Bulletin No. 2003–22 HIGHLIGHTS OF THIS ISSUE · tor to perform laser eye surgery to cor-rect the...

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.

INCOME TAX

Rev. Rul. 2003–52, page 960.Spin off. In the described situation, the division of a farm busi-ness to permit the principal managing shareholders to go theirseparate ways, promote family harmony, and further the per-sonal estate planning of the principal managing shareholders’ par-ents satisfies the business purpose requirement of section 1.355–2(b) of the regulations.

Rev. Rul. 2003–53, page 969.Special use value; farms; interest rates. The 2003 inter-est rates to be used in computing the special use value of farmreal property for which an election is made under section 2032Aof the Code are listed for estates of decedents.

Rev. Rul. 2003–55, page 961.Spin off. This ruling discusses whether the corporate busi-ness purpose requirement of section 1.355–2(b)(1) of the regu-lations is satisfied if, as a result of an unexpected deteriorationof market conditions, the controlled corporation is unable to com-plete the stock offering that motivated the distribution.

Rev. Rul. 2003–57, page 959.Medical expenses. This ruling holds that amounts paid by in-dividuals for procedures that are directed to improving appear-ance and do not promote the proper function of the body are notexpenses for medical care deductible under section 213 of theCode unless the procedure is necessary to correct a deformityarising from a birth defect, disfiguring disease, or injury.

Rev. Rul. 2003–58, page 959.Medical expenses. This ruling holds that amounts paid by anindividual for medicines that may be purchased without a pre-scription of a physician are not deductible under section 213 ofthe Code, but amounts paid by an individual for equipment, sup-plies, or diagnostic devices that may be purchased without a pre-scription of a physician may be deductible under section 213.

T.D. 9057, page 964.REG–152524–02, page 979.A corporation that files a consolidated return that acquires a sub-sidiary may elect to waive all or a portion of that subsidiary’s losscarryovers from a separate return limitation year. Waived loss car-ryovers are deemed to have expired. Generally, such an elec-tion is irrevocable. Temporary and proposed regulations undersection 1502 of the Code provide guidance on when a corpo-ration may make a limited amendment to a previous election towaive these loss carryovers. In addition, these regulations per-mit a selling group to reapportion separate, subgroup, and con-solidated section 382 limitations so that an acquiring group mayuse the loss carryovers that are no longer subject to the previ-ous election. A public hearing on the proposed regulations isscheduled for August 6, 2003.

T.D. 9058, page 962.Final regulations under section 817A of the Code affect insur-ance companies that define the interest rate to be used with re-spect to certain insurance contracts that guarantee higher returnsfor an initial, temporary period. Notice 97–32 revoked.

(Continued on the next page)

Bulletin No. 2003–22June 2, 2003

Finding Lists begin on page ii.Index for January through May begins on page vi.

REG–164754–01, page 975.Proposed regulations under section 61 of the Code provide guid-ance for federal income, gift, and employment tax purposes onthe valuation of economic benefits provided under a split-dollarlife insurance arrangement. The regulations supplement pro-posed regulations published in the Federal Register on July 9,2002 (REG–164754–01, 2002–30 I.R.B. 212) that provide com-prehensive guidance on split-dollar life insurance arrangementsfor federal income, gift, and employment tax purposes. A pub-lic hearing is scheduled for July 29, 2003.

Notice 2003–28, page 971.This notice clarifies that an Indian Tribal Government (ITG) or anorganization an ITG has authorized to place Indian children is anauthorized placement agency for purposes of section32(c)(3)(B)(iii).

Rev. Proc. 2003–39, page 971.Like-kind exchanges; LKE programs. Safe harbor rules areprovided under section 1031 of the Code, which allows for de-ferral of gain realized on a like-kind exchange of property, withrespect to programs involving ongoing exchanges of tangible per-sonal property using a single intermediary (“LKE Programs”).

June 2, 2003 2003–22 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applyingthe tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument of theCommissioner of Internal Revenue for announcing official rul-ings and procedures of the Internal Revenue Service and for pub-lishing Treasury Decisions, Executive Orders, Tax Conventions,legislation, court decisions, and other items of general inter-est. It is published weekly and may be obtained from the Super-intendent of Documents on a subscription basis. Bulletin contentsare consolidated semiannually into Cumulative Bulletins, whichare sold on 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 application ofthe tax laws, including all rulings that supersede, revoke, modify,or amend any of those previously published in the Bulletin. All pub-lished rulings apply retroactively unless otherwise indicated. Pro-cedures relating solely to matters of internal management arenot published; however, statements of internal practices and pro-cedures that affect the rights and duties of taxpayers are pub-lished.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpay-ers or technical advice to Service field offices, identifying de-tails and information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not be re-lied on, used, or cited as precedents by Service personnel in thedisposition of other cases. In applying published rulings and pro-cedures, the effect of subsequent legislation, regulations, court

decisions, rulings, and procedures must be considered, and Ser-vice personnel and others concerned are cautioned against reach-ing the same conclusions in other cases unless the facts andcircumstances are substantially the same.

The Bulletin is divided into four parts as follows:

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

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A, TaxConventions and Other Related Items, and Subpart B, Legisla-tion and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to these sub-jects are contained in the other Parts and Subparts. Also in-cluded in this part are Bank Secrecy Act Administrative Rulings.Bank Secrecy Act Administrative Rulings are issued by the De-partment of the Treasury’s Office of the Assistant Secretary (En-forcement).

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

The first Bulletin for each month includes a cumulative index forthe matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the first Bulletin of the succeeding semiannual pe-riod, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

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

2003–22 I.R.B. June 2, 2003

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

Section 213.—Medical,Dental, etc., Expenses

26 CFR 1.213–1: Medical, dental, etc., expenses.

Medical expenses. Amounts paid by in-dividuals for procedures that are directedto improving appearance and do not pro-mote the proper function of the body arenot expenses for medical care deductible un-der section 213 of the Code unless the pro-cedure is necessary to correct a deformityarising from a birth defect, disfiguring dis-ease, or injury. Therefore, breast recon-struction surgery following a mastectomyfor cancer and vision correction surgerysuch as LASIK are deductible under sec-tion 213, but teeth whitening procedures arenot deductible under section 213.

Rev. Rul. 2003–57

ISSUE

Are amounts paid by individuals forbreast reconstruction surgery, vision cor-rection surgery, and teeth whitening medi-cal care expenses within the meaning of§ 213(d) and deductible under § 213 of theInternal Revenue Code?

FACTS

Taxpayer A undergoes mastectomy sur-gery that removes a breast as part of treat-ment for cancer and pays a surgeon toreconstruct the breast. Taxpayer B wearsglasses to correct myopia and pays a doc-tor to perform laser eye surgery to cor-rect the myopia. Taxpayer C’s teeth arediscolored as a result of age. C pays a den-tist to perform a teeth-whitening proce-dure. A, B, and C are not compensated fortheir expenses by insurance or otherwise.

LAW AND ANALYSIS

Section 213(a) allows a deduction for ex-penses paid during the taxable year, notcompensated for by insurance or other-wise, for medical care of the taxpayer,spouse, or dependent, to the extent the ex-penses exceed 7.5 percent of adjusted grossincome. Under § 213(d)(1)(A), medical careincludes amounts paid for the diagnosis,cure, mitigation, treatment, or prevention ofdisease, or for the purpose of affecting anystructure or function of the body.

Medical care does not include cosmeticsurgery or other similar procedures, un-less the surgery or procedure is necessaryto ameliorate a deformity arising from, ordirectly related to, a congenital abnormal-ity, a personal injury resulting from an ac-cident or trauma, or a disfiguring disease.Section 213(d)(9)(A). Cosmetic surgerymeans any procedure that is directed at im-proving the patient’s appearance and doesnot meaningfully promote the proper func-tion of the body or prevent or treat ill-ness or disease. Section 213(d)(9)(B).

A’s cancer is a disfiguring disease be-cause the treatment results in the loss of A’sbreast. Accordingly, the breast reconstruc-tion surgery ameliorates a deformity di-rectly related to a disease and the cost isan expense for medical care within themeaning of § 213(d) that A may deduct un-der § 213 (subject to the limitations of thatsection).

The cost of B’s laser eye surgery is al-lowed under § 213(d)(9) because the sur-gery is a procedure that meaningfullypromotes the proper function of the body.Vision correction with eyeglasses or con-tact lenses qualifies as medical care. SeeRev. Rul. 74–429, 1974–2 C.B. 83. Eye sur-gery to correct defective vision, includinglaser procedures such as LASIK and ra-dial keratotomy, corrects a dysfunction ofthe body. Accordingly, the cost of the la-ser eye surgery is an expense for medicalcare within the meaning of § 213(d) that Bmay deduct under § 213 (subject to the limi-tations of that section).

In contrast, the teeth-whitening proce-dure does not treat a physical or mental dis-ease or promote the proper function of thebody, but is directed at improving C’s ap-pearance. The discoloration is not a defor-mity and is not caused by a disfiguringdisease or treatment. Accordingly, C maynot deduct the cost of whitening teeth as anexpense for medical care.

HOLDING

Amounts paid by individuals for breastreconstruction surgery following a mastec-tomy for cancer and for vision correctionsurgery are medical care expenses under§ 213(d) and are deductible under § 213(subject to the limitations of that section).Amounts paid by individuals to whiten teeth

discolored as a result of age are not medi-cal care expenses under § 213(d) and arenot deductible.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is John T. Sapienza, Jr., of the Officeof the Associate Chief Counsel (Income Taxand Accounting). For further informationregarding this revenue ruling, contactMr. Sapienza at (202) 622–7900 (not a toll-free call).

Medical expenses. Uncompensatedamounts paid by individuals for medicinesor drugs that may be purchased without aprescription of a physician are not deduct-ible under section 213 of the Code.Amounts paid for equipment, supplies, ordiagnostic devices may be expenses formedical care deductible under section 213.

Rev. Rul. 2003–58

ISSUES

(1) Are amounts paid by an individualfor medicines that may be purchased with-out a prescription of a physician deduct-ible under § 213 of the Internal RevenueCode?

(2) Are amounts paid by an individualfor equipment, supplies, or diagnostic de-vices that may be purchased without a pre-scription of a physician deductible under§ 213?

FACTS

Taxpayer A has an injured leg and usescrutches to enhance mobility while the legis healing. A uses bandages to cover tornskin on the leg. A’s physician recommendsthat A take aspirin to treat pain in the leg.A also has diabetes and uses a blood sugartest kit to monitor A’s blood sugar level. Ais not compensated for these expenses byinsurance or otherwise.

LAW AND ANALYSIS

Section 213(a) allows a deduction for ex-penses paid during the taxable year, notcompensated for by insurance or other-

2003–22 I.R.B. 959 June 2, 2003

wise, for medical care of the taxpayer,spouse, or dependent, to the extent the ex-penses exceed 7.5 percent of adjusted grossincome. Under § 213(d)(1), medical care in-cludes amounts paid for the diagnosis, cure,mitigation, treatment, or prevention of dis-ease, or for the purpose of affecting anystructure or function of the body.

Section 213(b) permits an amount paidfor a medicine or drug to be taken into ac-count for purposes of the § 213 deduc-tion for medical care expenses only if themedicine or drug is a prescribed drug or in-sulin. Section 213(d)(3) defines a prescribeddrug as a drug or biological that requiresa prescription of a physician for its use byan individual. Because aspirin is a drug anddoes not require a physician’s prescrip-tion for use by an individual, pursuant to§ 213(b), its cost may not be taken into ac-count under § 213, even if a physician rec-ommends its use to a patient. Accordingly,A may not deduct the cost of the aspirin un-der § 213.

However, § 213(b) does not apply toitems that are not medicines or drugs, in-cluding equipment such as crutches, sup-plies such as bandages, and diagnosticdevices such as blood sugar test kits. Suchitems may qualify as medical care if theyotherwise meet the definition in § 213(d)(1).In this case, the crutches and bandages miti-gate the effect of A’s injured leg and theblood sugar test kit monitors and assists intreating A’s diabetes. Therefore, the costsof these items are amounts paid for medi-cal care under § 213(d)(1) and are deduct-ible, subject to the limitations of § 213.

HOLDINGS

(1) Amounts paid by an individual formedicines or drugs that may be purchasedwithout a prescription of a physician are nottaken into account pursuant to § 213(b) andare not deductible under § 213.

(2) Amounts paid by an individual forequipment, supplies, or diagnostic devicesmay be expenses for medical care deduct-ible under § 213 (subject to the other limi-tations of that section).


The principal author of this revenue rul-ing is John T. Sapienza, Jr., of the Officeof Associate Chief Counsel (Income Taxand Accounting). For further informationregarding this revenue ruling, contact

Mr. Sapienza at (202) 622–7900 (not a toll-free call).

Section 355.—Distribution ofStock and Securities of aControlled Corporation

26 CFR 1.355–2(b): Independent business purpose.

Spin off. In the described situation, thedivision of a farm business to permit theprincipal managing shareholders to go theirseparate ways, promote family harmony,and further the personal estate planning ofthe principal managing shareholders’ par-ents satisfies the business purpose require-ment of section 1.355–2(b) of theregulations.

Rev. Rul. 2003–52

ISSUE

Whether, in the situation described be-low, the distribution of the stock of a con-trolled corporation satisfies the businesspurpose requirement of § 1.355–2(b) of theIncome Tax Regulations.

FACTS

Corporation X is a domestic corpora-tion that has been engaged in the farmingbusiness for more than five years. The stockof X is owned 25 percent each by Father,age 68, Mother, age 67, Son, and Daugh-ter. Although Father and Mother partici-pate in some major management decisions,most of the management and all of the op-erational activities are performed by Son,Daughter, and several farmhands. The farmoperation consists of breeding and raisinglivestock and growing grain.

Son and Daughter disagree over the ap-propriate future direction of X’s farmingbusiness. Son wishes to expand the live-stock business, but Daughter is opposed be-cause this would require substantialborrowing by X. Daughter would prefer tosell the livestock business and concen-trate on the grain business. Despite the dis-agreement, the two siblings have cooperatedon the operation of the farm in its histori-cal manner without disruption. Neverthe-less, it has prevented each sibling fromdeveloping, as he or she sees fit, the busi-ness in which he or she is most interested.

Having transferred most of the respon-sibility for running the farm to the chil-dren, Father and Mother remain neutral onthe disagreement between their children.However, because of the disagreement, Fa-ther and Mother would prefer to bequeathseparate interests in the farm business totheir children.

For reasons unrelated to X’s farm busi-ness, Son and Daughter’s husband dislikeeach other. Although this has not impairedthe farm’s operation to date, Father andMother believe that requiring Son andDaughter to run a single business togetheris likely to cause family discord over thelong run.

To enable Son and Daughter each to de-vote his or her undivided attention to, andapply a consistent business strategy to, thefarming business in which he or she is mostinterested, to further the estate planninggoals of Father and Mother, and to pro-mote family harmony, X transfers the live-stock business to newly formed, whollyowned domestic corporation Y and distrib-utes 50 percent of the Y stock to Son in ex-change for all of his stock in X. Xdistributes the remaining Y stock equallyto Father and Mother in exchange for halfof their X stock. Going forward, Daugh-ter will manage and operate X and have nostock interest in Y, and Son will manage andoperate Y and have no stock interest in X.Father and Mother will also amend theirwills to provide that Son and Daughter willinherit stock only in Y and X, respectively.After the distribution, Father and Motherwill still each own 25 percent of the out-standing stock of X and Y and will con-tinue to participate in some majormanagement decisions related to the busi-ness of each corporation.

Apart from the issue of whether the busi-ness purpose requirement of §1.355–2(b) issatisfied, the distribution meets all of therequirements of §§ 368(a)(1)(D) and 355 ofthe Internal Revenue Code.

LAW

Section 355 provides that if certain re-quirements are met, a corporation may dis-tribute stock and securities in a controlledcorporation to its shareholders and secu-rity holders without causing the distribut-ing corporation or the distributees torecognize gain or loss.

To qualify as a distribution described in§ 355, a distribution must, in addition to sat-

June 2, 2003 960 2003–22 I.R.B.

isfying the statutory requirements of§ 355, satisfy certain requirements in theregulations, including the business pur-pose requirement. Section 1.355–2(b)(1)provides that a distribution must be moti-vated, in whole or substantial part, by oneor more corporate business purposes. A cor-porate business purpose is a real and sub-stantial non-federal tax purpose germane tothe business of the distributing corpora-tion, the controlled corporation, or the af-filiated group to which the distributingcorporation belongs. Section 1.355–2(b)(2).A shareholder purpose (for example, thepersonal planning purposes of a share-holder) is not a corporate business pur-pose. Id. Depending upon the facts of aparticular case, however, a shareholder pur-pose for a transaction may be so nearly co-extensive with a corporate business purposeas to preclude any distinction between them.Id. In such a case, the transaction is car-ried out for one or more corporate busi-ness purposes. Id. A transaction motivatedin substantial part by a corporate busi-ness purpose does not fail the business pur-pose requirement merely because it ismotivated in part by non-federal tax share-holder purposes. Preamble to the § 355regulations, T.D. 8238, 1989–1 C.B. 92, 94.

In Example (2) of § 1.355–2(b)(5), Cor-poration X is engaged in two businesses:the manufacture and sale of furniture andthe sale of jewelry. The businesses are ofequal value. The outstanding stock of X isowned equally by unrelated individuals Aand B. A is more interested in the furni-ture business, while B is more interested inthe jewelry business. A and B decide to splitup the businesses and go their separateways. A and B expect that the operationsof each business will be enhanced by theseparation because each shareholder will beable to devote his undivided attention to thebusiness in which he is more interested andmore proficient. Accordingly, X transfers thejewelry business to new corporation Y anddistributes the stock of Y to B in exchangefor all of B’s stock in X. The example con-cludes that the distribution is carried out fora corporate business purpose, notwithstand-ing that it is also carried out in part forshareholder purposes.

ANALYSIS

The disagreement of Son and Daugh-ter over the farm’s future direction has pre-

vented each sibling from developing, as heor she sees fit, the business in which he orshe is most interested. The distribution willeliminate this disagreement and allow eachsibling to devote his or her undivided at-tention to, and apply a consistent busi-ness strategy to, the farming business inwhich he or she is most interested, with theexpectation that each business will ben-efit. Therefore, although the distribution isintended, in part, to further the personal es-tate planning of Father and Mother and topromote family harmony, it is motivated insubstantial part by a real and substantialnon-federal tax purpose that is germane tothe business of X. Hence, the business pur-pose requirement of § 1.355–2(b) is satis-fied.

HOLDING

In the situation described above, the dis-tribution of the stock of a controlled cor-poration satisfies the business purposerequirement of § 1.355–2(b).


The principal author of this revenue rul-ing is Richard H. Cox of the Office of As-sociate Chief Counsel (Corporate). Forfurther information regarding this revenueruling, contact Mr. Cox at (202) 622–7790(not a toll-free call).

Spin off. If a stock offering business pur-pose motivates a distribution of controlledcorporation stock by a distribution corpo-ration, the inability of the controlled cor-poration to complete the offering as a resultof an unexpected deterioration in marketconditions will not prevent the distribu-tion from having satisfied the corporatebusiness purpose requirement of section1.355–2(b)(1) of the regulations.

Rev. Rul. 2003–55

ISSUE

Is the business purpose requirement of§ 1.355–2(b) of the Income Tax Regula-tions satisfied if the distribution of the stockof a controlled corporation is, at the timeof the distribution, motivated, in whole orsubstantial part, by a corporate business pur-pose, but that purpose cannot be achieved

as the result of an unexpected change in cir-cumstances following the distribution?

FACTS

D is a publicly traded corporation thatconducts Business A and Business B di-rectly and Business C through its whollyowned subsidiary C. Business C needs toraise a substantial amount of capital in thenear future to invest in plant and equip-ment and to make acquisitions. D has beenadvised by its investment banker that thebest way to raise this capital is through aninitial public offering of C stock after C hasbeen separated from D. The investmentbanker believes, based on its analysis ofcomparable situations, and taking into ac-count the current market climate, that suchan offering would be more efficient than astock offering by C or D without first sepa-rating from the other because it would raisethe needed capital with significantly less di-lution of the existing shareholders’ inter-ests in the combined enterprises.

In reliance on the investment banker’sopinion, D distributes the stock of C to itsshareholders, and C prepares to offer itsstock to the public as soon as practicablebut with a target date approximately sixmonths after the distribution. Following thedistribution and before the offering can beundertaken, market conditions unexpect-edly deteriorate to such an extent that, inthe judgment of C and its advisors, the of-fering should be postponed. One year af-ter the distribution, conditions have notimproved sufficiently to permit the offer-ing to go forward and C funds its capitalneeds through the sale of debentures.

Apart from the issue of whether the busi-ness purpose requirement of § 1.355–2(b)is satisfied, the distribution meets all of therequirements of § 355 of the Internal Rev-enue Code.

LAW

Section 355 provides that if certain re-quirements are met, a corporation may dis-tribute stock and securities in a controlledcorporation to its shareholders and secu-rity holders without causing the distribut-ing corporation or the distributees torecognize gain or loss.

To qualify as a distribution described in§ 355, a distribution must, in addition to sat-

2003–22 I.R.B. 961 June 2, 2003

isfying the statutory requirements of§ 355, satisfy certain requirements in theregulations, including the business pur-pose requirement. Section 1.355–2(b)(1)provides that a distribution must be moti-vated, in whole or substantial part, by oneor more corporate business purposes. A cor-porate business purpose is a real and sub-stantial non-federal tax purpose germane tothe business of the distributing corpora-tion, the controlled corporation, or the af-filiated group to which the distributingcorporation belongs. Section 1.355–2(b)(2).The principal reason for the business pur-pose requirement is to provide nonrecog-nition treatment only to distributions thatare incident to readjustments of corporatestructures required by business exigen-cies and that effect only readjustments ofcontinuing interests in property under modi-fied corporate forms. Section 1.355–2(b)(1).

ANALYSIS

To satisfy the business purpose require-ment of § 1.355–2(b)(1), a distribution ofcontrolled corporation stock must be mo-tivated, in whole or substantial part, by acorporate business purpose. A corporatebusiness purpose is a real and substantialnon-federal tax purpose germane to thebusiness of the distributing corporation, thecontrolled corporation, or the affiliatedgroup to which the distributing corpora-tion belongs. The regulations do not re-quire that the corporation in fact succeedin meeting its corporate business purpose,as long as, at the time of the distribution,such a purpose exists and motivates, inwhole or substantial part, the distribution.An unexpected change in market or busi-ness conditions following a distribution thatprevents achievement of the business pur-pose will not prevent satisfaction of thebusiness purpose requirement. Hence, not-withstanding the fact that, as a result of theunexpected deterioration in market condi-tions, C does not complete the stock of-fering that motivated its separation from D,the business purpose requirement of§ 1.355–2(b)(1) is satisfied.

HOLDING

The business purpose requirement of§ 1.355–2(b) is satisfied if the distribu-tion of the stock of a controlled corpora-tion is, at the time of the distribution,motivated, in whole or substantial part, by

a corporate business purpose, but that pur-pose cannot be achieved as the result of anunexpected change in circumstances fol-lowing the distribution.


The principal author of this revenue rul-ing is Wayne T. Murray of the Office of As-sociate Chief Counsel (Corporate). Forfurther information regarding this revenueruling, contact Mr. Murray at (202) 622–7700 (not a toll-free call).

Section 817A.—Special Rulesfor Modified GuaranteedContracts

26 CFR 1.817A–1: Certain modified guaranteedcontracts.

T.D. 9058

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Guidance Under Section 817ARegarding ModifiedGuaranteed ContractsAGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations affecting insurance compa-nies that define the interest rate to be usedwith respect to certain insurance contractsthat guarantee higher returns for an ini-tial, temporary period. Specifically, the fi-nal regulations define the appropriateinterest rate to be used in the determina-tion of tax reserves and required interest forcertain modified guaranteed contracts. Thefinal regulations also address how tempo-rary guarantee periods that extend past theend of a taxable year are to be taken intoaccount.

DATES: Effective Date: These regulationsare effective as of May 7, 2003.

Applicability Date: For dates of appli-cability, see §1.817A–1(d).

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, Ann H.Logan, 202–622–3970 (not a toll-free num-ber).

SUPPLEMENTARY INFORMATION:

Background

On June 3, 2002, the Treasury Depart-ment and the IRS published a notice of pro-posed rulemaking (REG–248110–96,2002–26 I.R.B. 19 [67 FR 38214]) undersection 817A of the Internal Revenue Code(Code) in the Federal Register. The no-tice was corrected in the Federal Regis-ter (67 FR 41653) on June 19, 2002. Theproposed regulations were designed, in part,to reflect the addition of section 817A tothe Code by section 1612 of the SmallBusiness Job Protection Act of 1996, Pub-lic Law 104–188 (110 Stat. 1755). No onerequested to speak at the public hearingscheduled for August 27, 2002. Accord-ingly, the public hearing was canceled onAugust 15, 2002 (67 FR 53327). Com-ments in response to the notice of pro-posed rulemaking were received and areaddressed in the following Explanation andSummary of Comments. After consider-ation of all the comments, this documentadopts the proposed regulations as revisedby this Treasury decision. In addition, pre-vious guidance under section 817A is re-voked.

Explanation and Summary of Com-ments

Two comments were filed with the Of-fice of the Chief Counsel of the InternalRevenue Service. Both commentators gen-erally agreed with the decisions incorpo-rated in the proposed regulations. However,both commentators raised concern as to theinteraction of the interest rates to be usedfor the reserve computations for modifiedguaranteed contracts (MGCs) with the re-serve computation rules of section 811(d).That provision imposes an additional re-serve computation rule for contracts thatguarantee beyond the end of the taxableyear payment or crediting of amounts in thenature of interest in excess of the greaterof the prevailing state assumed interest rateor the applicable federal interest rate. Inthose circumstances, section 811(d) re-quires that the contract’s future guaran-teed benefits be determined as though theinterest in excess of the greater of the pre-vailing state assumed interest rate or the ap-plicable federal rate were guaranteed onlyto the end of the taxable year.

Material was submitted as to the pos-sible distortion of taxable income with re-

June 2, 2003 962 2003–22 I.R.B.

spect to MGCs in declining interest rateenvironments. Notably, in cases where theinterest rate required to be used under theregulations as proposed falls below the con-tract crediting rate during the guarantee pe-riod, section 811(d) will operate in a mannerthat does not match taxable income to ac-tual income. As section 811(d) precludestaking future guaranteed interest amountsinto account, examples showed that in-come distortion could occur under this factpattern.

After review of the comments, the pro-posed regulations have been amended towaive section 811(d) throughout the guar-antee period of non-equity-indexed MGCs.

Effect on Other Documents

Notice 97–32, 1997–1 C.B. 420, is re-voked as of May 7, 2003. Accordingly, thenotice may continue to be used by taxpay-ers if they wish through the effective dateof these final regulations.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) does notapply to these regulations, and because theregulations do not impose a collection ofinformation on small entities, the Regula-tory Flexibility Act (5 U.S.C. chapter 6)does not apply. Pursuant to section 7805(f)of the Code, the notice of proposed rule-making were submitted to the Small Busi-ness Administration for comment on theregulations’ impact on small business.

Drafting Information

The principal author of these proposedregulations is Ann H. Logan, Office of theAssociate Chief Counsel (Financial Insti-tutions and Products), Office of Chief Coun-sel, Internal Revenue Service. However,personnel from other offices of the IRS andthe Treasury Department participated in theirdevelopment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAX

Paragraph 1. The authority citation forpart 1 is amended by adding entries in nu-merical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.807–2 also issued under 26

U.S.C. 817A(e) * * *Section 1.811–3 also issued under 26

U.S.C. 817A(e) * * *Section 1.812–9 also issued under 26

U.S.C. 817A(e) * * *Section 1.817A–1 also issued under 26

U.S.C. 817A(e) * * *Par. 2. Section 1.807–2 is added to read

as follows:

§1.807–2 Cross-Reference.

For special rules regarding the treat-ment of modified guaranteed contracts (asdefined in section 817A and §1.817A–1(a)(1)), see §1.817A–1.

Par. 3. Section 1.811–3 is added to readas follows:



Par. 4. Section §1.812–9 is added to readas follows:



Par. 5. Sections §1.817A–0 and§1.817A–1 are added to read as follows:

§1.817A–0 Table of contents.

This section lists the captions that ap-pear in section §1.817A–1:

§1.817A–1 Certain modified guaranteedcontracts.

(a) Definitions.(1) Modified guaranteed contract.(2) Temporary guarantee period.(3) Equity-indexed modified guaran-

teed contract.(4) Non-equity-indexed modified guar-

anteed contract.(5) Current market rate for non-equity-

indexed modified guaranteed contract.(6) Current market rate for equity-

indexed modified guaranteed contract. [Re-served.]

(b) Applicable interest rates for non-equity-indexed modified guaranteed con-tracts.

(1) Tax reserves during temporary guar-antee period.

(2) Required interest during temporaryguarantee period.

(3) Application of section 811(d).(4) Periods after the end of the tempo-

rary guarantee period.(5) Examples.(c) Applicable interest rates for equity-

indexed modified guaranteed contracts. [Re-served.]

(d) Effective date.

§1.817A–1 Certain modified guaranteedcontracts.

(a) Definitions—(1) Modified guaran-teed contract. The term modified guaran-teed contract (MGC) is defined in section817A(d) as an annuity, life insurance, orpension plan contract (other than a vari-able contract described in section 817) un-der which all or parts of the amountsreceived under the contract are allocated toa segregated account. Assets and reservesin this segregated account must be valuedfrom time to time with reference to mar-ket values for annual statement purposes.Further, an MGC must provide either fora net surrender value or for a policyhold-er’s fund (as defined in section 807(e)(1)).If only a portion of a contract is not de-scribed in section 817, such portion istreated as a separate contract for purposesof applying section 817A.

(2) Temporary guarantee period. AnMGC may temporarily guarantee a returnother than the permanently guaranteed cred-iting rate for a period specified in the con-tract (the temporary guarantee period).During the temporary guarantee period, theamount paid to the policyholder upon sur-render is usually increased or decreased bya market value adjustment, which is deter-mined by a formula set forth under theterms of the MGC.

(3) Equity-indexed modified guaran-teed contract. An equity-indexed MGC isan MGC, as defined in paragraph (a)(1) ofthis section, that provides a return duringor at the end of the temporary guarantee pe-riod based on the performance of stocks,other equity instruments, or equity-based de-rivatives.

(4) Non-equity-indexed modified guar-anteed contract. A non-equity-indexed MGCis an MGC, as defined in paragraph (a)(1)

2003–22 I.R.B. 963 June 2, 2003

of this section, that provides a return dur-ing or at the end of the temporary guaran-tee period not based on the performance ofstocks, other equity instruments, or equity-based derivatives.

(5) Current market rate for non-equity-indexed modified guaranteed contracts. Thecurrent market rate for a non-equity-indexedMGC issued by an insurer (whether is-sued in that tax year or a previous one) isthe appropriate Treasury constant matu-rity interest rate published by the Board ofGovernors of the Federal Reserve Systemfor the month containing the last day of theinsurer’s taxable year. The appropriate rateis that rate published for Treasury securi-ties with the shortest published maturity thatis greater than (or equal to) the remain-ing duration of the current temporary guar-antee period under the MGC.

(6) Current market rate for equity-indexed modified guaranteed contracts. [Re-served]

(b) Applicable interest rates for non-equity-indexed modified guaranteedcontracts—(1) Tax reserves during tempo-rary guarantee period. An insurance com-pany is required to determine the taxreserves for an MGC under sections807(c)(3) or (d)(2). During a non-equity-indexed MGC’s temporary guarantee pe-riod, the applicable interest rate to be usedunder sections 807(c)(3) and (d)(2)(B) is thecurrent market rate, as defined in para-graph (a)(5) of this section.

(2) Required interest during temporaryguarantee period. During the temporaryguarantee period of a non-equity-indexedMGC, the applicable interest rate to be usedto determine required interest under sec-tion 812(b)(2)(A) is the same current mar-ket rate, defined in paragraph (a)(5) of thissection, that applies for that period for pur-poses of sections 807(c)(3) or (d)(2)(B).

(3) Application of section 811(d). An ad-ditional reserve computation rule applies un-der section 811(d) for contracts thatguarantee certain interest payments be-yond the end of the taxable year. Section811(d) is waived for non-equity-indexedMGCs.

(4) Periods after the end of the tempo-rary guarantee period. For periods after theend of the temporary guarantee period, sec-tions 807(c)(3), 807(d)(2)(B), 811(d), and812(b)(2)(A) are not modified when ap-plied to non-equity-indexed MGCs. Noneof these sections are affected by the defi-

nition of current market rate contained inparagraph (a)(5) of this section once thetemporary guarantee period has expired.

(5) Examples. The following examplesillustrate this paragraph (b):

Example 1. (i) IC, a life insurance company as de-fined in section 816, issues a MGC (the Contract) onAugust 1 of 1996. The Contract is an annuity con-tract that gives rise to life insurance reserves, as de-fined in section 816(b). IC is a calendar year taxpayer.The Contract guarantees that interest will be cred-ited at 8 percent per year for the first 8 contract yearsand 4 percent per year thereafter. During the 8-yeartemporary guarantee period, the Contract provides fora market value adjustment based on changes in a pub-lished bond index and not on the performance ofstocks, other equity instruments or equity based de-rivatives. IC has chosen to avail itself of the provi-sions of these regulations for 1996 and taxable yearsthereafter. The 10-year Treasury constant maturity in-terest rate published for December of 1996 was 6.30percent. The next shortest maturity published for Trea-sury constant maturity interest rates is 7 years. As ofthe end of 1996, the remaining duration of the tem-porary guarantee period for the Contract was 7 yearsand 7 months.

(ii) To determine under section 807(d)(2) the endof 1996 reserves for the Contract, IC must use a dis-count interest rate of 6.30 percent for the temporaryguarantee period. The interest rate to be used in com-puting required interest under section 812(b)(2)(A) for1996 reserves is also 6.30 percent.

(iii) The discount rate applicable to periods out-side the 8-year temporary guarantee period is deter-mined under sections 807(c)(3), 807(d)(2)(B), 811(d),and 812(b)(2)(A) without regard to the current mar-ket rate.

Example 2. Assume the same facts as in Example1 except that it is now the last day of 1998. The re-maining duration of the temporary guarantee periodunder the Contract is now 5 years and 7 months. The7-year Treasury constant maturity interest rate pub-lished for December of 1998 was 4.65 percent. Thenext shortest duration published for Treasury con-stant maturity interest rates is 5 years. A discount rateof 4.65 percent is used for the remaining duration ofthe temporary guarantee period for the purpose of de-termining a reserve under section 807(d) and for thepurpose of determining required interest under sec-tion 812(b)(2)(A).

Example 3. Assume the same facts as in Example1 except that it is now the last day of 2001. The re-maining duration of the temporary guarantee periodunder the Contract is now 2 years and 7 months. The3-year Treasury constant maturity interest rate pub-lished for December of 2001 was 3.62 percent. Thenext shortest duration published for Treasury con-stant maturity interest rates is 2 years. A discount rateof 3.62 percent is used for the remaining duration ofthe temporary guarantee period for the purpose of de-termining a reserve under section 807(d) and for thepurpose of determining required interest under sec-tion 812(b)(2)(A).

(c) Applicable interest rates for equity-indexed modified guaranteed contracts. [Re-served.]

(d) Effective date. Paragraphs (a), (b),and (d) of this section are effective on May

7, 2003. However, pursuant to section7805(b)(7), taxpayers may elect to applythose paragraphs retroactively for all tax-able years beginning after December 31,1995, the effective date of section 817A.

David A. Mader,Assistant Deputy Commissioner

of Internal Revenue.

Approved April 25, 2003.

Pamela F. Olson,Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on May 6, 2003,8:45 a.m., and published in the issue of the Federal Regis-ter for May 7, 2003, 68 F.R. 24349)

Section 1502.—Regulations

26 CFR 1.1502–20T: Disposition ordeconsolidation of subsidiary stock (temporary).

T.D. 9057

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Guidance Under Section1502; Amendment of Waiverof Loss Carryovers FromSeparate Return LimitationYears

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains tem-porary regulations under section 1502 thatpermit the amendment of certain electionsto waive the loss carryovers of an acquiredsubsidiary. The text of these temporaryregulations also serves as the text of the pro-posed regulations set forth in the notice ofproposed rulemaking (REG–152524–02) onthis subject on page 979 of this Bulletin.These regulations apply to corporations fil-ing consolidated returns. This document alsoprovides notice of a public hearing on thesetemporary and proposed regulations.

DATES: Effective Date: These regulationsare effective May 7, 2003.

June 2, 2003 964 2003–22 I.R.B.

Applicability Date: For dates of appli-cability, see §1.1502–20T(i)(3)(viii)(C),§1.1502–20T(i)(5)(ii), and §1.1502–32T(b)(4)(vii)(F). The applicability of thesesections expires on May 2, 2006.

FOR FURTHER INFORMATION CON-TACT: Alison G. Burns or Jeffrey B.Fienberg (202) 622–7930 (not a toll-freenumber).


Paperwork Reduction Act

The collection of information containedin these regulations has been previously re-viewed and approved by the Office ofManagement and Budget under controlnumber 1545–1774. Responses to this col-lection of information are required to ob-tain a benefit. This collection of informationis revised by these regulations. Theseamended regulations are being issued with-out prior notice and public procedure pur-suant to the Administrative Procedure Act(5 U.S.C. 553). For this reason, the re-vised collection of information contained inthese regulations has been reviewed and,pending receipt and evaluation of publiccomments, approved by the Office of Man-agement and Budget under control num-ber 1545–1774.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information unlessit displays a valid control number assignedby the Office of Management and Bud-get.

For further information concerning thiscollection of information, and where to sub-mit comments on the collection of infor-mation and the accuracy of the estimatedburden, and suggestions for reducing thisburden, please refer to the preamble of thecross-referencing notice of proposed rule-making published in this issue of the Bul-letin.

Books or records relating to a collec-tion of information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as required by26 U.S.C. 6103.

Background and Explanation of Provi-sions

In 1991, the IRS and Treasury Depart-ment promulgated §1.1502–20 setting forth

rules regarding the extent to which a lossrecognized by a member of a consolidatedgroup on the disposition of stock of a sub-sidiary member of the same group was al-lowed and the extent to which the basis ofsubsidiary member stock was required tobe reduced prior to its deconsolidation. Sec-tion 1.1502–20 provides that a loss recog-nized by a group member on the dispositionof subsidiary member stock is allowableonly to the extent it exceeds the sum of “ex-traordinary gain dispositions,” “positive in-vestment adjustments,” and “duplicatedloss.” In addition, it provides that the ba-sis of subsidiary member stock that is de-consolidated is reduced to its value to theextent of the sum of the same amounts im-mediately prior to its deconsolidation. Theduplicated loss amount equals the sum ofthe aggregated adjusted basis of the as-sets of the subsidiary (other than any stockand securities that the subsidiary owns inanother member), the losses attributable tothe subsidiary that are carried forward tothe subsidiary’s first taxable year follow-ing the disposition or deconsolidation, andany deferred deductions of the subsidiary,over the sum of the value of the subsid-iary’s stock and its liabilities.

Section 1.1502–32(b)(4) provides that,if a subsidiary has a loss carryover from aseparate return limitation year when it be-comes a member of a consolidated group,the group may make an election to treat allor any portion of the loss carryover as ex-piring immediately before the subsidiary be-comes a member of the consolidated group.This election allows an acquiring group toprevent the loss of stock basis that other-wise would result if the subsidiary’s losscarryovers were to expire before the groupcould absorb them. See §1.1502–32(b)(2)(iii). Section 1.1502–32(b)(4) fur-ther provides that, if the subsidiary was amember of another group immediately be-fore it became a member of the consoli-dated group, the losses are treated asexpiring immediately after the subsidiaryceases to be a member of the prior group.The election described in §1.1502–32(b)(4)may be made by identifying either theamount of each loss carryover deemed toexpire or the amount of each loss carry-over deemed not to expire.

If stock of a subsidiary with loss car-ryovers is sold by one consolidated groupto another and the acquiring group waivesall or a portion of the subsidiary’s loss car-

ryovers pursuant to §1.1502–32(b)(4), theselling group can exclude the waived losscarryovers from its computation of dupli-cated loss. In certain cases, the waiver couldhave the effect of increasing the amount ofstock loss allowed on the disposition of sub-sidiary stock or reducing the basis reduc-tion required on the deconsolidation ofsubsidiary stock. The IRS and Treasury un-derstand that certain waivers of loss car-ryovers that were made pursuant to§1.1502–32(b)(4) were made so as to in-crease the amount of allowed loss on a dis-position of subsidiary stock.

In Rite Aid Corp. v. United States, 255F.3d 1357 (Fed. Cir. 2001), the UnitedStates Court of Appeals for the Federal Cir-cuit held that the duplicated loss compo-nent of §1.1502–20 was an invalid exerciseof regulatory authority. In response to theRite Aid decision, on March 7, 2002, theIRS and Treasury Department filed with theFederal Register temporary regulations(T.D. 8984, 2002–1 C.B. 668 [11034]) un-der sections 337(d) and 1502 governing thedetermination of a consolidated group’s al-lowable stock loss and basis reduction re-quired on a disposition or deconsolidationof subsidiary member stock. Under the tem-porary regulations, consolidated groups cancompute the allowable loss or the basis re-duction required on dispositions and de-consolidations of subsidiary stock beforeMarch 7, 2002, and certain dispositions anddeconsolidations of subsidiary stock on orafter March 7, 2002, by applying§1.1502–20 in its entirety, by applying theprovisions of §1.1502–20 without regard tothe duplicated loss factor of the loss dis-allowance formula, or by applying the pro-visions of §1.337(d)–2T. See §1.1502–20T(i)(2).

The IRS and Treasury Department be-lieve that in certain cases in which a sell-ing group elects to compute the allowableloss or the basis reduction required on a dis-position or deconsolidation of subsidiarymember stock by applying §1.1502–20without regard to the duplicated loss fac-tor of the loss disallowance formula, or byapplying the provisions of §1.337(d)–2T, itis appropriate to permit an acquiring groupto amend certain prior waivers of loss car-ryovers. The following paragraphs describethese cases and the amendments that thisdocument makes to §§1.1502–20T and1.1502–32T to allow certain amendmentsto prior waivers of loss carryovers.

2003–22 I.R.B. 965 June 2, 2003

Prior Waivers of Loss Carryovers Madeto Increase Allowable Loss or ReduceBasis Reduction Required

If a selling group elects to compute theallowable loss or the basis reduction re-quired on a disposition or deconsolida-tion of subsidiary stock by applying theprovisions of §1.1502–20 without regard tothe duplicated loss factor of the loss dis-allowance formula, or by applying the pro-visions of §1.337(d)–2T, the acquiringgroup’s prior waiver of loss carryovers ofthe subsidiary or lower-tier corporation ofsuch subsidiary will have no effect on theselling group’s allowable loss or the basisreduction required with respect to the dis-posed of or deconsolidated subsidiary stock.To the extent, therefore, that an acquiringgroup made an election to waive loss car-ryovers to increase the allowable loss or toreduce the basis reduction required with re-spect to the disposed of or deconsolidatedsubsidiary stock, the IRS and Treasury De-partment believe that the acquiring groupshould be permitted to amend such waiv-ers to decrease, to a limited extent, theamounts of loss carryovers deemed to ex-pire.

Accordingly, the regulations containedin this document provide that, if the ac-quiring group made an election pursuant to§1.1502–32(b)(4) to waive a subsidiary’sloss carryovers, that election increased theamount of the allowable loss or reduced thebasis reduction required with respect to thedisposed of or deconsolidated subsidiarystock, and the selling group elects to com-pute the allowable loss or the basis reduc-tion required with respect to the disposedof or deconsolidated subsidiary stock by ap-plying the provisions of §1.1502–20 with-out regard to the duplicated loss factor ofthe loss disallowance formula, or by ap-plying the provisions of §1.337(d)–2T, thenthe acquiring group may reduce the amountof any loss carryover deemed to expire (orincrease the amount of any loss carryoverdeemed not to expire) as a result of theelection made pursuant to §1.1502–32(b)(4).The aggregate amount of loss carryoversthat may be treated as not expiring as a re-sult of such an amendment of a waiver ofa loss carryover of the subsidiary the stockof which is disposed of or deconsolidatedand any lower-tier corporation of such sub-sidiary, however, may not exceed the du-plicated loss with respect to the disposedof or deconsolidated subsidiary stock. This

limitation is intended to ensure that all ofthe loss carryovers that do not expire as aresult of the amendment did, in fact, in-crease the amount of the allowable loss orreduce the basis reduction required with re-spect to the disposed of or deconsolidatedsubsidiary stock. In addition, to enable theacquiring group’s use of loss carryovers thatare not deemed to expire as a result of suchan amendment, these regulations permit aselling group to reapportion separate, sub-group, and consolidated section 382 limi-tations.

Inadvertent Waivers of Loss Carryovers

A selling group’s election to compute theallowable loss or the basis reduction re-quired on a disposition or deconsolida-tion of subsidiary stock by applying theprovisions of §1.1502–20 without regard tothe duplicated loss factor of the loss dis-allowance formula, or by applying the pro-visions of §1.337(d)–2T, may result in areduction of the amount of losses treatedas reattributed to the selling group pursu-ant to an election described in §1.1502–20(g). To the extent that losses treated asreattributed to the selling group are re-duced, the losses of a subsidiary are in-creased. In this case, if the acquiring groupmade an election to waive certain loss car-ryovers of the subsidiary by identifyingthose losses that were deemed not to ex-pire, it may have inadvertently waived thoselosses that are treated as losses of the sub-sidiary as a result of the election by the sell-ing group. The IRS and TreasuryDepartment believe that such acquiringgroups should be permitted to make cer-tain amendments of such waivers.

Accordingly, these regulations permit ac-quiring groups to amend an election madepursuant to §1.1502–32(b)(4) where thegroup of which the subsidiary was a mem-ber immediately before the acquisition (theprior group) elected to determine theamount of the allowable loss or the basisreduction required with respect to the stockof the subsidiary or a higher-tier corpora-tion of the subsidiary by applying§1.1502–20 without regard to the dupli-cated loss factor of the loss disallowanceformula, or by applying the provisions of§1.337(d)–2T, the subsidiary’s loss carry-overs are increased by such election by theprior group, and the acquiring group madean election pursuant to §1.1502–32(b)(4) byidentifying those losses that would bedeemed not to expire. In this case, pursu-

ant to these regulations, the acquiring groupmay amend its election made pursuant to§1.1502–32(b)(4) to provide that all or aportion of the loss carryovers of the sub-sidiary that are treated as loss carryoversof the subsidiary as a result of the priorgroup’s election are deemed not to ex-pire.

The regulations contained in this docu-ment only permit acquiring groups to re-duce the amount of loss carryovers deemedto expire, or increase the amount of loss car-ryovers deemed not to expire, as a resultof an election under §1.1502–32(b)(4). Theregulations, however, do not permit acquir-ing groups to increase the amount of losscarryovers deemed to expire, or reduce theamount of loss carryovers deemed not toexpire, as a result of such an election. Theregulations, therefore, permit increases, butnot decreases, of the amount of loss car-ryovers available to acquiring groups.

Limited Extension of Time to ApplyAlternative Regime

In addition to the provisions describedabove, the regulations include a limited ex-tension of time for selling groups to makean election to compute the allowable lossor the basis reduction required on a dispo-sition or deconsolidation of subsidiary stockby applying the provisions of §1.1502–20without regard to the duplicated loss fac-tor of the loss disallowance formula, or byapplying the provisions of §1.337(d)–2T, ifthe acquiring group is otherwise eligible toamend an election under §1.1502–32(b)(4)pursuant to these regulations, but the timeperiod during which the selling group couldmake its election has or has almost ex-pired.

Additional Adjustments

In promulgating §1.1502–20T and re-lated provisions, the IRS and Treasury haveattempted to ameliorate where possible thesituation of groups that relied on the pro-visions of §1.1502–20 in prior periods. TheIRS and Treasury recognize that the lossdisallowance rule in §1.1502–20 affectedthe manner in which some transactions werestructured. For example, some groupscaused subsidiaries to sell their assets ratherthan engage in stock sales subject to lossdisallowance under §1.1502–20. Alterna-tively, groups may have engaged in deemedasset sales under §338(h)(10). The IRS andTreasury believe that transactions cast in the

June 2, 2003 966 2003–22 I.R.B.

form of actual or deemed asset sales shouldnot be undone, notwithstanding the pos-sible role of §1.1502–20 in their planning.However, as was the case with the reliefprovided earlier in §1.1502–20T and its re-lated amendments, the IRS and Treasuryhave concluded that relief is appropriate andadministrable in the situation that is the sub-ject of these temporary regulations.

Special Analyses

In light of the Federal Circuit’s deci-sion in Rite Aid Corp. v. United States, 255F.3d 1357 (Fed. Cir. 2001), these tempo-rary regulations are necessary to providetaxpayers with immediate guidance regard-ing the amendment of certain elections towaive the loss carryovers of an acquiredsubsidiary. Without such immediate guid-ance, taxpayers may not be able to availthemselves of the relief provided for in theseregulations. Accordingly, good cause isfound for dispensing with notice and pub-lic procedure pursuant to 5 U.S.C. 553(b)(B)and with a delayed effective date pursu-ant to 5 U.S.C. 553(d)(1) and (3). For ap-plicability of the Regulatory Flexibility Act,please refer to the cross-reference notice ofproposed rulemaking published elsewherein this issue of the Bulletin. Pursuant to§7805(f) of the Internal Revenue Code,these temporary regulations will be sub-mitted to the Chief Counsel of Advocacyof the Small Business Administration forcomment on their impact.


The principal author of these regula-tions is Jeffrey B. Fienberg, Office of As-sociate Chief Counsel (Corporate). However,other personnel from the IRS and Trea-sury Department participated in their de-velopment.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.1502–20T also issued under 26

U.S.C. 1502. * * *Section 1.1502–32T also issued under 26

U.S.C. 1502. * * *

Par. 2. In §1.1502–20T, paragraph (i)(5)is redesignated as (i)(6).

Par. 3. Section 1.1502–20T is amendedby adding paragraphs (i)(3)(viii) and (i)(5)to read as follows:

§1.1502–20T — Disposition or deconsoli-dation of subsidiary stock (temporary).

* * * * *

(i) * * *(3) * * *(viii) Apportionment of section 382 limi-

tation in the case of an amendment of anelection made pursuant to §1.1502–32(b)(4).(A) In general. If, in connection with a dis-position or deconsolidation of subsidiarystock, the subsidiary the stock of which wasdisposed of or deconsolidated became amember of another consolidated group (theacquiring group), and, pursuant to §1.1502–32T(b)(4)(vii), the acquiring group amendsan election made pursuant to §1.1502–32(b)(4) to treat all or a portion of the losscarryovers of such subsidiary (or a lower-tier corporation of such subsidiary) as ex-piring for all federal income tax purposes,then the common parent may reapportiona separate, subgroup, or consolidated sec-tion 382 limitation with respect to such sub-sidiary or lower-tier corporation in a mannerconsistent with the principles of paragraph(i)(3)(iii)(A) through (D) of this section. Anyreapportionment of a section 382 limita-tion made pursuant to the previous sen-tence shall have the effects described inparagraph (i)(3)(iii)(D)(ii) and (iii) of thissection. For purposes of this section, alower-tier corporation is a corporation thatwas a member of the group of which thesubsidiary was a member immediately be-fore becoming a member of the acquiringgroup and that became a member of the ac-quiring group as a result of the subsid-iary becoming a member of the acquiringgroup.

(B) Time and manner of adjustment ofapportionment of section 382 limitation. Thecommon parent must include a statemententitled Adjustment of Apportionment ofSection 382 Limitation in Connection withAmendment of Election under §1.1502–32(b)(4) with or as part of any timely filed(including any extensions) original returnfor a taxable year that includes any date onor before May 7, 2003, or with or as partof an amended return filed before the datethe original return for the taxable year thatincludes May 7, 2003, is due (with re-

gard to extensions). The statement must setforth the name and employer identifica-tion number (E.I.N.) of the subsidiary andboth the original and the adjusted appor-tionment of a separate section 382 limita-tion, a subgroup section 382 limitation, anda consolidated section 382 limitation, as ap-plicable. The requirements of this para-graph (i)(3)(viii)(B) will be treated assatisfied if the information required by thisparagraph (i)(3)(viii)(B) is included in thestatement required by paragraph (i)(4) ofthis section rather than in a separate state-ment.

(C) Effective date. This paragraph(i)(3)(viii) is applicable on and after May7, 2003.

* * * * *

(5) Special time for filing election in thecase of a waiver under §1.1502–32(b)(4).(i) In general. Notwithstanding the provi-sions of paragraph (i)(4) of this section, theelection to determine allowable loss or ba-sis reduction provided in this paragraph (i)may be made by including the statement re-quired by paragraph (i)(4) of this sectionwith or as part of an original or amendedreturn that is filed on or before June 15,2003, if—

(A) the group that includes the acquirerof the subsidiary stock made an electionpursuant to §1.1502–32(b)(4) to treat all ora portion of the loss carryovers of the sub-sidiary (or a lower-tier corporation of suchsubsidiary) as expiring for all federal in-come tax purposes;

(B) the timely filing of an election to de-termine allowable loss or basis reduction byapplying the provisions described in para-graph (i)(2)(i) or (ii) of this section wouldpermit the acquiring group to amend itselection under §1.1502–32(b)(4) pursuantto §1.1502–32T(b)(4)(vii);

(C) June 6, 2003, is after the date theoriginal return of the consolidated group forthe taxable year that includes March 7,2002, is due (including extensions); and

(D) the statement required by paragraph(i)(4) of this section specifies that the fil-ing of the election is permitted under thisparagraph (i)(5).

(ii) Effective date. This paragraph (i)(5)is applicable on and after May 7, 2003.

* * * * *

Par. 4. Section 1.1502–32T is amendedby adding paragraph (b)(4)(vii) to read asfollows:

2003–22 I.R.B. 967 June 2, 2003

§1.1502–32T — Investment adjustments(temporary).

* * * * *

(b) * * *(4) * * *(vii) Special rules for amending waiver

of loss carryovers from separate return limi-tation year—(A) Waivers that increased al-lowable loss or reduced basis reductionrequired. If, in connection with the acqui-sition of S, the group made an election pur-suant to §1.1502–32(b)(4) to treat all or anyportion of S’s loss carryovers as expiring,and the prior group elected to determine theamount of the allowable loss or the basisreduction required with respect to the stockof S or a higher-tier corporation of S by ap-plying the provisions described in §1.1502–20T(i)(2)(i) or (ii), then the group mayreduce the amount of any loss carryoverdeemed to expire (or increase the amountof any loss carryover deemed not to ex-pire) as a result of the election made pur-suant to §1.1502–32(b)(4). The aggregateamount of loss carryovers that may betreated as not expiring as a result of amend-ments made pursuant to this paragraph(b)(4)(vii)(A) with respect to S and anyhigher- and lower-tier corporation of S maynot exceed the amount described in§1.1502–20(c)(1)(iii) with respect to the ac-quired stock (computed without regard tothe effect of the group’s election or elec-tions pursuant to §1.1502–32(b)(4), but withregard to the effect of the prior group’s elec-tion pursuant to §1.1502–20(g), if any, priorto the application of §1.1502–20T(i)(3)). Forpurposes of determining the aggregateamount of loss carryovers that may betreated as not expiring as a result of amend-ments made pursuant to this paragraph(b)(4)(vii)(A) with respect to S and anyhigher- and lower-tier corporation of S, thegroup may rely on a written notificationprovided by the prior group. Nothing in thisparagraph shall be construed as permit-ting a group to increase the amount of anyloss carryover deemed to expire (or re-duce the amount of any loss carryoverdeemed not to expire) as a result of theelection made pursuant to §1.1502–32(b)(4).

(B) Inadvertent waivers of loss carry-overs previously subject to an election de-scribed in §1.1502–20(g). If, in connectionwith the acquisition of S, the group madean election pursuant to §1.1502–32(b)(4) towaive loss carryovers of S by identifyingthe amount of each loss carryover deemed

not to expire, the prior group elected to de-termine the amount of the allowable lossor the basis reduction required with re-spect to the stock of S or a higher-tier cor-poration of S by applying the provisionsdescribed in §1.1502–20T(i)(2)(i) or (ii), andthe amount of S’s loss carryovers treatedas reattributed to the prior group pursuantto the election described in §1.1502–20(g)is reduced pursuant to §1.1502–20T(i)(3),then the group may amend its election madepursuant to §1.1502–32(b)(4) to provide thatall or a portion of the loss carryovers of Sthat are treated as loss carryovers of S asa result of the prior group’s election to ap-ply the provisions described in §1.1502–20T(i)(2)(i) or (ii) are deemed not to expire.This paragraph (b)(4)(vii)(B), however, doesnot permit a group to reduce the amount ofany loss carryover deemed not to expire asa result of the election made pursuant to§1.1502–32(b)(4).

(C) Time and manner of amending anelection under §1.1502–32(b)(4). Theamendment of an election made pursuantto §1.1502–32(b)(4) must be made in astatement entitled Amendment of Electionto Treat Loss Carryover as Expiring Un-der §1.1502–32(b)(4) Pursuant to §1.1502–32T(b)(4)(vii). The statement must be filedwith or as part of any timely filed (includ-ing extensions) original return for the tax-able year that includes May 7, 2003, or withor as part of an amended return filed be-fore the date the original return for the tax-able year that includes May 7, 2003, is due(with regard to extensions). A separate state-ment shall be filed for each election madepursuant to §1.1502–32(b)(4) that is be-ing amended pursuant to this paragraph(b)(4)(vii). For purposes of making thisstatement, the group may rely on the state-ments set forth in a written notification pro-vided by the prior group. The statementfiled under this paragraph must include thefollowing—

(1) The name and employer identifica-tion number (E.I.N.) of S;

(2) In the case of an amendment madepursuant to paragraph (b)(4)(vii)(A), a state-ment that the group has received a writ-ten notification from the prior groupconfirming that the group’s prior electionor elections pursuant to §1.1502–32(b)(4)had the effect of either increasing the priorgroup’s allowable loss on the disposition ofsubsidiary stock or reducing the priorgroup’s amount of basis reduction required;

(3) The amount of each loss carryoverof S deemed to expire (or the amount ofloss carryover deemed not to expire) as setforth in the election made pursuant to§1.1502–32(b)(4);

(4) The amended amount of each losscarryover of S deemed to expire (or theamended amount of loss carryover deemednot to expire); and

(5) In the case of an amendment madepursuant to paragraph (b)(4)(vii)(A) of thissection, a statement that the aggregateamount of loss carryovers of S and anyhigher- and lower-tier corporation of S thatwill be treated as not expiring as a resultof amendments made pursuant to para-graph (b)(4)(vii)(A) of this section will notexceed the amount described in §1.1502–20(c)(1)(iii) with respect to the acquiredstock (computed without regard to the ef-fect of the group’s election or elections pur-suant to §1.1502–32(b)(4), but with regardto the effect of the prior group’s electionpursuant to §1.1502–20(g), if any, prior tothe application of §1.1502–20T(i)(3)).

(D) Items taken into account in openyears. An amendment to an election madepursuant to §1.1502–32(b)(4) affects thegroup’s items of income, gain, deduction orloss only to the extent that the amend-ment gives rise, directly or indirectly, toitems or amounts that would properly betaken into account in a year for which anassessment of deficiency or a refund foroverpayment, as the case may be, is not pre-vented by any law or rule of law. Under thisparagraph, if the year to which a loss pre-viously deemed to expire as a result of anelection made pursuant to §1.1502–32(b)(4)is deemed not to expire as a result of anelection made pursuant to this paragraphwould have been carried back or carried for-ward is a year for which a refund of over-payment is prevented by law, then to theextent that the absorption of such loss insuch year would have affected the tax treat-ment of another item (e.g., another loss thatwas absorbed in such year) that has an ef-fect in a year for which a refund of over-payment is not prevented by any law or ruleof law, the amendment to the election madepursuant to §1.1502–32(b)(4) will affect thetreatment of such other item. Therefore, ifthe absorption of such loss (the first loss)in a year for which a refund of overpay-ment is prevented by law would have pre-vented the absorption of another loss (thesecond loss) in such year and such sec-

June 2, 2003 968 2003–22 I.R.B.

ond loss would have been carried to andused in a year for which a refund of over-payment is not prevented by any law or ruleof law (the other year), the amendment ofthe election makes the second loss avail-able for use in the other year.

(E) Higher- and lower-tier corpora-tions of S. A higher-tier corporation of S isa corporation that was a member of theprior group and, as a result of such higher-tier corporation becoming a member of thegroup, S became a member of the group.A lower-tier corporation of S is a corpo-ration that was a member of the prior groupand became a member of the group as a re-sult of S becoming a member of the group.

(F) Effective date. This paragraph(b)(4)(vii) is applicable on and after May7, 2003.

* * * * *



Approved April 25, 2003.

Pamela F. Olson,Assistant Secretary of the Treasury.


Section 2032A.—Valuation ofCertain Farm, etc., RealProperty

26 CFR 20.2032A–4: Method of valuing farm realproperty.

Special use value; farms; interest rates.The 2003 interest rates to be used in com-puting the special use value of farm realproperty for which an election is made un-der section 203A of the Code are listed forestates of decedents.

Rev. Rul. 2003–53This revenue ruling contains a list of the

average annual effective interest rates onnew loans under the Farm Credit Bank sys-tem. This revenue ruling also contains a listof the states within each Farm Credit BankDistrict.

Under § 2032A(e)(7)(A)(ii) of the In-ternal Revenue Code, rates on new FarmCredit Bank loans are used in computingthe special use value of real property usedas a farm for which an election is made un-der § 2032A. The rates in this revenue rul-

ing may be used by estates that valuefarmland under § 2032A as of a date in2003.

Average annual effective interestrates, calculated in accordance with§ 2032A(e)(7)(A) and § 20.2032A–4(e) ofthe Estate Tax Regulations, to be used un-der § 2032A(e)(7)(A)(ii), are set forth in theaccompanying Table of Interest Rates (Table1). The states within each Farm Credit BankDistrict are set forth in the accompanyingTable of Farm Credit Bank Districts (Table2).

Rev. Rul. 81–170, 1981–1 C.B. 454,contains an illustrative computation of anaverage annual effective interest rate. Therates applicable for valuation in 2002 arein Rev. Rul. 2002–26, 2002–1 C.B. 906. Forrate information for years prior to 2002, seeRev. Rul. 2001–21, 2001–1 C.B. 1144, andother revenue rulings that are referencedtherein.


The principal author of this revenue rul-ing is Lane Damazo of the Office of the As-sociate Chief Counsel (Passthroughs andSpecial Industries). For further informa-tion regarding this revenue ruling, con-tact Lane Damazo at (202) 622–3090 (nota toll-free call).

REV. RUL. 2003–53 TABLE 1

TABLE OF INTEREST RATES(Year of Valuation 2003)

Farm Credit Bank District inWhich Property Is Located

InterestRate

Columbia .................................................................................................................................................. 9.18

Omaha/Spokane........................................................................................................................................ 7.23

Sacramento ............................................................................................................................................... 6.92

St. Paul ..................................................................................................................................................... 7.36

Springfield ................................................................................................................................................ 7.26

Texas......................................................................................................................................................... 7.19

Wichita...................................................................................................................................................... 7.44

2003–22 I.R.B. 969 June 2, 2003

REV. RUL. 2003–53 TABLE 2

TABLE OF FARM CREDIT BANK DISTRICTS

District States

Columbia....................................................................................... Delaware, District of Columbia, Florida, Georgia, Maryland,North Carolina, Pennsylvania, South Carolina, Virginia,West Virginia.

Omaha/Spokane............................................................................ Alaska, Idaho, Iowa, Montana, Nebraska, Oregon,South Dakota, Washington, Wyoming.

Sacramento ................................................................................... Arizona, California, Hawaii, Nevada, Utah.

St. Paul.......................................................................................... Arkansas, Illinois, Indiana, Kentucky, Michigan, Minnesota,Missouri, North Dakota, Ohio, Tennessee, Wisconsin.

Springfield .................................................................................... Connecticut, Maine, Massachusetts, New Hampshire,New Jersey, New York, Rhode Island, Vermont.

Texas ............................................................................................. Alabama, Louisiana, Mississippi, Texas.

Wichita.......................................................................................... Colorado, Kansas, New Mexico, Oklahoma.

June 2, 2003 970 2003–22 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous

Earned Income Credit andTribal Child Placements

Notice 2003–28

This notice clarifies the application ofthe earned income credit for a taxpayer car-ing for a child placed with the taxpayer byan Indian tribal government (ITG) or an or-ganization an ITG has authorized to placeIndian children. Section 32(a)(1) providesfor an earned income credit in the case ofan eligible individual. Section 32(c)(1)(A)(i)defines an eligible individual as an indi-vidual who has a qualifying child for thetaxable year. Section 32(c)(3) defines aqualifying child as one who satisfies a re-lationship test, a residency test, and an agetest. Under § 32(c)(3)(B)(i)(III), an eli-gible foster child satisfies the relationshiptest. Pursuant to § 32(c)(3)(B)(iii), for tax-able years beginning after December 31,1999, an eligible foster child includes achild placed with the taxpayer by an au-thorized placement agency whom the tax-payer cares for as the taxpayer’s own child(and, for taxable years beginning beforeJanuary 1, 2002, who has the same prin-cipal place of abode as the taxpayer for thetaxpayer’s entire taxable year). For pur-poses of § 32(c)(3)(B)(iii), an authorizedplacement agency includes an ITG and alsoincludes an organization an ITG has au-thorized to place Indian children (Indiantribal organization). Thus, for taxable yearsbeginning after December 31, 1999, a childplaced with a taxpayer by an ITG or an In-dian tribal organization qualifies as an eli-gible foster child, provided the taxpayercares for the child as his or her own, and,for taxable years beginning before Janu-ary 1, 2002, the child has the same prin-cipal place of abode as the taxpayer for thetaxpayer’s entire taxable year.

The principal author of this notice isSylvia F. Hunt of the Office of the Divi-sion Counsel/Associate Chief Counsel (TaxExempt and Government Entities). For fur-ther information regarding this notice, con-tact Ms. Hunt at (202) 622–6080 (not a toll-free call).

26 CFR 1.1031(a)–1: Property held for productiveuse in trade or business or for investment;1.1031(k)–1: Treatment of deferred exchanges.

Rev. Proc. 2003–39

SECTION 1. PURPOSE

This revenue procedure provides safeharbors with respect to programs involv-ing ongoing exchanges of tangible per-sonal property using a single intermediary,as described in section 3.02 of this rev-enue procedure (an “LKE Program”).

SECTION 2. BACKGROUND

.01 Section 1031(a)(1) provides that nogain or loss is recognized on the exchangeof property held for productive use in atrade or business or for investment (“re-linquished property”) if the property is ex-changed solely for property of like kind thatis to be held either for productive use in atrade or business or for investment (“re-placement property”).

.02 Section 1031(a)(3) provides that re-placement property received by the tax-payer is not treated as like-kind property ifit: (a) is not identified as property to be re-ceived in the exchange on or before the daythat is 45 days after the date on which thetaxpayer transfers the relinquished prop-erty (the “45-day identification period”); or(b) is received after the earlier of the datethat is 180 days after the date on which thetaxpayer transfers the relinquished prop-erty, or the due date (determined with re-gard to extensions) for the transferor’sfederal income tax return for the year inwhich the transfer of the relinquished prop-erty occurs.

.03 Section 1.1031(k)–1(a) defines a de-ferred exchange as an exchange in which,pursuant to an agreement, the taxpayertransfers relinquished property and subse-quently receives replacement property. Inorder to constitute a deferred exchange, thetransaction must be an exchange (i.e., atransfer of property for property, as distin-guished from a transfer of property formoney).

.04 Section 1.1031(k)–1(c)(1) providesthat any replacement property that is re-ceived by the taxpayer before the end of the45-day identification period will be treatedin all events as identified before the end ofthe 45-day identification period.

.05 Section 1.1031(k)–1(f)(1) providesthat if a taxpayer actually or construc-tively receives money or other property in

the full amount of the consideration for therelinquished property before the taxpayeractually receives the replacement prop-erty, the transaction will constitute a saleand not a deferred exchange, even thoughthe taxpayer may ultimately receive re-placement property.

.06 Section 1.1031(k)–1(g) sets forth safeharbors involving a qualified escrow ac-count, a qualified trust, or a qualified in-termediary, the use of which will result ina determination that the taxpayer is not inactual or constructive receipt of money orother property for purposes of § 1031 andthe regulations.

.07 Section 1.1031(k)–1(g)(4)(iii) re-quires that, for an intermediary to be aqualified intermediary, the intermediary mustenter into a written “exchange” agreementwith the taxpayer and, as required by theexchange agreement, acquire the relin-quished property from the taxpayer, trans-fer the relinquished property, acquire thereplacement property, and transfer the re-placement property to the taxpayer.

.08 Section 1.1031(k)–1(g)(4)(iv) pro-vides that the intermediary will be treatedas acquiring or transferring property, as thecase may be, if the intermediary (either onits own behalf or as the agent of any partyto the transaction) enters into an agree-ment for the acquisition or transfer of prop-erty and, pursuant to that agreement, theproperty is transferred.

.09 Section 1.1031(k)–1(g)(4)(v) pro-vides that an intermediary will be treatedas entering into an agreement for the ac-quisition or transfer of property if the tax-payer’s rights in the agreement are assignedto the intermediary, and the other parties tothe acquisition or transfer agreement are no-tified in writing of the assignment on or be-fore the date of the relevant transfer ofproperty (the “Assignment Safe Harbor”).Under the Assignment Safe Harbor, thereis no requirement that the taxpayer also as-sign or delegate its obligations arising un-der the agreement.

.10 Section 1.1031(k)–1(g)(6) providesthat an agreement with an escrow holder,trustee or qualified intermediary must ex-pressly limit the taxpayer’s rights to re-ceive, pledge, borrow, or otherwise obtainthe benefits of money or other property heldin the qualified escrow or trust or by thequalified intermediary.

2003–22 I.R.B. 971 June 2, 2003

.11 Sections 1.1031(k)–1(g)(3) and (4)provide that the application of the safe har-bor requires that in the case of a quali-fied escrow account, a qualified trust, or aqualified intermediary, the escrow holder,trustee, or intermediary must not be a “dis-qualified person.”

.12 Section 1.1031(k)–1(k)(2) providesthat a person that is the agent of the tax-payer at the time of the transaction is a dis-qualified person. For this purpose, a personwho has acted as the taxpayer’s employee,attorney, accountant, investment banker orbroker, or real estate agent or broker withinthe two-year period ending on the date ofthe transfer of the first of the relinquishedproperties is treated as an agent of the tax-payer at the time of the transaction. Solelyfor purposes of §1.1031–1(k)(2), perfor-mance of the following services will not betaken into account: (a) services for the tax-payer with respect to exchanges of prop-erty intended to qualify for nonrecognitionof gain or loss under § 1031; and (b) rou-tine financial, title insurance, escrow, or trustservices for the taxpayer by a financial in-stitution, title insurance company, or es-crow company.

.13 The Service and Treasury Depart-ment have determined that it is in the bestinterest of sound tax administration to pro-vide taxpayers with guidance regarding thequalification of LKE Programs under§ 1031. Accordingly, this revenue proce-dure provides safe harbors that clarify theapplication of § 1031 and the regulationsthereunder to LKE Programs.

SECTION 3. SCOPE ANDDEFINITIONS

.01 Exclusivity. This revenue proce-dure provides safe harbors for certain as-pects of the qualification under § 1031 ofcertain exchanges of property pursuant toLKE Programs. The principles set forth insections 4 through 6 of this revenue pro-cedure have no application to any federalincome tax determinations other than de-terminations that involve LKE Programsqualifying for one or more of the safe har-bors. For a transaction to qualify under§ 1031, it must also satisfy the require-ments of § 1031 for which safe harbors arenot provided in this revenue procedure (e.g.,whether property involved in an exchangeis considered like-kind property within themeaning of § 1031).

.02 LKE Program. For purposes of thisrevenue procedure, an “LKE Program” isan ongoing program involving multiple ex-changes of 100 or more properties. Al-though LKE Programs may differ in variousways, an LKE Program must have all of thefollowing characteristics:

(1) The taxpayer regularly and routinelyenters into agreements to sell tangible per-sonal property as well as agreements to buytangible personal property;

(2) The taxpayer uses a single, unre-lated intermediary to accomplish the ex-changes in the LKE Program;

(3) The taxpayer and the intermediaryenter into a written agreement (“master ex-change agreement”);

(4) The master exchange agreement ex-pressly limits the taxpayer’s rights to re-ceive, pledge, borrow, or otherwise obtainthe benefits of money or other property heldby the intermediary as provided in§ 1.1031(k)–1(g)(6);

(5) In the master exchange agreement,the taxpayer assigns to the intermediary thetaxpayer’s rights (but not necessarily its ob-ligations) in some or all of its existing andfuture agreements to sell relinquished prop-erty and/or to purchase replacement prop-erty;

(6) The taxpayer provides written no-tice of the assignment to the other party toeach existing and future agreement to sellrelinquished property and/or to purchase re-placement property;

(7) The taxpayer(a) implements a process that identi-

fies potential replacement property or prop-erties before the end of the identificationperiod for the relinquished property or groupof relinquished properties of which it is dis-posing in each exchange,

(b) complies with the identification re-quirement by receiving replacement prop-erty or properties before the end of the 45-day identification period, or

(c) satisfies the identification require-ments by a combination of the approachesin (a) and (b);

(8) The taxpayer implements a processfor collecting, holding, and disbursing funds(which may include the use of joint tax-payer and intermediary bank accounts, oraccounts in the name of a third party forthe benefit of both the taxpayer and the in-termediary) that ensures that the interme-diary controls the receipt, holding, anddisbursement of all funds to which the in-

termediary is entitled (i.e., proceeds fromthe sale of relinquished properties);

(9) Relinquished property or proper-ties that are transferred are matched withreplacement property or properties that arereceived in order to determine the gain, ifany, recognized on the disposition of the re-linquished property and to determine the ba-sis of the replacement property; and

(10) The taxpayer recognizes gain or losson the disposition of relinquished proper-ties that are not matched with replace-ment properties, and the taxpayer takes acost basis in replacement properties that arereceived but not matched with relinquishedproperties.

A taxpayer may conduct more than oneLKE Program simultaneously. In such acase, each LKE Program is evaluated sepa-rately for purposes of determining whetherthat LKE Program qualifies for the safe har-bors of this revenue procedure.

.03 No Inference. The Service recog-nizes that exchanges of property pursuantto LKE Programs may qualify for nonrec-ognition treatment under § 1031 althoughthey fall outside the safe harbors providedin this revenue procedure. No inference isintended with respect to the federal in-come tax treatment of transfers of relin-quished property and acquisitions ofreplacement property that do not satisfy theterms of the safe harbors provided in thisrevenue procedure.

.04 Scope of Safe Harbors. Each of theparagraphs under sections 4, 5, and 6 of thisrevenue procedure is considered a sepa-rate and distinct safe harbor. Therefore, ataxpayer who fails to qualify for the ben-efits of one safe harbor may neverthelessqualify for the benefits of another safe har-bor.

SECTION 4. EXCHANGES OFRELINQUISHED PROPERTY ANDREPLACEMENT PROPERTY

.01 Separate and Distinct Exchanges. Inthe case of an LKE Program, the taxpay-er’s transfer of each relinquished prop-erty or group of relinquished properties andthe taxpayer’s corresponding receipt of eachreplacement property or group of replace-ment properties with which the relinquishedproperty or group of relinquished proper-ties has been matched by the taxpayer istreated as a separate and distinct exchangefor purposes of § 1031. The determina-tion of whether a particular exchange quali-

June 2, 2003 972 2003–22 I.R.B.

fies under § 1031 is made without regardto any other exchange. Thus, if a particu-lar exchange of a relinquished property orgroup of relinquished properties for a re-placement property or group of replace-ment properties pursuant to an LKEProgram fails to qualify under § 1031, suchfailure will not affect the application of§ 1031 to any other exchange pursuant tothe LKE Program.

.02 45-day Identification Period. Re-placement property that is received withinthe 45-day identification period or that isotherwise properly identified as provided in§ 1.1031(k)–1(c) is treated as satisfying therequirement of § 1031(a)(3) that replace-ment property be identified, notwithstand-ing that it may not be matched withrelinquished property until after the end ofthe 45-day identification period. The re-placement property must, however, bematched no later than the due date (deter-mined with regard to extensions) of the tax-payer’s return.

SECTION 5. ACTUAL ORCONSTRUCTIVE RECEIPT OFMONEY OR OTHER PROPERTY

For purposes of this section, any re-quirement that the taxpayer transfer moneyor other property to the qualified interme-diary will be deemed to be satisfied if theamount of money held by the qualified in-termediary and the amount of money in anyjoint account (as described in § 5.02 of thisrevenue procedure) equals or exceeds theamount of proceeds from the sale of relin-quished property (including the amount thatis required to be transferred by the tax-payer) that has not yet been used to ac-quire replacement property.

.01 Receipt of Checks and Other Nego-tiable Instruments. A taxpayer engaged inan LKE Program will not be considered tobe in actual or constructive receipt of moneyor other property as a result of process-ing a check or other negotiable instru-ment made payable to a person other thanthe taxpayer if:

(1) The check or other negotiable in-strument has not been endorsed by the per-son to whom the check or other negotiableinstrument is made payable;

(2) The person to whom the check orother negotiable instrument is made pay-able is not a disqualified person as de-fined in § 1.1031(k)–1(k); and

(3) The check or other negotiable in-strument is forwarded to or for the ben-efit of a qualified intermediary or depositedinto an account in the name of the quali-fied intermediary, a joint account, or an ac-count in the name of a third party (otherthan a disqualified person as defined in§ 1.1031(k)–1(k)) for the benefit of both thetaxpayer and the qualified intermediary.

.02 Joint Accounts. A taxpayer engagedin an LKE Program will not be consid-ered to be in actual or constructive re-ceipt of proceeds from the sale ofrelinquished property deposited into or heldin a joint bank, trust, escrow, or similar ac-count in the name of the taxpayer and thequalified intermediary, or in an account inthe name of a third party (other than a dis-qualified person as defined in § 1.1031(k)–1(k)) for the benefit of both the taxpayerand the qualified intermediary, if:

(1) The account is used to collect, hold,and/or disburse proceeds arising from thesale of relinquished property for the ben-efit of the qualified intermediary;

(2) The agreement setting forth the termsand conditions with respect to the accountrequires authorization from the qualified in-termediary to transfer proceeds from the saleof relinquished properties out of the ac-count; and

(3) The agreement setting forth the termsof the taxpayer’s and qualified intermedi-ary’s rights with respect to, or beneficial in-terest in, the account expressly limits thetaxpayer’s rights to receive, pledge, bor-row, or otherwise obtain the benefits of pro-ceeds from the sale of relinquished propertyheld in the joint account as provided in§ 1.1031(k)–1(g)(6).

The account may also be used by theparties for other purposes provided that suchuse does not undermine the qualified in-termediary’s right to control the proceedsfrom the sale of relinquished property.

.03 Funds Netting. A taxpayer engagedin an LKE Program will not be consid-ered to be in actual or constructive re-ceipt of money or other property as a resultof transferring relinquished property solelybecause an amount owed by the taxpayerto the buyer (other than a lease security de-posit) is netted against the sales price of therelinquished property, provided that, as re-quired by the master exchange agreement,funds equal to the full amount of sales pro-ceeds from the relinquished property aretransferred to or for the benefit of the quali-

fied intermediary by the opening of the nextday’s business. Likewise, a taxpayer ac-quiring replacement property in a like-kind exchange will not be considered to bein actual or constructive receipt of moneyor other property solely because an amountowed by the seller to the taxpayer is net-ted against the purchase price of the prop-erty and the qualified intermediary transfersto the taxpayer funds in an amount equalto the amount owed by the seller to the tax-payer so that the qualified intermediary ex-pends the full amount of the purchase priceobligation for the replacement property.

.04 Taxpayer As Lender to Purchaser. Ifa taxpayer that is engaged in an LKE Pro-gram lends money to the buyer for the pur-chase of the taxpayer’s relinquishedproperty, the taxpayer’s receipt of the buy-er’s promissory note or other evidence ofindebtedness will not be considered ac-tual or constructive receipt of money orother property if:

(1) The taxpayer makes similar loans inthe ordinary course of its business opera-tions;

(2) The buyer is not obligated to ob-tain financing from the taxpayer for the pur-chase of the relinquished property, but ratheris free to borrow the funds from anotherlender;

(3) The taxpayer’s loan to the buyer isan arm’s-length transaction at the prevail-ing market terms; and

(4) As required by the master exchangeagreement, the taxpayer promptly trans-fers funds equal to the loan proceeds (plusa market rate of interest on such amount forthe period between the date of the sale ofthe relinquished property and the date of thetransfer of the loan proceeds to the quali-fied intermediary) to or for the benefit ofthe qualified intermediary.

05. Application of Lease Security De-posit To Purchase Price. In the case of ataxpayer that engages in an LKE Programand is the lessor of the property being pur-chased by the buyer-lessee, the buyer-lessee’s application of its lease securitydeposit to the purchase price of the relin-quished property will not be considered ac-tual or constructive receipt of money orother property provided that, as required bythe master exchange agreement, the tax-payer promptly transfers funds equal to thelease security deposit (plus a market rateof interest on such amount for the periodbetween the date of the sale of the relin-

2003–22 I.R.B. 973 June 2, 2003

quished property and the date of the trans-fer of the security deposit to the qualifiedintermediary) to or for the benefit of thequalified intermediary.

SECTION 6. DEFINITION OFQUALIFIED INTERMEDIARY

.01 In General. For purposes of deter-mining whether an intermediary is a dis-qualified person in the context of an LKEProgram, the intermediary will not fail tobe a qualified intermediary merely be-cause the intermediary:

(1) is assigned the taxpayer’s rights inits agreements to sell relinquished proper-ties that ultimately are not matched with re-placement properties under the taxpayer’sLKE Program;

(2) is assigned the taxpayer’s rights inits agreements to buy replacement proper-ties that ultimately are not matched with re-linquished properties under the taxpayer’sLKE Program;

(3) receives funds with respect to thetransfer of relinquished property that ulti-mately is not matched with replacementproperty under the taxpayer’s LKE Pro-gram; or

(4) pays funds with respect to the ac-quisition of replacement property that ul-timately is not matched with relinquishedproperty under the taxpayer’s LKE Pro-gram.

.02 Assignment Safe Harbor. The tax-payer’s assignment in the master exchangeagreement to the intermediary of the tax-payer’s rights (but not necessarily its ob-ligations) in some or all of its existing andfuture agreements to sell relinquished prop-erty and/or to purchase replacement prop-erty, and the taxpayer’s written notice of theassignment to the other party to each agree-ment to sell relinquished property and/or topurchase replacement property on or be-fore the date of the relevant transfer of prop-erty, will be effective to satisfy theAssignment Safe Harbor and notice re-quirement under § 1.1031(k)–1(g)(4)(v).

SECTION 7. PAPERWORKREDUCTION ACT

The collections of information containedin this revenue procedure have been re-viewed and approved by the Office of Man-agement and Budget in accordance with thePaperwork Reduction Act (44 U.S.C. 3507)under control number 1545–1834.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information unlessthe collection of information displays a validcontrol number.

The collections of information in thisrevenue procedure are in sections 5 and 6.This information is required by the Ser-vice to provide safe harbors under § 1031to taxpayers participating in LKE Pro-

grams for federal income tax purposes. Thelikely respondents are finance companies;subsidiaries of manufacturers; or banks thatpurchases retail leases and retail install-ment sale contracts from dealers of auto-mobiles or other types of equipment.

The estimated total annual reporting andrecordkeeping burden is 8,600 hours.

The estimated annual burden perrespondent/recordkeeper varies from 45minutes to 75 minutes, depending on in-dividual circumstances, with an estimatedaverage of 60 minutes. The estimated num-ber of respondents and recordkeepers is8,600.

The estimated annual frequency of re-sponses is on occasion.


SECTION 8. DRAFTINGINFORMATION

The principal author of this revenue pro-cedure is Elizabeth Kaye of the Office ofAssociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue procedure, contactMs. Kaye at (202) 622–4920 (not a toll-free call).

June 2, 2003 974 2003–22 I.R.B.

Part IV. Items of General Interest

Notice of Proposed Rulemak-ing and Notice of Public Hear-ing

Split-Dollar Life InsuranceArrangements

REG–164754–01


ACTION: Notice of proposed rulemak-ing and notice of public hearing.

SUMMARY: This document contains pro-posed regulations relating to the valua-tion of economic benefits under certainequity split-dollar life insurance arrange-ments. The proposed regulations will pro-vide needed guidance to persons who enterinto split-dollar life insurance arrange-ments. This document also provides no-tice of a public hearing on the proposedregulations.

DATES: Written or electronic commentsmust be received by July 8, 2003. Requeststo speak and outlines of topics to be dis-cussed at the public hearing scheduled forJuly 29, 2003, must be received by July 8,2003.

ADDRESSES: Send submissions toCC:PA:RU (REG–164754–01), room 5226,Internal Revenue Service, POB 7604, BenFranklin Station, Washington, DC 20044.Submissions may be hand delivered Mon-day through Friday between the hours of8 a.m. and 4 p.m. to: CC:PA:RU (REG–164754–01), Courier’s Desk, Internal Rev-enue Service, 1111 Constitution Avenue,NW, Washington, DC or sent electroni-cally, via the IRS Internet site atwww.irs.gov/regs. The public hearing willbe held in the IRS Auditorium, InternalRevenue Building, 1111 Constitution Av-enue, NW, Washington, DC.

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, pleasecontact Elizabeth Kaye at (202) 622–4920.To be placed on the attendance list for thehearing, please contact LaNita M. Van Dykeat (202) 622–7180.


Background and Overview of Noticeof Proposed Rulemaking

1. Summary of the Prior Notice ofProposed Rulemaking

On July 9, 2002, a notice of proposedrulemaking (REG–164754–01, 2002–30I.R.B. 212 [67 FR 45414]) was publishedin the Federal Register proposing com-prehensive rules for the income, gift, andemployment taxation of equity and non-equity split-dollar life insurance arrange-ments (the 2002 proposed regulations). The2002 proposed regulations will apply tosplit-dollar life insurance arrangements en-tered into after the date final regulations arepublished in the Federal Register and toarrangements entered into on or before thatdate that are materially modified after thatdate. Under certain conditions, taxpayersmay rely on the 2002 proposed regula-tions for split-dollar life insurance arrange-ments entered into on or before the datefinal regulations are published in the Fed-eral Register.

In general, a split-dollar life insurancearrangement is an arrangement between twoor more parties to allocate the policy ben-efits and, in some cases, the costs of a lifeinsurance contract. Under a so-called eq-uity split-dollar life insurance arrange-ment, one party to the arrangement typicallyreceives an interest in the policy cash value(or equity) of the life insurance policy dis-proportionate to that party’s share of policypremiums. That party also typically re-ceives the benefit of current life insur-ance protection under the arrangement.Under a so-called non-equity split-dollar lifeinsurance arrangement, one party typi-cally provides the other party with cur-rent life insurance protection but not anyinterest in the policy cash value.

The 2002 proposed regulations providetwo mutually exclusive regimes for taxa-tion of split-dollar life insurancearrangements—a loan regime and an eco-nomic benefit regime. Under the loan re-gime (which is set forth in §1.7872–15 ofthe 2002 proposed regulations), the non-owner of the life insurance contract istreated as loaning the amount of its pre-mium payments to the owner of the con-

tract. The loan regime generally will governthe taxation of collateral assignment ar-rangements. Under the economic benefit re-gime (which is set forth in §1.61–22(d)through (g) of the 2002 proposed regula-tions), the owner of the life insurance con-tract is treated as providing economicbenefits to the non-owner of the contract.The economic benefit regime generally willgovern the taxation of endorsement ar-rangements.

The 2002 proposed regulations reservedon the rules for valuing economic ben-efits provided to the non-owner under anequity split-dollar life insurance arrange-ment governed by the economic benefit re-gime, pending receipt of comments frominterested parties. The preamble to the 2002proposed regulations notes that any pro-posal “for a specific methodology shouldbe objective and administrable” and de-scribes a potential approach under which thenon-owner would include in income the dif-ference between current premium pay-ments and the net present value of theamount to be repaid to the owner in the fu-ture.

A public hearing on the 2002 proposedregulations was held on October 23, 2002.In addition, interested parties have submit-ted detailed comments on the 2002 pro-posed regulations, including comments onthe valuation of economic benefits pro-vided to a non-owner under an equity split-dollar life insurance arrangement governedby the economic benefit regime.

2. Explanation of Provisions andSummary of Comments

a. Overview

These proposed regulations, whichsupplement the 2002 proposed regulations,provide guidance on the valuation of eco-nomic benefits (including the valuation ofan interest in policy cash value) under anequity split-dollar life insurance arrange-ment governed by the economic benefit re-gime. These proposed regulations apply forpurposes of federal income, employment,and gift taxes.

These proposed regulations address onlythose comments received by the IRS andthe Treasury Department on the valuationof economic benefits under an equity split-dollar life insurance arrangement governed

2003–22 I.R.B. 975 June 2, 2003

by the economic benefit regime. Com-ments received on other issues regarding the2002 proposed regulations and commentson these proposed regulations will be ad-dressed when both sets of proposed regu-lations are finalized.

These proposed regulations provide thatin the case of an equity split-dollar life in-surance arrangement, the value of the eco-nomic benefits provided to the non-ownerunder the arrangement for a taxable yearequals the cost of any current life insur-ance protection provided to the non-owner,the amount of policy cash value to whichthe non-owner has current access (to the ex-tent that such amount was not actually takeninto account for a prior taxable year), andthe value of any other economic benefitsprovided to the non-owner (to the extent notactually taken into account for a prior tax-able year). The terms owner and non-ownerare defined in §1.61–22(c)(1) and (2) of the2002 proposed regulations.

b. Current access to policy cash value

Generally, under an equity split-dollarlife insurance arrangement governed by theeconomic benefit regime, the owner of thelife insurance contract pays policy premi-ums, thereby establishing a pool of assetswith respect to which the non-owner hascertain rights under the arrangement (for ex-ample, rights of withdrawal, borrowing, sur-render, or assignment). Additionally, thepool of assets is held by a third party, thelife insurance company, effectively plac-ing the cash value beyond the reach of theemployer or the employer’s general credi-tors in many cases. Thus, an equity split-dollar life insurance arrangement confers onthe non-owner rights to direct or indirecteconomic enjoyment of policy cash value,making current taxation of the non-owner’sinterest in the cash value appropriate un-der the doctrines of constructive receipt,economic benefit, and cash equivalence.

These proposed regulations provide thatthe non-owner has current access to anyportion of the policy cash value that is di-rectly or indirectly accessible by the non-owner, inaccessible to the owner, orinaccessible to the owner’s general credi-tors. For this purpose, “access” is to be con-strued broadly and includes any direct orindirect right under the arrangement of thenon-owner to obtain, use, or realize poten-tial economic value from the policy cashvalue. Thus, for example, a non-owner has

current access to policy cash value if thenon-owner can directly or indirectly makea withdrawal from the policy, borrow fromthe policy, or effect a total or partial sur-render of the policy. Similarly, for example,the non-owner has current access if the non-owner can anticipate, assign (either at lawor in equity), alienate, pledge, or encum-ber the policy cash value or if the policycash value is available to the non-owner’screditors by attachment, garnishment, levy,execution, or other legal or equitable pro-cess. Policy cash value is inaccessible to theowner if the owner does not have the fullrights to policy cash value normally heldby an owner of a life insurance contract.Policy cash value is inaccessible to the own-er’s general creditors if, under the terms ofthe split-dollar life insurance arrangementor by operation of law or any contractualundertaking, the creditors cannot, for anyreason, effectively reach the full policy cashvalue in the event of the owner’s insol-vency.

In a typical equity split-dollar life in-surance arrangement, the non-owner hascurrent access to all portions of the policycash value in excess of the amount pay-able to the owner. In many arrangements,the non-owner may also have current ac-cess to the portion of the cash value pay-able to the owner if, for example, thatportion of the policy cash value is for anyreason not accessible to the owner or theowner’s general creditors.

Under these proposed regulations, policycash value is determined without regard tosurrender charges or other similar chargesor reductions. To provide uniformity, cer-tainty, and administrative ease, policy cashvalue generally is determined on the last dayof the non-owner’s taxable year. In addi-tion, solely for purposes of employment tax(as defined in §1.61–22(c)(5) of the 2002proposed regulations) and the penalty forfailure to pay estimated income taxes, theportion of the policy cash value that istreated as provided by the owner to the non-owner during the non-owner’s taxable yearis treated as so provided on the last day ofthat taxable year. The IRS and the Trea-sury Department request comments regard-ing circumstances in which it might beappropriate to use a different date for em-ployment tax withholding purposes.

Several commentators on the 2002 pro-posed regulations asserted that those regu-lations were contrary to the intention,

announced by the IRS and the Treasury De-partment in Notice 2002–8, 2002–1 C.B.398, to publish proposed regulations thatwill not treat an owner as having made atransfer of a portion of the cash surrendervalue of a life insurance contract to a non-owner for purposes of section 83 solely be-cause interest or other earnings credited tothe cash surrender value of the contractcause the cash surrender value to exceed theportion thereof payable to the owner. Thevaluation methodology described in theseproposed regulations, however, does nottreat an owner as having made a transferunder section 83 solely because of growthin policy cash value. Rather, this approach,consistent with the doctrines of construc-tive receipt, economic benefit, and cashequivalence, treats the non-owner as hav-ing a taxable interest in policy cash valueonly to the extent that the non-owner hascurrent access to the policy cash value.

Several commentators stated that a non-owner who includes in income a portion ofthe policy cash value should be creditedwith “inside build-up” on that portion of thepolicy cash value. This result might be ap-propriate if there were actual transfers ofownership of the underlying life insur-ance contract (or a portion thereof) from theowner to the non-owner. Here, by con-trast to transfers described in §1.61–22(g)of the 2002 proposed regulations, no partof the life insurance contract is actuallytransferred from the owner to the non-owner by reason of the non-owner’s tak-ing policy cash value into account.

In addition, some commentators ex-pressed the view that, under the economicbenefit regime, if the policy cash value inone year is less than the policy cash valuein a prior year, the non-owner should be al-lowed a loss to the extent this differencewas included in income in the prior year.Consistent with the underlying doctrines ofconstructive receipt, economic benefit, andcash equivalence, a loss should not be al-lowed in this situation. Note, however, thatunder §1.61–22(g)(4)(ii)(A) of the 2002 pro-posed regulations, if a life insurance con-tract is transferred from an owner to a non-owner (the transferee), the transferee’sinvestment in the contract under section72(e) will include the amount of economicbenefits previously taken into account bythe transferee prior to the transfer.

June 2, 2003 976 2003–22 I.R.B.

c. Current term life insurance protection

These proposed regulations provide that,in the case of an equity split-dollar life in-surance arrangement governed by the eco-nomic benefit regime, the value of theeconomic benefits provided to a non-ownerfor a taxable year also includes the cost ofcurrent life insurance protection providedto the non-owner. The cost of current lifeinsurance protection provided to the non-owner in any year equals the amount of thecurrent life insurance protection providedto the non-owner multiplied by the life in-surance premium factor designated or per-mitted in guidance published in the InternalRevenue Bulletin. The amount of the cur-rent life insurance protection (includingpaid-up additions thereto) provided to thenon-owner for a taxable year equals the ex-cess of the average death benefit of the lifeinsurance contract over the sum of the to-tal amount payable to the owner (includ-ing any outstanding policy loans that offsetamounts otherwise payable to the owner)under the split-dollar life insurance arrange-ment and the portion of the policy cashvalue actually taken into account for thecurrent taxable year or for any prior tax-able year. This subtraction of the portion ofthe policy cash value actually taken into ac-count by the non-owner prevents the non-owner from being taxed twice on the sameamount, once as part of the policy cashvalue to which the non-owner has currentaccess and again as an amount provided tothe non-owner in the form of death ben-efit protection.

d. Other economic benefits

These proposed regulations provide that,in the case of an equity split-dollar life in-surance arrangement governed by the eco-nomic benefit regime, the value of all othereconomic benefits provided to the non-owner must be taken into account (to theextent not actually taken into account fora prior taxable year). For this purpose, theterm “other economic benefits” should beconstrued broadly to include any benefit,right, or feature of the life insurance con-tract (other than current life insurance pro-tection and policy cash value) provided tothe non-owner under the arrangement.

Proposed Effective Date

These proposed regulations will have thesame applicability date as that set forth in

§1.61–22(j) of the 2002 proposed regula-tions. Thus, these proposed regulations willapply to split-dollar life insurance arrange-ments entered into after the date final regu-lations are published in the FederalRegister and to arrangements entered intoon or before that date that are materiallymodified after that date.

In addition, taxpayers may rely on theseproposed regulations for equity split-dollarlife insurance arrangements entered into onor before the date final regulations are pub-lished in the Federal Register if the con-ditions in §1.61–22(j)(2)(i) of the 2002proposed regulations are met. For taxableyears beginning after December 31, 2002,however, parties to an equity split-dollar lifeinsurance arrangement may rely on theseproposed regulations only if the value of alleconomic benefits taken into account by theparties is determined in accordance withthese proposed regulations. These pro-posed regulations also conform the early re-liance rules in §1.83–6(a)(5)(ii)(B) and§1.301–1(q)(4)(ii) of the 2002 proposedregulations to that set forth in the preced-ing sentence.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Ex-ecutive Order 12866. Therefore, a regulatoryflexibility assessment is not required. It hasbeen determined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.Chapter 5) does not apply to these regu-lations, and because these regulations do notimpose a collection of information on smallentities, the Regulatory Flexibility Act (5U.S.C. chapter 6) does not apply. Pursu-ant to section 7805(f) of the Internal Rev-enue Code, this notice of proposedrulemaking will be submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration for comment on its im-pact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written or electroniccomments (a signed original and eight (8)copies) that are submitted timely to the IRS.The Treasury Department and IRS specifi-cally request comments on the clarity of theproposed rules and how they may be made

easier to understand. All comments will beavailable for public inspection and copy-ing.

A public hearing has been scheduled forJuly 29, 2003, beginning at 10 a.m. in theIRS Auditorium in the Internal RevenueBuilding, 1111 Constitution Avenue, NW,Washington, DC. Thus, the public hear-ing concerning these proposed regulationswill be held on a date sooner than the usual120 days after the date of publication ofproposed regulations in the Federal Reg-ister. The IRS and the Treasury Depart-ment believe that this shorter period issufficient for taxpayers to comment on theseproposed regulations because the issue ad-dressed by these proposed regulations is nar-rowly focused and taxpayers have alreadysubmitted comments on this issue in con-nection with the 2002 proposed regula-tions.

All visitors must present photo identi-fication to enter the building. Because ofaccess restrictions, visitors will not be ad-mitted beyond the immediate entrance areamore than 30 minutes before the hearingstarts. For information about having yourname placed on the building access list toattend the hearing, see the “FOR FUR-THER INFORMATION CONTACT” sec-tion of this preamble.

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons who wish topresent oral comments at the hearing mustsubmit written comments and an outline ofthe topics to be discussed and the time tobe devoted to each topic (signed originaland eight (8) copies) by July 8, 2003. A pe-riod of 10 minutes will be allotted to eachperson for making comments. An agendashowing the schedule of speakers will beprepared after the deadline for receiving out-lines has passed. Copies of the agenda willbe available free of charge at the hearing.


The principal author of these proposedregulations is Elizabeth Kaye of the Of-fice of Associate Chief Counsel (IncomeTax and Accounting). However, other per-sonnel from the IRS and Treasury Depart-ment participated in their development.

* * * * *

Proposed Amendments to theRegulations

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

2003–22 I.R.B. 977 June 2, 2003

PART 1—INCOME TAXES


Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.61–22, as proposed on

July 9, 2002, at 67 FR 45423, is amendedas follows:

1. The text of paragraph (d)(3)(ii) isadded.

2. Paragraph (j)(2)(iii) is added.The additions read as follows:

§1.61–22 Taxation of split-dollar life in-surance arrangements.

* * * * *

(d) * * *(3) * * *(ii) Valuation of economic benefits—

(A) In general. In the case of a split-dollarlife insurance arrangement described inparagraph (d)(3)(i) of this section, the valueof the economic benefits provided to a non-owner for a taxable year under the arrange-ment equals—

(1) The cost of current life insurance pro-tection provided to the non-owner as de-termined under paragraph (d)(3)(ii)(B) ofthis section;

(2) The amount of policy cash value towhich the non-owner has current accesswithin the meaning of paragraph(d)(3)(ii)(C) of this section (to the extentthat such amount was not actually taken intoaccount for a prior taxable year); and

(3) The value of any economic ben-efits not described in paragraph(d)(3)(ii)(A)(1) or (2) of this section pro-vided to the non-owner (to the extent notactually taken into account for a prior tax-able year).

(B) Valuation of current term life insur-ance protection. In the case of a split-dollar life insurance arrangement describedin paragraph (d)(3)(i) of this section, theamount of the current life insurance pro-tection (including paid-up additions thereto)provided to the non-owner for a taxableyear equals the excess of the average deathbenefit of the life insurance contract overthe sum of the total amount payable to theowner under the split-dollar life insur-ance arrangement and the portion of thepolicy cash value actually taken into ac-count for the current taxable year or for anyprior taxable year. The total amount pay-able to the owner is increased by theamount of any outstanding policy loan. Thecost of current life insurance protection pro-

vided to the non-owner in any year equalsthe amount of the current life insurance pro-tection provided to the non-owner multi-plied by the life insurance premium factordesignated or permitted in guidance pub-lished in the Internal Revenue Bulletin (see§601.601(d)(2)(ii) of this chapter).

(C) Current access. For purposes of thisparagraph (d)(3), a non-owner has cur-rent access to that portion of the policy cashvalue that is directly or indirectly acces-sible by the non-owner, inaccessible to theowner, or inaccessible to the owner’s gen-eral creditors.

(D) Valuation date—(1) General rules.For purposes of paragraph (d)(3)(ii)(A) ofthis section, the policy cash value is de-termined on the last day of the taxable yearof the non-owner. Notwithstanding the pre-vious sentence, if the split-dollar life in-surance arrangement terminates during thetaxable year of the non-owner, the policycash value is determined on the day that thearrangement terminates.

(2) Artifice or device. Notwithstandingparagraph (d)(3)(ii)(D)(1) of this section, ifany artifice or device is used to under-state the amount of policy cash value towhich the non-owner has current access onthe valuation date in paragraph(d)(3)(ii)(D)(1) of this section, then, for pur-poses of paragraph (d)(3)(ii)(A) of this sec-tion, the date on which the amount of policycash value is determined is the date onwhich the amount of policy cash value isgreatest during that taxable year.

(E) Policy cash value. For purposes ofthis paragraph (d)(3), policy cash value isdetermined without regard to surrendercharges or other similar charges or reduc-tions.

(F) Special rule for certain taxes. Forpurposes of employment tax (as defined inparagraph (c)(5) of this section), and sec-tions 6654 and 6655 (relating to the fail-ure to pay estimated income tax), thatportion of the policy cash value (as deter-mined under paragraph (d)(3)(ii)(A)(2) ofthis section) that is treated as provided bythe owner to the non-owner under para-graph (d)(1) of this section shall be treatedas so provided on the last day of the tax-able year of the non-owner. Notwithstand-ing the previous sentence, if the split-dollarlife insurance arrangement terminates dur-ing the taxable year of the non-owner, suchportion of the policy cash value shall be

treated as so provided on the day that thearrangement terminates.

(G) Examples. The following examplesillustrate the rules of this paragraph(d)(3)(ii). Except as otherwise provided,both examples assume the following facts:employer (R) is the owner (as defined inparagraph (c)(1) of this section) and em-ployee (E) is the non-owner (as defined inparagraph (c)(2) of this section) of a life in-surance contract that is part of an equitysplit-dollar life insurance arrangement thatis subject to the provisions of paragraphs(d) through (g) of this section; the con-tract is a life insurance contract as de-fined in section 7702 and not a modifiedendowment contract as defined in section7702A; R does not withdraw or obtain aloan of any portion of the policy cash valueand does not surrender any portion of thelife insurance contract; the compensationpaid to E is reasonable; E is not providedany economic benefits described in para-graph (d)(3)(ii)(A)(3) of this section; E doesnot make any premium payments; E’s tax-able year is the calendar year; and E re-ports on E’s federal income tax return foreach year that the equity split-dollar life in-surance arrangement is in effect the amountof income required to be reported underparagraph (d) of this section. The examplesare as follows:

Example 1. (i) Facts. In year 1, R and E enter intothe equity split-dollar life insurance arrangement. Un-der the arrangement R pays all of the premiums onthe life insurance contract until the termination of thearrangement or E’s death. The arrangement also pro-vides that upon termination of the arrangement or E’sdeath, R is entitled to receive the lesser of the ag-gregate premiums paid or the policy cash value of thecontract and E is entitled to receive any remainingamounts. Under the terms of the arrangement and ap-plicable state law, the policy cash value is fully ac-cessible by R and R’s creditors but E has the right toborrow or withdraw the portion of the policy cashvalue exceeding the amount payable to R upon ter-mination of the arrangement or E’s death. To fund thearrangement, R purchases a life insurance contract withconstant death benefit protection equal to $1,500,000.As of December 31 of year 1, the policy cash valueequals $55,000 and R has paid $60,000 of premi-ums on the life insurance contract. As of December31 of year 2, the policy cash value equals $140,000and R has paid aggregate premiums of $120,000 onthe life insurance contract. As of December 31 of year3, the policy cash value equals $240,000 and R haspaid $180,000 of premiums on the life insurance con-tract.

(ii) Analysis. Under the terms of the equity split-dollar life insurance arrangement, E has the right foryear 1 and all subsequent years to borrow or with-draw the portion of the policy cash value exceedingthe amount payable to R. Thus, under paragraph(d)(3)(ii)(C) of this section, E has current access to

June 2, 2003 978 2003–22 I.R.B.

such portion of the policy cash value for each yearthat the arrangement is in effect. In addition, be-cause R pays all of the premiums on the life insur-ance contract, R provides to E all of the economicbenefits that E receives under the arrangement. There-fore, under paragraph (d)(1) of this section, E in-cludes in gross income the value of all economicbenefits described in paragraphs (d)(3)(ii)(A)(1) and(2) of this section provided to E under the arrange-ment.

(iii) Results for year 1. For year 1, E is pro-vided, under paragraph (d)(3)(ii)(A)(2) of this sec-tion, $0 of policy cash value (excess of $55,000 policycash value determined as of December 31 of year 1over $55,000 payable to R). For year 1, E is also pro-vided, under paragraph (d)(3)(ii)(A)(1) of this sec-tion, current life insurance protection of $1,445,000($1,500,000 minus $55,000 payable to R). Thus, E in-cludes in gross income for year 1 the cost of$1,445,000 of current life insurance protection.

(iv) Results for year 2. For year 2, E is provided,under paragraph (d)(3)(ii)(A)(2) of this section, $20,000of policy cash value ($140,000 policy cash value de-termined as of December 31 of year 2 minus $120,000payable to R). For year 2, E is also provided, underparagraph (d)(3)(ii)(A)(1) of this section, current lifeinsurance protection of $1,360,000 ($1,500,000 mi-nus the sum of $120,000 payable to R and the ag-gregate of $20,000 of policy cash value that E actuallyincludes in income on E’s year 1 and year 2 incometax returns). Thus, E includes in gross income for year2 the sum of $20,000 of policy cash value and the costof $1,360,000 of current life insurance protection.

(v) Results for year 3. For year 3, E is provided,under paragraph (d)(3)(ii)(A)(2) of this section, $40,000of policy cash value ($240,000 policy cash value de-termined as of December 31 of year 3 minus the sumof $180,000 payable to R and $20,000 of aggregatepolicy cash value that E actually included in gross in-come on E’s year 1 and year 2 federal income tax re-turns). For year 3, E is also provided, under paragraph(d)(3)(ii)(A)(1) of this section, current life insur-ance protection of $1,260,000 ($1,500,000 minus thesum of $180,000 payable to R and $60,000 of ag-gregate policy cash value that E actually includes ingross income on E’s year 1, year 2, and year 3 fed-eral income tax returns). Thus, E includes in gross in-come for year 3 the sum of $40,000 of policy cashvalue and the cost of $1,260,000 of current life in-surance protection.

Example 2. (i) Facts. The facts are the same asin Example 1 except that E cannot directly or indi-rectly access any portion of the policy cash value, butthe terms of the equity split-dollar life insurance ar-rangement or applicable state law provide that thepolicy cash value in excess of the amount payable toR upon termination of the arrangement or E’s deathis inaccessible to R’s general creditors.

(ii) Analysis. Under the terms of the equity split-dollar life insurance arrangement or applicable statelaw, the portion of the policy cash value exceedingthe amount payable to R is inaccessible to R’s gen-eral creditors. Thus, under paragraph (d)(3)(ii)(C) ofthis section, E has current access to such portion ofthe policy cash value for each year that the arrange-ment is in effect. In addition, because R pays all ofthe premiums on the life insurance contract, R pro-vides to E all of the economic benefits that E re-ceives under the arrangement. Therefore, underparagraph (d)(1) of this section, E includes in gross

income the value of all economic benefits describedin paragraphs (d)(3)(ii)(A)(1) and (2) of this sectionprovided to E under the arrangement.

(iii) Results for years 1, 2, and 3. The results forthis example are the same as the results in Example1.

* * * * *

(j) * * *(2) * * *(iii) Valuation of economic benefits. Not-

withstanding paragraph (j)(2)(ii) of this sec-tion, for taxable years beginning afterDecember 31, 2002, parties to an arrange-ment described in paragraph (d)(3) of thissection may rely on this section only if thevalue of all economic benefits taken intoaccount by the parties is determined in ac-cordance with paragraph (d)(3)(ii) of thissection.

* * * * *

Par. 3. Section 1.83–6, as proposed onJuly 9, 2002, at 67 FR 45428, is amendedby adding paragraph (a)(5)(ii)(B)(3) to readas follows:

§1.83–6 Deduction by employer.

(a) * * *(5) * * *(ii) * * *(B) * * *(3) Valuation of economic benefits. Not-

withstanding paragraph (a)(5)(ii)(B)(2) ofthis section, for taxable years beginning af-ter December 31, 2002, parties to an ar-rangement described in §1.61–22(d)(3) mayrely on this section only if the value of alleconomic benefits taken into account by theparties is determined in accordance with§1.61–22(d)(3)(ii).

* * * * *

Par. 4. Section 1.301–1, as proposed onJuly 9, 2002, at 67 FR 45428, is amendedby adding paragraph (q)(4)(ii)(C) to read asfollows:

§1.301–1 Rules applicable with respect todistributions of money and other prop-erty.

* * * * *

(q) * * *(4) * * *(ii) * * *(C) Valuation of economic benefits. Not-

withstanding paragraph (q)(4)(ii)(B) of thissection, for taxable years beginning afterDecember 31, 2002, parties to an arrange-ment described in §1.61–22(d)(3) may relyon this section only if the value of all eco-

nomic benefits taken into account by theparties is determined in accordance with§1.61–22(d)(3)(ii).

* * * * *




Notice of Proposed Rulemak-ing by Cross-Reference toTemporary Regulations andNotice of Public Hearing

Guidance Under Section1502; Amendment of Waiverof Loss Carryovers fromSeparate Return LimitationYears

REG–152524–02


ACTION: Notice of proposed rulemak-ing by cross-reference to temporary regu-lations and notice of public hearing.

SUMMARY: In this issue of the Bulletin,the IRS is issuing temporary regulations(T.D. 9057) under section 1502 that per-mit the amendment of certain elections towaive the loss carryovers of an acquiredsubsidiary. The text of the temporary regu-lations published in this issue of the Bul-letin also serves as the text of theseproposed regulations. This document alsoprovides notice of a public hearing on theseproposed regulations.

DATES: Written or electronic commentsmust be received by August 5, 2003. Out-lines of topics to be discussed at the pub-lic hearing scheduled for August 6, 2003,at 10 a.m., must be received by July 16,2003.

ADDRESSES: Send submissions to:CC:ITA:RU (REG–152524–02), room 5226,Internal Revenue Service, POB 7604, BenFranklin Station, Washington, DC 20044.Submissions may be hand-delivered Mon-day through Friday between the hours of8 a.m. and 5 p.m. to CC:ITA:RU (REG–

2003–22 I.R.B. 979 June 2, 2003

152524–02), Courier’s Desk, Internal Rev-enue Service, 1111 Constitution Avenue,NW, Washington, DC 20044. Alternatively,taxpayers may submit comments electroni-cally directly to the IRS Internet site atwww.irs.gov/regs. The public hearing willbe held in room 6718, Internal RevenueService Building, 1111 Constitution Av-enue, NW, Washington, DC.

FOR FURTHER INFORMATION CON-TACT: Concerning the proposed regula-tions, Alison G. Burns or Jeffrey B.Fienberg, (202) 622–7930; concerning sub-mission of comments, the hearing, and/orto be placed on the building access list toattend the hearing, Sonya Cruse, (202) 622–7180 (not toll-free numbers).


Paperwork Reduction Act

The collection of information containedin this notice of proposed rulemaking hasbeen submitted to the Office of Manage-ment and Budget for review in accor-dance with the Paperwork Reduction Actof 1995 (44 U.S.C. 3507(d)). Comments onthe collection of information should be sentto the Office of Management and Bud-get, Attn: Desk Officer for the Depart-ment of Treasury, Office of Information andRegulatory Affairs, Washington, DC 20503,with copies to the Internal Revenue Ser-vice, Attn: IRS Reports Clearance Officer,W:CAR:MP:T:T:SP, Washington, DC20224. Comments on the collection of in-formation should be received by July 7,2003. Comments are specifically requestedconcerning:

Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the IRS,including whether the information will havepractical utility;

The accuracy of the estimated burden as-sociated with the proposed collection of in-formation (see below);

How the quality, utility, and clarity of theinformation to be collected may be en-hanced;

How the burden of complying with theproposed collection of information may beminimized, including through the applica-tion of automated collection techniques orother forms of information technology; and

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

The collection of information in this pro-posed regulation was previously approvedand reviewed by the Office of Manage-ment and Budget under control number1545–1774. The collection of informa-tion is required to allow the taxpayer tomake certain elections to determine theamount of allowable loss under §1.337(d)–2T, §1.1502–20 as currently in effect, or un-der §1.1502–20 modified so that the amountof allowable loss determined pursuant to§1.1502–20(c)(1) is computed by taking intoaccount only the amounts computed un-der §1.1502–20(c)(1)(i) and (ii); to allowthe taxpayer to reapportion a section 382limitation in certain cases; to allow the tax-payer to waive certain loss carryovers; andto ensure that loss is not disallowed un-der §1.337–2T and basis is not reduced un-der §1.337(d)–2T to the extent that thetaxpayer establishes that the loss or basisis not attributable to the recognition ofbuilt-in gain on the disposition of an as-set.

This collection of information is modi-fied with respect to §§1.1502–20T and1.1502–32T. Regarding §1.1502–20T, thecollection of information also is neces-sary to allow the common parent of the sell-ing group to reapportion a separate,subgroup or consolidated section 382 limi-tation when the acquiring group amends its§1.1502–32(b)(4) election. With respect to§1.1502–32T, the collection of informa-tion also is necessary to allow the acquir-ing group to amend its previous §1.1502–32(b)(4) election, so that it may usepreviously waived losses of its subsid-iary.

The collection of information is requiredto obtain a benefit. The likely respondentsare corporations that file consolidated in-come tax returns.

Estimated total annual reporting and/orrecordkeeping burden: 30,400 hours.

Estimated average annual burden perrespondent: 2 hours.

Estimated number of respondents:15,200.

Estimated annual frequency of responses:once.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information unlessit displays a valid control number assignedby the Office of Management and Bud-get.


Background and Explanation of Provi-sions

Temporary regulations (T.D. 9057) onpage 964 of this issue of the Bulletin amendthe Income Tax Regulations (26 CFR part1) relating to section 1502. The text of thoseregulations also serves as the text of theseproposed regulations. The preamble to thetemporary regulations contains a full ex-planation of the reasons underlying the is-sues of the proposed regulations.

Proposed Effective Date

These proposed regulations will be ef-fective on the date they are published as fi-nal regulations in the Federal Register.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It is hereby certified thatthese regulations do not have a signifi-cant economic impact on a substantial num-ber of small entities. This certification isbased on the fact that these regulations pri-marily will affect affiliated groups of cor-porations that have elected to fileconsolidated returns, which tend to be largerbusinesses, and, moreover, that any bur-den on taxpayers is minimal. Therefore, aRegulatory Flexibility Analysis under theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) is not required. Pursuant to §7805(f)of the Internal Revenue Code, these regu-lations will be submitted to the Chief Coun-sel for Advocacy of the Small BusinessAdministration for comment on their im-pact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written (a signed origi-nal and eight (8) copies) or electronic com-ments that are submitted timely to the IRS.

June 2, 2003 980 2003–22 I.R.B.

All comments will be available for publicinspection and copying.

A public hearing has been scheduled forAugust 6, 2003, beginning at 10 a.m. inroom 6718, Internal Revenue Building, 1111Constitution Avenue, NW, Washington, DC.Due to building security procedures, visi-tors must enter at the Constitution Av-enue entrance. In addition, all visitors mustpresent photo identification to enter thebuilding. Because of access restrictions, visi-tors will not be admitted beyond the im-mediate entrance area more than 30 minutesbefore the hearing starts. For informationabout having your name placed on thebuilding access list to attend the hearing,see the “FOR FURTHER INFORMATIONCONTACT” portion of this preamble.

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons who wish topresent oral comments must submit writ-ten or electronic comments and an out-line of the topics to be discussed and thetime to be devoted to each topic (a signedoriginal and eight (8) copies) by July 16,2003. A period of 10 minutes will be al-lotted to each person for making com-ments. An agenda showing the scheduling

of the speakers will be prepared after thedeadline for receiving outlines has passed.Copies of the agenda will be available freeof charge at the hearing.


The principal author of these regula-tions is Jeffrey B. Fienberg, Office of As-sociate Chief Counsel (Corporate). However,other personnel from the IRS and Trea-sury Department participated in their de-velopment.

* * * * *

Proposed Amendments to theRegulations

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

PART 1 — INCOME TAXES


Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.1502–20 is amended by

redesignating paragraph (i)(5) as (i)(6) andby adding paragraphs (i)(3)(viii) and (i)(5)to read as follows:

§1.1502–20 — Disposition or deconsoli-dation of subsidiary stock.

[The text of this proposed section is thesame as the text of §1.1502–20T(i)(3)(viii)and (i)(5) published elsewhere in this is-sue of the Bulletin].

Par. 3. Section 1.1502–32 is amended byadding paragraph (b)(4)(vii) to read asfollows:

§1.1502–32 — Investment adjustments.

[The text of this proposed section is thesame as the text of §1.1502–32T(b)(4)(vii)published elsewhere in this issue of the Bul-letin].

* * * * *




2003–22 I.R.B. 981 June 2, 2003

Definition of TermsRevenue 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, ifan 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.

Distinguished describes 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

applies to both A and B, the prior rulingis modified because it corrects a pub-lished position. (Compare with amplifiedand clarified, 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 aperiod 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 case,the 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 and thatlist is expanded by adding further namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings 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 currentuse and formerly used will appear inmaterial published in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.

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

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

June 2, 2003 i 2003–22 I.R.B.

Numerical Finding List1

Bulletins 2003–1 through 2003–21

Announcements:

2003–1, 2003–2 I.R.B. 2812003–2, 2003–3 I.R.B. 3012003–3, 2003–4 I.R.B. 3612003–4, 2003–5 I.R.B. 3962003–5, 2003–5 I.R.B. 3972003–6, 2003–6 I.R.B. 4502003–7, 2003–6 I.R.B. 4502003–8, 2003–6 I.R.B. 4512003–9, 2003–7 I.R.B. 4902003–10, 2003–7 I.R.B. 4902003–11, 2003–10 I.R.B. 5852003–12, 2003–10 I.R.B. 5852003–13, 2003–11 I.R.B. 6032003–14, 2003–11 I.R.B. 6032003–15, 2003–11 I.R.B. 6052003–16, 2003–12 I.R.B. 6412003–17, 2003–15 I.R.B. 7222003–18, 2003–13 I.R.B. 6752003–19, 2003–15 I.R.B. 7232003–20, 2003–15 I.R.B. 7502003–21, 2003–17 I.R.B. 8462003–22, 2003–17 I.R.B. 8462003–23, 2003–16 I.R.B. 8082003–24, 2003–16 I.R.B. 8102003–25, 2003–17 I.R.B. 8462003–26, 2003–18 I.R.B. 8622003–27, 2003–18 I.R.B. 8622003–28, 2003–19 I.R.B. 8992003–29, 2003–20 I.R.B. 9282003–30, 2003–20 I.R.B. 9292003–31, 2003–20 I.R.B. 9302003–32, 2003–20 I.R.B. 9332003–33, 2003–21 I.R.B. 9532003–34, 2003–21 I.R.B. 9532003–35, 2003–21 I.R.B. 956

Court Decisions:

2077, 2003–19 I.R.B. 868

Notices:

2003–1, 2003–2 I.R.B. 2572003–2, 2003–2 I.R.B. 2572003–3, 2003–2 I.R.B. 2582003–4, 2003–3 I.R.B. 2942003–5, 2003–3 I.R.B. 2942003–6, 2003–3 I.R.B. 2982003–7, 2003–4 I.R.B. 3102003–8, 2003–4 I.R.B. 3102003–9, 2003–5 I.R.B. 3692003–10, 2003–5 I.R.B. 3692003–11, 2003–6 I.R.B. 4222003–12, 2003–6 I.R.B. 4222003–13, 2003–8 I.R.B. 5132003–14, 2003–8 I.R.B. 5152003–15, 2003–9 I.R.B. 5402003–16, 2003–10 I.R.B. 5752003–17, 2003–12 I.R.B. 6332003–18, 2003–14 I.R.B. 6992003–19, 2003–14 I.R.B. 703

Notices—Continued:

2003–20, 2003–19 I.R.B. 8942003–21, 2003–17 I.R.B. 8172003–22, 2003–18 I.R.B. 8512003–23, 2003–17 I.R.B. 8212003–24, 2003–18 I.R.B. 8532003–25, 2003–18 I.R.B. 8552003–26, 2003–18 I.R.B. 8552003–27, 2003–19 I.R.B. 8982003–29, 2003–20 I.R.B. 9172003–31, 2003–21 I.R.B. 9482003–32, 2003–21 I.R.B. 949

Proposed Regulations:

REG–209500–86, 2003–2 I.R.B. 262REG–104385–01, 2003–12 I.R.B. 634REG–116641–01, 2003–8 I.R.B. 518REG–125638–01, 2003–5 I.R.B. 373REG–126016–01, 2003–7 I.R.B. 486REG–126485–01, 2003–9 I.R.B. 542REG–103580–02, 2003–9 I.R.B. 543REG–124069–02, 2003–7 I.R.B. 488REG–131478–02, 2003–13 I.R.B. 669REG–138882–02, 2003–8 I.R.B. 522REG–139768–02, 2003–10 I.R.B. 583REG–141097–02, 2003–16 I.R.B. 807REG–141659–02, 2003–20 I.R.B. 927REG–151043–02, 2003–3 I.R.B. 300REG–164464–02, 2003–2 I.R.B. 262

Revenue Procedures:

2003–1, 2003–1 I.R.B. 12003–2, 2003–1 I.R.B. 762003–3, 2003–1 I.R.B. 1132003–4, 2003–1 I.R.B. 1232003–5, 2003–1 I.R.B. 1632003–6, 2003–1 I.R.B. 1912003–7, 2003–1 I.R.B. 2332003–8, 2003–1 I.R.B. 2362003–9, 2003–8 I.R.B. 5162003–10, 2003–2 I.R.B. 2592003–11, 2003–4 I.R.B. 3112003–12, 2003–4 I.R.B. 3162003–13, 2003–4 I.R.B. 3172003–14, 2003–4 I.R.B. 3192003–15, 2003–4 I.R.B. 3212003–16, 2003–4 I.R.B. 3592003–17, 2003–6 I.R.B. 4272003–18, 2003–6 I.R.B. 4392003–19, 2003–5 I.R.B. 3712003–20, 2003–6 I.R.B. 4452003–21, 2003–6 I.R.B. 4482003–22, 2003–10 I.R.B. 5772003–23, 2003–11 I.R.B. 5992003–24, 2003–11 I.R.B. 5992003–25, 2003–11 I.R.B. 6012003–26, 2003–13 I.R.B. 6662003–27, 2003–13 I.R.B. 6672003–28, 2003–16 I.R.B. 7592003–29, 2003–20 I.R.B. 9172003–30, 2003–17 I.R.B. 8222003–31, 2003–17 I.R.B. 8382003–32, 2003–16 I.R.B. 8032003–33, 2003–16 I.R.B. 803

Revenue Procedures—Continued:

2003–34, 2003–18 I.R.B. 8562003–35, 2003–20 I.R.B. 9192003–36, 2003–18 I.R.B. 8592003–37, 2003–21 I.R.B. 950

Revenue Rulings:

2003–1, 2003–3 I.R.B. 2912003–2, 2003–2 I.R.B. 2512003–3, 2003–2 I.R.B. 2522003–4, 2003–2 I.R.B. 2532003–5, 2003–2 I.R.B. 2542003–6, 2003–3 I.R.B. 2862003–7, 2003–5 I.R.B. 3632003–8, 2003–3 I.R.B. 2902003–9, 2003–4 I.R.B. 3032003–10, 2003–3 I.R.B. 2882003–11, 2003–3 I.R.B. 2852003–12, 2003–3 I.R.B. 2832003–13, 2003–4 I.R.B. 3052003–14, 2003–4 I.R.B. 3022003–15, 2003–4 I.R.B. 3022003–16, 2003–6 I.R.B. 4012003–17, 2003–6 I.R.B. 4002003–18, 2003–7 I.R.B. 4672003–19, 2003–7 I.R.B. 4682003–20, 2003–7 I.R.B. 4652003–21, 2003–8 I.R.B. 5092003–22, 2003–8 I.R.B. 4942003–23, 2003–8 I.R.B. 5112003–24, 2003–10 I.R.B. 5572003–25, 2003–13 I.R.B. 6422003–26, 2003–10 I.R.B. 5632003–27, 2003–11 I.R.B. 5972003–28, 2003–11 I.R.B. 5942003–29, 2003–11 I.R.B. 5872003–30, 2003–13 I.R.B. 6592003–31, 2003–13 I.R.B. 6432003–32, 2003–14 I.R.B. 6892003–33, 2003–13 I.R.B. 6422003–34, 2003–17 I.R.B. 8132003–35, 2003–14 I.R.B. 6872003–36, 2003–18 I.R.B. 8492003–37, 2003–15 I.R.B. 7172003–38, 2003–17 I.R.B. 8112003–39, 2003–17 I.R.B. 8112003–40, 2003–17 I.R.B. 8132003–41, 2003–17 I.R.B. 8142003–42, 2003–16 I.R.B. 7542003–43, 2003–21 I.R.B. 9352003–44, 2003–18 I.R.B. 8482003–45, 2003–19 I.R.B. 8762003–46, 2003–19 I.R.B. 8782003–47, 2003–19 I.R.B. 8662003–48, 2003–19 I.R.B. 8632003–49, 2003–20 I.R.B. 9032003–50, 2003–21 I.R.B. 9442003–51, 2003–21 I.R.B. 938

Tax Conventions:

Ann. 2003–21, 2003–17 I.R.B. 846

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 2002–26 through 2002–52 is

in Internal Revenue Bulletin 2003–1, dated January 6, 2003.

2003–22 I.R.B. ii June 2, 2003

Treasury Decisions:

9024, 2003–5 I.R.B. 3659025, 2003–5 I.R.B. 3629026, 2003–5 I.R.B. 3669027, 2003–6 I.R.B. 4139028, 2003–6 I.R.B. 4159029, 2003–6 I.R.B. 4039030, 2003–8 I.R.B. 4959031, 2003–8 I.R.B. 5049032, 2003–7 I.R.B. 4719033, 2003–7 I.R.B. 4839034, 2003–7 I.R.B. 4539035, 2003–9 I.R.B. 5289036, 2003–9 I.R.B. 5339037, 2003–9 I.R.B. 5359038, 2003–9 I.R.B. 5249039, 2003–10 I.R.B. 5619040, 2003–10 I.R.B. 5689041, 2003–8 I.R.B. 5109042, 2003–10 I.R.B. 5649043, 2003–12 I.R.B. 6119044, 2003–14 I.R.B. 6909045, 2003–12 I.R.B. 6109046, 2003–12 I.R.B. 6149047, 2003–14 I.R.B. 6769048, 2003–13 I.R.B. 6449049, 2003–14 I.R.B. 6859050, 2003–14 I.R.B. 6939051, 2003–16 I.R.B. 7559052, 2003–19 I.R.B. 8799053, 2003–20 I.R.B. 9149054, 2003–20 I.R.B. 9099055, 2003–21 I.R.B. 9459056, 2003–21 I.R.B 940

June 2, 2003 iii 2003–22 I.R.B.

Finding List of Current Actionson Previously Published Items2

Bulletins 2003–1 through 2003–21

Notices:

97–19Modified byRev. Proc. 2003–1, 2003–1 I.R.B. 1

2000–38Modified byNotice 2003–20, 2003–19 I.R.B. 894

2001–26Obsoleted byT.D. 9032, 2003–7 I.R.B. 471


2001–69Modified and superseded byNotice 2003–1, 2003–2 I.R.B. 257

2002–20Superseded byRev. Proc. 2003–36, 2003–18 I.R.B. 859

2002–27Clarified byNotice 2003–3, 2003–2 I.R.B. 258

2002–40Modified byAnn. 2003–18, 2003–13 I.R.B. 675


Proposed Regulations:

REG–209500–86Corrected byAnn. 2003–6, 2003–6 I.R.B. 450


REG–126485–01Withdrawn byREG–126485–01, 2003–9 I.R.B. 542Corrected byAnn. 2003–25, 2003–17 I.R.B. 846




Revenue Procedures:

83–23Supplemented byRev. Proc. 2003–21, 2003–6 I.R.B. 448


93–38Obsoleted byRev. Proc. 2003–15, 2003–4 I.R.B. 321


98–13Obsoleted byT.D. 9032, 2003–7 I.R.B. 471









2002–9Modified and amplified byRev. Proc. 2003–20, 2003–6 I.R.B. 445Rev. Rul. 2003–3, 2003–2 I.R.B. 252

2002–20Supplemented byRev. Proc. 2003–26, 2003–13 I.R.B. 666




Revenue Procedures—Continued:






2002–67Supplemented byAnn. 2003–3, 2003–4 I.R.B. 361


2003–3Amplified byRev. Proc. 2003–14, 2003–4 I.R.B. 319

2003–7Corrected byAnn. 2003–4, 2003–5 I.R.B 396

Revenue Rulings:

53–131Modified byRev. Rul. 2003–12, 2003–3 I.R.B. 283

57–190Obsoleted byRev. Rul. 2003–18, 2003–7 I.R.B. 467

65–190Revoked byRev. Rul. 2003–3, 2003–2 I.R.B. 252

66–118Distinguished byRev. Rul. 2003–41, 2003–17 I.R.B. 814





2 A cumulative list of current actions on previously

published items in Internal Revenue Bulletins

2002–26 through 2002–52 is in Internal Revenue

Bulletin 2003–1, dated January 6, 2003.

2003–22 I.R.B. iv June 2, 2003

Revenue Rulings—Continued:


86–88Supplemented byRev. Rul. 2003–46, 2003–19 I.R.B. 878

88–36Supplemented byRev. Rul. 2003–46, 2003–19 I.R.B. 878

92–19Supplemented in part byRev. Rul. 2003–24, 2003–10 I.R.B. 557

2000–49Modified and superseded byRev. Rul. 2003–49, 2003–20 I.R.B. 903



Treasury Decisions:

9002Corrected byAnn. 2003–8, 2003–6 I.R.B. 451


9022Supplemented byAnn. 2003–7, 2003–6 I.R.B. 450Corrected byAnn. 2003–11, 2003–10 I.R.B. 585


June 2, 2003 v 2003–22 I.R.B.

INDEXInternal Revenue Bulletins2003–1 through 2003–21The abbreviation and number in paren-thesis following the index entry refer tothe specific item; numbers in roman anditalic type following the parenthesis referto the Internal Revenue Bulletin in whichthe item may be found and the page num-ber on which it appears.

Key to Abbreviations:Ann AnnouncementCD Court DecisionDO Delegation OrderEO Executive OrderPL Public LawPTE Prohibited Transaction

ExemptionRP Revenue ProcedureRR Revenue RulingSPR Statement of Procedural

RulesTC Tax ConventionTD Treasury DecisionTDO Treasury Department Order

EMPLOYEE PLANSAddress for filing certain elections, state-

ments, returns and other documents(Notice 19) 14, 703

Advance letter rulings and determinationletters, areas which will not be issuedfrom:Associate Chief Counsel (Interna-

tional) (RP 7) 1, 233; correction(Ann 4) 5, 396

Associates Chief Counsel and DivisionCounsel/Associate Chief Counsel(TE/GE) (RP 3) 1, 113

Collective-bargained welfare plans, listedtransactions (Notice 24) 18, 853

Contacts with third parties for determina-tion or collection of taxes (TD 9028)6, 415

Deferred compensation plan, withholdingand reporting requirements of eligibleplans (Notice 20) 19, 894

Defined benefit plans, required minimumdistributions (Notice 2) 2, 257

Determination letters:Form 5310 revised (Ann 13) 11, 603Future of the determination letter pro-

gram (Ann 32) 20, 933

EMPLOYEE PLANS—Cont.

Issuing procedures (RP 6) 1, 191Employee stock ownership plans, delayed

effective date, abuse (RR 6) 3, 286Form 5310, Application for Determina-

tion for Terminating Plan, revised (Ann13) 11, 603

Full funding limitations, weighted aver-age interest rate for:January 2003 (Notice 7) 4, 310February 2003 (Notice 14) 8, 515March 2003 (Notice 17) 12, 633April 2003 (Notice 23) 17, 821May 2003 (Notice 32) 21, 949

Guidance Priority List, recommendationsfor 2003–2004 (Notice 26) 18, 855

Individual retirement arrangements:Deemed IRAs (RP 13) 4, 317Required minimum distributions

(Notice 3) 2, 258Returned or recharacterized contribu-

tions, net income calculation for(TD 9056) 21, 940

Length-of-service award program (RR47) 19, 866

Letter rulings:Determination letters and information

letters issued by Associates ChiefCounsel and Division Counsel/Associate Chief Counsel (TE/GE)(RP 1) 1, 1

Information letters, etc. (RP 4) 1, 123Limitation on annual compensation, non-

discrimination (RR 11) 3, 285Nondiscrimination:

Cash balance plans (Ann 22) 17, 846Governmental plans (Notice 6) 3, 298

Practice before the Internal Revenue Ser-vice (Ann 5) 5, 397

Proposed Regulations:26 CFR 1.401(a)(4)–3, –9, revised;

1.411(b)–2, revised; reductions ofaccruals and allocations because ofthe attainment of any age; applica-tion of nondiscrimination cross-testing rules to cash balance plans(REG–209500–86, REG–164464–02) 2, 262; correction (Ann 6)6, 450

Qualified retirement plans:Age discrimination (REG–209500–86,

REG–164464–02) 2, 262; correc-tion (Ann 6) 6, 450

Definition of early retirement benefitsand retirement-type subsidies, con-tingent benefits (Notice 10) 5, 369

EMPLOYEE PLANS—Cont.

Distributions, rollover, waiver of60-day requirement (RP 16) 4, 359

Loans to participants or beneficiariesunder section 72(p) (Ann 16) 12,641

Minimum distributions, delayedamendment date (RP 10) 2, 259

Rate of future benefit accrual, significantreduction (TD 9052) 19, 879

Regulations:26 CFR 1.72(p)–1; loans from a quali-

fied employer plan to plan partici-pants or beneficiaries (TD 9021);correction (Ann 16) 12, 641

26 CFR 1.408–4, amended; 1.408–11,added; 1.408A–5, revised; earningscalculation for returned or recharac-terized IRA contributions (TD 9056)21, 940

26 CFR 1.411(d)–6, removed;54.4980F–1, added; 602.101,amended; notice of significantreduction in the rate of future benefitaccrual (TD 9052) 19, 879

26 CFR 301.7602–2, added; thirdparty contacts (TD 9028) 6, 415

Technical advice:Proposed cash balance regulations,

age discrimination issues (Ann 1)2, 281

To directors and chiefs, appealsoffices, from Associates ChiefCounsel and Division Counsel/Associate Chief Counsel (TE/GE)(RP 2) 1, 76

To IRS employees (RP 5) 1, 163Time for performance of acts when last

day falls on Saturday, Sunday, or legalholiday (RR 41) 17, 814

User fees, request for letter rulings (RP 8)1, 236

EMPLOYMENT TAXAddress for filing certain elections, state-



Corporations, employee leasing (Notice22) 18, 851

2003–22 I.R.B. vi June 2, 2003

EMPLOYMENT TAX—Cont.Deferred compensation plan, withholding

and reporting requirements of eligibleplans (Notice 20) 19, 894

Disclosure of returns and return informa-tion by other agencies (TD 9036) 9,533

Federal Insurance Contributions Act(FICA), retirement system membership,continuing employment exception (RR46) 19, 878

Gaming Industry Tipping Agreement Pro-gram (RP 35) 20, 919


Length-of-service award program (RR47) 19, 866

Levy restrictions during installmentagreements (TD 9027) 6, 413


Publications:1223, General Rules and Specifica-

tions for Substitute Forms W–2c andW–3c, revised (RP 31) 17, 838

1441, General Rules and Specifica-tions for Substitute Forms W–2 andW–3, revised (RP 30) 17, 822

Regulations:26 CFR 31.6011–4, added; 31.6011–

4T, removed; tax shelter regulations(TD 9046) 12, 614

26 CFR 301.6103(p)(2)(B)–1, added;301.6103(p)(2)(B)–1T, removed;602.101, amended; disclosure ofreturns and return information byother agencies (TD 9036) 9, 533

26 CFR 301.6331–3, –4, added; levyrestrictions during installment agree-ments (TD 9027) 6, 413


Reporting of tip income by gaming indus-try employees, gaming industry tippingagreement (RP 35) 20, 919

Substitute forms:W–2 and W–3, general rules and

specifications (RP 30) 17, 822W–2c and W–3c, general rules and

specifications (RP 31) 17, 838Tax shelter regulations (TD 9046) 12,

614Time for performance of acts when last


ESTATE TAXAddress for filing certain elections, state-




Guidance Priority List, recommendationfor 2003–2004 (Notice 26) 18, 855


Life insurance, taxation for Louisianadecedents (RR 40) 17, 813


Regulations:26 CFR 20.6011–4, added; 20.6011–

4T, removed; tax shelter regulations(TD 9046) 12, 614




Tax shelter regulations (TD 9046) 12,614

Time for performance of acts when lastday falls on Saturday, Sunday, or legalholiday (RR 41) 17, 814

EXCISE TAXAddress for filing certain elections, state-


Communication services, distance sensi-tivity (REG–141097–02) 16, 807


Diesel fuel, blended taxable fuel (TD9051) 16, 755


Factoring discount of a structured settle-ment factoring transaction, new form topay excise tax (Ann 33) 21, 953

EXCISE TAX—Cont.Forms:

8876, Excise Tax on Structured Settle-ment Factoring Transactions (Ann33) 21, 953


Highway vehicle, definition; correction(Ann 12) 10, 585

Insurance premium excise tax, liabilityfor (TD 9024) 5, 365



Proposed Regulations:26 CFR 41.4482(a)–1; 48.4041–8;

48.4051–1; 48.4072–1; 48.4081–1;48.6421–4; 145.4051–1; definitionof highway vehicle (REG–103829–99); correction (Ann 12) 10, 585

26 CFR 49.4252–0, added; communi-cations services, distance sensitivity(REG–141097–02) 16, 807

26 CFR Part 157, added; excise tax onstructured settlement factoring trans-actions (REG–139768–02) 10, 583

Regulations:26 CFR 40.6302(c)–3, amended;

48.4041–21, amended; 48.4081–1,–3, amended; 48.6427–8(d) ,amended; 49.4291–1, amended; die-sel fuel, blended taxable fuel (TD9051) 16, 755

26 CFR 46.4374–1, revised; liabilityfor insurance premium excise tax(TD 9024) 5, 365

26 CFR 53.6011–4, added; 53.6011–4T, removed; 54.6011–4, added;54.6011–4T, removed; 56.6011–4,added; 56.6011–4T, removed; taxshelter regulations (TD 9046) 12,614




26 CFR Part 157, added; 602.101,amended; excise tax on structuredsettlement factoring transactions(TD 9042) 10, 564

June 2, 2003 vii 2003–22 I.R.B.

EXCISE TAX—Cont.Scholarship grants by employer-related

private foundations, victim of qualifieddisaster (RR 32) 14, 689

Structured settlement factoring transac-tions (TD 9042) 10, 564; (REG–139768–02) 10, 583



EXEMPTORGANIZATIONSAddress for filing certain elections, state-


Advance letter rulings and determinationletters, areas which will not be issuedfrom Associates Chief Counsel andDivision Counsel/Associate ChiefCounsel (TE/GE) (RP 3) 1, 113


Declaratory judgment under section7428(c) (Ann 27) 18, 862

Disclosure, political organizations (RR49) 20, 903

Dissolution clause requirements for sec-tion 501(c)(3) entities seeking a section115(1) letter ruling (RP 12) 4, 316

Form 990, Return of OrganizationExempt From Income Tax, U.S. posses-sions, relief from filing (RP 21) 6, 448


Insurance, commercial-type insuranceactivities of certain exempt organiza-tions (Notice 31) 21, 948

International grant-making and activitiesof 501(c)(3) organizations (Ann 29) 20,928

Letter rulings:Determination letters and information

letters issued by Associates ChiefCounsel and Division Counsel/Associate Chief Counsel (TE/GE)(RP 1) 1, 1

Information letters, etc. (RP 4) 1, 123List of organizations classified as private

foundations (Ann 10) 7, 490; (Ann 14)11, 603; (Ann 20) 15, 750; (Ann 28)19, 899; (Ann 31) 20, 930; (Ann 34)21, 953

EXEMPTORGANIZATIONS—Cont.Political organizations, disclosure and

reporting requirements (RR 49) 20,903


Private foundations, termination, transferof assets (RR 13) 4, 305

Regulations:26 CFR 301.7602–2, added; third

party contacts (TD 9028) 6, 415Reporting requirements, political organi-

zations (RR 49) 20, 903Restoration of organization, withdrawal

of Announcement 99–45 (Ann 30) 20,929

Revocations, exempt organizations (Ann26) 18, 862

Scholarship grants by employer-relatedprivate foundations, victim of qualifieddisaster (RR 32) 14, 689


Technical advice to:Directors and chiefs, appeals offices,

from Associates Chief Counsel andDivision Counsel/Associate ChiefCounsel (TE/GE) (RP 2) 1, 76

IRS employees (RP 5) 1, 163Time for performance of acts when last


U.S. possessions, relief from filing Form990 (RP 21) 6, 448

User fees, request for letter rulings (RP 8)1, 236

GIFT TAXAddress for filing certain elections, state-


Contacts with third parties for determina-tion or collection of taxes (TD 9028) 6,415




GIFT TAX—Cont.Regulations:

26 CFR 25.6011–4, added; 25.6011–4T, removed; tax shelter regulations(TD 9046) 12, 614





INCOME TAXAccident and health plans, amounts

received under (RR 43) 21, 935Accounting:

Application of normalization account-ing rules to balances of excessdeferred income taxes and accumu-lated deferred investment tax credits(REG–104385–01) 12, 634

Changes in accounting periods (RP 34)18, 856

Research and development expenses(CD 2077) 19, 868

Accrual of income (RR 10) 3, 288Accuracy-related penalty, defenses avail-

able to the imposition (REG–126016–01) 7, 486

Address for filing certain elections, state-ments, returns and other documents(Notice 19) 14, 703

Advance letter rulings and determinationletters, areas which will not be issuedfrom:Associate Chief Counsel (Interna-

tional) (RP 7) 1, 233; correction(Ann 4) 5, 396

Associates Chief Counsel and DivisionCounsel/Associate Chief Counsel(TE/GE) (RP 3) 1, 113

Advance Pricing Agreement (APA) pro-gram for 2002 (Ann 19) 15, 723

Backup withholding, taxpayer identifica-tion numbers (TIN) (TD 9055) 21, 945

Basis of redeemed stock when a distribu-tion in redemption of stock is treated asa dividend (Ann 9) 7, 490

Capital expenditures, rotable spare parts,depreciable assets (RR 37) 15, 717

2003–22 I.R.B. viii June 2, 2003

INCOME TAX—Cont.Capitalization of amounts paid to acquire,

create, or enhance intangible assets(REG–125638–01) 5, 373

Census Bureau, disclosure of tax informa-tion (TD 9037) 9, 535

Charitable contributions; patents (RR 28)11, 594

Combat zone personnel, tax relief (Notice21) 17, 817

Consolidated income tax return, commonparent as agent for consolidated group,substitute agent, tentative carrybackadjustments (Ann 8) 6, 451

Constructive sales:Short sales, transition rule (RR 31) 13,

643Treatment for appreciated financial

positions (RR 1) 3, 291Contacts with third parties for determina-

tion or collection of taxes (TD 9028)6, 415

Contingent liability transaction cases, listof arbitrators (Ann 3) 4, 361

Corporations:Acquisitions:

Auto dealer expansion (RR 18) 7,467

Employee leasing (Notice 22) 18,851

Retail shoe store expansion (RR 38)17, 811

Transfer to controlled corporation,successive transfers of propertyand stock (RR 51) 21, 938

Foreign tax credit limitation, dividendsfrom a noncontrolled section 902corporation (Notice 5) 3, 294

S corporation, employee stock owner-ship plan (ESOP):Basis (RR 27) 11, 597IRA rollovers and S corporation

election (RP 23) 11, 599Statutory mergers and consolidations

(TD 9038) 9, 524; (REG–126485–01) 9, 542; correction (Ann 25) 17,846

Transactions involving deemed sale ofcorporate assets under section 338,new Form 8883 (Ann 2) 3, 301

Cost-share payments, Agricultural Man-agement Assistance Program (AMA)(RR 15) 4, 302

Costa Rican withholding taxes, noncredit-ability (RR 8) 3, 290

INCOME TAX—Cont.Credits:

Adoption credit (Notice 15) 9, 540Earned income credit, update (TD

9045) 12, 610Education tax credit (TD 9034) 7,

453Foreign taxpayers, disallowance of

deductions and credits for failure tofile timely return (TD 9043) 12,611

Low-income housing credit:2003 population figures used for

calculation (Notice 16) 10, 575Satisfactory bond, “bond factor”

amounts for the period:January through March 2003 (RR

2) 2, 251; correction (RR 22)8, 494

April through June 2003 (RR 44)18, 848

New markets tax credit (RR 20) 7,465; extension of deadline (Notice9) 5, 369

Nonconventional source fuel credit,inflation adjustment factor, referenceprice for CY 2002 (Notice 27) 19,898

Renewable electricity productioncredit, 2003 inflation adjustment(Notice 29) 20, 917

Damages for willful violations of the sec-tion 363 automatic stay or the section524 discharge provisions of the Bank-ruptcy Code (TD 9050) 14, 693

Declaratory judgment under section7428(c) (Ann 27) 18, 862

Deferred compensation plan, withholdingand reporting requirements of eligibleplans (Notice 20) 19, 894

Demutualization:Corporate reorganization and mergers:

Insurance companies (RR 19) 7,468

Savings banks (RR 48) 19, 863Disaster relief:

For taxpayers affected by the Septem-ber 11, 2001, terrorist attack, exten-sion for estates (Ann 18) 13, 675

Payments, businesses (Notice 18) 14,699

Disciplinary actions involving attorneys,certified public accountants, enrolledagents, and enrolled actuaries (Ann 15)11, 605

INCOME TAX—Cont.Disclosure of returns and return informa-

tion:By other agencies (TD 9036) 9, 533To designee of the taxpayer (TD 9054)

20, 909Election to treat trust as part of an estate

(TD 9032) 7, 471Electronic filing, furnishing and retaining

of returns filed by tax preparer (TD9053) 20, 914; (REG–141659–02) 20,927

Electronic tax administration, guidance tofacilitate (TD 9040) 10, 568

Estimated tax, application of the additionto the tax for underpayment (RR 23) 8,511

Exclusion of gain from the sale orexchange of a principal residence (TD9030) 8, 495

Executor, relief from joint and severalliability (RR 36) 18, 849

Family day care, deduction of businessexpenses, standard meal rates (RP 22)10, 577

Foreign personal holding companyincome, commodities hedging andinterest-bearing liabilities (TD 9039)10, 561

Foreign trusts, retirement savings plans(Notice 25) 18, 855

Forms:1096, 1098, 1099, 5498, W–2G, and

1042S, substitute form specifica-tions (RP 28) 16, 759

8023, extension to file election undersection 338 for certain acquisitions(RP 33) 16, 803

8883, Asset Allocation StatementUnder Section 338, new (Ann 2) 3,301

Fuel costs, overrecovered (RR 39) 17,811


Industry Issue Resolution (IIR) program(RP 36) 18, 859

Information reporting:On Form 1099–B for securities futures

contracts (Notice 8) 4, 310Payment card transactions, information

reporting and backup withholding(REG–116641–01) 8, 518

Penalties, incorrect taxpayer identifica-tion number (TIN), backup with-holding (TD 9055) 21, 945

June 2, 2003 ix 2003–22 I.R.B.

INCOME TAX—Cont.Requirements for qualified tuition and

related expenses under section6059S, filing information returns onmagnetic media (TD 9029) 6, 403

Taxable stock transactions, corporatereorganizations, brokers (Ann 11)10, 585

Transition rules for acquisitions ofcontrol and substantial changes incapital structure (Ann 7) 6, 450

Innocent spouse relief, nonrequestingspouse administrative appeal rights (RP19) 5, 371

Insurance companies:Corporate reorganization and mergers,

demutualization (RR 19) 7, 468Determination of effectively connected

income of foreign insurance compa-nies (RR 17) 6, 400

Interest rate tables (RR 24) 10, 557Loss payment patterns and discount

factors for the 2002 accident year(RP 17) 6, 427

Recomputed differential earnings ratefor 2000 and the differential earn-ings rate for 2001 for mutual lifeinsurance companies (RR 4) 2, 253

Salvage discount factors for the 2002accident year (RP 18) 6, 439

Interest:Fair market value method of appor-

tionment of interest expense, docu-mentation and information for using(RP 37) 21, 950

Investment:Federal short-term, mid-term, and

long-term rates for:January 2003 (RR 5) 2, 254February 2003 (RR 16) 6, 401March 2003 (RR 26) 10, 563April 2003 (RR 35) 14, 687May 2003 (RR 45) 19, 876

Rates:Underpayments and overpayments,

quarter beginning:April 1, 2003 (RR 30) 13, 659

Inventory:LIFO, price indexes used by depart-

ment stores for:November 2002 (RR 9) 4, 303December 2002 (RR 21) 8, 509January 2003 (RR 33) 13, 642February 2003 (RR 42) 16, 754March 2003 (RR 50) 21, 944

INCOME TAX—Cont.Valuation of vehicle parts cores (RP

20) 6, 445Leave-based donation programs (Notice

1) 2, 257Length-of-service award program (RR

47) 19, 866Letter rulings, determination letters and

information letters issued by AssociatesChief Counsel and Division Counsel/Associate Chief Counsel (TE/GE) (RP1) 1, 1


LIFO recapture installment payments(Notice 4) 3, 294

Loss transactions, exceptions (RP 24) 11,599

Low-income taxpayer clinics, income taxreturn preparer (TD 9026) 5, 366

Methods of accounting, nonaccrual expe-rience (NAE) method (Notice 12) 6,422

Mortgage bonds and credit certificates,median income figures—2003 (RP 29)20, 917

Noncompensatory partnership options(REG–103580–02) 9, 543

Offshore Voluntary Compliance Initiative(RP 11) 4, 311

Partnerships:Basis adjustments upon the sale of a

corporate partner’s stock (TD 9049)14, 685

Regulated investment companies (RP32) 16, 803

Section 6038, returns required withrespect to controlled foreign partner-ships (TD 9033) 7, 483; (REG–124069–02) 7, 488


Presidentially declared disaster or combatzone:Combat zone personnel, tax relief

(Notice 21) 17, 817Gross income, disaster relief payments

(RR 12) 3, 283Major disaster and emergency areas

list (RR 29) 11, 587Private activity bonds, 2003 population

figures used for calculation (Notice 16)10, 575

INCOME TAX—Cont.Private foundations, organizations now

classified as (Ann 10) 7, 490; (Ann 14)11, 603; (Ann 20) 15, 750; (Ann 28)19, 899; (Ann 31) 20, 930; (Ann 34)21, 953

Proposed Regulations:26 CFR 1.46–6, amended; 1.168(i)–3

added; application of normalizationaccounting rules to balances ofexcess deferred income taxes andaccumulated deferred investment taxcredits of public utilities whose gen-eration assets cease to be public util-ity property (REG–104385–01) 12,634

26 CFR 1.61–8, revised; rents and roy-alties (REG–151043–02) 3, 300

26 CFR 1.121–3, amended; reducedmaximum exclusion of gain fromsale or exchange of principal resi-dence (REG–138882–02) 8, 522

26 CFR 1.167(a)–3, amended;1.263(a)–4, added; 1.446–5, added;guidance regarding deduction andcapitalization of expenditures(REG–125638–01) 5, 373

26 CFR 1.302–5, 1.304–3; redemp-tions taxable as dividends (REG–150313–01); correction (Ann 9) 7,490

26 CFR 1.368–2, revised; statutorymergers and consolidations (REG–126485–01) 9, 542; correction (Ann25) 17, 846

26 CFR 1.704–1, –3, amended;1.721–2, added; 1.761–3, added;1.1272–1, amended; 1.1273–2,amended; 1.1275–4, amended; non-compensatory partnership options(REG–103580–02) 9, 543

26 CFR 1.1502–21, –32, amended;1.1502–35, added; guidance undersection 1502, suspension of losseson certain stock dispositions (REG–131478–02) 13, 669; correction(Ann 24) 16, 810

26 CFR 1.6038–3, amended; returnsrequired with respect to controlledforeign partnerships (REG–124069–02) 7, 488

26 CFR 1.6043–4; 1.6045–3; informa-tion reporting relating to taxablestock transactions (REG–143321–02); correction (Ann 12) 10, 585

2003–22 I.R.B. x June 2, 2003

INCOME TAX—Cont.26 CFR 1.6107–2, added; 1.6695–1,

amended; tax return preparers, elec-tronic filing (REG–141659–02) 20,927

26 CFR 1.6662–3, amended;1.6664–0, –4, amended; establishingdefenses to the imposition of theaccuracy-related penalty (REG–126016–01) 7, 486

26 CFR 31.3406(g)–1, (j)–1, amended;301.6724–1, amended; informationreporting and backup withholdingfor payment card transactions(REG–116641–01) 8, 518

Publications:538, Accounting Periods and Methods,

revised (Ann 17) 15, 7221179, General Rules and Specifica-

tions for Substitute Forms 1096,1098, 1099, 5498, W–2G, and1042–S (RP 28) 16, 759

1223, General Rules and Specifica-tions for Substitute Forms W–2c andW–3c, revised (RP 31) 17, 838

1441, General Rules and Specifica-tions for Substitute Forms W–2 andW–3, revised (RP 30) 17, 822

Qualified census tracts, issuers of quali-fied mortgage bonds and mortgagecredit certificates (RP 15) 4, 321

Qualified Payment Card Agent (QPCA),proposed revenue procedure to requesta determination (Notice 13) 8, 513

Regulations:26 CFR 1.25A–0 through –5, added;

602.101, revised; education taxcredit (TD 9034) 7, 453

26 CFR 1.32–2, amended; earnedincome credit for taxable yearsbeginning after December 31, 1978(TD 9045) 12, 610

26 CFR 1.48–12, amended; 1.48–12T,removed; 1.152–3, amended; 1.152–3T, removed; 1.611–3, amended;1.611–3T, removed; 1.852–9,amended; 1.852–9T, removed;301.6011–1, added; 301.6011–1T,removed; 301.6903–1, amended;301.6903–1T, removed; 602.101,amended; guidance necessary tofacilitate electronic tax administra-tion (TD 9040) 10, 568

INCOME TAX—Cont.26 CFR 1.121–1 through –4, amended;

1.121–5, removed; 1.1398–3, added;exclusion of gain from sale orexchange of principal residence (TD9030) 8, 495

26 CFR 1.121–3T, added; reducedmaximum exclusion of gain fromsale or exchange of principal resi-dence (TD 9031) 8, 504

26 CFR 1.337(d)–5T, redesignated;newly designated 1.337(d)–5,amended; 1.337(d)–6, added;1.337(d)–6T, removed; 1.337(d)–7,added; 1.337(d)–7T, removed;1.514(c)–2, amended; 602.101,amended; certain transfers of prop-erty to regulated investment compa-nies (RICs) and real estate invest-ment trusts (REITs) (TD 9047) 14,676

26 CFR 1.368–2, revised; 1.368–2T,added; statutory mergers and con-solidations (TD 9038) 9, 524

26 CFR 1.446–1, amended; 1.1502–13, revised; intercompany transac-tions: conforming amendments tosection 446 (TD 9025) 5, 362

26 CFR 1.641(b)–3, amended;1.642(c)–1, –6A, revised; 1.645–1,added; 1.671–4, amended; 1.6012–3,amended; 1.6072–1, amended;301.6109–1, amended; 602.101,amended; election to treat trust aspart of an estate (TD 9032) 7, 471

26 CFR 1.705–1, –2, amended; deter-mination of basis of partner’s inter-est, special rules (TD 9049) 14, 685

26 CFR 1.874–1, revised; 1.874–1T,removed; 1.882–4, revised; 1.882–4T, removed; disallowance ofdeductions and credits for failure tofile timely return (TD 9043) 12,611

26 CFR 1.954–0, –2, amended; guid-ance regarding the definition of for-eign personal holding companyincome (TD 9039) 10, 561

26 CFR 1.1041–1T, amended;1.1041–2, added; 602.101, amended;constructive transfers and transfersof property to a third party on behalfof a spouse (TD 9035) 9, 528

INCOME TAX—Cont.26 CFR 1.1502–21, amended; 1.1502–

21T, revised; 1.1502–32, amended;1.1502–32T, revised; 1.1502–35T,added; 602.101, amended; guidanceunder section 1502; suspension oflosses on certain stock dispositions(TD 9048) 13, 644

26 CFR 1.1502–21T, –32T, –35T, cor-rected; suspension of losses on cer-tain stock dispositions (TD 9048)13, 644; correction (Ann 23) 16,808

26 CFR 1.1502–77T, 602.101; agentfor consolidated group (TD 9002);correction (Ann 8) 6, 451

26 CFR 1.6011–4. added; 1.6011–4T,removed; 301.6111–2, added;301.6111–2T, removed; 301.6112–1,added; 301.6112–1T, removed;602.101, amended; tax shelter regu-lations (TD 9046) 12, 614

26 CFR 1.6038–3, amended; 1.6038–3T, added; 602.101, amended;returns required with respect to con-trolled foreign partnerships (TD9033) 7, 483

26 CFR 1.6043–4T; informationreporting relating to taxable stocktransactions (TD 9022); correction(Ann 11) 10, 585

26 CFR 1.6050S–0, amended;1.6050S–1, added; 301.6011–2,amended; 602.101, amended; infor-mation reporting for qualified tuitionand related expenses; magneticmedia filing requirements for infor-mation returns (TD 9029) 6, 403

26 CFR 1.6107–2T, added; 1.6695–1,amended; 1.6695–1T, added; taxreturn preparers, electronic filing(TD 9053) 20, 914

26 CFR 31.3406(d)–5, amended;301.6724–1, amended, receipt ofmultiple notices with respect toincorrect taxpayer identificationnumbers (TD 9055) 21, 945

26 CFR 31.3406(j)–1, amended;31.3406(j)–1T, added; TaxpayerIdentification Number (TIN) Match-ing Program (TD 9041) 8, 510

26 CFR 301.6103(c)–1, added;301.6103(c)–1T, removed; 602.101,revised; disclosure of returns andreturn information to designee oftaxpayer (TD 9054) 20, 909

June 2, 2003 xi 2003–22 I.R.B.

INCOME TAX—Cont.26 CFR 301.6103(j)(1)–1, revised;

301.6103(j)(1)–1T, removed; disclo-sure of return information to theBureau of the Census (TD 9037) 9,535

26 CFR 301.6103(n)–1, revised;602.101, amended; amendment toincorporate Taxpayer Browsing Pro-tection Act (TD 9044) 14, 690



26 CFR 301.7426–2, added;301.7430–1, –2, –3, –6, amended;301.7430–8, added; 301.7433–1,amended; 301.7433–2, added; civilcause of action for damages causedby unlawful tax collection actions,including actions taken in violationof section 362 or 524 of the Bank-ruptcy Code (TD 9050) 14, 693


26 CFR 301.7701–15, amended; low-income taxpayer clinics-definition ofincome tax return preparer (TD9026) 5, 366

Rents and royalties, inclusion of advancerentals in gross income (REG–151043–02) 3, 300

Reportable transactions, book-tax differ-ences, exceptions (RP 25) 11, 601

Restoration of organization, withdrawalof Announcement 99–45 (Ann 30) 20,929

Revocations, exempt organizations (Ann26) 18 862

Safe harbor for valuation of certain secu-rities and commodities subject to fairmarket valuation at year end under sec-tion 475 (Ann 35) 21, 956

Sale or exchange of a principal residence,reduced maximum exclusion of gain(TD 9031) 8, 504; REG–138882–02,8, 522

INCOME TAX—Cont.Scholarship grants by employer-related

private foundations, victim of qualifieddisaster (RR 32) 14, 689

Section 911(d)(4) waiver, 2002 update(RP 26) 13, 666

Soil and Water Conservation AssistanceProgram (SWCA) (RR 14) 4, 302

Special estimated tax payments, guidancefor discontinuing the deduction (RR34) 17, 813

Standard Industry Fare Level (SIFL) for-mula (RR 25) 13, 642

State tax refunds, accrual of income (RR3) 2, 252

Stocks:Determination and recognition of gain

or loss (RR 7) 5, 363Guidance under section 1502, suspen-

sion of losses on certain stock dispo-sitions (TD 9048) 13, 644; correc-tion (Ann 23) 16, 808; (REG–131478–02) 13, 669; correction(Ann 24) 16, 810

Redemptions by a spouse or formerspouse during marriage or incidentto divorce (TD 9035) 9, 528

Substitute forms:W–2 and W–3, general rules and

specifications (RP 30) 17, 822W–2c and W–3c, general rules and

specifications (RP 31) 17, 8381096, 1098, 1099, 5498, W–2G, and

1042S, rules and specifications (RP28) 16, 759

Tax conventions, Netherlands, treaty, pen-sions (Ann 21) 17, 846

Tax shelter registrations, effective date(Notice 11) 6, 422


Taxable stock transactions, corporatereorganizations, brokers; correction(Ann 12) 10, 585

Taxicabs, information reporting for smallcash transactions (RP 27) 13, 667

Taxpayer Browsing Protection Act, incor-porated in amendment of 26 CFR301.6103(n)(1) (TD 9044) 14, 690

INCOME TAX—Cont.Taxpayer Indentification Number (TIN)

Matching Program:Expanded to online matching for all

payors and authorized agents (RP 9)8, 516

Expansion (TD 9041) 8, 510Technical advice to:

Directors and chiefs, appeals offices,from Associates Chief Counsel andDivison Counsel/Associate ChiefCounsel (TE/GE) (RP 2) 1, 76

IRS employees (RP 5) 1, 163Time for performance of acts when last


Timing rules of intercompany transaction(TD 9025) 5, 362

Transfers of property, regulated invest-ment companies (RICs) and real estateinvestment trusts (REITs) (TD 9047)14, 676

Trusts for minors, Indian Gaming Regula-tory Act (IGRA) (RP 14) 4, 319

SELF-EMPLOYMENTTAXAddress for filing certain elections, state-


Contacts with third parties for determina-tion or collection of taxes (TD 9028) 6,415




Regulations:26 CFR 301.6331–3, –4, added; levy

restrictions during installment agree-ments (TD 9027) 6, 413



2003–22 I.R.B. xii *U.S. Government Printing Office: 2003—496–919/60085 June 2, 2003

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