INCOME TAX Rev. Rul. 98–13, page 4. Low-income housing credit; satisfactory bond; “bond factor” amounts for the period January through March 1998. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period January through March 1998. Rev. Rul. 98–14, page 4. Fringe benefits aircraft valuation formula. For purposes of section 1.61–21(g) of the Income Tax Regulations, relat- ing to the rule for valuing noncommercial flights on em- ployer-provided aircraft, the Standard Industry Fare Level (SIFL) cents-per-mile rates and terminal charge in effect for the first half of 1998 are set forth. EMPLOYEE PLANS REG–209485–86, page 21. Proposed regulations under section 4980B of the Code pro- vide guidance on certain changes made by the Health Insur- ance Portability and Accountability Act of 1996, the Omnibus Budget Reconciliation Act of 1989, and the Technical and Mis- cellaneous Revenue Act of 1988 relating to the continuation coverage requirements applicable to group health plans. EXEMPT ORGANIZATIONS Announcement 98–21, page 26. A list is given of organizations now classified as private foun- dations. EMPLOYMENT TAX REG–104691–97, page 13. Proposed regulations under section 6053 of the Code per- mit employers to establish electronic systems for their tipped employees to use to report tips to the employer. EXCISE TAX PS–158–86, page 13. The proposed regulation under section 4611 of the Code re- lating to the petroleum tax imposed on natural gasoline is withdrawn. ADMINISTRATIVE Rev. Proc. 98–25, page 7. Books and records; automatic data processing system. This procedure specifies the basic requirements that the Ser- vice considers to be essential in cases where a taxpayer’s records are maintained within an Automatic Data Processing (ADP) system. Rev. Proc. 91–59 updated and superseded. Notice 98–17, page 6. This notice provides simplified rules under section 6038B of the Code, as amended by the Taxpayer Relief Act of 1997, on how U.S. persons should report transfers of property to foreign partnerships made between August 5, 1997, and January 1, 1998. Taxpayers may also apply the simplified rules of this notice to transfers to foreign partnerships made after August 20, 1996, and subject to the reporting require- ments of section 1494(c) of the Code, so that the penalties under that section will not apply. REG–209276–87, page 18. Proposed regulations under section 6404 of the Code relate to the abatement of interest attributable to unreasonable er- rors or delays by an officer or employee of the IRS in per- forming a ministerial or managerial act. Announcement 98–20, page 25. This announcement informs all payers/transmitters, who file information returns magnetically or electronically with the IRS Martinsburg Computing Center, of a change in the record format for tax year 1998 returns filed in calendar year 1999. Internal Revenue bulletin Bulletin No. 1998–11 March 16, 1998 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. Department of the Treasury Internal Revenue Service Finding Lists begin on page 29.
Transcript
INCOME TAXRev. Rul. 98–13, page 4.Low-income housing credit; satisfactory bond; “bondfactor” amounts for the period January through March1998. This ruling announces the monthly bond factoramounts to be used by taxpayers who dispose of qualifiedlow-income buildings or interests therein during the periodJanuary through March 1998.
Rev. Rul. 98–14, page 4.Fringe benefits aircraft valuation formula. For purposesof section 1.61–21(g) of the Income Tax Regulations, relat-ing to the rule for valuing noncommercial flights on em-ployer-provided aircraft, the Standard Industry Fare Level(SIFL) cents-per-mile rates and terminal charge in effect forthe first half of 1998 are set forth.
EMPLOYEE PLANSREG–209485–86, page 21.Proposed regulations under section 4980B of the Code pro-vide guidance on certain changes made by the Health Insur-ance Portability and Accountability Act of 1996, the OmnibusBudget Reconciliation Act of 1989, and the Technical and Mis-cellaneous Revenue Act of 1988 relating to the continuationcoverage requirements applicable to group health plans.
EXEMPT ORGANIZATIONSAnnouncement 98–21, page 26.A list is given of organizations now classified as private foun-dations.
EMPLOYMENT TAXREG–104691–97, page 13.Proposed regulations under section 6053 of the Code per-mit employers to establish electronic systems for theirtipped employees to use to report tips to the employer.
EXCISE TAXPS–158–86, page 13.The proposed regulation under section 4611 of the Code re-lating to the petroleum tax imposed on natural gasoline iswithdrawn.
ADMINISTRATIVE
Rev. Proc. 98–25, page 7.Books and records; automatic data processing system.This procedure specifies the basic requirements that the Ser-vice considers to be essential in cases where a taxpayer’srecords are maintained within an Automatic Data Processing(ADP) system. Rev. Proc. 91–59 updated and superseded.
Notice 98–17, page 6.This notice provides simplified rules under section 6038B ofthe Code, as amended by the Taxpayer Relief Act of 1997,on how U.S. persons should report transfers of property toforeign partnerships made between August 5, 1997, andJanuary 1, 1998. Taxpayers may also apply the simplifiedrules of this notice to transfers to foreign partnerships madeafter August 20, 1996, and subject to the reporting require-ments of section 1494(c) of the Code, so that the penaltiesunder that section will not apply.
REG–209276–87, page 18.Proposed regulations under section 6404 of the Code relateto the abatement of interest attributable to unreasonable er-rors or delays by an officer or employee of the IRS in per-forming a ministerial or managerial act.
Announcement 98–20, page 25.This announcement informs all payers/transmitters, who fileinformation returns magnetically or electronically with theIRS Martinsburg Computing Center, of a change in therecord format for tax year 1998 returns filed in calendaryear 1999.
Internal Revenue
bbuulllleettiinnBulletin No. 1998–11
March 16, 1998
HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.
Department of the TreasuryInternal Revenue Service
Finding Lists begin on page 29.
Mission of the Service
The purpose of the Internal Revenue Service is to collectthe proper amount of tax revenue at the least cost; servethe public by continually improving the quality of our prod-
ucts and services; and perform in a manner warrantingthe highest degree of public confidence in our integrity, effi-ciency, and fairness.
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Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is to adminis-ter the Internal Revenue Code. Tax policy for raising revenueis determined by Congress.
With this in mind, it is the duty of the Service to carry out thatpolicy by correctly applying the laws enacted by Congress;to determine the reasonable meaning of various Code provi-sions in light of the Congressional purpose in enacting them;and to perform this work in a fair and impartial manner, withneither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the Code. Itis the responsibility of each person in the Service, chargedwith the duty of interpreting the law, to try to find the truemeaning of the statutory provision and not to adopt astrained construction in the belief that he or she is “protect-ing the revenue.” The revenue is properly protected onlywhen we ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying andadministering the law in a reasonable, practical manner.Issues should only be raised by examining officers whenthey have merit, never arbitrarily or for trading purposes.At the same time, the examining officer should never hesi-tate to raise a meritorious issue. It is also important thatcare be exercised not to raise an issue or to ask a court toadopt a position inconsistent with an established Serviceposition.
Administration should be both reasonable and vigorous. Itshould be conducted with as little delay as possible andwith great courtesy and considerateness. It should nevertry to overreach, and should be reasonable within thebounds of law and sound administration. It should, howev-er, be vigorous in requiring compliance with law and itshould be relentless in its attack on unreal tax devices andfraud.
The Internal Revenue Bulletin is the authoritative instrumentof the Commissioner of Internal Revenue for announcing offi-cial rulings and procedures of the Internal Revenue Serviceand for publishing Treasury Decisions, Executive Orders, TaxConventions, legislation, court decisions, and other items ofgeneral interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscriptionbasis. Bulletin contents of a permanent nature are consoli-dated semiannually into Cumulative Bulletins, which are soldon a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of in-ternal management are not published; however, statementsof internal practices and procedures that affect the rightsand duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulingsto taxpayers or technical advice to Service field offices,identifying details and information of a confidential natureare deleted to prevent unwarranted invasions of privacy andto comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not havethe force and effect of Treasury Department Regulations,but they may be used as precedents. Unpublished rulingswill not be relied on, used, or cited as precedents by Servicepersonnel in the disposition of other cases. In applying pub-lished rulings and procedures, the effect of subsequent leg-islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-ers concerned are cautioned against reaching the same con-clusions in other cases unless the facts and circumstancesare substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.This part includes rulings and decisions based on provisionsof 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 Subpart B, Legislation and RelatedCommittee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts and Sub-parts. Also included in this part are Bank Secrecy Act Admin-istrative Rulings. Bank Secrecy Act Administrative Rulingsare issued by the Department of the Treasury’s Office of theAssistant Secretary (Enforcement).
Part IV.—Items of General Interest.With the exception of the Notice of Proposed Rulemakingand the disbarment and suspension list included in this part,none of these announcements are consolidated in the Cumu-lative Bulletins.
The first Bulletin for each month includes a cumulative indexfor the matters published during the preceding months.These monthly indexes are cumulated on a semiannual basisand are published in the first Bulletin of the succeeding semi-annual period, respectively.
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Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
Section 42.—Low-IncomeHousing Credit
Low-income housing credit; satisfac-tory bond; “bond factor” amounts forthe period January through March1998.This ruling announces the monthlybond factor amounts to be used by tax-payers who dispose of qualified low-in-come buildings or interests therein duringthe period January through March 1998.
Rev. Rul. 98–13
In Rev. Rul. 90–60, 1990–2 C.B. 3, theInternal Revenue Service provided guid-ance to taxpayers concerning the generalmethodology used by the Treasury De-partment in computing the bond factoramounts used in calculating the amount ofbond considered satisfactory by the Sec-retary under § 42(j)(6) of the InternalRevenue Code. It further announced that
the Secretary would publish in the Inter-nal Revenue Bulletin a table of “bond fac-tor” amounts for dispositions occurringduring each calendar month.
This revenue ruling provides in Table 1the bond factor amounts for calculatingthe amount of bond considered satisfac-tory under § 42(j)(6) for dispositions ofqualified low-income buildings or inter-ests therein during the period Januarythrough March 1998.
March 16, 1998 4 1998–11 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Table 1Rev. Rul. 98–13
Monthly Bond Factor Amounts for Dispositions ExpressedAs a Percentage of Total Credits
Calendar Year Building Placed in Serviceor, if Section 42(f)(1) Election Was Made,
For a list of bond factor amounts ap-plicable to dispositions occurring duringother calendar years, see the followingrevenue rulings: Rev. Rul. 95–83,1995–2 C.B. 8, for dispositions occurringduring calendar year 1995; and Rev. Rul.98–3, 1998–2 I.R.B. 4, for dispositionsoccurring during the calendar years 1996and 1997.
DRAFTING INFORMATION
The principal author of this revenueruling is Jack Malgeri of the Office of As-sistant Chief Counsel (Passthroughs andSpecial Industries). For further informa-tion regarding this revenue ruling, contactMr. Malgeri at (202) 622-3040 (not a toll-free call).
Section 61.—Gross IncomeDefined
26 CFR 1.61–21: Taxation of fringe benefits.
Fringe benefits aircraft valuation for-mula. For purposes of section 1.61–21(g)of the Income Tax Regulations, relating tothe rule for valuing noncommercial flightson employer-provided aircraft, the Stan-dard Industry Fare Level (SIFL) cents-per-mile rates and terminal charge in effect forthe first half of 1998 are set forth.
Rev. Rul. 98–14For purposes of the taxation of fringe
benefits under section 61 of the InternalRevenue Code, section 1.61–21(g) of theIncome Tax Regulations provides a rule
for valuing noncommercial flights on em-ployer-provided aircraft. Section 1.61–21(g)(5) provides an aircraft valuationformula to determine the value of suchflights. The value of a flight is determinedunder the base aircraft valuation formula(also known as the Standard Industry FareLevel formula or SIFL) by multiplyingthe SIFL cents-per-mile rates applicablefor the period during which the flight wastaken by the appropriate aircraft multipleprovided in section 1.61–21(g)(7) andthen adding the applicable terminalcharge. The SIFL cents-per-mile rates inthe formula and the terminal charge arecalculated by the Department of Trans-portation and are reviewed semi-annually.
The following chart sets forth the ter-minal charges and SIFL mileage rates:
Period During Which Terminal SIFL Mileagethe Flight Was Taken Charge Rates
1/1/98-6/30/98 $31.60 Up to 500 miles = $.1729 per mile501-1500 miles = $.1318 per mileOver 1500 miles = $.1267 per mile
DRAFTING INFORMATION
The principal author of this revenueruling is Felicia A. Daniels of the Officeof the Associate Chief Counsel (Em-ployee Benefits and Exempt Organiza-tions). For further information regardingthis revenue ruling contact, Ms. Danielson (202) 622-6050 (not a toll-free call).
Section 6001.—Notice orRegulations Requiring Records,Statements, and Special Returns26 CFR 1.6001–1: Records.
What are the basic requirements that the InternalRevenue Service considers to be essential in caseswhere a taxpayer’s records are maintained within anAutomatic Data Processing (ADP) system. See Rev.Proc. 98–25, page 7.
1998–11 I.R.B. 5 March 16, 1998
March 16, 1998 6 1998–11 I.R.B.
Contributions to ForeignPartnerships Under Section6038B
Notice 98–17This Notice provides simplified rules
(pending the issuance of regulations) forreporting the transfer of property by U.S.persons to foreign partnerships under sec-tion 6038B of the Internal Revenue Code(the Code), as amended by the TaxpayerRelief Act of 1997 (the 1997 Act). TheNotice applies to transfers made after Au-gust 5, 1997 and before January 1, 1998.Taxpayers may also apply the simplifiedrules of this Notice to transfers to foreignpartnerships made after August 20, 1996and subject to the reporting requirementsof section 1494(c), so that the penaltiesunder that section shall not apply.
SECTION 1. BACKGROUND
A. Sections 1491–1494Before its repeal, section 1491 imposed
a 35 percent excise tax on a transfer ofproperty (“section 1491 transfer”) by aU.S. person to a foreign partnership (un-less section 1492 applied). The excise taxwas 35 percent of the excess of the fairmarket value of the property transferredover its adjusted basis plus any gain recog-nized to the transferor upon the transfer.
In 1996, section 1494(c) was enacted,adding a penalty (even if no excise taxwas due) for failure to file a return report-ing a section 1491 transfer made after Au-gust 20, 1996. Sections 1491–1494 wererepealed by the 1997 Act, effective Au-gust 5, 1997.
B. Notices 97–18 and 97–42Notice 97–18, 1997–10 I.R.B. 35, is-
sued after enactment of section 1494(c)and before its repeal, excluded certainsection 1491 transfers from the reportingrequirement and provided that no penaltywould be imposed under section 1494(c)with respect to a section 1491 transfer if aForm 926 reporting such transfer wasfiled by the date specified in that notice.
Notice 97–42, 1997–29 I.R.B. 12, alsoissued after enactment of section 1494(c)and before its repeal, extended the duedate for filing Form 926 to report section
1491 transfers made during the taxableyear that included August 20, 1996, to thedue date (including extensions) of thetransferor’s timely-filed income tax returnor information return for the first taxableyear beginning on or after January 1,1997.
C. Section 6038B as amended by the1997 Act
The 1997 Act amended section 6038Bto require that certain transfers by U.S.persons to foreign partnerships be subjectto reporting under section 6038B. Thesetransfers are contributions described insection 721 (“section 721 contributions”)and any other contributions described inregulations. Under section 6038B(b)(1),this reporting is required only if: 1) thetransferor holds (immediately after thetransfer) directly or indirectly at least a 10percent interest in the partnership, or 2)the fair market value of the propertytransferred (alone, or aggregated with cer-tain other section 721 contributions) ex-ceeds $100,000.
SECTION 2. SECTION 6038BREPORTING FOR TRANSFERSMADE AFTER AUGUST 5, 1997 ANDBEFORE JANUARY 1, 1998
Section 721 contributions to foreignpartnerships made after August 5, 1997and before January 1, 1998 and requiredto be reported under section 6038B shallbe reported by the filing of Form 926 withPart I of the form completed and the in-formation required in this Section 2 at-tached. Form 926 and its attachmentsmust be filed with the transferor’s tax re-turn or information return for the taxableyear that includes the date of transfer.The notation “Filed under Notice 98–17”should be marked at the top of the form.
A U.S. person that contributes to a for-eign partnership appreciated propertysubject to the allocation rules of section704(c) (property with built-in gain), orany intangible property, in a transfer sub-ject to section 6038B, must separatelyidentify the property (except to the extentthat the property is permitted to be aggre-gated in making allocations under section704(c)). A U.S. person that contributesbuilt-in gain property must also indicatethe foreign partnership’s method of allo-
cating the built-in gain under section704(c).
The value of other contributed propertymust be aggregated by category on astatement attached to Form 926 (with, ineach case, a brief description of the prop-erty). The categories are:
(1) Stock in trade of the transferor (in-ventory);
(2) Tangible property (other than stockin trade) used in a trade or business of thetransferor;
(3) Cash, stock, notes receivable andpayable, and other securities; and,
(4) Other property.Until further notice, taxpayers transfer-
ring property to partnerships will be re-quired to report under section 6038B onlysection 721 contributions. Any guidanceexercising the authority to require the re-porting of other contributions will beprospective only. Additionally, Section761(a) allows certain organizations thatwould otherwise be treated as partner-ships to elect not to be treated as partner-ships for purposes of subchapter K of theCode. Until further notice, any transfer toa foreign partnership with a valid section761(a) election in effect will not be re-quired to be reported under section6038B.
SECTION 3. RELIEF FROM SECTION1494 REPORTING
Section 1144(d)(2) of the 1997 Act pro-vides that the section 1494(c) penalty willnot apply to any transfers which wouldotherwise be subject to the penalty, if tax-payers comply with the reporting require-ments of amended section 6038B or suchsimplified reporting requirements as theSecretary may prescribe. In order toavoid any section 1494(c) penalty whichotherwise would apply in respect of trans-fers to foreign partnerships, taxpayersneed only comply with the simplified re-porting requirements provided in Section2, above. Furthermore, section 721 con-tributions need only be reported by tax-payers described in section 6038B(b)(1).
A transfer to a foreign partnership mayconsist solely of property which wouldnot be required to be reported under sec-tion 6038B and this Notice, but which isrequired to be reported under section
Part III. Administrative, Procedural, and Miscellaneous
1494 and Notice 97–18. Taxpayers neednot report such transfers to avoid penal-ties under section 1494(c). However, insuch cases, at their option, taxpayers mayfile a Form 926 with the notation “Filedunder Notice 98–17—no reportable trans-fers” at the top of the form.
This Notice does not affect any obliga-tion under section 1494 to report transfersto foreign entities other than foreign part-nerships. Also, if a transfer to a foreignpartnership was subject to the excise taxunder section 1491, the tax must still bepaid and the transfer reported on Form926. If the excise tax does not otherwiseapply by reason of section 1492, the tax-payer must still comply with all applica-ble requirements of that section. Finally,a U.S. person that is required to reportunder section 1494 and does not complywith the reporting requirements of thisNotice remains subject to penalties undersection 1494(c).
SECTION 4. EFFECTIVE DATES
This Notice is effective for transfersmade after August 5, 1997 and beforeJanuary 1, 1998. The Form 926 reportingsuch transfers must be filed with thetransferor’s timely-filed (including exten-sions) income tax return or informationreturn for the period in which the transfersoccur. Transferors choosing to reportunder these rules in respect of transferssubject to section 1494(c), must file aForm 926 including the information re-quired by this Notice with their return forthe first taxable year beginning on or afterJanuary 1, 1997 (the reporting deadlineunder Notice 97–42).
SECTION 5. PAPERWORKREDUCTION ACT
The collections of information con-tained in this Notice have been reviewedand approved by the Office of Manage-ment and Budget in accordance with thePaperwork Reduction Act (44 U.S.C.3507) under control number 1545-1586.
An agency may not conduct or sponsor,and a person is not required to respond to,a collection of information unless the col-lection of information displays a validcontrol number.
The collections of information con-tained in this Notice are in Sections 2 and3. The information is required to deter-mine if gain and income from property
transferred to foreign partnerships is cor-rectly taxed to U.S. transferors. The in-formation will be used for the purpose de-scribed in the preceding sentence. Thecollections of information are required toobtain a benefit. The likely respondentsare businesses or other for-profit institu-tions, individuals, and not-for-profit insti-tutions.
The estimated total annual reportingand/or recordkeeping burden is 250hours.
The estimated annual burden per re-spondent/recordkeeper varies from 0.25hours to 1.0 hours, with an average bur-den of 0.5 hours. The estimated numberor respondents and/or recordkeepers is500.
The estimated frequency of responses(used for reporting requirements only) isonce per year.
Books or records relating to a collec-tion of information must be retained aslong as their contents may become mater-ial in the administration of any internalrevenue law. Generally tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this notice isRobert Lorence of the Office of AssociateChief Counsel (International). For furtherinformation regarding this notice, contactMr. Lorence at (202) 622-3860 (not a toll-free call).
26 CFR 601.105: Examination of returns andclaims for refund, credits or abatement;determination of correct tax liability.(Also Part I, Section 6001; 1.6001–1.)
The purpose of this revenue procedureis to specify the basic requirements thatthe Internal Revenue Service considers tobe essential in cases where a taxpayer’srecords are maintained within an Auto-matic Data Processing system (ADP).This revenue procedure updates and su-persedes Rev. Proc. 91–59, 1991–2 C.B.841.
SECTION 2. BACKGROUND
.01 Section 6001 provides that everyperson liable for any tax imposed by theCode, or for the collection thereof, mustkeep such records, render such state-ments, make such returns, and complywith such rules and regulations as theSecretary may from time to time pre-scribe. Whenever necessary, the Secre-tary may require any person, by noticeserved upon that person or by regulations,to make such returns, render such state-ments, or keep such records, as the Secre-tary deems sufficient to show whether ornot that person is liable for tax.
.02 Section 1.6001–1(a) of the IncomeTax Regulations generally provides thatpersons subject to income tax, or requiredto file a return of information with respectto income, must keep such books orrecords, including inventories, as are suf-ficient to establish the amount of gross in-come, deductions, credits, or other mat-ters required to be shown by that personin any return of such tax or information.
.03 Section 1.6001–1(e) provides thatthe books or records required by § 6001must be kept available at all times for in-spection by authorized internal revenueofficers or employees, and must be re-tained so long as the contents thereof maybecome material in the administration ofany internal revenue law.
.04 Rev. Rul. 71–20, 1971–1 C.B. 392,establishes that all machine-sensible datamedia used for recording, consolidating,and summarizing accounting transactions
1998–11 I.R.B. 7 March 16, 1998
and records within a taxpayer’s ADP sys-tem are records within the meaning of § 6001 and § 1.6001–1, and are requiredto be retained so long as the contents maybecome material in the administration ofany internal revenue law.
SECTION 3. SCOPE
.01Records.(1) The requirements of this revenue
procedure pertain to all matters under thejurisdiction of the Commissioner of Inter-nal Revenue including, but not limited to,income, excise, employment, and estateand gift taxes, as well as employee plansand exempt organizations.
(2) The requirements of this revenueprocedure are applicable to any sectionsof the Code that have unique or specificrecordkeeping requirements. For exam-ple, machine-sensible records maintainedby the taxpayer to meet the requirementsof § 274(d) relating to the amount, time,place, and business purpose of a businessexpense must meet the requirements ofthis revenue procedure.
(3) Except as otherwise provided inthis revenue procedure, all requirementsof § 6001 that apply to hardcopy booksand records apply as well to machine-sen-sible books and records that are main-tained within an ADP system.
.02 Taxpayers.(1) A taxpayer with assets of $10
million or more at the end of its taxableyear must comply with the record reten-tion requirements of Rev. Rul. 71–20 andthe provisions of this revenue procedure.For purposes of this revenue procedure, acontrolled group of corporations, as de-fined in § 1563, is considered to be onecorporation and all assets of all membersof the group are aggregated.
(2) A taxpayer with assets of lessthan $10 million at the end of its taxableyear must comply with the record reten-tion requirements of Rev. Rul. 71–20 andthe provisions of this revenue procedure ifany of the following conditions exists:
(a) all or part of the informationrequired by § 6001 is not in the taxpayer’shardcopy books and records, but is avail-able in machine-sensible records;
(b) machine-sensible records wereused for computations that cannot be rea-sonably verified or recomputed withoutusing a computer (e.g.,Last-In, First-Out(LIFO) inventories); or
(c) the taxpayer is notified by theDistrict Director that machine-sensiblerecords must be retained to meet the re-quirements of § 6001.
(3) A Controlled Foreign Corpora-tion (CFC), a domestic corporation that is25 percent foreign-owned, and a foreigncorporation engaged in a trade or businesswithin the United States at any time dur-ing a taxable year that maintains machine-sensible records within an ADP systemmust comply with the requirements of thisrevenue procedure to satisfy the record-keeping requirements of §§ 964(c),982(d), 6038A(c)(4), and 6038C (and theregulations thereunder).
(4) An insurance company that main-tains machine-sensible records within anADP system to determine losses incurredunder § 832(b)(5) must comply with therequirements of this revenue procedureand Rev. Proc. 75–56, 1975–2 C.B. 596.For this purpose, the machine-sensiblerecords for a particular taxable year in-clude the records for that year and theseven preceding years, all of which mustbe retained so long as they may becomematerial to the examination of an insur-ance company’s federal tax return.
(5) A taxpayer’s use of a third party(such as a service bureau, time-sharingservice, value-added network, or otherthird party service) to provide services(e.g., custodial or management services)in respect of machine-sensible recordsdoes not relieve the taxpayer of its record-keeping obligations and responsibilitiesunder § 6001 and this revenue procedure.
SECTION 4. DEFINITIONS
.01 An “ADP system” consists of an ac-counting and/or financial system (andsubsystems) that processes all or part of ataxpayer’s transactions, records, or databy other than manual methods. An ADPsystem includes, but is not limited to, amainframe computer system, stand-aloneor networked microcomputer system,Data Base Management System (DBMS),and a system that uses or incorporatesElectronic Data Interchange (EDI) tech-nology or an electronic storage system.
.02 “Capable of being processed”means the ability to retrieve, manipulate,print on paper (hardcopy), and produceoutput on electronic media. This termdoes not encompass any requirement thatthe program or system that created the
computer data be available to process thedata unless that program or system is nec-essary to:
(1) a tax-related computation (e.g.,LIFO inventories, insurance companyloss reserve computations, and foreign taxcredit computations); or
(2) the retrieval of data (e.g.,somedata base systems processes where thetaxpayer chooses not to create a sequen-tial extract (see section 5.02 of this rev-enue procedure)).
.03 A “DBMS” is a software systemthat creates, controls, relates, retrieves,and provides accessibility to data storedin a data base.
.04 “EDI technology” is the computer-to-computer exchange of business infor-mation.
.05 An “electronic storage system” is asystem used to prepare, record, transfer,index, store, preserve, retrieve, and repro-duce books and records by either: (1)electronically imaging hardcopy docu-ments to an electronic storage media; or(2) transferring computerized books andrecords to an electronic storage mediausing a technique such as “COLD” (com-puter output to laser disk), which allowsbooks and records to be viewed or repro-duced without the use of the original pro-gram. See Rev. Proc. 97–22, 1997–13I.R.B. 9, for electronic storage system re-quirements.
.06 A “machine-sensible record” is datain an electronic format that is intended foruse by a computer. Machine-sensiblerecords do not include paper records orpaper records that have been converted toan electronic storage medium such as mi-crofilm, microfiche, optical disk, or laserdisk.
SECTION 5. RETAINING MACHINE-SENSIBLE RECORDS
.01 General.(1) The taxpayer must retain ma-
chine-sensible records so long as theircontents may become material to the ad-ministration of the internal revenue lawsunder § 1.6001–1(e). At a minimum, thismateriality continues until the expirationof the period of limitation for assessment,including extensions, for each tax year. Incertain situations, records should be keptfor a longer period of time. For example,records that pertain to fixed assets, lossesincurred under § 832(b)(5), and LIFO in-
March 16, 1998 8 1998–11 I.R.B.
ventories should be kept for longer peri-ods of time.
(2) The taxpayer’s machine-sensiblerecords must provide sufficient informa-tion to support and verify entries made onthe taxpayer’s return and to determine thecorrect tax liability. The taxpayer’s ma-chine-sensible records will meet this re-quirement only if they reconcile with thetaxpayer’s books and the taxpayer’s re-turn. A taxpayer establishes this reconcil-iation by demonstrating the relationship(i.e., audit trail):
(a) between the total of theamounts in the taxpayer’s machine-sensi-ble records by account and the account to-tals in the taxpayer’s books; and
(b) between the total of theamounts in the taxpayer’s machine-sensi-ble records by account and the taxpayer’sreturn.
(3) The taxpayer must ensure that itsmachine-sensible records contain suffi-cient transaction-level detail so that theinformation and the source documents un-derlying the machine-sensible records canbe identified.
(4) All machine-sensible records re-quired to be retained by this revenue pro-cedure must be made available to the Ser-vice upon request and must be capable ofbeing processed.
(5) Except as otherwise required bysections 5.01(2) or (3) of this revenueprocedure, a taxpayer is not required tocreate any machine-sensible record otherthan that created either in the ordinarycourse of its business or to establish re-turn entries. For example, a taxpayer whodoes not create, in the ordinary course ofits business, the electronic equivalent of atraditional paper document (such as an in-voice) is not required by this revenue pro-cedure to construct such a record, pro-vided that the requirements of sections5.01(2) and (3) are met. For requirementsrelating to hardcopy records, see section11 of this revenue procedure.
(6) A taxpayer’s disposition of a sub-sidiary company does not relieve the taxpayer of its responsibilities under thisrevenue procedure. The files and docu-mentation retained for the Service by, orfor, a disposed subsidiary must be re-tained as otherwise required by this rev-enue procedure.
.02 DBMS.(1) A taxpayer has the discretion to
create files solely for the use of the Ser-vice. For example, a taxpayer that uses aDBMS may satisfy the provisions of thisrevenue procedure by creating and retain-ing a sequential file that contains thetransaction-level detail from the DBMSand otherwise meets the requirements ofthis revenue procedure.
(2) A taxpayer that creates a file de-scribed in section 5.02(1) of this revenueprocedure must document the process thatcreated the sequential file in order to es-tablish the relationship between the filecreated and the original DBMS records.
.03 EDI.(1) A taxpayer that uses EDI technol-
ogy must retain machine-sensible recordsthat alone, or in combination with anyother records (e.g.,underlying contracts,price lists, and price changes), contain allthe information that § 6001 requires ofhardcopy books and records. For exam-ple, a taxpayer that uses EDI technologyreceives electronic invoices from its sup-pliers. The taxpayer decides to retain theinvoice data from completed and verifiedEDI transactions in its accounts payablesystem rather than retain the incomingEDI transactions. Neither the EDI trans-actions, nor the accounts payable system,contain product descriptions or vendornames. To satisfy the requirements of § 6001, the taxpayer must supplement itsEDI records with product code descrip-tion lists and a vendor master file.
(2) A taxpayer may capture the re-quired detail for an EDI transaction at anylevel within its accounting system. How-ever, the taxpayer must establish audittrails between the retained records and thetaxpayer’s books, and between the re-tained records and the tax return.
(3) Section 11.02 of this revenueprocedure provides additional guidanceconcerning hardcopy requirements relatedto EDI transactions.
SECTION 6. DOCUMENTATION
.01 The taxpayer must maintain andmake available to the Service upon re-quest documentation of the businessprocesses that:
(1) create the retained records;(2) modify and maintain its records; (3) satisfy the requirement of section
5.01(2) of this revenue procedure to sup-port and verify entries made on the tax-
payer’s return and determine the correcttax liability; and
(4) evidence the authenticity and in-tegrity of the taxpayer’s records.
.02 The documentation described insection 6.01 of this revenue proceduremust be sufficiently detailed to identify:
(1) the functions being performed asthey relate to the flow of data through thesystem;
(2) the internal controls used to en-sure accurate and reliable processing;
(3) the internal controls used to pre-vent the unauthorized addition, alteration,or deletion of retained records; and
(4) the charts of accounts and de-tailed account descriptions.
.03 With respect to each file that is re-tained, the taxpayer must maintain, andmake available to the Service upon re-quest, documentation of:
(1) record formats or layouts;(2) field definitions (including the
meaning of all “codes” used to representinformation);
(3) file descriptions (e.g., data setname);
(4) evidence that periodic checks(described in section 9.01(3) of this rev-enue procedure) of the retained recordswere performed to meet section 9.02(1) ofthis revenue procedure, if the taxpayerwants to take advantage of section 9.02 ofthis revenue procedure;
(5) evidence that the retained recordsreconcile to the taxpayer’s books; and
(6) evidence that the retained recordsreconcile to the taxpayer’s tax return.
.04 The system documentation must in-clude any changes to the items specifiedin sections 6.01, 6.02, and 6.03 of thisrevenue procedure and the dates thesechanges are implemented.
SECTION 7. RESOURCES
.01 The taxpayer must provide the Ser-vice at the time of an examination withthe resources (e.g.,appropriate hardwareand software, terminal access, computertime, personnel, etc.) that the District Di-rector determines is necessary to processthe taxpayer’s machine-sensible booksand records. At the request of the tax-payer, the District Director may, at theDistrict Director’s discretion:
(1) identify the taxpayer’s resourcesthat are not necessary to process booksand records;
1998–11 I.R.B. 9 March 16, 1998
(2) allow a taxpayer to convert ma-chine-sensible records to a differentmedium (e.g., from mainframe files tomicrocomputer diskette(s));
(3) allow the taxpayer to satisfy theprocessing needs of the Service duringoff-peak hours; and
(4) allow the taxpayer to provide theService with third-party equipment.
.02 An ADP system must not be sub-ject, in whole or in part, to any agreement(such as a contract or license) that wouldlimit or restrict the Service’s access to anduse of the ADP system on the taxpayer’spremises (or any other place where theADP system is maintained), includingpersonnel, hardware, software, files, in-dexes, and software documentation.
SECTION 8. NOTIFICATION
.01 Except as provided in section 9.02of this revenue procedure, the taxpayermust promptly notify its District Directorif any machine-sensible records are lost,stolen, destroyed, damaged, or otherwiseno longer capable of being processed (asdefined in section 4.02 of this revenueprocedure), or are found to be incompleteor materially inaccurate (affectedrecords).
.02 The taxpayer’s notice must identifythe affected records and include a planthat describes how, and in what time-frame, the taxpayer proposes to replace orrestore the affected records in a way thatassures that they will be capable of beingprocessed. The plan must demonstratethat all of the requirements of this revenueprocedure will continue to be met with re-spect to the affected records.
.03 The District Director will notify thetaxpayer of any objection(s) to the tax-payer’s plan.
.04 A District Director may consider,whenever warranted by the facts and cir-cumstances, the possibility of requiringless than a total restoration of missingdata.
.05 Examples. (1) Taxpayer A replaces its general
ledger software system with a new gen-eral ledger software system with whichthe original system’s records are incom-patible. However, A’s original records areretrievable and capable of being proces-sed on A’s hardware system. A is not re-quired to notify its District Director of the
change in its software system because A’srecords remain capable of beingprocessed.
(2) Taxpayer B replaces its originalADP hardware system with a new systemthat cannot process the machine-sensiblerecords created and maintained by B’soriginal system. B must notify its DistrictDirector of this hardware system changeand propose a plan for assuring that themachine-sensible records created andmaintained by the original ADP hardwaresystem are capable of being processed.To that end, B considers the following op-tions: (1) having all records in the tax-payer’s original system immediately re-formatted so that the new system canretrieve and process those records; (2)having all records in its original systemreformatted by a designated future date;or (3) having an arrangement with a thirdparty to process all records in its originalsystem on a compatible system. Any ofthese options may be acceptable providedthe option selected enables the taxpayer tomeet the requirements of this revenueprocedure with respect to those records.The taxpayer must be able to demonstratethat any third party reformatting or pro-cessing is done with the quality controlsin place that will ensure the continued in-tegrity, accuracy, and reliability of thetaxpayer’s records.
SECTION 9. MAINTENANCE
.01 Recommended Practices.(1) The implementation of records
management practices is a business deci-sion that is solely within the discretion ofthe taxpayer. Recommended recordsmanagement practices include the label-ing of records, providing a secure storageenvironment, creating back-up copies, se-lecting an offsite storage location, andtesting to confirm records integrity.
(2) The National Archives andRecord Administration’s (NARA) Stan-dards for the Creation, Use, Preservation,and Disposition of Electronic Records, 36C.F.R., Ch XII, Part 1234, Subpart C(1996), is one example of a records man-agement resource that a taxpayer maychoose to consult when formulating itsrecords management practices.
(3) The NARA standard in 36 C.F.R.§ 1234.30(g)(4) (1996) requires an annualreading of a statistical sampling of mag-netic computer tape reels to identify any
loss of data and to discover and correctthe causes of data loss. In libraries with1,800 or fewer storage units (e.g.,mag-netic tape reels), a 20 percent randomsampling or a sample size of 50 units,whichever is larger, should be read. In li-braries with more than 1,800 units, a sam-ple of 384 units should be read. Althoughthis NARA sampling standard is specifi-cally for magnetic computer tape, the Ser-vice recommends that all retained ma-chine-sensible records be sampled andtested as described in the NARA standard.
.02 Partial Loss of Data. A taxpayerthat loses only a portion of the data from aparticular storage unit will not be subjectto the penalties described in section 12 ofthis revenue procedure if the taxpayer candemonstrate to the satisfaction of the Dis-trict Director that the taxpayer’s datamaintenance practices conform with 36C.F.R. § 1234.30(g)(4) (1996) (theNARA sampling standard). However, thetaxpayer remains responsible for substan-tiating the information on its return as re-quired by § 6001.
SECTION 10. DISTRICT DIRECTORAUTHORITY
.01 Record Retention Limitation Agree-ment.
(1) A taxpayer who maintains ma-chine-sensible records may request toenter into a Record Retention LimitationAgreement (RRLA) with its District Di-rector. This agreement provides for theestablishment and maintenance of recordsas agreed upon by the District Directorand the taxpayer.
(2) The taxpayer ’s request mustidentify and describe those records thetaxpayer proposes not to retain and ex-plain why those records will not becomematerial to the administration of any in-ternal revenue law. The District Directorwill notify the taxpayer whether or not theDistrict Director will enter into an RRLA.
(3) In an RRLA, the District Directormay waive all or any of the specific re-quirements in this revenue procedure. Ataxpayer remains subject to all the re-quirements in this revenue procedure thatare not specifically modified or waived byan RRLA.
(4) Unless an RRLA otherwise spec-ifies, an RRLA shall not apply to account-ing and tax systems added subsequent tothe completion of the record evaluation
March 16, 1998 10 1998–11 I.R.B.
upon which the agreement is based. Allmachine-sensible records produced by asubsequently added accounting and taxsystem, the contents of which may be ormay become material in the administra-tion of the Code must be retained by thetaxpayer signing the RRLA until a newevaluation is conducted by the DistrictDirector.
(5) Unless an RRLA specifies other-wise, it does not apply to a subsidiary ac-quired subsequent to the completion ofthe record evaluation upon which theRRLA is based. All machine-sensiblerecords produced by the acquired sub-sidiary, the contents of which may be ormay become material in the administra-tion of the Code must be retained pur-suant to this revenue procedure and anypre-acquisition RRLA (“former RRLA”)that applies to the acquired subsidiary.The former RRLA applies to the acquiredsubsidiary until the District Director ei-ther revokes the former RRLA (in wholeor in part) or enters into a new RRLA thatapplies to the acquired subsidiary.
(6) Upon the disposition of a sub-sidiary, the files being retained for theService pursuant to an RRLA by, or for,the disposed subsidiary must be retainedby the taxpayer until a new evaluation isconducted by the District Director.
(7) A District Director’s decision torevoke an RRLA, or not to enter into anRRLA, does not relieve the taxpayer of itsrecordkeeping obligations under § 6001or its responsibilities described in thisrevenue procedure.
.02 Records Evaluation.(1) The District Director may conduct
a records evaluation at any time the Dis-trict Director deems it appropriate to re-view the taxpayer’s record retention prac-tices, including the taxpayer’s relevant dataprocessing and accounting systems.
(2) The records evaluation describedin section 10.02(1) of this revenue proce-dure is not an “examination”, “investiga-tion,” or “inspection” of the books andrecords within the meaning of § 7605(b)of the Code, or a prior audit for purposesof § 530 of the Revenue Act of 1978,1978–3 (Vol. 1) C.B. 119, as amended by§ 1122 of the Small Business Job Protec-tion Act of 1996, because this evaluationis not directly related to the determinationof the tax liability of a taxpayer for a par-ticular taxable period.
(3) The District Director will informthe taxpayer of the results of a recordsevaluation.
.03 Testing.(1) The District Director may period-
ically initiate tests to establish the authen-ticity, readability, completeness, and in-tegrity of a taxpayer’s machine-sensiblerecords retained in conformity with thisrevenue procedure.
(2) These tests may include a reviewof integrated systems such as EDI or anelectronic storage system, and a review ofthe internal controls and security proce-dures associated with the creation andmaintenance of the taxpayer’s records.
(3) The tests described in section10.03(1) of this revenue procedure are notan “examination”, “investigation,” or “in-spection” of the books and records withinthe meaning of § 7605(b) of the Code, or aprior audit for purposes of § 530 of theRevenue Act of 1978, 1978–3 (Vol. 1) C.B.119, as amended by § 1122 of the SmallBusiness Job Protection Act of 1996, be-cause these tests are not directly related tothe determination of the tax liability of ataxpayer for a particular taxable period.
(4) The District Director will informthe taxpayer of the results of these tests.
SECTION 11. HARDCOPY RECORDS
.01 The provisions of this revenue pro-cedure do not relieve taxpayers of theirresponsibility to retain hardcopy recordsthat are created or received in the ordinarycourse of business as required by existinglaw and regulations. Hardcopy recordsmay be retained in microfiche or micro-film format in conformity with Rev. Proc.81–46, 1981–2 C.B. 621. Hardcopyrecords may also be retained in an elec-tronic storage system in conformity withRev. Proc. 97–22. These records are not asubstitute for the machine-sensiblerecords required to be retained by thisrevenue procedure.
.02 A taxpayer need not create or retainhardcopy records if:
(1) the hardcopy records are merelycomputer printouts created only for vali-dation, control, or other temporary pur-poses;
(2) the hardcopy records are not pro-duced in the ordinary course of transact-ing business (as may be the case when uti-lizing EDI technology); or
(3) all the details relating to the trans-action are subsequently received by thetaxpayer in an EDI transaction and are re-tained as machine-sensible records by thetaxpayer in conformity with this revenueprocedure. For example, a taxpayer neednot retain credit card receipts generated atthe time of a transaction if all pertinent in-formation on the receipts is subsequentlyreceived in an EDI transaction and re-tained as a machine-sensible record. Seesection 5.03 of this revenue procedure forrequirements relating to EDI.
.03 A taxpayer need not create hard-copy printouts of its machine-sensiblerecords unless requested to do so by theService. The Service may request suchhardcopy printouts either at the time of anexamination or in conjunction with thetests described in section 10.03(1) of thisrevenue procedure.
SECTION 12. PENALTIES
The District Director may issue a No-tice of Inadequate Records pursuant to § 1.6001–1(d) if a taxpayer fails to complywith this revenue procedure (including afailure to satisfy the resource requirementsof section 7 of this revenue procedure).Failure to comply with this revenue proce-dure may also result in the imposition ofthe applicable penalties under subtitle F ofthe Code, including the § 6662(a) accu-racy-related civil penalty and the § 7203willful failure criminal penalty.
SECTION 13. EFFECT ON OTHERDOCUMENTS
Rev. Proc. 91–59 is modified and su-perseded for machine-sensible records re-lating to taxable years beginning after De-cember 31, 1997. However, a taxpayerthat complies with this revenue procedurefor taxable years beginning prior to thatdate is treated as having complied withRev. Proc. 91–59 for those years.
SECTION 14. EFFECTIVE DATE
This revenue procedure is effective formachine-sensible records relating to tax-able years beginning after December 31,1997.
.01 Questions regarding this revenueprocedure should be directed to the Office
1998–11 I.R.B. 11 March 16, 1998
of the Assistant Commissioner (Examina-tion). The telephone number for this of-fice is (202)622-5480 (not a toll-freenumber). Written questions should be ad-dressed to: Assistant Commissioner (Ex-amination)
Attention: CP:EXInternal Revenue Service1111 Constitution Ave., NWWashington, DC 20224
.02 Questions regarding the applicationof this revenue procedure to a specificfactual situation should be directed to theappropriate District Director’s office.
SECTION 16. PAPERWORKREDUCTION ACT
The collections of information con-tained in this revenue procedure have
been reviewed and approved by the Of-fice of Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under control number1545–1595.
An agency may not conduct or sponsor,and a person is not required to respond to,a collection of information unless the col-lection of information displays a validcontrol number.
The collections of information in thisrevenue procedure are in sections 8 and10 of this revenue procedure. This infor-mation is required to ensure that machine-sensible records will constitute recordswithin the meaning of § 6001. The col-lections of information are mandatory fora taxpayer whose machine-sensiblerecords are kept within an ADP system.The likely respondents are individuals,
state or local governments, farms, busi-ness or other for-profit institutions, fed-eral agencies or employees, nonprofit in-stitutions, and small businesses ororganizations.
The estimated total annual recordkeep-ing burden is 120,000 hours.
The estimated annual burden perrecordkeeper will vary from 20 hours to60 hours, depending on individual cir-cumstances, with an estimated average of40 hours. The estimated number ofrecordkeepers is 3,000.
Books or records relating to a collec-tion of information must be retained aslong as their contents may become mater-ial in the administration of any internalrevenue law. Generally tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.
March 16, 1998 12 1998–11 I.R.B.
1998–11 I.R.B. 13 March 16, 1998
Withdrawal of Notice ofProposed Rulemaking
Petroleum Tax Imposed onNatural Gasoline
PS–158–86
AGENCY: Internal Revenue Service(IRS), Treasury.
ACTION: Withdrawal of notice of pro-posed rulemaking.
SUMMARY: This document withdraws aproposed regulation relating to the petro-leum tax imposed on natural gasoline.The withdrawal affects persons that pro-duce natural gasoline at fractionation fa-cilities or receive natural gasoline pro-duced at those facilities.
FOR FURTHER INFORMATION CON-TACT: Ruth Hoffman, (202) 622-3130(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 4611 imposed a tax on crude oil(including natural gasoline) received at aUnited States refinery. On April 26, 1993,a notice of proposed rulemaking (PS–158–86 [1993–1 C.B. 866]) relating to thistax was published in the Federal Register(58 F.R. 21963). The proposed regulationtreats any facility that produces naturalgasoline by fractionation or similar opera-tion as a United States refinery. Under thisrule, tax would be imposed on naturalgasoline when it is produced from naturalgas liquids at a fractionation facility.
Since the publication of the proposedregulation, the tax imposed by section4611 has expired. Because tax is not cur-rently imposed under section 4611, theproposed regulation is being withdrawn.For purposes of section 4611 prior to itsexpiration, the IRS will follow the resultin Enron Gas Processing Co. v. UnitedStates,96–1 USTC ¶ 70,058 (S.D. Tex.1996), in all cases involving substantiallysimilar facts. In Enron, the U.S. DistrictCourt for the Southern District of Texasheld that fractionation facilities are notUnited States refineries.
* * * * *
Withdrawal of Notice of ProposedRulemaking
Accordingly, under the authority of 26U.S.C. 7805, the notice of proposed rule-making that was published in the FederalRegister on April 26, 1993 (58 F.R.21963) is withdrawn.
Michael P. Dolan,Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register onDecember 22, 1997, 8:45 a.m., and published in theissue of the Federal Register for December 23, 1997,62 F.R. 67013)
Notice of Proposed Rulemaking
Electronic Tip Reports
REG–104691–97
AGENCY: Internal Revenue Service(IRS), Treasury.
ACTION: Notice of proposed rulemak-ing.
SUMMARY: This document proposes toamend the regulations dealing with the re-quirement that tipped employees reporttheir tips to their employer. The proposedregulations permit employers to establishelectronic systems for use by their tippedemployees in reporting tips to the em-ployer. The proposed regulations also ad-dress substantiation requirements for em-ployees using the electronic system.
DATES: Written comments and requestsfor a public hearing must be received byApril 27, 1998.
ADDRESSES: Send submissions to:CC:DOM:CORP:R (REG–104691–97),room 5228, Internal Revenue Service,POB 7604, Ben Franklin Station, Wash-ington, DC 20044. Submissions may behand delivered between the hours of 8a.m. and 5 p.m. to: CC:DOM:CORP:R(REG–104691–97), Courier’s Desk, In-ternal Revenue Service, 1111 ConstitutionAvenue, NW, Washington, DC. Alterna-tively, taxpayers may submit commentselectronically via the Internet by selectingthe “Tax Regs” option on the IRS Home
Page, or by submitting comments directlyto the IRS Internet site at http://www.irs.ustreas.gov/prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, KarinLoverud, 202-622-6060; concerning sub-missions, Evangelista Lee, 202-622-8452(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-tained in this notice of proposed rulemak-ing has been submitted to the Office ofManagement and Budget for review inaccordance with the Paperwork Reduc-tion Act of 1995 (44 U.S.C. 3507(d)).Comments on the collection of informa-tion should be sent to the Office of Man-agement and Budget,Attn: Desk Officerfor the Department of the Treasury, Officeof Information and Regulatory Affairs,Washington, DC 20503, with copies tothe Internal Revenue Service,Attn: IRSReports Clearance Officer, T:FP, Wash-ington, DC 20224. Comments on the col-lection of information should be receivedby March 27, 1998. Comments arespecifically requested concerning:
Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the InternalRevenue Service,including whether theinformation will have practical utility;
The accuracy of the estimated burdenassociated with the proposed collection ofinformation (see below);
How the quality, utility, and clarity ofthe information to be collected may be en-hanced;
How the burden of complying with theproposed collection of information maybe minimized, including through the ap-plication of automated collection tech-niques or other forms of information tech-nology; and
Estimates of capital or start-up costsand costs of operation, maintenance, andpurchase of service to provide informa-tion.
The collections of information in thisproposed regulation are in §31.6053–1and §31.6053–4. This information is re-quired to conform with the statute and to
Part IV. Items of General Interest
assist employers and employees in fulfill-ing their responsibilities. This informa-tion will be used by employers to estab-lish the amount of income and FICA (orRRTA) taxes to withhold from the em-ployee reporting the tips. This informa-tion will be used by employees in meetingthe substantiation requirements. The col-lections of information are mandatory.The likely respondents are individuals.
Estimated total annual reporting bur-den: 600,000 hours.
Estimated average annual burden hoursper respondent: 2 hours.
Estimated number of respondents:300,000.
Estimated annual frequency of re-sponses: varies.
An agency may not conduct or sponsor,and a person is not required to respond to,a collection of information unless it dis-plays a valid control number assigned bythe Office of Management and Budget.
Books or records relating to a collec-tion of information must be retained aslong as their contents may become mater-ial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.
Background
This document contains proposedamendments to the Employment Tax Reg-ulations (26 CFR part 31) under section6053(a) of the Internal Revenue Code(Code). The proposed regulations pro-vide rules permitting employers to estab-lish electronic systems for use by theirtipped employees in reporting tips to theemployer.
In general, under section 6053(a) of theCode, every employee who receives tipsmust report the tips to the employer. Thetips that must be reported are those thatare wages for purposes of federal incometax withholding and the Federal InsuranceContributions Act (FICA) and compensa-tion for purposes of the Railroad Retire-ment Tax Act (RRTA). The tips must bereported in a written statement or state-ments furnished to the employer on or be-fore the 10th day following the month inwhich the tips are received. The Secre-tary is authorized to prescribe rules neces-sary to implement this provision, includ-ing the form and manner of furnishing thestatements.
Generally, all cash tips (which includetips that are charged) are wages (or com-pensation), with one exception. If theamount of cash tips received in a calendarmonth by an employee in the course ofany one employment is less than $20, thecash tips received in that employmentduring that month are not wages subjectto income tax withholding, FICA taxes, orRRTA taxes.
For example, A is a full-time tippedemployee of X and a part-time tipped em-ployee of Y. During the month, A re-ceived $1,000 in tips in A’s employmentwith X and $10 in tips in A’s employmentwith Y. The $1,000 in tips received in thecourse of employment with X are wagesfor income tax withholding and FICA (orRRTA) tax purposes. A must report the$1,000 in tips to X no later than the 10thday of the following month. The $10 intips received in the course of employmentwith Y are not wages for those purposes.The $10 are, however, subject to federalincome tax and must be reported as wagesby the employee on Form 4137, SocialSecurity and Medicare Tax on UnreportedTip Income,which the employee must filewith Form 1040, U.S. Individual IncomeTax Return.
Section 31.6053–1(b)(1) prescribesrules for tip statements. The statementfurnished by the employee to the em-ployer must be in writing and must besigned by the employee. The statementmust disclose (1) the employee’s name,address, and social security number; (2)the employer’s name and address; (3) theperiod for which and the date on whichthe statement is furnished; and (4) thetotal amount of tips received by the em-ployee during the period that are requiredto be reported to the employer.
Under §31.6053–1(b)(2), no particularform is prescribed for use in furnishingthe tip statement. If the employer doesnot provide a form for use by the em-ployee in reporting tips received by theemployee, the employee may use Form4070, Employee’s Report of Tips to Em-ployer. Twelve blank Forms 4070 and 12blank Forms 4070A, Employee’s DailyRecord of Tipsare reproduced in Publica-tion 1244, Employee’s Daily Record ofTips and Report to Employer.(Dailycompletion of Form 4070A constitutessufficient evidence of tip income underthe substantiation requirements of
§31.6053–4.) Pub. 1244 is a convenientpocket-sized document that also includesthe basic rules for reporting tips. Copiesof Pub. 1244 are available from the IRSby calling 1-800-829-3676.
The regulations specifically permit em-ployers to design their own forms for useby employees in reporting tips. A formused solely to report tips must include (1)the employee’s name, address, and socialsecurity number; (2) the employer’s nameand address; (3) the period for which andthe date on which the statement is fur-nished; and (4) the total amount of tips re-ceived by the employee during the periodthat are required to be reported to the em-ployer.
In lieu of a special tip reporting formthat is used solely for the purpose of re-porting tips, employers may provide forreporting of tips on regularly used forms,such as time cards. The regularly usedforms need not include the employer in-formation, but they must accurately iden-tify the employee, identify the reportingperiod, and specify the amount of tips re-ceived. If a regularly used form is used toreport tips, the employer must furnish theemployee a statement showing theamount of tips reported by the employeefor the period. This statement must befurnished no later than shortly after thefirst wage payment following the em-ployee’s tip report. A payroll check stubor other similar payroll document may beused for this purpose.
The period covered by a tip statementmay not exceed one calendar month. Anemployer may require tip statements morefrequently, such daily, weekly or everypay period, if not less frequently thanmonthly. In no event, however, may anemployer permit tips received in onemonth to be reported after the 10th of thefollowing month. See section 6053(a).For example, X has a weekly payroll pe-riod, beginning on Sunday and ending onSaturday. X requires that all tip state-ments be submitted to X no later than theMonday following each payroll period.For the payroll period beginning on Sun-day, March 30, and ending on Saturday,April 5, the statements must be furnishedon or before Monday, April 7. If this oc-curs, the 10th-of-the-month requirementfor March is met. If X’s payroll periodwere biweekly and began on March 30and ended on April 16 and if X required
March 16, 1998 14 1998–11 I.R.B.
that all tip statements be submitted to Xno later than the Monday following eachpayroll period, the 10th-of-the-month re-quirement for March would not be met.
A tip statement furnished after thisdeadline does not meet the requirementsof section 6053(a). The employer is notrequired to withhold income, FICA, orRRTA taxes on tips reported after the 10thof the following month and is not respon-sible for reporting those tips to the IRS.The responsibility for reporting and pay-ing the employee portion of the FICA taxshifts to the employee. The employeemust complete and attach Form 4137, So-cial Security and Medicare Tax on Unre-ported Tip Income,to the employee’s fed-eral income tax return. Moreover, anemployee who fails to report tips as re-quired by section 6053(a) is subject to anaddition to the FICA tax or the RRTA tax,whichever is applicable, equal to 50 per-cent of the employee portion of the FICAor RRTA tax on those tips.
Section 31.6053–4(a)(1) provides thatan employee must maintain sufficient evi-dence to establish the amount of tip in-come received during a taxable year. Suf-ficient evidence consists of either a dailyrecord or, if the employee does not main-tain a daily record, other evidence (suchas documentary evidence) that is as credi-ble and as reliable as a daily record. Nev-ertheless, if the facts or circumstances in-dicate that the employee received a largeramount of tip income, a daily record orother evidence may not be sufficient evi-dence.
Section 31.6053–4(a)(2) describes therequirements for a daily record. In gen-eral, the daily record must show theamount of cash and charge tips receiveddirectly from customers or other employ-ees and the amount of tips, if any, that theemployee paid out to other employeesthrough tip sharing, tip pooling, or otherarrangements and the names of the em-ployees. The daily record must show thedate on which each entry is made. Eachentry must be made on or near the date thetip income is received. An entry madewhen the employee has full presentknowledge of those receipts and pay-ments satisfies this requirement.
Section 31.6053–4(a)(3) describes doc-umentary evidence. Documentary evi-dence consists of copies of any docu-ments that contain amounts added as a tip
to a check by a customer or amounts paidby a customer for food or beverages withrespect to which tips generally would bereceived. Examples of documentary evi-dence are copies of restaurant bills, creditcard charges, or charges under any otherarrangement containing amounts addedby the customer as a tip.
Explanation of Provisions
Electronic tip statements.No provisioncurrently exists for employees to furnishtip statements to employers in a formother than on paper. The proposed regu-lations would permit an employer toadopt a system under which some or all ofthe tipped employees of the employerwould furnish their tip statements elec-tronically. Therefore, the employer couldinclude in its electronic system any tippedemployee or employees working in anylocation or locations.
The proposed regulations set forth re-quirements for employers who wish to es-tablish electronic systems for employeesto use to furnish tip statements to theiremployers. The proposed regulationsapply only to tip statements required bysection 6053(a) and not with respect toany other Code sections.
An employer that chooses to establishan electronic tip reporting system may se-lect the type or types of electronic sys-tems (such as telephone or computer) tobe used by its employees. The systemmust, however, ensure that the informa-tion received is the information transmit-ted by the employee and must documentall occasions of access that result in thetransmission of a tip statement. The de-sign and operation of the electronic sys-tem, including access procedures, mustmake it reasonably certain that the personaccessing the system and transmitting thetip statement is the employee identified inthe transmission. In the event of an ex-amination, the employer must supply ahard copy of the electronic statement tothe IRS upon request.
The electronic tip statement must con-tain exactly the same information that isrequired to be reported on a paper tipstatement and must contain the em-ployee’s electronic signature. The elec-tronic signature must identify the em-ployee furnishing the electronic tipstatement and authenticate and verify the
transmission. An electronic signature canbe in any form that satisfies the foregoingrequirements. An electronic signature hasthe same effect as a signature written on apaper tip statement. See sections 6061,6064, and 6065 of the Code.
Pursuant to Rev. Rul. 71–20 (1971–1C.B. 392), all machine-sensible datamedia used for recording, consolidating,and summarizing accounting transactionsand records within a taxpayer’s ADP sys-tem are records within the meaning ofsection 6001 and §1.6001–1. The recordretention requirements contained in Rev.Proc. 91–59 (1991–2 C.B. 841) (or anyrevenue procedure updating Rev. Proc.91–59), dealing with automatic data pro-cessing systems, apply to electronic tipreporting systems.
The proposed regulations provide thatan employee maintains sufficient evidenceto establish the amount of tip income re-ceived by the employee during a calendarmonth through a daily record (as de-scribed in §31.6053–4(a)(2)) if the em-ployee both reports tips on a daily basisthrough an electronic system that other-wise meets the substantiation require-ments of the regulations and receives fromthe employer a hard copy of a daily recordbased on those entries for the period.
Employee substantiation requirements.Because the proposed regulations expandthe permissible array of employer-de-signed reporting systems to include elec-tronic methods, employers will be provid-ing a statement to employees of the tipsreported consistent with the existing re-quirements of §31.6053–1(b). The Trea-sury and the IRS recognize that many ofthese systems may capture tip reportingon a very current basis (e.g., point-of-saleor end-of-shift). Thus, the information inthese systems offers a reasonable substi-tute for a daily record maintained by theemployee if the employer’s system pro-vides the employee with a printout thatwould satisfy the current substantiationrequirements of §31.6053–4.
Thus, these proposed regulations pro-vide that, if the employer, at its option,provides employees with a copy of thedaily record based on entries made by theemployee in the system and otherwise sat-isfying the substantiation requirement of§31.6053–4, the entry in the electronicsystem on a daily (or more frequent) basisby the employee, together with the daily
1998–11 I.R.B. 15 March 16, 1998
record based on these entries provided bythe employer, will satisfy the substantia-tion requirements of §31.6053–4. For ex-ample, assume an employee enters tips inthe employer’s electronic system at theend of each shift, but does not provide theemployer with a signed paper record ofthese tips. After the end of each weeklypayroll period, the employer provides theemployee with a paper record that in-cludes all the information specified in§31.6053–4(a)(2) and that shows the totalamount of tips reported for each day dur-ing the period based on the employee’sentries. If the employee maintains thisemployer generated paper record, the sub-stantiation requirements of §31.6053–4are satisfied.
The Treasury and the IRS particularlyinvite comment on whether the proposedregulations should be modified to reflectways in which these systems may permitfurther reduction in paper reporting for ei-ther the employer or employee while re-taining provisions for appropriate andtimely substantiation of income.
Railroad Retirement Tax Act provi-sions. The tip reporting provisions of sec-tion 6053(a) apply to tips that are eitherwages for income tax withholding andFederal Insurance Contributions Act(FICA) purposes or compensation forRailroad Retirement Tax Act (RRTA) pur-poses. The proposed regulations wouldclarify that the regulations under section6053(a) apply to tips that are compensa-tion as well as to tips that are wages.
Proposed Effective Date
The revisions and additions in the pro-posed regulations apply to tips required tobe reported to the employer after these reg-ulations are published as final regulationsin the Federal Register. However, tax-payers may rely on the guidance in theseproposed regulations for prior periods.
Special Analyses
It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It also has been de-termined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions.
It is hereby certified that the collectionsof information in these regulations willnot have a significant economic impact ona substantial number of small entities.The collection of information in§31.6053–1 is imposed solely on individ-uals, not on any small entities, and theregulations provide flexibility to employ-ees who must provide the information re-quired by statute, thereby reducing bur-den. With respect to the collection ofinformation in §31.6053–4, the certifica-tion is based on the expectation of theIRS that most businesses that choose toimplement the electronic tip reportingprovisions will be larger businesses withmany employees and sophisticated com-puter systems. Moreover, because theprovision is wholly elective, any smallbusiness that would be adversely im-pacted may choose not to use electronictip reporting. Finally, the Service expectsthat for those small entities that choose toimplement the provision, the use of elec-tronic tip reporting will reduce overallburden by reducing paper collections.Therefore, a Regulatory FlexibilityAnalysis under the Regulatory FlexibilityAct (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of theCode, this notice of proposed rulemakingwill be submitted to the Chief Counsel forAdvocacy of the Small Business Admin-istration for comment on its impact onsmall business.
Comments and Requests for a PublicHearing
Before these proposed regulations areadopted as final regulations, considera-tion will be given to any written com-ments (a signed original and eight copies)that are submitted timely (in the mannerdescribed in the ADDRESSES portion ofthis preamble) to the IRS. All commentswill be available for public inspection andcopying.
A public hearing may be scheduled ifrequested in writing by any person thattimely submits written comments. TheIRS will also consider requests for re-mote teleconference sites as part of thepublic hearing. If a public hearing isscheduled, notice of the date, time, andplace (including teleconference, if any)for the hearing will be published in theFederal Register.
Drafting Information
The principal author of these proposedregulations is Karin Loverud, Office ofthe Associate Chief Counsel (EmployeeBenefits and Exempt Organizations), IRS.However, other personnel from the IRSand the Treasury Department participatedin their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 31 is pro-posed to be amended as follows:
PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOME TAXAT SOURCE
Paragraph 1. The authority citation forpart 31 continues to read in part as fol-lows:
as follows:1. Paragraph (a) is revised.2. The introductory text of paragraph
(b)(1) is revised.3. The last sentence of paragraph
(b)(1)(iii) is revised.4. Paragraph (b)(2) is revised.5. Paragraph (c) is revised.6. Paragraph (d) is added. The revisions and additions read as fol-
lows:
§31.6053–1 Report of tips by employeeto employer.
(a) Requirement that tips be re-ported—(1) In general. An employeewho receives, in the course of employ-ment by an employer, tips that constitutewages as defined in section 3121(a) orsection 3401, or compensation as definedin section 3231(e), must furnish to theemployer a statement, or statements, dis-closing the total amount of the tips re-ceived by the employee in the course ofemployment by the employer. Tips re-ceived by an employee in a calendarmonth in the course of employment by anemployer that are required to be reportedto the employer must be reported on orbefore the 10th day of the followingmonth. Thus, for example, tips receivedby an employee in January 1998 are re-quired to be reported by the employee to
March 16, 1998 16 1998–11 I.R.B.
the employer on or before February 10,1998.
(2) Cross references.For provisionsrelating to the treatment of tips as wagesfor purposes of the Federal InsuranceContributions Act (FICA) tax under sec-tions 3101 and 3111, see sections 3102(c),3121(a)(12), and 3121(q) and §§31.3102–3 and 31.3121(a)(12)–1. For provisionsrelating to the treatment of tips as wagesfor purposes of the tax under section 3402(income tax withholding), see sections3401(a)(16), 3401(f), and 3402(k) and§§31.3401(a)(16)–1, 31.3401(f)–1, and31.3402(k)–1. For provisions relating tothe treatment of tips as compensation forpurposes of the Railroad Retirement TaxAct (RRTA) tax under sections 3201 and 3221, see section 3231(e) and§31.3231(e)–1(a).
(b) * * * (1) In general. The state-ment described in paragraph (a) of thissection can be provided on paper or trans-mitted electronically. The statement mustbe signed by the employee and must dis-close:
* * * * *
(iii) * * * If the statement is for a pe-riod of less than 1 calendar month, the be-ginning and ending dates of the periodmust be included (for example, January 1through January 8, 1998).
* * * * *
(2) Form of statement—(i) In general.No particular form is prescribed for use infurnishing the statement required by thissection. The statement may be furnishedon paper or transmitted electronically. Anelectronic system and all tip statementsgenerated by that system must meet therequirements of paragraph (d) of this sec-tion. If the employer does not provideany other means for the employee to re-port tips, the employee may use Form4070, Employee’s Report of Tips to Em-ployer.
(ii) Single-purpose forms.A statementmay be furnished on an employer-pro-vided form. The form may be on paper orin electronic form. An employer that pro-vides a paper form must make blankcopies of the form readily available to alltipped employees. Any form, whetherpaper or electronic, provided by an em-ployer for use by its tipped employeessolely to report tips must meet all the re-
quirements of paragraph (b)(1) of thissection.
(iii) Regularly used forms.Instead ofrequiring that tips be reported as de-scribed in paragraph (b)(2)(ii) of this sec-tion on a special form used solely for tipreporting, an employer may prescribe reg-ularly used forms for use by employees inreporting tips. A regularly used form maybe on paper (such as a time card or report)or in electronic form, must meet the re-quirements of paragraph (b)(1)(iii) and(iv) of this section, must contain identify-ing information that will ensure accurateidentification of the employee by the em-ployer, and is permitted to be used only ifthe employer furnishes the employee astatement suitable for retention showingthe amount of tips reported by the em-ployee for the period. The employerstatement may be furnished when the em-ployee reports the tips, when wages arefirst paid following the reporting of tipsby the employee, or within a short timeafter the wages are paid. The employermay meet this requirement, for example,through the use of a payroll check stub orother payroll document regularly fur-nished by the employer to the employeeshowing gross pay and deductions. In thecase of electronic tip reports, the em-ployer statement may be furnished on adaily, weekly, monthly or on a regularpayroll basis (if not less frequent thanmonthly).
(c) Period covered by, and due date of,tip statement—(1) In general. A tipstatement furnished by an employee to anemployer may not cover a period greaterthan 1 calendar month. An employermay, however, require the submission of astatement in respect of a specified periodof time, for example, on a weekly or bi-weekly basis, regular payroll period, etc.An employer may specify, subject to thelimitation in paragraph (a) of this section,the time within which, or the date onwhich, the statement for a specified pe-riod of time should be submitted by theemployee. For example, a statement cov-ering a payroll period may be required tobe submitted on the first (or second) dayfollowing the close of the payroll period.A statement submitted by an employeeafter the date specified by the employerfor its submission nevertheless will beconsidered as a statement furnished pur-suant to section 6053(a) and this section if
it is submitted to the employer on or be-fore the 10th day following the month inwhich the tips were received.
(2) Termination of employment.If anemployee’s employment is terminating,the employee must furnish a tip statementto the employer when the employee ceasesto perform services for the employer. Astatement submitted by an employee afterthe date on which the employee ceases toperform services for the employer will beconsidered as a statement furnished pur-suant to section 6053(a) and this section ifthe statement is submitted to the employeron or before the earlier of the day onwhich the final wage payment is made bythe employer to the employee or the 10thday following the month in which the tipswere received.
(d) Requirements for electronic sys-tems—(1) In general.The electronic sys-tem must ensure that the information re-ceived is the information transmitted bythe employee and must document all oc-casions of access that result in the trans-mission of a tip statement. In addition,the design and operation of the electronicsystem, including access procedures,must make it reasonably certain that theperson accessing the system and transmit-ting the statement is the employee identi-fied in the statement transmitted.
(2) Same information as on paperstatement. The electronic tip statementmust provide the employer with all the in-formation required by paragraph (b)(1) ofthis section.
(3) Signature.The electronic tip state-ment must be signed by the employee.The electronic signature must identify theemployee transmitting the electronic tipstatement and must authenticate and ver-ify the transmission. For this purpose, theterms “authenticate” and “verify” havethe same meanings as they do when ap-plied to a written signature on a paper tipstatement. An electronic signature can bein any form that satisfies the foregoing re-quirements.
(4) Copies of electronic tip statements.Upon request by the Internal RevenueService (IRS), the employer must supplythe IRS with a hard copy of the electronictip statement and a statement that, to thebest of the employer’s knowledge, theelectronic tip statement was filed by thenamed employee. The hard copy of theelectronic tip statement must provide the
1998–11 I.R.B. 17 March 16, 1998
information required by paragraph (b)(1)of this section, but need not be a facsimileof Form 4070 or any employer-designedform.
(5) Record retention. The record re-tention requirements dealing with auto-matic data processing systems apply toelectronic tip reporting systems.
Par. 3. Section 31.6053–4 is amendedas follows:
1. A sentence is added to paragraph(a)(1) after the third sentence.
2. A sentence is added to paragraph(a)(2) after the fourth sentence.
revenue ruling, procedure or other guid-ance of general applicability provide forother methods of demonstrating evidenceof tip income. * * *
(2) * * * In addition, an electronic sys-tem maintained by the employer that col-lects substantially similar information asForm 4070A may be used to maintainsuch daily record, provided the employeereceives and maintains a paper copy ofthe daily record. * * *
* * * * *
Michael P. Dolan,Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register onJanuary 23, 1998, 8:45 a.m., and published in theissue of the Federal Register for January 26, 1998,63 F.R. 3680)
SUMMARY: This document containsproposed regulations relating to the abate-ment of interest attributable to unreason-able errors or delays by an officer or em-ployee of the IRS in performing a
ministerial or managerial act. The pro-posed regulations reflect changes to thelaw made by the Tax Reform Act of 1986and the Taxpayer Bill of Rights 2. Theproposed regulations affect both taxpay-ers requesting abatement of certain inter-est and IRS personnel responsible for ad-ministering the abatement provisions.
DATES: Written comments and requestsfor a hearing must be received by April 8,1998.
ADDRESSES: Send submissions to:CC:DOM:CORP:R (REG–209276–87),room 5226, Internal Revenue Service,POB 7604, Ben Franklin Station, Wash-ington, DC 20044. Submissions may behand delivered between the hours of 8a.m. and 5 p.m. to: CC:DOM:CORP:R(REG–209276–87), Courier’s Desk, In-ternal Revenue Service, 1111 ConstitutionAvenue, NW, Washington, DC. Alterna-tively, taxpayers may submit commentselectronically via the INTERNET by se-lecting the “Tax Regs” option on the IRSHome Page, or by submitting commentsdirectly to the IRS Internet site athttp://www.irs.ustreas.gov/prod/tax–regs/comments.html.
FOR FURTHER INFORMATION CON-TACT: Concerning the regulations,David Auclair, (202) 622-4910 (not a toll-free number). Concerning submissions,Michael Slaughter, (202) 622-7190 (not atoll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposedamendments to the Procedure and Admin-istration Regulations (26 CFR Part 301)relating to the abatement of interest attrib-utable to unreasonable errors or delays byan officer or employee of the IRS undersection 6404(e)(1) of the Internal Rev-enue Code. Section 6404(e)(1) was en-acted by section 1563(a) of the Tax Re-form Act of 1986 (Public Law 99–514,100 Stat. 2762 (1986)) (1986 Act) andamended by section 301 of the TaxpayerBill of Rights 2 (Public Law 104–168,110 Stat. 1452 (1996)) (TBOR2).
As enacted by the 1986 Act, section6404(e)(l) provided that the IRS mayabate interest attributable to any error ordelay by an officer or employee of the
IRS (acting in an official capacity) in per-forming a ministerial act. The legislativehistory accompanying the Act provided,
The committee intends that the term ‘ministe-rial act’ be limited to nondiscretionary actswhere all of the preliminary prerequisites,such as conferencing and review by supervi-sors, have taken place. Thus, a ministerial actis a procedural action, not a decision in a sub-stantive area of tax law.
Further, Congress did not intend thatthe abatement of interest provision “beused routinely to avoid payment of inter-est.” H.R. Rep. No. 426, 99th Cong., 1stSess. 844 (1985); S. Rep. No. 313, 99thCong., 2d Sess. 208 (1986). Rather, Con-gress intended abatement of interest to beused in instances “where failure to abateinterest would be widely perceived asgrossly unfair.” Id.
On August 13, 1987, the IRS publishedtemporary regulations (T.D. 8150) in theFederal Register(52 F.R. 30162) relatingto the definition of ministerial act for pur-poses of abatement of interest. A notice ofproposed rulemaking (LR–34–87) cross-referencing the temporary regulations wasalso published in the Federal Register forthe same day (52 F.R. 30177). No publichearing regarding these regulations wasrequested or held. In this document, theIRS is reproposing a modified version ofthe earlier notice of proposed rulemakingto incorporate changes made by TBOR2.Therefore, the earlier notice of proposedrulemaking is withdrawn.
The temporary regulations define min-isterial act to mean a procedural or me-chanical act that does not involve the ex-ercise of judgment or discretion, and thatoccurs during the processing of a tax-payer’s case after all prerequisites to theact, such as conferences and review bysupervisors, have taken place. A decisionconcerning the proper application of fed-eral tax law (or other federal or state law)is not a ministerial act. The temporaryregulations also provide five examples toillustrate the definition of ministerial act.
In TBOR2, Congress amended section6404(e)(1) to permit the IRS to abate in-terest attributable to any unreasonableerror or delay by an officer or employeeof the IRS (acting in an official capacity)in performing a managerial act as well as
March 16, 1998 18 1998–11 I.R.B.
a ministerial act. Thus, as a result ofTBOR2, the IRS has the authority toabate interest in more situations thanunder prior law.
Pursuant to the legislative history ac-companying TBOR2, a managerial act isa loss of records or a personnel manage-ment decision such as the decision to ap-prove a personnel transfer, extendedleave, or extended training. See H.R.Rep. No. 506, 104th Cong., 2d Sess. 27(1996). TBOR2 distinguished a manager-ial act from a general administrative deci-sion, such as a decision on how to orga-nize the processing of tax returns or adecision regarding the implementation ofan improved computer system. Id. Ageneral administrative decision is a deci-sion that impacts tax administration. Theamendments to section 6404(e)(1) are ef-fective for interest accruing with respectto deficiencies or payments for taxableyears beginning after July 30, 1996.
TBOR2 also added section 6404(g).Section 6404(g) grants the Tax Court ju-risdiction to determine whether the IRS’sfailure to abate interest for an eligible tax-payer is an abuse of discretion. Tax Courtreview is available for requests for abate-ment of interest that are made after July30, 1996, or that have not been deniedprior to July 31, 1996. See Banat v. Com-missioner,109 T.C. 92 (1997); White v.Commissioner,109 T.C. 96 (1997).
Explanation of Provisions
TBOR2 expanded the scope of abate-ment relief under section 6404(e)(1).Consistent with congressional intent, theproposed regulations permit abatement ofinterest in more situations than underprior law. Nothing in the proposed regu-lations is intended to limit the extent towhich the IRS could abate interest beforethe effective date of TBOR2.
The proposed regulations define man-agerial act and incorporate other changesmade by TBOR2. TBOR2 did not alterthe definition of ministerial act underprior law. Accordingly, the proposed reg-ulations retain the definition of ministerialact in the temporary regulations.
Managerial act is defined as an admin-istrative act that occurs during the pro-cessing of a taxpayer’s case involving thetemporary or permanent loss of records orthe exercise of judgment or discretion re-
lating to management of personnel. A de-cision concerning the proper applicationof federal tax law (or other federal or statelaw) is not a managerial act. Further, in-terest attributable to a general administra-tive decision, such as the IRS’s decisionon how to organize the processing of taxreturns or its delay in implementing animproved computer system, cannot beabated under section 6404(e)(1).
In addition, the proposed regulationsprovide examples to illustrate the defini-tions of ministerial act and managerialact. Examples 1, 2, 3, 7, and 8 of the pro-posed regulations are substantially similarto Examples 1 through 5 of the temporaryregulations. However, in Example 3 ofthe proposed regulations (Example 4 ofthe temporary regulations), a decision toapprove extended training is a managerialact, and in Example 8 of the proposedregulations (Example 5 of the temporaryregulations) the type of work priority isspecified.
The provisions of the regulations relat-ing to a ministerial act apply to interestaccruing with respect to deficiencies orpayments of any tax described in section6212(a) for taxable years beginning afterDecember 31, 1978, for which the applic-able statute of limitations has not expired.The provisions of the regulations relatingto a managerial act are proposed to applyto interest accruing with respect to defi-ciencies or payments of any tax describedin section 6212(a) for taxable years begin-ning after July 30, 1996.
Special Analyses
It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It alsohas been determined that section 553(b)of the Administrative Procedure Act (5U.S.C. Chapter 5) does not apply to theseregulations, and because the regulationsdo not impose a collection of informationon small entities, the Regulatory Flexibil-ity Act (5 U.S.C. Chapter 6) does notapply. Pursuant to section 7805(f) of theInternal Revenue Code, this notice of pro-posed rulemaking will be submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.
Comments and Requests for a PublicHearing
Before these proposed regulations areadopted as final regulations, considera-tion will be given to any written com-ments (a signed original and eight (8)copies) or electronic comments that aresubmitted timely to the IRS. All com-ments will be available for public inspec-tion and copying. A public hearing maybe scheduled if requested in writing byany person that timely submits writtencomments. If a public hearing is sched-uled, notice of the date, time, and place ofthe hearing will be published in the Fed-eral Register.
Drafting Information
The principal author of these regulationsis David B. Auclair. However, other per-sonnel from the IRS and Treasury Depart-ment participated in their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is pro-posed to be amended as follows:
PART 301—PROCEDURE ANDADMINISTRATION
Paragraph 1. The authority citation forpart 301 continues to read in part as fol-lows:
Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6404–2 is added to
read as follows:
§301.6404–2 Abatement of interest.
(a) In general. (1) Section 6404(e)(1)provides that the Commissioner may (inthe Commissioner’s discretion) abate theassessment of all or any part of interest onany—
(i) Deficiency (as defined in section6211(a), relating to income, estate, gift,generation-skipping, and certain excisetaxes) attributable in whole or in part toany unreasonable error or delay by an of-ficer or employee of the Internal RevenueService (IRS) (acting in an official capac-ity) in performing a ministerial or man-agerial act; or
(ii) Payment of any tax described insection 6212(a) (relating to income, es-tate, gift, generation-skipping, and certain
1998–11 I.R.B. 19 March 16, 1998
excise taxes) to the extent that any erroror delay in payment is attributable to anofficer or employee of the IRS (acting inan official capacity) being unreasonablyerroneous or dilatory in performing aministerial or managerial act.
(2) An error or delay in performing aministerial or managerial act will be takeninto account only if no significant aspectof the error or delay is attributable to thetaxpayer involved or to a person related tothe taxpayer within the meaning of sec-tion 267(b) or section 707(b)(1). More-over, an error or delay in performing aministerial or managerial act will be takeninto account only if it occurs after the IRShas contacted the taxpayer in writing withrespect to the deficiency or payment. Forpurposes of this paragraph (a)(2), no sig-nificant aspect of the error or delay is at-tributable to the taxpayer merely becausethe taxpayer consents to extend the periodof limitations.
(b) Definitions. (1) Managerial actmeans an administrative act that occursduring the processing of a taxpayer’s caseinvolving the temporary or permanentloss of records or the exercise of judg-ment or discretion relating to manage-ment of personnel. A decision concerningthe proper application of federal tax law(or other federal or state law) is not amanagerial act. Further, interest attribut-able to a general administrative decision,such as the IRS’s decision on how to or-ganize the processing of tax returns or theIRS’s decision on the implementationschedule for an improved computer sys-tem, cannot be abated under paragraph (a)of this section.
(2) Ministerial act means a proceduralor mechanical act that does not involvethe exercise of judgment or discretion,and that occurs during the processing of ataxpayer’s case after all prerequisites tothe act, such as conferences and reviewby supervisors, have taken place. A deci-sion concerning the proper application offederal tax law (or other federal or statelaw) is not a ministerial act.
(c) Examples.The following examplesillustrate the provisions of paragraphs(b)(1) and (b)(2) of this section. For thepurposes of the examples, no significantaspect of any error or delay is attributableto the taxpayer, and the IRS has contactedthe taxpayer in writing with respect to thedeficiency.
Example 1.A taxpayer moves from one state toanother before the IRS selects the taxpayer’s incometax return for examination. A letter explaining thatthe return has been selected for examination is sentto the taxpayer’s old address and then forwarded tothe new address. The taxpayer timely responds, ask-ing that the audit be transferred to the IRS’s districtoffice that is nearest the new address. The groupmanager approves the request. After the request fortransfer has been approved, the transfer of the case isa ministerial act. The Commissioner may (in theCommissioner’s discretion) abate interest attribut-able to any unreasonable delay in transferring thecase.
Example 2. An examination of a taxpayer’s in-come tax return reveals a deficiency with respect towhich a notice of deficiency will be issued. The tax-payer and the IRS identify all agreed and unagreedissues, the notice is prepared and reviewed (includ-ing review by District Counsel, if necessary) andany other relevant prerequisites are completed. Theissuance of the notice of deficiency is a ministerialact. The Commissioner may (in the Commissioner’sdiscretion) abate interest attributable to any unrea-sonable delay in issuing the notice.
Example 3.A revenue agent is sent to a trainingcourse for an extended period of time, and theagent’s supervisor decides not to reassign the agent’scases. During the training course, no work is doneon the cases assigned to the agent. The decision tosend the revenue agent to the training course and thedecision not to reassign the agent’s cases are notministerial acts; however, both decisions are man-agerial acts. The Commissioner may (in the Com-missioner’s discretion) abate interest attributable toany unreasonable delay resulting from these deci-sions.
Example 4. A taxpayer appears for an officeaudit and submits all necessary documentation andinformation. The auditor tells the taxpayer that thetaxpayer will receive a copy of the audit report.However, before the report is prepared, the auditor ispermanently reassigned to another group. An ex-tended period of time passes before the auditor’scases are reassigned. The decision to reassign theauditor and the decision not to reassign the auditor’scases are not ministerial acts; however, they aremanagerial acts. The Commissioner may (in theCommissioner’s discretion) abate interest attribut-able to any unreasonable delay resulting from thesedecisions.
Example 5.A taxpayer is notified that the IRS in-tends to audit the taxpayer’s income tax return. Theagent assigned to the case is granted sick leave foran extended period of time and the taxpayer’s case isnot reassigned. The decision to grant sick leave andthe decision not to reassign the taxpayer’s case toanother agent are not ministerial acts; however, theyare managerial acts. The Commissioner may (in theCommissioner’s discretion) abate interest attribut-able to any unreasonable delay caused by these deci-sions.
Example 6. A revenue agent has completed anexamination of the income tax return of a taxpayer.There are issues that are not agreed upon betweenthe taxpayer and the IRS. Before the notice of defi-ciency is prepared and reviewed, a clerical employeemisplaces the taxpayer’s case file. The act of mis-placing the case file is a managerial act. The Com-missioner may (in the Commissioner’s discretion)
abate interest attributable to any unreasonable delayresulting from the file being misplaced.
Example 7. A taxpayer invests in a tax shelterand reports a loss from the tax shelter on the tax-payer’s income tax return. IRS personnel conductan extensive examination of the tax shelter, and theprocessing of the taxpayer’s case is delayed becauseof that examination. The decision to delay the pro-cessing of the taxpayer’s case until the completionof the examination of the tax shelter is a decision onhow to organize the processing of tax returns. Thisis a general administrative decision. Consequently,interest attributable to this decision cannot be abatedunder paragraph (a) of this section.
Example 8.A taxpayer claims a loss on the tax-payer’s income tax return and is notified that the IRSintends to examine the return. However, a decisionis made not to commence the examination of thetaxpayer’s return until the processing of another re-turn, for which the statute of limitations is about toexpire, is completed. The decision on how to priori-tize the processing of returns based on the expirationof the statute of limitations is a general administra-tive decision. Consequently, interest attributable tothis decision cannot be abated under paragraph (a)of this section.
Example 9. During the examination of an in-come tax return, there is disagreement between thetaxpayer and the revenue agent regarding certainitemized deductions claimed by the taxpayer on thereturn. To resolve the issue, Examination requestsadvice from the Office of Chief Counsel on a sub-stantive issue of federal tax law. The decision to re-quest advice is a decision concerning the proper ap-plication of federal tax law; it is neither a ministerialnor a managerial act. Consequently, interest attrib-utable to a delay resulting from the decision to re-quest advice cannot be abated under paragraph (a) ofthis section.
Example 10.The facts are the same as in Exam-ple 9 except the attorney who is assigned to respondto the request for advice is granted leave for an ex-tended period of time. The case is not reassignedduring the attorney’s absence. The decision to grantleave and the decision not to reassign the taxpayer’scase to another attorney are not ministerial acts;however, they are managerial acts. The Commis-sioner may (in the Commissioner’s discretion) abateinterest attributable to any unreasonable delaycaused by these decisions.
Example 11. A taxpayer contacts an IRS em-ployee and requests the amount due to satisfy thetaxpayer’s income tax liability for a particular tax-able year. Because the employee fails to access themost recent data, the employee gives the taxpayer anincorrect amount due. As a result, the taxpayer paysless than the amount required to satisfy the tax lia-bility. Accessing the most recent data is a minister-ial act. The Commissioner may (in the Commis-sioner’s discretion) abate interest attributable to anyunreasonable error or delay arising from giving thetaxpayer an incorrect amount due to satisfy the tax-payer’s income tax liability.
Example 12. A taxpayer contacts an IRS em-ployee and requests the amount due to satisfy the tax-payer’s income tax liability for a particular taxableyear. To determine the current amount due, the em-ployee must interpret complex provisions of federaltax law involving net operating loss carrybacks andforeign tax credits. Because the employee incor-
March 16, 1998 20 1998–11 I.R.B.
rectly interprets these provisions, the employee givesthe taxpayer an incorrect amount due. As a result,the taxpayer pays less than the amount required tosatisfy the tax liability. Interpreting federal tax law isneither a ministerial nor a managerial act. Conse-quently, interest attributable to an error or delay aris-ing from giving the taxpayer an incorrect amount dueto satisfy the taxpayer’s income tax liability cannotbe abated under paragraph (a) of this section.
(d) Effective date.The provisions ofthis section apply to interest accruing withrespect to deficiencies or payments of anytax described in section 6212(a) for tax-able years beginning after July 30, 1996.
Michael P. Dolan,Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register onJanuary 7, 1998, 8:45 a.m., and published in theissue of the Federal Register for January 8, 1998, 63F.R. 1086)
Notice of Proposed Rulemaking
Continuation CoverageRequirements of Group HealthPlans
REG–209485–86
AGENCY: Internal Revenue Service(IRS), Treasury.
ACTION: Notice of proposed rulemak-ing.
SUMMARY: This document containsproposed regulations that provide guid-ance under section 4980B of the InternalRevenue Code on certain changes madeby the Health Insurance Portability andAccountability Act of 1996, the OmnibusBudget Reconciliation Act of 1989, andthe Technical and Miscellaneous RevenueAct of 1988 relating to the continuationcoverage requirements applicable togroup health plans. The regulations willgenerally affect sponsors of and partici-pants in group health plans, and they pro-vide plan sponsors and plan administra-tors with guidance necessary to complywith the law.
DATES: Written comments and requestsfor a public hearing must be received byApril 7, 1998.
room 5226, Internal Revenue Service,POB 7604, Ben Franklin Station, Wash-ington, DC 20044. Submissions may behand delivered between the hours of 8a.m. and 5 p.m. to: CC:DOM:CORP:R(REG–209485–86), Courier’s Desk, In-ternal Revenue Service, 1111 ConstitutionAvenue, NW, Washington, DC. Alterna-tively, taxpayers may submit commentselectronically via the Internet by selectingthe “Tax Regs” option on the IRS HomePage, or by submitting comments directlyto the IRS Internet site at http://www.irs.ustreas.gov/prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, RussWeinheimer, 202-622-4695; concerningsubmissions or requests for a hearing,LaNita VanDyke, 202-622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-tained in this notice of proposed rulemak-ing has been submitted to the Office ofManagement and Budget (OMB) for re-view in accordance with the PaperworkReduction Act of 1995 (44 U.S.C.3507(d)). Comments on the collection ofinformation should be sent to the Officeof Management and Budget,Attn: DeskOfficer for the Department of the Trea-sury, Office of Information and Regula-tory Affairs, Washington, DC 20503,with copies to the Internal Revenue Ser-vice, Attn: IRS Reports Clearance Offi-cer, T:FP, Washington, DC 20224. Com-ments on the collection of informationshould be received by March 9, 1998.Comments are specifically requested con-cerning the following:
Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the InternalRevenue Service, including whether theinformation will have practical utility;
The accuracy of the estimated burdenassociated with the proposed collection ofinformation;
How to enhance the quality, utility, andclarity of the information to be collected;
How to minimize the burden of com-plying with the proposed collection of in-formation, including the application ofautomated collection techniques or otherforms of information technology; and
Estimates of capital or start-up costsand costs of operation, maintenance, andpurchase of services to provide informa-tion.
The collection of information is in pro-posed §54.4980B–1(a)(1)(iii). This col-lection of information is required bystatute. The likely respondents are indi-viduals. Responses to this collection ofinformation are required in order to obtainthe benefit of an extended period duringwhich a group health plan must makeCOBRA continuation coverage available.
Estimated total annual reporting bur-den: 440 hours.
The estimated annual burden per re-spondent: 1 minute.
Estimated number of respondents:26,400.
Estimated annual frequency of re-sponses: on occasion.
An agency may not conduct or sponsor,and a person is not required to respond to,a collection of information unless the col-lection of information displays a validcontrol number.
Books or records relating to a collec-tion of information must be retained aslong as their contents may become mater-ial in the administration of any internalrevenue law. Generally tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.
Background
The Consolidated Omnibus BudgetReconciliation Act of 1985 (COBRA)amended the Code to add health care con-tinuation coverage requirements. Theseprovisions, now set forth in section4980B of the Code,1 generally apply to agroup health plan maintained by an em-ployer with at least 20 employees, and re-quire such a plan to offer each qualifiedbeneficiary who would otherwise losecoverage as a result of a qualifying eventan opportunity to elect, within the applic-able election period, COBRA continua-
1998–11 I.R.B. 21 March 16, 1998
1The COBRA continuation coverage requirementswere initially set forth under section 162(k) of theCode, but were moved to section 4980B of the Codeby the Technical and Miscellaneous Revenue Act of1988 (TAMRA). TAMRA changed the sanction forfailure to comply with the continuation coveragerequirements of the Code from a disallowance ofcertain employer deductions under section 162 (anddenial of the income exclusion under section 106(a)to certain highly compensated employees of theemployer) to an excise tax under section 4980B.
tion coverage. The COBRA continuationcoverage requirements were amended onvarious occasions,2 most recently underthe Health Insurance Portability and Ac-countability Act of 1996 (HIPAA).
Proposed regulations providing guid-ance under the continuation coverage re-quirements as originally enacted byCOBRA and as amended by the Tax Re-form Act of 1986, were published as pro-posed Treasury Regulation §1.162–26 inthe Federal Register of June 15, 1987 (52F.R. 22716).
The new set of proposed regulationsbeing published in this notice of proposedrulemaking reflects principally the mostrecent set of statutory changes — thosemade by HIPAA — but also reflects cer-tain changes made by the Technical andMiscellaneous Revenue Act of 1988(TAMRA) and by the Omnibus BudgetReconciliation Act of 1989 (OBRA ’89).
Explanation of Provisions
Disability Extension; PermittedPremiums.
As originally enacted, the COBRAcontinuation coverage provisions requiredplans to make continuation coverageavailable for up to 18 months in the caseof a qualifying event that is a terminationof employment or reduction in hours ofemployment and for up to 36 months forall other qualifying events, such as deathof the covered employee, divorce fromthe covered employee, or a dependentchild ceasing to be a dependent under thegenerally applicable requirements of theplan. If someone became entitled to the18-month maximum period of coverageand experienced a second qualifyingevent during that period of COBRA con-tinuation coverage, then the law providedan extended period of coverage so that
there would be a total of 36 months ofCOBRA continuation coverage measuredfrom the date of the first qualifying event.
Under OBRA ’89, provisions wereadded allowing the 18-month period to beextended to 29 months if a qualified bene-ficiary was disabled at the time of thequalifying event. Section 421 of HIPAAchanged these provisions by requiringplans to allow the disability extension if aqualified beneficiary is disabled withinthe first 60 days of COBRA continuationcoverage and by clarifying that nondis-abled qualified beneficiaries with respectto the same qualifying event are also enti-tled to the disability extension.
Thus, under the current provisions inthe Code, all qualified beneficiaries withrespect to the same qualifying event areentitled to an extension of the maximumperiod of COBRA continuation coveragefrom 18 to 29 months, if three conditionsare satisfied. First, each qualified benefi-ciary must be a qualified beneficiary inconnection with a qualifying event that isa termination of employment or reductionin hours of employment. Second, a quali-fied beneficiary must be determined tohave been disabled (within the meaningof title II or title XVI of the Social Secu-rity Act) within the first 60 days ofCOBRA continuation coverage. Third,the plan administrator must be providedwith a copy of the determination of dis-ability on a date that is both within 60days after the determination is issued andbefore the end of the initial 18-month pe-riod of COBRA continuation coverage.In the case of a disability extension, forany period after the end of the 18th monthof COBRA continuation coverage, theplan may generally require payment forCOBRA continuation coverage in anamount that does not exceed 150 percentof the applicable premium.
These proposed regulations clarify thestatutory disability extension require-ments in several respects. For example,the first 60 days of COBRA continuationcoverage are generally measured from thedate of the termination of employment orreduction in hours of employment. Anexception applies if coverage would belost (in the absence of an election forCOBRA continuation coverage) after thedate of the qualifying event and if the planhas elected to measure both the maximumcoverage period and the period for pro-
viding notice upon the occurrence of aqualifying event from the date that cover-age would be lost rather than from thedate of the qualifying event. In such acase, the first 60 days of COBRA continu-ation coverage are also measured from thedate that coverage would be lost.
In addition, these proposed regulationsmake clear that the disability extensionapplies to each qualified beneficiary,whether or not disabled, that each quali-fied beneficiary has an independent rightto the disability extension, and that any ofthe qualified beneficiaries may providethe plan administrator with a copy of thedetermination of disability.
Another clarification relates to the pe-riod during which the plan may charge150 percent of the applicable premium.These proposed regulations make clearthat the plan may require payment equalto 150 percent of the applicable premiumif a disabled qualified beneficiary experi-ences a second qualifying event duringthe disability extension. In such a case(that is, where the disabled qualified ben-eficiary is entitled to a 36-month maxi-mum coverage period only because a sec-ond qualifying event occurs during thedisability extension), the plan may requirepayment of 150 percent of the applicablepremium until the end of the 36-monthmaximum coverage period.
HIPAA also added provisions to theCode, in section 9802(b), that generallyprohibit discrimination in premiums onthe basis of health status, including on thebasis of disability. These proposed regu-lations clarify that a plan that requires adisabled qualified beneficiary entitled tothe disability extension to pay 150 percentof the applicable premium (as permittedby the proposed regulations) does not forthat reason fail to comply with the nondis-crimination requirements of section9802(b).
These proposed regulations do not ad-dress the extent to which a plan cancharge 150 percent of the applicable pre-mium to a qualified beneficiary who isnot disabled. Comments are requested onthis issue.
Newborn and Adopted Children Treatedas Qualified Beneficiaries.
Section 421 of HIPAA also providesthat a child born to or placed for adoption
March 16, 1998 22 1998–11 I.R.B.
2Changes affecting the COBRA continuation cover-age provisions were made under the OmnibusBudget Reconciliation Act of 1986, the Tax ReformAct of 1986, the Technical and MiscellaneousRevenue Act of 1988, the Omnibus BudgetReconciliation Act of 1989, the Omnibus BudgetReconciliation Act of 1990, the Small Business JobProtection Act of 1996, and the Health InsurancePortability and Accountability Act of 1996. Thestatutory continuation coverage requirements havealso been affected by an amendment made to the def-inition of group health plan in section 5000(b)(1) bythe Omnibus Budget Reconciliation Act of 1993;that definition is incorporated by reference in section4980B(g)(2).
with the covered employee during a pe-riod of COBRA continuation coverage isa qualified beneficiary. Such a child gen-erally is eligible to be enrolled immedi-ately for COBRA continuation coverageunder the plan. These proposed regula-tions clarify that the maximum coverageperiod for such a child is measured fromthe date of the qualifying event that givesrise to the period of COBRA continuationcoverage during which the child is born oradopted and not from the date of birth orplacement for adoption. Thus, the child’smaximum period of COBRA continuationcoverage would end at the same time asthe maximum period for other familymembers. In addition, the statutory termplacement for adoptionis clarified to in-clude an adoption that is not preceded bya placement for adoption.
Long-term Care; MSAs.
Section 321(d) of HIPAA amended sec-tion 4980B of the Code to provide that aplan does not constitute a group healthplan subject to the COBRA continuationcoverage requirements if substantially allof the coverage provided under the plan isfor qualified long-term care services, asdefined in section 7702B(c). These pro-posed regulations permit a plan to use anyreasonable method in determiningwhether substantially all of the coverage isfor qualified long-term care services. Fur-ther, the proposed regulations reflect sec-tion 106(b)(5), added by HIPAA, whichprovides that COBRA continuation cover-age is not required to be made availablewith respect to medical savings accounts(MSAs), as defined under section 220.
Good Faith/Reasonable Interpretations.
The effective date of these regulations,when made final, will not be earlier thanthe date of publication of final regulationsin the Federal Register. For the periodbefore the effective date of final regula-tions, plans and employers are required tooperate in good faith compliance with areasonable interpretation of the statutoryrequirements. Compliance with the termsof the proposed regulations concerningthe matters addressed is deemed to begood faith compliance with a reasonableinterpretation of the statutory require-ments. Actions inconsistent with theterms of the proposed regulations will notnecessarily constitute a lack of good faith
compliance with a reasonable interpreta-tion of the statutory requirements;whether there has been good faith compli-ance with a reasonable interpretation ofthe statutory requirements will depend onall the facts and circumstances of eachcase. Plans and employers may also con-tinue to rely on proposed Treasury Regu-lation §1.162–26 (published on June 15,1987 in 52 F.R. 22716), except to the ex-tent that that proposed regulation is incon-sistent with statutory amendments madeafter its date of publication.
Future Guidance Concerning COBRAObligations in Certain Stock and AssetSales.
Treasury and the IRS are currently con-sidering the issuance of guidance con-cerning COBRA obligations in cases in-volving a sale of stock in an employer thatcauses the employer to become a memberof another controlled group of corpora-tions (a “stock sale”), or a sale of substan-tial assets by an employer (such as a plantor division) to another employer outsidethe controlled group (an “asset sale”).
The approach under consideration gen-erally would provide, in the case of astock sale to a buyer maintaining a grouphealth plan, that the buyer’s group healthplan (and not a plan maintained by theseller) would be responsible, after thedate of the sale, for complying with theCOBRA continuation coverage require-ments with respect to any covered em-ployee (and associated qualified benefi-ciary) whose last employment was withthe sold corporation. Thus, for example,the buyer’s group health plan would havethe obligation, after the date of the sale, tocomply with the COBRA continuationcoverage requirements with respect tothose individuals regardless of whethertheir qualifying events were connected tothe sale of stock or were in advance ofand not connected to the sale. If the buyerdid not maintain a group health plan, thena group health plan of the seller wouldcontinue to be responsible for complyingwith the COBRA continuation coveragerequirements with respect to qualifiedbeneficiaries associated with the sold cor-poration.
In the case of an asset sale, the ap-proach under consideration generallywould provide that a group health planmaintained by the seller (and not a plan
maintained by the buyer) would be re-sponsible for complying with the COBRAcontinuation coverage requirements withrespect to any covered employee (and as-sociated qualified beneficiary) whose lastemployment was associated with the pur-chased assets. However, an exceptionwould be provided if the buyer were a“successor employer,” in which case agroup health plan of the buyer would beresponsible for complying with theCOBRA continuation coverage require-ments with respect to qualified beneficia-ries associated with the purchased assets.Consideration is being given to treating abuyer as a successor employer in connec-tion with an asset sale only if the buyeracquires substantial assets (such as a plantor division, or substantially all of the as-sets of a trade or business) and continuesthe business operations associated withthose assets without interruption or sub-stantial change, and only if, in connectionwith the sale, the selling employer ceasesto maintain any group health plan. Theapproach might also include a presump-tion that the cessation is in connectionwith the sale if it occurs within 6 monthsof the sale.
Comments are requested on this possi-ble approach to assigning responsibilityfor compliance with the COBRA continu-ation coverage requirements in the con-text of stock sales and asset sales and onany related issues that should be ad-dressed.
Special Analyses
It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It ishereby certified that the collection-of-in-formation requirement in these regula-tions will not have a significant economicimpact on a substantial number of smallentities. This certification is based on thefact that the collection-of-information re-quirement is imposed on individual quali-fied beneficiaries and not on small busi-nesses or other small entities. Therefore,a Regulatory Flexibility Analysis underthe Regulatory Flexibility Act (5 U.S.C.chapter 6) is not required. Pursuant tosection 7805(f) of the Internal RevenueCode, this notice of proposed rulemakingwill be submitted to the Chief Counsel for
1998–11 I.R.B. 23 March 16, 1998
Advocacy of the Small Business Admin-istration for comment on its impact onsmall business.
Comments and Requests for a PublicHearing
Before these proposed regulations areadopted as final regulations, considera-tion will be given to any written com-ments that are submitted timely (a signedoriginal and eight (8) copies) to the IRS.All comments will be available for publicinspection and copying. A public hearingmay be scheduled if requested in writingby a person that timely submits writtencomments. If a public hearing is sched-uled, notice of the date, time, and placefor the hearing will be published in theFederal Register.
Drafting Information
The principal author of these proposedregulations is Russ Weinheimer, Office ofthe Associate Chief Counsel (EmployeeBenefits and Exempt Organizations).However, other personnel from the IRSand Treasury Department participated intheir development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR Part 54 is pro-posed to be amended as follows:
Paragraph 1. The authority citation forPart 54 is amended in part by adding anentry in numerical order to read as fol-lows:
Authority: 26 U.S.C. 7805 * * *Section 54.4980B–1 also issued under
26 U.S.C. 4980B. * * *Par. 2. A new section 54.4980B–1 is
added to read as follows:
§ 54.4980B–1 Certain changes to thecontinuation coverage requirements ofgroup health plans.
(a) Disability extension—(1) In gen-eral. Paragraphs (a)(2), (3), and (4) ofthis section (describing qualified benefi-ciaries entitled to a disability extension,the length of the extension, and theamount that a plan can require qualifiedbeneficiaries to pay during the extension)apply to a group health plan only if allthree of the conditions of this paragraph(a)(1) are satisfied.
(i) A termination-of-employment qual-ifying event occurs.
(ii) An individual (whether or not thecovered employee) who is a qualifiedbeneficiary in connection with the termi-nation-of-employment qualifying event isdetermined under title II or XVI of theSocial Security Act to have been disabledat any time during the first 60 days ofCOBRA continuation coverage. For thispurpose, the first 60 days of COBRA con-tinuation coverage are measured from thedate of the termination-of-employmentqualifying event, except that if a loss ofcoverage would occur at a later date in theabsence of an election for COBRAcontinuation coverage and if the plan provides for the extension of required periods (as permitted under section4980B(f)(8)), then the first 60 days ofCOBRA continuation coverage are mea-sured from the date on which the cover-age would be lost.
(iii) Any of the qualified beneficiariesaffected by the termination-of-employ-ment qualifying event provides notice tothe plan administrator of the disability de-termination on a date that is both within60 days after the date the determination isissued and before the end of the original18-month maximum coverage period thatapplies to the termination-of-employmentqualifying event.
(2) Maximum coverage period—(i)The maximum coverage period ends—
(A) 29 months after the date of the ter-mination-of-employment qualifyingevent; or
(B) 36 months after the date of the ter-mination-of-employment qualifying eventif a qualifying event (other than a bank-ruptcy qualifying event) occurs during the29-month period that begins on the dateof the termination-of-employment quali-fying event.
(ii) If, in the absence of an election forCOBRA continuation coverage, coverageunder the group health plan would be lostafter the date of the termination-of-em-ployment qualifying event and the planprovides for the extension of the requiredperiods, as permitted under section4980B(f)(8), then the dates or periods inparagraph (a)(2)(i) of this section aremeasured from the date on which cover-age would be lost and not from the date ofthe termination-of-employment qualify-ing event.
(iii) Nothing in section 4980B or thissection prohibits a group health plan fromproviding coverage that continues beyondthe end of the maximum coverage period.
(3) Application to all qualified benefi-ciaries. Paragraph (a)(2) of this sectionapplies to all qualified beneficiaries enti-tled to COBRA continuation coverage because of the same termination-of-em-ployment qualifying event. Thus, for ex-ample, the 29-month period applies toeach qualified beneficiary who is not dis-abled as well as to the qualified benefi-ciary who is disabled, and it applies inde-pendently with respect to each of thequalified beneficiaries.
(4) Payment during disability exten-sion—(i) Disabled qualified beneficia-ries—(A) A group health plan is permit-ted to require a disabled qualifiedbeneficiary described in paragraph (a)(1)of this section, for any period of COBRAcontinuation coverage after the end of the18th month, to pay an amount that doesnot exceed 150 percent of the applicablepremium. However, the plan is not per-mitted to require a disabled qualified ben-eficiary described in paragraph (a)(1) ofthis section to pay an amount that exceeds102 percent of the applicable premium forany period of COBRA continuation cov-erage to which the qualified beneficiary isentitled without regard to the applicationof this paragraph (a). Thus, if a disabledqualified beneficiary described in para-graph (a)(1) of this section experiences asecond qualifying event within the origi-nal 18-month period of COBRA continua-tion coverage, then the plan is not permit-ted to require the qualified beneficiary topay an amount that exceeds 102 percentof the applicable premium for any periodof COBRA continuation coverage. Bycontrast, if a disabled qualified benefi-ciary described in paragraph (a)(1) of thissection experiences a second qualifyingevent after the end of the 18th month oforiginal COBRA continuation coverage,the plan may require the qualified benefi-ciary to pay an amount that is up to 150percent of the applicable premium for theremainder of the period of COBRA con-tinuation coverage (that is, from the be-ginning of the 19th month through the endof the 36th month).
(B) A group health plan does not fail tocomply with section 9802(b) and§54.9802–1T(b) (which generally pro-
March 16, 1998 24 1998–11 I.R.B.
hibit an individual from being charged, onthe basis of health status, a higher pre-mium than that charged for similarly situ-ated individuals enrolled in the plan) withrespect to a disabled qualified beneficiarydescribed in paragraph (a)(1) of this sec-tion merely because the plan requires pay-ment of a premium in an amount permit-ted under paragraph (a)(4)(i)(A) of thissection.
(ii) Nondisabled qualified beneficia-ries. [Reserved].
(b) Newborns and adopted children. Achild who is born to or placed for adop-tion with a covered employee during a pe-riod of COBRA continuation coverage isa qualified beneficiary and generally is el-igible to be enrolled immediately forCOBRA continuation coverage under theplan. See section 4980B(g)(1)(A), sec-tion 9801(f)(2) and §54.9801–6T(b) (re-lating to special enrollment rights of de-pendents of employees), and Q&A–31 of§1.162–26 of this chapter (relating to theright of qualified beneficiaries to havenew family members covered to the sameextent that similarly situated active em-ployees can have new family memberscovered under the plan). Such a child hasthe same open-enrollment-period rights asother qualified beneficiaries with respectto the same qualifying event (see Q&A-30(c) of §1.162–26 of this chapter) andwould be entitled to a 36-month maxi-mum coverage period if a second qualify-ing event occurred while the child was ina period of COBRA continuation cover-age resulting from a termination-of-em-ployment qualifying event. The maxi-mum coverage period for such a child ismeasured from the same date as for otherqualified beneficiaries with respect to thesame qualifying event (and not from thedate of the birth or placement for adop-tion). In contrast, neither the covered em-ployee, the spouse of the covered em-ployee, nor any other dependent child ofthe covered employee is a qualified bene-ficiary unless that person is covered undera group health plan on the day before aqualifying event. See also Q&A–31 of§1.162–26 of this chapter.
(c) Plan providing long-term care.Aplan is not subject to the COBRA continu-ation coverage requirements if substan-tially all of the coverage provided underthe plan is for qualified long-term careservices (as defined in section 7702B(c)).
For this purpose, a plan is permitted touse any reasonable method in determiningwhether substantially all of the coverageunder the plan is for qualified long-termcare services.
(d) Medical savings accounts.Undersection 106(b)(5), amounts contributed byan employer to a medical savings accountare not considered part of a group healthplan that is subject to section 4980B.Thus, a plan is not required to makeCOBRA continuation coverage availablewith respect to a medical savings account.However, a high deductible health planthat covers a medical savings accountholder may be a group health plan andthus may be subject to the COBRA con-tinuation coverage requirements.
(e) Definitions. For purposes of thissection —
Applicable premiumis defined in sec-tion 4980B(f)(4).
Bankruptcy qualifying eventis a quali-fying event described in section4980B(f)(3)(F) (relating to certain bank-ruptcy proceedings).
Covered employeeis defined in section4980B(f)(7).
Group health planis defined in section4980B(g)(2).
High deductible health planis definedin section 220(c)(2).
Medical savings account is defined insection 220(d).
Placement, or being placed, for adop-tion means the assumption and retentionby the covered employee of a legal oblig-ation for total or partial support of a childin anticipation of the adoption of thechild. The child’s placement for adoptionwith the covered employee terminatesupon the termination of the legal obliga-tion for total or partial support. For pur-poses of this section and section 4980B, achild who is immediately adopted by thecovered employee without a precedingplacement for adoption is considered tobe placed for adoption on the date of theadoption.
Qualified beneficiaryis defined in sec-tion 4980B(g)(1).
Qualified long-term care servicesis de-fined in section 7702B(c).
Termination-of-employment qualifyingeventis a qualifying event described insection 4980B(f)(3)(B) (relating to quali-fying events that occur as a result of a ter-mination of employment, other than for
gross misconduct, or reduction of hoursof employment).
Michael P. Dolan,Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register onJanuary 6, 1998, 8:45 a.m., and published in theissue of the Federal Register for January 7, 1998, 63F.R. 708)
Change in Record Format For TY 1998 Returns To BeFiled in CY 1999
Announcement 98–20
The purpose of this announcement is toinform all payers/transmitters, who fileinformation returns magnetically or elec-tronically with Internal Revenue Service(IRS) Martinsburg Computing Center, ofa change in the record format for tax year1998 returns to be filed in calendar year1999. Due to the century date change,legislative changes, and proposed futureexpansion, the record size will be in-creased from the current 420 positions to750 positions. This will enable IRS tocapture all data required to be filed. Sev-eral examples of changes are: the numberof money fields have been expanded from9 to 12, and blank fields have been addedto enable IRS to capture more completename and address information in the fu-ture. Although the record has changed,much of the information is data alreadyrequested in the present format.
Publication 1220, Specifications forFiling Forms 1098, 1099 series, 5498,5498–MSA and W–2G Magnetically orElectronically, is being revised and isscheduled to be available on the Informa-tion Reporting Program Bulletin BoardSystem (IRP–BBS) by May 1998 in an ef-fort to give payers/transmitters as muchtime as possible to incorporate thechanges into their programs. The tele-phone number for the IRP–BBS is 304-264-7070. IRS is planning additional In-formation Reporting Seminars to assistfilers with the new format.
Due to the fact we are unable to discussany other changes in detail until the publi-cation has gone through all necessaryclearances, no further information will beprovided at this time.
1998–11 I.R.B. 25 March 16, 1998
Foundations Status of CertainOrganizationsAnnouncement 98–21
The following organizations havefailed to establish or have been unable tomaintain their status as public charities oras operating foundations. Accordingly,grantors and contributors may not, afterthis date, rely on previous rulings or des-ignations in the Cumulative List of Orga-nizations (Publication 78), or on the pre-sumption arising from the filing of noticesunder section 508(b) of the Code. Thislisting does not indicate that the organiza-tions have lost their status as organiza-tions described in section 501(c)(3), eligi-ble to receive deductible contributions.
Former Public Charities.The followingorganizations (which have been treated asorganizations that are not private founda-tions described in section 509(a) of theCode) are now classified as private foun-dations:Child Care Resources Inc., Maidens, VAChildern Medical Foundation,
Hmong American Association of PortageCounty Inc., Stevens Point, WI
Hope Housing, Crystal Lake, ILHope Unity & Growth Inc., Detroit, MIHopkins Street Community Association
LTD, Milwaukee, WIIf an organization listed above submits
information that warrants the renewal of itsclassification as a public charity or as a pri-vate operating foundation, the InternalRevenue Service will issue a ruling or de-termination letter with the revised classifi-cation as to foundation status. Grantors andcontributors may thereafter rely upon suchruling or determination letter as providedin section 1.509(a)–7 of the Income TaxRegulations. It is not the practice of theService to announce such revised classifi-cation of foundation status in the InternalRevenue Bulletin.
1998–11 I.R.B. 27 March 16, 1998
March 16, 1998 28 1998–11 I.R.B.
Revenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe theeffect:
Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus,if an earlier ruling held that a principleapplied to A, and the new ruling holdsthat the same principle also applies to B,the earlier ruling is amplified. (Comparewith modified, below).
Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.
Distinguisheddescribes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial difference between them.
Modified is used where the substanceof a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A but notto B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling ismodified because it corrects a publishedposition. (Compare with amplified andclarified, above).
Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.
Revoked describes situations where theposition in the previously published rul-ing is not correct and the correct positionis being stated in the new ruling.
Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the
new ruling does more than restate thesubstance of a prior ruling, a combinationof terms is used. For example, modifiedand superseded describes a situationwhere the substance of a previously pub-lished ruling is being changed in part andis continued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this casethe previously published ruling is firstmodified and then, as modified, is super-seded.
Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling andthat list is expanded by adding furthernames in subsequent rulings. After theoriginal ruling has been supplementedseveral times, a new ruling may be pub-lished that includes the list in the originalruling and the additions, and supersedesall prior rulings in the series.
Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.
AbbreviationsThe following abbreviations in current use and for-merly used will appear in material published in theBulletin.
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 Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms
1998–11 I.R.B. 29 March 16, 1998
1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., published inInternal Revenue Bulletins 1997–27 through1997–52 will be found in Internal Revenue Bulletin1998–1, dated January 5, 1998.
Numerical Finding List1Bulletins 1998–1 through 1998–10
Finding List of Current Action onPreviously Published Items1
Bulletins 1998–1 through 1998–10
Revenue Procedures:
95–3595–35ASuperseded by98–19, 1998–7 I.R.B. 30
97–1Superseded by98–1, 1998–1 I.R.B. 7
97–2Superseded by98–2, 1998–1 I.R.B. 74
97–3Superseded by98–3, 1998–1 I.R.B. 100
97–4Superseded by98–4, 1998–1 I.R.B. 113
97–5Superseded by98–5, 1998–1 I.R.B. 155
97–6Superseded by98–6, 1998–1 I.R.B. 183
97–7Superseded by98–7, 1998–1 I.R.B. 222
97–8Superseded by98–8, 1998–1 I.R.B. 225
97–21Superseded by98–2, 1998–1 I.R.B. 74
97–53Superseded by98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17Supplemented and superseded by98–5, 1998–2 I.R.B. 20
92–19Supplemented in part by98–2, 1998–2 I.R.B. 15
1 A cumulative finding list for previously publisheditems mentioned in Internal Revenue Bulletins1997–27 through 1997–52 will be found in InternalRevenue Bulletin 1998–1, dated January 5, 1998.
INTERNAL REVENUE BULLETINThe Introduction on page 3 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 ofDocuments when their subscriptions must be renewed.
CUMULATIVE BULLETINSThe 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 week-ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.
HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
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WE WELCOME COMMENTS ABOUT THEINTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, wewould be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.
