Internal Revenue Bulletin 1998-10 (PDF rendition): IRS Announcements

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

INCOME TAX
Rev. Rul. 98–10, page 11.
Reorganizations; exchange of securities.An acquisition
of stock for solely voting stock, accompanied under the re-
organization plan by an exchange of securities for securities
that are of equal fair market value and equal principal
amount, qualifies as a corporate reorganization under sec-
tion 368(a)(1)(B) of the Code. Section 354(a)(1) nonrecogni-
tion applies to the securities-for-securities exchange.
Rev. Rul. 98–11, page 13.
Federal rates; adjusted federal rates; adjusted federal
long-term rate, and the long-term exempt rate.For
purposes of sections 1274, 1288, 382, and other sections
of the Code, tables set forth the rates for March 1998.
Rev. Rul. 98–12, page 5.
Election in respect of losses attributable to a disaster.
This ruling lists the areas declared by the President to qualify
as major disaster areas under the Disaster Relief and Emer-
gency Assistance Act since the publication of Rev. Rul.
97–11.
T.D. 8751, page 23.
REG–104062–97, page 34.
Temporary and proposed regulations under section 1502 of
the Code relate to the use of tax credits of a consolidated
group and its members. A public hearing on the proposed
regulations will be held on May 7, 1998.
T.D. 8754, page 15.
Final regulations under section 1275 of the Code relate to
the federal income tax treatment of certain annuity con-
tracts.
T.D. 8755, page 21.
REG–119449–97, page 35.
Temporary and proposed regulations under section 1397E
of the Code relate to the federal income tax treatment of
qualified zone academy bonds. A public hearing on the pro-
posed regulations will be held on May 27, 1998.
EXEMPT ORGANIZATIONS
Announcement 98–19, page 44.
A list is provided of organizations that no longer qualify as
organizations to which contributions are deductible under
section 170 of the Code.
ADMINISTRATIVE
Rev. Proc. 98–23, page 30.
Conversion of a Qualified Subchapter S Trust (QSST)
to an Electing Small Business Trust (ESBT) and of an
ESBT to a QSST. This procedure provides automatic con-
sent of the Commissioner for the conversion of a Qualified
Subchapter S Trust (QSST) to an Electing Small Business
Trust (ESBT) and of an ESBT to a QSST.
Rev. Proc. 98–24, page 31.
Automobile owners and lessees.This procedure provides
owners and lessees of passenger automobiles designed to
be propelled primarily by electricity and built by an original
equipment manufacturer (electric automobiles) with tables
detailing the limitations on depreciation deductions for own-
ers of electric automobiles first placed in service after Au-
gust 5, 1997, and before January 1, 1998, and the amounts
to be included in income by lessees of electric automobiles
first leased after August 5, 1997, and before January 1,
1998.
Announcement 98–15, page 36.
The Service is requesting comments from the public on pro-
posed new Forms W–8, Certificate of Foreign Status of Ben-
eficial Owner for United States Tax Withholding; W–8A, For-
Internal Revenue
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Bulletin No. 1998–10
March 9, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 49.
Announcement of Disbarments and Suspensions begins on page 46.
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 44.
(Continued on page 4)

Mission of the Service
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, effi-
ciency, and fairness.
2
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to adminis-
ter the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provi-
sions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protect-
ing the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesi-
tate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, howev-
er, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

eign Person’s Claim of Income Effectively Connected With
the Conduct of a Trade or Business in the United States;
W–8B, Certification for United States Tax Withholding for
Foreign Governments and Other Foreign Organizations; and
W–8C, Certificate of Intermediary for United States Tax With-
holding.
Announcement 98–18, page 44.
Treasury and the Service are soliciting comments regarding
the tax effects of changing to the EURO.
March 9, 199841998–10 I.R.B.
HIGHLIGHTS
OF THIS ISSUE—Continued
ADMINISTRATIVE—Continued

Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 165.—Losses
26 CFR 1.165–11: Election in respect of losses
attributable to a disaster.
Election in respect of losses attribut-
able to a disaster. This ruling lists the
areas declared by the President to qualify
as major disaster areas under the Disaster
Relief and Emergency Assistance Act
since the publication of Rev. Rul. 97–11.
Rev. Rul. 98–12
Under § 165(i) of the Internal Revenue
Code, if a taxpayer suffers a loss attribut-
able to a disaster occurring in an area sub-
sequently determined by the President of
the United States to warrant assistance by
the Federal Government under the Disaster
Relief and Emergency Assistance Act, 42
U.S.C. §§ 5121–5204c (1988 & Supp. V
1993) (Act), the taxpayer may elect to
claim a deduction for that loss on the tax-
payer’s federal income tax return for the
taxable year immediately preceding the
taxable year in which the disaster occurred.
Section 1.165–11(e) of the Income Tax
Regulations provides that the election to
deduct a disaster loss for the preceding year
must be made by filing a return, an
amended return, or a claim for refund on or
before the later of (1) the due date of the
taxpayer’s income tax return (determined
without regard to any extension of time to
file the return) for the taxable year in which
the disaster actually occurred, or (2) the due
date of the taxpayer’s income tax return
(determined with regard to any extension of
time to file the return) for the taxable year
immediately preceding the taxable year in
which the disaster actually occurred.
The provisions of § 165(i) apply only
to losses that are otherwise deductible
under § 165(a). An individual taxpayer
may deduct losses if they are incurred in a
trade or business, if they are incurred in a
transaction entered into for profit, or if
they are casualty losses under § 165(c)(3).
The President has determined that dur-
ing 1997 the areas listed below have been
adversely affected by disasters of suffi-
cient severity and magnitude to warrant
assistance by the Federal Government
under the Act.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Jonathan Strum of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Strum on (202) 622-4960 (not a toll-free
call).
1998–10 I.R.B.5March 9, 1998
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Disaster Areas in 1997
Alabama
Counties of Baldwin, Choctaw, and
Mobile
Arkansas
Counties of Baxter, Clark, Clay, Con-
way, Craighead, Cross, Greene, Hemp-
stead, Hot Spring, Independence, Jack-
son, Jefferson, Lawrence, Lee, Lincoln,
Lonoke, Mississipi, Nevada, Newton,
Poinsett, Pope, Pulaski, Saline, White,
and Woodruff
Counties of Bradley, Clay, Cleburne,
Cleveland, Columbia, Craighead, Dal-
las, Drew, Faulkner, Grant, Greene,
Izard, Jackson, Jefferson, Lafayette,
Lincoln, Lonoke, Monroe, Mont-
gomery, Ouachita, Poinsett, Searcy,
Sharp, St. Francis, Stone, Union, Van
Buren, and White
California
Counties of Alameda, Alpine, Amador,
Butte, Calaveras, Colusa, Contra Costa,
Del Norte, El Dorado, Fresno, Glenn,
Humboldt, Kings, Lake, Lassen,
Madera, Marin, Mariposa, Mendocino,
Severe storms, flooding, and high winds
associated with Hurricane Danny
Severe storms and tornadoes
Severe storms and flooding
Severe storms, flooding, and mud and
land slides
July 17-22, 1997
March 1-4, 1997
April 4-21, 1997
December 28, 1996-April 1, 1997
Type of DisasterDate of Disaster

March 9, 199861998–10 I.R.B.
Merced, Modoc, Mono, Monterey,
Napa, Nevada, Placer, Plumas, Sacra-
mento, San Benito, San Francisco, San
Joaquin, San Luis Obispo, San Mateo,
Santa Clara, Santa Cruz, Shasta, Sierra,
Siskiyou, Solano, Sonoma, Stanislaus,
Sutter, Tehama, Trinity, Tulare,
Tuolumne, Yolo, and Yuba; and the
City of Morgan Hill
Colorado
Counties of Baca, Clear Creek, Crow-
ley, Elbert, Kiowa, Larimer, Lincoln,
Logan, Morgan, Otero, Phillips, Prow-
ers, and Weld
Florida
Counties of Citrus, Hernando, Hillsbor-
ough, Lake, Orange, Osceola, Pasco,
Polk, and Sumter
Guam
Territory of Guam
Idaho
Counties of Adams, Benewah, Boise,
Bonner, Boundary, Camas, Clearwater,
Elmore, Gem, Idaho, Koontenai, Latah,
Nez Perce, Owyhee, Payette,
Shoshone, Valley and Washington
Counties of Benewah, Bingham, Bon-
ner, Bonneville, Boundary, Butte,
Custer, Fremont, Jefferson, Kootenai,
Madison, and Shoshone
Illinois
Counties of Alexander, Gallatin,
Hardin, Massac, Pope, and Pulaski
County of Cook
Indiana
Counties of Clark, Crawford, Dear-
born, Floyd, Harrison, Jefferson, Ohio,
Perry, Posey, Spencer, Switzerland,
Vanderburgh, and Warrick
Iowa
Counties of Cass, Clarke, Iowa, Jasper,
Madison, Mahaska, Marion, Mills,
Polk, Pottawattamie, Poweshiek,
Union, and Warren
Kentucky
Counties of Adair, Anderson, Ballard,
Severe storms, heavy rains, flash floods,
other flooding, mud and land slides, and
severe ground saturation
Severe storms, high winds, tornadoes, and
flooding
Typhoon Paka and associated torrential
rains, high winds, high surf, and tidal
surges
Severe storms, flooding, and mud and
land slides
Severe storms, snowmelt, and mud and
land slides
Severe storms and flooding
Severe thunder storms and flash flooding
Severe storms and flooding
Severe winter storm
Severe storms, flooding, and tornadoes
July 28-August 12, 1997
December 25, 1997-January 14, 1998
December 16-17, 1997
November 16, 1996-January 4, 1997
March 14-June 30, 1997
March 1-April 1, 1997
August 16-17, 1997
February 28-March 31, 1997
October 26-28, 1997
March 1-24, 1997

1998–10 I.R.B.7March 9, 1998
Barren, Bath, Boone, Bourbon, Boyd,
Boyle, Bracken, Breathitt, Breckin-
ridge, Bullitt, Butler, Caldwell, Cal-
loway, Campbell, Carlisle, Carroll,
Carter, Casey, Christian, Clark, Clay,
Crittenden, Daviess, Edmonson, El-
liott, Estill, Fayette, Fleming, Floyd,
Franklin, Fulton, Gallatin, Grant,
Graves, Grayson, Green, Greenup,
Hancock, Hardin, Harrison, Hart, Hen-
derson, Henry, Hickman, Hopkins, Jef-
ferson, Jessamine, Johnson, Kenton,
Knott, Larue, Lawrence, Lee, Leslie,
Letcher, Lewis, Livingston, Logan,
Lyon, Magoffin, Marion, Marshall,
Mason, McCracken, McLean, Meade,
Menifee, Mercer, Metcalfe, Monroe,
Montgomery, Morgan, Muhlenberg,
Nelson, Nicholas, Ohio, Oldham,
Owen, Pendleton, Perry, Pike, Powell,
Robertson, Rowan, Russell, Scott,
Shelby, Simpson, Spencer, Taylor,
Todd, Trigg, Trimble, Union, Warren,
Washington, Webster, and Woodford
Louisiana
Counties of Calcasieu, Cameron, and
Jefferson Davis
Michigan
Counties of Genesee, Macomb, Oak-
land, Saginaw, and Wayne
Micronesia
Yap Proper, Ulithi Atoll, and Ngula
Atoll of Yap State
Minnesota
Counties of Becker, Beltrami, Benton,
Big Stone, Blue Earth, Brown,
Chippewa, Clay, Clearwater, Cotton-
wood, Douglas, Faribault, Grant, Hub-
bard, Jackson, Kandiyohi, Kittson, Lac
Qui Parle, Lake of the Woods, Le
Sueur, Lincoln, Lyon, Mahnomen,
Marshall, Martin, McLeod, Meeker,
Murray, Nicollet, Nobles, Norman,
Otter Tail, Pennington, Pipestone, Polk,
Pope, Red Lake, Redwood, Renville,
Rock, Roseau, Sherburne, Sibley,
Stearns, Steele, Stevens, Swift, Todd,
Traverse, Wadena, Waseca, Watonwan,
Wilkin, Wright, and Yellow Medicine
Counties of Aitkin, Anoka, Becker,
Beltrami, Benton, Big Stone, Blue
Earth, Brown, Carver, Cass, Chippewa,
Clay, Clearwater, Dakota, Douglas,
Severe ice storm
Severe storms, tornadoes, and flooding
Typhoon Fern
Severe winter storms
Severe flooding, severe winter storms,
snowmelt, high winds, rains, and ice
January 12-17, 1997
July 2, 1997
December 25-26, 1996
January 3-February 3, 1997
March 21-May 24, 1997

March 9, 199881998–10 I.R.B.
Goodhue, Grant, Hennepin, Houston,
Hubbard, Kandiyohi, Kittson, Lac Qui
Parle, Lake of the Woods, Le Sueur,
Lincoln, Lyon, Mahnomen, Marshall,
McLeod, Morrison, Murray, Nicollet,
Norman, Otter Tail, Pennington, Polk,
Pope, Ramsey, Red Lake, Redwood,
Renville, Roseau, Scott, Sherburne,
Sibley, St. Louis, Stearns, Stevens,
Swift, Todd, Traverse, Wabasha,
Wadena, Washington, Wilkin, Winona,
Wright, and Yellow Medicine
Counties of Anoka, Hennepin, Isanti,
Kandiyohi, Ramsey, Sherburne, and
Wright
Mississippi
Counties of Bolivar, Tunica, Warren,
and Washington
Montana
Counties of Broadwater, Carbon, Daw-
son, Deer Lodge, Flathead, Judith
Basin, Lincoln, Madison, Meagher,
Missoula, Musselshell, Park, Prairie,
Ravalli, Richland, Roosevelt, Sanders,
Stillwater, Sweet Grass, Treasure, Val-
ley, Wheatland, Yellowstone and the
Flathead Indian Reservation of the
Confederated Salish and Kootenai
Tribes
Nebraska
Counties of Adams, Banner, Buffalo,
Butler, Cass, Cheyenne, Clay, Custer,
Dawson, Dodge, Douglas, Fillmore,
Franklin, Frontier, Furnas, Gosper,
Hall, Hamilton, Harlan, Hayes, Hitch-
cock, Kearney, Kimball, Lancaster,
Lincoln, Nuckolls, Otoe, Phelps, Polk,
Red Willow, Saline, Sarpy, Saunders,
Scotts Bluff, Seward, Thayer, Washing-
ton, Webster, and York
Nevada
Counties of Churchill, Douglas, Lyon,
Mineral, Storey, and Washoe; and the
City of Carson City; and the Walker
River Paiute tribal lands located in
Churchill, Lyon, and Mineral Counties
New Jersey
County of Atlantic
Severe storms, flooding, tornadoes, and
high winds
Flooding
Severe storms, ice jams, snowmelt, flood-
ing, and extreme soil saturation
Severe snow storms, rains, and strong
winds
Severe storms, flooding, and mud and
land slides
Severe storms and flooding
June 28-July 27, 1997
February 28-April 21, 1997
March 1-August 6, 1997
October 24-26, 1997
December 20, 1996-January 17, 1997
August 20-21, 1997

1998–10 I.R.B.9March 9, 1998
North Dakota
All Counties
Counties of Adams, Barnes, Benson,
Billings, Bottineau, Bowman, Burke,
Burleigh, Cass, Cavalier, Dickey, Di-
vide, Dunn, Eddy, Emmons, Foster,
Golden Valley, Grand Forks, Grant,
Griggs, Hettinger, Kidder, Lamoure,
Logan, McHenry, McIntosh, McKen-
zie, McLean, Mercer, Morton, Moun-
trail, Nelson, Oliver, Pembina, Pierce,
Ramsey, Ransom, Renville, Richland,
Rolette, Sargent, Sheridan, Sioux,
Slope, Stark, Steele, Stutsman, Towner,
Traill, Walsh, Ward, Wells and
Williams
Northern Marianas
Islands of Rota, Saipan, and Tinian
Island of Rota
Ohio
Counties of Adams, Athens, Brown,
Clermont, Gallia, Hamilton, Highland,
Hocking, Jackson, Lawrence, Meigs,
Monroe, Morgan, Pike, Ross, Scioto,
Vinton and Washington
Oregon
Counties of Baker, Coos, Douglas,
Gilliam, Grant, Jackson, Josephine,
Klamath, Lake, Lane, Morrow,
Umatilla, Wallowa, and Wheeler
South Dakota
Counties of Butte, Harding, Hutchin-
son, Lake, Meade, Minnehaha, Moody,
Pennington, Perkins, and Turner
All counties
Counties of Aurora, Beadle, Bennett,
Bon Homme, Brookings, Brown,
Brule, Buffalo, Butte, Campbell,
Charles Mix, Clark, Clay, Codington,
Corson, Custer, Davison, Day, Deuel,
Dewey, Douglas, Edmunds, Fall River,
Faulk, Grant, Gregory, Haakon, Ham-
lin, Hand, Hanson, Harding, Hughes,
Hutchinson, Hyde, Jackson, Jerauld,
Jones, Kingsbury, Lake, Lawrence,
Lincoln, Lyman, Marshall, McCook,
McPherson, Meade, Mellette, Miner,
Minnehaha, Moody, Pennington,
Perkins, Potter, Roberts, Sanborn,
Major winter storm and blizzard
Severe flooding, severe winter storm,
heavy spring rains, rapid snowmelt, high
winds, ice jams, and ground saturation
Super Typhoon Keith
Typhoon Paka
Severe storms and flooding
Severe winter storms, flooding, and mud
and land slides
Severe winter storm
Severe winter storms and blizzard
Severe flooding, severe winter storms,
heavy spring rains, rapid snowmelt, high
winds, and ice jams
January 3-31, 1997
February 28-May 24, 1997
November 2-3, 1997
December 16-17, 1997
February 28-March 17, 1997
December 25, 1996-January 6, 1997
November 13-26 1996
January 3-31, 1997
February 3- May 24, 1997

March 9, 1998101998–10 I.R.B.
Shannon, Spink, Stanley, Sully, Todd,
Tripp, Turner, Union, Walworth, Yank-
ton, and Ziebach
Tennessee
Counties of Benton, Carroll,
Cheatham, Chester, Clay, Davidson,
DeKalb, Decatur, Dickson, Dyer, Gib-
son, Grundy, Hardeman, Hardin, Hen-
derson, Henry, Houston, Humphreys,
Jackson, Lake, Lauderdale, Madison,
McNairy, Montgomery, Obion, Shelby,
Stewart, Sumner, Tipton, and Weakley
Counties of Bradley, Grundy, Hamil-
ton, Polk, Sequatchie, and Smith
Texas
Counties of Bandera, Bexar, Blanco,
Burnet, Comal, Eastland, Edwards,
Gillespie, Goliad, Guadalupe, Hays,
Kendall, Kerr, Kimble, Llano, Mason,
Medina, Real, San Saba, Travis, and
Uvalde
Vermont
Counties of Caledonia, Franklin, Lam-
oille, Orleans, and Washington
Washington
Counties of Adams, Asotin, Benton,
Chelan, Clallam, Clark, Columbia,
Cowlitz, Douglas, Ferry, Franklin,
Garfield, Grant, Grays Harbor, Island,
Jefferson, King, Kitsap, Kittitas, Klick-
itat, Lewis, Lincoln, Mason,
Okanogan, Pacific, Pend Oreille,
Pierce, San Juan, Skagit, Skamania,
Snohomish, Spokane, Stevens,
Thurston, Walla Walla, Whatcom,
Whitman, and Yakima
Counties of Clallam, Grays Harbor,
Jefferson, King, Kitsap, Lincoln,
Mason, Pacific, Pend Oreille, Sno-
homish, Spokane, Stevens, and
Thurston
County of Pend Oreille
West Virginia
Counties of Braxton, Cabell, Calhoun,
Clay, Gilmer, Jackson, Kanawha, Lin-
coln, Mason, Putnam, Roane, Tyler,
Wayne, Wetzel, Wirt, and Wood
Heavy rains, tornadoes, flooding, hail,
and high winds
Severe storms and tornadoes
Severe thunderstorms and flooding
Excessive rainfall, high winds, and flood-
ing
Severe winter storms, flooding, and mud
and land slides
Heavy rains, snow melt, flooding, and
mud and land slides
Flooding and snowmelt
Heavy rains, wind driven rains, high
winds, flooding, and slides
February 28- March 24, 1997
March 28-29, 1997
June 21-July 15, 1997
July 15-17, 1997
December 26, 1996-February 10, 1997
March 18-28, 1997
April 10-June 30, 1997
February 28-March 15, 1997

1998–10 I.R.B.11March 9, 1998
Wisconsin
Counties of Milwaukee, Ozaukee,
Washington, and Waukesha
Severe storms and floodingJune 21-23, 1997
Section 280F.—Limitation on
Depreciation for Luxury
Automobiles; Limitation Where
Certain Property Used for
Personal Purposes
26 CFR 280F–7: Property leased after December
31, 1986.
This procedure provides owners and lessees of
passenger automobiles designed to be propelled pri-
marily by electricity and built by an original equip-
ment manufacturer (electric automobiles) with ta-
bles detailing the limitations on depreciation
deductions for owners of electric automobiles first
placed in service after August 5, 1997, and before
January 1, 1998, and the amounts to be included in
income by lessees of electric automobiles first
leased after August 5, 1997, and before January 1,
1998. See Rev. Proc. 98–24, page 31.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of March 1998. See
Rev. Rul. 98–11, page 13.
Section 354.—Exchanges of
Stock and Securities in Certain
Reorganizations
26 CFR 1.354–1: Exchanges of stock and securities
in certain reorganizations.
The revenue ruling provides that an acquisition
of stock for voting stock, accompanied under the re-
organization plan by an exchange of securities for
securities that are of equal fair market value and
equal principal amout, qualifies as a corporate reor-
ganization under § 368(a)(1)(B) of the Code. The
revenue ruling also provides that the securities-for-
securities exchange is governed by the nonrecogni-
tion provisions of § 354(a)(1). Rev. Ruls. 68–637,
69–142, 70–41, 70–269, and 78–408 modified, su-
perseded, amplified, as applicable. See Rev. Rul.
98–10 on this page.
Section 368.—Definitions
Relating to Corporate
Reorganizations
26 CFR 1.368-2: Definition of terms.
(Also § 354; § 1.354–1.)
Reorganizations; exchange of securi-
ties.An acquisition of sock for solely vot-
ing stock, accompanied under the reorga-
nization plan by an exchange of securities
for securities that are of equal fair market
value and equal principal amount, quali-
fies as a corporate reorganization under
section 368(a)(1)(B) of the Code. Section
354(a)(1) nonrecognition applies to the
securities-for-securities exchange.
Rev. Rul. 98–10
ISSUE
Where a stock for stock acquisition
otherwise qualifying under § 368(a)(1)(B)
of the Internal Revenue Code is accompa-
nied by an exchange of securities, how
should the transaction be treated?
FACTS
The facts are substantially similar to
the facts in Rev. Rul. 69–142, 1969–1
C.B. 107.
Corporation Xacquires all of the out-
standing capital stock of Corporation Y in
exchange for voting stock of X. Corpora-
tion Yis a solvent corporation. Prior to
the exchange, Yhas an issue of six per-
cent fifteen-year debentures outstanding.
Pursuant to the plan of reorganization, X
acquires all the outstanding debentures of
Yin exchange for an equal principal
amount of new six percent fifteen-year
debentures of X. Some of the debentures
of Yare held by its shareholders, but a
substantial proportion of the Ydebentures
are held by persons who own no stock.
Xis in control of Yimmediately after
the acquisition of the Ystock. The Xand
Ydebentures constitute “securities” with-
in the meaning of § 354(a)(1) and, thus,
do not represent an equity interest. Disre-
garding the exchange of debentures, the
transaction meets the requirements of
368(a)(1)(B).
LAW AND ANALYSIS
Section 368(a)(1)(B) provides that a re-
organization includes the acquisition by
one corporation, in exchange solely for all
or a part of its voting stock, of stock of
another corporation if, immediately after
the acquisition, the acquiring corporation
has control of such other corporation.
Section 1.368–2(c) of the Income Tax
Regulations provides:
In order to qualify as a “reorgani-
zation” under section 368(a)(1)(B),
the acquisition by the acquiring cor-
poration of stock of another corpora-
tion must be in exchange solely for
all or a part of the voting stock of the
acquiring corporation . . . , and the
acquiring corporation must be in con-
trol of the other corporation immedi-
ately after the transaction. If, for ex-
ample, Corporation Xin one
transaction exchanges nonvoting pre-
ferred stock or bonds in addition to
all or a part of its voting stock in the
acquisition of stock of Corporation Y,
the transaction is not a reorganization
under section 368(a)(1)(B).
Section 354(a)(1) provides that no gain
or loss will be recognized if stock or secu-
rities in a corporation a party to a reorga-
nization are, in pursuance of the plan of
reorganization, exchanged solely for
stock or securities in another corporation
a party to a reorganization.
In the circumstances set forth above,
the Yshareholders receive exclusively
voting stock of Xas consideration for the
exchange of their Ystock. The fact that a
substantial proportion of the Ydebentures
is held by bondholders who own no stock
in Yhas the effect of ensuring that the
value of the debentures issued by Xin ex-
change for the debentures of Yrealisti-
cally reflects the value of the Ydebentures
alone and does not constitute indirect
nonqualifying consideration for the Y
stock. Because the Yshareholders, in
their capacity as shareholders, receive
only Xvoting stock, the transaction con-
stitutes a reorganization within the mean-
ing of § 368(a)(1)(B).
Although the acquisition by Xof the
debentures of Yin exchange for deben-
tures of Xoccurs as part of the overall
transaction, it is not a part of the stock-
for-stock exchange which qualifies as a
reorganization. It is, however, an ex-
change of securities in parties to a reorga-
nization which occurs in pursuance of the
plan of reorganization, and, therefore,
meets all the conditions of § 354(a)(1).

Accordingly, any gain or loss realized by
the debenture holders of Yas a result of
their exchange of their Ydebentures for
an equal principal amount of debentures
of Xwill not be recognized. Section
354(a)(1). If, under different facts, the
principal amount of the debentures of X
was greater than the principal amount of
the debentures of Y, §§ 354(a)(2) and
356(d) would apply to require the deben-
ture holders of Yto recognize some or all
of any gain realized.
HOLDING
The exchange of Ystock for Xstock is
a reorganization described in § 368(a)-
(1)(B); and any gain or loss realized by
the shareholders of Yas a result of the ex-
change will not be recognized. Section
354(a)(1).
The separate exchange of Ydebentures
for Xdebentures is an exchange in pur-
suance of the plan of reorganization de-
scribed in § 368(a)(1)(B). Thus, any gain
or loss realized by the debenture holders
of Yas a result of their exchange of their Y
debentures for an equal principal amount
of debentures of Xwill not be recognized.
Section 354(a)(1).
In certain cases, rights to acquire stock
of a party to a reorganization are “securi-
ties” for purposes of § 354. See§ 1.354–
1(e) (as amended by T.D. 8752, 1998–9
I.R.B. 4, effective for exchanges occur-
ring on or after March 9, 1998). An ex-
change of such rights, although separate
from a § 368 exchange, may also be in
pursuance of the plan of reorganization.
In such cases, any gain or loss realized by
the holder of such rights as a result of the
exchange will not be recognized. Section
354(a)(1).
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 69–142, which dealt with
substantially identical facts, is modified
and superseded.
Rev. Rul. 70–41, 1970–1 C.B. 77, deals
with a stock-for-stock exchange accom-
panied by an exchange of Acquired
debentures for Acquiring stock. It is
modified such that § 354 applies to the
exchange of debentures for stock.
Rev. Rul. 78–408, 1978–2 C.B. 203,
deals with a stock-for-stock exchange ac-
companied by a warrant-for-warrant ex-
change. It is modified such that § 354 ap-
plies to the exchange of warrants pro-
vided that the warrants constitute securi-
ties. See § 1.354–1(e).
Rev. Ruls. 68–637, 1968–2 C.B. 158,
and 70–269, 1970–1 C.B. 82, similarly
deal with reorganization exchanges ac-
companied by exchanges of warrants or
options. Each is amplified such that
§ 354 applies to the exchange of warrants
or options, provided that, as in Rev. Rul.
78–408 above, the warrants or options
constitute securities.
PROSPECTIVE APPLICATION
Section 7805(b) provides that the Sec-
retary may prescribe the extent, if any, to
which any ruling relating to the internal
revenue laws shall be applied without
retroactive effect. Pursuant to the author-
ity contained in § 7805(b), this revenue
ruling will be applied only to corporate
reorganizations in which the exchange of
securities occurs on or after March 9,
1998, the date this revenue ruling is pub-
lished in the Internal Revenue Bulletin.
Transactions in which the exchange of se-
curities occurs prior to this date will con-
tinue to be governed by the rules as they
existed prior to publication of this rev-
enue ruling.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Michael J. Danbury of the Office
of Assistant Chief Counsel (Corporate).
For further information regarding this
revenue ruling, contact Mr. Danbury on
(202) 622-7750 (not a toll-free call).
Section 382.—Limitation on Net
Operating Loss Carryforwards
and Certain Built-In Losses
Following Ownership Change
The adjusted federal long-term rate is set forth
for the month of March 1998. See Rev. Rul. 98–11,
page 13.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 467.—Certain Payments
for the Use of Property or
Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 468.—Special Rules for
Mining and Solid Waste
Reclamation and Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 482.—Allocation of
Income and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of March 1998. See
Rev. Rul. 98–11, page 13.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of March 1998. See
Rev. Rul. 98–11, page 13.
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 985.—Functional
Currency
The Treasury Department and the IRS are solicit-
ing comments on the tax issues raised by the conver-
March 9, 1998121998–10 I.R.B.

sion of certain European countries’ currencies to a
single European currency (euro). See Announce-
ment 98–18, page 44.
26 CFR 1.985–5: Adjustments Required Upon
Change in Functional Currency
The Treasury Department and the IRS are solicit-
ing comments on the tax issues raised by the conver-
sion of certain European countries’ currencies to a
single European currency (euro). See Announce-
ment 98–18, page 44.
Section 989.—Other Definitions
and Special Rules
The Treasury Department and the IRS are solicit-
ing comments on the tax issues raised by the conver-
sion of certain European countries’ currencies to a
single European currency (euro). See Announce-
ment 98–18, page 44.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate, and
the long-term exempt rate.For purposes
of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the
rates for March 1998.
Rev. Rul. 98–11
This revenue ruling provides various
prescribed rates for federal income tax
purposes for March 1998 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month for
purposes of section 1274(d) of the Inter-
nal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term ad-
justed applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or a
remainder or a reversionary interest for
purposes of section 7520.
1998–10 I.R.B.13March 9, 1998
REV. RUL. 98–11 TABLE 1
Applicable Federal Rates (AFR) for March 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR5.39%5.32%5.29%5.26%
110% AFR5.94%5.85%5.81%5.78%
120% AFR6.48%6.38%6.33%6.30%
130% AFR7.04%6.92%6.86% 6.82%
Mid-Term
AFR5.59% 5.51%5.47%5.45%
110% AFR6.15%6.06%6.01%5.98%
120% AFR6.72%6.61%6.56%6.52%
130% AFR7.29%7.16%7.10%7.06%
150% AFR8.44%8.27%8.19%8.13%
175% AFR 9.87%9.64%9.53% 9.45%
Long-Term
AFR5.91%5.83%5.79%5.76%
110% AFR6.51%6.41%6.36%6.33%
120% AFR7.12%7.00%6.94%6.90%
130% AFR7.72%7.58%7.51%7.46%

March 9, 1998141998–10 I.R.B.
REV. RUL. 98–11 TABLE 2
Adjusted AFR for March 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR3.77%3.74%3.72%3.71%
Mid-term
adjusted AFR4.14%4.10%4.08%4.07%
Long-term
adjusted AFR4.88%4.82%4.79%4.77%
REV. RUL. 98–11 TABLE 3
Rates Under Section 382 for March 1998
Adjusted federal long-term rate for the current month4.88%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)5.10%
REV. RUL. 98–11 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for March 1998
Appropriate percentage for the 70% present value low-income housing credit8.35%
Appropriate percentage for the 30% present value low-income housing credit3.58%
REV. RUL. 98–11 TABLE 5
Rate Under Section 7520 for March 1998
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest6.8%

Section 1275.—Other
Definitions and Special Rules
26 CFR 1.1275–1: Definitions.
T.D. 8754
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Debt Instruments With Original
Issue Discount; Annuity
Contracts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the federal in-
come tax treatment of certain annuity
contracts. The regulations determine
which of these contracts are taxed as debt
instruments for purposes of the original
issue discount provisions of the Internal
Revenue Code. The regulations provide
needed guidance to owners and issuers of
these contracts.
DATES: Effective date:The regulations
are effective February 9, 1998.
Applicability dates: For dates of ap-
plicability, see §1.1275–1(j)(8).
FOR FURTHER INFORMATION CON-
TACT: Jonathan R. Zelnik, (202)
622–3930 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Sections 163(e) and 1271 through 1275
of the Internal Revenue Code (Code) pro-
vide rules for the treatment of debt instru-
ments that have original issue discount
(OID).
On February 2, 1994, the IRS and Trea-
sury published in the Federal Register
(59 F.R. 4799) final regulations under the
OID provisions. On April 7, 1995, the
IRS published in the Federal Register
(60 F.R. 17731) a notice of proposed rule-
making relating to the federal income tax
treatment of annuity contracts that are not
issued by insurance companies subject to
tax under subchapter L of the Code. The
proposed regulations treat certain of these
annuity contracts as debt instruments for
purposes of the OID provisions.
The IRS received a number of written
comments on the proposed regulations.
In addition, on August 8, 1995, the IRS
held a public hearing on the proposed reg-
ulations. The proposed regulations, with
certain changes in response to comments,
are adopted as final regulations. The
comments and changes are discussed
below.
Explanation of Provisions
Certain Annuity Contracts
The OID provisions generally apply to
issuers and holders of debt instruments.
The term debt instrumentmeans any in-
strument or contractual arrangement that
constitutes indebtedness under general
principles of federal income tax law. See
section 1275(a)(1) and §1.1275–1(d).
Section 1275(a)(1)(B) excepts two
types of annuity contracts from the defini-
tion of debt instrument(and, therefore,
from the OID provisions). First, section
1275(a)(1)(B)(i) excepts an annuity con-
tract to which section 72 applies if the
contract “depends (in whole or in substan-
tial part) on the life expectancy of 1 or
more individuals.” Second, section
1275(a)(1)(B)(ii) excepts an annuity con-
tract to which section 72 applies if the
contract is issued by “an insurance com-
pany subject to tax under subchapter L”
and the circumstances of the contract’s is-
suance meet certain criteria.
The proposed regulations address only
the first exception, which is contained in
section 1275(a)(1)(B)(i). Under the pro-
posed regulations, an annuity contract
qualifies for the exception in section
1275(a)(1)(B)(i) only if all payments
under the contract are periodic payments
that: (1) are made at least annually for the
life (or lives) of one or more individuals;
(2) do not increase at any time during the
life of the contract; and (3) are part of a
series of payments that begins within one
year of the date of the initial investment in
the contract. An annuity contract that is
otherwise described in the preceding sen-
tence, however, does not fail to qualify
for the exception in section 1275(a)-
(1)(B)(i) merely because it also provides
for a payment (or payments) made by rea-
son of the death of one or more individu-
als. Thus, under the proposed regulations,
the exception in section 1275(a)(1)(B)(i)
applies only to an immediate annuity con-
tract with level (or decreasing) payments
for the life (or lives) of one or more indi-
viduals. No deferred annuity contract
qualifies for the exception.
Several commentators questioned the
approach of the proposed regulations. In
particular, they contended that the excep-
tion in section 1275(a)(1)(B)(i) should not
be limited to those annuity contracts that
require periodic payments to begin within
one year of the date of the initial invest-
ment in the contract. That is, deferred an-
nuities, if dependent in whole or substan-
tial part on an individual’s (or several
individuals’) survival, should also qualify
for the exception in section 1275(a)(1)-
(B)(i). Other commentators took issue
with this point of view and contended that
the proposed regulations should be final-
ized without substantial change.
After a careful review of this issue, the
IRS and the Treasury have modified the
regulations to eliminate the requirement
that annuity distributions begin within
one year of the date of the initial invest-
ment in the contract. Instead, as sug-
gested by the legislative history, the final
regulations interpret section 1275(a)-
(1)(B)(i) as excepting from the definition
of debt instrumentonly those annuity
contracts that contain terms ensuring that
the life contingency under the contract is
both “real and significant.” H.R. Conf.
Rep. No. 861, 98th Cong., 2d Sess. 887
(1984), 1984–3 (Vol. 2) C.B. 141. The
Treasury and the IRS have determined
that the life contingency under an annuity
contract is “real and significant” within
the meaning of the legislative history only
if, on the day the contract is purchased,
there is a high probability that total distri-
butions under the contract will increase
commensurately with the longevity of the
individual (or individuals) over whose life
(or lives) the distributions are to be made.
(These individuals are hereinafter referred
to as annuitants.) The final regulations,
therefore, provide a two-pronged general
rule: An annuity contract qualifies for the
exception in section 1275(a)(1)(B)(i) only
if it both: (1) provides for periodic distrib-
1998–10 I.R.B.15March 9, 1998

utions made at least annually for the life
(or joint lives) of an individual (or a rea-
sonable number of individuals); and (2)
contains no terms or provisions that can
significantly reduce the probability that
total distributions will increase commen-
surately with longevity.
The final regulations identify several
types of terms and provisions that can sig-
nificantly reduce the probability that total
distributions under the contract will in-
crease commensurately with longevity.
These terms and provisions include the
availability of a cash surrender option, the
availability of a loan secured by the con-
tract, minimum payout provisions, maxi-
mum payout provisions, and provisions
that allow decreasing payouts. Subject to
limited exceptions, the presence of any of
these terms or provisions causes an annu-
ity contract to fail to qualify for the ex-
ception in section 1275(a)(1)(B)(i). The
list of identified terms and provisions in
the final regulations is not exclusive. A
contract fails to qualify for the exception
in section 1275(a)(1)(B)(i) if the contract
contains any other term or provision that
can significantly reduce the probability
that total distributions under the contract
will increase commensurately with
longevity.
Cash Surrender Options and Loans
Secured by the Contract
If the holder of an annuity contract can
exchange or surrender all or part of the
contract for a distribution or for distribu-
tions that are not contingent on life, the
holder’s decision whether, and when, to
exchange or surrender the contract can
render the life contingency insignificant.
Similarly, if the holder of an annuity con-
tract can borrow against the contract, the
holder’s decision whether, and when, to
borrow can have a comparable effect.
The final regulations, therefore, provide
that, if either the issuer or a person acting
in concert with the issuer explicitly or im-
plicitly makes available either a cash sur-
render option or a loan secured by the
contract, then the contract contains a term
that can significantly reduce the probabil-
ity that total distributions on the contract
will increase commensurately with
longevity. That availability, therefore,
causes the contract to fail to qualify for
the exception in section 1275(a)(1)(B)(i).
Minimum Payout Provisions
If an annuity contract guarantees that a
minimum amount will be distributed re-
gardless of the death of the individual (or
individuals) over whose life (or lives)
payments are to be made, the minimum
amount is not subject to the life contin-
gency. In addition, the larger the mini-
mum amount relative to aggregate ex-
pected distributions over the remaining
(joint) life expectancy of the annuitant (or
annuitants), the less likely it is that total
distributions under the contract will in-
crease commensurately with the longevity
of the annuitant (or annuitants). A suffi-
ciently large minimum amount renders
the life contingency virtually meaning-
less. For example, consider a contract
that provides for monthly distributions to
begin on the annuity starting date and to
extend for the longer of the life of the an-
nuitant or 20 years, regardless of the an-
nuitant’s age. If the annuitant has a life
expectancy as of the annuity starting date
of 5 years, it is likely that distributions
will be made for exactly 20 years, regard-
less of when the annuitant dies. In this
case, although the form of the contract in-
dicates that it depends on life, the exis-
tence of the minimum payout provision
significantly reduces the probability that
total distributions under the contract will
depend on longevity.
Because the existence of a minimum
payout provision can significantly reduce
the probability that total distributions
under the contract will increase commen-
surately with longevity, the existence of
any such provision generally causes the
contract to fail to qualify for the exception
in section 1275(a)(1)(B)(i). The final reg-
ulations provide only two exceptions to
this general rule. First, an annuity con-
tract does not fail to be described in sec-
tion 1275(a)(1)(B)(i) merely because it
contains a minimum payout provision that
guarantees a death benefit no greater than
the unrecovered consideration paid for the
contract. Second, an annuity contract
does not fail to be described in section
1275(a)(1)(B)(i) merely because the con-
tract provides that, after annuitization,
distributions may be guaranteed to con-
tinue for a term certain that is no longer
than one-half of the period of time from
the annuity starting date to the expected
date of the “terminating death.”
The terminating death is the annuitant
death that, in general, causes annuity pay-
ments to cease under the contract. The
expected date of the terminating death is
determined as of the annuity starting date
with respect to all then-surviving annui-
tants by reference to the applicable mor-
tality table prescribed under section
417(e)(3)(A)(ii)(I). See Rev. Rul. 95–6,
1995–1 C.B. 80, for the applicable mor-
tality table that is prescribed for this pur-
pose as of January 8, 1998.
Maximum Payout Provisions
If an annuity contract provides that dis-
tributions will cease if an annuitant lives
beyond a specified date, total distribu-
tions under the contract may fail to in-
crease commensurately with longevity. If
the specified date is relatively early (when
compared to the annuitant’s life ex-
pectancy as of the annuity starting date),
its existence significantly reduces the
probability that total distributions under
the contract will increase commensurately
with longevity. Conversely, if the speci-
fied date is very late (when compared to
the annuitant’s life expectancy as of the
annuity starting date), its existence does
not significantly reduce the probability
that total distributions under the contract
will increase commensurately with
longevity. For example, consider an an-
nuity contract that provides that distribu-
tions will be made for the life of the annu-
itant but in no event for more than 30
years. If the annuitant is a relatively
young person, this maximum payout pro-
vision significantly attenuates the life
contingency. On the other hand, if the an-
nuitant has a life expectancy of 10 years
on the annuity starting date, this maxi-
mum payout provision is unlikely to de-
termine the total distributions.
Because the existence of a maximum
payout provision can significantly reduce
the probability that total distributions
under the contract will increase commen-
surately with longevity, the final regula-
tions provide that the existence of any
maximum payout provision generally
causes the contract to fail to qualify for the
exception in section 1275(a)(1)(B)(i).
There is a single exception to this general
rule in cases where the period of time be-
tween the annuity starting date and the
date after which (under the maximum pay-
March 9, 1998161998–10 I.R.B.

out provision) no distributions will be
made is at least twice as long as the period
of time from the annuity starting date to
the expected date of the terminating death.
Decreasing Payout Provisions
The connection between longevity and
distributions under an annuity contract is
apparent in the case of a contract that pro-
vides for equal annual distributions for
life. For each year the annuitant lives, an-
other equal distribution is made. If distri-
butions decrease over time, this connec-
tion can become attenuated. Consider an
annuity contract that provides for a distri-
bution upon annuitization of $100,000
followed by annual distributions of $10
per year for life. Although this contract
provides for periodic distributions for life,
the pattern of the distributions causes the
amount distributed to fail to adequately
reflect longevity.
If the amount of distributions under an
annuity contract during any contract year
may be less than the amount of distribu-
tions during the preceding year, the final
regulations provide that this possibility
can significantly reduce the probability
that total distributions under the contract
will increase commensurately with
longevity. Thus, the existence of this pos-
sibility generally causes the contract to
fail to qualify for the exception in section
1275(a)(1)(B)(i). There is a single excep-
tion to this general rule for certain vari-
able distributions that are closely tied to
investment experience, inflation, or simi-
lar fluctuating criteria. In these cases,
because the provision can result in com-
parable increases in the amount of distrib-
utions, the possibility that the distribu-
tions may decline from year to year does
not significantly reduce the probability
that total distributions under the contract
will increase commensurately with
longevity.
Private and Charitable Gift Annuity
Contracts
Several commentators expressed con-
cerns that the proposed regulations, if fi-
nalized, would alter the tax treatment tra-
ditionally afforded private and charitable
gift annuity contracts. Private annuity
contracts are typically issued as consider-
ation in intra-family transfers of property.
Charitable gift annuity contracts are typi-
cally issued by charitable institutions in
exchange for a transfer of cash or prop-
erty greater in value than the annuity. Be-
cause these contracts may call for peri-
odic distributions to begin more than one
year after they are issued, there was con-
cern that, under the proposed regulations,
they might fail to qualify for the excep-
tion in section 1275(a)(1)(B)(i).
In many cases, distributions under pri-
vate and charitable gift annuity contracts
are entirely contingent on the survival of
one individual (or a small number of indi-
viduals). These contracts are not indebted-
ness under general principles of federal in-
come tax law and, therefore, are not within
the definition of debt instrumentin section
1275(a)(1)(A). For almost all other private
and charitable gift annuities, the final regu-
lations address the concern by removing
the requirement that the distributions begin
within one year of the date of the initial in-
vestment in the contract.
Annuity Contracts Issued by Foreign
Insurance Companies
One commentator asked the IRS to clar-
ify the treatment of annuity contracts is-
sued by a foreign insurance company that
does not engage in a trade or business
within the United States. In particular, the
commentator asked for guidance on
whether such an annuity contract qualifies
under section 1275(a)(1)(B)(ii), which pro-
vides a broad exception from the definition
of debt instrument for certain annuity con-
tracts issued by “an insurance company
subject to tax under subchapter L.” These
regulations do not address the exception in
section 1275(a)(1)(B)(ii). The Treasury
and the IRS, however, welcome comments
on the proper scope of that provision.
Certain Compensation Arrangements
Several commentators questioned
whether the proposed regulations apply to
certain compensation arrangements
whose distributions are taxed under sec-
tion 72. The timing rules of the OID pro-
visions do not apply to compensation
arrangements that are subject to other spe-
cific Code or regulations provisions. For
example, if an arrangement is described
in the first sentence of section 404(a) or in
section 404(b) or if amounts under the
arrangement are includible under sections
83, 403, or 457, or under §1.61–2, the
arrangement is not subject to the OID tim-
ing provisions. See also §§1.1273–2(d)
and 1.1274–1(a), under which a nonpub-
licly traded debt instrument issued for ser-
vices has an issue price equal to its stated
redemption price at maturity and, there-
fore, has no OID.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It has also been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. Because the
notice of proposed rulemaking preceding
the regulations was issued prior to March
29, 1996, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply. Pur-
suant to section 7805(f) of the Code, the
notice of proposed rulemaking was sub-
mitted to the Small Business Administra-
tion for comment on its impact on small
business.
Drafting Information
Several persons from the Office of
Chief Counsel and the Treasury depart-
ment participated in developing these reg-
ulations.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entries
for “Sections 1.1271–1 through 1.1274–
5” and “Sections 1.1275–1 through
1.1275–5” and adding the following en-
tries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1271–1 also issued under 26
U.S.C. 1275(d).
Section 1.1272–1 also issued under 26
U.S.C. 1275(d).
Section 1.1272–2 also issued under 26
U.S.C. 1275(d).
Section 1.1272–3 also issued under 26
U.S.C. 1275(d).
Section 1.1273–1 also issued under 26
1998–10 I.R.B.17March 9, 1998

U.S.C. 1275(d).
Section 1.1273–2 also issued under 26
U.S.C. 1275(d).
Section 1.1274–1 also issued under 26
U.S.C. 1275(d).
Section 1.1274–2 also issued under 26
U.S.C. 1275(d).
Section 1.1274–3 also issued under 26
U.S.C. 1275(d).
Section 1.1274–4 also issued under 26
U.S.C. 1275(d).
Section 1.1274–5 also issued under 26
U.S.C. 1275(d). * * *
Section 1.1275–1 also issued under 26
U.S.C. 1275(d).
Section 1.1275–2 also issued under 26
U.S.C. 1275(d).
Section 1.1275–3 also issued under 26
U.S.C. 1275(d).
Section 1.1275–4 also issued under 26
U.S.C. 1275(d).
Section 1.1275–5 also issued under 26
U.S.C. 1275(d). * * *
Par. 2. Section 1.1271–0 is amended
by adding entries for paragraphs (i)
through (j)(8) to §1.1275–1 to read as fol-
lows:
§1.1271–0 Original issue discount;
effective dates; table of contents.
* * * * *
§1.1275–1 Definitions.
* * * * *
(i) [Reserved]
(j) Life annuity exception under section
1275(a)(1)(B)(i).
(1) Purpose.
(2) General rule.
(3) Availability of a cash surrender op-
tion.
(4) Availability of a loan secured by the
contract.
(5) Minimum payout provision.
(6) Maximum payout provision.
(7) Decreasing payout provision.
(8) Effective dates.
* * * * *
Par. 3. Section 1.1275–1 is amended
by:
1. Revising the first sentence of para-
graph (d).
2. Adding and reserving paragraph (i).
3. Adding paragraph (j).
The revision and additions read as fol-
lows:
§1.1275–1 Definitions.
* * * * *
(d) Debt instrument.Except as pro-
vided in section 1275(a)(1)(B) (relating to
certain annuity contracts; see paragraph
(j) of this section), debt instrument means
any instrument or contractual arrange-
ment that constitutes indebtedness under
general principles of Federal income tax
law (including, for example, a certificate
of deposit or a loan). * * *
* * * * *
(i) [Reserved]
(j) Life annuity exception under section
1275(a)(1)(B)(i)—(1) Purpose.Section
1275(a)(1)(B)(i) excepts an annuity con-
tract from the definition of debt instru-
ment if section 72 applies to the contract
and the contract depends (in whole or in
substantial part) on the life expectancy of
one or more individuals. This paragraph
(j) provides rules to ensure that an annuity
contract qualifies for the exception in sec-
tion 1275(a)(1)(B)(i) only in cases where
the life contingency under the contract is
real and significant.
(2) General rule—(i) Rule.For pur-
poses of section 1275(a)(1)(B)(i), an an-
nuity contract depends (in whole or in
substantial part) on the life expectancy of
one or more individuals only if—
(A) The contract provides for periodic
distributions made not less frequently
than annually for the life (or joint lives) of
an individual (or a reasonable number of
individuals); and
(B) The contract does not contain any
terms or provisions that can significantly
reduce the probability that total distribu-
tions under the contract will increase
commensurately with the longevity of the
annuitant (or annuitants).
(ii) Terminology.For purposes of this
paragraph (j):
(A) Contract.The term contractin-
cludes all written or unwritten under-
standings among the parties as well as any
person or persons acting in concert with
one or more of the parties.
(B) Annuitant.The term annuitant
refers to the individual (or reasonable
number of individuals) referred to in para-
graph (j)(2)(i)(A) of this section.
(C) Terminating death.The phrase ter-
minating deathrefers to the annuitant
death that can terminate periodic distribu-
tions under the contract. (See paragraph
(j)(2)(i)(A) of this section.) For example,
if a contract provides for periodic distrib-
utions until the later of the death of the
last-surviving annuitant or the end of a
term certain, the terminating death is the
death of the last-surviving annuitant.
(iii) Coordination with specific rules.
Paragraphs (j)(3) through (7) of this sec-
tion describe certain terms and conditions
that can significantly reduce the probabil-
ity that total distributions under the con-
tract will increase commensurately with
the longevity of the annuitant (or annui-
tants). If a term or provision is not specif-
ically described in paragraphs (j)(3)
through (7) of this section, the annuity
contract must be tested under the general
rule of paragraph (j)(2)(i) of this section
to determine whether it depends (in whole
or in substantial part) on the life ex-
pectancy of one or more individuals.
(3) Availability of a cash surrender op-
tion—(i) Impact on life contingency.The
availability of a cash surrender option can
significantly reduce the probability that
total distributions under the contract will
increase commensurately with the
longevity of the annuitant (or annuitants).
Thus, the availability of any cash surren-
der option causes the contract to fail to be
described in section 1275(a)(1)(B)(i). A
cash surrender option is available if there
is reason to believe that the issuer (or a
person acting in concert with the issuer)
will be willing to terminate or purchase
all or a part of the annuity contract by
making one or more payments of cash or
property (other than an annuity contract
described in this paragraph (j)).
(ii) Examples.The following examples
illustrate the rules of this paragraph (j)(3):
Example 1. (i) Facts. On March 1, 1998, X is-
sues a contract to A for cash. The contract provides
that, effective on any date chosen by A (the annuity
starting date), X will begin equal monthly distribu-
tions for A’s life. The amount of each monthly dis-
tribution will be no less than an amount based on the
contract’s account value as of the annuity starting
date, A’s age on that date, and permanent purchase
rate guarantees contained in the contract. The con-
tract also provides that, at any time before the annu-
ity starting date, A may surrender the contract to X
for the account value less a surrender charge equal to
a declining percentage of the account value. For this
purpose, the initial account value is equal to the cash
invested. Thereafter, the account value increases an-
nually by at least a minimum guaranteed rate.
(ii) Analysis.The ability to obtain the account
value less the surrender charge, if any, is a cash sur-
render option. This ability can significantly reduce
March 9, 1998181998–10 I.R.B.

the probability that total distributions under the con-
tract will increase commensurately with A’s
longevity. Thus, the contract fails to be described in
section 1275(a)(1)(B)(i).
Example 2. (i) Facts. On March 1, 1998, X is-
sues a contract to B for cash. The contract provides
that beginning on March 1, 1999, X will distribute to
B a fixed amount of cash each month for B’s life.
Based on X’s advertisements, marketing literature,
or illustrations or on oral representations by X’s
sales personnel, there is reason to believe that an af-
filiate of X stands ready to purchase B’s contract for
its commuted value.
(ii) Analysis.Because there is reason to believe
that an affiliate of X stands ready to purchase B’s
contract for its commuted value, a cash surrender
option is available within the meaning of paragraph
(j)(3)(i) of this section. This availability can signifi-
cantly reduce the probability that total distributions
under the contract will increase commensurately
with B’s longevity. Thus, the contract fails to be de-
scribed in section 1275(a)(1)(B)(i).
(4)Availability of a loan secured by
the contract—(i) Impact on life contin-
gency.The availability of a loan secured
by the contract can significantly reduce
the probability that total distributions
under the contract will increase commen-
surately with the longevity of the annui-
tant (or annuitants). Thus, the availability
of any such loan causes the contract to fail
to be described in section 1275(a)(1)-
(B)(i). A loan secured by the contract is
available if there is reason to believe that
the issuer (or a person acting in concert
with the issuer) will be willing to make a
loan that is directly or indirectly secured
by the annuity contract.
(ii) Example.The following example
illustrates the rules of this paragraph
(j)(4):
Example.(i) Facts.On March 1, 1998, X issues
a contract to C for $100,000. The contract provides
that, effective on any date chosen by C (the annuity
starting date), X will begin equal monthly distribu-
tions for C’s life. The amount of each monthly dis-
tribution will be no less than an amount based on the
contract’s account value as of the annuity starting
date, C’s age on that date, and permanent purchase
rate guarantees contained in the contract. From mar-
keting literature circulated by Y, there is reason to
believe that, at any time before the annuity starting
date, C may pledge the contract to borrow up to
$75,000 from Y. Y is acting in concert with X.
(ii) Analysis.Because there is reason to believe
that Y, a person acting in concert with X, is willing
to lend money against C’s contract, a loan secured
by the contract is available within the meaning of
paragraph (j)(4)(i) of this section. This availability
can significantly reduce the probability that total
distributions under the contract will increase com-
mensurately with C’s longevity. Thus, the contract
fails to be described in section 1275(a)(1)(B)(i).
(5) Minimum payout provision—(i) Im-
pact on life contingency.The existence of
a minimum payout provision can signifi-
cantly reduce the probability that total
distributions under the contract will in-
crease commensurately with the longevity
of the annuitant (or annuitants). Thus, the
existence of any minimum payout provi-
sion causes the contract to fail to be de-
scribed in section 1275(a)(1)(B)(i).
(ii) Definition of minimum payout pro-
vision.A minimum payout provision is a
contractual provision (for example, an
agreement to make distributions over a
term certain) that provides for one or
more distributions made—
(A) After the terminating death under
the contract; or
(B) By reason of the death of any indi-
vidual (including distributions triggered
by or increased by terminal or chronic ill-
ness, as defined in section 101(g)(1)(A)
and (B)).
(iii) Exceptions for certain minimum
payouts—(A) Recovery of consideration
paid for the contract.Notwithstanding
paragraphs (j)(2)(i)(A) and (j)(5)(i) of this
section, a contract does not fail to be de-
scribed in section 1275(a)(1)(B)(i) merely
because it provides that, after the termi-
nating death, there will be one or more
distributions that, in the aggregate, do not
exceed the consideration paid for the con-
tract less total distributions previously
made under the contract.
(B) Payout for one-half of life ex-
pectancy.Notwithstanding paragraphs
(j)(2)(i)(A) and (j)(5)(i) of this section, a
contract does not fail to be described in
section 1275(a)(1)(B)(i) merely because it
provides that, if the terminating death oc-
curs after the annuity starting date, distri-
butions under the contract will continue to
be made after the terminating death until a
date that is no later than the halfway date.
This exception does not apply unless the
amounts distributed in each contract year
will not exceed the amounts that would
have been distributed in that year if the
terminating death had not occurred until
the expected date of the terminating
death, determined under paragraph
(j)(5)(iii)(C) of this section.
(C) Definition of halfway date.For
purposes of this paragraph (j)(5)(iii), the
halfway date is the date halfway between
the annuity starting date and the expected
date of the terminating death, determined
as of the annuity starting date, with re-
spect to all then-surviving annuitants.
The expected date of the terminating
death must be determined by reference to
the applicable mortality table prescribed
under section 417(e)(3)(A)(ii)(I).
(iv) Examples.The following exam-
ples illustrate the rules of this paragraph
(j)(5):
Example 1.(i) Facts. On March 1, 1998, X is-
sues a contract to D for cash. The contract provides
that, effective on any date D chooses (the annuity
starting date), X will begin equal monthly distribu-
tions for the greater of D’s life or 10 years, regard-
less of D’s age as of the annuity starting date. The
amount of each monthly distribution will be no less
than an amount based on the contract’s account
value as of the annuity starting date, D’s age on that
date, and permanent purchase rate guarantees con-
tained in the contract.
(ii) Analysis.A minimum payout provision exists
because, if D dies within 10 years of the annuity
starting date, one or more distributions will be made
after D’s death. The minimum payout provision
does not qualify for the exception in paragraph
(j)(5)(iii)(B) of this section because D may defer the
annuity starting date until his remaining life ex-
pectancy is less than 20 years. If, on the annuity
starting date, D’s life expectancy is less than 20
years, the minimum payout period (10 years) will
last beyond the halfway date. The minimum payout
provision, therefore, can significantly reduce the
probability that total distributions under the contract
will increase commensurately with D’s longevity.
Thus, the contract fails to be described in section
1275(a)(1)(B)(i).
Example 2.(i) Facts.The facts are the same as
in Example 1of this paragraph (j)(5)(iv) except that
the monthly distributions will last for the greater of
D’s life or a term certain. D may choose the length
of the term certain subject to the restriction that, on
the annuity starting date, the term certain must not
exceed one-half of D’s life expectancy as of the an-
nuity starting date. The contract also does not pro-
vide for any adjustment in the amount of distribu-
tions by reason of the death of D or any other
individual, except for a refund of D’s aggregate pre-
mium payments less the sum of all prior distribu-
tions under the contract.
(ii) Analysis.The minimum payout provision
qualifies for the exception in paragraph (j)(5)(iii)(B)
of this section because distributions under the mini-
mum payout provision will not continue past the
halfway date and the contract does not provide for
any adjustments in the amount of distributions by
reason of the death of D or any other individual,
other than a guaranteed death benefit described in
paragraph (j)(5)(iii)(A) of this section. Accordingly,
the existence of this minimum payout provision
does not prevent the contract from being described
in section 1275(a)(1)(B)(i).
(6) Maximum payout provision—(i)
Impact on life contingency.The exis-
tence of a maximum payout provision
can significantly reduce the probability
that total distributions under the contract
will increase commensurately with the
1998–10 I.R.B.19March 9, 1998

longevity of the annuitant (or annuitants).
Thus, the existence of any maximum
payout provision causes the contract to
fail to be described in section 1275(a)-
(1)(B)(i).
(ii) Definition of maximum payout pro-
vision.A maximum payout provision is a
contractual provision that provides that no
distributions under the contract may be
made after some date (the termination
date), even if the terminating death has
not yet occurred.
(iii) Exception.Notwithstanding para-
graphs (j)(2)(i)(A) and (j)(6)(i) of this sec-
tion, an annuity contract does not fail to be
described in section 1275(a)(1)(B)(i)
merely because the contract contains a
maximum payout provision, provided that
the period of time from the annuity start-
ing date to the termination date is at least
twice as long as the period of time from
the annuity starting date to the expected
date of the terminating death, determined
as of the annuity starting date, with respect
to all then-surviving annuitants. The ex-
pected date of the terminating death must
be determined by reference to the applica-
ble mortality table prescribed under sec-
tion 417(e)(3)(A)(ii)(I).
(iv) Example.The following example
illustrates the rules of this paragraph (j)(6):
Example. (i) Facts.On March 1, 1998, X issues
a contract to E for cash. The contract provides that
beginning on April 1, 1998, X will distribute to E a
fixed amount of cash each month for E’s life but that
no distributions will be made after April 1, 2018.
On April 1, 1998, E’s life expectancy is 9 years.
(ii) Analysis.A maximum payout provision ex-
ists because if E survives beyond April 1, 2018, E
will receive no further distributions under the con-
tract. The period of time from the annuity starting
date (April 1, 1998) to the termination date (April 1,
2018) is 20 years. Because this 20–year period is
more than twice as long as E’s life expectancy on
April 1, 1998, the maximum payout provision quali-
fies for the exception in paragraph (j)(6)(iii) of this
section. Accordingly, the existence of this maxi-
mum payout provision does not prevent the contract
from being described in section 1275(a)(1)(B)(i).
(7) Decreasing payout provision—(i)
General rule.If the amount of distribu-
tions during any contract year (other than
the last year during which distributions
are made) may be less than the amount of
distributions during the preceding year,
this possibility can significantly reduce
the probability that total distributions
under the contract will increase commen-
surately with the longevity of the annui-
tant (or annuitants). Thus, the existence
of this possibility causes the contract to
fail to be described in section 1275(a)-
(1)(B)(i).
(ii) Exception for certain variable dis-
tributions.Notwithstanding paragraph
(j)(7)(i) of this section, if an annuity con-
tract provides that the amount of each dis-
tribution must increase and decrease in
accordance with investment experience,
cost of living indices, or similar fluctuat-
ing criteria, then the possibility that the
amount of a distribution may decrease for
this reason does not significantly reduce
the probability that the distributions under
the contract will increase commensurately
with the longevity of the annuitant (or an-
nuitants).
(iii) Examples.The following exam-
ples illustrate the rules of this paragraph
(j)(7):
Example 1.(i) Facts.On March 1, 1998, X issues
a contract to F for $100,000. The contract provides
that beginning on March 1, 1999, X will make distrib-
utions to F each year until F’s death. Prior to March
1, 2009, distributions are to be made at a rate of
$12,000 per year. Beginning on March 1, 2009, dis-
tributions are to be made at a rate of $3,000 per year.
(ii) Analysis.If F is alive in 2009, the amount
distributed in 2009 ($3,000) will be less than the
amount distributed in 2008 ($12,000). The excep-
tion in paragraph (j)(7)(ii) of this section does not
apply. The decrease in the amount of any distribu-
tions made on or after March 1, 2009, can signifi-
cantly reduce the probability that total distributions
under the contract will increase commensurately
with F’s longevity. Thus, the contract fails to be de-
scribed in section 1275(a)(1)(B)(i).
Example 2.(i) Facts.On March 1, 1998, X is-
sues a contract to G for cash. The contract provides
that, effective on any date G chooses (the annuity
starting date), X will begin monthly distributions to
G for G’s life. Prior to the annuity starting date, the
account value of the contract reflects the investment
return, including changes in the market value, of an
identifiable pool of assets. When G chooses the an-
nuity starting date, G must also choose whether the
distributions are to be fixed or variable. If fixed, the
amount of each monthly distribution will remain
constant at an amount that is no less than an amount
based on the contract’s account value as of the annu-
ity starting date, G’s age on that date, and permanent
purchase rate guarantees contained in the contract.
If variable, the monthly distributions will fluctuate
to reflect the investment return, including changes in
the market value, of the pool of assets. The monthly
distributions under the contract will not otherwise
decline from year to year.
(ii) Analysis.Because the only possible year-to-
year declines in annuity distributions are described
in paragraph (j)(7)(ii) of this section, the possibility
that the amount of distributions may decline from
the previous year does not reduce the probability
that total distributions under the contract will in-
crease commensurately with G’s longevity. Thus,
the potential fluctuation in the annuity distributions
does not cause the contract to fail to be described in
section 1275(a)(1)(B)(i).
(8) Effective dates—(i) In general.Ex-
cept as provided in paragraph (j)(8)(ii)
and (iii) of this section, this paragraph (j)
is applicable for interest accruals on or
after February 9, 1998 on annuity con-
tracts held on or after February 9, 1998.
(ii) Grandfathered contracts.This
paragraph (j) does not apply to an annuity
contract that was purchased before April
7, 1995. For purposes of this paragraph
(j)(8), if any additional investment in such
a contract is made on or after April 7,
1995, and the additional investment is not
required to be made under a binding con-
tractual obligation that was entered into
before April 7, 1995, then the additional
investment is treated as the purchase of a
contract after April 7, 1995.
(iii) Contracts consistent with the pro-
visions of FI–33–94, published at 1995–1
C.B. 920. See § 601.601(d)(2)(ii)(b) of
this chapter.This paragraph (j) does not
apply to a contract purchased on or after
April 7, 1995, and before February 9,
1998, if all payments under the contract
are periodic payments that are made at
least annually for the life (or lives) of one
or more individuals, do not increase at
any time during the term of the contract,
and are part of a series of distributions
that begins within one year of the date of
the initial investment in the contract. An
annuity contract that is otherwise de-
scribed in the preceding sentence does not
fail to be described therein merely be-
cause it also provides for a payment (or
payments) made by reason of the death of
one or more individuals.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved December 19, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
January 7, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 8, 1998, 63
F.R. 1054)
Section 1288.—Treatment of
Original Issue Discount on Tax-
Exempt Obligations
March 9, 1998201998–10 I.R.B.

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 1397E.—Credit to
Holders of Qualified Zone
Academy Bonds
26 CFR 1.1397E–1T: Qualified Zone Academy
Bonds (temporary).
T.D. 8755
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Qualified Zone Academy Bonds
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations relating to the fed-
eral income tax treatment of qualified
zone academy bonds. The regulations in
this document provide needed guidance to
holders and issuers of qualified zone acad-
emy bonds. The text of the temporary reg-
ulations also serves as the text of
REG–119449–97, page 35 of this Bulletin.
DATES: These regulations are effective
January 1, 1998.
FOR FURTHER INFORMATION CON-
TACT: Timothy L. Jones, (202) 622-
3980 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 226(a) of the Taxpayer Relief
Act of 1997, Pub. L. No. 105–34, 111
Stat. 788 (1997), amended the Internal
Revenue Code (Code) by redesignating
section 1397E as section 1397F and
adding a new section 1397E. Section
1397E authorizes a new type of debt in-
strument known as a qualified zone acad-
emy bond.
Explanation of provisions
In general
A qualified zone academy bond is a
taxable bond issued by a state or local
government the proceeds of which are
used to improve certain eligible public
schools. In lieu of receiving periodic in-
terest payments from the issuer, an eligi-
ble holder of a qualified zone academy
bond is generally allowed annual federal
income tax credits while the bond is out-
standing. These credits compensate the
holder for lending money to the issuer and
function as payments of interest on the
bond.
These temporary regulations provide
rules for the federal income tax treatment
of qualified zone academy bonds. These
regulations generally treat the allowance
of the credit as if it were a payment of in-
terest on the bond. These regulations also
provide rules to determine (1) the credit
rate, (2) the discount rate used to present
value private business contributions, and
(3) the discount rate used to determine the
maximum term of a qualified zone acad-
emy bond.
These regulations generally do not pro-
vide guidance on the statutory require-
ments that must be met for a bond to qual-
ify as a qualified zone academy bond.
Section 1397E(d) sets forth a number of
detailed requirements that must be met for
a bond to qualify as a qualified zone acad-
emy bond. In particular, section 1397E(d)-
(1)(C) requires the issuer to certify (1)
that it has written assurances that private
entities have agreed to contribute a certain
level of goods or services to the qualified
zone academy, and (2) that it has the writ-
ten approval of the eligible local educa-
tion agency for the bond issuance. The
Treasury and the IRS intend that these
certifications will be respected and may
be relied on by taxpayers if the certifica-
tions are reasonably made.
In addition, section 1397E(d)(1)(A) re-
quires that 95 percent or more of the pro-
ceeds of an issue of qualified zone acad-
emy bonds are to be used for a qualified
purpose described in section 1397E(d)(5)
with respect to a qualified zone academy
as defined in section 1397E(d)(4). The
Treasury and the IRS intend that the qual-
ified purposes set forth in section
1397E(d)(5) are to be broadly interpreted.
The Treasury and the IRS also intend that,
if an issuer is unable to actually spend 95
percent or more of the proceeds of a qual-
ified zone academy bond for a qualified
purpose, the issuer may apply remedial
actions similar to the remedial actions set
forth in §1.142–2 to preserve the qualifi-
cation of a bond. Further, the Treasury
and the IRS intend that taxpayers may
rely on an issuer’s determination that a
public school (or academic program
within a public school) is a qualified zone
academy for purposes of section
1397E(d)(4) if the determination has a
reasonable basis. The Treasury and IRS
request comments on whether additional
guidance is needed with respect to the
section 1397E(d) requirements.
Section 1397E(e) imposes a national
limitation on the amount of qualified zone
academy bonds that can be issued. For
1998 and 1999, the IRS will publish a
revenue procedure allocating the national
limitation among the States and the pos-
sessions.
The credit allowance
A qualified zone academy bond pro-
vides an annual federal income tax credit
to certain holders. Under the regulations,
the credit is deemed paid on the credit al-
lowance date—the last day of each one-
year accrual period on the bond. A tax-
payer that receives a credit on a credit
allowance date may use the credit to offset
its income tax liability for the taxable year
that includes the credit allowance date.
There are two limitations on the use of
the credit. First, only eligible taxpayers
holding the bond on the credit allowance
date may claim the credit. Section
1397E(d)(6) defines an eligible taxpayer
as a bank, an insurance company, or a cor-
poration actively engaged in the business
of lending money. Second, an eligible
taxpayer may claim the credit only to the
extent the taxpayer has a tax liability for
the taxable year that includes the credit al-
lowance date. See section 1397E(c). The
credit is nonrefundable.
Treatment of the credit as interest
The regulations treat the credit on a
qualified academy zone bond as if it were a
payment of qualified stated interest. This
treatment effectively conforms the treat-
ment of the credit with the treatment of in-
terest income on debt instruments. Thus,
for example, a holder that uses an accrual
method of accounting accrues the credit
amount over the one-year accrual period
that ends on the credit allowance date.
1998–10 I.R.B.21March 9, 1998

Adjustment when credit is limited or
disallowed
In two situations the holder of a quali-
fied zone academy bond on a credit al-
lowance date will not be able to use some
or all of the credit to offset its tax liability.
First, if the holder on a credit allowance
date is not an eligible taxpayer (a bank,
insurance company, or corporation ac-
tively engaged in the business of lending
money), no credit is allowed. Second, the
amount of the credit may exceed the in-
come tax liability of a holder that is an el-
igible taxpayer. In this second case, be-
cause the credit is nonrefundable, some or
all of the credit will not be used.
In these situations, the regulations
allow the holder to adjust its income by
deducting the amount of the unused
credit. This deduction is allowed for the
taxable year that includes the credit al-
lowance date. The Treasury and the IRS
request comments on whether this adjust-
ment works appropriately when an eligi-
ble taxpayer holds a qualified zone acad-
emy bond on the credit allowance date but
has an income tax liability (determined
without regard to the credit) that is less
than the amount of the credit.
Credit rate
Section 1397E(b)(2) authorizes the
Treasury to establish a single, uniform
credit rate that will permit the issuance of
qualified zone academy bonds without
discount and without interest cost to the
issuer. This section also requires the
Treasury to adjust the credit allowance
rate on a monthly basis to reflect changes
in market interest rates.
It is not possible to determine a uni-
form credit rate that would permit all
qualified zone academy bonds to be is-
sued at par. Some borrowers are less
creditworthy than others and, therefore,
borrow at less favorable rates. In addi-
tion, because section 1397E(b)(2) re-
quires the Secretary to set the credit rate
in the month before the bond is issued,
changes in market interest rates between
the time the rate is set and the time a qual-
ified zone academy bond is issued can re-
sult in a bond being issued at a price that
is different than par.
The regulations provide a single monthly
rate that will minimize the discount or pre-
mium on qualified zone academy bonds.
Specifically, the regulations provide that
the credit rate is 110 percent of the long-
term applicable Federal rate (AFR), com-
pounded annually, for the month of is-
suance. Tying the credit rate to the AFR
ensures that the rate will be adjusted on a
monthly basis to reflect changes in market
interest rates. In addition, the Treasury and
the IRS believe the 10 percent spread over
the long-term AFR is appropriate, in part,
because qualified zone academy bonds bear
more credit and liquidity risk than long-
term Treasury bonds.
Maximum term
Section 1397E(d)(3) sets out a formula
for determining the maximum term of a
qualified zone academy bond. The for-
mula requires the use of a discount rate
equal to the average annual interest rate of
tax-exempt obligations having a term of
ten years or more. Because there is no
readily available source for this discount
rate, the regulations provide that the dis-
count rate is 110 percent of the long-term
adjusted AFR, compounded semi-annu-
ally. The long-term adjusted AFR is pub-
lished on a monthly basis and is designed
to reflect the current yield of a risk-free
tax-exempt obligation having a term of 9
years or more.
Taxable obligation
It is possible that some qualified zone
academy bonds may either (1) provide for
payments of stated interest, or (2) be is-
sued at a discount. The Treasury and the
IRS have determined that qualified zone
academy bonds are not obligations the in-
terest on which is excluded from gross in-
come under section 103(a). There are a
number of reasons for treating a qualified
zone academy bond as a taxable obliga-
tion. For example, the requirement in
section 1397E(g) that a holder include the
allowed amount of the credit in gross in-
come evidences an intention to treat qual-
ified zone academy bonds as taxable, not
tax-exempt, obligations.
Coordination with estimated tax rules
The regulations do not address the esti-
mated tax consequences of holding a
qualified zone academy bond. The Trea-
sury and the IRS request comments on
whether there is a need to coordinate the
regulations with the estimated tax rules
and, if so, how they might be coordinated.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regulatory
action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to
these regulations and, because the regula-
tions do not impose a collection of infor-
mation on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, these tempo-
rary regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
Drafting Information
Several persons from the Office of
Chief Counsel and the Treasury Depart-
ment participated in developing these reg-
ulations.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1397E–1T also issued under
26 U.S.C. 1397E(b) and 1397E(d). * * *
Par. 2. Section 1.1397E–1T is added to
read as follows:
§1.1397E–1T Qualified zone academy
bonds (temporary).
(a) Overview.In general, a qualified
zone academy bond is a taxable bond is-
sued by a state or local government the
proceeds of which are used to improve
certain eligible public schools. An eligi-
ble taxpayer that holds a qualified zone
academy bond generally is allowed an-
nual federal income tax credits in lieu of
periodic interest payments. These credits
compensate the eligible taxpayer for lend-
ing money to the issuer and function as
March 9, 1998221998–10 I.R.B.

payments of interest on the bond. Ac-
cordingly, this section generally treats the
allowance of a credit as if it were a pay-
ment of interest on the bond. In addition,
this section provides rules to determine
the credit rate, the present value of quali-
fied contributions from private entities,
and the maximum term of a qualified
zone academy bond.
(b) Credit rate.The credit rate for a
qualified zone academy bond is equal to
110 percent of the long-term applicable
Federal rate (AFR), compounded annu-
ally, for the month in which the bond is is-
sued. The Internal Revenue Service pub-
lishes this figure each month in a revenue
ruling that is published in the Internal
Revenue Bulletin. See §601.601(d)(2)-
(ii)(b) of this Chapter.
(c) Private business contribution re-
quirement.To determine the present
value (as of the issue date) of qualified
contributions from private entities under
section 1397E(d)(2), the issuer must use a
reasonable discount rate. The credit rate
determined under paragraph (b) of this
section is a reasonable discount rate.
(d) Maximum term.The maximum
term for a qualified zone academy bond is
determined under section 1397E(d)(3) by
using a discount rate equal to 110 percent
of the long-term adjusted AFR, com-
pounded semi-annually, for the month in
which the bond is issued. The Internal
Revenue Service publishes this figure
each month in a revenue ruling that is
published in the Internal Revenue Bul-
letin. See §601.601(d)(2)(ii)(b) of this
Chapter.
(e) Tax credit—(1) Eligible taxpayer.
An eligible taxpayer (within the meaning
of section 1397E(d)(6)) that holds a quali-
fied zone academy bond on a credit al-
lowance date is allowed a tax credit
against the federal income tax imposed on
the taxpayer for the taxable year that in-
cludes the credit allowance date. The
amount of the credit is equal to the product
of the credit rate and the outstanding prin-
cipal amount of the bond on the credit al-
lowance date. The credit is subject to a
limitation based on the eligible taxpayer’s
income tax liability. See section 1397E(c).
(2) Ineligible taxpayer.A taxpayer that
is not an eligible taxpayer is not allowed a
credit.
(f) Treatment of the allowance of the
credit as a payment of interest—(1) Gen-
eral rule.The holder of a qualified zone
academy bond must treat the bond as if it
pays qualified stated interest (within the
meaning of §1.1273–1(c)) on each credit
allowance date. The amount of the
deemed payment of interest on each credit
allowance date is equal to the product of
the credit rate and the outstanding princi-
pal amount of the bond on that date.
Thus, for example, if the holder uses an
accrual method of accounting, the holder
must accrue as interest income the
amount of the credit over the one-year ac-
crual period that ends on the credit al-
lowance date.
(2) Adjustment if the holder cannot use
the credit to offset a tax liability.If a
holder holds a qualified zone academy
bond on the credit allowance date but can-
not use all or a portion of the credit to re-
duce its income tax liability (for example,
because the holder is not an eligible tax-
payer or because the limitation in section
1397E(c) applies), the holder is allowed a
deduction for the taxable year that in-
cludes the credit allowance date. The
amount of the deduction is equal to the
amount of the unused credit deemed paid
on the credit allowance date.
(g) Not a tax-exempt obligation.A
qualified zone academy bond is not an
obligation the interest on which is ex-
cluded from gross income under section
103(a).
(h) Cross-references.See section 171
and the regulations thereunder for rules
relating to amortizable bond premium.
See §1.61–7(c) for the seller’s treatment
of a bond sold between interest payment
dates (credit allowance dates) and §1.61–
7(d) for the buyer’s treatment of a bond
purchased between interest payment dates
(credit allowance dates).
(i) [Reserved]
(j) Effective date.This section applies
to a qualified zone academy bond issued
on or after January 1, 1998.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved December 19, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
January 6, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 7, 1998, 63
F.R. 671)
Section 1502.—Regulations
26 CFR 1.1502–3: Consolidated investment credit.
T.D. 8751
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Consolidated Returns—
Limitations on the Use of
Certain Losses and Credits;
Overall Foreign Loss Accounts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
temporary amendments to the consoli-
dated return regulations. The temporary
amendments govern the use of tax credits
of a consolidated group and its members.
They also concern the recharacterization
of certain foreign source income because
of a prior overall foreign loss. The text of
the temporary regulations also serves as
the text of REG–104062–97, page 34 in
this Bulletin.
DATES: These amendments are effective
January 12, 1998. For dates of applica-
tion, see the Effective Datesportion of
the preamble under SUPPLEMENTARY
INFORMATION. FOR FURTHER IN-
FORMATION CONTACT: Concerning
the temporary regulations in general, Roy
A. Hirschhorn, (202) 622-7770; concern-
ing amendments related to foreign tax
credits and foreign losses, Seth Goldstein
(202) 622-3850.
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
A. In General
On June 27, 1996, the IRS and Trea-
1998–10 I.R.B.23March 9, 1998

sury published in the Federal Registera
Treasury decision containing temporary
regulations which, in part, provide rules
governing the absorption of certain tax at-
tribute carryovers and carrybacks from
separate return limitation years (SRLYs),
terminate the consolidated return change
of ownership rules, and make minor
changes to the computation of net section
1231 gains and losses for a group. The
Treasury decision adopted without sub-
stantive change rules that were proposed
in 1991. The 1996 temporary regulations
are effective for consolidated return years
beginning on or after January 1, 1997.
The 1996 temporary regulations signif-
icantly modify SRLY loss rules which had
been in place since 1966. The 1966 SRLY
rules employed a member-by-member
and year-by-year approach to determine
the limitation on SRLY attributes. The
1996 temporary regulations adopted a
subgroup and cumulative approach. See
the preamble to NPRM for CO–078–90
(56 F.R. 4228), reprinted at 1991–1 C.B.
757. The 1996 temporary regulations,
however, only apply the new approach to
net operating loss and net capital loss car-
ryovers and carrybacks. They do not
change regulations containing limitations
on the absorption of the following other
tax attribute carryovers and carrybacks
from SRLYs: general business credits
(§1.1502–3), foreign tax credits
(§1.1502–4), and overall foreign losses
(OFLs) (§1.1502–9).
On December 30, 1992, the IRS and
Treasury published in the Federal Regis-
tera notice of proposed rulemaking con-
taining rules regarding a group’s compu-
tation of its alternative minimum tax and
minimum tax credits. See 57 F.R. 62251,
as corrected by 58 F.R. 8027, reprinted at
1993–1 C.B. 799. The proposed regula-
tions (Prop. Reg. §1.1502–55) do not ad-
dress the application of SRLY limitations
to the minimum tax credit.
B. Extension of 1996 Principles
The IRS and Treasury believe that it is
appropriate to apply a single set of SRLY
principles to all attributes that are subject
to SRLY limitations. Unnecessary com-
plexity would result from applying differ-
ent principles to different attributes. In ad-
dition, the IRS and Treasury believe that
the subgroup and cumulative principles
embodied in the 1996 temporary regula-
tions more appropriately reflect the use of
attributes brought into a consolidated
group by SRLY members than do the
member-by-member and year-by-year
rules of the 1966 regulations. Accord-
ingly, this document extends the princi-
ples of the 1996 temporary regulations to
the general business credit and the mini-
mum tax credit. In doing so, the IRS and
Treasury have not attempted to address
the issues which some commentators
have raised with respect to the application
of the SRLY limitations in general.
Rather, those issues will be addressed in
connection with a review of comments re-
ceived in response to the 1991 proposed
regulations, the 1996 temporary regula-
tions and to the temporary regulations
contained in this document, prior to the
expiration of the 1996 temporary regula-
tions in 1999.
In general, a group may include a
member’s SRLY credits in the applicable
consolidated section 38 credit or mini-
mum tax credit for a consolidated return
year based on the member’s contributions
to the consolidated section 38(c) or con-
solidated section 53(c) limitation for all
consolidated return years. The contribu-
tion is based on the aggregate of the mem-
ber’s share of the group’s tax liability for
relevant years. Such share is measured
under the principles of section 1552 and
the percentage method under §1.1502–
33(d)(3), assuming a 100% allocation of
any decreased tax liability. The contribu-
tion may be a negative number, for exam-
ple, for a year in which the overall loss of
the member offsets the income of other
members. In the case of the minimum tax
credit, the temporary regulations provide
an adjustment to avoid double counting
for years in which the SRLY member con-
tributes to the group’s AMT liability.
This document also adds an example to
§1.1502–21T(c)(1) and §1.1502–23T(b).
The examples assist taxpayers in comput-
ing their cumulative registers by illustrat-
ing the concept of cumulative contribu-
tion to consolidated net capital gain and
consolidated taxable income and the char-
acter of section 1231 items for purposes
of the relevant registers.
C. Treatment of Foreiqn Tax Credits.
OFLs and SLLs
In considering the application of the
new SRLY principles in the temporary
regulations to credits in general, the IRS
and Treasury considered extending these
principles to foreign tax credits (FTCs),
and to those losses associated with the
FTC regime, namely, overall foreign
losses (OFLs) and separate limitation
losses (SLLs). The IRS and Treasury were
concerned that continued application of
the principles of the 1966 regulations
(member-by-member and year-by-year)
to these foreign attributes, and especially
to OFL and SLL accounts, could lead to
inappropriate results. Taxpayers might
adopt structures in an attempt to achieve
indefinite postponement of the recapture
of SRLY OFLs and SLLs. Such postpone-
ment would frustrate the neutrality princi-
ple that the SRLY rules are intended to
serve (i.e., that the decision to join a new
affiliated group should generally be unaf-
fected by considerations relating to the
absorption of pre-affiliation attributes).
While it was clear that application of
the 1966 principles to OFLs and SLLs
should not continue, it was less clear that
application of the subgroup and cumula-
tive principles of the temporary regula-
tions would address all concerns. The
subgroup and cumulative principles are
meant to more closely parallel the absorp-
tion that would have taken place had the
member (or subgroup) continued filing
separate returns. The interaction of the
FTC regime (with its multiple baskets)
and other provisions of the Internal Rev-
enue Code affecting international transac-
tions, such as, for example, section
864(e)(1) which allocates the interest ex-
pense of a member to income in various
baskets based on the group’s asset alloca-
tion, can make it difficult to determine
what the member has contributed to the
group. Furthermore, even with the adop-
tion of the subgroup and cumulative prin-
ciples, taxpayers would likely have the
ability to transfer controlled foreign cor-
porations to new members or to cause op-
erations to be assumed by new members,
thereby delaying indefinitely the recap-
ture of OFLs and SLLs subject to SRLY.
The IRS and Treasury have decided,
therefore, that the principles of SRLY are
not served by applying SRLY limitations
to OFL and SLL accounts of corporations
joining a group. Thus, this document
amends portions of §1.1502–9 to elimi-
nate SRLY restrictions on OFL recapture.
A new member’s SRLY OFL account will
March 9, 1998241998–10 I.R.B.

be added to the similar consolidated OFL
account of the group. For similar reasons,
and to avoid an imbalance in the applica-
tion of the FTC regime, the IRS and Trea-
sury have decided that SRLY limitations
should not apply to FTCs of corporations
joining a group. This document also
amends §1.1502–4(f) such that, in the fu-
ture, there will be no SRLY limitation on
the use of a member’s separate year FTCs
by the group. Other limitations on the use
of separate year FTCs continue to apply.
See, for example, section 383.
These amendments apply to corpora-
tions becoming members of a group. They
do not address the apportionment of at-
tributes to corporations that cease to
members of a group. Therefore, they only
partially address the issues presented in
applying the OFL and SLL rules to
groups. In particular, the IRS and Trea-
sury recognize that the retention of the
notional account system of §1.1502–9 for
members that cease to be members is in-
consistent with the rationale for removing
the SRLY limitation for FTCs and OFL
accounts. The notional account system
may result in a member’s taking from the
group an OFL or SLL account that is un-
related to the member’s activities and fu-
ture income. Accordingly, the IRS and
Treasury expect in the near future to issue
additional amendments to §1.1502–9.
One approach under consideration would
replace the notional account system with
a new system that apportions accounts to
a departing member based on the mem-
ber’s share of group assets that would
produce income subject to recapture.
Effective Date
The temporary amendments are applic-
able to consolidated return years begin-
ning on or after January 1, 1997.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It is hereby certified that these
regulations do not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that these regulations princi-
pally affect persons filing consolidated
federal income tax returns that have car-
ryover or carryback of credits from sepa-
rate return limitation years. Available data
indicates that many consolidated return
filers are large companies (not small busi-
nesses). In addition, the data indicates that
an insubstantial number of consolidated
return filers that are smaller companies
have credit carryovers or carrybacks, and
thus even fewer of these filers have credit
carryovers or carrybacks that are subject
to the separate return limitation year
rules. Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking accompanying these regula-
tions is being sent to the Small Business
Administration for comment on their im-
pact on small businesses.
Drafting Information
The principal author of these regula-
tions is Roy A. Hirschhorn of the Office
of Assistant Chief Counsel (Corporate).
Other personnel from the IRS and Trea-
sury participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–3T also issued under
26 U.S.C. 1502.
Section 1.1502–9T also issued under
26 U.S.C. 1502. * * *
Section 1. 1502–55T also issued under
26 U.S.C. 1502. * * *
Par. 2. Section 1.1502–3 is amended by
adding paragraphs (c)(3) and (e)(3) and
by designating the text following the
heading of paragraph (d) as paragraph
(d)(l) and adding paragraph (d)(2) to read
as follows:
§1.1502–3 Consolidated investment
credit.
* * * * *
(c) * * *
(3) Special effective date.This para-
graph (c) applies to consolidated return
years beginning before January 1, 1997.
See §1.1502–3T(c) for the rule that limits
the group’s use of a section 38 credit car-
ryover or carryback from a SRLY for a
consolidated return year beginning on or
after January 1, 1997. For taxable years
not subject to §1.1502–3T(c), prior law
applies. See §1.1502–3 (c) in effect prior
to January 12, 1998, (§1.1502–3(c) as
contained in the 26 CFR part 1 edition re-
vised April 1, 1997) for prior law.
(d) Examples.(1) * * *
(2) Examples (2) and (3) of this para-
graph (d) do not apply to consolidated re-
turn years beginning on or after January
1, 1997. For consolidated return years be-
ginning on or after January 1, 1997, see
§1.1502–3T(d) .
(e) * * *
(3) Special effective date.This para-
graph (e) applies to a consolidated return
change of ownership that occurred before
January 1, 1997.
* * * * *
Par. 3. Section 1.1502–3T is added to
read as follows:
§1.1502–3T Consolidated investment
credit (temporary).
(a) and (b) [Reserved]. For further
guidance, see §1.15023(a) and (b).
(c) Limitation on tax credit carryovers
and carrybacks from separate return limi-
tation years—(1) General rule.The ag-
gregate of a member’s unused section 38
credits arising in SRLYs that are included
in the consolidated section 38 credits for
all consolidated return years of the group
may not exceed—
(i) The aggregate for all consolidated
return years of the member’s contribu-
tions to the consolidated section 38(c)
limitation for each consolidated return
year; reduced by
(ii) The aggregate of the member’s sec-
tion 38 credits arising and absorbed in all
consolidated return years (whether or not
absorbed by the member).
(2) Computational rules—(i) Mem-
ber’s contribution to the consolidated
section 38(c) limitation.If the consoli-
dated section 38(c) limitation for a con-
solidated return year is determined by
reference to the consolidated tentative
minimum tax (see section 38(c)(1)(A)),
then a member’s contribution to the con-
1998–10 I.R.B.25March 9, 1998

solidated section 38(c) limitation for such
year equals the member’s share of the
consolidated net income tax minus the
member’s share of the consolidated tenta-
tive minimum tax. If the consolidated
section 38(c) limitation for a consoli-
dated return year is determined by refer-
ence to the consolidated net regular tax
liability (see section 38(c)(1)(B)), then a
member’s contribution to the consoli-
dated section 38(c) limitation for such
year equals the member’s share of the
consolidated net income tax minus 25
percent of the quantity which is equal to
so much of the member’s share of the
consolidated net regular tax liability less
its portion of the $25,000 amount speci-
fied in section 38(c)(1)(B). The group
computes the member~s shares by apply-
ing to the respective consolidated
amounts the principles of section 1552
and the percentage method under
§1.1502–33(d)(3), assuming a 100% al-
location of any decreased tax liability.
The group must make proper adjustments
so that taxes and credits not taken into ac-
count in computing the limitation under
section 38(c) are not taken into account
in computing the member’s share of the
consolidated net income tax, etc. (See,
for example, the taxes described in sec-
tion 26(b) that are disregarded in comput-
ing regular tax liability.) Also, the group
may apportion all or a part of the $25,000
amount (or lesser amount if reduced by
section 38(c)(3)) for any year to one or
more members.
(ii) Years included in computation.For
purposes of computing the limitation
under this paragraph (c), the consolidated
return years of the group include only
those years, including the year to which a
credit is carried, that the member has been
continuously included in the group’s con-
solidated return, but exclude—
(A) For carryovers, any years ending
after the year to which the credit is car-
ried; and
(B) For carrybacks, any years ending
after the year in which the credit arose.
(iii) Subgroups and successors.The
SRLY subgroup principles under
§1.1502–21T(c)(2) apply for purposes of
this paragraph (c). The predecessor and
successor principles under §1.1502–
21T(f) also apply for purposes of this
paragraph (c).
(3) Effective date.This paragraph (c)
applies to consolidated return years be-
ginning on or after January 1, 1997. How-
ever, a group does not take into account a
consolidated taxable year beginning be-
fore January 1, 1997, in determining a
member’s (or subgroup’s) contributions
to the consolidated section 38(c) limita-
tion under this paragraph (c). See also
§1.1502–3 (c) .
(d) Example.(1) The following exam-
ple illustrates the provisions of paragraph
(c) of this section:
Example.(i) P, the common parent of the P
group, acquires all the stock of T at the beginning of
Year 2. T carries over an unused section 38 general
business credit from Year 1 of $100,000. The table
below shows the group’s net consolidated income
tax, consolidated tentative minimum tax, and con-
solidated net regular tax liabilities, and T’s share of
such taxes computed under the principles of sectyon
March 9, 1998261998–10 I.R.B.
P’s share ofT’s share of
Year 2Groupcol. 1col. 1
1. consolidated taxable income$2,000$1,200$800
2. consolidated net regular tax$700$420$280
3. consolidated alternative minimum taxable income$4,000$3,200$800
4. consolidated tentative minimum tax$800$640$160
5. consolidated net income tax$800$520$280
6. greater of line 4 or 25% of (line 2 minus $25,000) for the group$800
7. consolidated §38(c) limitation (line 5 minus line 6)$0
1552 and the percentage method under §1.1502–33
(d) (3), assuming a 100% allocation of any de-
creased tax liability, for Year 2. (The effects of the
lower section 11 brackets are ignored, there are no
other tax credits affecting a group amount or mem-
ber’s share, and $1, 000s are omitted.)
(ii) The amount of T’s unused section 38 credits
from Year 1 that are included in the consolidted sec-
tion 38 credits for Year 2 may not exceed T’s con-
tributifn to the consolidated section 38(c) limitation.
For Year 2, the group determines the consolidated
section 38(c) km: tation by reference to consolidated
tentative minimum tax for Year 2. Therefore, T’s
contribution to the consolidated section 38(c) limita-
tion for Year 2 equals its share of consolidated net
income tax minus its share of consolidated tentativi
minimum tax. T’s contribution is $280,000 minus
$160,000, or $120,000. However, because the group
P’s share ofT’s share of
Year 3Groupcol. 1col. 1
1. consolidated taxable income$1,200$1,500$(300)
2. consolidated net regular tax$420$525$(105)
3. consolidated alternative minimum taxable income$1,500$1,700$(200)
4. consolidated tentative minimum tax$300$340$(40)
5. consolidated net income tax$420$525$(105)
6. greater of line 4 or 25% of (line 2 minus $25,000) for the group$300
7. consolidated §38(c) limitation (line 5 minus line 6)$120

has a consolidated section 38 limitation of zero, it
may not include any of T’s unused section 38 credits
in the consolidated section 38 credits for Year 2.
(iii) The following table shows similar informa-
tion for the group for Year 3:
(iv) The amount of T’s unused section 38 credits
from Year 1 that are included in the consolidated
section 38 credits for Year 3 may not exceed T’s ag-
gregate contribution to the consolidated section
38(c) limitation for Years 2 and 3. For Year 3, the
group determines the consolidated section 38(c) lim-
itation by reference to the consolidated tentative
minimum tax for Year 3. Therefore, T’s contribution
to the consolidated section 38(c) limitation for Year
3 equals its share of consolidated net income tax
minus its share of consolidated tentative minimum
tax. Applying the principles of section 1552 and
§l.1502–33(d) (taking into account, for example,
that T’s positive earnings and profits adjustment
under §1.1502–33(d) reflects its losses actually ab-
sorbed by the group), T’s contribution is $(105,000)
minus $(40,000), or $(65,000). T’s /acgregate contri-
butions to the consolidated section 38(c) l~hitation
for Years 2 and 3 is $120,000 + $(65,000), or
$55,000. The group may include $55,000 of T’s Year
1 unused sectio 38 credits in its consolidated section
38 tax credit in Year 3.
(2) This paragraph (d) applies to con-
solidated return years beginning on or
after January 1, 1997. See also §1.1502–
3(d) for years prior to January 1, 1997.
(e) and (f) [Reserved]. For further guid-
ance, see §1.1502–3(e) and (f).
Par. 4. Section 1.1502–4 is amended by
adding new paragraphs (f) (3) and (g) (3)
to read as follows:
§1.1502–4 Consolidated foreign tax
credit.
* * * * *
(f) * * *
(3) Special effective date ending SRLY
limitation.See §1.1502–4T(f) for the rule
that ends the SRLY limitation with re-
spect to foreign tax credits for consoli-
dated return years beginning on or after
January 1, 1997.
(g) * * *
(3) Special effective date for CRCO
limitation.See §1.1502–4T(g)(3) for the
rule that ends the CRCO limitation with
respect to a consolidated return change of
ownership that occurred on or after Janu-
ary 1, 1997.
* * * * *
Par. 5. Section 1.1502–4T is added to
read as follows:
§1.1502–4T Consolidated foreiqn tax
credit (temporary).
(a) through (e) [Reserved]. For further
guidance, see §1.1502–4 (a) through (e).
(f) Limitation on unused foreian tax
carryover or carryback from separate re-
turn limitation years.Section 1.1502–4(f)
does not apply to consolidated return
years beginning on or after January 1,
1997. For consolidated return years be-
ginning on or after January 1, 1997, a
group shall include an unused foreign tax
of a member arising in a SRLY without
regard to the contribution of the member
to consolidated tax liability for the con-
solidated return year.
(g)(1) and (2) [Reserved]. For further
guidance, see §1.1502–4 (g) (1) and (2).
(g)(3) Special effective date for CRCO
limitation.Section 1.1502–4(g) applies to
a consolidated return change of owner-
ship that occurred before January 1, 1997.
Par. 6. In §1.1502–9, paragraph (a) is
amended by adding a sentence at the end
of the paragraph to read as follows:
§1.1502–9 Application of overall foreiqn
loss recapture rules to corporations filing
consolidated returns.
(a) In general.*** See §1.1502–
9T(b)(1)(v) for the rule that ends the sepa-
rate return limitation year limitation for
consolidated return years beginning on or
after January 1, 1997.
* * * * *
Par. 7. Section 1.1502–9T is added to
read as follows:
§1.1502–9T Application of overall foreign
loss recapture rules to corporations filing
consolidated returns (temporary).
(a) and (b) introductory text through
(b)(1)(iv) [Reserved]. For further guid-
ance, see §1.1502–9 (a) and (b) introduc-
tory text through (b) (1) (iv).
(b)(1)(v) Special effective date for SRLY
limitation.Sections 1.1502–9(b)(1)(iii)
and (iv) apply only to consolidated return
years beginning before January 1, 1997.
For consolidated return years beginning
on or after January 1, 1997, the rules of
§1.1502–9(b)(1)(ii) shall apply to overall
foreign losses from separate return years
that are separate return limitation years.
For purposes of applying §1.1502–9(b)-
(1)(ii) in such years, the group treats a
member with a balance in an overall for-
eign loss account from a separate return
limitation year on the first day of the first
consolidated return year beginning on or
after January 1, 1997, as a corporation
joining the group on such first day. An
overall foreign loss that is part of a net op-
erating loss or net capital loss carryover
from a separate return limitation year of a
member that is absorbed in a consolidated
return year beginning on or after January
1, 1997, shall be added to the appropriate
consolidated overall foreign loss account
in the year that it is absorbed. For consoli-
dated return years beginning on or after
January 1, 1997, similar principles apply
to overall foreign losses when there has
been a consolidated return change of own-
ership (regardless of when the change of
ownership occurred).
(b)(2) through (f) [Reserved]. For fur-
ther guidance, see §1.1502–9(b)(2)
through (f).
Par. 8. In §1.1502–21T, paragraph (c)
(1) (iii) is amended by adding Example 5
to read as follows:
§1.1502–21T Net operating losses
(temporary).
* * * * *
(c) * * *
(1) * * *
(iii) * * *
Example 5. Dual SRLY registers and accounting
for SRLY losses actually absorbed. (i) In Year 1, T
sustains a $100 net operating loss and a $50 net cap-
ital loss. At the beginning of Year 2, T becomes a
member of the P group. Both of T’s carryovers from
Year 1 are subject to SRLY limits under this para-
graph (c) and §1.1502–22T(c). The members of the
P group contribute the following to the consolidated
taxable income for Years 2 and 3 (computed without
regard to T’s CNOL deduction under §1.1502–21T
or net capital loss carryover under §1.1502–22T):
(ii) For Year 2, the group computes separate
SRLY limits for each of T’s SRLY carryovers from
Year 1. Under normal Internal Revenue Code rules, it
determines its ability to use its capital loss carryover
before it determines its ability to use its ordinary loss
carryover. Under section 1211, because the group has
no Year 2 capital gain, it cannot absorb any capital
losses in Year 2. T’s Year 1 net capital loss and the
1998–10 I.R.B.27March 9, 1998
PT
Year 1ordinary(100)
(SRLY)capital(50)
ordinary3060
Year 2capital0(20)
ordinary1040
Year 3capital030

group’s Year 2 consolidated net capital loss fall of
which is attributable to T) are carried over to Year 3.
(iii) Under this section, the aggregate amount of
T’s $100 NOL carryover from Year 1 that may be in-
cluded in the CNOL deduction of the group for Year 2
may not exceed $60—the amount of the consolidated
taxable income computed by reference only to T’s
items, including losses and deductions to the extent
actually absorbed (i.e., $60 of ordinary income for
Year 2). Thus, the group may include $60 of T’s ordi-
nary loss carryover from Year 1 in its Year 2 CNOL
deduction. T carries over its remaining $40 of its Year
1 loss to Year 3.
(iv) For Year 3, the group again computes separate
SRLY limits for each of T’s SRLY carryovers from
Year 1. The group has consolidated net capital gain
(without taking into account a net capital loss carry-
over deduction) of $30. Under 1.150222T(c), the ag-
gregate amount of T’s $50 capital loss carryover from
Year 1 that may be included in computing the group’s
consolidated net capital gain for all years of the group
(here Years 2 and 3) may not exceed $30 (the aggre-
gate consolidated net capital gain computed by refer-
ence only to T’s items, including losses and deduc-
tions actually absorbed (i.e., $30 of capital gain in
Year 3)). Thus, the group may include $30 of T’s Year
1 capital loss carryover in its computation of consoli-
dated net capital gain for Year 3, which offsets the
group’s capital gains for Year 3. T carries over its re-
maining $20 of its Year 1 loss to Year 4. The group
carries over the Year 2 consolidated net capital loss to
Year 4.
(v) Under this section, the aggregate amount of T’s
NOL carryover from Year 1 that may be included in
the CNOL deduction of the group for Years 2 and 3
may not exceed $100, which is the amount of the ag-
gregate consolidated taxable income for Years 2 and 3
determined by reference only to T’s items, including
losses and deductions actually absorbed (i.e., $60 of
ordinary income in Year 2 plus $40 of ordinary in-
come, $30 of capital gain, and $30 of SRLY capital
losses actually absorbed in Year 3). The group in-
cluded $60 of T’s ordinary loss carryover in its Year 2
CNOL deduction. It may include the remaining $40
of the carryover in its Year 3 CNOL deduction.
* * * * *
Par. 9. In §1.1502–23T, paragraphs (b)
and (c) are redesignated as paragraphs (c)
and (d), and a new paragraph (b) is added
to read as follows:
§1.1502–23T Consolidated net section
1231 qain or loss (temporary).
* * * * *
(b) Example.The following example il-
lustrates the provisions of this section:
Example. Use of SRLY registers with net gains and
net losses under section 1231.(i) In Year 1, T sustains
a $20 net capital loss. At the beginning of Year 2, T
becomes a member of the P group. T’s capital loss
carryover from Year 1 is subject to SRLY limits under
§1.1502–22T(c). The members of the P group con-
tribute the following to the consolidated taxable in-
come for Year 2 (computed without regard to T’s net
capital loss carryover under §1.1502– 22T):
(ii) Under section 1231, if the section 1231 losses
for any taxable year exceed the section 1231 gains
for such taxable year, such gains and losses are
treated as ordinary gains or losses. Because the P
group’s section 1231 losses, $(60), exceed the sec-
tion 1231 gains, $30, the P group’s net loss is treated
as ordinary loss. T’s net section 1231 gain has the
same character as the P group’s consolidated net sec-
tion 1231 loss, so T’s $30 of section 1231 income is
treated as ordinary income for purposes applying
§1.1502–22T(c). under §1.1502–22T(c), the group’s
consolidated net capital gain determined by reference
only to T’s items is $0. None of T’s capital loss carry-
over from Year 1 may be taken into account in Year
2.
Par. 10. Section 1.1502–55T is added
under the undesignated center heading
“Special Taxes and Taxpayers” to read as
follows:
§1.1502–55T Computation of alternative
minimum tax of consolidated groups
(temporary).
(a) through (h)(3) [Reserved].
(h)(4) Separate return year minimum
tax credit.
(i) and (ii) [Reserved].
(iii)(A) Limitation on portion of sepa-
rate return year minimum tax credit aris-
inq in separate return limitation years.
The aggregate of a member’s minimum
tax credits arising in SRLYs that are in-
cluded in the consolidated minimum tax
credits for all consolidated return years of
the group may not exceed—
(1) The aggregate for all consolidated
return years of the member’s contribu-
tions to the consolidated section 53(c)
limitation for each consolidated return
year; reduced by
(2) The aggregate of the member’s
minimum tax credits arising and absorbed
in all consolidated return years (whether
or not absorbed by the member).
(B) Computational rules—(1) Mem-
ber’s contribution to the consolidated sec-
tion 53(c) limitation.Except as provided
in the special rule of paragraph (h)(4)(iii)-
(B)(2) of this section, a member’s contri-
bution to the consolidated section 53(c)
limitation for a consolidated return year
equals the member’s share of the consoli-
dated net regular tax liability minus its
share of consolidated tentative minimum
tax. The group computes the member’s
shares by applying to the respective con-
solidated amounts the principles of sec-
tion 1552 and the percentage method
under §1.1502–33(d)(3), assuming a
100% allocation of any decreased tax lia-
bility. The group makes proper adjust-
ments so that taxes and credits not taken
into account in computing the limitation
under section 53(c) are not taken into ac-
count in computing the member’s share of
the consolidated net regular tax, etc. (See,
for example, the taxes described in sec-
tion 26(b) that are disregarded in comput-
ing regular tax liability.)
(2) Adjustment for Year in which alter-
native minimum tax is paid.For a consoli-
dated return year for which consolidated
tentative minimum tax is greater than con-
solidated regular tax liability, the group re-
duces the member’s share of the consoli-
dated tentative minimum tax by the
member’s share of the consolidated alter-
native minimum tax for the year. The
group determines the member’s share of
consolidated alternative minimum tax for
a year using the same method it uses to de-
termine the member’s share of the consoli-
dated minimum tax credits for the year.
(3) Years included in computation.For
purposes of computing the limitation
under this paragraph (h)(4)(iii), the con-
solidated return years of the group include
only those years, including the year to
which a credit is carried, that the member
has been continuously included in the
group’s consolidated return, but exclude
any years after the year to which the
credit is carried.
(4) Subgroup principles.The SRLY
subgroup principles under §1.1502–
21T(c)(2) apply for purposes of this para-
graph (h)(4)(iii). The predecessor and
successor principles under §1.1502–
21T(f) also apply for purposes of this
paragraph (h) (4) (iii).
(C) Effective date.This paragraph
(h)(4)(iii) applies to consolidated return
years beginning on or after January 1,
1997. However, a group does not take
into account a consolidated taxable year
beginning before January 1, 1997, in de-
termining a member’s (or subgroup’s)
contributions to the consolidated section
March 9, 1998281998–10 I.R.B.
PT
Year 1ordinary
(SRLY)capital(20)
ordinary1020
Year 2capital700
§1231(60)30

53(c) limitation under paragraph
(h)(4)(iii) of this section.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved December 11, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
January 9, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 12, 1998,
63 F.R. 1740)
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
Section 7872.—Treatment of
Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of March 1998. See Rev. Rul. 98–11, page 13.
1998–10 I.R.B.29March 9, 1998

March 9, 1998301998–10 I.R.B.
26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, § 1361; 1.1361–1.)
Rev. Proc. 98–23
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance on (1) the conversion of a qualified
subchapter S trust (QSST) to an electing
small business trust (ESBT), and (2) the
conversion of an ESBT to a QSST.
SECTION 2. BACKGROUND
Section 1361(a)(1) of the Internal Rev-
enue Code defines an “S corporation,”
with respect to any taxable year, as a
small business corporation for which an S
election is in effect for that year.
Section 1361(b) defines “small busi-
ness corporation” as a domestic corpora-
tion that is not an ineligible corporation
and that does not have (A) more than 75
shareholders, (B) as a shareholder a per-
son (other than an estate, a trust described
in § 1361(c)(2), or an organization de-
scribed in § 1361(c)(6)) who is not an in-
dividual, (C) a nonresident alien as a
shareholder, and (D) more than one class
of stock.
Section 1361(d)(1)(A) provides that in
the case of a QSST with respect to which
a beneficiary makes an election under
§ 1361(d)(2), the trust will be treated as a
trust described in § 1361(c)(2)(A)(i) (re-
lating to trusts that may be shareholders
of a small business corporation under
§ 1361(b)(1)).
Section 1361(d)(2)(C) provides that a
QSST election under § 1361(d), once
made, may be revoked only with the con-
sent of the Secretary.
Section 1361(c)(2)(A)(v) provides that
an ESBT (as defined in § 1361(e)) is a
permitted S corporation shareholder.
Section 1361(e)(1)(B) provides that the
term ESBT does not include any QSST if
an election under § 1361(d)(2) applies to
any corporation the stock of which is held
by the trust.
Section 1361(e)(3) provides that an
ESBT election under § 1361(e) applies to
the taxable year of the trust for which
made and all subsequent taxable years of
the trust unless revoked with the consent
of the Secretary.
Section 1377(a) provides rules for de-
termining a shareholder’s pro rata share
of any item for any taxable year.
SECTION 3. SCOPE
Section 4 of this revenue procedure
provides guidance on how to convert a
QSST to an ESBT. Section 5 of this rev-
enue procedure provides guidance on how
to convert an ESBT to a QSST. A trust
that wishes to convert within 36 months
of a previous conversion must submit an
application for consent to revoke the
QSST or ESBT election to the Internal
Revenue Service in the form of a letter
ruling request under Rev. Proc. 98–1,
1998–1 I.R.B. 7 (or its successor). The
application must be signed by the current
income beneficiary and the trustee.
This revenue procedure does not pro-
vide guidance on whether a trust qualifies
as a QSST or an ESBT. In particular, the
Internal Revenue Service is currently
studying whether a trust qualifies as an
ESBT if any portion of the trust is treated
as owned by the grantor or another person
under the provisions of subpart E (section
671 and following), part I, subchapter J,
chapter 1 of the Internal Revenue Code.
SECTION 4. CONVERSION OF A
QSST TO AN ESBT
.01 Prerequisites for Conversion from
QSST to ESBT. A trust is eligible to con-
vert from a QSST to an ESBT if it meets
the following requirements:
(1) The trust meets all of the require-
ments to be an ESBT under § 1361(e), ex-
cept for the requirement under § 1361(e)-
(1)(B) that the trust not have a QSST
election in place under § 1361(d)(2).
(2) The trustee and the current in-
come beneficiary of the trust make the
ESBT election pursuant to section 4.02 of
this revenue procedure with respect to the
stock of each S corporation held by the
trust.
(3) The trust has not converted from
an ESBT to a QSST within the 36 month
period preceding the effective date of the
new ESBT election.
(4) Except as provided in section 6
of this revenue procedure, the date on
which the ESBT election is to be effective
can not be more than 15 days and 2
months prior to the date on which the
election is filed and can not be more than
12 months after the date on which the
election is filed. If an election specifies
an effective date more than 15 days and 2
months prior to the date on which the
election is filed, it will be effective 15
days and 2 months prior to the date on
which it is filed. If an election specifies
an effective date more than 12 months
after the date on which the election is
filed, it will be effective 12 months after
the date it is filed.
.02 Procedural Requirements for Con-
version from QSST to ESBT.
The current income beneficiary and the
trustee of the trust must sign an ESBT
election and file it with the service center
where the S corporation files its income
tax return. This ESBT election must state
at the top of the document “ATTENTION
ENTITY CONTROL—CONVERSION
OF A QSST TO AN ESBT PURSUANT
TO REV. PROC. 98–23” and include all
information otherwise required for an
ESBT election (see Notice 97–12, 1997–3
I.R.B. 11). A separate election must be
made with respect to the stock of each S
corporation held by the trust.
.03 Conversion from QSST to ESBT.
Pursuant to § 1361(d)(2)(C), the con-
sent of the Commissioner to revoke a
QSST election as of the effective date of
the ESBT election is hereby granted to
any QSST that satisfies the requirements
of sections 4.01 and 4.02 of this revenue
procedure. For purposes of § 1377(a), the
QSST will be treated as terminating its in-
terest in the S corporation and the new
ESBT will be treated as a new share-
holder of the S corporation. The last day
the QSST will be a shareholder is the day
before the effective date of the ESBT
election, and the new ESBT will be a
shareholder beginning on the effective
date of the ESBT election.
SECTION 5. CONVERSION OF AN
ESBT TO A QSST
.01 Prerequisites for Conversion from
ESBT to QSST. A trust is eligible to con-
vert from an ESBT to a QSST if it meets
the following requirements:
Part III. Administrative, Procedural, and Miscellaneous

(1) The trust meets all of the require-
ments to be a QSST under § 1361(d).
(2) The trustee and current income
beneficiary of the trust make the QSST
election pursuant to section 5.02 of this
revenue procedure with respect to the
stock of each S corporation held by the
trust.
(3) The trust has not converted from
a QSST to an ESBT within the 36 month
period preceding the effective date of the
new QSST election.
(4) Except as provided in section 6
of this revenue procedure, the date on
which the QSST election is to be effective
can not be more than 15 days and 2
months prior to the date on which the
election is filed and can not be more than
12 months after the date on which the
election is filed. If an election specifies
an effective date more than 15 days and 2
months prior to the date on which the
election is filed, it will be effective 15
days and 2 months prior to the date on
which it is filed. If an election specifies
an effective date more than 12 months
after the date on which the election is
filed, it will be effective 12 months after
the date it is filed.
.02 Procedural Requirements for Con-
version from ESBT to QSST.
The current income beneficiary and the
trustee of the trust must sign a QSST elec-
tion and file it with the service center
where the S corporation files its income
tax return. This QSST election must state
at the top of the document “ATTENTION
ENTITY CONTROL—CONVERSION
OF AN ESBT TO A QSST PURSUANT
TO REV. PROC. 98–23” and include all
information otherwise required for a QSST
election (see § 1.1361–1(j)(6) of the In-
come Tax Regulations). A separate elec-
tion must be made with respect to the stock
of each S corporation held by the trust.
.03 Conversion from ESBT to QSST.
Pursuant to § 1361(e)(3), the consent of
the Commissioner to revoke an ESBT
election as of the effective date of the
QSST election is hereby granted to any
ESBT that satisfies the requirements of
sections 5.01 and 5.02 of this revenue
procedure. For purposes of § 1377(a), the
ESBT will be treated as terminating its in-
terest in the S corporation and the new
QSST will be treated as a new share-
holder of the S corporation. The last day
the ESBT will be a shareholder is the day
before the effective date of the QSST
election, and the new QSST will be a
shareholder beginning on the effective
date of the QSST election.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning after December
31, 1996. An election can be made effec-
tive as of any date on or after January 1,
1997, and before March 9, 1998, if it is
filed not more than 15 days and 2 months
after March 9, 1998.
PAPERWORK REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1591.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The collections of information in this
revenue procedure are in sections 4.02
and 5.02. This information is required by
the Internal Revenue Service to assure
compliance with the new provisions of
the Small Business Job Protection Act of
1996. The likely respondents are business
or other for-profit institutions.
The estimated total annual reporting
burden is 2500 hours.
The estimated average annual burden
per respondent is one hour. The estimated
number of respondents is 2500.
The estimated frequency of responses
is once.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Steven R. Schneider of the
Office of Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue procedure contact Steven R.
Schneider at (202) 622-3060 (not a toll-
free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, § 280F; 1.280F–7)
Rev. Proc. 98–24
SECTION 1. PURPOSE
This revenue procedure provides limi-
tations on depreciation deductions for
owners of passenger automobiles de-
signed to be propelled primarily by elec-
tricity and built by an original equipment
manufacturer (electric automobiles) first
placed in service after August 5, 1997,
and before January 1, 1998, and the
amounts to be included in income by
lessees of electric automobiles first leased
after August 5, 1997, and before January
1, 1998. The tables detailing these depre-
ciation limitations and lessee inclusion
amounts reflect the tripling of the base de-
preciation limits provided in § 280F(a)-
(1)(A) required by § 280F(a)(1)(C) of the
Internal Revenue Code, and the automo-
bile price inflation adjustments required
by § 280F(d)(7).
SECTION 2. BACKGROUND
For owners of automobiles, § 280F(a)-
(1)(A) imposes dollar limitations on the
depreciation deduction for both the year
that the automobile is placed in service
and each succeeding year. Section
280F(a)(1)(C)(ii) provides that in the case
of a “purpose built passenger vehicle” (as
defined in § 4001(a)(2)(C)(ii)), each of
the annual limitations specified in
§ 280F(a)(1)(A) shall be tripled. Section
4001(a)(2)(C)(ii) provides that a purpose
built passenger vehicle means a passenger
vehicle produced by an original equip-
ment manufacturer and designed so that
the vehicle may be propelled primarily by
electricity.
Section 280F(d)(7) requires the
amounts allowable as depreciation deduc-
tions under § 280F(a)(1)(A) to be in-
creased by a price inflation adjustment
amount for passenger automobiles placed
in service after calendar year 1988.
For leased automobiles, § 280F(c) re-
quires a reduction in the deduction al-
1998–10 I.R.B.31March 9, 1998

lowed to the lessee of the automobile.
The reduction must be substantially
equivalent to the limitations on the depre-
ciation deductions imposed on owners of
automobiles. Under § 1.280F–7(a), this
reduction requires the lessees to include
in gross income an inclusion amount de-
termined by applying a formula to the
amount obtained from a table. The table
shows inclusion amounts for a range of
fair market values for each tax year after
the automobile is first leased.
SECTION 3. SCOPE AND OBJECTIVE
01. The limitations on depreciation de-
ductions in section 4.02 of this revenue
procedure apply to electric automobiles
(other than leased electric automobiles)
that are placed in service after August 5,
1997, and before January 1, 1998, and
continue to apply for each tax year that
the automobile remains in service.
02. The table in section 4.03 of this
revenue procedure applies to leased elec-
tric automobiles for which the lease term
begins after August 5, 1997, and before
January 1, 1998. Lessees of such automo-
biles must use this table to determine the
inclusion amount for each tax year during
which the automobile is leased.
03. SeeRev. Proc. 96–25, 1996–1 C.B.
681, for depreciation limitations and in-
come inclusion amounts for electric auto-
mobiles first purchased or leased before
January 1, 1997, and Rev. Proc. 97–20,
1997–11 I.R.B. 10, for depreciation limi-
tations and income inclusion amounts for
electric automobiles first purchased or
leased on or after January 1, 1997, and be-
fore August 6, 1997.
SECTION 4. APPLICATION
01. A taxpayer placing an electric auto-
mobile in service for the first time after
August 5, 1997, and before January 1,
1998, is limited to the depreciation deduc-
tion shown in Table 1 of section 4.02(2)
of this revenue procedure. A taxpayer
first leasing an electric automobile after
August 5, 1997, and before January 1,
1998, must use Table 2 in section 4.03 of
this revenue procedure to determine the
inclusion amount that is added to gross in-
come.
02. Limitations on Depreciation De-
ductions for Certain Automobiles.
(1) Amount of the Inflation Adjust-
ment.Under § 280F(d)(7)(B)(i), the auto-
mobile price inflation adjustment for any
calendar year is the percentage (if any) by
which the CPI automobile component for
October of the preceding calendar year
exceeds the CPI automobile component
for October 1987. The term “CPI auto-
mobile component” is defined in
§ 280F(d)(7)(B)(ii) as the “automobile
component” of the Consumer Price Index
for all Urban Consumers published by the
Department of Labor (the CPI). The new
car component of the CPI was 115.2 for
October 1987 and 141.5 for October
1996. The October 1996 index exceeded
the October 1987 index by 26.3. The In-
ternal Revenue Service has, therefore, de-
termined that the automobile price infla-
tion adjustment for 1997 is 22.83 percent
(26.3/115.2 3100%). This adjustment is
applicable to all automobiles that are first
placed in service in calendar year 1997.
To determine the dollar limitations applic-
able to an electric automobile first placed
in service after August 5, 1997, and be-
fore January 1, 1998, the dollar limita-
tions in § 280F(a)(1)(A) are tripled in ac-
cordance with § 280F(a)(1)(C) and are
then multiplied by a factor of 0.2283; the
resulting increases, after rounding to the
nearest $100, are added to the tripled
1988 limitations to give the depreciation
limitations for 1997.
(2) Amount of the Limitation.For
electric automobiles placed in service
after August 5, 1997, and before January
1, 1998, Table 1 contains the dollar
amount of the depreciation limitations for
each tax year.
03. Inclusions in Income of Lessees of
Electric Automobiles.
The inclusion amounts for electric
automobiles first leased after August 5,
1997, and before January 1, 1998, are cal-
culated under the procedures described in
§ 1.280F–7(a) of the Income Tax regula-
tions. Table 2 of this revenue procedure is
the applicable table to be used in applying
those procedures.
March 9, 1998321998–10 I.R.B.
REV. PROC. 98–24 TABLE 1
DEPRECIATION LIMITATIONS
FOR ELECTRIC AUTOMOBILE
FIRST PLACED IN SERVICE AFTER
AUGUST 5, 1997, AND BEFORE
JANUARY 1, 1998
Tax YearAmount
1st Tax Year$9,480
2nd Tax Year $15,100
3rd Tax Year $9,050
Each Succeeding Year$5,425
REV. PROC. 98–24 TABLE 2
DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES
WITH A LEASE TERM BEGINNING AFTER AUGUST 5, 1997,
AND BEFORE JANUARY 1, 1998
Fair Market Value of AutomobileTax Year During Lease
OverNot Over1st2nd3rd4th5th and Later
$ 47,00048,000147911
48,00049,000922334148
49,00050,0001740607384
50,00051,000255887104122
51,00052,00034 75114 136159
52,00053,00042 93140 169195
53,00054,00050111167 200 232
54,00055,000 58129 194232269

REV. PROC. 98–24 TABLE 2—Continued
DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES
WITH A LEASE TERM BEGINNING AFTER AUGUST 5, 1997,
AND BEFORE JANUARY 1, 1998
Fair Market Value of AutomobileTax Year During Lease
OverNot Over1st2nd3rd4th5th and Later
55,00056,000 66147220264306
56,00057,00074165247296342
57,00058,00083183273328379
58,00059,00091201300359417
59,000 60,00099219326392453
60,00062,000111246366440508
62,00064,000 128 282 419 503 582
64,00066,000 144 318472 567656
66,000 68,000160354525631 730
68,00070,000177389579695803
70,000 72,000193425632759876
72,00074,000209 461 686 822950
74,000 76,000226497738 887 1,023
76,00078,000242533792 950 1,097
78,000 80,000 259 5688451,014 1,171
80,000 85,000 287 632 938 1,125 1,300
85,000 90,000 3287211,0711,285 1,484
90,00095,000 369 8111,2041,444 1,669
95,000 100,000 410 900 1,337 1,604 1,853
100,000110,000 4711,035 1,5371,843 2,128
110,000120,0005531,214 1,8032,1622,497
120,000130,0006351,3932,0692,4812,866
130,000140,0007171,5732,3342,8013,233
140,000150,0007981,7522,6013,1193,602
150,000160,000 8801,9322,8663,4393,970
160,000170,000 9622,1113,1333,757 4,338
170,000180,000 1,044 2,290 3,3994,076 4,707
180,000190,0001,1262,469 3,665 4,395 5,075
190,000200,0001,2082,6493,9304,715 5,443
200,000 210,000 1,289 2,828 4,1975,033 5,812
210,000 220,000 1,3713,008 4,4625,353 6,179
220,000230,000 1,4533,187 4,7295,6716,548
230,000 240,000 1,535 3,3664,9955,990 6,916
240,000250,0001,6173,5455,2616,3097,285
1998–10 I.R.B.33March 9, 1998
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
electric automobiles (other than leased
electric automobiles) that are first placed
in service after August 5, 1997, and before
January 1, 1998, and for leased electric au-
tomobiles that are first leased after August
5, 1997, and before January 1, 1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Bernard P. Harvey of the Of-
fice of the Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding the de-
preciation limitations and lessee inclusion
amounts in this revenue procedure, con-
tact Mr. Harvey at (202) 622-3110 (not a
toll-free call).

March 9, 1998341998–10 I.R.B.
Notice of Proposed Rulemaking
and Notice of Public Hearing
Consolidated Returns—
Limitations on the Use of
Certain Losses and Credits
REG–104062–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing by cross-reference to temporary regu-
lations and notice of public hearing.
SUMMARY: In T.D. 8751, page 23 of this
Bulletin, the IRS is issuing temporary reg-
ulations that will govern the use of certain
tax credits and losses of a consolidated
group and its members. The text of those
temporary regulations also serves as the
text of these proposed regulations. This
document also provides notice of a public
hearing on these proposed regulations.
DATES: Written comments and outlines
of topics to be discussed at the public
hearing scheduled for May 7, 1998, must
be received by April 13, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R [REG–104062–97],
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
[REG–104062–97], Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the Home Page
or by submitting comments directly to the
IRS Internet site at: http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
The public hearing has been scheduled for
May 7, 1998, at 10 a.m., in room 2615,
Internal Revenue Building, 1111 Consti-
tution Avenue NW, Washington DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, in general, Roy Hirschhorn (202)
622-7770; concerning amendments re-
lated to foreign tax credits and foreign
losses, Seth Goldstein (202) 622-3850;
concerning submissions and the hearing,
Mike Slaughter (202) 622-7190 (not toll-
free numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in T.D. 8751
amend the Income Tax Regulations (26
CFR part 1) relating to section 1502. The
temporary regulations provide rules that
will govern the use of certain tax credits
and losses of a consolidated group and its
members. The text of those temporary
regulations also serves as the text of these
proposed regulations. The preamble to
the temporary regulations explains the
temporary regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It is hereby certified
that these regulations do not have a signif-
icant economic impact on a substantial
number of small entities. This certifica-
tion is based on the fact that these regula-
tions principally affect persons filing con-
solidated federal income tax returns that
have carryover or carryback of credits
from separate return limitation years.
Available data indicates that many con-
solidated return filers are large companies
(not small businesses). In addition, the
data indicates that an insubstantial num-
ber of consolidated return filers that are
smaller companies have credit carryovers
or carrybacks, and thus even fewer of
these filers have credit carryovers or car-
rybacks that are subject to the separate re-
turn limitation year rules. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. All comments will be made avail-
able for public inspection and copying.
A public hearing has been scheduled
for May 7, 1998, at 10 a.m., in room
2615. Because of access restrictions, visi-
tors will not be admitted beyond the Inter-
nal Revenue Building lobby more than 15
minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit written
comments and an outline of the topics
(signed original and eight (8) copies) to
be discussed by April 13, 1998.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Roy A. Hirschhorn of the Office
of Assistant Chief Counsel (Corporate).
Other personnel from the IRS and Trea-
sury participated in their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
26 CFR part 1 is amended by adding en-
tries in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–3 also issued under 26
U.S.C. 1502.
Section 1.1502–4 also issued under 26
U.S.C. 1502.
Section 1.1502–9 also issued under 26
U.S.C. 1502. * * *
Part IV. Items of General Interest

1998–10 I.R.B.35March 9, 1998
Section 1.1502–23 also issued under 26
U.S.C. 1502. * * *
Section 1.1502–55 also issued under 26
U.S.C. 1502. * * *
Par. 2. In §1.1502–3, paragraph (c) is
revised to read as follows:
§1.1502–3 Consolidated investment
credit.
* * * * *
(c) [The text of the proposed paragraph
(c) of this section is the same as the text of
§1.1502–3T(c) published in T.D. 8751.]
* * * * *
Par. 3. In §1.1502–4, paragraphs (f)(3)
and (g)(3) are added to read as follows:
§1.1502–4 Consolidated foreign tax
credit.
* * * * *
(f) * * *
(3) [The text of the proposed para-
graph (f)(3) of this section is the same as
the text of §1.1502–4T(f)(3) published in
T.D. 8751.]
(g) * * *
(3) [The text of the proposed para-
graph (g)(3) of this section is the same as
the text of §1.1502-4T(g)(3) published in
T.D. 8751.]
* * * * *
Par. 4. In §1.1502–9, paragraph
(b)(1)(v) is added to read as follows:
§1.1502–9 Application of overall foreign
losses recapture rules to corporations
filing consolidated returns.
* * * * *
(b) * * *
(1) * * *
(v) [The text of the proposed para-
graph (b)(1)(v) of this section is the same
as the text of §1.1502–9T(b)(1)(v) pub-
lished in T.D. 8751.]
* * * * *
Par. 5. Section 1.1502–21, as proposed
to be added at 61 F.R. 33394, June 27,
1996, is amended in paragraph (c)(1)(iii)
by adding Example 5. to read as follows:
§1.1502–21 Net operating losses.
* * * * *
(c) * * *
(1) * * *
(iii) [The text of the proposed para-
graph (c)(1)(iii) Example 5of this section
is the same as the text of §1.1502–
21T(c)(1)(iii) Example 5published in
T.D. 8751.]
* * * * *
Par. 6. Section 1.1502–23, as proposed
to be added at 61 F.R. 33395, June 27,
1996, is amended by redesignating para-
graphs (b) and (c) as paragraphs (c) and
(d) and adding a new paragraph (b) to
read as follows:
§1.1502–23 Consolidated net section
1231 gain or loss.
* * * * *
(b) [The text of the proposed para-
graph (b) of this section is the same as the
text of §1.1502–23T(b) published in T.D.
8751.]
* * * * *
Par. 7. Section 1.1502–55, as proposed
to be added at 57 F.R. 62257, December
30, 1992, is amended by adding para-
graph (h)(4)(iii) to read as follows:
§1.1502–55 Computation of alternative
minimum tax of consolidated groups.
* * * * *
(h) * * *
(4) * * *
(iii) [The text of the proposed para-
graph (h)(4)(iii) of this section is the same
as the text of §1.1502–55T(h)(4)(iii) pub-
lished in T.D. 8751.]
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
January 9, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 12, 1998,
63 F.R. 1803)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Qualified Zone Academy Bonds
REG–119449–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing by cross-reference to temporary regu-
lations and notice of public hearing.
SUMMARY: In T.D. 8755, page 21 of
this Bulletin, the IRS is issuing temporary
regulations that provide guidance to hold-
ers and issuers of qualified zone academy
bonds. These proposed regulations reflect
changes made by the Taxpayer Relief Act
of 1997, Pub. L. No. 105–34, 111 Stat.
788 (1997), and affect holders and issuers
of qualified zone academy bonds. The
text of those temporary regulations also
serves as the text of these proposed regu-
lations. This document also provides a
notice of public hearing on these pro-
posed regulations.
DATES: Written comments must be re-
ceived by April 7, 1998. Outlines of top-
ics to be discussed at the public hearing
scheduled for May 27, 1998, must be re-
ceived by May 6, 1998.
ADDRESSES: Send submissions to
CC:DOM:CORP:R (REG–119449–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–119449–97), Courier’s Desk, In-
ternal Revenue Building, 1111 Constitu-
tion Avenue, NW, Washington, DC. Alter-
natively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting directly to the IRS
Internet site at http:www.irs.ustreas.gov/
prod/taxregs/comments.html. The public
hearing will be held in Room 2615, Inter-
nal Revenue Building, 1111 Constitution
Ave., NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Tim-
othy L. Jones, (202) 622-3980; concern-
ing submissions and the hearing, LaNita
Van Dyke (202) 622-7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 1.1397E–1T, published in T.D.
8755, is issued to provide guidance to
holders and issuers of qualified zone
academy bonds.

March 9, 1998361998–10 I.R.B.
The text of those temporary regulations
also serves as the text of these proposed
regulations. The preamble to the tempo-
rary regulations explains the temporary
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and, because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to the
IRS. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for May 27, 1998, at 10:00 a.m. in Room
2615, Internal Revenue Building, 1111 C
Constitution Avenue NW, Washington,
DC. Because of access restrictions, visi-
tors will not be admitted beyond the
building lobby more than 15 minutes be-
fore the hearing starts.
The rules of 26 C.F.R. 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by April 7, 1998, and submit
an outline of the topics to be discussed
and time to be devoted to each topic
(signed original and eight (8) copies) by
May 6, 1998.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
Several persons from the Office of
Chief Counsel and the Treasury Depart-
ment participated in the development and
drafting of these regulations.
* * * * *
Proposed Amendment to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1397E–1 also issued under 26
U.S.C. 1397E(b) and 1397E(d). * * *
Par. 2. Sections 1.1397E–1 is added to
read as follows:
§ 1.1397E–1 Qualified zone academy
bonds.
[The text of this proposed section is the
same as the text of §1.1397E-1T pub-
lished in T.D. 8755.]
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved December 19, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
January 6, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 7, 1998, 63
F.R. 671)
Proposed Forms W–8, W–8A,
W–8B, and W–8C
Announcement 98–15
The Internal Revenue Service an-
nounces that it is requesting comments
from the public on proposed new Forms
W–8, W–8A, W–8B, W–8C. These
forms are being developed as a result of
final regulations published on October 14,
1997, relating to the withholding of in-
come tax under sections 1441, 1442, and
1443 on certain U.S. source income paid
to foreign persons. T.D. 8734, 62 F.R.
53387; 1997–44 I.R.B. 5. These regula-
tions, which provide for the use of several
withholding certificates, will be effective
January 1, 1999.
Form W–8 (Certificate of Foreign Sta-
tus of Beneficial Owner for United States
Tax Withholding) would be provided to a
withholding agent or payer by a beneficial
owner of certain types of income to estab-
lish foreign status, to claim that such per-
son is the beneficial owner of the income
for which the form is being furnished, and
if applicable, to claim a reduced rate of, or
exemption from, withholding as a resi-
dent of a foreign country with which the
United States has an income tax treaty.
Form W–8A (Foreign Person’s Claim
of Income Effectively Connected With
the Conduct of a Trade or Business in the
United States) would be provided to a
withholding agent or payer by a foreign
person claiming that certain income is ef-
fectively connected with the conduct of a
trade or business in the United States.
Form W–8B (Certification for United
States Tax Withholding for Foreign Gov-
ernments and Other Foreign Organiza-
tions) would be provided to a withholding
agent or payer by a foreign government,
international organization, foreign central
bank of issue, or foreign tax-exempt orga-
nization to claim that such organization is
the beneficial owner of the income for
which the form is being furnished, and if
applicable, to claim a reduced rate of, or
exemption from, withholding as a resi-
dent of a foreign country with which the
United States has an income tax treaty.
Form W–8C (Certificate of Intermedi-
ary for United States Tax Withholding)
would be provided to a withholding agent
or payer by an intermediary either to
make representations regarding the status
of beneficial owners of the amount paid
or to transmit appropriate documentation
to the withholding agent.
This announcement provides draft
copies of proposed Forms W–8, W–8A,
W–8B, and W–8C. The forms are being
issued without the instructions so that
withholding agents can adapt their sys-
tems to comply with the regulations.
Based on comments, the forms may be re-
vised, and together with instructions, will
be re-issued for further comment as part
of the OMB approval process.
The IRS would like to receive com-
ments on these proposed draft forms from
all interested persons by April 8, 1998.
Please send comments to Chairman, Tax

1998–10 I.R.B.37March 9, 1998
Forms Coordinating Committee, Internal
Revenue Service, T:FP, Room 5577, 1111
Constitution Avenue, NW, Washington,
DC 20224.

March 9, 1998381998–10 I.R.B.
Exhibit 1

1998–10 I.R.B.39March 9, 1998
Exhibit 2

March 9, 1998401998–10 I.R.B.
Exhibit 3

1998–10 I.R.B.41March 9, 1998
Exhibit 3 (Continued)

March 9, 1998421998–10 I.R.B.
Exhibit 4

1998–10 I.R.B.43March 9, 1998
Exhibit 4 (Continued)

Conversion to the Euro by
Members of the European Union
Announcement 98–18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Solicitation for comments.
SUMMARY: The Treasury Department
and the IRS are soliciting comments on
the tax issues raised by the conversion of
certain European countries’ currencies to
a single European currency (euro).
SUPPLEMENTARY INFORMATION:
Background
The Treaty on European Union and
Final Act of Feb. 7, 1992, 31 I.L.M. 247
(entered into force Nov. 1, 1993), sets
forth a plan to replace the national curren-
cies of participating members (legacy cur-
rencies) that meet certain economic crite-
ria with a single European currency
(euro). Pursuant to directives of the Euro-
pean Council, the process of converting
the legacy currencies into the euro will
take place in three phases.
On January 1, 1999, the conversion
rates from the legacy currencies to the
euro are scheduled to become fixed.
Thereafter, each of the legacy currencies
will remain in circulation but will cease to
have independent value apart from the
euro. On January 1, 2002, euro bills and
coins will be introduced into circulation.
Finally, by July 1, 2002, the legacy cur-
rencies will no longer be accepted as legal
tender.
The conversion of a legacy currency to
the euro raises a number of tax issues for
U.S. taxpayers operating, investing or
otherwise conducting business in a legacy
currency. For example, U.S. federal tax
considerations include:
1. Whether a qualified business unit
(QBU), as defined in section 989(a), with
a legacy functional currency that is con-
verted to the euro will have changed its
functional currency under section 985 and
regulations thereunder and the implica-
tions of any such change (e.g., whether
Treas. Reg. §1.985–5 adequately ad-
dresses necessary adjustments, the treat-
ment of unrealized currency gains and
losses, and the appropriate timing of any
such change).
2. Whether the conversion of a legacy
currency to the euro creates a realization
event with respect to a financial instru-
ment denominated in a legacy currency
and the appropriate time to recognize any
resulting gain or loss.
Comments
The Treasury Department and the IRS
are studying issues arising from conver-
sion to the euro to determine the appropri-
ate scope and content of published guid-
ance and invite interested persons to
submit comments regarding, but not lim-
ited to, the issues described above.
Comments are requested on or before
April 30, 1998. Send written comments
to: Internal Revenue Service, Attn: CC:
DOM:CORP:R (Announcement 98-18),
room 5226, POB 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Alterna-
tively, taxpayers may submit comments in
writing, by hand delivery to CC:DOM:
CORP:R (Announcement 98–18),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Ave., NW, Wash-
ington, DC, or, electronically, via the IRS
Internet site at: http://www.irs.ustreas.
gov/prod/taxregs/comments.html. If a re-
spondent is submitting written comments,
a signed original and eight (8) copies are
requested. All comments will be avail-
able for public inspection and copying in
their entirety.
DRAFTING INFORMATION
For further information regarding this
announcement, contact Howard Wiener
of the Office of Associate Chief Counsel
(International) at 202-622-3870 (not a
toll-free number)
Deletions From Cumulative List
of Organizations Contributions
to Which Are Deductible Under
Section 170 of the Code
Announcement 98–19
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an orga-
nization ceases to qualify under section
170(c)(2) if the organization has not
timely filed a suit for declaratory judg-
ment under section 7428 and if the con-
tributor (1) had knowledge of the revoca-
tion of the ruling or determination letter,
(2) was aware that such revocation was
imminent, or (3) was in part responsible
for or was aware of the activities or omis-
sions of the organization that brought
about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on March 9, 1998,
and would end on the date the court first
determines that the organization is not de-
scribed in section 170(c)(2) as more par-
ticularly set forth in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual who was responsible, in whole or in
part, for the acts or omissions of the orga-
nization that were the basis for revocation.
Adopt-A-Pet, Inc.
Tulsa, OK
Cavalier Manor Little League
Portsmouth, VA
Fountain of Life, Inc.
Fayetteville, NC
Health Plan Associates, PA
Baltimore, MD
Section 7428(c) Validation of
Certain Contributions Made
During Pendency of Declaratory
Judgment Proceedings
This announcement serves notice to po-
tential donors that the organization listed
below has recently filed a timely declara-
tory judgment suit under section 7428 of
the Code, challenging revocation of its
status as an eligible donee under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice of
March 9, 1998441998–10 I.R.B.

revocation is published in the Internal
Revenue Bulletin and ends on the date on
which a court first determines that an or-
ganization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1). In the case of individ-
ual contributors, the maximum amount of
contributions protected during this period
is limited to $1,000.00, with a husband
and wife being treated as one contributor.
This protection is not extended to any in-
dividual who was responsible, in whole or
in part, for the acts or omissions of the or-
ganization that were the basis for the re-
vocation. This protection also applies
(but without limitation as to amount) to
organizations described in section
170(c)(2) which are exempt from tax
under section 501(a). If the organization
ultimately prevails in its declaratory judg-
ment suit, deductibility of contributions
would be subject to the normal limitations
set forth under section 170.
Muscular Dystrophy Aid Society, Inc.
Houston, TX
1998–10 I.R.B.45March 9, 1998

March 9, 1998461998–10 I.R.B.
NameAddressDesignationDate of Suspension
Trempus Jr., JosephCabot, PACPAOctober 1, 1997 to February 28, 1998
Tyler, Delbert D.Monroeville, PACPAOctober 23, 1997 to April 22, 2000
Gillmore, George P.Hampton, NJCPAIndefinite from October 10, 1997
Kamin, James C.Chicago, ILCPADecember 1, 1997 to May 31, 1999
Hubbard, EdwardChicago, ILAttorneyIndefinite from December 1, 1997
Retzlaff, GeneHortonville, WIEnrolled AgentDecember 1, 1997 to May 31, 1998
Conklin, Dennis M.Arlington Hghts, ILCPADecember 3, 1997 to December 2, 1998
Bowen, Roger H.Lake Bluff, ILCPADecember 4, 1997 to December 3, 1999
Ciconte, WilliamWilmington, DEEnrolled AgentDecember 10, 1997 to December 9, 2000
Lopin, Paul I.Chicago, ILCPAIndefinite from December 11, 1997
Goldstein, BenjaminDes Plaines, ILCPADecember 12, 1997 to June 11, 1998
Olsen Jr., BurtonRancho Cordova, CACPADecember 15, 1997 to June 14, 1998
Hickman, MichaelLawrence, KSCPADecember 16, 1997 to April 15, 1998
Grant, Arthur J.Morris Plains, NJCPAJanuary 1, 1998 to December 31, 2000
Zielinski, HenryWoodstock, ILCPAJanuary 1, 1998 to June 30, 1999
Rosales, JohnBatavia, ILCPAJanuary 1, 1998 to April 30, 1998
Reinstein, MaxwellPotomac, MDCPAJanuary 1, 1998 to March 31, 1998
Payne, CharlotteBreckenridge, COCPAJanuary 1, 1998 to December 31, 1999
Ibrahim, MongyRaleigh, NCCPAJanuary 1, 1998 to December 31, 1998
Koutek, Paul J.Westchester, ILCPAJanuary 1, 1998 to August 31, 1998
Doherty, StevenChicago, ILCPAJanuary 1, 1998 to December 31, 1999
Deren, PatriciaLackawanna, NYAttorneyJanuary 1, 1998 to December 31, 1998
Calhoun, SandraLouisville, KYCPAJanuary 1, 1998 to March 31, 1998
Thurman, StephenArcadia, CACPAJanuary 1, 1998 to December 31, 1998
Davidson, MarkTulsa, OKCPAJanuary 15, 1998 to October 14, 1999
Hequembourg, DonaldGlencoe, MOCPAJanuary 20, 1998 to July 19, 1998
Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent, or enrolled ac-
tuary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent, or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by, or sharing fees with any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled
actuaries to identify practitioners under
consent suspension from practice before the
Internal Revenue Service, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent, or enrolled actu-
ary, and date or period of suspension. This
announcement will appear in the weekly
Bulletin at the earliest practicable date
after such action and will continue to ap-
pear in the weekly Bulletins for five suc-
cessive weeks or for as many weeks as is
practicable for each attorney, certified
public accountant, enrolled agent, or en-
rolled actuary so suspended and will be
consolidated and published in the Cumu-
lative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:

1998–10 I.R.B.47March 9, 1998
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Internal
Revenue Service any practitioner who,
within five years from the date the expe-
dited proceeding is instituted, (1) has had
a license to practice as an attorney, certi-
fied public accountant, or actuary sus-
pended or revoked for cause; or (2) has
been convicted of any crime under title 26
of the United States Code or, of a felony
under title 18 of the United States Code
involving dishonesty or breach of trust.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employ-
ing, accepting assistance from, being em-
ployed by, or sharing fees with, any practi-
tioner disbarred or suspended from practice
before the Internal Revenue Service.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled ac-
tuaries to identify practitioners under expe-
dited suspension from practice before the
Internal Revenue Service, the Director of
Practice will announce in the Internal Rev-
enue Bulletin the names and addresses of
practitioners who have been suspended
from such practice, their designation as at-
torney, certified public accountant, en-
rolled agent, or enrolled actuary, and date
or period of suspension. This announce-
ment will appear in the weekly Bulletin at
the earliest practicable date after such ac-
tion and will continue to appear in the
weekly Bulletins for five successive weeks
or for as many weeks as is practicable for
each attorney, certified public accountant,
enrolled agent, or enrolled actuary so sus-
pended and will be consolidated and pub-
lished in the Cumulative Bulletin.
The following individual has been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions of
the applicable regulations:
Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice
Before the Internal Revenue Service
NameAddressDesignationDate of Suspension
Christensen, Reed K.Roseville, CAEnrolled AgentIndefinite from December 16, 1997

March 9, 1998481998–10 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

1998–10 I.R.B.49March 9, 1998
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–27 through
1997–52 will be found in Internal Revenue Bulletin
1998–1, dated January 5, 1998.
Numerical Finding List
1
Bulletins 1998–1 through 1998–9
Announcements:
98–1, 1998–2 I.R.B. 38
98–2, 1998–2 I.R.B.38
98–3, 1998–2 I.R.B.38
98–4, 1998–4 I.R.B.31
98–5, 1998–5 I.R.B. 25
98–6, 1998–5 I.R.B. 25
98–7, 1998–5 I.R.B. 26
98–8, 1998–6 I.R.B. 96
98–9, 1998–7 I.R.B. 35
98–10, 1998–7 I.R.B. 35
98–11, 1998–8 I.R.B. 42
98–12, 1998–8 I.R.B. 43
98–13, 1998–8 I.R.B. 43
98–14, 1998–8 I.R.B. 44
98–16, 1998–9 I.R.B. 17
98–17, 1998–9 I.R.B. 16
Notices:
98–1, 1998–3 I.R.B. 42
98–2, 1998–2 I.R.B. 22
98–3, 1998–3 I.R.B. 48
98–4, 1998–2 I.R.B. 25
98–5, 1998–3 I.B.R.49
98–6, 1998–3 I.R.B. 52
98–7, 1998–3 I.R.B. 54
98–8, 1998–4 I.R.B. 6
98–9, 1998–4 I.R.B. 8
98–10, 1998–6 I.R.B.9
98–11, 1998–6 I.R.B. 18
98–12, 1998–5 I.R.B.12
98–13, 1998–6 I.R.B.19
98–14, 1998–8 I.R.B. 27
98–15, 1998–9 I.R.B. 8
Proposed Regulations:
REG–100841–97, 1998–8 I.R.B. 30
REG–102894–97, 1998–3 I.R.B. 59
REG–105163–97, 1998–8 I.R.B. 31
REG–109333–97, 1998–9 I.R.B. 9
REG–109704–97, 1998–3 I.R.B. 60
REG–115795–97, 1998–8 I.R.B.33
REG–121755–97, 1998–9 I.R.B. 13
REG–209463–82, 1998–4 I.R.B. 27
REG–209476–82, 1998–8 I.R.B. 36
REG–209484–87, 1998–8 I.R.B.40
REG–209807–95, 1998–8 I.R.B. 40
REG–251502–96, 1998–9 I.R.B. 14
Revenue Procedures:
98–1, 1998–1 I.R.B. 7
98–2, 1998–1 I.R.B. 74
98–3, 1998–1 I.R.B. 100
98–4, 1998–1 I.R.B. 113
98–5, 1998–1 I.R.B. 155
98–6, 1998–1 I.R.B. 183
98–7, 1998–1 I.R.B. 222
98–8, 1998–1 I.R.B. 225
98–9, 1998–3 I.R.B. 56
98–10, 1998–2 I.R.B. 35
98–11, 1998–4 I.R.B.9
98–12, 1998–4 I.R.B. 18
98–13, 1998–4 I.R.B. 21
98–14, 1998–4 I.R.B. 22
98–15, 1998–4 I.R.B. 25
Revenue Procedures—Continued
98–16, 1998–5 I.R.B. 19
98–17, 1998–5 I.R.B. 21
98–18, 1998–6 I.R.B. 20
98–19, 1998–7 I.R.B. 30
98–20, 1998–7 I.R.B. 32
98–21, 1998–8 I.R.B. 27
Revenue Rulings:
98–1, 1998–2 I.R.B. 5
98–2, 1998–2 I.R.B. 15
98–3, 1998–2 I.R.B. 4
98–4, 1998–2 I.R.B. 18
98–5, 1998–2 I.R.B. 20
98–6, 1998–4 I.R.B. 4
98–7, 1998–6 I.R.B.6
98–8, 1998–7 I.R.B. 24
98–9, 1998–6 I.R.B. 5
Treasury Decisions:
8740, 1998–3 I.R.B. 4
8741, 1998–3 I.R.B. 6
8742, 1998–5 I.R.B.4
8743, 1998–7 I.R.B. 26
8744, 1998–7 I.R.B. 20
8745, 1998–7 I.R.B. 15
8746, 1998–7 I.R.B. 4
8747, 1998–7 I.R.B. 18
8748, 1998–8 I.R.B. 24
8749, 1998–7 I.R.B. 16
8750, 1998–8 I.R.B. 4
8752, 1998–9 I.R.B. 4
8753, 1998–9 I.R.B. 6

March 9, 1998501998–10 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–1 through 1998–9
Revenue Procedures:
95–35
95–35A
Superseded by
98–19, 1998–7 I.R.B. 30
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17
Supplemented and superseded by
98–5, 1998–2 I.R.B. 20
92–19
Supplemented in part by
98–2, 1998–2 I.R.B. 15
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–27 through 1997–52 will be found in Internal
Revenue Bulletin 1998–1, dated January 5, 1998.