C.B.
169]). A notice of proposed rulemaking
(REG–209803–95) cross-referencing the
temporary regulations was published in
the Federal Register for the same day
(61 F.R. 53161 [REG–209803–95,
1996–2 C.B. 497]). These regulations
were issued at the request of the Social
Security Administration (the SSA) that
regulations be issued to require employers
required to file 250 or more Forms
499R–2/W–2PR (Withholding Statement
(Puerto Rico)), Forms W–2VI (U.S. Virgin Islands Wage and Tax Statement),
Forms W–2GU (Guam Wage and Ta x
Statement), and Forms W–2AS (American Samoa Wage and Tax Statement) to
file these forms with the SSAon magnetic
media. Filing these forms on magnetic
media will reduce administrative burdens
and will increase accurate processing of
information. These regulations also reflect the changes made to the Code and to
the administrative practices with respect
to filing on magnetic media or in other
machine-readable form.
One written comment responding to
this notice was received. No public hear-

9

ing was requested or held. After consideration of the comment, the proposed regulations are adopted as modified and the
corresponding temporary regulations are
removed. The comment is discussed
below.
Summary of Comment
The commentator suggests that the definition of magnetic media is too restrictive and that it does not encompass the
use of additional technology that would
facilitate the underlying reporting requirements. The commentator suggests that
the definition is not broad enough to include the use of digital filing, specifically
2D barcode. Neither the IRS nor the SSA
utilize digital filing technology at this
time. However, the IRS and the SSA are
committed to utilizing available technology that would facilitate the purpose of
information reporting. Therefore, the regulations make clear that the use of other
media may be permitted in the future as
provided in applicable regulations, revenue procedures, or publications.
Relationship to Treasury Decision 8734
Treasury Decision 8734 was published
in the Federal Register on October 14,
1997 (62 F.R. 53387 [T.D. 8734, 1997–44
I.R.B. 5]) and removed §§1.6045–1T and
1 . 6 0 4 5 – 2 T e ffective January 1, 1999.
This document removes §§1.6045–1T
amd 1.6045–2T e ffective June 30, 1998.
Because this document removes these
sections at an earlier date, a document
will be published later to amend T. D .
8734 to take this into account.
Special Analyses
It is hereby certified that the regulations in this document will not have a significant economic impact on a substantial
number of small entities. This certification is based on a determination that these
regulations impose no additional reporting or recordkeeping requirement and
prescribe only the method of filing information returns that are already required to
be filed. Further, these regulations are
consistent with the requirements imposed
by statute. Section 6011(e)(2)(A) provides that, in prescribing regulations providing standards for determining which
returns must be filed on magnetic media
or in other machine-readable form, the

August 3, 1998

Secretary shall not require any person to
file returns on magnetic media unless the
person is required to file at least 250 returns during the calendar year. Consistent
with the statutory provision, these regulations do not require information returns to
be filed on magnetic media unless 250 or
more returns are required to be filed. Furt h e r, the economic impact caused by filing on magnetic media should be minimal. If a taxpayer’s operations are
computerized, reporting in accordance
with the regulations should be less costly
than filing on paper. If the taxpayer’s operations are not computerized, the incremental cost of magnetic media reporting
should be minimal in most cases because
of the availability of computer service bureaus. In addition, the regulations provide
that the IRS may waive the magnetic
media filing requirements upon a showing
of hardship. It is anticipated that the
waiver authority will be exercised so as
not to unduly burden taxpayers lacking
both the necessary data processing facilities and access at a reasonable cost to
computer service bureaus. Accordingly, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required.
It has been determined that this Tr e asury decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required.
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact on
small business.
Drafting Information
The principal author of these regulations is Donna Joy Welch, Office of Assistant Chief Counsel (Income Tax and
Accounting). However, other personnel
from the IRS and the Treasury Department participated in the development of
the regulations.
* * * * *
Adoption of Amendments to the
Regulations
A c c o r d i n g l y, 26 CFR parts 1 and 301
are amended as follows:

August 3, 1998

PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *

required, may be subject to a penalty
under section 6721 for each such failure.
See paragraph (g)(4) of this section.
* * * * *

§§1.6045–1T and 1.6045–2T
[Removed]

PART301—PROCEDURE AND
ADMINISTRATION

P a r. 2. Sections 1.6045–1T a n d
1 . 6 0 4 5 – 2 T, currently in effect, are removed.
P a r. 3. Section 1.6045-1, currently in
effect, is amended by:
1. Revising paragraph (l).
2. Removing the language “§1.6045–
1T(l)” and adding “paragraph (l) of this
section” in its place in paragraph (q).
The revision reads as follows:

P a r. 5. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 6. Section 301.6011-2 is amended
by:
1. Revising paragraphs (a)(1), (b)(1),
(b)(2), (c)(1) heading, (c)(1)(i), (c)(1)(iii),
(c)(2), (d), (f), (g) heading, and (g)(2).
2. Adding paragraph (c)(1)(iv).
3. Removing paragraphs (c)(3) and
(c)(4) and the last sentence of paragraph
(e).
The revisions and addition read as follows:

§1.6045–1 Returns of information of
brokers and barter exchanges.
* * * * *
(l) Use of magnetic media. For information returns filed after December 31,
1996, see §301.6011–2 of this chapter for
rules relating to filing information returns
on magnetic media and for rules relating
to waivers granted for undue hardship. A
broker or barter exchange that fails to file
a Form 1099 on magnetic media, when
required, may be subject to a penalty
under section 6721 for each such failure.
See paragraph (j) of this section.
* * * * *
Par. 4. Section 1.6045–2, currently in
effect, is amended by:
1. Revising paragraph (g)(2).
2. Removing the language “§1.6045–
2T(g)(2)” and adding “paragraph (g)(2) of
this section” in its place in paragraph (i).
The revision reads as follows:
§1.6045–2 Furnishing statement required
with respect to certain substitute
payments.
* * * * *
(g) * * *
(2) Use of magnetic media. For information returns filed after December 31,
1996, see §301.6011–2 of this chapter for
rules relating to filing information returns
on magnetic media and for rules relating
to waivers granted for undue hardship. A
broker or barter exchange that fails to file
a Form 1099 on magnetic media, when

10

§301.6011–2 Required use of magnetic
media.
(a) * * *
(1) Magnetic media. The term mag netic media means any media permitted
under applicable regulations, revenue
procedures or publications, or, in the case
of returns filed with the Social Security
Administration, Social Security Administration publications. These generally include magnetic tape, tape cartridge, and
diskette, as well as other media (such as
electronic filing) specifically permitted
under the applicable regulations, procedures, or publications.
* * * * *
(b) Returns re q u i red on magnetic
media. (1) If the use of Form 1042-S,
1098, 1099 series, 5498, 8027, W-2G, or
other form treated as a form specified in
this paragraph (b)(1) is required by the
applicable regulations or revenue procedures for the purpose of making an information return, the information required
by the form must be submitted on magnetic media, except as otherwise provided
in paragraph (c) of this section. Returns
on magnetic media must be made in accordance with applicable revenue procedures or publications (see §601.601(d)(2)(ii)(b) of this chapter). Pursuant to
these procedures, the consent of the Commissioner of Internal Revenue (or other
authorized officer or employee of the In-

1998–31 I.R.B.

ternal Revenue Service) to a magnetic
medium must be obtained by submitting
Form 4419 (Application for Filing Information Returns Magnetically/Electronically) prior to submitting a return described in this paragraph (b)(1) on the
magnetic medium.
(2) If the use of Form W–2 (Wage and
Tax Statement), Form 499R–2/W–2PR
( Withholding Statement (Puerto Rico)),
Form W–2VI (U.S. Vi rgin Islands Wa g e
and Tax Statement), Form W – 2 G U
(Guam Wage and Tax Statement), Form
W–2AS (American Samoa Wage and Tax
Statement), or other form treated as a
form specified in this paragraph (b)(2) is
required for the purpose of making an information return, the information required
by the form must be submitted on magnetic media, except as otherwise provided
in paragraph (c) of this section. Returns
described in this paragraph (b)(2) must be
made in accordance with applicable Social Security Administration procedures
or publications (which may be obtained
from the local office of the Social Security Administration).

Example 2. During the calendar year ending December 31, 1998, Company Yhas 275 employees in
Puerto Rico and 50 employees in American Samoa.
Company Y is required to file Forms 499R–2/
W–2PR on magnetic media but is not required to file
Forms W–2AS on magnetic media.
Example 3. For the calendar year ending December 31, 1998, Company Z files 300 original returns
on Form 1099–DIV and later files 70 corrected returns on Form 1099–DIV. Company Z is required to
file the original returns on magnetic media. However, Company Z is not required to file the corrected
returns on magnetic media because the corrected returns fall under the 250-threshold. See §301.6721–
1(a)(2)(ii).

(2) Waiver. (i) The Commissioner may
waive the requirements of this section if
hardship is shown in a request for waiver
filed in accordance with this paragraph
(c)(2)(i). The principal factor in determining hardship will be the amount, if
any, by which the cost of filing the information returns in accordance with this
section exceeds the cost of filing the returns on other media. Notwithstanding
the foregoing, if an employer is required
to make a final return on Form 941, or a
variation thereof, and expedited filing of
Forms W–2, Forms 499R–2/W–2PR,
Forms W–2VI, Forms W–2GU, or Form
* * * * *
W–2AS is required, the unavailability of
(c) E x c e p t i o n s—(1) Low-volume fil - the specifications for magnetic media file r s / 2 5 0 - t h re s h o l d—(i) In general. No ing will be treated as creating a hardship
person is required to file information re- (see §31.6071(a)–1(a)(3)(ii) of this chapturns on magnetic media unless the per- ter). A request for waiver must be made
son is required to file 250 or more returns in accordance with applicable revenue
during the calendar year. Persons filing procedures or publications (see
fewer than 250 returns during the calen- § 6 0 1 . 6 0 1 ( d ) ( 2 ) ( i i ) (b) of this chapter).
dar year may make the returns on the pre- Pursuant to these procedures, a request
scribed paper form, or, alternatively, such for waiver should be filed at least 45 days
persons may make returns on magnetic before the due date of the information remedia in accordance with paragraph (b) turn in order for the Service to have adeof this section.
quate time to respond to the request for
waiver. The waiver will specify the type
* * * * *
of information return and the period to
(iii) No aggregation. Each type of in- which it applies and will be subject to
formation return described in paragraphs such terms and conditions regarding the
(b)(1) and (2) of this section is considered method of reporting as may be prescribed
a separate return for purposes of this para- by the Commissioner.
graph (c)(1). Therefore, the 250-thresh(ii) The Commissioner may prescribe
old applies separately to each type of rules that supplement the provisions of
form required to be filed.
paragraph (c)(2)(i) of this section.
(iv) Examples. The provisions of para(d) Paper form re t u r n s . Returns subgraph (c)(1)(iii) of this section are illus- mitted on paper forms (whether or not
trated by the following examples:
machine-readable) permitted under paragraph (c) of this section shall be in accorExample 1. For the calendar year ending December 31, 1998, Company X is required to file 200 re- dance with applicable Internal Revenue
turns on Form 1099–INT and 350 returns on Form Service or Social Security Administration
1099–MISC. Company X is not required to file procedures.
Forms 1099–INT on magnetic media but is required
to file Forms 1099–MISC on magnetic media.

1998–31 I.R.B.

(f) Failure to file. If a person fails to
file an information return on magnetic
media when required to do so by this section, the person is deemed to have failed
to file the return. In addition, if a person
making returns on a paper form under
paragraph (c) of this section fails to file a
return on machine-readable paper form
when required to do so by this section, the
person is deemed to have failed to file the
return. See sections 6652, 6693, and
6721 for penalties for failure to file certain returns. See also section 6724 and
the regulations under section 6721 for the
specific rules and limitations regarding
the penalty imposed under section 6721
for failure to file on magnetic media.
(g) Effective dates. * * *
(2) Paragraphs (a)(1), (b)(1), (b)(2),
(c)(1)(i), (c)(1)(iii), (c)(1)(iv), (c)(2), (d),
(e), and (f) of this section are effective for
information returns required to be filed
after December 31, 1996. For information returns required to be filed after December 31, 1989, and before January 1,
1997, see section 6011(e).
§301.6011–2T [Removed].
P a r. 7. Section 301.6011 – 2 T is removed.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved May 22, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on June
29, 1998, 8:45 a.m., and published in the issue of the
Federal Register for June 30, 1998, 63 F.R. 35517)

Section 7520.—Valuation Tables
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.

Section 7872.—Treatment of
Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.

* * * * *

11

August 3, 1998

26 CFR 1.7872–5T: Exempted Loans (temporary).

Below-market loans; exempted
loans; second mortgage loans under the
M A H R A A c t . A below-market second
mortgage loan made under the Multifamily Assisted Housing Reform and Affordability Act of 1997, by the Department of
Housing and Urban Development (HUD)
to the owner of a multifamily low-income
rental property in connection with restructuring the existing first mortgage on the
p r o p e r t y, is exempted from section 7872
of the Code.

Rev. Rul. 98–34
ISSUE
If the Department of Housing and
Urban Development (“HUD”) makes a
below-market second mortgage loan in
accordance with the Multifamily Assisted
Housing Reform and Affordability Act of
1997, 111 Stat. 1384 (“MAHRAAct”), is
that loan exempt from § 7872 of the Internal Revenue Code?
FACTS
Limited partnership PRS owns a multifamily low-income rental property subject
to a first mortgage that secures a nonrecourse first mortgage note with an outstanding principal balance of $100x (the
“Existing Mortgage loan”). The Existing
Mortgage loan is insured by the Federal
Housing Administration (“FHA”). PRS,
as owner of the property, receives both
rental payments from the property’s tenants and, under a project-based assistance
contract, certain additional payments
from HUD. (Collectively, the payments
are referred to as “Contract Rents.”) The
Contract Rents exceed the rents that
would be received with respect to comparable unassisted rental properties in the
same housing market (“Street Rents”). If
the project-based assistance from HUD
were reduced so that Contract Rents reflected Street Rents, PRS would not be
able to satisfy its debt service obligation
on the Existing Mortgage loan.
Congress enacted the MAHRA Act to
reduce the federal government’s cost of
rental subsidies, to minimize FHA m o r tgage insurance risks, and to ensure the
continued viability of multifamily rental
housing projects. S e e § 511(b) of the
MAHRA Act; H.R. Conf. Rep. No. 297,

August 3, 1998

105th Cong., 1st Sess. 137–39 (1997).
To achieve these goals, the MAHRA Act
permits owners of eligible multifamily
housing projects with expiring projectbased assistance contracts to enter into
mortgage restructuring and rental assistance sufficiency plans with HUD or a
participating administrative entity acting
on behalf of HUD.
In accordance with the MAHRA Act,
the following actions occur:
(1) Project-based assistance payments
to PRS are reduced so that the Contract
Rents received by P R S reflect Street
Rents.
(2) HUD makes a $35x cash payment
to the holder of the Existing Mortgage
loan on behalf of PRS to reduce the outstanding principal balance of the Existing
Mortgage loan to $65x.
(3) The terms of the Existing Mortgage
loan are modified, resulting in a new first
mortgage loan with an outstanding principal balance of $65x (“New First Mortgage
loan”). The New First Mortgage loan
provides for interest above the applicable
Federal rate under § 1274(d) (“AFR”).
Debt service on the New First Mortgage
loan is supportable by the reduced Contract Rents.
(4) In consideration for the payment in
step (2), PRS executes a nonrecourse note
to HUD (the “Second Mortgage loan”) secured by a second mortgage. The Second
Mortgage loan has a principal balance of
$ 3 5x, provides for interest below the
AFR, and qualifies as indebtedness under
general principles of federal income tax
law. The Second Mortgage loan is made
in accordance with § 517(a)(1)(B) of the
MAHRAAct.
LAWAND ANALYSIS
In general, § 7872 defines a belowmarket loan as any loan on which the interest rate charged is less than the A F R .
Section 7872(b) provides that the borrower of a below-market term loan is
treated as having received from the
lender, on the date the loan is made, cash
in an amount equal to the excess of the
amount loaned over the present value of
all payments required under the loan (the
“imputed transfer”). Section 7872(b) further provides that a below-market term
loan is treated as having original issue
discount (“OID”) in an amount equal to
the imputed transfer, which is in addition

12

to any other OID on the loan determined
without regard to § 7872(b).
Section 1.7872–5T(a)(1) of the temporary Income Tax Regulations provides
that, notwithstanding any other provision
of § 7872 and the regulations thereunder,
§ 7872 does not apply to the loans listed
in § 1.7872–5T(b) because the interest
arrangements of those loans do not have a
significant effect on the federal tax liability of the borrower or the lender. Section
1.7872–5T(a)(2) provides, however, that
if a taxpayer structures a transaction as a
loan exempt under § 1.7872–5T(b) and
one of the principal purposes of so structuring the transaction is the avoidance of
federal tax, then the transaction will be
recharacterized as a tax avoidance loan
under § 7872(c)(1)(D).
Section 1.7872–5T(b)(5) provides an
exemption for loans that are subsidized by
a federal, state, or municipal government
(or any agency or instrumentality
thereof), and that are made available
under a program of general application to
the public.
Under § 1.7872–5T(b)(15), other loans
described in revenue rulings or revenue
procedures may be exempted from § 7872
if the Commissioner finds that the factors
justifying the exemption for those loans
are sufficiently similar to the factors justifying the other exemptions listed in
§ 1.7872–5T.
The legislative history of § 7872 indicates that most government-subsidized
loans, such as government-insured residential mortgage loans, were intended to
be exempt from § 7872. See 1 Senate
Comm. on Finance, 98th Cong., 2d Sess.,
Deficit Reduction Act of 1984: Explanation of Provisions Approved by the Committee on March 21, 1984, at 482 (S. Prt.
169).
The factors justifying exemption of the
Second Mortgage loan from § 7872 are
similar to the factors justifying the exemption for government subsidized loans
made available under a program of general application to the public, which are
exempt from § 7872 under § 1.7872–
5T(b)(5).
The MAHRAAct was enacted as a reform measure to reduce HUD’s cost of renewing project-based assistance contracts
on multifamily low-income rental properties while ensuring the continued viability
of these multifamily rental housing pro-

1998–31 I.R.B.

jects. The interest arrangements of the
Second Mortgage loan to PRS are, therefore, not structured with a principal purpose of avoiding federal tax.
HOLDING
The Second Mortgage loan is exempt
from § 7872.

1998–31 I.R.B.

DRAFTING INFORMATION
The principal authors of this revenue
ruling are David B. Silber and Tina Jannotta of the Office of Assistant Chief
Counsel (Financial Institutions and Products). However, other personnel from the
IRS and Treasury Department partici-

13

pated in its development. For further information regarding this notice, contact
Tina Jannotta on (202) 622–3940 (not a
toll-free call).

August 3, 1998

Part IV. Items of General Interest
1998 Form Specifications; Correction
Announcement 98–72
This announcement corrects Rev. Proc. 98–35, 1998–21 I.R.B. 6, relating to specifications for the magnetic or electronic filing of
1998 Forms 1098, 1099, 5498, and W–2G.
On page 6 of the Bulletin, the bullet relating to Form 8809 is incorrectly stated as follows:
Form 8809, 8027, – Request for Extension of Time to File Information Returns (For Forms W–2, W–2G, 1042–S, 1099,
1098, and 5498)
The correct wording is as follows:
Form 8809 – Request for Extension of Time to File Information Returns (For Forms W–2, W–2G, 1042–S, 1099, 1098,
5498, and 8027)
On page 16, under Section 10, Due Dates, the date for Forms 5498 and 5498–MSAis incorrectly stated as follows:
Forms 5498 and 5498–MSA
Participant Copy – June 1, 1999
IRS Copy – June 1, 1999
The correct date to use is:
Forms 5498 and 5498–MSA
Participant Copy – May 31, 1999
IRS Copy – May 31, 1999

Penalty Relief for TIN Errors on
1996 & 1997 Forms 1099–R
Announcement 98–73
In early August, the Internal Revenue
Service (IRS) will send certain filers of
Form 1099–R (payers of distributions
from pensions, annuities, retirement or
profit-sharing plans, individual retirement
accounts, insurance contracts, etc.) lists of
payees whose taxpayer identification
numbers (TINs) on 1996 Forms 1099–R
filed with the IRS have been identified as
missing or incorrect based on the IRS
matching process. Most of these listings
will be included with the Notice 972CG,
but some will be sent separately. The law
provides a penalty of $50 per return for
filing an information return with a missing or incorrect TIN. For 1996 and 1997,
for the Forms 1099–R only, the IRS will
not assess this TIN penalty, merely because the TIN has been identified as missing or incorrect based on the IRS matching process. In certain cases this penalty
may be assessed after an examination of a
payer’s returns. Payers should use these
listings to correct their records and perform necessary solicitations to obtain correct payee information to establish reasonable cause for any TIN penalties in
future years.

August 3, 1998

The IRS will still send out proposed
penalty notices for the 1996 Form 1099R, as well as for other information returns, in early August to those who filed
late or failed to file on magnetic media
when required to do so.
Questions & Answers on the Form
1099–R TIN Listing
Q1. Why is the IRS sending this listing?
A1. The IRS is sending this listing so that
the payer can compare the data on it
to the information in its records and
then take steps to secure correct
payee information so that future information returns may be filed accurately.
Q2. What is contained in this listing?
A2. This listing consists of the Forms
1099–R filed for Tax Year 1996 that
have been identified as having missing or incorrect TINs based on the
records of the IRS and the Social Security Administration (SSA).
Q3. When does the IRS consider a TIN to
be missing or incorrect?
A3. A TIN is identified as missing if
there is no entry in the TIN block of
a Form 1099 or if the number is obviously incorrect. A number is obviously incorrect if, for example, it
does not have nine characters or it

14

includes alpha characters. A TIN is
identified as incorrect if the name/
TIN combination on a Form 1099
does not match the name/TIN combination found in IRS and SSAfiles.
Q4. What should be done with the information in the listing?
A4. The payer should compare the information in the listing with its records
to identify accounts or records with
the same name/TIN combination and
account or other number (if provided). The IRS recommends that
the payer contact these payees and
ask them for the correct name/TIN
combination that can be used on future information returns. Although a
certified TIN is not required from
these payees, the payer may use
Form W–9, “Request for Ta x p a y e r
Identification Number and Certification,” for this purpose. The payer
should also check its records for errors (such as transposition of digits)
so that the correct name/TIN combination can be used on any future information returns.
Q5. What should be done if the payer
does not have a payee’s TIN?
A5. The payer should comply with the
TIN solicitation requirements in
Regulations section 301.6724–1(e).
In addition, Federal income taxes

1998–31 I.R.B.

should be withheld from any payments made to the payee that are
designated distributions under Code
section 3405. In the case of nonperiodic payments, a flat rate of 10%
should be withheld on non-eligible
rollover distributions. On eligible
rollover distributions, the withholding rate of 20% should continue to
be used. In the case of periodic payments, the payer should withhold
using the wage withholding rates for
a single taxpayer claiming zero (0)
allowances .
Q6. What should be done if a payee refuses or neglects to provide a TIN?
A6. The payer should withhold under the
provisions of Code section 3405. See
Q&A5.
Q7. What should be done if a payee provides the same name and TIN that
was on the listing?
A7. The payer should continue to use the
name and TIN provided and keep a
copy on file of the documentation received from the payee.
Q8. What should be done if a TIN was
actually on file but was left off the
Form 1099 or reported incorrectly?
A8. The payer should make the change to
its records and use the correct information on future filings.
Q9. Will the IRS impose a penalty under
Code section 6721 with respect to
the information returns merely because a TIN is identified as missing
or incorrect on this listing?
A9. No. In August 1998 (for Tax Ye a r
1996), the IRS is providing this listing so that payers can obtain correct
name/TIN information for use on
any future Forms 1099–R filed. Incorrect name/TIN combinations and
missing TINs on future Forms 1099–
R filed may result in a penalty.
Q10. Is this listing a notification, under
Code section 3405(e)(12)(B), that
the TIN furnished by the payee is
incorrect?
A10. No. The informational listing provided in August 1998 will not be
treated as a notice under Code section 3405(e)(12)(B) that the T I N
furnished by the payee is incorrect.
In 1998 (for Tax Year 1996), the
IRS is only providing this informational listing so that payers can con-

1998–31 I.R.B.

tact these payees and obtain correct
name/TIN information for use on
future Forms 1099–R filed.
Q11. Where can I find additional information about the reasonable cause
regulations and requirements for
missing and incorrect name/TIN
combinations?
A11. See Publication 1586, “Reasonable
Cause Regulations and Requirements for Missing and Incorrect
Name/TINs.”
Q12. Since it is likely that Forms 1099–R
for Tax Year 1997 have already
been filed with the missing or incorrect information found on this
listing, will penalty relief for 1997
also be granted?
A12. Yes. For Tax Year 1997, this relief
will be granted for the TIN penalty
for Forms 1099–R only.
Q13. Who should be called with any
questions?
A13. The Information Reporting Program Centralized Call Site may be
called at (304) 263-8700 (not a tollfree number) between 8:30 a.m.
and 4:30 p.m. (EST). Payers may
also access the Information Returns
Program Bulletin Board using standard personal computing equipment
at (304) 264-7070 (not a toll-free
number).

Trading Safe Harbors;
Correction
Announcement 98–74
A G E N C Y: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to notice of proposed rulemaking and notice of public
hearing.
S U M M A RY: This document contains
corrections to REG–106031–98, which
was published in the Federal Register on
F r i d a y, June 12, 1998 (63 F.R. 32164
[1998–26 I.R.B. 38]), relating to the treatment of foreign taxpayers trading in derivative financial instruments for their
own account.
FOR FURTHER INFORMATION CONTA C T: Milton Cahn, (202) 622-3870
(not a toll-free number).

15

SUPPLEMENTARYINFORMATION:
Background
The notice of proposed rulemaking that
is the subject of this correction is under
section 864(b) of the Internal Revenue
Code.
Need for Correction
As published, REG–106031–98 contains errors which may prove to be misleading and are in need of clarification.
Correction of Publication
Accordingly, the publication of the notice of proposed rulemaking (REG106031-98), which is the subject of FR
Doc. 98-15452, is corrected as follows:
1. On page 32164, column 3, in the
preamble under the paragraph heading
“Background”, the second paragraph, line
3, the language “promulgated in 1972.
Since the” is corrected to read “promulgated in 1968. Since the”.
2. On page 32165, column 2, in the preamble under the paragraph heading “2. Eli gible Nondealer”, the third paragraph, line
9, the language “securities in 475(c)(1)(B),
including” is corrected to read “securities
in section 475(c)(1)(B), including”.
§1.864(b)–1 [Corrected]
3. On page 32166, columns 2 and 3,
§1.864(b)–1(b) (1) introductory text, the
last line in column 2 and the first line in
column 3, the language “nondealer is a
person that is not a resident of the United
States and is not,” is corrected to read
“nondealer is a foreign corporation or a
person that is not a resident of the United
States, and either of which is not,”.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on July
14, 1998, 8:45 a.m., and published in the issue of the
Federal Register for July 15, 1998, 63 F.R. 38139)

Foundations Status of Certain
Organizations
Announcement 98–75
The following organizations have
failed to establish or have been unable to

August 3, 1998

maintain their status as public charities or
as operating foundations. A c c o r d i n g l y,
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. T h i s
listing does not indicate that the organizations have lost their status as org a n i z ations described in section 501(c)(3), eligible to receive deductible contributions.
Former Public Charities. The following
o rganizations (which have been treated as
o rganizations that are not private foundations described in section 509(a) of the
Code) are now classified as private foundations:
A Better Option Dwelling Enterprise,
Inc., Laurel, MD
African Family Services Center, New
York, NY
American Aid for Polands Environment
Foundation Inc., Chicago, IL
Angela Barber Foundation, Ashland, OR
Aradia Inc. Aradia Theatre, Buskirk, NY
Bread of Life Outreach Deliverance, East
Orange, NJ
Cleveland Haddassah House, Inc.,
Beachwood, OH

August 3, 1998

Delaware Crime Prevention Association,
Dover, DE
Dixie Hollins Band Boosters, Inc.,
St. Petersburg, FL
Doniphan Education Foundation,
Doniphan, NE
Environmental Technology Synthests,
Beltsville, MD
For a Better Life Foundation, Chicago, IL
Glen Shumate Ministries, Inc., Corbin,
KY
Good Stewards, Woodbury, MN
Gospel Music Museum & Archives Inc.,
Huntsville, AK
Hans Lehfeldt Charitable Trust, New
York, NY
Help or Motivate Everybody, Inc., Dallas,
TX
Henrietta J. Gersoni Educational
Foundation, Stockton, CA
Hine-2 Corporation, Portland, ME
Hintz Research Foundation, Rock Island,
IL
Hope & Charity Incorporated, Pittsburg,
PA
Impoverished, Inc., Chicago, IL
International Center for Addiction and
AIDS Training, Inc., Rochester, NY
Itis H. Chidester Scout Museum of
Southern Arizona, Tucson, AR

16

Lochearn Child Care & Development
Center, Baltimore, MD
Living History Society of Delaware, Inc.,
Dover, DE
Sayre Charitable Union, Sayre, OK
Shelter Plus Inc., North Miami, FL
Sphere, Inc., Dixmont, ME
Steve Nelson Ministries, Gallatin, TN
TASCA, Raleigh, NC
Team Jesus Inc., Amory, MS
Vanguard Communications, St. Louis,
MO
Visions & Associates, Bath, OH
Westwood Education Foundation,
Mapleton, IA
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as a
private operating foundation, the Internal
Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as provided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

1998–31 I.R.B.

Definition of Terms
Revenue rulings and revenue pro c e d u re s
( h e reinafter re f e rred 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. T h u s ,
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.
D i s t i n g u i s h e d describes a situation
where a ruling mentions a previously
published ruling and points out an essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the substance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published ruling is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a period of time in separate rulings. If the

new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously published ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be published that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

Abbreviations

E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.

PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

The following abbreviations in current use and for merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.

1998–31 I.R.B.

17

August 3, 1998

Numerical Finding List 1
Bulletins 1998–29 and 30
Announcements:
98–62, 1998–29 I.R.B. 13
98–68, 1998–29 I.R.B. 14
98–69, 1998–30 I.R.B. 16
98–70, 1998–30 I.R.B. 17
98–71, 1998–30 I.R.B. 17
Notices:
98–36, 1998–29 I.R.B. 8
98–37, 1998–30 I.R.B. 13
Proposed Regulations:
REG–104641–97, 1998–29 I.R.B. 9
REG–110403–98, 1998–29 I.R.B. 11
REG–116608–97, 1998–29 I.R.B. 12
REG–119227–97, 1998–30 I.R.B. 13
Revenue Procedures:
98–43, 1998–29 I.R.B. 8
Revenue Rulings:
98–35, 1998–30 I.R.B. 4
Treasury Decisions:
8771, 1998–29 I.R.B. 6
8773, 1998–29 I.R.B. 4
8774, 1998–30 I.R.B. 5

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–28
will be found in Internal Revenue Bulletin 1998–29,
dated July 20, 1998.

August 3, 1998

18

1998–31 I.R.B.

Finding List of Current Action on
Previously Published Items 1
Bulletins 1998–29 and 30
*Denotes entry since last publication

1 A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–28 will be found in Internal
Revenue Bulletin 1998–29, dated July 20, 1998.

1998–31 I.R.B.

19

August 3, 1998

Index

ESTATE TAX—Continued

EXCISE TAX—Continued

Internal Revenue Bulletins
1998–1 Through 1998–30

26 CFR 25.2702–5, –7, amended; qualified prsonal residence trust, sale of
residence (TD 8743) 7, 26
26 CFR 25.2511–1, 25.2514–3,
25.2518–1, –2, amended; property
interests and disclaimers (TD 8744)
7, 20
Revocable trust; election (RP13) 4, 21
Special use value; farms; interest rates
(RR 22) 19, 5
Underpayment interest, interest expense
deduction, estates (RP15) 4, 25
Valuation of compensatory stock options
(RP 34) 18, 15

Regulations:
26 CFR 48.4081–1T, 48.4082–6T
through –10T and intermediary sections, 48.4091–3T, 48.4101–2T, –3T,
4 8 . 6 4 2 7 – 1 0 T, –11 T, added; 145.4052–
1, amended; kerosene, aviation fuel,
heavy trucks and trailers tax (TD
8774) 30, 5

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:
RR
Revenue Ruling
RP
Revenue Procedure
TD
Treasury Decision
CD
Court Decision
PL
Public Law
EO
Executive Order
DO
Delegation Order
TDO
Treasury Department Order
TC
Tax Convention
SPR
Statement of Procedural
Rules
PTE
Prohibited Transaction
Exemption

EMPLOYMENT TAX
Magnetic media; electronic filing; 1998
Form W–4 specifications (RP 26) 13,
26
Proposed regulations:
26 CFR 31.3121(v)(2)–1, revised;
FICAand FUTAtaxation of amounts
under employee benefit plans (REG–
209484–87; REG–209807–95) 8, 40
26 CFR 31.6053–1, –4; electronic tip
reports (REG–104691–97) 11, 13
Student FICAexception (RP16) 5, 19
26 CFR 31.6302–1(f)(4), revised; federal employment tax deposits d e
minimis rule (REG–110403–98) 29,
11
Regulations:
26 CFR 31.6302–1(f)(4), 31.6302–1T,
added; federal employment tax deposits de minimis rule (TD 8771) 29,
6

ESTATE TAX
Regulations:
26 CFR 20.2041–3, 20.2056(d)–2,
amended; 20.2046–1, revised; property interests and disclaimer (TD
8744) 7, 20

August 3, 1998

EXCISE TAX
Bows and arrows; taxable and nontaxable
articles (RR 5) 2, 20
Deposit of excise taxes, amendment (Notice 36) 29, 8
Federal excise taxes for consular officers
and employees, exemption (RR 24) 19,
6
Proposed regulations:
26 CFR 40.0–1T, added; 40.6011 ( a ) –
1 T, added; 40.6302(c)–2T, added;
deposits of excise taxes (REG–
102894–97) 3, 59
26 CFR 48.4052–1, added; 48.4081–1,
amended; 48.4082–6 through –10
and intermediary sections, 48.4091–
3, added; 48.4101–2, amended;
48.4101–3, 48.6427–10, –11, added;
kerosene tax, aviation fuel tax, tax
on heavy trucks and trailers (REG–
119227–97) 30, 13
26 CFR 54.4980B–1, added; group
health plans continuation coverage
requirements (REG–209485–86) 11,
21
Regulations:
26 CFR 40.0–1(a), amended;
4 0 . 6 0 11 ( a ) –1(a)(2)(iii), 40.5302(c)–
1, amended, 40.6302(c)–2(b)(2)(iii),
added; deposits of excise taxes (TD
8740) 3, 4
26 CFR 40.6011 ( a ) – 1 ( b ) ( 2 ) ( v i ) ,
amended; 48.4082–5T, removed;
48.4082–5, added; 48.4081–1,
amended; 48.4082–5T, redesignated;
48.6416(b)(4)–1, removed; 48.6421–
3(d)(2), amended; 48.6427–3(d)(2),
amended; 48.6715–1(a)(3), revised;
4 8 . 6 7 1 5 – 2 T, removed; gasoline and
diesel fuel excise tax; special rules for
Alaska, definitions (TD 8748) 8, 24

20

GIFT TAX
Nonstatutory stock option, transfer (RR
21) 18, 7
Qualifying income interest, disposition
(RR 8) 7, 24
Valuation of compensatory stock options
(RP 34) 18, 15

INCOME TAX
Advance pricing agreements, small business taxpayers (Notice 10) 6, 9
Article XIII (8) Rev. Proc. (RP 21) 8, 27
Automobile owners and lessees (RP 24)
10, 31; (RP 30) 17, 6
Books and records; automatic data processing system (RP 25) 11, 7
Business expenses:
U n d e rground waste storage tank (RR
25) 19, 4
Capital gains and charitable remainder
trusts (Notice 20) 13, 25
Classification settlement program:
Extended until further notice (Notice
21) 15, 14
Disclosure authorization list (RP 43) 29, 8
Domestic assets/liability and investment
yield percentages (RP31) 23, 9
Education loans (Notice 7) 3, 54
Elections under section 7704(g) (Notice
3) 3, 48
Electronic Federal Tax Payment System:
Batch filers and bulk filers (RP 32) 17,
11
Electronic funds transfer; failure to deposit penalty (Notice 30) 22, 9
Employee plans:
Administrative programs; closing
agreements (RP 22) 12, 11
Determination letters (RP 6) 1, 183;
(RP14) 4, 22
Discrimination; CODAs (Notice 1) 3,
42
Eligible deferred compensation plans
(Notice 8) 4, 6

1998–31 I.R.B.

INCOME TAX—Continued INCOME TAX—Continued INCOME TAX—Continued
Group health plans; COBRA continuation coverage; HIPA A p o r t a b i l i t y
(Notice 12) 5, 12
Net unrealized appreciation; capital
gains (Notice 24) 17, 5
Funding:
Full funding limitations, weighted
average interest rate for January 1998 (Notice 9) 4, 8; February 1998 (Notice 15) 9, 8 ;
March 1998 (Notice 18) 12, 11;
April 1998 (Notice 26) 18, 14;
May 1998 (Notice 32) 22, 23;
June 1998 (Notice 33) 25, 10;
July 1998 (Notice 37) 30, 13
Letter rulings, etc. (RP4) 1, 113
Limitations on benefits and contributions (RR 1) 2, 5
Minimum Funding Standards (RP 10)
2, 35
Minimum:
Remedial amendments (RP 42) 28,
9
Qualification (Notice 29) 22, 8;
CODAs (RR 30) 25, 8
Recovery of basis; retirees (Notice 2)
2, 22
SIMPLE-IRAs (Notice 4) 2, 25
Technical advice (RP5) 1, 155
User fees (RP 8) 1, 225
Environmental cleanup costs; letter
rulings (RP 17) 5, 21
Exempt Organizations:
Letter rulings, etc. (RP 4) 1, 113
Organizations excepted from reporting
lobbying expenditures (RP 19) 7,
30
Tax consequences of physicians recruitment incentives provided by
hospitals (RR 15) 12, 6
Technical advice (RP5) 1, 155
User fees (RP8) 1, 225
Failure to deposit federal tax; penalty
abatement (Notice 14) 8, 27
Foreign partnerships, reporting transfer of
property by U.S. persons (Notice 17)
11, 6
Foreign tax credit abuse (Notice 5) 3, 49
Fringe benefits aircraft valuation formula,
first half of 1998 (RR 14) 11, 4
Fuel from a nonconventional source,
credit; section 29 inflation adjustment;
reference price for 1997 (Notice 28)
19, 7
Hybrid arrangements, treatment under
subpart F (Notice 35) 27, 35

1998–31 I.R.B.

Insurance companies:
Discounting estimated salvage recoverable (RP12) 4, 18
Interest rate tables (RR 2) 2, 15
Loss reserves; discounting unpaid
losses (RP 11) 4, 9
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for January 1998
(RR4) 2, 1 8; February 1998
(RR7) 6, 6; March 1998 (RR11 )
10, 13; April 1998 (RR 18) 14,
2 2; May (RR 23) 18, 5; J u n e
1998 (RR 28) 22, 5; July 1998
(RR 33) 27, 26
Rates, underpayments and overpayments (RR 17) 13, 21; calendar
quarter beginning July 1, 1998
(RR 32) 25, 4
Inventory:
LIFO:
Price indexes; department stores for
November 1997 (RR 6) 4, 4; December 1997 (RR 9) 6, 5; January
1998 (RR 16) 13, 18; February
1998 (RR 20) 15, 8; March 1998
(RR 26) 21, 4; April 1998 (RR
29) 24, 4; May 1998 (RR 35) 30,
4
Shrinkage estimates:
Changing method of accounting for
estimating inventory shrinkage
(RP 29) 15, 22
Letter rulings, determination letters, and
information letters issued by Associate
Chief Counsel (Domestic), Associate
Chief Counsel (EBEO), Associate
Chief Counsel (Enforcement Litigation), and Associate Chief Counsel
(International) (RP 1) 1, 7
Losses attributable to a disaster during
1997 (RR 12) 10, 5
Low-income housing tax credit (Notice
13) 6, 19
Satisfactory bond; “bond factor”
amounts for the period October
through December 1997 (RR 3) 2, 4;
January–March 1998 (RR 13) 11, 4;
April-June 1998 (RR 31) 25, 4
Magnetic media/electronic filing:
Specifications for 1998 Forms 1098,
1099, 5498, and W–2G (RP 35) 19,
6
Form 1040NR (RP 36) 23, 10
Methods of accounting; involuntary
changes (Notice 31) 22, 10

21

Package design; amortization; capitalization; amortizable section 197 intangible
(RP 39) 26, 36
Passive foreign investment companies:
Shareholders may use rules of sec.
1.1295–1T(b)(4), (f), and (g) to taxable years beginning before January
1, 1998 (Notice 22) 17, 5
Private letter rulings under sections 877,
2107, and 2501(a)(3)(Notice 34) 27, 30
Proposed regulations:
26 CFR 1.32–3, added; EIC eligibility
requirements (REG–116608–97) 29,
12
26 CFR 1.72(p)–1, amended; loans to
plan participants (REG–209476–82)
8, 36
26 CFR 1.141–7, 1.142(f)(4)–1, 1.150–
5, added; 1.141–8, –15, amended;
obligations of states and political
subdivisions (REG–110965–97) 13,
42
26 CFR 1.195–1, added; election to
amortize start-up expenditures
(REG–209373–81) 14, 26
26 CFR 1.356–6, added; reorg a n i z ations, nonqualified preferred stock
(REG–121755–97) 9, 13
26 CFR 1.368–1, amended; corporate
r e o rganizations, continuity of interest (REG–120882–97) 14, 25
26 CFR 1.401(a)(9)–1, amended; qualified plans and individual retirement
plans, required distributions (REG–
209463–82) 4, 27
26 CFR 1.417(e)–1 and paragraph (d),
revised; 1.417(e)–1T and paragraph
(d), revised; valuation of plan distributrions (TD 8768) 20, 4
26 CFR 1.460–6, amended; election
not to apply look-back method in de
m i n i m i s cases (REG–120200–97)
12, 32
26 CFR 1.469–10, revised; 1.7704–1,
added; investment income, passive
activity income and loss rules for
publicly traded partnerships
(REG–105163–97) 8, 31
26 CFR 1.475(g)–2, new; 1.482–8,
added; 1.482–0, –1, –2, 1.863,
1.863–7(a)(1), 1.864–4, –6, 1.894–1,
amended; 1.482–9, redesignated;
global dealing operation allocation
and sourcing of income and deductions among taxpayers (REG–
208299–90) 16, 26

August 3, 1998

INCOME TAX—Continued INCOME TAX—Continued INCOME TAX—Continued
26 CFR 1.513–7, added; travel and tour
activities of tax exempt org a n i z ations (REG–121268–97) 20, 12
26 CFR 1.702–1, 1.954–1, 301.7701–3,
amended; 1.952–1(b), (c), redesignated 1.954–2(a)(5), (6), 1.954–
4(b)(2)(iii), 1.954–9, 1.956–2(a)(3),
added (REG–104537–97) 16, 21
26 CFR 1.732–1, amended; 1.732–2,
amended; 1.734–1(e), added; 1.743–
1, revised; 1.751–1, amended;
1.755–1, revised; 1.1017–1, revised;
adjustments to basis of partnership
property and partnership interest
(REG–209682–94) 17, 20
26 CFR 1.864(b)–1; trading safe harbors (REG–106031–98) 26, 38
26 CFR 1.925(a)–1, (b)–1, added;
1.927(e)–1, amended; foreign sales
corporation transfer pricing source
and grouping rules (REG–102144–
98) 15, 25
26 CFR 1.1092(c)–1, added; equity options without standard terms, special
rules and definitions (REG–104641–
97) 29, 9
26 CFR 1.1291–1, 1.1293–1, 1.1295–1,
–3, 1.1297–3(c), added; 1.1296–4,
amended; passive foreign investment
company preferred shares, special
income exclusion (REG–11 5 7 9 5 –
97) 8, 33
26 CFR 1.1361–0, amended; 1.1361–1,
amended; 1.1361–1(d)(3), removed;
1.1361–2 through –6 and intermediary sections, added; 1.1362–0,
amended; 1.1362–2, amended;
1.1362–8, added; 1.1368–0,
amended; 1.1368–2(d)(2), amended;
1.1374–8(b), amended; S corporation subsidiaries (REG–251698–96)
20, 14
26 CFR 1.1397E–1, added; qualified
zone academy bonds (REG–
119449–97) 10, 35
26 CFR 1.1502–3(c), revised; 1.1502–
4(f)(3), (g)(3), added; 1.1502–9(b)(1)(v), added; 1.1502–21(c)(1)(iii),
amended; consolidated returns, limitations on the use of certain losses
and credits (REG–104062–97) 10, 34
26 CFR 1.6031–1, removed;
1.6031(a)–1, added; 1.6063–1,
amended; partnership returns
(REG–209322–82) 15, 26
26 CFR 1.7702B–1, –2, added; qualified long-term care insurance contracts (REG–109333–97) 9, 9

August 3, 1998

26 CFR 301.6159–1, amended; agreements for tax liability installment
payments (REG–100841–97) 8, 30
26 CFR 301.6404–2, added; abatement
of interest (REG–209276–87) 11, 18
26 CFR 301.7433–1(a), (d), (e), and
(f), revised; civil cause of action for
certain unauthorized collection actions (REG–251502–96) 9, 14
26 CFR 54.9812–1, added; mental
health parity; HIPA A ( R E G –
109704–97) 3, 60
Qualified Funeral Trust; guidance (Notice
6) 3, 52
Qualified intermediary agreements:
Guidance provided to foreign financial
institutions (RP 27) 15, 15
Qualified mortgage bonds, mortgage
credit certificates:
Guidance provided regarding use of national and area median gross income
figures by issuers (RP28) 15, 14
Qualified Subchapter S Trust (QSST)
conversion to Electing Small Business
Trust (ESBT) 10, 30
Qualified Zone Academy Zone Bonds
(RP) 3, 100
Real estate transactions (RP 20) 7, 32
Regulations:
26 CFR 1.32–3T, added; EIC eligibility
requirements (TD 8773) 29, 4
26 CFR 1.61–12, 1.249–1, 1.1016–5,
1.1275–1, amended; 1.163–13,
1.171–5, added; 1.171–1, –2, –3, –4,
revised; 1.1016–9, removed; amortizable bond premium (TD 8746) 7, 4
26 CFR 1.141–0, –2, amended;
1.141–7, –8, removed; 1.141–7T,
– 8 T, –15T, 1.142(f)(4)–1T, 1.150–
5T, added; 1.141–15, revised; obligations of states and political subdivisions (TD 8757) 13, 4
26 CFR 1.166–3(a)(3), 1.1001–4,
added; 1.166–3T, 1.1001–4T, removed; modifications of bad debts
and dealer assignments of notional
principal contracts (TD 8763) 15, 5
26 CFR 1.280B–1, added; building demolition, definition of structure (TD
8745) 7, 15
26 CFR 1.338–2, 1.368–1, –2,
amended; 1.368–1T, added; corporate reorganizations, continuity of interest, and continuity of business enterprise (TD 8760) 14, 4; (TD 8761)
14, 13

22

26 CFR 1.354–1, 1.355–1, 1.356–3,
amended; reorganizations, treatment
of warrants as securities (TD 8752)
9, 4
26 CFR 1.356–6T, added; reorg a n i z ations, nonqualified preferred stock
(TD 8753) 9, 6
26 CFR 1.367(a)–1T, –3, amended;
1 . 3 6 7 ( a ) – 3 T, removed; 1.367(a)–8,
1.367(b)–1, –4, added; 1.367(d)–1T,
amended; 1.6038B–1, added;
1 . 6 0 3 8 B – 1 T; 7.367(b)–1, –4, –7,
amended; certain transfers of stock
or securities by U.S. persons to foreign corporations (TD 8770) 27, 4
26 CFR 1.411(d)–4, amended; permitted elimination of preretirement optional forms of benefit (TD 8769)
28, 4
26 CFR 1.446–1, amended; 1.446–1T,
removed; 301.9100–0, added;
301.9100–1, revised; 301.9100–2,
–3, added; 301.9100–1T, –2T, –3T;
removed extensions of time to make
elections (TD 8742) 5, 4
26 CFR 1.453.11; installment obligations received from liquidating corporations (TD 8762) 14, 15
26 CFR 1.460–0, amended; 1.460–6T,
added; election not to apply lookback method in de minimis c a s e s
(TD 8756) 12, 4
26 CFR 1.468A–2, –3, –8, amended;
nuclear decommissioning funds; revised schedules of ruling amounts
(TD 8758) 13, 15
26 CFR 1.904–5(o), 1.904–5T, 1.954–
0(b), 1.954–1, amended; 1.954–1T,
– 2 T, –9T, added; 301.7701–3(f)(1),
amended; controlled foreign corporation relating to partnerships and
branches (TD 8767) 16, 4
26 CFR 1.905–2, amended; foreign tax
credit filing requirements (TD 8759)
13, 19
26 CFR 1.925(a)–1T, 1.925(b)–
1T(b)(3)(i), amended; 1.927(e)–1T,
revised; foreign sales corporation
transfer pricing source and grouping
rules (TD 8764) 15, 9
26 CFR 1.985–1, –5(a), amended;
1.985–7, added; dollar approximate
separate transactions method of accounting (DASTM) to profit and loss
method of accounting, change from
P&L method to DASTM (TD 8765)
16, 11

1998–31 I.R.B.

INCOME TAX—Continued INCOME TAX—Continued INCOME TAX—Continued
26 CFR 1.1271–1, 1.1275–1, amended;
debt instruments with original issue
discount, annuity contracts (TD
8754) 10, 15
26 CFR 1.1202–0, –2, added; qualified
small business stock (TD 8749) 7,
16
26 CFR 1.1290–0, amended; 1.1294–0,
added; a. 1291–0T, amended;
1 . 1 2 9 1 – 1 T, added; 1.1291–9,
amended; 1.1293–0, –1T, added;
1.1295–0, –1T, –3T, 1.1297–3T(c),
added; passive foreign investment
company preferred shares, special
income exclusion (TD 8750) 8, 4
26 CFR 1.1396–1; empowerment zone
employment credit, qualified zone
employees (TD 8747) 7, 18
26 CFR 1.1397E–1T, added; qualified
zone academy bonds (TD 8755) 10,
21
26 CFR 1.1502–3, –4, –9(a), –21T(c)(1)(iii), amended; 1.1502–3T, –4T,
– 9 T, –55T, added; 1.1502–23T(b),
(c), redesignated; consolidated returns, limitations on the use of certain losses and credits, overall foreign loss accounts (TD 8751) 10, 23

1998–31 I.R.B.

26 CFR 54.9801–2T, amended;
54.9801–4T, –5T, revised; 54.9804–
1T, redesignated; 54.9806–1T, redesignated; 54.9812–1T, added; mental
health parity, interim rules (TD
8741) 3, 6
Relocation payments:
Authorized by sec. 105(a)(11) of Housing and Community Development
Act, not includible in gross income
(RR 19) 15, 5
Renewable electricity production credit;
calendar year 1998 inflation adjustment
factor and reference prices. (Notice 27)
18, 14
Reorganizations; exchange of securities
(RR 10) 10, 11
Reproduction of Forms 1096, 1098, 1099,
5498, and W–2G (RP 37) 26, 6
Rulings:
Areas in which advance rulings will not
be issued:
Associate Chief Counsel (Domestic), Associate Chief Counsel
(EBEO) (RP 3) 1, 100
Associate Chief Counsel (International) (RP7) 1, 222

23

Rural airports (RP 18) 6, 20
Social security benefits under U.S.Canada treaty, recent changes (Notice
23) 18, 9
Spin-off of subsidiary (RR 27) 22, 4
Technical advice to district directors and
chiefs, appeals offices, Associate Chief
Counsel (Domestic), Associate Chief
Counsel (EBEO), Associate Chief
Counsel (Enforcement Litigation), and
Associate Chief Counsel (International)
(RP 2) 1, 74
Tentative differential earnings rate for
1997 (Notice 19) 13, 24
Treatment of hybrid arrangements under
subpart F (Notice 11) 6, 18
Trust, election to treat U.S. person;
domestic trust (Notice 25) 18, 11
Waiver of period of stay in foreign country (RP 38) 27, 29
Withholding regulations:
Effective date of sec. 1441 withholding
regulations amended (Notice 16) 15,
12

August 3, 1998

Notes

August 3, 1998

24

1998–31 I.R.B.

Notes

1998–31 I.R.B.

25

August 3, 1998

Notes

August 3, 1998

26

1998–31 I.R.B.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Aefb9027e05746bb4. Public record. Not legal advice.