Internal Revenue Bulletin: 2004-13

March 29, 2004


Highlights of This Issue

 

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

INCOME TAX

Rev. Rul. 2004-35 Rev. Rul. 2004-35

LIFO; price indexes; department stores. The January 2004 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, January 31, 2004.

REG-165579-02 REG-165579-02

Proposed regulations under section 368 of the Code clarify that a transferor may transfer, after a reorganization, assets or stock to a transferee controlled by the transferor. The regulations also make conforming changes relating to continuity of business enterprise and to the definition of a party to a reorganization.

REG-166012-02 REG-166012-02

Proposed regulations under section 446 of the Code relate to the inclusion into income or deduction of a contingent nonperiodic payment made pursuant to a notional principal contract. The regulations also contain rules relating to the character of payments made pursuant to notional principal contracts, bullet swaps, and forward contracts. In general, contingent nonperiodic payments are accounted for under the noncontingent swap method or under an elective mark-to-market regime. With respect to character, the regulations provide ordinary treatment for most notional principal contract payments. As a general exception to ordinary treatment, the regulations provide capital treatment for termination payments. The regulations also provide capital treatment for payments made pursuant to bullet swaps and forward contracts. A public hearing is scheduled for May 25, 2004.

Announcement 2004-20 Announcement 2004-20

Publication 1542, Per Diem Rates (For Travel Within the Continental United States), will now be revised each time new per diem rates are announced. All revisions will be available on the IRS website. Paper copies will be available by request only.

EMPLOYEE PLANS

Notice 2004-24 Notice 2004-24

Weighted average interest rate update. The weighted average interest rate for March 2004 and the resulting permissible range of interest rates used to calculate current liability and to determine the required contribution are set forth.

EXEMPT ORGANIZATIONS

Announcement 2004-19 Announcement 2004-19

A list is provided of organizations now classified as private foundations.

Announcement 2004-23 Announcement 2004-23

Foundation to Save Our Children’s Environment of Tulsa, OK, no longer qualifies as an organization to which contributions are deductible under section 170 of the Code.

ADMINISTRATIVE

Rev. Proc. 2004-20 Rev. Proc. 2004-20

Automobile owners and lessees. This procedure provides owners and lessees of passenger automobiles (including trucks, vans, and electric automobiles) with tables detailing the limitations on depreciation deductions for passenger automobiles first placed in service during calendar year 2004 and the amounts to be included in income for passenger automobiles first leased during calendar year 2004. Separate tables are provided for passenger automobiles qualifying for additional first-year bonus depreciation under section 168(k). In addition, this procedure provides the maximum allowable value of employer-provided automobiles first made available to employees for personal use in calendar year 2004 for which the vehicle cents-per-mile valuation rule provided under section 1.61-21(e) of the regulations may be applicable.

Announcement 2004-16 Announcement 2004-16

The Service announces that Form 3115, Application for Change in Accounting Method, and its instructions were revised December 2003. This revision is the current version of Form 3115 used to request a change in accounting method. Rev. Procs. 2001-10, 2001-23, 2002-9, and 2002-28 modified.

Announcement 2004-21 Announcement 2004-21

The Service announces that an updated edition of Publication 538, Accounting Periods and Methods, (revised March 2004) is now available.

Preface

The IRS Mission

Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.

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 are consolidated semiannually into Cumulative Bulletins, which are sold on a single-copy basis.

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.

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.

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 procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, 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).

Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last 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 last Bulletin of each semiannual period.*

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

Rev. Rul. 2004-35

LIFO; price indexes; department stores. The January 2004 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, January 31, 2004.

The following Department Store Inventory Price Indexes for January 2004 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under § 1.472-1(k) of the Income Tax Regulations and Rev. Proc. 86-46, 1986-2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with reference to, January 31, 2004.

The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups - soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (January 1941 = 100, unless otherwise noted)
Groups Jan. 2003 Jan. 2004 Percent Change from Jan. 2003 to Jan. 20041
1. Piece Goods 465.2 468.0 0.6
2. Domestics and Draperies 566.8 543.5 -4.1
3. Women’s and Children’s Shoes 648.4 599.6 -7.5
4. Men’s Shoes 876.7 849.6 -3.1
5. Infants’ Wear 593.8 578.1 -2.6
6. Women’s Underwear 524.0 504.8 -3.7
7. Women’s Hosiery 339.8 350.5 3.1
8. Women’s and Girls’ Accessories 549.7 544.8 -0.9
9. Women’s Outerwear and Girls’ Wear 338.3 335.6 -0.8
10. Men’s Clothing 550.9 530.7 -3.7
11. Men’s Furnishings 567.3 574.2 1.2
12. Boys’ Clothing and Furnishings 427.1 416.3 -2.5
13. Jewelry 866.4 888.4 2.5
14. Notions 782.8 788.2 0.7
15. Toilet Articles and Drugs 971.1 981.0 1.0
16. Furniture and Bedding 626.3 617.5 -1.4
17. Floor Coverings 593.0 595.4 0.4
18. Housewares 736.4 710.7 -3.5
19. Major Appliances 220.0 205.5 -6.6
20. Radio and Television 47.1 43.5 -7.6
21. Recreation and Education2 84.2 81.3 -3.4
22. Home Improvements2 125.5 127.7 1.8
23. Automotive Accessories2 112.0 112.3 0.3
         
Groups 1-15: Soft Goods 552.0 545.3 -1.2
Groups 16-20: Durable Goods 403.0 386.5 -4.1
Groups 21-23: Misc. Goods2 95.3 93.6 -1.8
       
  Store Total3 497.8 488.6 -1.8
         
1Absence of a minus sign before the percentage change in this column signifies a price increase.
2Indexes on a January 1986 = 100 base.
3The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco and contract departments.
         

DRAFTING INFORMATION

The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622-7924 (not a toll-free call).

Part III. Administrative, Procedural, and Miscellaneous

Notice 2004-24

Weighted Average Interest Rate Update

Sections 412(b)(5)(B) and 412(l)(7) (C)(i) of the Internal Revenue Code provide that the interest rates used to calculate current liability and to determine the required contribution under § 412(l) must be within a permissible range around the weighted average of the rates of interest on 30-year Treasury securities during the four-year period ending on the last day before the beginning of the plan year.

Notice 88-73, 1988-2 C.B. 383, provides guidelines for determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability.

Section 417(e)(3)(A)(ii)(II) of the Code defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)-1(d)(3) of the Income Tax Regulations provides that the applicable interest rate for a month is the annual interest rate on 30-year Treasury securities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

The rate of interest on 30-year Treasury Securities for February 2004 is 4.93 percent. Pursuant to Notice 2002-26, 2002-1 C.B. 743, the Service has determined this rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in February 2031.

The following rates were determined for the plan years beginning in the month shown below.

Month Year Weighted Average 90% to 105% Permissible Range 90% to 110% Permissible Range
March 2004 5.21 4.69 to 5.47 4.69 to 5.73

Drafting Information

The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1-877-829-5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 1-202-283-9703. Mr. Montanaro may be reached at 1-202-283-9714. The telephone numbers in the preceding sentences are not toll-free.

Rev. Proc. 2004-20

SECTION 1. PURPOSE

01. This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2004, including special tables of limitations on depreciation deductions for trucks and vans, and for passenger automobiles designed to be propelled primarily by electricity and built by an original equipment manufacturer (electric automobiles); (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2004, including a separate table of inclusion amounts for lessees of trucks and vans, and a separate table for lessees of electric automobiles; and (3) the maximum allowable value of employer-provided passenger automobiles first made available to employees for personal use in calendar year 2004 for which the vehicle cents-per-mile valuation rule provided under § 1.61-21(e) of the Income Tax Regulations may be applicable.

02. This revenue procedure also provides tables of dollar limitations on depreciation deductions for owners of passenger automobiles to which the additional 50 percent first-year allowance for depreciation available under § 168(k)(4) applies, including special tables of limitations on depreciation deductions for qualifying trucks and vans and for qualifying electric automobiles. For purposes of these tables, the additional 50 percent first-year allowance does not apply if the taxpayer has elected under § 168(k)(2)(C)(iii) not to take the additional allowance.

03. The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7). The maximum allowable passenger automobile value for applying the vehicle cents-per-mile valuation rule reflects the automobile price inflation adjustment of § 280F(d)(7) of the Internal Revenue Code, as required by § 1.61-21(e)(1)(iii)(A).

SECTION 2. BACKGROUND

01. For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. In the case of electric automobiles placed in service after August 5, 1997, and before January 1, 2007, § 280F(a)(1)(C) requires tripling of these limitation amounts. Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988. For purposes of this revenue procedure, the term “trucks and vans” refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis.

02. Section 101 of the Job Creation and Worker Assistance Act of 2002, Pub. L. No. 107-147, 116 Stat. 21 (March 9, 2002) added § 168(k) to the Code. Generally, § 168(k)(1)(A) provides an additional 30 percent first-year depreciation deduction for new property acquired by the taxpayer after September 10, 2001, and before September 11, 2004 (subsequently extended to January 1, 2005), so long as no written binding contract for the acquisition of the property existed prior to September 11, 2001.

03. Section 201 of the Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. No. 108-27, 117 Stat. 752 (May 28, 2003) added § 168(k)(4) to the Code. Section 168(k)(4)(A)(i) provides that § 168(k)(1) is applied by substituting “50 percent” for “30 percent” for new property acquired by the taxpayer after May 5, 2003, and before January 1, 2005, so long as no written binding contract for the acquisition of the property existed prior to May 6, 2003. In the case of a passenger automobile to which the 50 percent additional allowance applies (or would apply but for an election under § 168(k)(4)(E)) and for which no election has been made under § 168(k)(2)(C)(iii), § 168(k)(4)(D) increases the first-year depreciation allowed under § 280F(a)(1)(A) by $7,650. For purposes of this revenue procedure, a passenger automobile to which the additional 50 percent first-year allowance under § 168(k)(4) applies (or would apply but for an election under § 168(k)(4)(E)) and for which no election has been made under § 168(k)(2)(C)(iii) is referred to as a “§ 168(k)(4) passenger automobile”.

04. For leased passenger automobiles, § 280F(c) requires a reduction in the deduction allowed to the lessee of the passenger automobile. The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under § 1.280F-7(a), this reduction requires the lessees to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. There is a table for lessees of electric automobiles, a table for lessees of trucks and vans, and a table for all other passenger automobiles. Each table shows inclusion amounts for a range of fair market values for each tax year after the passenger automobile is first leased. These tables should also be used by lessees of § 168(k)(4) passenger automobiles.

05. For passenger automobiles (including trucks, vans, and electric automobiles) first provided by employers to employees that meet the requirements of § 1.61-21(e)(1), the value to the employee of the use of the passenger automobile may be determined under the vehicle cents-per-mile valuation rule of § 1.61-21(e). Section 1.61-21(e)(1)(iii)(A) provides that for a passenger automobile first made available after 1988 to any employee of the employer for personal use, the value of the use of the passenger automobile may not be determined under the vehicle cents-per-mile valuation rule for a calendar year if the fair market value of the passenger automobile (determined pursuant to § 1.61-21(d)(5)(i) through (iv)) on the first date the passenger automobile is made available to the employee exceeds $12,800 as adjusted by § 280F(d)(7).

SECTION 3. SCOPE

01. The limitations on depreciation deductions in section 4.02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2004, and continue to apply for each tax year that the passenger automobile remains in service.

02. The tables in section 4.03 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2004. Lessees of such passenger automobiles must use these tables to determine the inclusion amount for each tax year during which the passenger automobile is leased. See Rev. Proc. 2002-14, 2002-1 C.B. 450, for passenger automobiles first leased before January 1, 2003, and Rev. Proc. 2003-75, 2003-2 C.B. 1018, for passenger automobiles first leased during calendar year 2003.

03. The maximum fair market value figure in section 4.04(2) of this revenue procedure applies to employer-provided passenger automobiles first made available to any employee for personal use in calendar year 2004. See Rev. Proc. 2002-14 for the maximum fair market value figure for passenger automobiles first made available before January 1, 2003, and Rev. Proc. 2003-75 for passenger automobiles first made available during calendar year 2003.

SECTION 4. APPLICATION

01. In General.

(1) Limitations on Depreciation Deductions for Certain Automobiles. The limitations on depreciation deductions for passenger automobiles placed in service by the taxpayer for the first time during calendar year 2004 are found in Tables 1 through 9 in section 4.02(2) of this revenue procedure. Table 1 of this revenue procedure provides limitations on depreciation deductions for a passenger automobile (other than a truck, van, electric automobile, or § 168(k)(4) passenger automobile). Table 2 of this revenue procedure provides limitations on depreciation deductions for a § 168(k)(4) passenger automobile (other than a truck, van, or electric automobile). Table 3 of this revenue procedure provides limitations on depreciation deductions for a truck or van (other than a § 168(k)(4) passenger automobile). Table 4 of this revenue procedure provides limitations on depreciation deductions for a truck or van that is a § 168(k)(4) passenger automobile. Table 5 of this revenue procedure provides limitations on depreciation deductions for an electric automobile (other than a § 168(k)(4) passenger automobile). Table 6 of this revenue procedure provides limitations on depreciation deductions for an electric automobile that is a 168(k)(4) passenger automobile.

(2) Inclusions in Income of Lessees of Passenger Automobiles. A taxpayer first leasing a passenger automobile during calendar year 2004 must determine the inclusion amount that is added to gross income using the tables in section 4.03 of this revenue procedure. The inclusion amount is determined using Table 7 in the case of a passenger automobile (other than a truck, van, or electric automobile), Table 8 in the case of a truck or van, and Table 9 in the case of an electric automobile. In addition, the procedures of § 1.280F-7(a) must be followed.

(3) Maximum Automobile Value for Using the Cents-per-mile Valuation Rule. An employer providing a passenger automobile for the first time in calendar year 2004 for the personal use of any employee may determine the value of the use of the passenger automobile by using the cents-per-mile valuation rule in § 1.61-21(e) if the fair market value of the passenger automobile does not exceed the amount specified in section 4.04(2) of this revenue procedure. If the fair market value of the passenger automobile exceeds the amount specified in section 4.04(2) of this revenue procedure, the employer may determine the value of the use of the passenger automobile under the general valuation rules of § 1.61-21(b) or under the special valuation rules of § 1.61-21(d) (Automobile lease valuation) or § 1.61-21(f) (Commuting valuation) if the applicable requirements are met.

02. Limitations on Depreciation Deductions for Certain Automobiles.

(1) Amount of the Inflation Adjustment. Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor (the CPI). The new car component of the CPI was 115.2 for October 1987 and 133.5 for October 2003. The October 2003 index exceeded the October 1987 index by 18.3. The Service has, therefore, determined that the automobile price inflation adjustment for 2004 for passenger automobiles (other than trucks and vans) is 15.89 percent (18.3/115.2 x 100%). This adjustment is applicable to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2004. The dollar limitations in § 280F(a) must therefore be multiplied by a factor of 0.1589, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks, vans, and electric automobiles) for calendar year 2004. To determine the dollar limitations applicable to an electric automobile first placed in service during calendar year 2004, the dollar limitations in § 280F(a) are tripled in accordance with § 280F(a)(1)(C) and are then multiplied by a factor of 0.1588; the resulting increases, after rounding to the nearest $100, are added to the tripled 1988 limitations to give the depreciation limitations for calendar year 2004. To determine the dollar limitations applicable to trucks and vans first placed in service during calendar year 2004, the new truck component of the CPI is used instead of the new car component. The new truck component of the CPI was 112.4 for October 1987 and 144.6 for October 2003. The October 2003 index exceeded the October 1987 index by 32.2. The Service has, therefore, determined that the automobile price inflation adjustment for 2004 for trucks and vans is 28.65 percent (32.2/112.4 x 100%). This adjustment is applicable to all trucks and vans that are first placed in service in calendar year 2004. The dollar limitations in § 280F(a) must therefore be multiplied by a factor of 0.2865, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to trucks and vans.

(2) Amount of the Limitation. For passenger automobiles placed in service by the taxpayer in calendar year 2004, Tables 1 through 6 contain the dollar amount of the depreciation limitation for each tax year. Use Table 1 for passenger automobiles (other than trucks, vans, electric automobiles, and § 168(k)(4) passenger automobiles) placed in service by the taxpayer in calendar year 2004. Use Table 2 for § 168(k)(4) passenger automobiles (other than trucks, vans, and electric automobiles) placed in service by the taxpayer in calendar year 2004. Use Table 3 for trucks and vans (other than § 168(k)(4) passenger automobiles) placed in service by the taxpayer in calendar year 2004. Use Table 4 for trucks or vans that are § 168(k)(4) passenger automobiles placed in service by the taxpayer in calendar year 2004. Use Table 5 for electric automobiles (other than § 168(k)(4) passenger automobiles) placed in service by the taxpayer in calendar year 2004. Use Table 6 for electric automobiles that are § 168(k)(4) passenger automobiles placed in service by the taxpayer in calendar year 2004.

REV. PROC. 2004-20 TABLE 1
DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT § 168(k)(4) PASSENGER AUTOMOBILES, TRUCKS, VANS, OR ELECTRIC AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004
Tax Year Amount
1st Tax Year $2,960
2nd Tax Year $4,800
3rd Tax Year $2,850
Each Succeeding Year $1,675
REV. PROC. 2004-20 TABLE 2
DEPRECIATION LIMITATIONS FOR § 168(k)(4) PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS, VANS, OR ELECTRIC AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004
Tax Year Amount
1st Tax Year $10,610
2nd Tax Year $4,800
3rd Tax Year $2,850
Each Succeeding Year $1,675
REV. PROC. 2004-20 TABLE 3
DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS (THAT ARE NOT § 168(k)(4) PASSENGER AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004
Tax Year Amount
1st Tax Year $3,260
2nd Tax Year $5,300
3rd Tax Year $3,150
Each Succeeding Year $1,875
REV. PROC. 2004-20 TABLE 4
DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS THAT ARE § 168(k)(4) PASSENGER AUTOMOBILES PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004
Tax Year Amount
1st Tax Year $10,910
2nd Tax Year $5,300
3rd Tax Year $3,150
Each Succeeding Year $1,875
REV. PROC. 2004-20 TABLE 5
DEPRECIATION LIMITATIONS FOR ELECTRIC AUTOMOBILES (THAT ARE NOT § 168(k)(4) PASSENGER AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004
Tax Year Amount
1st Tax Year $8,880
2nd Tax Year $14,300
3rd Tax Year $8,550
Each Succeeding Year $5,125
REV. PROC. 2004-20 TABLE 6
DEPRECIATION LIMITATIONS FOR ELECTRIC AUTOMOBILES THAT ARE § 168(k)(4) PASSENGER AUTOMOBILES PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004
Tax Year Amount
1st Tax Year $31,830
2nd Tax Year $14,300
3rd Tax Year $8,550
Each Succeeding Year $5,125

03. Inclusions in Income of Lessees of Passenger Automobiles.

The inclusion amounts for passenger automobiles (including § 168(k)(1) passenger automobiles and § 168(k)(4) passenger automobiles) first leased in calendar year 2004 are calculated under the procedures described in § 1.280F-7(a). Lessees of passenger automobiles other than trucks, vans, and electric automobiles should use Table 7 of this revenue procedure in applying these procedures, while lessees of trucks and vans should use Table 8 of this revenue procedure and lessees of electric automobiles should use Table 9 of this revenue procedure.

REV. PROC. 2004-20 TABLE 7
DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS, VANS, OR ELECTRIC AUTOMOBILES) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004
Fair Market Value of Passenger Automobile Tax Year During Lease
Over Not Over 1st 2nd 3rd 4th 5th & Later
$17,500 18,000 11 23 33 42 48
18,000 18,500 13 26 40 49 56
18,500 19,000 14 31 46 55 65
19,000 19,500 16 35 51 63 73
19,500 20,000 18 39 57 70 81
20,000 20,500 20 43 63 77 89
20,500 21,000 22 47 69 84 97
21,000 21,500 23 51 75 91 106
21,500 22,000 25 55 81 98 114
22,000 23,000 28 61 90 109 126
23,000 24,000 32 69 102 123 142
24,000 25,000 35 77 114 137 159
25,000 26,000 39 85 126 151 176
26,000 27,000 43 93 137 166 192
27,000 28,000 46 101 149 180 209
28,000 29,000 50 109 161 194 225
29,000 30,000 54 116 174 208 242
30,000 31,000 57 125 185 223 257
31,000 32,000 61 133 197 237 274
32,000 33,000 64 141 209 251 291
33,000 34,000 68 149 221 265 307
34,000 35,000 72 157 232 280 323
35,000 36,000 75 165 244 294 340
36,000 37,000 79 173 256 308 357
37,000 38,000 83 181 268 322 373
38,000 39,000 86 189 280 337 389
39,000 40,000 90 197 292 351 405
40,000 41,000 94 204 304 365 423
41,000 42,000 97 213 316 379 438
42,000 43,000 101 221 327 394 455
43,000 44,000 105 228 340 408 471
44,000 45,000 108 237 351 422 488
45,000 46,000 112 245 363 436 504
46,000 47,000 115 253 375 451 520
47,000 48,000 119 261 387 464 538
48,000 49,000 123 269 398 479 554
49,000 50,000 126 277 411 493 570
50,000 51,000 130 285 422 508 586
51,000 52,000 134 292 435 522 603
52,000 53,000 137 301 446 536 619
53,000 54,000 141 309 458 550 636
54,000 55,000 145 316 471 564 652
55,000 56,000 148 325 482 578 669
56,000 57,000 152 333 493 593 685
57,000 58,000 155 341 506 607 701
58,000 59,000 159 349 517 622 718
59,000 60,000 163 357 529 636 734
60,000 62,000 168 369 547 657 759
62,000 64,000 176 384 571 686 792
64,000 66,000 183 401 594 714 825
66,000 68,000 190 417 618 743 857
68,000 70,000 197 433 642 771 890
70,000 72,000 205 448 666 800 923
72,000 74,000 212 465 689 828 956
74,000 76,000 219 481 713 856 990
76,000 78,000 227 496 738 884 1,022
78,000 80,000 234 513 760 914 1,055
80,000 85,000 247 540 803 963 1,112
85,000 90,000 265 580 862 1,035 1,194
90,000 95,000 283 621 921 1,105 1,277
95,000 100,000 301 661 980 1,177 1,359
100,000 110,000 328 721 1,069 1,284 1,482
110,000 120,000 365 800 1,189 1,426 1,646
120,000 130,000 401 881 1,307 1,568 1,811
130,000 140,000 438 960 1,426 1,711 1,975
140,000 150,000 474 1,041 1,544 1,853 2,140
150,000 160,000 511 1,120 1,663 1,996 2,304
160,000 170,000 547 1,200 1,782 2,138 2,468
170,000 180,000 583 1,281 1,900 2,280 2,633
180,000 190,000 620 1,360 2,020 2,422 2,797
190,000 200,000 656 1,440 2,139 2,564 2,962
200,000 210,000 693 1,520 2,257 2,707 3,126
210,000 220,000 729 1,600 2,376 2,849 3,291
220,000 230,000 765 1,681 2,494 2,991 3,455
230,000 240,000 802 1,760 2,613 3,134 3,619
240,000 250,000 838 1,840 2,732 3,276 3,784
REV. PROC. 2004-20 TABLE 8
DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004
Fair Market Value of Truck or Van Tax Year During Lease
Over Not Over 1st 2nd 3rd 4th 5th and Later
$18,000 $18,500 7 15 21 26 30
18,500 19,000 9 18 28 33 38
19,000 19,500 11 22 34 40 47
19,500 20,000 13 26 39 48 55
20,000 20,500 14 31 45 54 63
20,500 21,000 16 35 51 61 72
21,000 21,500 18 38 58 68 80
21,500 22,000 20 42 63 76 88
22,000 23,000 23 48 72 87 100
23,000 24,000 26 57 83 101 117
24,000 25,000 30 64 96 115 133
25,000 26,000 34 72 108 129 149
26,000 27,000 37 81 119 143 166
27,000 28,000 41 88 132 157 183
28,000 29,000 44 97 143 172 198
29,000 30,000 48 104 155 187 215
30,000 31,000 52 112 167 201 231
31,000 32,000 55 121 178 215 248
32,000 33,000 59 128 191 229 264
33,000 34,000 63 136 203 243 281
34,000 35,000 66 145 214 257 298
35,000 36,000 70 152 227 271 314
36,000 37,000 74 160 238 286 330
37,000 38,000 77 169 249 301 346
38,000 39,000 81 176 262 314 364
39,000 40,000 84 185 273 329 379
40,000 41,000 88 192 286 343 396
41,000 42,000 92 200 298 357 412
42,000 43,000 95 209 309 371 429
43,000 44,000 99 216 322 385 445
44,000 45,000 103 224 333 400 462
45,000 46,000 106 233 345 413 479
46,000 47,000 110 240 357 428 495
47,000 48,000 114 248 369 442 511
48,000 49,000 117 257 380 457 527
49,000 50,000 121 264 393 471 544
50,000 51,000 125 272 404 486 560
51,000 52,000 128 280 417 499 577
52,000 53,000 132 288 428 514 593
53,000 54,000 135 297 440 527 610
54,000 55,000 139 304 452 542 626
55,000 56,000 143 312 464 556 643
56,000 57,000 146 321 475 571 659
57,000 58,000 150 328 488 585 675
58,000 59,000 154 336 499 600 691
59,000 60,000 157 345 511 613 708
60,000 62,000 163 356 529 635 733
62,000 64,000 170 372 553 663 766
64,000 66,000 177 389 576 692 798
66,000 68,000 185 404 600 720 832
68,000 70,000 192 420 624 749 864
70,000 72,000 199 436 648 777 897
72,000 74,000 206 453 671 805 931
74,000 76,000 214 468 695 834 963
76,000 78,000 221 484 719 863 996
78,000 80,000 228 501 742 891 1,029
80,000 85,000 241 528 785 940 1,087
85,000 90,000 259 568 844 1,012 1,168
90,000 95,000 277 609 902 1,084 1,250
95,000 100,000 296 648 962 1,155 1,333
100,000 110,000 323 708 1,052 1,261 1,456
110,000 120,000 359 788 1,171 1,403 1,620
120,000 130,000 396 868 1,289 1,546 1,785
130,000 140,000 432 948 1,408 1,688 1,949
140,000 150,000 469 1,028 1,526 1,831 2,113
150,000 160,000 505 1,108 1,645 1,973 2,278
160,000 170,000 541 1,188 1,764 2,115 2,443
170,000 180,000 578 1,268 1,882 2,258 2,607
180,000 190,000 614 1,348 2,001 2,400 2,771
190,000 200,000 651 1,428 2,120 2,542 2,936
200,000 210,000 687 1,508 2,239 2,684 3,100
210,000 220,000 724 1,588 2,357 2,827 3,264
220,000 230,000 760 1,668 2,476 2,969 3,429
230,000 240,000 796 1,748 2,595 3,112 3,593
240,000 250,000 833 1,828 2,713 3,254 3,758
REV. PROC. 2004-20 TABLE 9
DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004
Fair Market Value of Electric Automobile Tax Year During Lease
Over Not Over 1st 2nd 3rd 4th 5th and Later
$53,000 $54,000 33 72 106 127 147
54,000 55,000 37 79 118 142 164
55,000 56,000 40 88 130 155 180
56,000 57,000 44 96 141 170 197
57,000 58,000 48 103 154 184 213
58,000 59,000 51 112 165 199 229
59,000 60,000 55 120 177 213 245
60,000 62,000 60 132 195 234 270
62,000 64,000 68 147 219 263 303
64,000 66,000 75 164 242 291 336
66,000 68,000 82 180 266 320 369
68,000 70,000 90 195 290 348 402
70,000 72,000 97 211 314 377 435
72,000 74,000 104 228 337 405 468
74,000 76,000 111 244 361 434 500
76,000 78,000 119 259 385 462 534
78,000 80,000 126 275 409 491 566
80,000 85,000 139 303 451 540 624
85,000 90,000 157 343 510 612 706
90,000 95,000 175 384 569 682 788
95,000 100,000 193 424 628 754 870
100,000 110,000 221 483 718 860 994
110,000 120,000 257 563 837 1,003 1,158
120,000 130,000 294 643 955 1,145 1,323
130,000 140,000 330 723 1,074 1,288 1,486
140,000 150,000 366 804 1,192 1,430 1,651
150,000 160,000 403 883 1,311 1,573 1,815
160,000 170,000 439 963 1,430 1,715 1,980
170,000 180,000 476 1,043 1,549 1,857 2,144
180,000 190,000 512 1,123 1,668 1,999 2,309
190,000 200,000 548 1,203 1,786 2,142 2,473
200,000 210,000 585 1,283 1,905 2,284 2,637
210,000 220,000 621 1,363 2,024 2,426 2,802
220,000 230,000 658 1,443 2,142 2,569 2,966
230,000 240,000 694 1,523 2,261 2,711 3,131
240,000 250,000 730 1,603 2,380 2,854 3,294

04. Maximum Automobile Value for Using the Cents-per-mile Valuation Rule.

(1) Amount of Adjustment. Under § 1.61-21(e)(1)(iii)(A), the limitation on the fair market value of an employer-provided passenger automobile first made available to any employee for personal use after 1988 is to be adjusted in accordance with § 280F(d)(7). Accordingly, the adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. See, section 4.02(1) of this revenue procedure. The new car component of the CPI was 115.2 for October 1987 and 133.5 for October 2003. The October 2003 index exceeded the October 1987 index by 18.3. The Service has, therefore, determined that the adjustment for 2004 is 15.89 percent (18.3/115.2 x 100%). This adjustment is applicable to all employer-provided passenger automobiles first made available to any employee for personal use in calendar year 2004. The maximum fair market value specified in § 1.61-21(e)(1)(iii)(A) must therefore be multiplied by a factor of 0.1589, and the resulting increase, after rounding to the nearest $100, is added to $12,800 to give the maximum value for calendar year 2004.

(2) The Maximum Automobile Value. For passenger automobiles first made available in calendar year 2004 to any employee of the employer for personal use, the vehicle cents-per-mile valuation rule may be applicable if the fair market value of the passenger automobile on the date it is first made available does not exceed $14,800.

SECTION 5. EFFECTIVE DATE

This revenue procedure applies to passenger automobiles (other than leased passenger automobiles) that are first placed in service by the taxpayer during calendar year 2004, to leased passenger automobiles that are first leased by the taxpayer during calendar year 2004, and to employer-provided passenger automobiles first made available to employees for personal use in calendar year 2004.

SECTION 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Bernard P. Harvey of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding the depreciation limitations and lessee inclusion amounts in this revenue procedure, contact Bernard P. Harvey at (202) 622-3110 (not a toll-free call); for further information regarding the maximum automobile value for applying the vehicle cents-per-mile valuation rule, contact Dan E. Boeskin of the Office of the Associate Chief Counsel (Tax Exempt and Government Entities) at (202) 622-6040 (not toll-free calls).

Part IV. Items of General Interest

REG-165579-02

Notice of Proposed Rulemaking Corporate Reorganizations; Transfers of Assets or Stock Following a Reorganization

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

This document contains proposed regulations that provide guidance relating to the effect of certain asset and stock transfers on the qualification of certain transactions as reorganizations under section 368(a). This document also contains proposed regulations that provide guidance relating to the continuity of business enterprise requirement and the definition of a party to a reorganization. These regulations affect corporations and their shareholders.

DATES:

Written or electronic comments and requests for a public hearing must be received by June 1, 2004.

ADDRESSES:

Send submissions to CC:PA:LPD:PR (REG-165579-02), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-165579-02), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically to the IRS Internet site at www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Rebecca O. Burch, (202) 622-7550; concerning submissions and the hearing, Sonya Cruse, (202) 622-4693 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

To qualify as a reorganization under section 368 of the Internal Revenue Code, a transaction must satisfy certain statutory requirements and nonstatutory requirements, including continuity of business enterprise (COBE). Section 368(a)(2)(C) provides that a transaction otherwise qualifying as a reorganization under section 368(a)(1)(A), (B), (C), or (G) will not be disqualified by reason of the fact that part or all of the acquired assets or stock are transferred to a corporation controlled by the acquiring corporation.

Section 354(a) provides that, in general, no gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization. Section 368(b) provides that the term “a party to a reorganization” includes a corporation resulting from a reorganization, and both corporations, in the case of a reorganization resulting from the acquisition by one corporation of stock or properties of another. Section 368(b) further provides that, in the case of a reorganization qualifying under section 368(a)(1)(B) or (C), if the stock exchanged for the stock or properties is stock of a corporation which is in control of the acquiring corporation, the term “a party to a reorganization” includes the corporation so controlling the acquiring corporation. In the case of a reorganization qualifying under section 368(a)(1)(A), (B), (C), or (G) by reason of section 368(a)(2)(C), the term “a party to a reorganization” includes the corporation controlling the corporation to which the acquired assets or stock are transferred. In the case of a reorganization qualifying under section 368(a)(1)(A) or (G) by reason of section 368(a)(2)(D), the term “a party to a reorganization” includes the controlling corporation. Finally, in the case of a reorganization qualifying under section 368(a)(1)(A) by reason of section 368(a)(2)(E), the term “a party to a reorganization” includes the controlling corporation.

On January 28, 1998, final regulations providing guidance regarding the COBE requirement, the definition of “a party to the reorganization,” and the effect of certain transfers of acquired assets or stock on the qualification of a transaction as a reorganization under section 368(a)(1)(A), (B), (C), or (G) were published in the Federal Register (T.D. 8760, 1998-1 C.B. 803 [63 FR 4174]). Sections 1.368-1(d) and 1.368-2(f) and (k) were among those regulations.

Section 1.368-1(d) generally provides that, for a transaction to satisfy the COBE requirement, the issuing corporation must either continue a significant historic business of the target corporation or use a significant portion of the target corporation’s assets in a business. For this purpose, the term issuing corporation generally means the acquiring corporation, but, in the case of a triangular reorganization, it means the corporation in control of the acquiring corporation. In addition, the issuing corporation is treated as holding all of the businesses and assets of all of the members of the qualified group. For this purpose, the qualified group is one or more chains of corporations connected through stock ownership with the issuing corporation, but only if the issuing corporation owns directly stock meeting the requirements of section 368(c) in at least one other corporation, and stock meeting the requirements of section 368(c) in each of the corporations (except the issuing corporation) is owned directly by one of the other corporations.

Section 1.368-2(f) provides that the term “a party to a reorganization” includes a corporation resulting from a reorganization, and both corporations in a transaction qualifying as a reorganization where one corporation acquires stock or properties of another corporation. In the case of a triangular reorganization, a corporation controlling an acquiring corporation is a party to the reorganization when the stock of such controlling corporation is used in the acquisition of properties. Section 1.368-2(f) further provides that, if a transaction otherwise qualifies as a reorganization, a corporation remains a party to the reorganization even though stock or assets acquired in the reorganization are transferred in a transaction described in §1.368-2(k).

Section 1.368-2(k) provides that, except as otherwise provided, a transaction otherwise qualifying as a reorganization under section 368(a)(1)(A), (B), (C), or (G) (where the requirements of sections 354(b)(1)(A) and (B) are met) will not be disqualified by reason of the fact that part or all of the assets or stock acquired in the transaction are transferred or successively transferred to one or more corporations controlled in each transfer by the transferor corporation. For this purpose, a corporation is a controlled corporation if the transferor corporation owns stock of such corporation constituting control within the meaning of section 368(c). Furthermore, a transaction qualifying under section 368(a)(1)(A) by reason of the application of section 368(a)(2)(E) is not disqualified by reason of the fact that part or all of the stock of the surviving corporation is transferred or successively transferred to one or more corporations controlled in each transfer by the transferor corporation, or because part or all of the assets of the surviving corporation or the merged corporation are transferred or successively transferred to one or more corporations controlled in each transfer by the transferor corporation. Again, for this purpose a corporation is controlled by the transferor corporation if the transferor corporation owns stock of such corporation constituting control within the meaning of section 368(c).

The preamble to the January 28, 1998, regulations explains that assets or stock acquired in certain reorganizations may be transferred among members of a qualified group, and in certain cases to partnerships, without preventing the reorganization from satisfying COBE. It also states that the IRS and Treasury Department believe that the COBE requirements adequately address the remote continuity of interest issues raised in Groman v. Commissioner, 302 U.S. 82 (1937), and Helvering v. Bashford, 302 U.S. 454 (1938), and, therefore, that the final regulations do not separately articulate rules for remote continuity. The preamble also states that §1.368-1(d), being limited to a discussion of the COBE requirement, does not address satisfaction of the explicit statutory requirements of a reorganization, which is the subject of §1.368-2. Finally, the preamble states that no inference is to be drawn as to whether transactions not described in §1.368-2(k) otherwise qualify as reorganizations.

In Rev. Rul. 2001-24, 2001-1 C.B. 1290, and Rev. Rul. 2002-85, 2002-2 C.B. 986, the IRS addressed the effect of certain transfers not described in §1.368-2(k) on certain transactions that otherwise qualify as reorganizations. In Rev. Rul. 2001-24, the IRS considered whether a transfer of the stock of the acquiring corporation to a corporation wholly owned by the issuing corporation following a transaction that otherwise qualified as a reorganization under section 368(a)(1)(A) by reason of section 368(a)(2)(D) (a forward triangular merger) prevented the transaction from qualifying as such. The IRS ruled that the transfer of stock of the acquiring corporation did not cause the issuing corporation to be treated as not in control of the acquiring corporation for purposes of section 368(a)(2)(D), and did not cause the issuing corporation to fail to be treated as a party to the reorganization. In arriving at these conclusions, the ruling notes that section 368(a)(2)(C) and §1.368-2(k) do not specifically address the facts of the ruling and section 368(a)(2)(C) does not preclude the transaction from qualifying as a reorganization. The ruling states that, by its terms, section 368(a)(2)(C) is a permissive, rather than an exclusive or restrictive, section. Therefore, the transfer of acquiring corporation stock to the issuing corporation’s wholly owned subsidiary did not prevent the transaction from qualifying as a forward triangular merger.

In Rev. Rul. 2002-85, the IRS considered whether an acquiring corporation’s transfer of acquired assets to a subsidiary controlled by the acquiring corporation would prevent the acquiring corporation’s acquisition of those assets from qualifying as a reorganization under section 368(a)(1)(D). After noting that section 368(a)(2)(C) is permissive rather than exclusive or restrictive, the ruling reasons that, because §1.368-2(k) restates and interprets section 368(a)(2)(C), §1.368-2(k) also should be viewed as permissive and not exclusive or restrictive. The ruling concludes that the absence of section 368(a)(1)(D) from §1.368-2(k) does not prevent a corporation from remaining a party to a reorganization even if the acquired stock or assets are transferred to a controlled subsidiary. The ruling states that, like reorganizations under sections 368(a)(1)(A) and 368(a)(1)(C), reorganizations under section 368(a)(1)(D) are asset reorganizations. In reorganizations under sections 368(a)(1)(A) and reorganizations under section 368(a)(1)(C), the original transferee is treated as a party to a reorganization, even if the acquired assets are transferred to a controlled subsidiary of the original transferee. Because the differences between reorganizations under section 368(a)(1)(D) on the one hand and reorganizations under sections 368(a)(1)(A) and (C) on the other hand do not warrant treating the original transferee in a transaction that otherwise satisfies the requirements of a reorganization under section 368(a)(1)(D) differently from the original transferee in a reorganization under section 368(a)(1)(A) or (C) for purposes of section 368(b), the ruling concludes that the original transferee in a transaction that otherwise satisfies the requirements of a reorganization under section 368(a)(1)(D) is treated as a party to the reorganization, notwithstanding the original transferee’s transfer of acquired assets to a controlled subsidiary of the original transferee. The ruling concludes that the transaction qualifies as a reorganization under section 368(a)(1)(D).

Explanation of Provisions

As described above, in the regulations under section 368 and in revenue rulings, the IRS and Treasury Department have considered the effect of transfers of assets or stock to controlled corporations on the qualification of a transaction as a reorganization in a variety of situations not addressed by section 368(a)(2)(C). In each of these cases, the IRS and Treasury Department have concluded that the transfers did not cause the transaction to fail to qualify as a reorganization. These conclusions reflect the fact that, in all of the situations considered, the transactions, in form, satisfy the statutory requirements of a reorganization and, in substance, constitute readjustments of continuing interests in the reorganized business in modified corporate form. None of the transactions involve the transfer of the acquired stock or assets to a “stranger,” a result inconsistent with reorganization treatment. H.R. Rep. No. 83- 1337, A134 (1954).

The IRS and Treasury believe that certain transfers of stock and assets to controlled corporations are consistent with reorganization treatment, even though in some cases the transfers involve a type of reorganization not included in section 368(a)(2)(C). The effect of transferring stock or assets to a controlled corporation on the qualification of a transaction as a reorganization should not depend on the specific reorganization provision at issue. Given that section 368(a)(2)(C) was intended to be permissive rather than exclusive with respect to certain transfers of stock or assets to a controlled corporation following a transaction that would qualify as a reorganization without regard to the transfer, the IRS and Treasury believe it is appropriate to extend its principles to certain transfers of stock and assets after all types of reorganizations.

Accordingly, these regulations propose to amend §1.368-2(k) to provide that a transaction otherwise qualifying as a reorganization under section 368(a) will not be disqualified as a result of the transfer or successive transfers to one or more corporations controlled in each transfer by the transferor corporation of part or all of (i) the assets of any party to the reorganization, or (ii) the stock of any party to the reorganization other than the issuing corporation. In addition, these proposed regulations include amendments to the COBE regulations under §1.368-1(d) and amendments to the definition of a party to a reorganization under §1.368-2(f) that reflect §1.368-2(k) as proposed.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 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 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 businesses.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and 8 copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

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 1.368-1 is amended as follows:

  1. Paragraph (d)(4)(i) is redesignated as paragraph (d)(4)(i)(A) and revised.

  2. New paragraph (d)(4)(i)(B) is added.

  3. Paragraph (d)(5), introductory text, is redesignated as paragraph (d)(5)(i), and revised.

  4. In newly designated paragraph (d)(5)(i), Examples 7, 8, 9, 10, 11, and 12 are redesignated as Examples 8, 9, 10, 11, 12, and 13, respectively.

  5. In newly designated paragraph (d)(5)(i), the first sentence in Examples 9, 10, and 12 is revised.

  6. In newly designated paragraph (d)(5)(i), a new Example 7 is added.

  7. New paragraph (d)(5)(ii) is added.

The revisions and additions read as follows:

§1.368-1 Purpose and scope of exception of reorganization exchanges.

* * * * *

(d) * * *

* * * * *

(4) * * *

(i) Businesses and assets of members of a qualified group—(A) In general. The issuing corporation is treated as holding all of the businesses and assets of all of the members of the qualified group, as defined in paragraph (d)(4)(ii) of this section.

(B) Special rule. The issuing corporation is treated as holding all of the businesses and assets of the surviving corporation after a reorganization that otherwise satisfies the requirements of a reverse triangular merger (as defined in §1.358-6(b)(2)(iii)), the acquired corporation after a reorganization that otherwise satisfies the requirements of section 368(a)(1)(B), and the acquiring corporation after a reorganization that otherwise satisfies the requirements of a forward triangular merger (as defined in §1.358-6(b)(2)(i)), a triangular B reorganization (as defined in §1.358-6(b)(2)(iv)), a triangular C reorganization (as defined in §1.358-6(b)(2)(ii)), or a reorganization under section 368(a)(1)(G) by reason of section 368(a)(2)(D), provided that members of the qualified group own, in the aggregate, stock of the surviving, acquired, or acquiring corporation meeting the requirements of section 368(c). This paragraph (d)(4)(i)(B) applies to transactions occurring after the date these regulations are published as final regulations in the Federal Register.

* * * * *

(5) Examples. (i) The following examples illustrate this paragraph (d). All the following corporations have only one class of stock outstanding.

* * * * *

Example 7. (i) Facts. The facts are the same as in Example 6, except that, instead of P acquiring the assets of T, HC acquires all of outstanding stock of T in exchange solely for voting stock of P. In addition, as part of the plan of reorganization, HC transfers 10 percent of the stock of T to each of subsidiaries S-1 through S-10. Finally, T will continue to operate an auto parts distributorship. Without regard to whether the transaction satisfies the COBE requirement, the transaction qualifies as a triangular B reorganization.

(ii) Continuity of business enterprise. Under paragraph (d)(4)(i)(B) of this section, P is treated as holding all the assets and conducting the business of T because S-1 through S-10, members of the qualified group, own stock of T meeting the requirements of section 368(c). Therefore, the COBE requirement of paragraph (d)(1) of this section is satisfied because P is treated as continuing T’s business.

* * * * *

Example 9. * * * (i) Facts. The facts are the same as Example 8, except that S-3 transfers the historic T business to PRS in exchange for a 1 percent interest in PRS.

* * * * *

Example 10. * * * (i) Facts. The facts are the same as Example 8, except that S-3 transfers the historic T business to PRS in exchange for a 33 1/3 percent interest in PRS, and no member of P’s qualified group performs active and substantial management functions for the ski boot business operated in PRS.

* * * * *

Example 12. * * * (i) Facts. The facts are the same as Example 11, except that S-1 transfers all the T assets to PRS, and P and X each transfer cash to PRS in exchange for partnership interests. * * *

* * * * *

(ii) Effective dates. Paragraph (d)(5) Example 6, and Example 8 through Example 13 apply to transactions occurring after January 28, 1998, except that they do not apply to any transaction occurring pursuant to a written agreement which is binding on January 28, 1998, and at all times thereafter. Paragraph (d)(5) Example 7 applies to transactions occurring after the date these regulations are published as final regulations in the Federal Register.

* * * * *

Par. 3. Section 1.368-2 is amended by:

1. Adding three sentences at the end of paragraph (f).

2. Revising paragraph (k).

The additions and the revision read as follows:

§1.368-2 Definition of terms.

* * * * *

(f) * * * If a transaction otherwise qualifies as a reorganization under section 368(a)(1)(B) or as a reverse triangular merger (as defined in §1.358-6(b)(2)(iii)), the target corporation (in the case of a transaction that otherwise qualifies as a reorganization under section 368(a)(1)(B)) or the surviving corporation (in the case of a transaction that otherwise qualifies as a reverse triangular merger) remains a party to the reorganization even though its stock or assets are transferred in a transaction described in paragraph (k) of this section. If a transaction otherwise qualifies as a forward triangular merger (as defined in §1.358-6(b)(2)(i)), a triangular B reorganization (as defined in §1.358-6(b)(2)(iv)), a triangular C reorganization (as defined in §1.358-6(b)(2)(ii)), or a reorganization under section 368(a)(1)(G) by reason of section 368(a)(2)(D), the acquiring corporation remains a party to the reorganization even though its stock is transferred in a transaction described in paragraph (k) of this section. The two preceding sentences apply to transactions occurring after the date these regulations are published as final regulations in the Federal Register.

* * * * *

(k) Certain transfers of assets or stock in reorganizations—(1) General rule. A transaction otherwise qualifying as a reorganization under section 368(a) shall not be disqualified as a result of the transfer or successive transfers to one or more corporations controlled in each transfer by the transferor corporation of part or all of—

(i) The assets of any party to the reorganization; or

(ii) The stock of any party to the reorganization other than the issuing corporation (as defined in §1.368-1(b)).

(2) Control. Control is defined under section 368(c).

(3) Examples. The following examples illustrate the application of this paragraph (k). P is the issuing corporation and T is the target corporation. P has only one class of stock outstanding. The examples are as follows:

Example 1. Transfers of acquired assets to controlled corporations after a reorganization under section 368(a)(1)(C). (i) Facts. T operates a bakery that supplies delectable pastries and cookies to local retail stores. The acquiring corporate group produces a variety of baked goods for nationwide distribution. P owns 80 percent of the stock of S-1. Pursuant to a plan of reorganization, T transfers all of its assets to S-1 solely in exchange for P stock, which T distributes to its shareholders. S-1 owns 80 percent of the stock of S-2, and S-2 owns 80 percent of the stock of S-3, which also makes and supplies pastries and cookies. Pursuant to the plan of reorganization, S-1 transfers all of the T assets to S-2, and S-2 transfers all of the T assets to S-3.

(ii) Analysis. Under this paragraph (k), the transaction, which otherwise qualifies as a reorganization under section 368(a)(1)(C), is not disqualified by reason of the fact of the successive transfers of all of the T assets to S-2, and from S-2 to S-3 because, in each transfer, the transferee corporation is controlled by the transferor corporation.

Example 2. Transfers of acquired assets to controlled corporations after a reorganization under section 368(a)(1)(D). (i) Facts. The facts are the same as Example 1 except that P also owns 100 percent of the stock of T before the transaction, and T transfers all of its assets to S-1 solely in exchange for S-1 stock, which T distributes to P.

(ii) Analysis. Under this paragraph (k), the transaction, which otherwise qualifies as a reorganization under section 368(a)(1)(D), is not disqualified by reason of the fact of the successive transfers of all of the acquired assets from S-1 to S-2, and from S-2 to S-3 because, in each transfer, the transferee corporation is controlled by the transferor corporation.

Example 3. Transfer of acquiring stock to controlled corporation after a reorganization under section 368(a)(1)(A). (i) Facts. The facts are the same as Example 1 except that P owns 80 percent of the stock of S-4 and, pursuant to the plan of reorganization, S-1 acquires all of the T assets as a result of the merger of T with and into S-1. In addition, in the merger, the T shareholders receive consideration 50 percent of which is stock of P and 50 percent of which is cash. Finally, pursuant to the plan of reorganization, P transfers all of the S-1 stock to S-4.

(ii) Analysis. Under this paragraph (k), the transaction, which otherwise qualifies as a reorganization under section 368(a)(1)(A) by reason of section 368(a)(2)(D), is not disqualified by the transfer of all of the S-1 stock to S-4 because, in the transfer, the transferee corporation is controlled by the transferor corporation.

Example 4. Transfers of acquired stock to controlled corporations after a reorganization under section 368(a)(1)(B). (i) Facts. The facts are the same as Example 1 except that S-1 acquires all of the T stock rather than the T assets, and as part of the plan of reorganization, S-1 transfers 50 percent of the T stock to S-2, and S-2 transfers that T stock to S-3.

(ii) Analysis. Under this paragraph (k), the transaction, which otherwise qualifies as a reorganization under section 368(a)(1)(B), is not disqualified by the successive transfers of part of the acquired stock from S-1 to S-2, and from S-2 to S-3 because, in each transfer, the transferee corporation is controlled by the transferor corporation.

Example 5. Transfers of acquiring corporation stock to controlled corporations after a reorganization under section 368(a)(1)(B). (i) Facts. The facts are the same as Example 4 except that P owns 80 percent of the stock of S-4, and S-4 owns 80 percent of the stock of S-5, and, as part of the plan of reorganization, following the acquisition of T stock by S-1, P transfers 10 percent of its S-1 stock to S-4, and S-4 transfers that S-1 stock to S-5.

(ii) Analysis. Under this paragraph (k), the transaction, which otherwise qualifies as a reorganization under section 368(a)(1)(B), is not disqualified by reason of the successive transfers of S-1 stock to S-4, and from S-4 to S-5 because, in each transfer, the transferee corporation is controlled by the transferor corporation.

Example 6. Transfer of acquired stock to a partnership. (i) Facts. The facts are the same as in Example 4. However, as part of the plan of reorganization, S-2 and S-3 form a new partnership, PRS. Immediately thereafter, S-3 transfers all of its T stock to PRS in exchange for an 80 percent partnership interest, and S-2 transfers cash to PRS in exchange for a 20 percent partnership interest.

(ii) Analysis. This paragraph (k) describes the successive transfers of T stock to S-3, but does not describe S-3’s transfer of T stock to PRS. Therefore, the characterization of this transaction must be determined under the relevant provisions of law, including the step transaction doctrine. See §1.368-1(a). The transaction fails to meet the control requirement of a reorganization described in section 368(a)(1)(B) because immediately after the acquisition of the T stock, the acquiring corporation does not have control of T.

(4) Effective date. This paragraph (k) applies to transactions occurring after the date these regulations are published as final regulations in the Federal Register.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.

Note

(Filed by the Office of the Federal Register on March 1, 2004, 8:45 a.m., and published in the issue of the Federal Register for March 2, 2004, 69 F.R. 9771)

Drafting Information

The principal author of these proposed regulations is Rebecca O. Burch of the Office of Associate Chief Counsel (Corporate). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

REG-166012-02

Notice of Proposed Rulemaking and Notice of Public Hearing; Notional Principal Contracts; Contingent Nonperiodic Payments

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 inclusion into income or deduction of a contingent nonperiodic payment provided for under a notional principal contract (NPC). This document also provides guidance relating to the character of payments made pursuant to an NPC. These regulations will affect taxpayers that enter into NPCs. This document also provides a notice of a public hearing on these proposed regulations.

DATES:

Written or electronically transmitted comments and requests to speak (with outlines of oral comments to be discussed) at the public hearing scheduled for May 25, 2004, at 10 a.m., must be received by May 4, 2004. Comments on the collection of information should be received by April 26, 2004.

ADDRESSES:

Send submissions to CC:PA:LPD:PR (REG-166012-02), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-166012-02), Couriers Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit electronic comments directly to the IRS Internet site at: www.irs.gov/regs. The public hearing will be held in the IRS Auditorium, Seventh Floor, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Concerning submissions of comments, the hearing, or to be placed on the building access list to attend the hearing, Sonya Cruse, (202) 622-7180; concerning the regulations, Kate Sleeth, (202) 622-3920 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by April 26, 2004. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information (see below);

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in these proposed regulations is in §1.446- 3(g)(6)(vii). This information is required by the IRS to verify compliance with section 446 and the method of accounting described in §1.446-3(g)(6). This information will be used to determine whether the amount of tax has been calculated correctly. The collection of information is required to properly determine the amount of income or deduction to be taken into account. The respondents are sophisticated investors that enter into notional principal contracts with contingent nonperiodic payments.

Estimated total annual recordkeeping burden: 25,500 hours.

Estimated average annual burden per recordkeeper: 6 hours.

Estimated number of recordkeepers: 4,250.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Background

This document contains proposed amendments to 26 CFR Part 1 under section 446(b) of the Internal Revenue Code (Code). This document also contains proposed amendments under sections 162, 212 and 1234A of the Code.

In 1989, the IRS issued Notice 89-21, 1989-1 C.B. 651, to provide guidance with respect to the tax treatment of lump-sum payments received in connection with NPCs. The notice stated that a method of accounting that properly recognizes a lump-sum payment over the life of the contract clearly reflects income and indicated that regulations would be issued to provide specific rules regarding the manner in which a taxpayer must take into account over the life of an NPC payments made or received with respect to the contract. The notice further stated that “for contracts entered into prior to the effective date of the regulations, the Commissioner will generally treat a method of accounting as clearly reflecting income if it takes such payments into account over the life of the contract under a reasonable amortization method, whether or not the method satisfies the specific rules in the forthcoming regulations.” (1989-1 C.B. 652).

On October 14, 1993, the IRS published in the Federal Register final regulations (T.D. 8491, 1993-2 C.B. 215 [58 FR 53125]) under section 446(b) relating to the timing of income and deductions for amounts paid or received pursuant to NPCs. §1.446-3. In this preamble, the final regulations published in 1993 are referred to as the 1993 Treasury regulations.

The 1993 Treasury regulations define an NPC as a “financial instrument that provides for the payment of amounts by one party to another at specified intervals calculated by reference to a specified index upon a notional principal amount in exchange for specified consideration or a promise to pay similar amounts.” §1.446-3(c)(1)(i). Payments made pursuant to NPCs are divided into three categories (periodic, nonperiodic, and termination payments), and the 1993 Treasury regulations provide timing regimes for each. The 1993 Treasury regulations require all taxpayers, regardless of their method of accounting, to recognize the ratable daily portion of a nonperiodic payment for the taxable year to which that portion relates. Nonperiodic payments generally must be recognized over the term of an NPC in a manner that reflects the economic substance of the contract. §1.446-3(f)(2)(i). Although §1.446-3 does not distinguish between noncontingent and contingent nonperiodic payments, the specific rules and examples in the 1993 Treasury regulations address only noncontingent nonperiodic payments. The Preamble to the 1993 Treasury regulations states that “the IRS expects to address contingent payments in future regulations, and welcomes comment on the treatment of those payments.” (1993-2 C.B. 216). In addition, neither §1.446-3 nor any other section provides specific rules governing the character of the various types of NPC payments.

On July 23, 2001, the IRS published Notice 2001-44, 2001-2 C.B. 77, soliciting comments on the appropriate method for the inclusion or deduction of contingent nonperiodic payments made pursuant to NPCs and the proper character treatment of payments made pursuant to an NPC. The notice set forth four different methods under consideration by the IRS and Treasury and asked the public to comment on the extent to which each method reflects certain fundamental tax policy principles, including certainty, clarity, administrability, and neutrality. Several comments were received from the public, which expressed diverse views regarding the relative advantages and disadvantages of the different methods. Included in the four methods were the noncontingent swap method and a mark-to-market method, versions of which are adopted in the proposed regulations.

The notice also solicited comments on the proper character of payments on NPCs and bullet swaps. The comments received on this issue also reflected differing views.

Explanation of Provisions

A. Overview

The IRS and Treasury understand that some taxpayers take into account contingent nonperiodic payments on an NPC only when the payment becomes fixed and determinable (the open transaction or wait-and-see method of accounting). The wait-and-see method, however, is inconsistent with the existing specific timing rules for periodic and nonperiodic payments and with the general rule in §1.446-3(f)(2)(i) respecting recognition of nonperiodic payments over the term of the contract. For example, if the amount of a periodic payment is set in arrears at the end of an accrual period that spans taxable years, the parties cannot use a wait-and-see method for the portion of the accrual period in the first taxable year. Instead, the parties must use a reasonable estimate of the payment for determining taxable income in the year before the payment is fixed. §1.446-3(e)(2)(ii). In addition, some NPCs are structured to provide for nonperiodic payments consisting of a noncontingent component and a contingent component, which the parties to the contract treat as a single contingent payment that they account for under the wait-and-see method. The attempted application of the wait-and-see method to these contracts highlights the potential for abuse present in the method. See Rev. Rul. 2002-30, 2002-1 C.B. 971.

The back-loaded timing of tax consequences that results from the wait-and-see method is also inconsistent with the timing regime that §1.1275-4(b) provides for contingent debt instruments subject to the noncontingent bond method. Under the noncontingent bond method, the parties to a contingent payment debt instrument must determine the yield at which a comparable noncontingent debt instrument would be issued and then project a fixed amount for each contingent payment and each noncontingent payment. The projected amounts are accounted for over the term of the debt instrument. The difference, if any, between the projected amount of a contingent payment and the actual amount of the payment generally is accounted for when payment is made.

The proposed regulations adopt a variation on the noncontingent swap regime described in Notice 2001-44, as well as an elective mark-to-market regime. The 1993 Treasury regulations reflect an underlying principle that nonperiodic payments should be spread over the term of an NPC in a manner that properly reflects the economic substance of the contract. The proposed regulations build upon this principle. Furthermore, the IRS and Treasury believe that the proposed regulations provide a timing regime for contingent nonperiodic payments that clearly reflects the economics of the underlying contracts. The requirement that nonperiodic payments be spread over the term of an NPC results in substantially similar treatment for all NPCs without regard to whether payment obligations are settled on a current basis through periodic payments or are either pre-paid or deferred through nonperiodic payments. Adopting this approach for contingent payment NPCs achieves symmetry between fixed payment NPCs and contingent payment NPCs.

The proposed noncontingent swap method requires taxpayers to project the expected amount of contingent payments, to take into account annually the appropriate portions of the projected contingent amounts, to reproject the contingent amounts annually, and to reflect the differences between projected amounts and reprojected amounts through adjustments. The IRS and Treasury recognize that annual reprojections will require additional effort by taxpayers and the IRS. The IRS and Treasury believe, however, that the annual reprojection requirement is essential to ensure clear reflection of income with respect to NPCs with one or more contingent nonperiodic payments. Moreover, reprojections, and the resulting adjustments to current inclusion and deduction amounts, are especially important for the income and deductions generated by these types of contracts because otherwise, taxpayers might be more likely to attempt to manipulate the character of the income or deductions from the contract.

In developing the proposed regulations, the IRS and Treasury have taken into account comments received in response to Notice 2001-44, as well as the following considerations. First, although many comments advocated the wait-and-see method of accounting for contingent nonperiodic payments, this method encourages the creation of NPCs that provide such payments. As a result of the adoption of guidelines for taking contingent nonperiodic payments into account over the term of an NPC, the tax treatment of payments with respect to an NPC should no longer provide an incentive for structuring payments in a particular manner. Second, taxpayers using swaps with contingent nonperiodic payments are sophisticated investors. Many of these taxpayers will be making similar projections and reprojections for their own purposes in evaluating the results of their derivative investments and taking actions to manage the risks created by their derivative investments. Third, the proposed regulations also provide an elective mark-to-market method as an alternative to the noncontingent swap method. Taxpayers who use a mark-to-market method for financial reporting purposes may adopt the elective mark-to-market method to reduce their tax and accounting administrative burden for NPCs.

The IRS and Treasury understand that similar timing issues exist for other types of derivative investments, like bullet swaps and prepaid forward contracts. Although the application of the proposed regulations to these types of transactions may achieve appropriate timing, the application of these rules to investments other than NPCs could present a number of issues not directly addressed by the rules contained in these proposed regulations. The expansion of the scope of these proposed regulations to contracts other than NPCs is not being proposed at this time so as not to delay the publication of the proposed regulations.

With respect to character, the proposed regulations under sections 162 and 212 provide that both periodic and nonperiodic payments with respect to NPCs are generally ordinary in character. This is because neither periodic nor nonperiodic payments (whenever made) involve a sale or exchange within the meaning of section 1222, and no other section of the Code provides otherwise. The proposed regulations issued under section 1234A provide capital treatment for termination payments. Under the proposed regulations, however, even nonperiodic payments made at the maturity of an NPC are not termination payments under section 1234A.

Because of their recurring nature, periodic payments should be treated as ordinary income items, whether or not the payments are made at the expiration of an NPC. The same rationale applies to nonperiodic payments, which are required to be spread over the term of an NPC. Even if a nonperiodic payment is made at the expiration or termination of an NPC, only the final portion is taken into account on the termination date for the contract, and that portion should be treated in the same way as a periodic payment.

B. Specific Provisions

 

Adjustments

Paragraph (d)(2) of the proposed regulations provides for adjustments to be made in the gain or loss realized on the sale, exchange, or termination of an NPC, to account for inclusions into income and deductions provided for in the 1993 Treasury regulations and the proposed regulations, as well as for any payments made or received on the NPC. These adjustments are expected to produce consequences similar to the consequences that would result if basis were increased or decreased for these items. Using adjustments for this purpose avoids the issue of negative basis.

Significant nonperiodic payments

Paragraph (g)(4) of the proposed regulations clarifies the rules for the treatment of an NPC with a significant upfront nonperiodic payment and provides additional rules for the treatment of a significant nonperiodic payment that is not paid upfront. The 1993 Treasury regulations provide that a significant nonperiodic payment on an NPC is treated as two separate transactions — an on-market level payment NPC and a loan. §1.446-3(g)(4). The proposed regulations clarify that the parties to an NPC with one or more significant nonperiodic payments must treat the contract as two or more separate transactions consisting of an on-market NPC and one or more loans. In some cases, the on-market NPC payments for a party making a significant nonperiodic upfront payment will be level payments that may be constructed through a combination of the actual payments on the NPC and level payments computed under the level payment method described in §1.446-3(f)(2)(iii)(A).

The proposed regulations also provide that an NPC with a significant nonperiodic payment that is not paid upfront is treated as if the party receiving the significant nonperiodic payment paid a series of annual level payment loan advances, equal to the present value of the nonperiodic payment, to the party owing the significant nonperiodic payment. The interest component of the level payments is treated as interest for all purposes of the Code and is not taken into account in determining the income and deductions on the NPC. The principal component of the level payments is calculated solely to determine the interest amount. The party owing the significant nonperiodic payment is then treated as using the level payment loan advances to make annual level payment NPC payments, which are included in income and deducted as provided in §1.446-3(d).

Contingent nonperiodic payments

The 1993 Treasury regulations define both periodic and nonperiodic payments but do not distinguish between contingent and noncontingent nonperiodic payments. Paragraph (g)(6)(i)(B) of the proposed regulations defines a contingent nonperiodic payment as any nonperiodic payment other than a noncontingent nonperiodic payment. A noncontingent nonperiodic payment is defined in paragraph (g)(6)(i)(A) of the proposed regulations as a nonperiodic payment that either is fixed on or before the end of the taxable year in which a contract commences or is equal to the sum of amounts that would be periodic payments if they are paid when they become fixed, including amounts determined as interest accruals.

Paragraph (g)(6)(ii) of the proposed regulations sets forth the noncontingent swap method for the inclusion into income and deduction of contingent nonperiodic payments. The noncontingent swap method requires taxpayers to project the reasonably expected amount of the contingent nonperiodic payment and to apply the level payment method and, as appropriate, the rules for significant nonperiodic payments, to the projected amount as if it were a noncontingent nonperiodic payment. The risk-free rate of return, which is defined in the proposed regulations, is used in applying the level payment method.

Paragraphs (g)(6)(iii)(A) through (C) of the proposed regulations provide the methods for projecting the reasonably expected amount. If the contingent payment is determined by reference to the value of a specified index at a designated future date, the projected amount may be determined by reference to the future value of the specified index in actively traded futures or forward contracts providing for delivery or settlement on the designated future date. If no actively traded contract exists for the designated future date, the value may be derived from actively traded futures or forward contracts providing for delivery or settlement within three months of the designated future date.

The projected amount may also be determined based on the projected future value of the current market price of the specified index. The future value is determined using a constant yield method at the risk-free interest rate with appropriate compounding and making appropriate adjustments for expected cash payments on the property underlying the specified index. The proposed regulations use the applicable federal rate under section 1274(d)(1) as the risk-free rate for this purpose. Comments are requested on whether this rate is appropriate.

If neither of the two methods described above results in a reasonable estimate of the future value of the specified index, the taxpayer must use another method that does result in a reasonable estimate of the amount of the contingent payment and that is based on objective financial information, and must consistently use the method from year to year.

The proposed regulations require annual adjustments to the projected amounts of the contingent payment. Paragraphs (g)(6)(iv) through (vi) of the proposed regulations provide rules for the redetermination of the projected amount of the contingent payment and the subsequent adjustments to the recognition of income and deductions under a contract based on the reprojected amount.

Paragraph (g)(6)(iv) of the proposed regulations provides that the projected amount must be redetermined on each successive anniversary date (redetermination date) and on each special redetermination date as described below. On each redetermination date, the taxpayer must reproject the amount of the contingent payment using the same method used at the commencement of the NPC but applied to the new current value of the specified index. Once the contingent payment is reprojected, the level payment method (and the rules for significant nonperiodic payments, if applicable) are applied again using the new projected amount.

Comments are requested as to how the reprojection process should respond to changes in the availability of market data during the life of an NPC. Suppose, for example, that the initial projection is made when there are no actively traded futures or forward contracts in the specified index but that these contracts come into existence before the time of one of the reprojections. Should the reprojections be made using the newly available futures data rather than the method employed for the first projection?

Paragraph (g)(6)(v) of the proposed regulations provides rules for adjustments following the redetermination of the projected amount of the contingent payment. The amounts determined for the redetermined projected amount under the level payment method and, as applicable, the rules for significant nonperiodic payments, are recognized in the current and subsequent taxable years. In addition, any difference between the newly determined amounts for prior periods and the amounts determined and previously taken into account using the previously projected contingent payment are recognized ratably over the one-year period beginning with the redetermination date. Any difference in amounts that would have been treated as interest under the rules for significant nonperiodic payments is also treated as interest for all purposes of the Code.

Paragraph (g)(6)(iv)(B) of the proposed regulations provides a special rule for a contingent nonperiodic payment that is fixed more than six months before it is due. If the date on which the payment becomes fixed is in a different taxable year from the date it is due, the date on which the payment becomes fixed is a special redetermination date. In such a case, the fixed amount is treated as the reprojected amount, and the rules described above for redeterminations and adjustments apply.

In general, under paragraph (g)(6)(vi) of the proposed regulations, when a contingent payment is made, the parties must make appropriate adjustments to the amount of income or deduction attributable to the NPC for any differences between the projected amount of the contingent payment and the actual amount of the contingent payment.

Paragraph (g)(6)(vii) of the proposed regulations provides a recordkeeping requirement with respect to the noncontingent swap method. Taxpayers must maintain in their books and records a description of the method used to determine the projected amount of the contingent payment, the projected payment schedules, and the adjustments taken into account under the proposed regulations.

The IRS and Treasury are considering whether to provide an alternative to the noncontingent swap method that would permit a taxpayer to use a current inclusion method for certain NPCs that provide for periodic calculations of amounts due under the terms of the NPC, but provide for deferred payment of the amounts. The IRS and Treasury are considering permitting current inclusion of income and deduction for the amounts so calculated, provided the NPC also provides for accrual of interest at a qualified rate until the periodically determined amounts are paid or offset against other amounts due under the NPC. The purpose of providing a current inclusion method for the deferred payment NPC described above is to provide tax treatment for NPCs with contingent nonperiodic payments that is economically equivalent to the tax treatment of NPCs providing only for periodic payments while avoiding the necessity of using projected amounts for contingent payments. The IRS and Treasury request comments concerning whether an NPC like the deferred payment NPC described above would be a viable transaction for market participants, whether a current inclusion method would be an appropriate substitute for the noncontingent swap method for deferred payment NPCs, and whether that method should require separate computation of interest accruals.

Elective mark-to-market methodology

Paragraph (i) of the proposed regulations provides an elective mark-to-market methodology for certain NPCs providing for nonperiodic payments. If an election is made, the specific accounting rules for nonperiodic payments in §1.446-3(f)(2) (other than (f)(2)(i)) are not applicable. Instead, for any contract that is held at the close of the taxable year, the taxpayer determines income inclusions and deductions by reference to the gain or loss that would be realized if the contract were sold for its fair market value on the last business day of the taxable year. Because the determination of fair market value takes into account the expected value of future nonperiodic payments, the mark-to-market methodology constitutes a reasonable basis for amortizing the nonperiodic payments over the term of the contract as required by §1.446-3(f)(2)(i).

Proper adjustments are made in the amount of gain or loss subsequently realized (or calculated) for income inclusions and deductions taken into account in marking the contract to fair market value. Furthermore, under paragraph (i)(5) of the proposed regulations, if an election is made for a contract providing for a significant nonperiodic payment, paragraph (g)(4) continues to apply and proper adjustments must be made to the income inclusions and deductions recognized under the mark-to-market methodology to take into account amounts recognized as interest and the payment or receipt of the significant nonperiodic payment, subject to the special rule set forth below.

The proposed regulations set forth a special rule for contracts providing for significant contingent nonperiodic payments that are subject to the mark-to-market election. If a contract provides for a significant contingent nonperiodic payment, the taxpayer must apply the noncontingent swap method to determine the amounts recognized as interest under paragraph (g)(4). However, the taxpayer is not required to reproject the amount of the contingent payment each year. The interest amounts for subsequent years are the interest amounts as determined using the initial projection of the contingent payment. Furthermore, an alternative deemed equivalent value method may be used to determine the projected amount of the contingent payment. The deemed equivalent value method may be applied when the contract fixes the timing and amount of all of the payments under the contract, except for the significant contingent nonperiodic payment. The amount of the significant contingent nonperiodic payment is deemed to be the amount that causes the present value of all the payments by the taxpayer to equal the present value of all of the payments of the counterparty to the contract.

The inclusion of an elective mark-to-market methodology is intended to provide taxpayers with an alternative to the provisions of paragraphs (f) of the 1993 Treasury regulations and (g)(6) of the proposed regulations respecting nonperiodic payments. With respect to significant nonperiodic payments, however, the proposed regulations preserve certain features of those provisions for purposes of computing an interest component of swap payments. Such a calculation is necessary to preserve the characterization of an accrual as interest. The IRS and Treasury request comments on the appropriateness of requiring taxpayers to compute an interest amount for significant nonperiodic payments under the elective mark-to-market methodology and, in particular, on any effect that requirement may have on the relative usefulness and administrability of the mark-to-market methodology.

Paragraph (i)(2) of the proposed regulations provides the scope of the election. The election is available to contracts that are: (1) actively traded within the meaning of §1.1092(d)-1(c) (determined without regard to the limitation in §1.1092(d)-1(c)(2)); (2) marked to market for purposes of the taxpayer’s financial statements provided the taxpayer satisfies the requirements in paragraph (i)(4) of the proposed regulations; (3) subject to an agreement by a party to the contract that is a person to whom section 475 applies to supply to the taxpayer the value that it uses in applying section 475(a)(2); or (4) marked to market by a regulated investment company (RIC) described in section 1296(e)(2). Paragraphs (i)(3)(i) through (iv) of the proposed regulations provide the acceptable methods for determining fair market value. If the contract is actively traded, the fair market value is determined based on the mean between the bid and asked prices quoted for the contract. If a contract is not actively traded, but is marked to market for financial statement purposes, and the valuations used for those purposes comply with the requirements of paragraph (i)(4), the fair market value is deemed to be the value used for the financial statements. For a contract that is subject to an agreement with a dealer in securities to provide a value, the value that is provided by the dealer is the fair market value. Finally, for a contract marked to market by a RIC, the fair market value is equal to the value used for purposes of determining the RIC’s net asset value.

Paragraph (i)(6) of the proposed regulations provides that the mark-to-market election shall be made in the time and manner prescribed by the Commissioner and is effective for the taxable year in which it is made and all subsequent years unless revoked with the consent of the Commissioner.

The proposed regulations indicate that a taxpayer will be permitted to elect the mark-to-market method for NPCs that are marked to market for purposes of the taxpayer’s financial statements and that the values used on the financial statements may be used as fair market value under the mark-to-market election. However, the proposed regulations also indicate that an election to use financial statement values will be subject to further requirements. On May 5, 2003, the IRS and Treasury published in the Federal Register an Advance Notice of Proposed Rule Making (REG-100420-03, published in the I.R.B. as Announcement 2003-35, 2003-21 I.R.B. 956) requesting comments regarding appropriate rules for the use of financial statement values under the mark-to-market provisions of section 475 applicable to securities dealers and electing commodities dealers and securities and commodities traders. The IRS and Treasury will take into account the comments received in response to that Advance Notice in developing the rules to be established for use of financial statement values under the mark-to-market method set forth in paragraph (i) of the proposed regulations. In addition, unlike other mark-to-market regimes, the mark-to-market method proposed in paragraph (i) does not require a mark immediately before disposition in either a recognition or nonrecognition context. Cf. section 1256(c) and proposed regulations §1.475(a)-2. The IRS and Treasury request comments regarding this aspect of the proposed regulations and whether taxpayers who are eligible to elect a mark-to-market method under section 475 but do not do so should be eligible to make the paragraph (i) election for NPCs.

Anti-abuse rule

Paragraph (i) of the 1993 Treasury regulations provides that if a taxpayer “enters into a transaction with a principal purpose of applying the rules of [§1.446-3] to produce a material distortion of income,” the IRS may depart from those rules “as necessary to reflect the appropriate timing of income and deductions from the transaction.” In light of the comprehensive rules in the proposed regulations prescribing methods of accounting for NPCs, the IRS and Treasury have determined that a general anti-abuse rule is not necessary to prevent these methods being used in a manner that fails to clearly reflect income. Accordingly, the proposed regulations delete this rule.

Proposed dates of applicability

These proposed regulations contain both new substantive rules as well as clarifying changes to the 1993 Treasury regulations. The new substantive rules, which are contained in paragraph (g)(6) (the noncontingent swap method) (except (g)(6)(i)) and paragraph (i) (the mark-to-market election), are proposed to apply to NPCs entered into on or after 30 days after the date of publication of the final regulations in the Federal Register. Paragraphs (c) (definitions), (d) (taxable year of inclusion and deduction), (f) (nonperiodic payments), (g)(4) (significant nonperiodic payments), and (g)(6)(i) (definition of contingent and noncontingent nonperiodic payments) are proposed to be integrated into the 1993 Treasury regulations which apply to NPCs entered into on or after December 13, 1993. Because of their purely clarifying nature, these proposed changes will apply to the same transactions that are governed by the 1993 Treasury regulations.

With respect to NPCs that provide for contingent nonperiodic payments and that are in effect or entered into on or after 30 days after the date of publication of these proposed regulations in the Federal Register, if a taxpayer has not adopted a method of accounting for these NPCs, the taxpayer must adopt a method that takes contingent nonperiodic payments into account over the life of the contract under a reasonable amortization method, which may be, but need not be, a method that satisfies the specific rules in these proposed regulations. If a taxpayer has adopted a method of accounting for these NPCs, the Commissioner generally will not require a change in the accounting method earlier than the first year ending on or after 30 days after the date of publication of the final regulations in the Federal Register. The preceding sentence does not apply to transactions described in Rev. Rul. 2002-30, 2002-1 C.B. 971, or other published guidance.

The proposed regulations do not contain a specific consistency requirement. Nevertheless, under the general rules governing accounting methods, once a taxpayer adopts a method of accounting for an item, the taxpayer must use the same method from year to year unless the taxpayer obtains the Commissioner’s consent to change to another method of accounting.

Character

The proposed regulations under §1.162-30 provide that in general, the net periodic and nonperiodic payments (including mark-to-market deductions) are deductible by the payor under section 162 as ordinary and necessary business expenses. However, payments representing interest under the rules for significant nonperiodic payments as well as termination payments are not deductible under section 162. A similar rule is provided for individuals in the proposed regulations under §1.212-1(q). These regulations under sections 162 and 212 are proposed to apply to NPCs entered into on or after 30 days after the date of publication of the final regulations in the Federal Register.

Any gain or loss arising from a termination payment, however, is treated as capital gain or loss pursuant to the proposed regulations under section 1234A. These proposed regulations clarify that periodic payments, noncontingent nonperiodic payments, and contingent nonperiodic payments are not termination payments.

The proposed regulations under section 1234A also apply to any gain or loss arising from the settlement of obligations under a bullet swap or forward contract. A payment in settlement of obligations under a bullet swap or forward contract, including a payment pursuant to the terms of the bullet swap or forward contract, is treated as gain or loss from a termination of the bullet swap or forward contract.

For purposes of these proposed regulations, a bullet swap is defined as a financial instrument that is not an excluded contract as defined in §1.446-3(c)(1)(ii), that provides for the computation of an amount or amounts due from one party to another by reference to a specified index upon a notional principal amount, and that provides for settlement of all the parties’ obligations at or close to maturity of the contract, rather than for the payment of the specified amounts at specific intervals. The definition of bullet swap is intended to cover a contract that obligates each party to make a payment at the end of the contract, although only one net payment will actually be paid. For example, party A is obligated to pay at the end of three years a fixed rate multiplied by the notional amount. Also at the end of three years, party B is obligated to pay a variable rate multiplied by the same notional amount. At the end of three years, only one party makes a net payment equal to the difference between the fixed rate multiplied by the notional amount and the variable rate multiplied by the notional amount.

These regulations under section 1234A are proposed to apply to NPCs entered into on or after 30 days after the date of publication of the final regulations 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 Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that very few small businesses enter into NPCs with contingent nonperiodic payments because these contracts are costly and complex and because they require constant monitoring and a sophisticated understanding of the capital markets. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the 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 businesses.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury specifically request comments on the clarity of the proposed rules and how they may be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled for May 25, 2004, beginning at 10 a.m., in the IRS Auditorium, Seventh Floor, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see “FOR FURTHER INFORMATION CONTACT” section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written comments or electronic comments and an outline of topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by May 4, 2004. A period of 10 minutes will be allotted to each person 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.

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 1.162-30 is added to read as follows:

§1.162-30 Notional principal contract payments.

(a) In general. Amounts taken into account by a taxpayer pursuant to §1.446-3(d)(1) (including mark-to-market deductions) with respect to a notional principal contract as defined in §1.446-3(c)(1)(i), are deductible as ordinary and necessary business expenses. However, this section will not apply to any amount representing interest expense on the deemed loan component of a significant nonperiodic payment as described in §1.446-3(g)(4). For any loss arising from a termination payment as defined in §1.446-3(h)(1), see section 1234A and the regulations thereunder. For the timing of deductions with respect to notional principal contracts, see §1.446-3.

(b) Effective date. Paragraph (a) of this section is applicable to notional principal contracts entered into on or after 30 days after the date a Treasury decision based on these proposed regulations is published in the Federal Register.

Par. 3. In §1.212-1, paragraph (q) is added to read as follows:

§1.212-1 Nontrade or nonbusiness expenses.

* * * * *

(q) Notional principal contract payments—(1) Amounts taken into account by an individual pursuant to §1.446-3(d)(1) (including mark-to-market deductions) with respect to a notional principal contract as defined in §1.446-3(c)(1)(i), are ordinary and necessary, and are deductible to the extent these amounts are paid or incurred in connection with the production or collection of income. However, this section will not apply to any amount representing interest expense on the deemed loan component of a significant nonperiodic payment as described in §1.446-3(g)(4). For any loss arising from a termination payment as defined in §1.446-3(h)(1), see section 1234A and the regulations thereunder. For the timing of deductions with respect to notional principal contracts, see §1.446-3.

(2) Effective date. Paragraph (q) of this section is applicable to notional principal contracts entered into on or after 30 days after the date a Treasury decision based on these proposed regulations is published in the Federal Register.

Par. 4. Section 1.446-3 is amended by:

1. Revising the introductory text of paragraph (a) and the table of contents in paragraph (a).

2. Adding paragraph (c)(5).

3. Revising paragraphs (d), (f)(2)(i), (f)(2)(iii)(A), and (g)(4).

4. Redesignating the text of paragraph (g)(6) as paragraph (g)(7).

5. Adding new paragraph (g)(6).

6. Amending the newly designated text of paragraph (g)(7) by:

a. Revising the heading for Example 3.

b. Adding Example 5 through Example 9.

7. Revising paragraphs (i) and (j).

The revisions and additions read as follows:

§1.446-3 Notional principal contracts.

(a) Table of contents. This paragraph (a) lists captioned paragraphs contained in this section.

§1.446-3 Notional principal contracts.

(a) Table of contents.

(b) Purpose.

(c) Definitions and scope.

(1) Notional principal contract.

(i) In general.

(ii) Excluded contracts.

(iii) Transactions within section 475.

(iv) Transactions within section 988.

(2) Specified index.

(3) Notional principal amount.

(4) Special definitions.

(i) Related person and party to the contract.

(ii) Objective financial information.

(iii) Dealer in notional principal contracts.

(5) Risk-free interest rate and determination date.

(i) Risk-free interest rate.

(ii) Determination date.

(d) Taxable year of inclusion and deduction; adjustment of gain or loss.

(1) Inclusion and deduction.

(2) Adjustment of gain or loss.

(e) Periodic payments.

(1) Definition.

(2) Recognition rules.

(i) In general.

(ii) Rate set in arrears.

(iii) Notional principal amount set in arrears.

(3) Examples.

(f) Nonperiodic payments.

(1) Definition.

(2) Recognition rules.

(i) In general.

(ii) General rule for swaps.

(iii) Alternative methods for swaps.

(A) Prepaid swaps.

(B) Other nonperiodic swap payments.

(iv) General rule for caps and floors.

(v) Alternative methods for caps and floors that hedge debt instruments.

(A) Prepaid caps and floors.

(B) Other caps and floors.

(C) Special method for collars.

(vi) Additional methods.

(3) Term of extendible or terminable contracts.

(4) Examples.

(g) Special rules.

(1) Disguised notional principal contracts.

(2) Hedged notional principal contracts.

(3) Options and forwards to enter into notional principal contracts.

(4) Swaps with significant nonperiodic payments.

(5) Caps and floors that are significantly in-the-money. [Reserved]

(6) Notional principal contracts with contingent nonperiodic payments.

(i) Definitions.

(A) Noncontingent nonperiodic payments.

(B) Contingent nonperiodic payments.

(ii) Noncontingent swap method.

(iii) Determining projected amount of contingent payment.

(A) Payment based on actively traded futures or forward contracts.

(B) Payment based on extrapolation from current market prices.

(C) Payment based on reasonable estimate.

(iv) Redeterminations of projected payments and level payment amounts.

(A) General rule.

(B) Special rule for fixed but deferred contingent nonperiodic payments.

(v) Adjustments following redeterminations.

(vi) Adjustments for differences between projected and actual payments.

(vii) Recordkeeping requirements.

(7) Examples.

(h) Termination payments.

(1) Definition.

(2) Taxable year of inclusion and deduction by original parties.

(3) Taxable year of inclusion and deduction by assignees.

(4) Special rules.

(i) Assignment of one leg of a contract.

(ii) Substance over form.

(5) Examples.

(i) Election to mark to market.

(1) General rule.

(2) Scope of election.

(3) Determination of fair market value.

(i) Determination based on readily ascertainable value.

(ii) Determination based on value used for financial statements.

(iii) Determination based on counterparty’s mark-to-market value.

(iv) Determination based on value used in determining net asset value.

(4) Requirements for use of financial statement values. [Reserved]

(5) Notional principal contracts accruing interest on significant nonperiodic payments.

(i) General rule.

(ii) Special rules for significant contingent nonperiodic payments.

(iii) Nonapplicability to regulated investment companies.

(6) Election.

(j) Effective dates.

(1) General rule.

(2) Exception.

* * * * *

(c) * * *

(5) Risk-free interest rate and determination date—(i) Risk-free interest rate. The risk-free interest rate is the applicable Federal rate determined in accordance with section 1274(d)(1) for a determination date and the period remaining in the term of the contract on the determination date.

(ii) Determination date. A determination date is the commencement date of the swap, each redetermination date as defined in paragraph (g)(6)(ii) of this section, and each special redetermination date as defined in paragraph (g)(6)(iv)(B) of this section.

(d) Taxable year of inclusion and deduction; adjustment of gain or loss—(1) Inclusion and deduction. For all purposes of the Internal Revenue Code, the net income or net deduction from a notional principal contract for a taxable year is taken into account for that taxable year. The net income or net deduction from a notional principal contract for a taxable year equals the total of all of the periodic payments that are recognized from that contract for the taxable year under paragraph (e) of this section, all of the nonperiodic payments that are recognized from that contract for the taxable year under paragraph (f) of this section, and the mark-to-market income inclusions and deductions recognized from that contract under paragraph (i) of this section.

(2) Adjustment of gain or loss. Proper adjustment shall be made in the amount of any gain or loss realized on a sale, exchange, or termination of a notional principal contract for inclusions or deductions pursuant to paragraphs (d)(1) and (g)(4) of this section and for payments or receipts with respect to the notional principal contract.

* * * * *

(f) * * *

(2) Recognition rules—(i) In general. All taxpayers, regardless of their method of accounting, must recognize the ratable daily portion of a nonperiodic payment for the taxable year to which that portion relates. Generally, a nonperiodic payment must be recognized over the term of a notional principal contract in a manner that reflects the economic substance of the contract. See paragraph (g)(6) of this section for additional rules for contingent nonperiodic payments.

* * * * *

(iii) * * *

(A) Prepaid swaps. An upfront payment on a swap may be amortized by assuming that the nonperiodic payment represents the present value of a series of equal payments made throughout the term of the swap contract (the level payment method), adjusted as appropriate to take account of increases or decreases in the notional principal amount. The discount rate used in this calculation must be the rate (or rates) used by the parties to determine the amount of the nonperiodic payment. If that rate is not readily ascertainable, the discount rate used must be a rate that is reasonable under the circumstances. Under this method, an upfront payment is allocated by dividing each equal payment into its principal recovery and time value components. The principal recovery components of the equal payments are treated as periodic payments that are deemed to be made on each of the dates that the swap contract provides for periodic payments by the payor of the nonperiodic payment or, if none, on each of the dates that the swap contract provides for periodic payments by the recipient of the nonperiodic payment. The sum of the principal recovery components equals the amount of the upfront payment. The time value component is used to compute the amortization of the nonperiodic payment but is otherwise disregarded. See paragraph (f)(4) Example 5 of this section.

* * * * *

(g) * * *

(4) Swaps with significant nonperiodic payments. The parties to a swap with one or more significant nonperiodic payments must treat the contract as two or more separate transactions consisting of an on-market swap and one or more loans. The parties must account for the loans separately from the swap. The payments associated with the on-market swap are included in the net income or net deduction from the swap under paragraph (d) of this section. The time value components associated with the loans are not included in the net income or net deduction from the swap under paragraph (d) of this section but are recognized as interest for all purposes of the Internal Revenue Code. The on-market swap must result in recognition of the payments associated with the swap in a manner that complies with the principles set forth in paragraph (f)(2)(i) of this section. See paragraph (g)(7) Example 3 of this section for a situation in which the on-market swap payments for a party making a significant nonperiodic upfront payment will be level payments that may be constructed through a combination of the actual payments on the swap and level payments computed under the level payment method provided by paragraph (f)(2)(iii)(A) of this section. In certain cases, a swap with significant nonperiodic payments other than an upfront payment may be treated as if the swap provided for a series of level payment loan advances having a present value equal to the present value of the nonperiodic payments, with the amount of each loan advance being immediately returned as a level payment on the swap. See paragraph (g)(7) Example 5 of this section. For purposes of section 956, the Commissioner may treat any nonperiodic swap payment, whether or not it is significant, as one or more loans.

* * * * *

(6) Notional principal contracts with contingent nonperiodic payments—(i) Definitions—(A) Noncontingent nonperiodic payments. A noncontingent nonperiodic payment is a nonperiodic payment that either is fixed on or before the end of the taxable year in which a contract commences or is equal to the sum of amounts that would be periodic payments if they are paid when they become fixed (including amounts determined as interest accruals).

(B) Contingent nonperiodic payments. A contingent nonperiodic payment is any nonperiodic payment other than a noncontingent nonperiodic payment.

(ii) Noncontingent swap method. Under the noncontingent swap method, a taxpayer, regardless of its method of accounting, recognizes each contingent nonperiodic payment with respect to a notional principal contract by determining the projected amount of the payment and by applying to that projected amount the level payment method described in paragraphs (f)(2)(iii)(A) and (B) of this section. The projected amount of a contingent nonperiodic payment is the reasonably expected amount of the payment, which is determined by using one of the methods described in paragraph (g)(6)(iii) of this section and by using the risk-free interest rate in applying the level payment method. On each successive anniversary date for the notional principal contract (a redetermination date) and each special redetermination date (as defined in paragraph (g)(6)(iv)(B) of this section), the taxpayer must redetermine the projected amount of each contingent nonperiodic payment, reapply the level payment method as provided in paragraph (g)(6)(iv) of this section, and make the adjustments specified in paragraph (g)(6)(v) of this section. If paragraph (g)(4) of this section applies to the notional principal contract, redeterminations and adjustments must also be made to account for the time value components of the transaction as interest in accordance with that paragraph. Except for contingent nonperiodic payments governed by paragraph (g)(6)(iv)(B) of this section, in the taxable year in which a contingent payment is made or received, the parties must make appropriate adjustments to the amount of income or deductions attributable to the notional principal contract for any differences between projected and actual contingent nonperiodic payments as provided in paragraph (g)(6)(vi) of this section.

(iii) Determining projected amount of contingent payment—(A) Payment based on actively traded futures or forward contracts. If a contingent nonperiodic payment is determined under the contract by reference to the value of a specified index on a designated future date, the projected amount of the payment may be determined on the basis of the future value for the specified index in actively traded futures or forward contracts, if any, providing for delivery or settlement on the designated future date. If no actively traded contract exists for the designated future date, a determination from the future values for the specified index in actively traded futures or forward contracts, if any, providing for delivery or settlement on dates within three months of the designated future date may be used.

(B) Payment based on extrapolation from current market prices. If a contingent nonperiodic payment is determined under the contract by reference to the value of a specified index on a designated future date, the projected amount of the payment may be determined on the basis of the current value of the specified index as established by objective financial information adjusted to convert the current value to a future value for the specified index on the designated future date. The current value is converted to a future value by adding to the current value an amount equal to the accrual of interest on the current value under a constant yield method at the risk-free interest rate with appropriate compounding and by making appropriate adjustments for expected cash payments on the property underlying the specified index.

(C) Payment based on reasonable estimate. If the methods provided in paragraphs (g)(6)(iii)(A) and (B) of this section do not result in a reasonable estimate of the amount of the contingent payment, the taxpayer must use another method that does result in a reasonable estimate of the amount of the contingent payment and that is based on objective financial information.

(iv) Redeterminations of projected payments and level payment amounts—(A) General rule. On each redetermination date, the taxpayer must redetermine the projected amount using current values on the redetermination date and the same method that was used on the commencement date of the notional principal contract, and must reapply the level payment method as of the commencement date of the notional principal contract on the basis of the new projected payment amount and the risk-free interest rate in effect on the redetermination date.

(B) Special rule for fixed but deferred contingent nonperiodic payments. If a contingent nonperiodic payment is fixed more than six months before it is due, and if the date the payment is fixed is in a different taxable year from the date the payment is due, the date on which the payment is fixed is a special redetermination date. As of that date, the taxpayer must treat the fixed amount as the projected amount for that contingent nonperiodic payment and apply paragraphs (g)(6)(iv) and (v) of this section as if the special redetermination date were a redetermination date.

(v) Adjustments following redeterminations. Following each redetermination of projected payments and level payment amounts, the taxpayer must apply the new schedule of level payments for purposes of determining amounts to be recognized in the current and subsequent taxable years with respect to the contingent nonperiodic payments. Any difference between the amounts recognized in prior taxable years and the amounts that would have been recognized in those years had the new level payment schedule been in effect for those years is taken into account as additional payments or receipts with respect to the contract ratably over the one-year period beginning with the redetermination date and, to the extent attributable to a difference in the interest amounts calculated under paragraph (g)(4) of this section, is recognized as interest for all purposes of the Internal Revenue Code.

(vi) Adjustments for differences between projected and actual payments. Any difference between the amounts taken into account under paragraph (f) and this paragraph (g)(6) on the one hand and the amount of the actual payment under the contract on the other hand is taken into account as an adjustment to the net income or net deduction from the notional principal contract for the taxable year during which the payment occurs, and not as an adjustment to interest income or expense.

(vii) Recordkeeping requirements. The books and records maintained by a taxpayer must contain a description of the method used to determine the projected amount of a contingent payment, projected payment schedules, any adjustments following redeterminations, and any adjustments for differences between projected and actual contingent payments.

(7) * * *

Example 3. Upfront significant nonperiodic payment. * * *

* * * * *

Example 5. Backloaded significant nonperiodic payment. (i) On January 1, 2003, unrelated parties P and Q enter into an interest rate swap contract. Under the terms of the contract, P agrees to make five annual payments to Q equal to LIBOR times a notional principal amount of $100,000,000. In return, Q agrees to pay P 6% of $100,000,000 annually, plus $24,420,400 on December 31, 2007. At the time P and Q enter into this swap agreement, the rate for similar on-market swaps is LIBOR to 10%. Assume that on January 1, 2003, the risk-free rate is 10%.

(ii) The $24,420,400 payment from Q to P is significant when compared to the present value of the total payments due from Q under the contract. Accordingly, pursuant to paragraph (g)(4) of this section, the transaction is recharacterized as two separate transactions. First, P is treated as paying to Q a series of $4,000,000 level payment loan advances. The present value of the level payment loan advances equals the present value of $24,420,400, the significant nonperiodic payment. Stated differently, the sum of the level payment loan advances and accrued interest on those advances equals the significant nonperiodic payment.

(iii) Next, Q is treated as using each loan advance to fund five annual level swap payments of $4,000,000. The level payment loan advances and accrued interest on the advances computed with annual compounding at 10% are as follows:

    Level Payment   Accrued Interest
2003   $4,000,000   $0
2004   4,000,000   400,000
2005   4,000,000   840,000
2006   4,000,000   1,324,000
2007   4,000,000   1,856,400
    $20,000,000   $4,420,400

(iv) P recognizes interest income, and Q accrues interest expense, each taxable year equal to the interest accruals on the deemed level payment loan advances. These interest amounts are not included in the parties’ net income or net deduction from the swap contract under paragraph (d) of this section.

(v) The level payment amounts of $4,000,000 are taken into account in determining the parties’ net income and deductions on the swap pursuant to paragraph (d) of this section.

Example 6. Contingent nonperiodic payment on an equity swap. (i) On January 1, 2005, unrelated parties V and W enter into an equity swap contract. Under the terms of the contract, V agrees to make three annual payments to W equal to 1-year LIBOR times a notional principal amount of $50,000,000. In return, W agrees to make a single payment on December 31, 2007, equal to the appreciation, if any, of a $50,000,000 investment in a basket of equity securities over the term of the swap. V is obligated to make a single payment on December 31, 2007, equal to the depreciation, if any, in the same $50,000,000 investment in the basket of equity securities. Assume that on January 1, 2005, 1-year LIBOR is 9.5%, and the risk-free rate is 10.0%.

(ii) This contract is a notional principal contract as defined in paragraph (c)(1) of this section. The annual LIBOR-based payments from V to W are periodic payments and the single payment on December 31, 2007, is a contingent nonperiodic payment.

(iii) Pursuant to the method described in (g)(6)(iii)(B) of this section, the parties determine that the projected amount of the contingent nonperiodic payment that W will pay V on December 31, 2007, is $16,550,000. The present value of this projected fixed payment is significant when compared to the present value of the total payments due from W under the contract. Accordingly, pursuant to paragraph (g)(4) of this section, the transaction is recharacterized as two separate transactions.

(iv) As a preliminary step, using the risk-free rate of 10.0% as the discount rate, the parties determine the level payment amounts that have a present value equal to the present value of $16,550,000, the projected significant nonperiodic payment. Stated differently, the sum of the level payment amounts and accrued interest at 10.0% on those amounts must equal the projected significant nonperiodic payment. The level payment amounts thus determined are $5,000,000.

(v) Next, V is treated as paying to W a series of $5,000,000 loan advances.

(vi) Then, W is treated as using each loan advance to fund one of the three annual level swap payments of $5,000,000. The level payment loan advances and accrued interest on the advances computed with annual compounding at 10.0% are as follows:

    Level Payment   Accrued Interest
2005   $5,000,000   $0
2006   5,000,000   500,000
2007   5,000,000   1,050,000
    $15,000,000   $1,550,000

(vii) No interest amount is taken into account for the contract year 2005.

(viii) The level payment amount of $5,000,000 is taken into account for the contract year 2005 in determining the parties’ net income and deductions on the swap pursuant to paragraph (d) of this section.

(ix) For the contract year 2005, V makes a swap payment to W equal to 1-year LIBOR at 9.5% times $50,000,000, or $4,750,000, and W is deemed to make a swap payment to V equal to the annual level payment of $5,000,000. The net of the ratable daily portions of these payments determines the annual net income or deduction from the contract for both V and W.

Example 7. Initial Adjustment. (i) The terms of the equity swap agreement are the same as in Example 6. In addition, assume that on January 1, 2006, the first redetermination date, 1-year LIBOR is 10.0%, and the risk-free rate is 10.5%. On that date, the parties redetermine the projected amount of the contingent nonperiodic payment using current values in effect on that date. Under the method described in (g)(6)(iii)(B) of this section, the parties determine that the reprojected amount of the contingent nonperiodic payment that W will pay V on December 31, 2007, is $23,261,500. The present value as of January 1, 2005, of this projected fixed payment is significant when compared to the present value of the total payments due from W under the contract. Accordingly, pursuant to paragraph (g)(4) of this section, the transaction is recharacterized as two separate transactions.

(ii) The parties use the redetermined projected amount of $23,261,500, to reapply the method provided by paragraph (g)(4) of this section effective as of the commencement date of the swap. As a preliminary step, using the risk-free rate of 10.5% as the discount rate, the parties determine the level payment amounts that have a present value equal to the present value of $23,261,500, the reprojected significant nonperiodic payment. Stated differently, the sum of the level payment amounts and accrued interest at 10.5% on those amounts must equal the reprojected significant nonperiodic payment. The level payment amounts thus determined are $6,993,784.

(iii) Next, V is treated as paying to W a series of $6,993,784 loan advances.

(iv) Then, W is treated as using each loan advance to fund one of the three annual level swap payments of $6,993,784. The level payment loan advances and accrued interest on the advances computed with annual compounding at 10.5%, are as follows:

    Level Payment   Accrued Interest
2005   $6,993,784   $0
2006   6,993,784   734,347
2007   6,993,784   1,545,801
    $20,981,352   $2,280,148

(v) For the contract year 2006, V recognizes interest income, and W accrues interest expense equal to the accrued interest of $734,347 on the deemed level payment loan advance. These interest amounts are not included in the parties’ net income or net deduction from the swap contract under paragraph (d) of this section.

(vi) The level payment amount of $6,993,784 is taken into account for the contract year 2006 in determining the parties’ net income and deductions on the swap pursuant to paragraph (d) of this section.

(vii) The parties also take into account for the contract year 2006 the difference between the amount recognized for 2005 and the amount that would have been recognized in 2005 had the new level payment schedule in this Example 7 been in effect in 2005. Thus, for purposes of paragraph (d) of this section, W is treated as making a swap payment, and V is treated as receiving a swap payment of $1,993,784 ($6,993,784 - $5,000,000) for purposes of paragraph (d) of this section.

(viii) For the contract year 2006, V makes a swap payment to W equal to 1-year LIBOR at 10.0% times $50,000,000, or $5,000,000, and W is deemed to make a swap payment to V equal to the annual level payment of $6,993,784 and the adjustment amount of $1,993,784. The net of the ratable daily portions of these payments determines the annual net income or deduction from the contract for both V and W.

Example 8. Subsequent Adjustment. (i) The terms of the equity swap agreement are the same as in Example 7. In addition, assume that on January 1, 2007, the second redetermination date, 1-year LIBOR is 11.0%, and the risk-free rate is also 11.0%. On that date, the parties redetermine the projected amount of the contingent nonperiodic payment using current values in effect on that date. The parties determine that the reprojected amount of the contingent nonperiodic payment that W will pay V on December 31, 2007, is $11,050,000. The present value as of January 1, 2005, of this projected fixed payment is significant when compared to the present value of the total payments due from W under the contract. Accordingly, pursuant to paragraph (g)(4) of this section, the transaction is recharacterized as two separate transactions.

(ii) The parties use the redetermined projected amount of $11,050,000, to reapply the method provided by paragraph (g)(4) effective as of the commencement date of the swap. As a preliminary step, using the risk-free rate of 11.0% as the discount rate, the parties determine the level payment amounts that have a present value equal to the present value of $11,050,000, the reprojected significant nonperiodic payment. Stated differently, the sum of the level payment amounts and accrued interest at 11.0% on those amounts must equal the reprojected significant nonperiodic payment. The level payment amounts thus determined are $3,306,304.

(iii) Next, V is treated as paying to W a series of $3,306,304 loan advances.

(iv) Then, W is treated as using each loan advance to fund one of the three annual level swap payments of $3,306,304. The level payment loan advances and accrued interest on the loan advances computed with annual compounding at 11.0% are as follows:

    Level Payment   Accrued Interest
2005   $3,306,304   $0
2006   3,306,304   363,693
2007   3,306,304   767,393
    $9,918,912   $1,131,086

(v) For 2007, V recognizes interest income, and W accrues interest expense equal to the $767,393 accrued interest amount for 2007 on the deemed loan advances. In addition, V has a net interest expense item and W has a net interest income item equal to $370,654 ($734,347 - 363,693), the difference between the interest accrual taken into account for 2006 and the amount that would have been taken into account for 2006 had the new level payment schedule in this Example 8 been in effect for 2006. As a result, V has net interest income and W has net interest expense in the amount of $396,739 for 2007. These interest amounts are not included in the parties’ net income or net deduction from the swap contract under paragraph (d) of this section.

(vi) The level payment amount of $3,306,304 is taken into account for the contract year 2007 in determining the parties’ net income and deductions on the swap pursuant to paragraph (d) of this section.

(vii) For 2007, the parties also take into account for 2007 the difference between the amounts previously recognized for 2005 and 2006 and the amounts that would have been recognized for those years had the new level payment schedule in this Example 8 been in effect in 2005 and 2006. The amounts previously recognized were: a total of $6,993,784 for 2005, which is the sum of $5,000,000 (in 2005) and $1,993,784 (in 2006), and a total of $6,993,784 for 2006 (in 2006). The adjustment amount, therefore, equals two times $3,687,480 ($6,993,784 - $3,306,304), or $7,374,960. This amount is taken into account as a payment for purposes of paragraph (d) of this section.

(viii) For the contract year 2007, V makes a swap payment to W equal to 1-year LIBOR at 11.0% times $5,000,000, or $5,500,000. W is deemed to make a swap payment to V equal to the annual level payment for 2007 of $3,306,304, and V is deemed to make a swap payment to W equal to the adjustment amount of $7,374,960. The net of the ratable daily portions of these payments determines the annual net income or deduction from the contract for both V and W.

Example 9. Adjustment for actual payment. (i) The terms of the equity swap agreement are the same as in Example 8. In addition, on December 31, 2007, W makes a payment to V of $25,000,000, an amount equal to the appreciation of a $50,000,000 investment in the basket of equity securities.

(ii) For 2007, $13,950,000, the difference between $25,000,000 and $11,050,000, the projected amount of the contingent payment as of January 1, 2007, is taken into account as an adjustment to the parties’ net income or deductions for each party’s taxable year that contains December 31, 2007, pursuant to paragraph (d) of this section.

* * * * *

(i) Election to mark to market. A taxpayer may elect to mark to market notional principal contracts providing for nonperiodic payments. The rules of paragraphs (f) (other than (f)(2)(i)), (g)(6)(ii) through (vii), and (h) of this section do not apply to contracts to which this paragraph (i) applies. See paragraph (i)(5) of this section for rules respecting interest accruals under paragraph (g)(4) of this section for contracts providing for significant nonperiodic payments to which this paragraph (i) applies.

(1) General rule. In the case of any contract held at the close of the taxable year to which this paragraph (i) applies, the taxpayer shall determine income inclusions and deductions by reference to the gain or loss that would be realized if the contract were sold for its fair market value on the last business day of the taxable year. Proper adjustment shall be made in the amount of any gain or loss subsequently realized (or calculated) for the income inclusions and deductions taken into account by reason of this paragraph (i)(1) as provided in paragraph (d)(2) of this section.

(2) Scope of election. The election provided by this paragraph is available for notional principal contracts that are—

(i) Of a type that is actively traded within the meaning of §1.1092(d)-1(c) (determined without regard to the limitation in §1.1092(d)-1(c)(2));

(ii) Marked to market by the taxpayer for purposes of determining the taxpayer’s financial income provided the taxpayer satisfies the requirements in paragraph (i)(4) of this section;

(iii) Subject to an agreement by a party to the contract that is subject to section 475 to supply to the taxpayer the value that it uses in applying section 475(a)(2); or

(iv) Marked to market by a regulated investment company described in section 1296(e)(2).

(3) Determination of fair market value. For purposes of paragraph (i)(1) of this section, fair market value is determined by applying the rules set forth in paragraphs (i)(3)(i) through (iv) of this section.

(i) Determination based on readily ascertainable value. For a contract described in paragraph (i)(2)(i) of this section, fair market value is determined based on the mean between the bid and asked prices quoted for the contract on an established financial market as defined in §1.1092(d)-1(b)(1), or, if bid and asked prices are not available, comparable prices determined on the basis of recent price quotations described in §1.1092(d)-1(b)(2).

(ii) Determination based on value used for financial statements. For a contract described in paragraph (i)(2)(ii) of this section that is not described in paragraph (i)(2)(i) of this section, fair market value is the value used by the taxpayer for purposes of preparing its financial statements under paragraph (i)(4) of this section.

(iii) Determination based on counterparty’s mark-to-market value. For a contract described in paragraph (i)(2)(iii) of this section that is not described in paragraph (i)(2)(i) of this section, fair market value is the mark-to-market value provided by a counterparty as being the value the counterparty used for purposes of section 475(a)(2).

(iv) Determination based on value used in determining net asset value. Notwithstanding paragraphs (i)(3)(i) through (iii) of this section, for a contract described in paragraph (i)(2)(iv) of this section, fair market value is the value used by the taxpayer in determining its net asset value.

(4) Requirements for use of financial statement values. [Reserved].

(5) Notional principal contracts accruing interest on significant nonperiodic payments—(i) General rule. If a notional principal contract that is marked to market under this paragraph (i) provides for one or more significant nonperiodic payments, paragraph (g)(4) of this section applies to the contract (computed with regard to the rule in paragraph (i)(5)(ii) of this section). Proper adjustment shall be made in the amount of any income inclusions or deductions recognized under paragraph (i)(1) of this section to take into account amounts recognized as interest under paragraph (g)(4) of this section and the payment or receipt of the nonperiodic payment or payments.

(ii) Special rules for significant contingent nonperiodic payments. In the case of a contract providing for a significant contingent nonperiodic payment, the projected amount of the payment is determined by applying one of the methods described in paragraph (g)(6)(iii) of this section or by applying the deemed equivalent value method described in this paragraph (i)(5)(ii). The amount of the payment is not redetermined except as provided in paragraph (g)(6)(iv)(B) of this section. The deemed equivalent value method may be applied if the contract fixes the timing and amount of all of the payments under the contract, except for a sole significant contingent nonperiodic payment. Under the deemed equivalent value method, the amount of the significant contingent nonperiodic payment is the amount that, as of the date the terms of the contract are fixed, causes the present value of all of the payments by the taxpayer to equal the present value of all of the payments of the counterparty to the contract. The present value of each payment of the contract is determined by applying the risk-free interest rate.

(iii) Nonapplicability to regulated investment companies. Paragraphs (i)(5)(i) and (ii) of this section do not apply to a regulated investment company described in paragraph (i)(2)(iv) of this section that makes an election under paragraph (i) of this section.

(6) Election. An election to apply this paragraph (i) must be made with respect to all notional principal contracts described in paragraph (i)(2) of this section to which the taxpayer is a party. The election must be made in the time and manner prescribed by the Commissioner and is effective for the taxable year for which made and all subsequent taxable years, unless revoked with the consent of the Commissioner.

(j) Effective dates—(1) General rule. Except as provided in paragraph (j)(2) of this section, this section is applicable for notional principal contracts entered into on or after December 13, 1993.

(2) Exception. Paragraphs (g)(6) (other than (g)(6)(i)) and (i) of this section are applicable for notional principal contracts entered into on or after 30 days after the date a Treasury decision based on these proposed regulations is published in the Federal Register.

Par. 5. Section 1.1234A-1 is added to read as follows:

§1.1234A-1 Notional principal contracts, bullet swaps, and forward contracts.

(a) General rule. If a taxpayer has a position in a notional principal contract governed by the rules of §1.446-3, any gain or loss arising from a termination payment as defined in §1.446-3(h)(1) is treated as gain or loss from a termination of the notional principal contract.

(b) Nonapplicability to payments other than termination payments. For purposes of section 1234A, none of the following payments terminate or cancel a right or obligation: a periodic payment described in §1.446-3(e), a nonperiodic payment described in §1.446-3(f), a contingent nonperiodic payment described in §1.446-3(g)(6) to which §1.446-3(g)(6)(ii) applies, or mark-to-market income inclusions and deductions described in §1.446-3(i)(1). Accordingly, section 1234A does not apply to any of these items, including any final scheduled payment. If a payment made or received pursuant to a notional principal contract is not a termination payment as defined in §1.446-3(h)(1), the payment constitutes ordinary income or expense. See sections 162 and 212 and the regulations thereunder.

(c) Bullets swaps and forward contracts—(1) Any gain or loss arising from the settlement of obligations under a bullet swap or forward contract (including a payment pursuant to the terms of the obligations) is treated as gain or loss from a termination of the bullet swap or forward contract.

(2) Definition of bullet swap. A bullet swap is a financial instrument that is not an excluded contract as defined in §1.446-3(c)(1)(ii), that provides for the computation of an amount or amounts due from one party to another by reference to a specified index upon a notional principal amount, and that provides for settlement of all the parties’ obligations at or close to maturity of the contract.

(d) Effective date. Paragraphs (b)(1) and (c) of this section are applicable to notional principal contracts, bullet swaps, and forward contracts entered into on or after 30 days after the date a Treasury decision based on these proposed regulations is published in the Federal Register.

Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement
.

Note

(Filed by the Office of the Federal Register on February 25, 2004, 8:45 a.m., and published in the issue of the Federal Register for February 26, 2004, 69 F.R. 8886)

Drafting Information

The principal author of these regulations is Kate Sleeth, Office of the Associate Chief Counsel (Financial Institutions and Products). However, other personnel from the IRS and Treasury participated in their development.

* * * * *

Announcement 2004-16

Revision of Form 3115

DECEMBER 2003 REVISION OF FORM 3115

Form 3115, Application for Change in Accounting Method, and its instructions have been revised. This December 2003 revision is the current Form 3115 and replaces the May 1999 version of the Form 3115.

In general, a taxpayer requesting a change in accounting method must complete and file a current Form 3115. See section 8.06 of Rev. Proc. 97-27, 1997-1 C.B. 680 (as modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, as amplified and clarified by Rev. Proc. 2002-54, 2002-2 C.B. 432). See also Rev. Proc. 2002-9, 2002-1 C.B. 327 (as modified and clarified by Announcement 2002-17, 2002-1 C.B. 561, modified and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, and amplified, clarified and modified by Rev. Proc. 2002-54, 2002-2 C.B. 432). To allow a reasonable transition period to the December 2003 Form 3115, the Service will accept either the May 1999 Form 3115 or the December 2003 Form 3115 through May 31, 2004, except where the use of the December 2003 Form 3115 is specifically required in guidance published by the IRS. Taxpayers filing Forms 3115 after May 31, 2004, must use the December 2003 Form 3115. The Service encourages taxpayers to use the December 2003 Form 3115 prior to June 1, 2004.

When requesting a change in accounting method, the applicant must provide the requested information to be eligible for approval of the requested accounting method change. The applicant may be required to provide information specific to the accounting method change such as an attached statement. The applicant must provide all information relevant to the requested accounting method change, even if not specifically requested by the Form 3115.

The December 2003 Form 3115 and instructions may be downloaded or ordered using the IRS website, www.irs.gov, and will be available at many local IRS offices. In addition, the December 2003 Form 3115 and instructions may be ordered by telephone by calling 1-800-TAX FORM (1-800-829-3676).

EFFECT OF THE DECEMBER 2003 FORM 3115 ON OTHER DOCUMENTS

The following revenue procedures contain references to specific sections of the Form 3115. Those references to the Form 3115 are modified to reflect the December 2003 Form 3115, as follows.

In Rev. Proc. 2001-10, 2001-1 C.B. 272, section 6.02(1)(d), the reference to “Part III (regarding the § 481(a) adjustment)” is modified to refer to “Part IV (regarding the § 481(a) adjustment).”

In Rev. Proc. 2001-23, 2001-1 C.B. 784, section 5.02(4), the reference to “Part I of Schedule B” is modified to refer to "Part I of Schedule C.”

In Rev. Proc. 2002-9, section 10.04(4)(c) of the Appendix, the reference to “Part I of Schedule B” is modified to refer to “Part I of Schedule C.”

In Rev. Proc. 2002-28, 2002-1 C.B. 815, section 7.02(1)(b), the reference to “Part III of Form 3115 (regarding the § 481(a) adjustment)” is modified to refer to “Part IV of Form 3115 (regarding the § 481(a) adjustment).”

For further information regarding this announcement, contact Brenda D. Wilson at (202) 622-4800 (not a toll-free call).

Announcement 2004-19

Foundations Status of Certain Organizations

The following organizations have failed to establish or have been unable to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under section 508(b) of the Code. This listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following organizations (which have been treated as organizations that are not private foundations described in section 509(a) of the Code) are now classified as private foundations:

Org. Name City State
100 Black Men of America, Inc., Greater Dallas Chapter, Dallas TX
100 Blacks Who Care, Inc., Brooklyn NY
Addison Terrace High Rise Resident Council, Pittsburgh PA
African Centre for the Constructive Resolution of Disputes, New York NY
African Liberation League, Los Angeles CA
African Refugees Relief Organization, Inc., Atlanta GA
Agape Life Center, Wichita KS
Agape Productions, Inc., Passaic NJ
Ambassadors For Christ Family Enhancement, Inc., Miami FL
American Friends of Children of Africa, Dover DE
American Friends of Masterprize, Inc., San Francisco CA
Andrea Levine Foundation, Cherry Hill NJ
Angel of Mercy Group Home, Inc., Hacienda Heights CA
Anti-Racist Education, Columbus OH
Appalachian Counseling Foundation, Portsmouth OH
Armenian International Womens Association Los Angeles Affiliate, Inc., Glendale CA
Arts Engine, Inc., Beverly Hills CA
Arts Incorporated in Human Services Ltd., Rego Park NY
Ashtabula County Foster Parent Support Group, Geneva OH
Badrock Fire and Quick Response Unit, Columbia Falls MT
Bar & Restaurant Service, Inc., Providence RI
Barbaras Playhouse a Haven For Little Angels, Inc., West Palm Beach FL
Basic Care of Greenfield, Inc., Greenfield OH
Beyth Millo Ministries, Inc., Blairsville GA
Black Star Housing Development, Inc., Houston TX
Bookmark Production, Inc., Providence RI
Boys and Girls Club of Lamar County, Purvis MS
Bruce Coslets Executives for Charity, W. Chester OH
Building Links, Inc., Ithaca NY
Buy American Campaign, Inc., Laguna Hills CA
California Organization For Assistive Technology Support, Orange CA
Calvary Cathedral International, Inc., Fort Worth TX
Capital Properties, Inc., Birmingham AL
Carey Hill Development Corporation, Inc., North Augusta SC
Caring For Families, Leiceister NC
Cass County Boys & Girls Club, Inc., Atlanta TX
Central New Life Outreach Ministries, Inc., Anchorage AK
Charity Human Services Organization, Inc., Freeport NY
Charles T. Carter Pastoral Education Foundation, Birmingham AL
Christian Helping Hands, Inc., Port Chester NY
Christian Rescue Mission, Inc., Dayton OH
Cincinnati Spikes, Cincinnati OH
Citizens For Recreation, Inc., Enosburg Falls VT
Classicway Cagers, Cincinnati OH
Clear Vision Foundation, Montpelier VT
Clinica San Pablo, El Monte CA
Clinical Research Network, Inc., Scotch Plains NJ
Coalition For a Safer Healthier Community, Kerrville TX
Collier County Community Tennis Foundation, Marco Island FL
Combined Fraternal Organizations of South Phoenix, Phoenix AZ
Commercial Assistance Program, Inc., Summit NJ
Commonwealth Landmarks Foundation, Oil City PA
Community Improvement Corporation of New Richmond Ohio, New Richmond OH
Community Support Initiative, Inc., Pittsburgh PA
Community Youth Development Services, Columbus OH
Conservative Front, Inc., Athens OH
Consumer Debt Management Corp., Rockville MD
Cook Communications Ministries International, Inc., Colorado Springs CO
Council For Public Deliberation, Columbus OH
Councils of Governments of Beaver & Butler Counties, Aliquippa PA
Counseling & Education Foundation For Texas Youth, Houston TX
Court Street Common, Inc., Exeter NH
Craighead County Citizens For Decency, Inc., Jonesboro AR
Creative Clowns Under Construction, Inc., Mount Vernon OH
Creative Community Development and Housing Corporation, Richmond VA
Crepe Myrtle, Memphis TN
Crime Victims Legal Assistance, Philadelphia PA
Cultural Society of Inland Empire, Apple Valley CA
D B Funds, Inc., Dallas TX
Dare to Dream Foundation, Inc., Tuskegee AL
Dauphin County Economic Development Corp., Harrisburg PA
Davids Heart, Euless TX
Delta Lambda Sigma Chapter of Phi Beta Sigma, Inc., Port Pierce FL
Destiny Ministries, Columbus OH
Discipling Com, San Diego CA
District of Northwest Schools Foundation, Cincinnati OH
Doctors Care Project of Bakersfield, Bakersfield CA
Drinkers Against Drunk Drivers, Concord CA
Earth Rise Spirituality and Educational Center, Inc., Scranton PA
East Canton Community Sports Complex Committee, East Canton OH
East Cleveland Park Commission, Cleveland OH
East Orange Urban Renewal Housing Development Corporation, Newark NJ
Edon Summer Ball League, Edon OH
Education For Industry, Sayre PA
El Rescate Development Fund, Inc., Los Angeles CA
Elders Place II, Inc., Philadelphia PA
Electra Productions, Inc., New Orleans LA
Emergency Management Volunteers, San Diego CA
Enjoy Theatre, Inc., Columbus OH
Envisions Learning Center, Sherman TX
Esther L. Stewart Memorial Fund, Inc., Dublin OH
Euharlee Valley Historical Society, Rockmart GA
Expressions For Life Funding Foundation, Tahoe Vista CA
External Educational Resources, Inc., Portland ME
EZ Transportation, Inc., Toledo OH
Facts of Life, Lodi CA
Fair Elections Commissions, Shippensburg PA
Faith Temple New Hope Community Development Corporation, East Orange NJ
Feed Our Children Ministries, Inc., Sarasota FL
Fertile Ground Ministries, Decatur AL
First Things Corp., St. Louis MO
Florida Community Homes, Inc., Ft. Lauderdale FL
Fondazione Regionale Christoforo Colombo,   Italy
Foundation For Educational Alternatives in the Rural South, Macon MS
Foundation For Health in Aging, Inc., New York NY
Foundation For Understanding Chinese Business, Kingston PA
Foundation Maria of Nevada, Las Vegas NV
Fraternidad Peruana De Utah, Murray UT
Freeburg Area Community Development Assn., Freeburg IL
Freeport Baseball Association, Freeport PA
Friends Glen, Philadelphia PA
Friends of Ash, Allentown PA
Friends of Children Society, Vancouver WA
Friends of Gummi, Inc., Naples FL
Friends of Phoenix Advantage Charter School, Inc., Phoenix AZ
Friends of the Boardwalk, Inc., Brooklyn NY
Friends of the Great Falls Library, Great Falls VA
Friends of the Hallstead-Great Bend Ranch Library, Hallstead PA
Gallman National Historic District Association, Inc., Gallman MS
Galveston Humane Society, Galveston TX
GAM Home Aid, Inc., Nashville TN
Gateppis Balloons, Waynesboro VA
Georgetown Alliance For Liberty and Freedom, Washington DC
Germantown-Venango Farmers Market Community Development Corp., Philadelphia PA
Gibbs Community Foundation, Oakland CA
GIF Outreach, Inc., Elizabethtown KY
Glenville Health Foundation, Cleveland OH
Glory Foundation, Columbia SC
God First, North Hollywood CA
Good Ground Ministries, Cottonport LA
Good Orderly Direction, Lorain OH
Good Messenger, Antelope CA
Good Samaritan Ministries, Fort Scott KS
Goshen Cancer Foundation, Pataskala OH
Gotell Communications, Dallas TX
Grace Institute, Shaker Heights OH
Grace Retirement Centers, Inc., Pasadena TX
GRC-II Charities, Inc., Middletown NY
Great Divide Orchid Society, Helena MT
Greenhouse Ministries, Inc., Lebanon OH
Greenwich 2000, Ltd., More Philips & Duncan PC, Greenwich CT
Growing Peace Foundation, Kettering OH
Guernsey County Society For the Physically Challenged, Inc., Cambridge OH
Haitian Agency Cultural & Technical Corporation, Atlanta GA
Hale Ohana O Kapaa, Kapaa HI
Hanai I Ka Uhane O Na Keiki to Foster the Spirit of Children, Honolulu HI
Harvey Community Center, Harvey IL
Heart Rock TV, Inc., Franklin TN
Helping Educators Remove Obstacles, Akron OH
Helping Hand For Relief & Development, Inc., Farmingdale NY
Heritage Center For Human and Community Development, Inc., Birmingham AL
Hillcrest Community Services & Free Store, Amelia OH
His Arms Extended Community Outreach Center, Inc., Pompano Beach FL
His Image Creations, Pickerington OH
Hollies Hope, Inc., Metairie LA
Housing Partners Community Development Corporation, Ambler PA
Huggle, Inc., Miami FL
Humane Society of Beaverhead County, Dillon MT
I E C A Foundation of Arizona, Inc., Phoenix AZ
Illyrian Group, Inc., Los Angeles CA
In Motion Sports, Inc., Newport KY
Inner City Perceptions, Inc., Arnold PA
Inspired Ministries, Potrero CA
Institute For Ethics in Education, Hudson OH
Institute For the Economic Development of Children, Philadelphia PA
Institute For the Study of the Magisterial Teaching of the Church, Worcester MA
Institute of Genetics Education, Santa Fe NM
Inter Denominational Energy and Economic Development Coalition, Philadelphia PA
International Football Club of Pennsylvania, Murrysville PA
International Institute of S P O R T, Inc., Georgetown TX
International Shalom Institute, Inc., Miami Beach FL
International Society of Otrhnlrngc Allergy and Immunology, Inc., Pittsburgh PA
Isaiah Services, Laguna Hills CA
Istanbul Heritage Fune, Inc., New York NY
Jackson Purchase Transportation Museum, Inc., Benton KY
James Buddy McGirt Foundation For Children, New York NY
JCLS Ministries, Inc., Camden OH
Jesus Fellowship, San Diego CA
Joe Robbie Foundation For Children, Boulder CO
John & Ada Diedrich 4-H Camp, Inc., Worthington KY
Ju-Jitsu Shotokan Karate Association, Darby PA
Kansas Ferret Association KFA, Lawrence KS
Kay Baxter Foundation, Inc., Spring Valley NY
Kealihooneaiana the Dallas Mossman Voegler Ohana, Honolulu HI
Keep the Faith Foundation, Inc., Jackson MS
Keeshond Sunshine Rescue Foundation, Woodbury MN
Keystone Center of Music and the Arts, Milford PA
Kid Power, Olympia WA
Kiddy City Development Center, Inc., Chicago IL
Kingdom Harvest Ministries, Inc., Los Angeles CA
Koleinu, Reynoldsburg OH
Ladies of Essence, Waterloo IA
Land of Flourishing Virtue, Inc., San Gabriel CA
Leadership Center, Houston TX
Leadership Potential, Inc., Avondale Est GA
Lee County Lacrosse, Inc., Fort Myers FL
Levine & West Group Home For Boys, Hawthorne CA
Liberty Place Clubhouse, Pittsburgh PA
Life Concerns Education and Counseling, Inc., Cincinnati OH
Louisiana Repertory Theatre Company, Houma LA
Lovell Johnson Quality of Life Center, Incorporated, Milwaukee WI
Loveman Village Resident Council, Inc., Birmingham AL
Lucas Outdoor, Inc., Washington Court House OH
M-Pact Youth Services, Cincinnati OH
Mack Ministries, Toledo OH
Maria Olberding Foundation, Cincinnati OH
Maryland Mountain Trust, Inc., Lonaconing MD
Mastee International, Annandale VA
Master of Breakthroughs, Baltimore MD
Matthew Harrington Memorial Fund, Jamison PA
MCPBA Foundation, Inc., Miami FL
Mentoring For Occupational Readiness and Employment, St. Charles IL
Merrifield Estates, Inc., Portsmouth VA
Messiah International Foundation, Beverly Hills CA
Mi Casa Su Casa Housing Development Corporation, Menlo Park CA
Mid Atlantic Golfers Association, Inc., Atlanta GA
Middle Road Foundation, Santa Fe NM
Millennium Center For Digital History, Washington DC
Millennium Philadelphia Celebration, Philadelphia PA
Mine Victims Fund, Charlottesville VA
Mineola Senior Citizens Center, Inc., Mineola TX
Mission Emmanuel, Portland OR
Mobility Impaired Resources, Inc., Billings MT
Montana Mining Association-Mine Safety Program, Helena MT
Mortal Angels, Inc., Carson CA
Motion Picture Industry Charitable Alliance, Springfield OH
Mount Carmel Area School District Education Foundation, Mount Carmel PA
Mu Chapter of Sigma Chi Foundation, Granville OH
Mu Sigma Zeta Chapter of Zeta Phi Beta Sorority, Inc., San Diego CA
Multicultural Art Academy, Dallas TX
N B Cbethel-U S A Housing, Inc., Thirty Two, Newark OH
Name Center — Pelham, Pelham AL
NATAS Northwest Regional Scholarship Foundation, Seattle WA
National Nephrology Technical Certification Board, Sunnyvale CA
National Voluntary Health Facility 5, Inc., Brooklyn NY
Neighborhood Investment Resources, Dayton OH
Neighborhood Learning Options, Inc., Germantown MD
Neighborhood Storehouse Association, Inc., Third Street GA
Nevada Association of State and Drug Abuse Programs, Las Vegas NV
New Community Builders, Inc., Jersey City NJ
New Concept Visions 2000, Inc., Hollywood FL
New Covenant Development Foundation, Heath Springs SC
New Mexico Hispano Entertainers Association, Albuquerque NM
Nisan Young Women Leaders USA, Inc., New York NY
North Carolina Association of Black Lawyers Foundation, Inc., Durham NC
North Carolina Association on Aging Foundation, Rocky Mount NC
North Carolina Dance & Dance Sport Foundation, Raleigh NC
North Central Pennsylvania Ice Sports, Inc., Williamsport PA
North Hardin Youth Cheerleading League, Inc., Radcliff KY
North Star Foundation, Cedar City UT
Northridge Pee Wee Football Association, Dayton OH
Northside Center For Women, Inc., S. Hamilton MA
Northumberland County Organizational Resources For Community Outreach, Kulpmont PA
Oaks Group, Inc., San Antonio TX
Oasis Community Development Corporation, Camden NJ
Ohio Campus Ministry For Korean Students, Inc., Huber Heights OH
Ohio Community Schools Center, Columbus OH
Ohio Firefighters Benevolent Fund, Cincinnati OH
Ohio High School Cup, Springfield OH
Ohio Premier Too, Inc., Dublin OH
Ohio Valley Boxing, Inc., Dayton OH
Ohio Valley Youth Athletics, Inc., Dayton OH
Old Logandale School Historical and Cultural Society, Logandale NV
Olentangy Heritage Foundation, Delaware OH
One Community One Goal, Inc., Miami FL
Opera For Everyone, Inc., Havertown PA
Opera Institute of California, San Jose CA
Orchard Place East at Spartanburg, Inc., Columbia SC
Oxford Animal Rescue Foundation, Inc., Camden OH
Parade Street Development Corporation, Erie PA
Parents and Children Against Drugs, Philadelphia PA
Parents Backing Students, Baton Rouge LA
Parents Empowerment Coalition, Cincinnati OH
Partners For Human Progress, Inc., Somers NY
Patrick F. Knapp Scholarship Fund, Central City PA
Peerspectives, Inc., Syracuse NY
Peggy Still Foundation For Creation & Education of New Music, Inc., Roswell GA
Pennsylvania Performing Arts Company, North Wales PA
Pentecostes Siglo XXI, Anaheim CA
Philadelphia Polo Club, Inc., Villanova PA
Philip Procaccino Memorial Scholarship Fund, Vineland NJ
Phoenix House, Inc., Warren PA
Physicians Council For the Hearing Impaired, Huntington Beach CA
Pike County Youth Soccer League, Waverly OH
Playback Theatre Midwest, Chicago IL
Plover Hill Productions, Inc., Ipswich MA
Plum Street Foundation, Philadelphia PA
Polacek Family Human Needs Fund, Johnstown PA
Police and Community Together Community Volunteer Services, Tacoma WA
Polish American Radiological Education Trust, Boston MA
Polk Community Preschools Association, Inc., Winter Haven FL
Poor Box Consortium For the Arts, Westerville OH
Poplar Bluff Soccer Club, Inc., Poplar Bluff MO
Pot Belly Pig Rescue, Inc., Las Vegas NV
Powhatan Fair Association, Powhatan VA
Praise and Worship Ministries, Dublin OH
Prillerman, Columbus OH
Primera Iglesia Cristiana Nueva Vida Amor Y Verdad, Inc., Buffalo NY
Professional Cosmetologists and Barbers Association, Cincinnati OH
Progressive Youth Foundation, Danville CA
Project Enrichment, Cincinnati OH
Project Feel Better, Inc., White Plains NY
Project Green of Montana, Inc., Butte MT
Prospect Terrace Resident Council, E. Pittsburgh PA
Public Education Foundation of Monroe County, Inc., Monroeville AL
Purpose For Life Foundation, Columbus OH
R Carolina Life Center, Kershaw SC
Rainbow Farms Therapeutic Riding Center, Inc., Atlanta GA
Rainbows End, Inc., Poland OH
Rankin Arts Coalition, Inc., Brandon MS
Reach Out Ministries, Springfield OH
Real Hope Cafe, Fisher WV
Recovery Foundation, Inc., Miami FL
Redeeming Word Christian Academy, Inc., Ft. Lauderdale FL
Region Three School-to-Work Alliance, Lima OH
Rhema Outreach Ministries, Inc., Harleysville PA
Richmond Conservative Union, Richmond VA
Riggers Athletic Club, Honolulu HI
Roberson Economic Development, Inc., Pembroke Pines FL
Rocky Mountain Forestry and Fire Suppression, Littleton CO
Roswell Outdoor Theatrical Association, Inc., Roswell NM
RX2000 Foundation, Minnetonka MN
Safe House Services, Inc., Sherman Oaks CA
Safer Children Agency, S. Williamsport PA
Safety Net Foundation, Philadelphia PA
Saint Jude House, Wichita KS
Samantha Foundation, Ltd., Ellicott City MD
San Francisco Partnership, San Francisco CA
Sanctuary for the Arts, Portland OR
Senior and Disabled Services of North Carolina, Inc., Red Springs NC
Seven Oaks Tenant Association, Kansas City MO
Shabbat New York, Inc., New York NY
Shadowbrook Animal Rescue, Louisville KY
Shamrock Gym of Cincinnati, Inc., Loveland OH
Shelter Eldercare Foundation, Inc., Baltimore MD
Shepherds Learning Centers a Charitable Foundation, Loomis CA
Shiloh Entreprenurial & Economic Development Corp., Plainfield NJ
Sistahs in Good Company, Cedar Rapids IA
Slavic Support and Assistance Association, W. Sacramento CA
Society of Hearing-Impaired Physicians, Inc., Ambler PA
South Bend Firefighters Association, Jacksonville AR
South Central Oregon Domestic Violence Coalition Haven House, La Pine OR
Southern New Orleans Association of the Deaf, New Orleans LA
Sport Psychiatry Foundation, Inc., Pacific Palisades CA
St. Mathews Community Development and Management Corporation, Baltimore MD
Star Toys Museum, Inc., Linthicum MD
Supervise Family Interaction Center, Inc., Grand Blanc MI
Suspicious Cheeselords, Inc., Washington DC
Teen Challenge International Madison Life Center, Inc., Madison WI
Terrace Poe Tennet Council, Inc., Baltimore MD
Tomorrows Hope, Inc., Jefferson WI
Touched By a Paw, Whitewater WI
Transitional Support Services, Ft. Washington MD
Travesties Project, Ltd., Madison WI
Tri-Quest Charities, Inc., La Crosse WI
Trivisions, Inc., New Carrollton MD
Tropic Org Association For Resources & Tropical America, Washington DC
U S-Taiwan Business Forum, Arlington VA
Unique Rescue Base, Ferndale MI
United Neighbors Involved in Quality Urban Exp Unique Development, Inc., Washington DC
United States Chechen Republic Alliance, Inc., Silver Spring MD
Unity Project, Inc., Annapolis MD
Vantage Point Forum, Inc., Colorado Springs CO
Via Dolorosa Genesis Project, Detroit MI
Victims Impact Video, Inc., Owings Mills MD
Viola Club of MD-DC & VA, Inc., Baltimore MD
Wallace Development Corporation, Inc., Riviera Beach FL
Walter Graham Society, Inc., Dayton OH
Warrington House, Inc., Brooklyn ME
Way Out Foundation, Torrance CA
Waynesville Athletic Facilities Committee, Inc., Waynesville OH
We Care Foundation, Inc., Cincinnati OH
Wellness Foundation of San Ramon Valley, San Ramon CA
West Hertel Academy Parent Association, Buffalo NY
White Bear Lake High School Wrestling Booster Club, White Bear Lake MN
Whitehall Day Care Center, Inc., Whitehall WI
Wiconi Teca, Interior SD
Wildtalk, Williams Bay WI
Willie Mae Webb Home For Unwed Mothers, Inc., Minneapolis MN
Wings For Kids, Inc., Mechanicsburg PA
Winnemucca Soccer Club, Winnemucca NV
Wisconsin Black Law Alumni Association Corp., Madison WI
Wisconsin Braille, Cazenovia WI
Wisconsin Deaf Sports Club, Inc., Sun Prairie WI
Wisconsin Education Reform Foundation, Madison WI
Wisconsin Futurity Horse Festival, Pewaukee WI
Wisconsin Handgun Violence Prevention, Milwaukee WI
Wisconsin Multisport, Inc., Madison WI
Wisconsin National Organization For Women Education Fund, Inc., Madison WI
Wisconsin North Youth Ballet State Regional Arts Center, Eau Claire WI
Wisconsin Siberian Husky Rescue, Madison WI
Wisconsin State Youth Baseball League, Inc., Milwaukee WI
With Him, Inc., Oak Ridge TN
Women of God, Walker MN
Y O C A, Inc., Toledo OH
Young Artisans Research & Design Center, Inc., Pittsburgh PA
Young Singers of Darlington, Inc., Darlington SC
Youth Determined to Succeed, Inc., Pittsburgh PA
Youth Education Scholarship Services, Lathrop CA
Youth Owning Urban Responsibilities Service, Minneapolis MN
Yukla27, Lakewood CO
Yuma Family YMCA Foundation, Yuma AZ
Zoelife Ministries, Incorporated, Baton Rouge LA

If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Internal Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)-7 of the Income Tax Regulations. It is not the practice of the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

Announcement 2004-20

IRS Announces Changes to Publication 1542, Per Diem Rates (For Travel Within the Continental United States)

Paper copies of the February 2004 annual revision of Publication 1542 are now available. This is the last regularly scheduled printed edition. All future revisions will be available on the IRS website at www.irs.gov. Paper copies will be available by request only.

Beginning this year, interim revisions to Publication 1542 will be made each time changes to per diem rates are announced by the General Services Administration (GSA). A What’s Hot article on the IRS website will announce the availability of each new revision on the Internet.

The annual issue with the fiscal year per diem rates will be released on the Internet as soon as possible after GSA and the IRS announce those rates. We anticipate the annual issue being available in mid- to late-October.

Announcement 2004-21

New Revision of Publication 538, Accounting Periods and Methods

Publication 538, revised March 2004, is now available from the Internal Revenue Service. It replaces the March 2003 revision.

This publication provides information on how to determine the appropriate accounting period and accounting method for your business. It also provides information on how to change your accounting period and accounting method.

You can get a copy of this publication by calling 1-800-TAX-FORM (1-800-829-3676) or by writing to the IRS Forms Distribution Center nearest you. Check your income tax package for the address. The publication is also available on the IRS Internet website at www.irs.gov.

Announcement 2004-23

Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code

The name of an organization that no longer qualifies as an organization described in section 170(c)(2) of the Internal Revenue Code of 1986 is listed below.

Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on October 28, 2002, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

Org. Name City State
Foundation to Save Our Children’s Environment Tulsa OK

Definition of Terms and Abbreviations

Definition of Terms

Amplified describes a situation where no change is being made in a prior published position, but the prior position is being extended to apply to a variation of the fact situation set forth therein. Thus, if an earlier ruling held that a principle applied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare with modified, below).

Clarified is used in those instances where the language in a prior ruling is being made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed.

Distinguished describes a situation where a ruling mentions a previously published ruling and points out an essential difference between them.

Modified is used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling 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 laws 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 a 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.

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:

Abbreviations

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.

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions 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.—Statement of Procedural 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.

Numerical Finding List

Numerical Finding List

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2003-27 through 2003-52 is in Internal Revenue Bulletin 2003-52, dated December 29, 2003.

Bulletins 2004-1 through 2004-13

Announcements

Article Issue Link Page
2004-1 2004-1 I.R.B. 2004-1 254
2004-2 2004-3 I.R.B. 2004-3 322
2004-3 2004-2 I.R.B. 2004-2 294
2004-4 2004-4 I.R.B. 2004-4 357
2004-5 2004-4 I.R.B. 2004-4 362
2004-6 2004-3 I.R.B. 2004-3 322
2004-7 2004-4 I.R.B. 2004-4 365
2004-8 2004-6 I.R.B. 2004-6 441
2004-9 2004-6 I.R.B. 2004-6 441
2004-10 2004-7 I.R.B. 2004-7 501
2004-11 2004-10 I.R.B. 2004-10 581
2004-12 2004-9 I.R.B. 2004-9 541
2004-13 2004-9 I.R.B. 2004-9 543
2004-14 2004-10 I.R.B. 2004-10 582
2004-15 2004-11 I.R.B. 2004-11 612
2004-16 2004-13 I.R.B. 2004-13  
2004-17 2004-12 I.R.B. 2004-12 635
2004-18 2004-12 I.R.B. 2004-12 639
2004-19 2004-13 I.R.B. 2004-13  
2004-20 2004-13 I.R.B. 2004-13  
2004-21 2004-13 I.R.B. 2004-13  
2004-23 2004-13 I.R.B. 2004-13  

 

Notices

Article Issue Link Page
2004-1 2004-2 I.R.B. 2004-2 268
2004-2 2004-2 I.R.B. 2004-2 269
2004-3 2004-5 I.R.B. 2004-5 391
2004-4 2004-2 I.R.B. 2004-2 273
2004-5 2004-7 I.R.B. 2004-7 489
2004-6 2004-3 I.R.B. 2004-3 308
2004-7 2004-3 I.R.B. 2004-3 310
2004-8 2004-4 I.R.B. 2004-4 333
2004-9 2004-4 I.R.B. 2004-4 334
2004-10 2004-6 I.R.B. 2004-6 433
2004-11 2004-6 I.R.B. 2004-6 434
2004-12 2004-10 I.R.B. 2004-10 556
2004-13 2004-12 I.R.B. 2004-12 631
2004-14 2004-9 I.R.B. 2004-9 526
2004-15 2004-9 I.R.B. 2004-9 526
2004-16 2004-9 I.R.B. 2004-9 527
2004-17 2004-11 I.R.B. 2004-11 605
2004-18 2004-11 I.R.B. 2004-11 605
2004-19 2004-11 I.R.B. 2004-11 606
2004-20 2004-11 I.R.B. 2004-11 608
2004-21 2004-11 I.R.B. 2004-11 609
2004-22 2004-12 I.R.B. 2004-12 632
2004-24 2004-13 I.R.B. 2004-13  

 

Proposed Regulations

Article Issue Link Page
116664-01 2004-3 I.R.B. 2004-3 319
122379-02 2004-5 I.R.B. 2004-5 392
139845-02 2004-5 I.R.B. 2004-5 397
165579-02 2004-13 I.R.B. 2004-13  
166012-02 2004-13 I.R.B. 2004-13  
126459-03 2004-6 I.R.B. 2004-6 437
126967-03 2004-10 I.R.B. 2004-10 566
156232-03 2004-5 I.R.B. 2004-5 399
156421-03 2004-10 I.R.B. 2004-10 571
167217-03 2004-9 I.R.B. 2004-9 540

 

Revenue Procedures

Article Issue Link Page
2004-1 2004-1 I.R.B. 2004-1 1
2004-2 2004-1 I.R.B. 2004-1 83
2004-3 2004-1 I.R.B. 2004-1 114
2004-4 2004-1 I.R.B. 2004-1 125
2004-5 2004-1 I.R.B. 2004-1 167
2004-6 2004-1 I.R.B. 2004-1 197
2004-7 2004-1 I.R.B. 2004-1 237
2004-8 2004-1 I.R.B. 2004-1 240
2004-9 2004-2 I.R.B. 2004-2 275
2004-10 2004-2 I.R.B. 2004-2 288
2004-11 2004-3 I.R.B. 2004-3 311
2004-12 2004-9 I.R.B. 2004-9 528
2004-13 2004-4 I.R.B. 2004-4 335
2004-14 2004-7 I.R.B. 2004-7 489
2004-15 2004-7 I.R.B. 2004-7 490
2004-16 2004-10 I.R.B. 2004-10 559
2004-17 2004-10 I.R.B. 2004-10 562
2004-18 2004-9 I.R.B. 2004-9 529
2004-19 2004-10 I.R.B. 2004-10 563
2004-20 2004-13 I.R.B. 2004-13  

 

Revenue Rulings

Article Issue Link Page
2004-1 2004-4 I.R.B. 2004-4 325
2004-2 2004-2 I.R.B. 2004-2 265
2004-3 2004-7 I.R.B. 2004-7 486
2004-4 2004-6 I.R.B. 2004-6 414
2004-5 2004-3 I.R.B. 2004-3 295
2004-6 2004-4 I.R.B. 2004-4 328
2004-7 2004-4 I.R.B. 2004-4 327
2004-8 2004-10 I.R.B. 2004-10 544
2004-9 2004-6 I.R.B. 2004-6 428
2004-10 2004-7 I.R.B. 2004-7 484
2004-11 2004-7 I.R.B. 2004-7 480
2004-12 2004-7 I.R.B. 2004-7 478
2004-13 2004-7 I.R.B. 2004-7 485
2004-14 2004-8 I.R.B. 2004-8 511
2004-15 2004-8 I.R.B. 2004-8 515
2004-16 2004-8 I.R.B. 2004-8 503
2004-17 2004-8 I.R.B. 2004-8 516
2004-18 2004-8 I.R.B. 2004-8 509
2004-19 2004-8 I.R.B. 2004-8 510
2004-20 2004-10 I.R.B. 2004-10 546
2004-21 2004-10 I.R.B. 2004-10 544
2004-22 2004-10 I.R.B. 2004-10 553
2004-23 2004-11 I.R.B. 2004-11 585
2004-24 2004-10 I.R.B. 2004-10 550
2004-25 2004-11 I.R.B. 2004-11 587
2004-26 2004-11 I.R.B. 2004-11 598
2004-27 2004-12 I.R.B. 2004-12 625
2004-28 2004-12 I.R.B. 2004-12 624
2004-29 2004-12 I.R.B. 2004-12 627
2004-30 2004-12 I.R.B. 2004-12 622
2004-31 2004-12 I.R.B. 2004-12 617
2004-32 2004-12 I.R.B. 2004-12 621
2004-33 2004-12 I.R.B. 2004-12 628
2004-34 2004-12 I.R.B. 2004-12 619
2004-35 2004-13 I.R.B. 2004-13  
2004-36 2004-12 I.R.B. 2004-12 620
2004-37 2004-11 I.R.B. 2004-11 583

 

Tax Conventions

Old Article Action New Article Issue Link Page
2004-3   2004-3 2004-7 I.R.B. 2004-7 486

 

Treasury Decisions

Article Issue Link Page
9099 2004-2 I.R.B. 2004-2 255
9100 2004-3 I.R.B. 2004-3 297
9101 2004-5 I.R.B. 2004-5 376
9102 2004-5 I.R.B. 2004-5 366
9103 2004-3 I.R.B. 2004-3 306
9104 2004-6 I.R.B. 2004-6 406
9105 2004-6 I.R.B. 2004-6 419
9106 2004-5 I.R.B. 2004-5 384
9107 2004-7 I.R.B. 2004-7 447
9108 2004-6 I.R.B. 2004-6 429
9109 2004-8 I.R.B. 2004-8 519
9110 2004-8 I.R.B. 2004-8 504
9111 2004-8 I.R.B. 2004-8 518
9112 2004-9 I.R.B. 2004-9 523
9113 2004-9 I.R.B. 2004-9 524
9114 2004-11 I.R.B. 2004-11 589

 

Effect of Current Actions on Previously Published Items

Findings List of Current Actions on Previously Published Items

A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2003-27 through 2003-52 is in Internal Revenue Bulletin 2003-52, dated December 29, 2003.

Bulletins 2004-1 through 2004-13

Announcements

Old Article Action New Article Issue Link Page
2003-56 Modified by Ann. 2004-11 2004-10 I.R.B. 2004-10 581

 

Notices

Old Article Action New Article Issue Link Page
98-5 Withdrawn by Notice 2004-19 2004-11 I.R.B. 2004-11 606
2003-76 Modified by Notice 2004-19 2004-11 I.R.B. 2004-11 606

 

Proposed Regulations

Old Article Action New Article Issue Link Page
110896-98 Corrected by Ann. 2004-14 2004-10 I.R.B. 2004-10 582
115037-00 Corrected by Ann. 2004-7 2004-4 I.R.B. 2004-4 365
143321-02 Withdrawn by REG-156232-03 2004-5 I.R.B. 2004-5 399
146893-02 Corrected by Ann. 2004-7 2004-4 I.R.B. 2004-4 365
163974-02 Corrected by Ann. 2004-13 2004-9 I.R.B. 2004-9 543

 

Revenue Procedures

Old Article Action New Article Issue Link Page
87-19 Obsoleted in part by Rev. Proc. 2004-18 2004-9 I.R.B. 2004-9 529
93-15 Obsoleted in part by Rev. Proc. 2004-18 2004-9 I.R.B. 2004-9 529
94-41 Superseded by Rev. Proc. 2004-15 2004-7 I.R.B. 2004-7 490
94-55 Obsoleted in part by Rev. Proc. 2004-18 2004-9 I.R.B. 2004-9 529
98-16 Suspended by Notice 2004-12 2004-10 I.R.B. 2004-10 556
2000-38 Modified by Rev. Proc. 2004-11 2004-3 I.R.B. 2004-3 311
2000-50 Modified by Rev. Proc. 2004-11 2004-3 I.R.B. 2004-3 311
2001-10 Modified by Ann. 2004-16 2004-13 I.R.B. 2004-13  
2001-23 Modified by Ann. 2004-16 2004-13 I.R.B. 2004-13  
2002-9 Modified and amplified by Rev. Rul. 2004-18 2004-8 I.R.B. 2004-8 509
2002-9 Modified by Rev. Proc. 2004-11 2004-3 I.R.B. 2004-3 311
2002-9 Modified by Ann. 2004-16 2004-13 I.R.B. 2004-13  
2002-28 Modified by Ann. 2004-16 2004-13 I.R.B. 2004-13  
2002-71 Superseded by Rev. Proc. 2004-13 2004-4 I.R.B. 2004-4 335
2003-1 Superseded by Rev. Proc. 2004-1 2004-1 I.R.B. 2004-1 1
2003-2 Superseded by Rev. Proc. 2004-2 2004-1 I.R.B. 2004-1 83
2003-3 As amplified by Rev. Proc. 2003-14, and as modified by Rev. Proc. 2003-48 superseded by Rev. Proc. 2004-3 2004-1 I.R.B. 2004-1 114
2003-4 Superseded by Rev. Proc. 2004-4 2004-1 I.R.B. 2004-1 125
2003-5 Superseded by Rev. Proc. 2004-5 2004-1 I.R.B. 2004-1 167
2003-6 Superseded by Rev. Proc. 2004-6 2004-1 I.R.B. 2004-1 197
2003-7 Superseded by Rev. Proc. 2004-7 2004-1 I.R.B. 2004-1 237
2003-8 Superseded by Rev. Proc. 2004-8 2004-1 I.R.B. 2004-1 240
2003-23 Modified and superseded by Rev. Proc. 2004-14 2004-7 I.R.B. 2004-7 489
2003-26 Supplemented by Rev. Proc. 2004-17 2004-10 I.R.B. 2004-10 562
2004-1 Corrected by Ann. 2004-8 2004-6 I.R.B. 2004-6 441
2004-4 Modified by Rev. Proc. 2004-15 2004-7 I.R.B. 2004-7 490
2004-5 Modified by Rev. Proc. 2004-15 2004-7 I.R.B. 2004-7 490
2004-6 Modified by Rev. Proc. 2004-15 2004-7 I.R.B. 2004-7 490

 

Revenue Rulings

Old Article Action New Article Issue Link Page
55-748 Modified and superseded by Rev. Rul. 2004-20 2004-10 I.R.B. 2004-10 546
92-19 Supplemented in part by Rev. Rul. 2004-14 2004-8 I.R.B. 2004-8 511
94-38 Clarified by Rev. Rul. 2004-18 2004-8 I.R.B. 2004-8 509
98-25 Clarified by Rev. Rul. 2004-18 2004-8 I.R.B. 2004-8 509

 

How to get the Internal Revenue Bulletin

INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINS

The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the Superintendent of Documents.

ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET

You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under contents, select Businesses. Under topics, select More Topics. Then select Internal Revenue Bulletins.

INTERNAL REVENUE BULLETINS ON CD-ROM

Internal Revenue Bulletins are available annually as part of Publication 1976 (Tax Products CD-ROM). The CD-ROM can be purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders) or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

How to Order

Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance, detach entire page, and mail to the

P.O. Box 371954, Pittsburgh PA, 15250-7954

. Please allow two to six weeks, plus mailing time, for delivery.

We Welcome Comments About the Internal Revenue Bulletin

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page (www.irs.gov) or write to the

IRS Bulletin Unit, W:CAR:MP:T:T:SP, Washington, DC 20224