Bulletin No. 1998–41

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Bulletin No. 1998–41

October 13, 1998

Internal Revenue

bulletin

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

ADMINISTRATIVE

T.D. 8782, page 5.

REG–106221–98, page 10.

Final regulations under section 927 of the Code provide guidance to taxpayers who have made an election to be treated

as a foreign sales corporation (FSC).

Proposed regulations under section 1032 of the Code relate

to the treatment of a disposition by a corporation of the

stock of another corporation in a taxable transaction. A public hearing will be held on January 7, 1999.

T.D. 8783, page 4.

Final regulations under section 368 of the Code that provide

guidance regarding satisfaction of the continuity of interest

requirement for corporate reorganizations are amended.

EMPLOYMENT TAX

REG–209769–95, page 8.

Announcement 98–88, page 14.

The Service announces that 1998 is not a cut-off year for

the Medical Savings Account pilot project.

Announcement 98–92, page 15.

The July 1998 revision of the Instructions for Form 706 is

corrected.

Proposed regulations under section 3221 of the Code provide

guidance to employers covered by the Railroad Retirement

Tax Act. A public hearing will be held on January 20, 1999.

Finding Lists begin on page 20.

Announcement of Disbarments and Suspensions begins on page 16.

Department of the Treasury

Internal Revenue Service

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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.

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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. A citation of the Internal Revenue Bulletin as the source would be appropriate.

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

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

Section 368.—Definitions

Relating to Corporate

Reorganizations

26 CFR 1.368–1: Purpose and scope of exception of

reorganization exchanges.

T.D. 8783

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Continuity of Interest

Requirement for Corporate

Reorganizations

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Amendment to final regulations.

SUMMARY: This document amends

final regulations providing guidance regarding satisfaction of the continuity of

interest requirement for corporate reorganizations. The amendment to the final

regulations affects corporations and their

shareholders. This amendment to the

final regulations is necessary to provide

clarification regarding an example illustrating a relationship created in connection with a potential reorganization.

DATES: Effective date: This amendment

is effective September 23, 1998.

Applicability date: This amendment applies to transactions occurring after January 28, 1998, except that it does not apply

to any transaction occurring pursuant to a

written agreement which is (subject to customary conditions) binding on January 28,

1998, and at all times thereafter.

FOR FURTHER INFORMATION CONTACT: Phoebe Bennett, (202) 622-7750

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On January 28, 1998, the IRS published final regulations (REG–252231–

96) in the Federal Register (63 F.R.

4174) relating to the continuity of interest

(COI) requirement.

October 13, 1998

Explanation of Provisions

The final COI regulation provides that

acquisitions of target (T) stock for cash by

a corporation related to the issuing corporation (P) generally do not preserve continuity of interest. See §1.368–1(e)(2).

Two corporations are related if they are

members of the same affiliated group as

defined in section 1504, or if a purchase

of P stock by another corporation would

be treated as a distribution in redemption

of P stock under section 304(a)(2). See

§1.368–1(e)(3). A corporation will be

treated as related to another corporation if

such relationship exists immediately before or immediately after the acquisition

of T stock, or if the relationship is created

in connection with the potential reorganization. See §1.368–1(e)(3)(ii). Thus, a

purchase by a corporation that was not

initially related to P, but purchased T

stock and became related to P in the potential reorganization, would not preserve

continuity to the extent of the purchase.

Section 1.368–1(e)(6), Example 2 was

intended to illustrate this principle. In the

example, A owns all of the stock of T. X,

a corporation which owns 60 percent of

the P stock and none of the T stock, buys

A’s T stock for cash prior to the merger of

T into P. X exchanges the T stock for P

stock in the merger which, when combined with X’s prior ownership of P stock,

constitutes 80 percent of the stock of P.

The example shows that X is related to P

because X becomes affiliated with P in

the merger.

Section 1.338–2(c)(3) provides that, by

virtue of section 338, COI is satisfied for

certain persons if, following a qualified

stock purchase (QSP) of T by the purchasing corporation, the purchasing corporation or a member of the purchasing

corporation’s affiliated group acquired the

T assets. Commentators have questioned

whether §1.338–2(c)(3) applies to the

transaction described in Example 2. It is

not intended that these final regulations

provide guidance under section 338. To

avoid any such implication, Example 2 is

amended so that X’s acquisition of A’s T

stock is not a QSP.

In addition, the amendment to the final

regulation illustrates the proper application of the related party rule that treats

4

two corporations as related if a purchase

of P stock by another corporation would

be treated as a distribution in redemption

of P stock under section 304(a)(2). See

§1.368–1(e)(3)(i). Commentators have

questioned why, in Example 2, X is not already related to P under the section

304(a)(2) rule even before the merger, because X owned more than 50 percent of

the P stock. Section 304(a)(2) requires

that the issuing corporation control the acquiring corporation (within the meaning

of section 304(c)). In Example 2, P is the

issuing corporation and X is the acquiring

corporation. X is not related to P under

section 304(a)(2) because P does not control X; instead, X controls P. A sentence

is added to Example 2 to illustrate this

point.

Applicability Date

The amendment to these final regulations applies to transactions occurring

after January 28, 1998, except that it does

not apply to any transaction occurring

pursuant to a written agreement which is

(subject to customary conditions) binding

on January 28, 1998, and at all times

thereafter.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.

Therefore, 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, and because

these regulations do not impose a collection of information on small entities, the

Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section

7805(f) of the Internal Revenue Code, the

notices of proposed rulemaking preceding

these regulations were submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment on

their impact on small business.

Drafting Information

The principal author of this amendment

to the final regulations is Phoebe Bennett

of the Office of the Assistant Chief Counsel (Corporate), IRS. However, other per-

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sonnel from the IRS and Treasury Department participated in its development.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is amended

as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 2. In §1.368–1, paragraph (e)(6)

Example 2 is revised to read as follows:

§1.368–1 Purpose and scope of

exception of reorganization exchanges.

* * * * *

(e) * * *

(6) * * *

Example 2. Relationship created in connection

with potential reorganization. Corporation X owns

60 percent of the stock of P and 30 percent of the

stock of T. A owns the remaining 70 percent of the

stock of T. X buys A’s T stock for cash in a transaction which is not a qualified stock purchase within

the meaning of section 338. T then merges into P.

In the merger, X exchanges all of its T stock for additional stock of P. As a result of the issuance of the

additional stock to X in the merger, X’s ownership

interest in P increases from 60 to 80 percent of the

stock of P. X is not a person related to P under paragraph (e)(3)(i)(B) of this section, because a purchase

of stock of P by X would not be treated as a distribution in redemption of the stock of P under section

304(a)(2). However, X is a person related to P under

paragraphs (e)(3)(i)(A) and (ii)(B) of this section,

because X becomes affiliated with P in the merger.

The continuity of interest requirement is not satisfied, because X acquired a proprietary interest in T

for consideration other than P stock, and a substantial part of the value of the proprietary interest in T is

not preserved. See paragraph (e)(2) of this section.

* * * * *

Michael P. Dolan,

Deputy Commissioner of

Internal Revenue.

Approved September 14, 1998.

Donald C. Lubick,

Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on

September 22, 1998, 8:45 a.m., and published in the

issue of the Federal Register for September 23,

1998, 63 F.R. 50757)

1998–41 I.R.B.

Section 927.—Other Definitions

and Special Rules

AGENCY: Internal Revenue Service

(IRS), Treasury.

proposed rulemaking cross-referencing

TD 8764 was published in the Federal

Register (63 F.R. 10351 [REG–102144–

98, 1998–15 I.R.B. 25]). The proposed

rule proposed changes to the grouping

and source rules for foreign sales corporation transfer pricing. Comments responding to this notice were received. On June

24, 1998, a public hearing was held limited to the proposed changes to the grouping rules, since no hearing was requested

with respect to the source rule. After consideration of all comments received, the

proposed regulations regarding the source

rule are adopted as revised by this Treasury decision.

ACTION: Final regulations.

Explanation of Provisions

SUMMARY: This document contains

final regulations that provide guidance to

taxpayers who have made an election to

be treated as a foreign sales corporation

(FSC). The regulations clarify that the

special source rule under section

927(e)(1) applies only to income of related suppliers from sales of export property giving rise to foreign trading gross

receipts of a FSC.

A. Current Temporary Regulations.

26 CFR 1.927(e)–1: Special sourcing rule.

T.D. 8782

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Source Rules for Foreign Sales

Corporation Transfer Pricing

DATES: Effective date. These regulations are effective March 3, 1998.

Applicability date. These regulations

apply to taxable years beginning after December 31, 1997.

FOR FURTHER INFORMATION CONTACT: Elizabeth Beck (202) 874-1490

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to

the Income Tax Regulations (26 CFR part

1) under section 927 which was added by

the Deficit Reduction Act of 1984, applicable for taxable years of foreign sales corporations beginning after December 31,

1984. Temporary regulations (T.D. 8126)

were published in the Federal Register

(52 F.R. 6468 [1987–1 C.B. 184]) on

March 3, 1987. These temporary regulations were amended by temporary regulations published in the Federal Register

(63 F.R. 10305) as a Treasury decision

(T.D. 8764 [1998–15 I.R.B. 9]) on March

3, 1998. On the same date, a notice of

5

Section 927(e)(1) provides that “under

regulations, the income of a person described in section 482 from a transaction

giving rise to foreign trading gross receipts of a FSC which is treated as from

sources outside the United States shall not

exceed the amount which would be

treated as foreign source income earned

by such person if the pricing rule under

section 994 which corresponds to the rule

used under section 925 with respect to

such transaction applied to such transaction.” Transactions giving rise to foreign

trading gross receipts include qualifying

sales, leases, licenses and services. Because T.D. 8126 could be interpreted to

apply the special foreign source limit only

to sales of export property, §1.927(e)–1T

was amended by T.D. 8764 to clarify that

the regulation applies to any transaction

giving rise to foreign trading gross receipts of a FSC, including but not limited

to sales, leases, licenses and services.

T.D. 8764 also made conforming changes,

added special rules and gave examples regarding the special source rule.

B. Discussion of Comments

No comments were received on the

special rules added in proposed

§1.927(e)–1(a)(3)(ii). These rules clarify

how the corresponding DISC transfer

pricing rules are to be applied for purposes of the foreign source limit and are

generally taxpayer favorable. No comments were received on Examples (1) and

(3) set forth in proposed §1.927(e)–1(b).

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These examples illustrate how the limit is

applied under different transfer pricing

methods for sales transactions.

Comments received did suggest that

the rule distinguish between the foreign

source income limitation applicable to

sales and the limitation applicable to other

transactions giving rise to foreign trading

gross receipts. In light of these comments, Treasury and the IRS believe that

additional consideration shouldbe given

to the appropriate scope of the special

source rule of section 927(e)(1) and that

the expanded special source rule should

be withdrawn. Accordingly, the final regulation applies the special source rule

only to sales of export property. Example

(2) of the proposed regulation, which addressed a licensing transaction, has been

removed.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in E.O. 12866.

Therefore, a regulatory assessment is not

required. It has also been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not

apply to these regulations, and because the

regulation does not impose a collection of

information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)

does not apply. 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

their impact on small business.

Drafting Information

The principal author of these regulations is Elizabeth Beck of the Office of

the Associate Chief Counsel (International). Other personnel from the IRS and

Treasury Department also participated in

the development of these regulations.

* * * * *

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR Part l is amended

as follows:

October 13, 1998

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by removing the entry

for §1.927(e)–1T and adding an entry in

numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.927(e)–1 also issued under

26 U.S.C. 927(e)(1). * * *

§1.927(e)–1T [Removed]

Par. 2. Section 1.927(e)–1T is removed.

Par. 3. Section 1.927(e)–1 is added to

read as follows:

§1.927(e)–1 Special sourcing rule.

(a) Source rules for related persons—

(1) In general. The income of a person

described in section 482 from a sale of export property giving rise to foreign trading gross receipts of a FSC that is treated

as from sources outside the United States

shall not exceed the amount that would be

treated as foreign source income earned

by such person if the pricing rule under

section 994 that corresponds to the rule

used under section 925 with respect to

such transaction applied to such transaction. This special sourcing rule also applies if the FSC is acting as a commission

agent for the related supplier with respect

to the transaction described in the first

sentence of this paragraph (a)(1) that

gives rise to foreign trading gross receipts

and the transfer pricing rules of section

925 are used to determine the commission

payable to the FSC. No limitation results

under this section with respect to a transaction to which the section 482 pricing

rule under section 925(a)(3) applies.

(2) Grouping of transactions. If, for

purposes of determining the FSC’s profits

under the administrative pricing rules of

sections 925(a)(1) and (2), grouping of

transactions under §1.925(a)–1T(c)(8)

was elected, the same grouping shall be

used for making the determinations under

the special sourcing rule in this section.

(3) Corresponding DISC pricing

rules—(i) In general. For purposes of

this section—

(A) The DISC gross receipts pricing

rule of section 994(a)(1) corresponds to

the gross receipts pricing rule of section

925(a)(1);

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(B) The DISC combined taxable income pricing rule of section 994(a)(2) corresponds to the combined taxable income

pricing rule of section 925(a)(2); and

(C) The DISC section 482 pricing rule

of section 994(a)(3) corresponds to the

section 482 pricing rule of section

925(a)(3).

(ii) Special rules. For purposes of this

section—

(A) The DISC pricing rules of section

994(a)(1) and (2) shall be determined

without regard to export promotion expenses;

(B) Qualified export receipts under

section 994(a)(1) and (2) shall be deemed

to be an amount equal to the foreign trading gross receipts arising from the transaction; and

(C) Combined taxable income for purposes of section 994(a)(2) shall be

deemed to be an amount equal to the combined taxable income for purposes of section 925(a)(2) arising from the transaction.

(b) Examples. The provisions of this

section may be illustrated by the following examples:

Example 1. (i) R and F are calendar year taxpayers. R, a domestic manufacturing company, owns all

the stock of F, which is a FSC acting as a commission agent for R. For the taxable year, R and F used

the combined taxable income pricing rule of section

925(a)(2). For the taxable year, the combined taxable income of R and F is $100 from the sale of export property, as defined in section 927(a), manufactured by R using production assets located in the

United States. Title to the export property passed

outside of the United States.

(ii) Under section 925(a)(2), 23 percent of the

$100 combined taxable income of R and F ($23) is

allocated to F and the remaining $77 is allocated to

R. Absent the special sourcing rule, under section

863(b) the $77 income allocated to R would be

sourced $38.50 U.S. source and $38.50 foreign

source. Under the special sourcing rule, the amount

of foreign source income earned by a related supplier of a FSC shall not exceed the amount that

would result if the corresponding DISC pricing rule

applied. The DISC combined taxable income pricing rule of section 994(a)(2) corresponds to the combined taxable income pricing rule of section

925(a)(2). Under section 994(a)(2), $50 of the combined taxable income ($100 3 .50) would be allocated to the DISC and the remaining $50 would be

allocated to the related supplier. Under section

863(b), the $50 income allocated to the DISC’s related supplier would be sourced $25 U.S. source and

$25 foreign source. Accordingly, under the special

sourcing rule, the foreign source income of R shall

not exceed $25.

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Example 2. (i) Assume the same facts as in Example 1 except that R and F used the gross receipts

pricing rule of section 925(a)(1). In addition, for the

taxable year foreign trading gross receipts derived

from the sale of the export property are $2,000.

(ii) Under section 925(a)(1), 1.83 percent of the

$2,000 foreign trading gross receipts ($36.60) is allocated to F and the $63.40 remaining combined taxable income ($100 – $36.60) is allocated to R. Absent the special sourcing rule, under section 863(b)

the $63.40 income allocated to R would be sourced

$31.70 U.S. source and $31.70 foreign source.

Under the special sourcing rule, the amount of foreign source income earned by a related supplier of a

FSC shall not exceed the amount that would result if

the corresponding DISC pricing rule applied. The

DISC gross receipts pricing rule of section 994(a)(1)

corresponds to the gross receipts pricing rule of sec-

1998–41 I.R.B.

tion 925(a)(1). Under section 994(a)(1), $80

($2,000 3 .04) would be allocated to the DISC and

the $20 remaining combined taxable income would

be allocated to the related supplier. Under section

863(b), the $20 income allocated to the DISC’s related supplier would be sourced $10 U.S. source and

$10 foreign source. Accordingly, under the special

sourcing rule, the foreign source income of R shall

not exceed $10.

(c) Effective date. The rules of this

section are applicable to taxable years beginning after December 31, 1997.

Approved August 18, 1998.

Donald C. Lubick,

Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on

September 17, 1998, 8:45 a.m., and published in the

issue of the Federal Register for September 21,

1998, 63 F.R. 50143)

Michael P. Dolan,

Deputy Commissioner of

Internal Revenue.

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Part IV. Items of General Interest

Notice of Rulemaking and

Notice of Public Hearing

Exception From Supplemental

Annuity Tax on Railroad

Employers

REG–209769–95

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains

proposed regulations that provide guidance to employers covered by the Railroad Retirement Tax Act. The Railroad

Retirement Tax Act imposes a supplemental tax on those employers, at a rate

determined by the Railroad Retirement

Board, to fund the Railroad Retirement

Board’s supplemental annuity benefit.

These proposed regulations provide rules

for applying the exception from the supplemental tax with respect to employees

covered by a supplemental pension plan

established pursuant to a collective bargaining agreement and for applying a related excise tax with respect to employees

for whom the exception applies. This

document also provides notice of a public

hearing on these proposed regulations.

DATES: Comments must be received by

December 22, 1998. Requests to speak

and outlines of topics to be discussed at

the public hearing scheduled for January

20, 1999, must be received by December

30, 1998.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–209769–95),

room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be

hand delivered between the hours of 8

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

(REG–209769–95), Courier’s Desk, Internal Revenue Service, 1111 Constitution

Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments

electronically via the Internet by selecting

the “Tax Regs” option on the IRS Home

Page, or by submitting comments directly

to the IRS Internet site at http://www.irs.

October 13, 1998

ustreas.gov/prod/tax_regs/comments.html.

The public hearing will be held in Room

2615, Internal Revenue Building, 1111

Constitution Avenue NW, Washington,

DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Linda

S. F. Marshall, (202) 622-6030; concerning submissions and the hearing, Michael

Slaughter, (202) 622-7190 (not toll-free

numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

amendments to the Employment Tax Regulations (26 CFR Part 31) under section

3221(d). These proposed regulations provide guidance regarding the section

3221(d) exception from the tax imposed

under section 3221(c) with respect to employees covered by a supplemental pension plan of the employer established pursuant to an agreement reached through

collective bargaining.

Under the Railroad Retirement Act of

1974, as amended (RRA), an employee of

a railroad employer generally is entitled

to receive a supplemental annuity paid by

the Railroad Retirement Board (RRB) at

retirement. An employee is entitled to receive a supplemental annuity only if the

employee has performed at least 25 years

of service with the railroad industry, including service with the railroad industry

before October 1, 1981. The monthly

amount of the supplemental annuity

ranges from $23 to $43, based on the employee’s number of years of service. See

45 U.S.C. 231b(e). Under section 2(h)(2)

of the RRA, an employee’s supplemental

annuity is reduced by the amount of payments received by the employee from any

plan determined by the RRB to be a supplemental pension plan of the employer,

to the extent those payments are derived

from employer contributions.

Section 3221(c) imposes a tax on each

railroad employer to fund the supplemental annuity benefits payable by the Railroad Retirement Board. The tax imposed

under section 3221(c) is based on workhours for which compensation is paid.

The rate of tax under section 3221(c) is

8

established by the RRB quarterly, and is

calculated to generate sufficient tax revenue to fund the RRB’s current supplemental annuity obligations.

Under section 3221(d), the tax imposed

by section 3221(c) does not apply to an

employer with respect to employees who

are covered by a supplemental pension

plan established pursuant to an agreement

reached through collective bargaining between the employer and employees.

However, if an employee for whom the

employer is relieved of any tax under the

section 3221(d) exception becomes entitled to a supplemental annuity from the

RRB, the employer is subject to an excise

tax equal to the amount of the supplemental annuity paid to the employee (plus a

percentage determined by the RRB to be

sufficient to cover administrative costs attributable to those supplemental annuity

payments).

Section 3221(d) was enacted by Public

Law 91–215, 84 Stat. 70, which amended

the Railroad Retirement Act of 1937 and

the Railroad Retirement Tax Act. The

legislative history to Public Law 91–215

indicates that the exception under section

3221(d) from the tax imposed under section 3221(c) was “directed primarily at

the situation existing on certain short-line

railroads which are owned by the steel

companies. The employees of these lines

are, for the most part, covered by other

supplemental pension plans established

pursuant to collective bargaining agreements between the steel companies and

the unions representing the majority of

their employees. . . . [T]hese railroads will

no longer be required to pay a tax to finance the supplemental annuity fund, but

will be required to reimburse the Railroad

Retirement Board for any supplemental

annuities that their employees may be

paid upon retirement.” S. Rep. 91–650,

91st Cong., 2d Sess. 6 (February 3, 1970).

Summary of Regulations

These proposed regulations provide

rules for determining whether a plan is a

supplemental pension plan established

pursuant to an agreement reached through

collective bargaining. Under these proposed regulations, a plan is a supplemental pension plan only if the plan is a pen-

1998–41 I.R.B.

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Page 9

sion plan within the meaning of §1.401–

1(b)(1)(i). Under this definition, a plan is

a pension plan only if the plan is established and maintained primarily to provide

systematically for the payment of definitely determinable benefits to employees

over a period of years, usually for life,

after retirement. Thus, for example, a plan

generally is not a supplemental pension

plan if distributions from the plan that are

attributable to employer contributions

may be made prior to a participant’s death,

disability, or termination of employment.

See Rev. Rul. 74–254 (1974–1 C.B. 90);

Rev. Rul. 56–693 (1956–2 C.B. 282).

These proposed regulations also require that the RRB determine that a plan

is a private pension under its regulations

in order for the plan to be a supplemental

pension plan under section 3221(d) and

these proposed regulations. This requirement is included because the section

3221(d) exception to the section 3221(c)

tax is based on the assumption that any

participant for whom the exception applies will receive a reduced supplemental

annuity because of the supplemental pension plan on account of which the section

3221(c) tax is eliminated.

The IRS requests comments regarding

other appropriate requirements for a supplemental pension plan within the meaning of section 3221(d).

These proposed regulations also provide rules for determining whether a plan

is established by collective bargaining

agreement with respect to an employer.

These rules generally follow the rules applicable to qualified plans for this purpose.

Section 3221(d) imposes an excise tax

equal to the amount of the supplemental

annuity paid to any employee with respect

to whom the employer has been excepted

from the section 3221(c) tax under the

section 3221(d) exception. These proposed regulations include rules applying

this excise tax under section 3221(d).

ment 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 and, because these regulations do

not impose a collection of information on

small entities, the Regulatory Flexibility

Act (5 U.S.C. chapter 6) does not apply.

Pursuant to section 7805(f) of the Internal

Revenue Code, this notice of proposed

rulemaking will be submitted to the Chief

Counsel for Advocacy of the Small Business Administration for comment on its

impact on small business.

Proposed Effective Date

Drafting Information

These proposed regulations are proposed to be effective October 1, 1998.

The principal author of these regulations is Linda S. F. Marshall, Office of the

Associate Chief Counsel (Employee Benefits and Exempt Organizations). However, other personnel from the IRS and

the Treasury Department participated in

their development.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assess-

1998–41 I.R.B.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any comments that

are submitted timely (in the manner described under the ADDRESSES caption)

to the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled

for January 20, 1999, at 10 a.m. in Room

2615, Internal Revenue Building, 1111

Constitution Avenue NW, Washington,

DC. Because of access restrictions, visitors will not be admitted beyond the Internal Revenue Building lobby more than 15

minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons that wish to present oral comments at the hearing must submit comments and an outline of topics to be discussed and the time to be devoted to each

topic (in the manner described under the

ADDRESSES caption of this preamble)

by December 30, 1998.

A period of 10 minutes will be allotted

to each person for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

* * * * *

9

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 31 is proposed to be amended as follows:

PART 31—EMPLOYMENT TAXES

AND COLLECTION OF INCOME AT

SOURCE

Paragraph 1. The authority citation for

part 31 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 31.3221–4 is added

under the undesignated center heading

“Tax on Employers” to read as follows:

§31.3221–4 Exception from

supplemental tax.

(a) General rule. Section 3221(d) provides an exception from the excise tax imposed by section 3221(c). Under this exception, the excise tax imposed by section

3221(c) does not apply to an employer

with respect to employees who are covered by a supplemental pension plan, as

defined in paragraph (b) of this section,

that is established pursuant to an agreement reached through collective bargaining between the employer and employees,

within the meaning of paragraph (c) of

this section.

(b) Definition of supplemental pension

plan—(1) In general. A plan is a supplemental pension plan covered by the section 3221(d) exception described in paragraph (a) of this section only if it meets

the requirements of paragraphs (b)(2)

through (4) of this section.

(2) Pension benefit requirement. A

plan is a supplemental pension plan

within the meaning of this paragraph (b)

only if the plan is a pension plan within

the meaning of §1.401–1(b)(1)(i) of this

chapter. Thus, a plan is a supplemental

pension plan only if the plan provides for

the payment of definitely determinable

benefits to employees over a period of

years, usually for life, after retirement. A

plan need not be funded through a qualified trust that meets the requirements of

section 401(a) or an annuity contract that

meets the requirements of section 403(a)

in order to meet the requirements of this

paragraph (b)(2). A plan that is a profitsharing plan within the meaning of

§1.401–1(b)(1)(ii) of this chapter or a

stock bonus plan within the meaning of

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Page 10

§1.401–1(b)(1)(iii) of this chapter is not a

supplemental pension plan within the

meaning of this paragraph (b).

(3) Railroad Retirement Board determination with respect to the plan. A plan is

a supplemental pension plan within the

meaning of this paragraph (b) with respect to an employee only during any period for which the Railroad Retirement

Board has made a determination under 20

CFR 216.42(d) that the plan is a private

pension, the payments from which will

result in a reduction in the employee’s

supplemental annuity payable under 45

U.S.C. 231a(b). A plan is not a supplemental pension plan for any time period

before the Railroad Retirement Board has

made such a determination, or after that

determination is no longer in force.

(4) Other requirements. [Reserved]

(c) Collective bargaining agreement. A

plan is established pursuant to a collective

bargaining agreement with respect to an

employee only if, in accordance with the

rules of §1.410(b)–6(d)(2) of this chapter,

the employee is included in a unit of employees covered by an agreement that the

Secretary of Labor finds to be a collective

bargaining agreement between employee

representatives and one or more employers, provided that there is evidence that

retirement benefits were the subject of

good faith bargaining between employee

representatives and the employer or employers.

(d) Substitute section 3221(d) excise

tax. Section 3221(d) imposes an excise

tax on any employer who has been excepted from the excise tax imposed under

section 3221(c) by the application of section 3221(d) and paragraph (a) of this section with respect to an employee. The excise tax is equal to the amount of the

supplemental annuity paid to that employee under section 2(b) of the Railroad

Retirement Act of 1974 (88 Stat. 1305),

plus a percentage thereof determined by

the Railroad Retirement Board to be sufficient to cover the administrative costs attributable to such payments under section

2(b) of that Act.

(e) Effective date. This section is effective October 1, 1998.

Michael P. Dolan,

Deputy Commissioner of

Internal Revenue.

October 13, 1998

(Filed by the Office of the Federal Register on

September 22, 1998, 8:45 a.m., and published in the

issue of the Federal Register for September 23,

1998, 63 F.R. 50819)

Notice of Rulemaking and

Notice of Public Hearing

Guidance Under Section 1032

Relating to the Treatment of a

Disposition by One Corporation

of the Stock of Another

Corporation in a Taxable

Transaction

REG–106221–98

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains

proposed regulations relating to the treatment of a disposition by a corporation

(the acquiring corporation) of the stock of

another corporation (the issuing corporation) in a taxable transaction. The proposed regulations interpret section 1032

of the Internal Revenue Code. The proposed regulations affect corporations and

their subsidiaries.

DATES: Written comments must be received by December 22, 1998. Requests

to speak and outlines of topics to be discussed at the public hearing scheduled for

Thursday, January 7, 1999 must be received by Thursday, December 17, 1998.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–106221–98),

room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be

hand delivered between the hours of 8

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

(REG–106221–98), Courier’s Desk, Internal Revenue Service, 1111 Constitution

Avenue NW, Washington, DC. Alternatively, taxpayers may submit comments

electronically via the Internet by selecting

the “Tax Regs” option on the IRS Home

Page, or by submitting comments directly

to the IRS Internet site at http://www.irs.

ustreas.gov/prod/tax_regs/comments.html.

The public hearing will be held in room

2615, Internal Revenue Building, 1111

10

Constitution Avenue NW, Washington,

DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Lee

A. Dean, (202) 622-7550; concerning

submissions and the hearing, LaNita

VanDyke, (202) 622-7180 (not toll-free

numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 1032(a) provides that no gain

or loss shall be recognized to a corporation on the receipt of money or other

property in exchange for stock (including

treasury stock) of such corporation. No

gain or loss shall be recognized by a corporation with respect to any lapse or acquisition of an option to buy or sell its

stock (including treasury stock).

Before the enactment of section 1032

in 1954, Treasury regulations provided

that “where a corporation deals in its own

shares as it might in the shares of another

corporation, the resulting gain or loss is to

be computed in the same manner as

though the corporation were dealing in

the shares of another.” (Treas. Reg. 111,

§29.22(a)–15 (1934)).

As applied, this regulation resulted in

the recognition of gain or loss on the disposition by a corporation of its treasury

stock, even though the corporation would

not have recognized gain or loss on the

disposition of newly issued shares. See,

e.g., Firestone Tire & Rubber Co. v. Commissioner, 2 T.C. 827 (1943). This disparity of treatment gave rise to tax avoidance

possibilities. A corporation expecting a

gain upon disposition of treasury shares

might avoid such gain by canceling its

treasury shares and issuing new stock,

whereas a corporation might produce a

fictitious loss by purchasing its own

shares and reselling them at a lower price.

Congress enacted section 1032(a) in

1954 to eliminate this potential disparity

between the tax treatment of a disposition

by a corporation of its treasury stock and

a disposition of newly issued stock. H.R.

No. 1337, 83d Cong., 2d Sess. 268

(1954).

Rev. Rul. 74–503 (1974–2 C.B. 117)

considers the tax consequences of a parent corporation’s transfer to its subsidiary

of its own treasury stock in a transaction

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Page 11

to which section 351 applies. The ruling

states that “[t]he transfer of [parent] stock

was not for the purpose of enabling [the

subsidiary corporation] to acquire property by the use of such stock.” Rev. Rul.

74–503 holds that, since the basis of previously unissued parent stock in the hands

of the parent corporation is zero, the basis

of the parent corporation’s treasury stock

in the hands of the parent corporation is

also zero. Accordingly, under the transferred basis rule of section 362(a), the

subsidiary corporation’s basis of the treasury stock of the parent corporation is

also zero (the zero basis result).

Section 1.1032–2(b), applicable to certain triangular reorganizations occurring

on or after December 23, 1994, eliminates

gain recognition in certain cases when an

acquiring corporation (S) acquires property or stock of another corporation (T) in

exchange for stock of the corporation (P)

in control of S. Section 1.1032–2(b) provides that, “For purposes of §1.1032–

1(a), in the case of a forward triangular

merger, a triangular C reorganization, or a

triangular B reorganization (as described

in §1.358–6(b)), P stock provided by P to

S, or directly to T or T’s shareholders on

behalf of S, pursuant to the plan of reorganization is treated as a disposition by P

of its own stock for T’s assets or stock, as

applicable.” Section 1.1032–2(c) provides that S must recognize gain or loss

on its exchange of P stock if S did not receive the P stock pursuant to the plan of

reorganization.

Section 1.1502–13(f)(6)(ii), initially

published as temporary regulations applicable to transactions occurring on or

after July 12, 1995 (T.D. 8598, 1995–2

C.B. 188), eliminates gain recognition

under certain conditions on a member’s

disposition of the stock of its common

parent. If the requirements of that section

are satisfied, §1.1502–13(f)(6)(ii) provides that “If a member, M, would otherwise recognize gain on a qualified disposition of P stock, then immediately before

the qualified disposition, M is treated as

purchasing the P stock from P for fair

market value with cash contributed to M

by P (or, if necessary, through any intermediate members).” Among other requirements, the member must, pursuant to

a plan, transfer the stock “immediately to

a nonmember that is not related.” See

§1.1502–13(f)(6)(ii)(B). The preamble to

1998–41 I.R.B.

the temporary regulations explains that

the gain relief provisions “prevent taxpayers from being subject to inappropriate

taxation on gains in certain transactions.”

(T.D. 8598, 1995–2 C.B. 188, 189.)

Section 83 provides rules for property,

including parent’s stock, transferred in

connection with the performance of services. Section 83(h) provides, in part,

that “there shall be allowed as a deduction

under section 162, to the person for whom

were performed the services in connection with which such property was transferred, an amount equal to the amount included . . . in the gross income of the

person who performed such services.”

Section 1.83–6(b) provides that “[e]xcept

as provided in section 1032, at the time of

the transfer of property in connection with

the performance of services the transferor

recognizes gain to the extent that the

transferor receives an amount that exceeds the transferor’s basis in the property.” Section 1.83–6(d) provides that,

“[i]f a shareholder of a corporation transfers property to an employee of such corporation . . . in consideration of services

performed for the corporation, the transaction shall be considered to be a contribution of such property to the capital of

such corporation by the shareholder, and

immediately thereafter a transfer of such

property by the corporation to the employee . . . .”

Rev. Rul. 80–76 (1980–1 C.B. 15) addresses the use of a parent corporation’s

stock as compensation to an employee of

a subsidiary corporation. Under the facts,

A, a shareholder of P, transfers P stock directly to B, an employee of S. The ruling

holds in part that, “because section 83 applies to the transfer of P stock to B, S does

not recognize gain or loss on the transfer

of the P stock.”

Explanation of Provisions

Some of the concerns that ultimately led

to the enactment of section 1032 are present where a subsidiary corporation holds

the stock of a parent corporation. For example, a parent corporation could place

treasury stock in a subsidiary corporation

in order to attempt to recognize losses if

the price of the parent corporation stock

goes down, or could sell shares directly if

the price rises. See Rev. Rul. 74–503

(1974–2 C.B. 117). The zero basis result

limits such planning opportunities.

11

These tax avoidance possibilities are

not present, however, in transactions

where one corporation transfers its own

stock to another corporation pursuant to a

plan by which the second corporation immediately transfers the stock of the first

corporation to acquire money or other

property. The risk of selective loss recognition does not arise where the stock of

the parent corporation is used immediately by the subsidiary corporation to acquire money or other property and therefore does not have sufficient time to

depreciate in value. This concept is reflected in Rev. Rul. 74–503, which provides a factual carve-out for transfers of

parent corporation stock made for the purpose of enabling a subsidiary corporation

to acquire property. Also, the IRS and the

Treasury have not applied the zero basis

result in such integrated transactions, regardless of whether such a disposition of

stock is part of a tax-free reorganization

or is part of a taxable acquisition. See

§§1.1502–13(f)(6)(ii) and 1.1032–2(b).

These proposed regulations provide that

no gain or loss is recognized in certain

taxable transactions where one corporation immediately disposes of the stock of

another corporation pursuant to a plan to

acquire money or other property. The IRS

and Treasury believe that, in such transactions, the nonapplicability of the zero

basis result avoids inappropriate gain

recognition and is consistent with the purposes of section 1032. No inference is intended regarding the applicability of the

zero basis result to transactions outside of

the scope of these proposed regulations.

If the conditions of these proposed regulations are satisfied, no gain or loss is

recognized on the disposition of the stock

of one corporation (the issuing corporation) by another corporation (the acquiring corporation). The proposed regulations apply if, pursuant to a plan to

acquire money or other property, (1) the

acquiring corporation acquires stock of

the issuing corporation directly or indirectly from the issuing corporation in a

transaction in which, but for this section,

the basis of the stock of the issuing corporation in the hands of the acquiring corporation would be determined with respect

to the issuing corporation’s basis in the issuing corporation’s stock under section

362(a); (2) the acquiring corporation immediately transfers the stock of the issu-

October 13, 1998

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Page 12

ing corporation to acquire money or other

property; and (3) no party receiving stock

of the issuing corporation from the acquiring corporation receives a substituted

basis in the stock of the issuing corporation within the meaning of section

7701(a)(42). For purposes of this section,

“property” includes services. See

§1.1032–1.

Mechanics of Proposed Regulations

These proposed regulations adopt the

cash purchase model used in §1.1502–

13(f)(6)(ii) to provide relief from gain.

In transactions to which the proposed

regulations apply, immediately before the

disposition of the issuing corporation’s

stock, the acquiring corporation is treated

as purchasing the issuing corporation’s

stock from the issuing corporation for fair

market value with cash contributed to the

acquiring corporation by the issuing corporation (or, if necessary, through intermediate corporations).

As a result of this deemed cash purchase

of stock, the acquiring corporation will

have a fair market value basis in the issuing corporation’s stock pursuant to section

1012, and the issuing corporation will increase its basis in the stock of the acquiring

corporation (and, if necessary, the stock

basis of intermediate corporations) by that

amount. See, e.g., section 358.

No inference is intended regarding

whether circular cash flows would be respected apart from this regulation. Similarly, no inference is intended with respect to other methods of avoiding gain

on the acquiring corporation’s use of the

issuing corporation’s stock.

A cross-reference in §1.83–6(d) to the

proposed regulations clarifies that the mechanics of the proposed regulations—

rather than the mechanics of §1.83–

6(d)—apply to a corporate shareholder’s

transfer of its own stock to any person in

consideration of services performed for

another corporation where the conditions

of these proposed regulations are satisfied.

The cash purchase model of these proposed regulations preserves the acquiring

corporation’s deduction under section 162

for the use of the issuing corporation’s

stock to compensate the acquiring corporation’s employees. In addition, as in

Rev. Rul. 80–76, the cash purchase model

of these proposed regulations provides

that the acquiring corporation will not

October 13, 1998

recognize gain or loss on the transfer of

the stock of the issuing corporation. The

proposed regulations provide that the cash

purchase model is applicable only when

the acquiring corporation immediately

transfers the stock of the issuing corporation to acquire money or other property.

The IRS and the Treasury believe that

these proposed regulations address the

same issues as in Rev. Rul. 80–76 and,

when issued in final form, will render

Rev. Rul. 80–76 obsolete.

Stock Options

Section 1032(a), in conjunction with

the rules governing the taxation of options, also operates to prevent selective

loss recognition in the case where a corporation issues options to buy or sell its

own stock. See Deficit Reduction Act of

1984, H.R. Rep. No. 432, 98th Cong., 2d.

Sess. pt. 2 1196 (1984) (expanding section 1032(a) to provide that a corporation

does not recognize gain or loss with respect to any lapse or acquisition of an option to buy or sell its stock, including treasury stock). As in the case of a subsidiary

corporation’s dealings in parent corporation stock, however, section 1032 may not

always prevent selective loss recognition

where a subsidiary corporation deals in

options on parent corporation stock.

Again, the zero basis result serves to limit

such planning opportunities.

The Treasury and the IRS have determined that the concerns underlying section 1032 are not present where the issuing corporation transfers options on its

own stock to the acquiring corporation

pursuant to a plan by which the acquiring

corporation immediately transfers those

options to acquire money or other property. Accordingly, these proposed regulations apply to an option issued by an issuing corporation to buy or sell its own

stock in the same manner as they apply to

stock of an issuing corporation.

Amendment to §1.1032–2

The preamble to the final regulations

under §1.1032–2 states that the tax treatment of a disposition by the acquiring

corporation (S) of stock options of the

corporation (P) in control of S was beyond the scope of the project. (Preamble

to Final Regulations under sections 358,

1032 and 1502 [T.D. 8648, 1996–1 C.B.

37, 39].) The IRS and the Treasury be-

12

lieve that the tax treatment of stock options of the issuing corporation in these

triangular reorganizations also should be

addressed under section 1032. Accordingly, these proposed regulations amend

§1.1032–2 to provide that §1.1032–2

shall apply to an option to buy or sell P

stock issued by P in the same manner as

that section applies to the stock of P.

Proposed Effective Date

The regulations are proposed to be effective on the date that final regulations

are published in the Federal Register.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regulations, and because the regulation does not

impose a collection of information on

small entities, the Regulatory Flexibility

Act (5 U.S.C. chapter 6) does not apply.

Pursuant to section 7805(f) of the Internal

Revenue Code, this notice of proposed

rulemaking will be submitted to the Chief

Counsel for Advocacy of the Small Business Administration for comment on its

impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any written comments (preferably a signed original and

eight copies) that are timely submitted to

the IRS. All comments will be available

for public inspection and copying.

A public hearing has been scheduled

for Thursday, January 7, 1999 beginning

at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution Avenue,

NW, Washington, DC. Because of access

restrictions, visitors will not be admitted

beyond the Internal Revenue Building

lobby more than 15 minutes before the

hearing starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons who wish to present oral comments at the hearing must request to

speak, and submit an outline of topics to

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10/7/98 1:53 PM

Page 13

be discussed and the time to be devoted to

each topic by Thursday, December 17,

1998.

A period of ten minutes will be allocated

to each person for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these proposed

regulations is Lee A. Dean of the Office

of the Assistant Chief Counsel (Corporate), IRS. However, other personnel

from the IRS and Treasury Department

participated in their development.

* * * * *

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.83–6 is amended by

adding two sentences to the end of paragraph (d)(1) to read as follows:

§1.83–6 Deduction by employer.

* * * * *

(d)(1) * * * For special rules that may

apply to a corporate shareholder’s transfer

of its own stock to any person in consideration of services performed for another

corporation, see §1.1032–3. The preceding sentence applies to transfers of stock

occurring on or after the date these regulations are published as final regulations

in the Federal Register.

* * * * *

Par. 3. Section 1.1032–2 is amended

by:

1. Revising paragraph (e);

2. Adding paragraph (f).

The addition and revision read as follows:

§1.1032–2 Disposition by a corporation

of stock of a controlling corporation in

certain triangular reorganizations.

* * * * *

1998–41 I.R.B.

(e) Stock options. The rules of this section shall apply to an option to buy or sell

P stock issued by P in the same manner as

the rules of this section apply to P stock.

(f) Effective dates. This section applies to triangular reorganizations occurring on or after December 23, 1994. Paragraph (e) applies to transfers of stock

options occurring on or after the date

these regulations are published as final

regulations in the Federal Register.

Par. 4. Section 1.1032–3 is added to

read as follows:

§1.1032–3 Disposition of stock or stock

options in certain transactions not

qualifying under any other

nonrecognition provision.

(a) Scope. This section provides rules

for certain transactions in which one corporation (the acquiring corporation) acquires money or other property (as defined in §1.1032–1) in exchange, in whole

or in part, for stock of another corporation

(the issuing corporation).

(b) General rule. In a transaction to

which this section applies, no gain or loss

is recognized on the disposition of the issuing corporation’s stock by the acquiring

corporation. The transaction is treated as

if, immediately before the acquiring corporation disposes of the stock of the issuing corporation, the acquiring corporation

purchased the issuing corporation’s stock

from the issuing corporation for fair market value with cash contributed to the

acquiring corporation by the issuing corporation (or, if necessary, through intermediate corporations).

(c) Applicability. The rules of this section apply only if, pursuant to a plan to

acquire money or other property—

(1) The acquiring corporation acquires

stock of the issuing corporation directly

or indirectly from the issuing corporation

in a transaction in which, but for this section, the basis of the stock of the issuing

corporation in the hands of the acquiring

corporation would be determined with respect to the issuing corporation’s basis in

the issuing corporation’s stock under section 362(a);

(2) The acquiring corporation immediately transfers the stock of the issuing corporation to acquire money or other property; and

(3) No party receiving stock of the issuing corporation from the acquiring cor-

13

poration receives a substituted basis in the

stock of the issuing corporation within the

meaning of section 7701(a)(42).

(d) Stock options. The rules of this section shall apply to an option issued by a

corporation to buy or sell its own stock in

the same manner as the rules of this section apply to the stock of an issuing corporation.

(e) Examples. The following examples

illustrate the application of this section:

Example 1. (i) X, a corporation, owns all of the

stock of Y corporation. Y reaches an agreement with

A, an individual, to acquire a truck from A in exchange for 10 shares of X stock with a fair market

value of $100. To effectuate Y’s agreement with A,

X transfers to Y the X stock in a transaction in which,

but for this section, the basis of the X stock in the

hands of Y would be determined with respect to X’s

basis in the X stock under section 362(a). Y immediately transfers the X stock to A to acquire the truck.

(ii) In this Example 1, no gain or loss is recognized on the disposition of the X stock by Y. Immediately before Y’s disposition of the X stock, Y is

treated as purchasing the X stock from X for $100 of

cash contributed to Y by X.

Example 2. (i) Assume the same facts as Example 1, except that, rather than X stock, X transfers an

option with a fair market value of $100 to buy X

stock.

(ii) In this Example 2, no gain or loss is recognized on the disposition of the X stock option by Y.

Immediately before Y’s disposition of the X stock

option, Y is treated as purchasing the X stock option

from X for $100 of cash contributed to Y by X.

Example 3. (i) X, a corporation, owns all of the

outstanding stock of Y corporation. A, an individual,

is an employee of Y. Pursuant to an agreement between X and Y to compensate A for services provided to Y, X transfers to A 10 shares of X stock with

a fair market value of $100. Under §1.83–6(d), but

for this section, the transfer of X stock by X to A

would be treated as a contribution of the X stock by

X to the capital of Y, and immediately thereafter, a

transfer of the X stock by Y to A. But for this section, the basis of the X stock in the hands of Y would

be determined with respect to X’s basis in the X

stock under section 362(a).

(ii) In this Example 3, no gain or loss is recognized on the deemed disposition of the X stock by Y.

Immediately before Y’s deemed disposition of the X

stock, Y is treated as purchasing the X stock from X

for $100 of cash contributed to Y by X.

Example 4. (i) X, a corporation, issues 10 shares

of X stock subject to a substantial risk of forfeiture

to compensate Y’s employee, A, for services. A does

not have an election under section 83(b) in effect

with respect to the X stock. X retains a reversionary

interest in the X stock in the event that A forfeits the

right to the stock. At the time the stock vests, the 10

shares of X stock have a fair market value of $100.

Under §1.83–6(d), but for this section, the transfer

of the X stock by X to A would be treated, at the time

the stock vests, as a contribution of the X stock by X

to the capital of Y, and immediately thereafter, a disposition of the X stock by Y to A. The basis of the X

stock in the hands of Y, but for this section, would be

October 13, 1998

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Page 14

determined with respect to X’s basis in the X stock

under section 362(a).

(ii) In this Example 4, no gain or loss is recognized on the deemed disposition of X stock by Y

when the stock vests. Immediately before Y’s

deemed disposition of the X stock, Y is treated as

purchasing X’s stock from X for $100 of cash contributed to Y by X.

Example 5. (i) Assume the same facts as in Example 4, except that Y (rather than X) retains a reversionary interest in the X stock in the event that A forfeits the right to the stock. Several years after X’s

transfer of the X shares, the stock vests.

(ii) This section does not apply to Y’s deemed

disposition of the X shares. For the tax consequences to Y on the deemed disposition of the X

stock, see §1.83–6(b).

(f) Effective date. This section applies

to transfers of stock or stock options of

the issuing corporation occurring on or

after the date these regulations are published as final regulations in the Federal

Register.

Michael P. Dolan,

Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on

September 22, 1998, 8:45 a.m., and published in the

issue of the Federal Register for September 23,

1998, 63 F.R. 50816)

Medical Savings Accounts

Announcement 98–88

PURPOSE

Sections 220(i) and (j) of the Internal

Revenue Code provide that if the number

of medical savings account (MSA) returns filed for 1997 exceeds 600,000,

then October 1, 1998, is a “cut-off” date

for the MSA pilot project. If a statutorily

specified projection of the number of

MSA returns that will be filed for 1998

exceeds 750,000, then October 1, 1998,

will also be a “cut-off” date for the MSA

pilot project. The Internal Revenue Service (I.R.S.) has determined that the applicable number of MSA returns filed for

1997 is 26,160, and that the applicable

number of MSA returns projected to be

filed for 1998 is 50,172 (after reduction in

each case for statutorily specified exclusions, such as the exclusion for previously

uninsured taxpayers). Consequently, October 1, 1998 is not a “cut-off” date and

1998 is not a “cut-off” year for the MSA

pilot project.

October 13, 1998

BACKGROUND

The Health Insurance Portability and

Accountability Act of 1996 added section

220 to the Code to permit eligible individuals to establish MSAs under a pilot project effective January 1, 1997. The pilot

project has a scheduled “cut-off” year of

2000, but may have an earlier “cut-off”

year if the number of individuals who

have established MSAs exceeds certain

numerical limitations. See sections 220(i)

and (j).

If a year is a “cut-off” year, section

220(i)(1) generally provides that no individual will be eligible for a deduction or

exclusion for MSA contributions for any

taxable year beginning after the “cut-off”

year unless the individual (A) was an active MSA participant for any taxable year

ending on or before the close of the “cutoff” year, or (B) first became an active

MSA participant for a taxable year ending

after the “cut-off” year by reason of coverage under a high deductible health plan

of an MSA-participating employer.

Section 220(j)(2)(A) provides that the

numerical limitation for 1998 is exceeded

if the number of MSA returns filed on or

before April 15, 1998 for taxable years

ending with or within the 1997 calendar

year, plus the Secretary’s estimate of the

number of MSA returns for those taxable

years which will be filed after April 15,

1998, exceeds 600,000. Section 220(j)(2)(B) provides, as an alternative test, that

the numerical limitation for 1998 is also

exceeded if the sum of 90 percent of the

sum determined under section 220(j)(2)(A) for 1998 plus the product of 2.5 and

the number of MSAs for taxable years beginning in 1998 that are established during

the portion of 1998 preceding July 1

(based on reports by MSA trustees and

custodians), exceeds 750,000.

Under section 220(j)(3), in determining

whether any calendar year is a “cut-off”

year, the MSA of any previously uninsured individual is not taken into account.

In addition, section 220(j)(4)(D) specifies

that, to the extent practical, all MSAs established by an individual are aggregated

and two married individuals opening separate MSAs are to be treated as having a

single MSA for purposes of determining

the number of MSAs.

A total of 35,887 tax returns reporting

MSAs for the 1997 taxable year were

14

filed by April 15, 1998. Of this total,

13,311 taxpayers were reported as being

previously uninsured. It has been estimated that an additional 5,781 tax returns

reporting MSA contributions for the 1997

taxable year have been or will be filed

after April 15, 1998, including 2,197 taxpayers who were previously uninsured.

Accordingly, it has been determined that

there were 41,668 (35,887 plus 5,781)

MSA returns for 1997. Of this total,

15,508 (13,311 plus 2,197) were for taxpayers reported as being previously uninsured. As a result, 26,160 (41,668 minus

15,508) MSA returns count toward the

applicable statutory limitation for 1997

MSA returns of 600,000.

Based on the Forms 8851 filed on or

before August 1, 1998 by MSA trustees

and custodians, it has been determined

that 13,034 taxpayers who did not have

MSA contributions for 1997 established

MSAs for 1998 during the portion of

1998 preceding July 1. Of this total,

2,180 taxpayers were reported by trustees

and custodians as previously uninsured,

and therefore are not taken into account in

determining whether 1998 is a “cut-off”

year. In addition, 166 taxpayers were reported by trustees and custodians as excludable from the count because their

spouse also established an MSA, and 37

taxpayers had more than one account.

Accordingly, the applicable number of

MSAs established from January 1, 1998

through June 30, 1998, is 10,651 (13,034

minus (2,180 plus 166 plus 37)). The alternative limitation for 1998 (90 percent

of the applicable number of MSA returns

for 1997 plus the product of 2.5 and the

number of applicable MSAs established

from January 1, 1998 through June 30,

1998) is 50,172 (90 percent of 26,160

plus 2.5 times 10,651), which is less than

the statutory limit of 750,000. Thus, 1998

is not a cut-off year for the MSA pilot

project by reason of either the 1997 MSA

returns test of section 220(j)(2)(A) or the

alternative test of section 220(j)(2)(B) of

the Code.

Questions regarding this announcement

may be directed to Felix Zech in the Office of Associate Chief Counsel (Employee Benefits and Exempt Organizations) at (202) 622-4606 (not a toll free

number).

1998–41 I.R.B.

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Page 15

Correction of July 1998

Instructions for Form 706

Announcement 98–92

The July 1998 revision of the Instructions for Form 706 contain an error. On

page 6, in column 1, in the first paragraph

under Interest computation, the figure

$320,618 is incorrect. The correct figure

is $410,000.

1998–41 I.R.B.

15

October 13, 1998

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Page 16

Announcement of the Disbarment and Suspension of Attorneys, Certified

Public Accountants, Enrolled Agents, and Enrolled Actuaries From

Practice Before the Internal Revenue Service

Under 330, Title 31 of the United

States Code, the Secretary of the Treasury, after due notice and opportunity for

hearing, is authorized to suspend or disbar from practice before the Internal Revenue Service any person who has violated the rules and regulations governing

the recognition of attorneys, certified

public accountants, enrolled agents, or

enrolled actuaries to practice before the

Internal Revenue Service.

Attorneys, certified public accountants,

enrolled agents, and enrolled actuaries are

prohibited in any Internal Revenue Service

matter from directly or indirectly employ-

ing, accepting assistance from, being employed by, or sharing fees with, any practitioner disbarred or suspended from practice before the Internal Revenue Service.

To enable attorneys, certified public accountants, enrolled agents, and enrolled

actuaries to identify such disbarred or suspended practitioners, the Director

of Practice will announce in the Internal

Revenue Bulletin the names and addresses of practitioners who have been

suspended from such practice, their designation as attorney, certified public accountant, enrolled agent, or enrolled actuary, and date or period of suspension. This

announcement will appear in the weekly

Bulletin at the earliest practicable date

after such action and will continue to appear in the weekly Bulletins for five successive weeks or for as many weeks as is

practicable for each attorney, certified

public accountant, enrolled agent, or enrolled actuary so suspended or disbarred

and will be consolidated and published in

the Cumulative Bulletin.

After due notice and opportunity for

hearing before an administrative law

judge, the following individuals have

been disbarred from further practice before the Internal Revenue Service:

Name

Address

Designation

Effective Date

Galt, Edward G.

Lopez, Andrew L.

Branch, Jimmie L.

Harrison, Rebecca A.

Mayer, Robert J.

Monterey, CA

Albuquerque, NM

Jacksonville, FL

Carmichael, CA

Wexford, PA

CPA

CPA

CPA

Enrolled Agent

CPA

October 25, 1997

December 11, 1997

January 15, 1998

March 4, 1998

June 4, 1998

October 13, 1998

16

1998–41 I.R.B.

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Page 17

Announcement of the Expedited Suspension of Attorneys, Certified Public

Accountants, Enrolled Agents, and Enrolled Actuaries From Practice

Before the Internal Revenue Service

Under title 31 of the Code of Federal

Regulations, section 10.76, the Director

of Practice is authorized to immediately

suspend from practice before the Internal

Revenue Service any practitioner who,

within five years from the date the expedited proceeding is instituted, (1) has had

a license to practice as an attorney, certified public accountant, or actuary suspended or revoked for cause; or (2) has

been convicted of any crime under title 26

of the United States Code or, of a felony

under title 18 of the United States Code

involving dishonesty or breach of trust.

Attorneys, certified public accountants,

enrolled agents, and enrolled actuaries are

prohibited in any Internal Revenue Service

matter from directly or indirectly employing, accepting assistance from, being employed by, or sharing fees with, any practitioner disbarred or suspended from practice

before the Internal Revenue Service.

To enable attorneys, certified public accountants, enrolled agents, and enrolled actuaries to identify practitioners under expedited suspension from practice before the

Internal Revenue Service, the Director of

Practice will announce in the Internal Revenue Bulletin the names and addresses of

practitioners who have been suspended

from such practice, their designation as attorney, certified public accountant, en-

rolled agent, or enrolled actuary, and date

or period of suspension. This announcement will appear in the weekly Bulletin at

the earliest practicable date after such action and will continue to appear in the

weekly Bulletins for five successive weeks

or for as many weeks as is practicable for

each attorney, certified public accountant,

enrolled agent, or enrolled actuary so suspended and will be consolidated and published in the Cumulative Bulletin.

The following individuals have been

placed under suspension from practice before the Internal Revenue Service by virtue

of the expedited proceeding provisions of

the applicable regulations:

Name

Address

Designation

Date of Suspension

Clark, Sheila

Houston, TX

CPA

Indefinite from April 21, 1998

Kimes, Larry W.

Austin, TX

Attorney

Indefinite from May 5, 1998

Braiteman, Sheldon

Baltimore, MD

Attorney

Indefinite from June 5, 1998

Pollack, Michael

Guttenberg, NJ

Attorney

Indefinite from June 11, 1998

Eichenbaum, Irving

Huntingdon Valley, PA

CPA

Indefinite from August 4, 1998

Corley, Francis R.

Irmo, SC

CPA

Indefinite from August 4, 1998

Scott, Richard

Lincoln, NE

Attorney

Indefinite from August 4, 1998

Wilson, Douglas D.

Roanoke, VA

Attorney

Indefinite from August 4, 1998

Watkins, Brian R.

Lincoln, NE

Attorney

Indefinite

Congdon Jr., Byron E.

San Bernadino, CA

Attorney

Indefinite from August 4, 1998

Abrams, Robert

Elmsford, NY

CPA

Indefinite from August 4, 1998

Robinson, Doane

Rapid City, SD

CPA

Indefinite from August 4, 1998

Szarwark, Ernest

Nashville, TN

Attorney

Indefinite from August 4, 1998

Roberts, Mark

Norman, OK

CPA

Indefinite from August 4, 1998

Wood, Randall K.

Springfield, MO

Attorney

Indefinite from August 5, 1998

Chappell, Ronald L.

Antelope, CA

CPA

Indefinite from August 12, 1998

1998–41 I.R.B.

17

October 13, 1998

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Page 18

Announcement of the Consent Voluntary Suspension of Attorneys,

Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries

From Practice Before the Internal Revenue Service

Under 31 Code of Federal Regulations,

Part 10, an attorney, certified public accountant, enrolled agent, or enrolled actuary, in order to avoid the institution or

conclusion of a proceeding for his disbarment or suspension from practice before

the Internal Revenue Service, may offer

his consent to suspension from such practice. The Director of Practice, in his discretion, may suspend an attorney, certified public accountant, enrolled agent, or

enrolled actuary in accordance with the

consent offered.

Attorneys, certified public accountants,

enrolled agents, and enrolled actuaries are

prohibited in any Internal Revenue Ser-

vice matter from directly or indirectly employing, accepting assistance from, being

employed by, or sharing fees with any

practitioner disbarred or suspended from

practice before the Internal Revenue Service.

To enable attorneys, certified public accountants, enrolled agents, and enrolled

actuaries to identify practitioners under

consent suspension from practice before the

Internal Revenue Service, the Director

of Practice will announce in the Internal

Revenue Bulletin the names and addresses of practitioners who have been

suspended from such practice, their designation as attorney, certified public ac-

countant, enrolled agent, or enrolled actuary, and date or period of suspension. This

announcement will appear in the weekly

Bulletin at the earliest practicable date

after such action and will continue to appear in the weekly Bulletins for five successive weeks or for as many weeks as is

practicable for each attorney, certified

public accountant, enrolled agent, or enrolled actuary so suspended and will be

consolidated and published in the Cumulative Bulletin.

The following individuals have been

placed under consent suspension from

practice before the Internal Revenue Service:

Name

Address

Designation

Date of Suspension

Makula, John G.

Slomski, Michael

Bozeman Jr., T. Alvin

Parness, Richard A.

Register, Billy

Cooper, Michael E.

Minello, Michael J.

Holden, William W.

Freeman, Samuel

Anders, Kevin

Breed, Robert M.

Sandirk, Paula Brooks

Neuhaus Jr., George

Park Ridge, IL

Gross Pointe Woods, MI

Sylvester, GA

Westfield, NJ

Havana, FL

Edina, MN

Clarks Summit, PA

Fairfield, CT

Bedford, NH

Williamport, MD

Concord, MA

Chehalis, WA

Brewster, NY

CPA

CPA

CPA

CPA

CPA

CPA

CPA

CPA

CPA

CPA

CPA

CPA

CPA

April 1, 1998 to March 31, 2003

April 1, 1998 to March 31, 2001

May 22, 1998 to November 21, 1999

June 1, 1998 to December 31, 1998

Indefinite from July 10, 1998

August 19, 1998 to February 18, 1999

August 28, 1998 to April 27, 2001

September 1, 1998 to March 31, 1999

September 1, 1998 to August 31, 1999

September 1, 1998 to August 31, 2001

September 1, 1998 to February 28, 2001

November 1, 1998 to April 30, 2000

November 1, 1998 to April 30, 2000

October 13, 1998

18

1998–41 I.R.B.

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Page 19

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus,

if an earlier ruling held that a principle

applied to A, and the new ruling holds

that the same principle also applies to B,

the earlier ruling is amplified. (Compare

with modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

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

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling is

modified because it corrects a published

position. (Compare with amplified and

clarified, above).

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

in a ruling that lists previously published

rulings that are obsoleted because of

changes in law or regulations. A ruling

may also be obsoleted because the substance has been included in regulations

subsequently adopted.

Revoked describes situations where the

position in the previously published ruling is not correct and the correct position

is being stated in the new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a period of time in separate rulings. If the

new ruling does more than restate the

substance of a prior ruling, a combination

of terms is used. For example, modified

and superseded describes a situation

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

is continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be published that includes the list in the original

ruling and the additions, and supersedes

all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

Abbreviations

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. 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 formerly used will appear in material published in the

Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

1998–41 I.R.B.

19

October 13, 1998

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Page 20

Numerical Finding List1

Proposed Regulations—Continued

Bulletins 1998–29 through 40

REG–115393–98, 1998–39 I.R.B. 34

Announcements:

Revenue Procedures:

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

98–72, 1998–31 I.R.B. 14

98–73, 1998–31 I.R.B. 14

98–74, 1998–31 I.R.B. 15

98–75, 1998–31 I.R.B. 15

98–76, 1998–32 I.R.B. 64

98–77, 1998–34 I.R.B. 30

98–78, 1998–34 I.R.B. 30

98–79, 1998–34 I.R.B. 31

98–80, 1998–34 I.R.B. 32

98–81, 1998–36 I.R.B. 35

98–82, 1998–35 I.R.B. 17

98–83, 1998–36 I.R.B. 36

98–84, 1998–38 I.R.B. 30

98–85, 1998–38 I.R.B. 30

98–86, 1998–38 I.R.B. 31

98–87, 1998–40 I.R.B. 11

98–89, 1998–40 I.R.B. 11

98–91, 1998–40 I.R.B. 12

98–40, 1998–32 I.R.B. 6

98–41, 1998–32 I.R.B. 7

98–42, 1998–28 I.R.B. 9

98–43, 1998–29 I.R.B. 8

98–44, 1998–32 I.R.B. 11

98–45, 1998–34 I.R.B. 8

98–46, 1998–36 I.R.B. 21

98–47, 1998–37 I.R.B. 8

98–48, 1998–38 I.R.B. 7

98–49, 1998–37 I.R.B. 9

98–50, 1998–38 I.R.B. 8

98–51, 1998–38 I.R.B. 20

98–52, 1998–37 I.R.B. 12

98–53, 1998–40 I.R.B. 9

Court Decisions:

2063, 1998–36 I.R.B. 13

2064, 1998–37 I.R.B. 4

2065, 1998–39 I.R.B. 7

Notices:

98–36, 1998–29 I.R.B. 8

98–37, 1998–30 I.R.B. 13

98–38, 1998–34 I.R.B. 7

98–39, 1998–33 I.R.B. 11

98–40, 1998–35 I.R.B. 7

98–41, 1998–33 I.R.B. 12

98–42, 1998–33 I.R.B. 12

98–43, 1998–33 I.R.B. 13

98–44, 1998–34 I.R.B. 7

98–45, 1998–35 I.R.B. 7

98–46, 1998–36 I.R.B. 21

98–47, 1998–37 I.R.B. 8

98–48, 1998–39 I.R.B. 17

98–49, 1998–38 I.R.B. 5

Railroad Retirement Quarterly Rate:

1998–31 I.R.B. 7

Revenue Rulings:

98–34, 1998–31 I.R.B. 12

98–35, 1998–30 I.R.B. 4

98–36, 1998–31 I.R.B. 6

98–37, 1998–32 I.R.B. 5

98–38, 1998–32 I.R.B. 4

98–39, 1998–33 I.R.B. 4

98–40, 1998–33 I.R.B. 4

98–41, 1998–35 I.R.B. 6

98–42, 1998–35 I.R.B. 5

98–43, 1998–36 I.R.B. 9

98–44, 1998–37 I.R.B. 4

98–45, 1998–38 I.R.B. 4

98–46, 1998–39 I.R.B. 10

98–47, 1998–39 I.R.B. 4

98–48, 1998–39 I.R.B. 6

98–49, 1998–40 I.R.B. 4

98–50, 1998–40 I.R.B. 7

Treasury Decisions:

8771, 1998–29 I.R.B. 6

8772, 1998–31 I.R.B. 8

8773, 1998–29 I.R.B. 4

8774, 1998–30 I.R.B. 5

8775, 1998–31 I.R.B. 4

8776, 1998–33 I.R.B. 6

8777, 1998–34 I.R.B. 4

8778, 1998–36 I.R.B. 4

8779, 1998–36 I.R.B. 11

8780, 1998–39 I.R.B. 14

8781, 1998–40 I.R.B. 4

Proposed Regulations:

REG–209446–82, 1998–36 I.R.B. 24

REG–209060–86, 1998–39 I.R.B. 18

REG–209813–96, 1998–35 I.R.B. 9

REG–246256–96, 1998–34 I.R.B. 9

REG–104641–97, 1998–29 I.R.B. 9

REG–104565–97, 1998–39 I.R.B. 21

REG–106177–97, 1998–37 I.R.B. 33

REG–115446–97, 1998–36 I.R.B. 23

REG–116608–97, 1998–29 I.R.B. 12

REG–118926–97, 1998–39 I.R.B. 23

REG–118966–97, 1998–39 I.R.B. 29

REG–119227–97, 1998–30 I.R.B. 13

REG–101363–98, 1998–40 I.R.B. 10

REG–110332–98, 1998–33 I.R.B. 18

REG–110403–98, 1998–29 I.R.B. 11

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.

October 13, 1998

20

1998–41 I.R.B.

IRB 1998-41

10/7/98 1:53 PM

Page 21

Finding List of Current Action on

Previously Published Items1

Revenue Rulings—Continued

Revenue Rulings—Continued

76–562

Obsoleted by

98–37, 1998–32 I.R.B. 5

77–214

Obsoleted by

98–37, 1998–32 I.R.B. 5

94–5

Obsoleted by

98–37, 1998–32 I.R.B. 5

87–13

Modified by

98–49, 1998–38 I.R.B. 5

87–16

Modified by

98–49, 1998–38 I.R.B. 5

79–106

Obsoleted by

98–37, 1998–32 I.R.B. 5

94–30

Obsoleted by

98–37, 1998–32 I.R.B. 5

83–113

Obsoleted by

98–37, 1998–32 I.R.B. 5

94–51

Obsoleted by

98–37, 1998–32 I.R.B. 5

Revenue Procedures:

85–143

Obsoleted by

98–37, 1998–32 I.R.B. 5

94–79

Obsoleted by

98–37, 1998–32 I.R.B. 5

95–2

Obsoleted by

98–37, 1998–32 I.R.B. 5

Bulletins 1998–29 through 40

*Denotes entry since last publication

Notices:

83–58

Obsoleted by

98–37, 1998–32 I.R.B. 5

97–60

Superseded by

98–50, 1998–38 I.R.B. 8

97–61

Superseded by

98–51, 1998–38 I.R.B. 20

98–14

Modified by

98–53, 1998–40 I.R.B. 9

Revenue Rulings:

57–271

Obsoleted by

98–37, 1998–32 I.R.B. 5

67–301

Modified by

98–41, 1998–35 I.R.B. 6

70–225

Obsoleted by

98–44, 1998–37 I.R.B. 4

71–277

Obsoleted by

98–37, 1998–32 I.R.B. 5

71–434

Obsoleted by

98–37, 1998–32 I.R.B. 5

71–574

Obsoleted by

98–37, 1998–32 I.R.B. 5

72–75

Obsoleted by

98–37, 1998–32 I.R.B. 5

72–120

Obsoleted by

98–37, 1998–32 I.R.B. 5

72–121

Obsoleted by

98–37, 1998–32 I.R.B. 5

72–122

Obsoleted by

98–37, 1998–32 I.R.B. 5

74–77

Obsoleted by

98–37, 1998–32 I.R.B. 5

75–19

Obsoleted by

98–37, 1998–32 I.R.B. 5

88–8

Obsoleted by

98–37, 1998–32 I.R.B. 5

88–76

Obsoleted by

98–37, 1998–32 I.R.B. 5

88–79

Obsoleted by

98–37, 1998–32 I.R.B. 5

94–6

Obsoleted by

98–37, 1998–32 I.R.B. 5

95–9

Obsoleted by

98–37, 1998–32 I.R.B. 5

97–37

Obsoleted by

98–39, 1998–33 I.R.B. 4

93–4

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–5

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–6

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–30

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–38

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–49

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–50

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–53

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–81

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–91

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–92

Obsoleted by

98–37, 1998–32 I.R.B. 5

93–93

Obsoleted by

98–37, 1998–32 I.R.B. 5

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.

1998–41 I.R.B.

21

October 13, 1998

IRB 1998-41

10/7/98 1:53 PM

Page 22

Notes

October 13, 1998

22

1998–41 I.R.B.

IRB 1998-41

10/7/98 1:54 PM

Page 23

IRB 1998-41

10/7/98 1:54 PM

Page 24

INTERNAL REVENUE BULLETIN

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