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July 2003 Plain Language Regulations

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The following is a list of tax regulations published in July 2003:

Suspension of Running of Period of Limitations
These proposed regulations relate to the use of designated summonses and related summonses and the effect on the period of limitations on assessment when a case is brought with respect to a designated or related summons.  They will effect corporate taxpayers that are examined under the coordinated issue case (CIC) program and are served with designated or related summonses.  It will also effect third parties that are served with designated or related summonses for information pertaining to the corporate examinations.  REG-208199-91.  Published July 31, 2003.
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Diversification Requirements for Variable Annuity, Endowment, and Life Insurance Contracts:  These proposed regulations propose removing provisions of the Income Tax Regulations that apply a look-through rule to assets of a nonregistered partnership for purposes of satisfying the diversification requirements of section 817(h) of the Internal Revenue Code.  REG-163974-02.  Published July 30, 2003.
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Dual Consolidated Losses
Certain events, inculding acquisitions, require the recapture of previously utilized dual consolidated losses together with the payment of an interest charge.  When these events occur, recapture can sometimes be avoided by entering into a closing agreement with the Internal Revenue Service.  These proposed regulations set forth certain acquisitions occurring on or after January 1, 2002, that will no longer require a closing agreement and will require the reporting of certain information.  TD 9084.
Published July 30, 2003.
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Credit for Increasing Research Activities
Taxpayers may receive a tax credit for certain expenses incurred in conducting qualified research.  These proposed regulations provide guidance on the proper method for computing and allocating the research credit for members of a controlled group of corporations or a group of trades or businesses under common control.
REG-133791-02 and REG-105606-99.  Published July 29, 2003
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Prohibited Allocations of Securities in an S Corporation
These temporary regulations contain rules concerning requirements for employee stock ownership plans (ESOPs) holding stock of Subchapter S corporations.  The temporary regulations provide guidance on identifying disqualified persons and determining whether a plan year is a nonallocation year under section 409(p) and on the definition of synthetic equity under section 409(p)(5).  These temporary regulations will generally affect plan sponsors of, and participants in, ESOPs holding stock of Subchapter S corporations.  TD 9081.  Published July 21, 2003.
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Prohibited Allocations of Securities in an S Corporation
These proposed regulations contain rules concerning requirements for employee stock ownership plans (ESOPs) holding stock of Subchapter S corporations.  The proposed regulations provide guidance on identifying disqualified persons and determining whether a plan year is a nonallocation year under section 409(p) and on the definition of synthetic equity under section 409(p)(5).  These regulations would generally affect plan sponsors of, and participants in, ESOPs holding stock of Subchapter S corporations.  REG-129709-03.  Published July 21, 2003.
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Remedial Actions for Tax Exempt Bonds
These proposed regulations amend final regulations that provide certain permitted remedial actions for tax-exempt bonds issued by State and local governments.  The regulations accomplish three purposes.  First, they reduce the amount of outstanding bonds that are nonqualified bonds under the remedial action rules.  Secondly, they simplify the rules for determining which bonds will be treated as the nonqualified bonds for purposes of the remedial action rules.  Finally, they clarify the remedial action rules applicable to bonds issued prior to May 16, 1997 (the effective date of the current private activity bond regulations).  REG-132483-03.  Published July 21, 2003.
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Change in Depreciation of Property
These proposed regulations provide guidance on how to depreciate property for which the use changes in the hands of the same taxpayer.  They explain when a change in use occurs and how a taxpayer should determine depreciation in the year of the change in use and subsequent years.  REG-138499-02.  Published July 21, 2003.
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Real Estate Mortgage Investment Conduits
Application of Section 446 With Respect to Inducement Fees;  These proposed regulations provide certain accounting rules for taking into income fees received to induce the acquisition of non-economic residual interests in Real Estate Mortgage Investment Conduits.  They also clarify that the fees are income from sources within the United States.  REG-162625-02.  Published July 21, 2003.
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Reduction of Tax Attributes Due to Discharge of Indebtedness
In general, a debtor is required to include in gross income any income resulting from the discharge or cancellation of indebtedness for less than the amount owed (“COD income”).  Under certain circumstances, however, COD income is not included in gross income, such as if the cancellation occurs in bankruptcy, but the debtor must reduce a corresponding amount of certain of its tax attributes (“attribute reduction”), for example, attributes such as the foreign tax credit or net operating loss carryforward.  In certain tax-free reorganizations and liquidations involving two corporations, the acquiring corporation generally succeeds to various tax attributes of the liquidated or acquired corporation.  These temporary regulations clarify that when such a transaction occurs in a year in which the liquidated or acquired corporation excludes COD income from gross income, the tax attributes to which the acquiring corporation succeeds shall have been reduced accordingly.  REG-113112-03.  Published July 18, 2003.
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Net Gift Tax Treatment
These final regulations provide guidance to determine the amount of a gift when a donee makes a gift, during his life, of qualified terminable interest property for which a deduction was previously taken under section 2056(b)(7) or section 2523(f).  Under these regulations, the amount of the gift is reduced by the amount of the gift tax that the donee may recover under section 2207A(b).  The regulations also provide that the donee makes an additional gift if the donee fails to exercise the right to recover the gift tax and provide a waivor for situations where the donee does not intend to exercise the right to recover the gift tax.  TD 9077.  Published July 18, 2003.
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Reduction of Tax Attributes Due to Discharge of Indebtedness
In general, a debtor is required to include in gross income any income resulting from the discharge or cancellation of indebtedness for less than the amount owed ("COD income").  Under certain circumstances, however, COD income is not included in gross income, such as if the cancellation occurs in bankruptcy, but the debtor must reduce a corresponding amount of certain of its tax attributes ("attribute reduction"), for example, attributes such as the foreign tax credit or net operating loss carryforward.  In certain tax-free reorganizations and liquidations involving two corporations, the acquiring corporation generally succeeds to various tax attributes of the liquidated or acquired corporation.  These temporary regulations clarify that when such a transaction occurs in a year in which the liquidated or acquired corporation excludes COD income from gross income, the tax attributes to which the acquiring corporation succeeds shall have been reduced accordingly.  TD 9080.  Published
July 18, 2003.
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Federal Unemployment Tax Act Deposits
These proposed regulations provide an additional exception to the Federal Unemployment Tax Act (FUTA) deposit requirements for employers.  The regulations would relieve employers from making deposits of FUTA taxes for a quarter if the amount of accumulated Federal Insurance Contributions Act (FICA) taxes and withheld income taxes for the quarter is less than $2,5000.  REG-144908-02.  Published July 17, 2003.
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Cash or Deferred Arrangements for Certain Retirement Plans
These proposed regulations provide guidance on the requirements for certain retirement plans containing cash or deferred arrangements under section 401(k) of the Internal Revenue Code (Code) and providing for matching contributions or employee after-tax contributions under section 401(m) of the Code.  The proposed regulations will affect certain plans or contracts providing for elective deferrals under section 401(k), matching contributions or employee after tax contributions under section 401(m), and participants eligible under these plans or contracts.  REG-108639-99. 
Published July 17, 2003.
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Ten or More Employer Plans
An employer's deduction for contributions to a welfare benefit fund is generally subject to special rules and limitations.  An exception is provided for contributions to a welfare benefit fund that is part of a qualifying ten-or-more employer plan.  These regulations explain the requirements a plan must meet to be considered a ten-or-more employer plan that qualifies for the exception.  They also impose certain recordkeeping and disclosure requirements on plan administrators of welfare benefit plans that intend to qualify for the exception.  TD 9079.  Published July 17, 2003.
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Qualified Subchapter S Trust Election for Testamentary Trusts
Generally, certain subpart E trusts and testamentary trusts can be permitted shareholders of an S corporation.  These final regulations provide guidance regarding a qualified subchapter S trust election for testamentary trusts and the period for which former subpart E trusts and testamentary trusts may be permitted shareholders of an S corporation.  In addition, these regulations provide that the definition of a testamentary trust also includes a trust to which S corporation stock is either transferred under the terms of an electing qualified revocable trust during its election period or deemed to be distributed at the close of the last day of the election period.  TD 9078.  Published
July 17, 2003.
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Written Explanations Provided by Qualified Retirement Plans
These final regulations relate to the special rule added by the Small Business Job Protection Act of 1996 which permits the required written explanations of certain benefits to be provided by qualified retirement plans to plan participants after the annuity starting date.  The regulations affect sponsors and administrators of qualified retirement plans, and participants in and beneficiaries of those plans.  TD 9076.  Published July 16, 2003.
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Compensation Deferred Under Eligible Deferred Compensation Plans
These final regulations provide guidance on deferred compensation plans of State and local governments and tax-exempt entities.  The regulations reflect the changes made to section 457 by the Tax Reform Act of 1986, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Economic Growth and Tax Relief Reconciliation Act of 2001, the Job Creation and Worker Assistance Act of 2002, and other legislation.  The regulations also make various technical changes and clarifications to the existing final regulations on many discrete issues.  They also provide guidance to the public necessary to comply with the law and will affect plan sponsors, administrators, participants, and beneficiaries.  TD 9075.  Published
July 11, 2003
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Elections in Certain Multi-step Transactions
These Regulations provide that the step transaction doctrine will not be applicable if a taxpayer makes a valid section 338(h)(10) election with respect to a step in a multi-step transaction, even if the transaction would otherwise qualify as a reorganization, if the step, standing alone, is a qualified stock purchase.  REG-143679-02.  Published July 9, 2003.
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Elections in Certain Multi-Step Transactions
These Regulations provide that the step transaction doctrine will not be applicable if a taxpayer makes a valid section 338(h)(10) election with respect to a step in a multi-step transaction, even if the transaction would otherwise qualify as a reorganization, if the step, standing alone, is a qualified stock purchase.  TD 9071.  Published July 9, 2003.
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Treatment of Community Income for Certain Individuals
The final regulations provide rules to determine how community income is treated under section 66 of the Internal Revenue Code (Code) for certain married individuals in community property states who do not file joint individual Federal income tax returns.  The final regulations provide guidance regarding the four exceptions to community property laws contained in section 66 of the Code.  The final regulations also reflect changes in the law made by the IRS Restructuring and Reform Act of 1998.  TD 9074.  Published July 10, 2003
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Notarized Statements of Purchase
These regulations contain proposed amendments to the temporary regulations relating to notarized statements of purchase under section 1042 of the Internal Revenue Code(Code).  The proposed regulations would affect taxpayers making an election to defer the recognition of gain under section 1042 of the Code, on the sale of stock to an employee stock ownership plan.  The regulations would provide guidance on the notarization requirements of the temporary regulations.  REG-121122-03. Published July 10, 2003.
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Disclosure of Return Information by Certain Officers and Employees
This Notice of Proposed Rulemaking advises the public that the IRS is issuing temporary regulations that describe the circumstances under which officers and employees of the IRS, the IRS Office of Chief Counsel, and the Office of Treasury Inspector General for Tax Administration may disclose return information for investigative purposes.  The temporary regulations clarify and elaborate on the types and contexts in which investigative disclosures may be made.  REG-140808-02.  Published July 10, 2003
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Disclosure of Return Information by Certain Officers and Employees
These temporary regulations describe the circumstances under which officers and employees of the IRS, the IRS Office of Chief Counsel, and the Office of Treasury Inspector General for Tax Administration may disclose return information for investigative purposes.  The temporary regulations clarify and elaborate on the types and contexts in which investigative disclosures may be made.  TD 9073.
Published July 10, 2003
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Fees for Copies of Exempt Organization Returns
Section 6104 of the Internal Revenue Code provides that the IRS must make certain material about tax exempt organizations available to the public.  This section also requires exempt organizations to make this material available to the public.  These proposed and temporary regulations provide guidance about the maximum fees which the IRS and the exempt organizations may charge for providing copies of such material.  In both cases, the fees are limited to the fees charged for copies under the Freedom of Information Act, except that an exempt organization is not required to provide the first 100 pages free of charge (as is the IRS for non-commercial use requesters).  REG-142538-02.  Published July 9, 2003.
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Fees for Copies of Exempt Organization Returns
Section 6104 of the Internal Revenue Code provides that the IRS must make certain material about tax exempt organizations available to the public.  This section also requires exempt organizations to make this material available to the public.  These proposed and temporary regulations provide guidance about the maximum fees which the IRS and the exempt organizations may charge for providing copies of such material.  In both cases, the fees are limited to the fees charged for copies under the Freedom of Information Act, except that an exempt organization is not required to provide the first 100 pages free of charge (as is the IRS for non-commercial use requesters).  TD 9070. Published July 9, 2003.
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Testimony or Production of Records in a Court or Other Proceeding
The Internal Revenue Service (IRS) often receives requests and subpoenas for IRS records, including tax returns and other tax information, and IRS personnel records, in connection with Federal and State court tax and nontax proceedings.  These proposed regulations set forth procedures for current and former officers and employees of the IRS and current and former entities that contract with the IRS to follow when they receive such requests and subpoenas.  It also provides procedures for the public to follow when seeking testimony or IRS records in a nontax proceeding.  REG-140930-02.  Published July 9, 2003
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At-Risk Limitations; Interest Other Than That of a Creditor
The proposed regulations, for purposes of the at risk limitations under section 465, relate to the treatment of amounts borrowed from a person who has an interest in an activity other than that of a creditor or from a person related to a person (other than the borrower) with such an interest.  The proposed amendments provide that all activities are subject to the rule that these borrowed amounts do not increase the amount at risk in the activity.  In the absence of these proposed amendments, this rule is applicable only to certain enumerated activities.  In addition, the proposed amendments update the definition of a related person under the rule.  These proposed regulations affect taxpayers subject to the at risk limitations and provide them with guidance necessary to comply with the law.  REG-209377-89.  Published July 8, 2003
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Catch-Up Contributions for Individuals Age 50 or Older
These final regulations provide guidance on the requirements for retirement plans providing for catch-up contributions to individuals age 50 or older pursuant to Code section 414(v).  These final regulations will affect section 401(k) plans, section 408(p) SIMPLE IRA plans, section 408(k) simplified employee pensions, section 403(b) tax sheltered annuity contracts, section 457 eligible governmental plans, and participants eligible to make elective deferrals under these plans or contracts.  TD 9072.  Published July 8, 2003
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Stock Basis After a Group Structure Change
These proposed regulations provide that, in a transaction where one corporation acquires the stock of the common parent of a consolidated group and the consolidated group remains in existence, the basis of the former parent's stock is determined with reference to the former parent's net asset basis.  This amendment to the regulations excepts stock of the former parent acquired in a fully-taxable transaction from the application of the net asset rule of the regulations.  REG-130262-03.  Published July 8, 2003
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Elimination of Forms of Distribution in Defined Contribution Plans
These proposed regulations would modify the circumstances under which certain forms of distribution previously available are permitted to be eliminated from qualified defined contribution plans.  The regulations will affect qualified retirement plan sponsors and participants.  REG-112039-03.  Published July 8, 2003.
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Waiver of Information Reporting Penalties
These proposed regulations provide guidance on the requirement of prompt correction of failure to file or file correctly, relating to waiver of a penalty imposed for failure to file a correct information return.  The regulations provide that the IRS will deem information returns promptly corrected if corrected within 30 days of the required filing date, or by August 1 following that required filing date.  After August 1, a correction is prompt if made by the time announced by the IRS in published guidance.  REG-141669-02.  Published July 9, 2003
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Depreciation of Vans and Light Trucks
Annual depreciation deductions for passenger automobiles and light weight vans and trucks are restricted to discourage overspending on these vehicles.  These temporary regulations provide relief from these restrictions for qualified nonpersonal use vehicles, which include vans and trucks that have been specially modified so that they are not likely to be used more than a small amount for personal purposes.  TD 9069.  Published July 7, 2003.
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Depreciation of Vans and Light Trucks
Annual depreciation deductions for passenger automobiles and light weight vans and trucks are restricted to discourage overspending on these vehicles.  These regulations provide relief from these restrictions for qualified nonpersonal use vehicles, which include vans and trucks that have been specially modified so that they are not likely to be used more than a small amount for personal purposes.  REG-138495-02.  Published July 7, 2003.
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Carryover and Stacking Rule Amendments
These proposed regulations will amend several existing regulations concerning the low-income housing tax credit.  They primarily reflect changes to the law made by the Community Renewal Tax Relief Act of 2000 and affect owners of low-income housing projects who claim the credit and the State or local housing credit agencies who administer the credit.  REG-131997-02.  Published July 7, 2003
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Definition of Guaranteed Annuity and Lead Unitrust Interests
This final rule amends the income, estate, and gift tax regulations to conform to the Tax Court's decision in Estate of Boeshore v. Commissioner, 78 T.C. 523 (1982). acq. in result, 1987-2 C.C. 1.  In Estate of Boeshore, the Tax Court held section 20.2055-2(e)(2)(vi)(e) of the Estate Tax Regulations invalid to the extent that it disallows a deduction for the value of a charitable unitrust interest if the charitable interest is preceded by a noncharitable interest that is in the form of a unitrust interest.  This action is necessary to conform the income, estate, and gift tax regulations to the Tax Court's decision in Estate of Boeshore.  The effect of these regulations is to allow an income, estate, or gift tax charitable deduction for charitable annuity or unitrust interests that are preceded by a noncharitable unitrust or annuity interest.  TD 9068.  Published July 7, 2003
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Capital Account Revaluations
These proposed regulations expand the circumstances under which a partnership is specifically permitted to increase or decrease the capital accounts of the partners to reflect a revaluation of partnership property on the partnership's books.  Specifically, the proposed regulations allow revaluations in connection with the grant of an interest in the partnership as consideration for the provision of services.  REG-139796-02.
Published July 2, 2003.
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Outbound Liquidations Into Foreign Corporations
These final regulations provide guidance relating to certain outbound liquidations.  The regulations amend the anti-abuse rule by narrowing the scope of the rule to apply only to outbound transfers to a foreign corporation in a complete liquidation of a domestic corporation in which a principal purpose of the liquidation is the avoidance of U.S. tax.  TD 9066.  Published July 2, 2003.
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